VRSK-2015.3.31 10Q
Table of Contents


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________
FORM 10-Q
___________________________________
 
ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2015
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  ý    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  ý    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
 
ý
 
Accelerated filer
 
¨
 
 
 
 
 
 
 
Non-accelerated filer
 
o  (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  ý

As of April 24, 2015, 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
 
158,465,895
 

Table of Contents

Verisk Analytics, Inc.
Index to Form 10-Q
Table of Contents
 
 
Page Number
 
 
PART I — FINANCIAL INFORMATION
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 March 31, 2015 and December 31, 2014
 
2015
 
2014
 
(unaudited)
 
 
(In thousands, except for
share and per share data)
ASSETS
Current assets:
 
 
 
 
 
Cash and cash equivalents
$
152,847

 
$
39,359

Available-for-sale securities
 
3,855

 
 
3,801

Accounts receivable, net of allowance for doubtful accounts of $6,627 and $5,995,
respectively
 
226,637

 
 
220,668

Prepaid expenses
 
29,741

 
 
31,496

Deferred income taxes, net
 
4,770

 
 
4,772

Income taxes receivable
 
12,793

 
 
65,512

Other current assets
 
23,350

 
 
18,875

Total current assets
 
453,993

 
 
384,483

Noncurrent assets:
 
 
 
 
 
Fixed assets, net
 
303,829

 
 
302,273

Intangible assets, net
 
392,335

 
 
406,476

Goodwill
 
1,207,144

 
 
1,207,146

Pension assets
 
22,723

 
 
18,589

Other assets
 
24,475

 
 
26,363

Total assets
$
2,404,499

 
$
2,345,330

 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
 
Accounts payable and accrued liabilities
$
142,471

 
$
180,726

Short-term debt and current portion of long-term debt
 
205,878

 
 
336,058

Pension and postretirement benefits, current
 
1,894

 
 
1,894

Fees received in advance
 
359,527

 
 
252,592

Total current liabilities
 
709,770

 
 
771,270

Noncurrent liabilities:
 
 
 
 
 
Long-term debt
 
1,100,358

 
 
1,100,874

Pension benefits
 
13,721

 
 
13,805

Postretirement benefits
 
2,450

 
 
2,410

Deferred income taxes, net
 
203,383

 
 
202,540

Other liabilities
 
43,095

 
 
43,388

Total liabilities
 
2,072,777

 
 
2,134,287

Commitments and contingencies
 

 
 

Stockholders’ equity:
 
 
 
 
 
Class A common stock, $.001 par value; 1,200,000,000 shares authorized;
544,003,038 shares issued and 158,251,221 and 157,913,227 outstanding,
respectively
 
137

 
 
137

Unearned KSOP contributions
 
(135
)
 
 
(161
)
Additional paid-in capital
 
1,190,490

 
 
1,171,196

Treasury stock, at cost, 385,751,817 and 386,089,811 shares, respectively
 
(2,531,547
)
 
 
(2,533,764
)
Retained earnings
 
1,752,835

 
 
1,654,149

Accumulated other comprehensive losses
 
(80,058
)
 
 
(80,514
)
Total stockholders’ equity
 
331,722

 
 
211,043

Total liabilities and stockholders’ equity
$
2,404,499

 
$
2,345,330

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

1
Table of Contents

VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For The Three Months Ended March 31, 2015 and 2014
 
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands, except for share and per share data)
Revenues
$
459,397

 
$
409,643

Expenses:
 
 
 
 
 
Cost of revenues (exclusive of items shown separately below)
 
184,216

 
 
169,673

Selling, general and administrative
 
58,306

 
 
57,134

Depreciation and amortization of fixed assets
 
24,442

 
 
19,781

Amortization of intangible assets
 
14,141

 
 
14,212

Total expenses
 
281,105

 
 
260,800

Operating income
 
178,292

 
 
148,843

Other income (expense):
 
 
 
 
 
Investment income and others, net
 
(538
)
 
 
9

Interest expense
 
(18,262
)
 
 
(17,439
)
Total other expense, net
 
(18,800
)
 
 
(17,430
)
Income before income taxes
 
159,492

 
 
131,413

Provision for income taxes
 
(60,806
)
 
 
(46,972
)
Income from continuing operations

98,686

 

84,441

Income from discontinued operations, net of tax of $0 and $23,365, respectively
(Note 6)
 
—

 
 
31,117

Net income
$
98,686

 
$
115,558

Basic net income per share:
 
 
 
 
 
Income from continuing operations
$
0.62

 
$
0.50

Income from discontinued operations
 
—

 
 
0.19

Basic net income per share
$
0.62

 
$
0.69

Diluted net income per share:
 
 
 
 
 
Income from continuing operations
$
0.61

 
$
0.50

Income from discontinued operations
 
—

 
 
0.18

Diluted net income per share
$
0.61

 
$
0.68

Weighted average shares outstanding:
 
 
 
 
 
Basic
 
158,087,919

 
 
166,981,982

Diluted
 
161,481,213

 
 
170,421,489




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


2
Table of Contents

VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
For The Three Months Ended March 31, 2015 and 2014
 
 
Three Months Ended March 31,
 
2015
 
2014
 
(In thousands)
Net income
$
98,686

 
$
115,558

Other comprehensive income, net of tax:
 
 
 
 
 
Foreign currency translation adjustment
 
(220
)
 
 
507

Unrealized holding gain on available-for-sale securities
 
62

 
 
16

Pension and postretirement liability adjustment
 
614

 
 
143

Total other comprehensive income
 
456

 
 
666

Comprehensive income
$
99,142

 
$
116,224






















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

3
Table of Contents

VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
For The Year Ended December 31, 2014 and The Three Months Ended March 31, 2015
 
Class A
Common Stock
Issued
 
Par 
Value
 
Unearned
KSOP
Contributions
 
Additional
Paid-in
Capital
 
Treasury
Stock
 
Retained
Earnings
 
Accumulated
Other Comprehensive
Losses
 
Total
Stockholders’
Equity 
 
(In thousands, except for share data)
Balance, December 31, 2013
544,003,038

 
$
137

 
$
(306
)
 
$
1,202,106

 
$
(1,864,967
)
 
$
1,254,107

 
$
(43,488
)
 
$
547,589

Net income
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
400,042

 
 
—

 
 
400,042

Other comprehensive income
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
(37,026
)
 
 
(37,026
)
Treasury stock acquired (10,802,087 shares)
—

 
 
—

 
 
—

 
 
(100,000
)
 
 
(675,446
)
 
 
—

 
 
—

 
 
(775,446
)
KSOP shares earned
—

 
 
—

 
 
145

 
 
15,206

 
 
—

 
 
—

 
 
—

 
 
15,351

Stock options exercised, including tax benefit of
$15,438 (1,091,746 shares reissued from
treasury stock)
—

 
 
—

 
 
—

 
 
34,011

 
 
5,781

 
 
—

 
 
—

 
 
39,792

Restricted stock lapsed, including tax benefit of $550
(134,713 shares reissued from treasury stock)
—

 
 
—

 
 
—

 
 
(148
)
 
 
698

 
 
—

 
 
—

 
 
550

Employee stock purchase plan (26,953 shares
reissued from treasury stock)
—

 
 
—

 
 
—

 
 
1,414

 
 
149

 
 
—

 
 
—

 
 
1,563

Stock based compensation
—

 
 
—

 
 
—

 
 
20,011

 
 
—

 
 
—

 
 
—

 
 
20,011

Net share settlement from restricted stock awards
(27,159 shares withheld for tax settlement)
—

 
 
—

 
 
—

 
 
(1,625
)
 
 
—

 
 
—

 
 
—

 
 
(1,625
)
Other stock issuances (3,975 shares reissued from
treasury stock)
—

 
 
—

 
 
—

 
 
221

 
 
21

 
 
—

 
 
—

 
 
242

Balance, December 31, 2014
544,003,038

 
 
137

 
 
(161
)
 
 
1,171,196

 
 
(2,533,764
)
 
 
1,654,149

 
 
(80,514
)
 
 
211,043

Net income
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
98,686

 
 
—

 
 
98,686

Other comprehensive income
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
—

 
 
456

 
 
456

KSOP shares earned
—

 
 
—

 
 
26

 
 
3,795

 
 
—

 
 
—

 
 
—

 
 
3,821

Stock options exercised, including tax benefit of
$4,421 (332,541 shares reissued from treasury
stock)
—

 
 
—

 
 
—

 
 
10,941

 
 
2,181

 
 
—

 
 
—

 
 
13,122

Employee stock purchase plan (5,453 shares reissued
from treasury stock)
—

 
 
—

 
 
—

 
 
334

 
 
36

 
 
—

 
 
—

 
 
370

Stock based compensation
—

 
 
—

 
 
—

 
 
4,224

 
 
—

 
 
—

 
 
—

 
 
4,224

Balance, March 31, 2015
544,003,038

 
$
137

 
$
(135
)
 
$
1,190,490

 
$
(2,531,547
)
 
$
1,752,835

 
$
(80,058
)
 
$
331,722

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

4
Table of Contents

VERISK ANALYTICS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For The Three Months Ended March 31, 2015 and 2014
 
2015
 
2014
 
(In thousands)
Cash flows from operating activities:
 
 
 
 
 
Net income
$
98,686

 
$
115,558

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
 
 
Depreciation and amortization of fixed assets
 
24,442

 
 
20,776

Amortization of intangible assets
 
14,141

 
 
14,323

Amortization of debt issuance costs and original issue discount
 
1,195

 
 
661

Allowance for doubtful accounts
 
125

 
 
(227
)
KSOP compensation expense
 
3,821

 
 
3,901

Stock based compensation
 
4,224

 
 
4,983

Gain on sale of discontinued operations
 
—

 
 
(65,410
)
Realized loss on available-for-sale securities, net
 
6

 
 
11

Deferred income taxes
 
506

 
 
(3,640
)
Loss on disposal of fixed assets
 
15

 
 
683

Changes in assets and liabilities, net of effects from acquisitions:
 
 
 
 
 
Accounts receivable
 
(6,094
)
 
 
(7,078
)
Prepaid expenses and other assets
 
2,861

 
 
(2,632
)
Income taxes
 
56,951

 
 
71,276

Accounts payable and accrued liabilities
 
(33,169
)
 
 
(32,886
)
Fees received in advance
 
106,935

 
 
116,318

Pension and postretirement benefits
 
(3,264
)
 
 
(3,509
)
Other liabilities
 
(391
)
 
 
(280
)
Net cash provided by operating activities
 
270,990

 
 
232,828

Cash flows from investing activities:
 
 
 
 
 
Acquisitions, net of cash acquired of $232 and $0, respectively
 
(405
)
 
 
(4,001
)
Purchase of non-controlling interest in non-public companies
 
(101
)
 
 
(5,000
)
Proceeds from sale of discontinued operations
 
—

 
 
155,000

Capital expenditures
 
(24,760
)
 
 
(36,144
)
Purchases of available-for-sale securities
 
(8
)
 
 
(6
)
Proceeds from sales and maturities of available-for-sale securities
 
49

 
 
16

Net cash (used in) provided by investing activities
 
(25,225
)
 
 
109,865

Cash flows from financing activities:
 
 
 
 
 
Repayment of short-term debt, net
 
(130,000
)
 
 
—

Payment of debt issuance costs
 
(9,100
)
 
 
—

Repurchases of Class A common stock
 
—

 
 
(88,161
)
Proceeds from stock options exercised
 
8,336

 
 
7,804

Other financing activities, net
 
(1,293
)
 
 
(1,268
)
Net cash used in financing activities
 
(132,057
)
 
 
(81,625
)
Effect of exchange rate changes
 
(220
)
 
 
507

Increase in cash and cash equivalents
 
113,488

 
 
261,575

Cash and cash equivalents, beginning of period
 
39,359

 
 
165,801

Cash and cash equivalents, end of period
$
152,847

 
$
427,376

Supplemental disclosures:
 
 
 
 
 
Taxes paid
$
3,258

 
$
2,592

Interest paid
$
17,328

 
$
16,957

Noncash investing and financing activities:
 
 
 
 
 
Repurchases of Class A common stock included in accounts payable and accrued
liabilities
$
—

 
$
3,605

Tenant improvement included in other liabilities
$
—

 
$
8,799

Capital lease obligations
$
416

 
$
510

Capital expenditures included in accounts payable and accrued liabilities
$
856

 
$
622


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

5
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 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”) upon completion of the initial public offering ("IPO"), which occurred on October 9, 2009. 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. For 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 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, assets and liabilities for pension and postretirement benefits, and the estimate for the allowance for doubtful accounts. Actual results may ultimately differ from those estimates. The results of operations for the Company's mortgage services business are reported as a discontinued operation for the period presented herein (See Note 6).
The condensed consolidated financial statements as of March 31, 2015 and for the three months ended March 31, 2015 and 2014, in the opinion of management, include all adjustments, consisting of normal recurring items, to present fairly the Company’s financial position, results of operations and cash flows. The operating results for the three months ended March 31, 2015 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 months ended March 31, 2015 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, 2014. 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 April 2015, the Financial Accounting Standard Board ("FASB") issued Accounting Standards Update ("ASU") 2015-03, Simplifying the Presentation of Debt Issuance Costs ("ASU No. 2015-03"). The amendments in this update require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU No. 2015-03 is effective for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption is permitted. The Company has elected not to early adopt. The adoption of ASU 2015-03 is not expected to have a material impact on the Company's condensed consolidated financial statements.

In April 2015, the FASB issued ASU 2015-05, Customer's Accounting for Fees Paid in a Cloud Computing Arrangement ("ASU No. 2015-05"). This guidance is intended to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement, primarily to determine whether the arrangement includes a sale or license of software. ASU No. 2015-05 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2015. Early adoption is permitted. The Company has elected not to early adopt. The adoption of ASU 2015-05 is not expected to have a material impact on the Company's condensed consolidated financial statements.

6
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3. Investments:
Available-for-sale securities consisted of the following: 
 
Adjusted
Cost
 
Gross
Unrealized
Loss
 
Fair Value
March 31, 2015
 
 
 
 
 
 
 
 
Registered investment companies
$
3,999

 
$
(144
)
 
$
3,855

December 31, 2014
 
 
 
 
 
 
 
 
Registered investment companies
$
4,045

 
$
(244
)
 
$
3,801

In addition to the available-for-sale securities above, the Company has equity investments in non-public companies in which the Company acquired non-controlling interests and for which no readily determinable market value exists. These securities were accounted for under the cost method in accordance with ASC 323-10-25, The Equity Method of Accounting for Investments in Common Stock. At March 31, 2015 and December 31, 2014, the carrying value of such securities was $8,588 and $8,487, respectively, and has been included in “Other assets” in the accompanying condensed consolidated balance sheets.
4. Fair Value Measurements:
Certain assets and liabilities of the Company are reported at fair value in the accompanying condensed consolidated balance sheets. 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 participants would require.
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, fees received in advance, and short-term debt approximate their carrying amounts because of the short-term nature of these instruments.
The following table summarizes fair value measurements by level for cash equivalents and registered investment companies that were measured at fair value on a recurring basis:
 
Total
 
Quoted Prices
in Active Markets
for Identical
Assets (Level 1)
 
Significant Other
Observable
Inputs (Level 2)
March 31, 2015
 
 
 
 
 
 
 
 
Cash equivalents - money-market funds
$
813

 
$
—

 
$
813

Registered investment companies (1)
$
3,855

 
$
3,855

 
$
—

December 31, 2014
 
 
 
 
 
 
 
 
Cash equivalents - money-market funds
$
3,707

 
$
—

 
$
3,707

Registered investment companies (1)
$
3,801

 
$
3,801

 
$
—

______________________
(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.

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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 March 31, 2015 and December 31, 2014, respectively: 
 
2015
 
2014
 
Carrying
Value
 
Estimated
Fair Value
 
Carrying
Value
 
Estimated
Fair Value
Financial instrument not carried at fair value:
 
 
 
 
 
 
 
 
 
 
 
Long-term debt excluding capitalized
leases
$
1,266,029

 
$
1,377,937

 
$
1,265,848

 
$
1,371,213

5. Acquisitions:
2015 Pending Acquisition
In March 2015, the Company entered into an agreement to acquire 100 percent of the stock of Wood Mackenzie Limited (“Wood Mackenzie”) for a net cash purchase price of approximately $2,800,000, which the Company expects to finance through a combination of debt offering, equity offering, borrowings under the Company's credit facility, and cash on hand. Wood Mackenzie is a global provider of data analytics and commercial intelligence for the energy, chemicals, metals and mining verticals. This acquisition is expected to advance the Company’s strategy to expand internationally and position the Company in the global energy market. The purchase price to be paid will be adjusted prior to closing to reflect certain pre-closing contractual adjustments.  Once the acquisition is completed, the Company will include Wood Mackenzie in the specialized markets vertical of the Decision Analytics segment.
6. Discontinued Operations:

On March 11, 2014, the Company sold 100 percent of the stock of the Company’s mortgage services business, Interthinx, which was a guarantor subsidiary, in exchange for a purchase price of $151,170 after a working capital adjustment of $3,830. Upon completion of the sale, Interthinx ceased being a guarantor. The Company recognized income from discontinued operations, net of tax, of $29,177 in 2014 upon the finalization of the provision for income taxes. Results of operations for the mortgage services business are reported as a discontinued operation for the three months ended March 31, 2014.

The mortgage services business met the criteria for reporting as a discontinued operation and has been segregated from continuing operations. The following table summarizes the results from the discontinued operation for the three months ended March 31, 2014:
 
2014
Revenues from discontinued operations
$
11,512

Income from discontinued operations before income taxes (including gain on sale of $65,410)
$
54,482

Provision for income taxes (including tax on gain on sale of $27,067)
 
(23,365
)
Income from discontinued operations, net of tax
$
31,117

 
 
 

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7. Goodwill and Intangible Assets:
The following is a summary of the change in goodwill from December 31, 2014 through March 31, 2015, both in total and as allocated to the Company’s operating segments:
 
Risk
Assessment
 
Decision
Analytics
 
Total
Goodwill at December 31, 2014 (1)
$
55,555

 
$
1,151,591

 
$
1,207,146

Purchase accounting reclassification
 
—

 
 
(2
)
 
 
(2
)
Goodwill at March 31, 2015 (1)
$
55,555

 
$
1,151,589

 
$
1,207,144

______________________
(1)
These balances are net of accumulated impairment charges of $3,244 that occurred prior to December 31, 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, 2014, which resulted in no impairment of goodwill. There were no goodwill impairment indicators after the date of the last annual impairment test.

The Company’s intangible assets and related accumulated amortization consisted of the following: 
 
Weighted
Average
Useful Life
 
Cost
 
Accumulated
Amortization
 
Net
March 31, 2015
 
 
 
 
 
 
 
 
 
 
Technology-based
8 years
 
$
299,705

 
$
(199,537
)
 
$
100,168

Marketing-related
5 years
 
 
71,504

 
 
(57,006
)
 
 
14,498

Contract-based
6 years
 
 
6,555

 
 
(6,555
)
 
 
—

Customer-related
13 years
 
 
399,011

 
 
(121,342
)
 
 
277,669

Total intangible assets
 
 
$
776,775

 
$
(384,440
)
 
$
392,335

December 31, 2014
 
 
 
 
 
 
 
 
 
 
Technology-based
8 years
 
$
299,705

 
$
(195,698
)
 
$
104,007

Marketing-related
5 years
 
 
71,504

 
 
(54,745
)
 
 
16,759

Contract-based
6 years
 
 
6,555

 
 
(6,555
)
 
 
—

Customer-related
13 years
 
 
399,011

 
 
(113,301
)
 
 
285,710

Total intangible assets
 
 
$
776,775

 
$
(370,299
)
 
$
406,476

Amortization expense related to intangible assets for the three months ended March 31, 2015 and 2014 was $14,141 and $14,212, respectively. Estimated amortization expense for the remainder of 2015 and the years through 2020 and thereafter for intangible assets subject to amortization is as follows:
Year
Amount
2015
$
38,127

2016
 
50,436

2017
 
49,532

2018
 
48,786

2019
 
47,326

2020 and thereafter
 
158,128

 
$
392,335


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Table of Contents

8. Income Taxes:
The Company’s effective tax rate for the three months ended March 31, 2015 was 38.12% compared to the effective tax rate for the three months ended March 31, 2014 of 35.74%. The effective tax rate for the three months ended March 31, 2015 is higher than the March 31, 2014 effective tax rate primarily due to favorable state legislative changes recognized in the prior period. 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”).
9. Debt:
The following table presents short-term and long-term debt by issuance as of March 31, 2015 and December 31, 2014: 
 
Issuance
Date
 
Maturity
Date
 
2015
 
2014
Short-term debt and current portion of long-term debt:
 
 
 
 
 
 
 
 
 
Syndicated revolving credit facility
Various
 
Various
 
$
30,000

 
$
160,000

Prudential shelf notes:
 
 
 
 
 
 
 
 
 
5.84% Series H shelf notes
10/26/2007
 
10/26/2015
 
 
17,500

 
 
17,500

6.28% Series I shelf notes
4/29/2008
 
4/29/2015
 
 
85,000

 
 
85,000

New York Life shelf notes:
 
 
 
 
 
 
 
 
 
5.87% Series A shelf notes
10/26/2007
 
10/26/2015
 
 
17,500

 
 
17,500

6.35% Series B shelf notes
4/29/2008
 
4/29/2015
 
 
50,000

 
 
50,000

Capital lease obligations
Various
 
Various
 
 
5,878

 
 
6,058

Short-term debt and current portion of long-term
debt
 
 
 
 
 
205,878

 
 
336,058

Long-term debt:
 
 
 
 
 
 
 
 
 
Senior notes:
 
 
 
 
 
 
 
 
 
4.125% senior notes, less unamortized discount
of $2,067 and $2,137, respectively
9/12/2012
 
9/12/2022
 
 
347,933

 
 
347,863

4.875% senior notes, less unamortized discount
of $1,276 and $1,361, respectively
12/8/2011
 
1/15/2019
 
 
248,724

 
 
248,639

5.800% senior notes, less unamortized discount
of $628 and $654, respectively
4/6/2011

5/1/2021
 
 
449,372

 
 
449,346

Prudential shelf notes:
 
 
 
 
 

 
 
 
6.85% Series J shelf notes
6/15/2009
 
6/15/2016
 
 
50,000

 
 
50,000

Capital lease obligations
Various
 
Various
 
 
4,329

 
 
5,026

Long-term debt
 
 
 
 
 
1,100,358

 
 
1,100,874

Total debt
 
 
 
 
$
1,306,236

 
$
1,436,932

The Company had a $990,000 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. The Credit Facility may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions and the share repurchase program (the “Repurchase Program”). On March 27, 2015, the Company amended the Credit Facility (the "Credit Facility Amendment") to modify certain provisions, representations and warranties. As part of the Credit Facility Amendment, the Company can elect to have a temporary increase in the consolidated funded debt leverage ratio from 3.5 to 1.0 up to 4.5 to 1.0 based on the timing of the close of the Wood Mackenzie acquisition. All borrowings under the Credit Facility shall continue to remain unsecured. The Credit Facility Amendment was filed as an exhibit to the Current Report on Form 8-K filed on March 27, 2015. As of March 31, 2015 and December 31, 2014, the Company had borrowings of $30,000 and $160,000, respectively, outstanding under the Credit Facility. On April 7, 2015, the Company repaid $30,000 of outstanding borrowings under the Credit Facility.

The Company was in compliance with all financial covenants at March 31, 2015.

On April 22, 2015, the Company signed an agreement to enter into a $1,750,000 committed senior unsecured Syndicated Revolving Credit Facility (the "new Credit Facility") with Bank of America N.A., JPMorgan Chase, N.A., SunTrust Bank, Wells Fargo Bank N.A., Citizens Bank, N.A., Morgan Stanley Senior Funding, Inc., HSBC Bank USA, N.A., Royal Bank of Canada, BNP Paribas, TD Bank, N.A., The Northern Trust Company, and Capital One N.A. The new Credit Facility will become effective

10
Table of Contents

upon the satisfaction of various conditions, including the issuance of a minimum amount of equity by a certain date, and is intended to partially fund the purchase of Wood Mackenzie. The new Credit Facility may also be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions and the Repurchase Program. The new Credit Facility will replace the existing $990,000 Credit Facility when it becomes effective. 

On March 10, 2015, the Company entered into a commitment letter for a $2,300,000 364-day bridge financing arrangement with Bank of America N.A. and Morgan Stanley Bank N.A. in connection with the Company's agreement to acquire Wood Mackenzie, with the capacity to draw upon the Credit Facility to fund the remainder of the purchase price, as necessary. This financing arrangement will only be utilized in the event the Company does not carry out the debt and equity offerings (See Note 5) and will be terminated upon closing of the acquisition. The Company paid fees associated with this financing arrangement of $9,100. These fees were recorded as debt issuance costs in "Other current assets" in the accompanying condensed consolidated balance sheets and is being amortized to "Interest expense" in the accompanying condensed consolidated statements of operations over the life of the arrangement.
The Company plans to repay $85,000 and $50,000 of private placement debt with Prudential and New York Life, respectively, that is due on April 29, 2015 with $55,000 from cash from operations and $80,000 from borrowings under the Credit Facility.
10. 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.
The Company has 80,000,000 shares of authorized preferred stock, par value $0.001 per share. The preferred shares have preferential rights over the Class A common shares with respect to dividends and net distribution upon liquidation. The Company did not issue any preferred shares as of March 31, 2015.

Share Repurchase Program

The Company has authorized repurchases of up to $2,000,000 of its common stock through its Repurchase Program. Since the introduction of share repurchase as a feature of the Company's capital management strategies in 2010, the Company has repurchased shares with an aggregate value of $1,810,193. The Company did not repurchase any shares during the three months ended March 31, 2015. As of March 31, 2015, the Company had $189,807, excluding the Accelerated Share Repurchase ( the "ASR") program, 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. Shares that are repurchased under the Repurchase Program will be recorded as treasury stock and will be available for future issuance.
In December 2014, the Company entered into two agreements, collectively the ASR agreement, to repurchase shares of its common stock for an aggregate purchase price of $500,000. Upon payment of the aggregate purchase price in December 2014, the Company received an initial delivery of 6,372,472 shares of the Company's common stock. Upon final settlement of the ASR agreement in June 2015, the Company may be entitled to receive additional shares of its common stock or, under certain limited circumstances, be required to deliver shares to the counterparties or, at the Company's election, pay cash to the counterparties. As of March 31, 2015, the shares associated with the remaining portion of the aggregate purchase price have not yet been settled. These shares were not included in the calculation of the diluted weighted average common shares outstanding during the period, because their effect was anti-dilutive.

Treasury Stock

As of March 31, 2015, the Company’s treasury stock consisted of 385,751,817 shares of Class A common stock. During the three months ended March 31, 2015, the Company reissued 337,994 shares of Class A common stock from the treasury shares at a weighted average price of $6.56 per share.


11
Table of Contents

Earnings Per Share (“EPS”)

Basic EPS is computed by dividing income from continuing operations, income from discontinued operations and net income, respectively, 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, nonvested restricted stock, and nonvested restricted stock units, had been issued.
The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three months ended March 31, 2015 and 2014:
 
Three Months Ended March 31,
 
2015
 
2014
Numerator used in basic and diluted EPS:
 
 
 
 
 
Income from continuing operations
$
98,686

 
$
84,441

Income from discontinued operations, net of tax of $0 and $23,365, respectively
(Note 6)
 
—

 
 
31,117

Net income
$
98,686

 
$
115,558

Denominator:
 
 
 
 
 
Weighted average number of common
shares used in basic EPS
 
158,087,919

 
 
166,981,982

Effect of dilutive shares:
 
 
 
 
 
Potential common shares issuable from stock options and stock awards
 
3,393,294

 
 
3,439,507

Weighted average number of common shares and dilutive potential common
shares used in diluted EPS
 
161,481,213

 
 
170,421,489

The potential shares of common stock that were excluded from diluted EPS were 1,604 and 761,848 for the three months ended March 31, 2015 and 2014, 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 March 31, 2015 and December 31, 2014:
 
2015

2014
Foreign currency translation adjustment
$
(3,306
)
 
$
(3,086
)
Unrealized holding losses on available-for-sale securities, net of tax
 
(48
)
 
 
(110
)
Pension and postretirement adjustment, net of tax
 
(76,704
)
 
 
(77,318
)
Accumulated other comprehensive losses
$
(80,058
)
 
$
(80,514
)

12
Table of Contents

The before tax and after tax amounts of other comprehensive income for the three months ended March 31, 2015 and 2014 are summarized below:

Before Tax

Tax Benefit 
(Expense)

After Tax
For the Three Months Ended March 31, 2015








Foreign currency translation adjustment
$
(220
)

$
—


$
(220
)
Unrealized holding gain on available-for-sale securities before
reclassifications

105



(40
)


65

Amount reclassified from accumulated other comprehensive
losses (1)

(5
)


2



(3
)
Unrealized holding gain on available-for-sale securities

100



(38
)


62

Pension and postretirement adjustment before reclassifications

1,828



(651
)


1,177

Amortization of net actuarial loss and prior service benefit
reclassified from accumulated other comprehensive losses (2)

(914
)


351



(563
)
Pension and postretirement adjustment

914



(300
)


614

Total other comprehensive income
$
794


$
(338
)

$
456

For the Three Months Ended March 31, 2014








Foreign currency translation adjustment
$
507


$
—


$
507

Unrealized holding gain on available-for-sale securities before
reclassifications

39



(16
)


23

Amount reclassified from accumulated other comprehensive
losses (1)

(11
)


4



(7
)
Unrealized holding gain on available-for-sale securities

28



(12
)


16

Pension and postretirement adjustment before reclassifications

584



(261
)


323

Amortization of net actuarial loss and prior service benefit
reclassified from accumulated other comprehensive losses (2)

(292
)


112



(180
)
Pension and postretirement adjustment

292



(149
)


143

Total other comprehensive income
$
827


$
(161
)

$
666










____________________
(1)
This accumulated other comprehensive loss component, before tax, is included under “Investment income and others” 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 12 Pension and Postretirement Benefits for additional details).
11. Equity Compensation Plans:
All of the Company’s outstanding stock options and restricted stock are covered under the 2013 Incentive Plan, 2009 Incentive Plan or the 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, (vi) other share based awards, and (vii) cash. 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. As of March 31, 2015, there were 12,809,778 shares of common stock reserved and available for future issuance under the 2013 Incentive Plan. Cash received from stock option exercises for the three months ended March 31, 2015 and 2014 was $8,336 and $7,804, respectively.
On April 1, 2015, the Company granted 1,177,579 nonqualified stock options and 211,826 shares of restricted stock to key employees. 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 fair value of the restricted stock is determined using 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 transferable until it becomes vested.

13
Table of Contents

The expected term for the stock options granted was estimated based on studies of historical experience and projected exercise behavior. 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 is calculated using historical daily closing prices over the most recent period that is commensurate with the expected term of the stock option award. The volatility factor for stock options granted in 2015 was based on the volatility of the Company's stock. 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 and exercisable as of December 31, 2014 and March 31, 2015 and changes during the interim period are presented below:
 
Number
of Options
 
Weighted
Average
Exercise Price
 
Aggregate
Intrinsic
Value
Outstanding at December 31, 2014
9,205,690

 
$
31.11

 
$
303,267

Exercised
(332,541
)
 
$
26.16

 
$
13,697

Cancelled or expired
(24,723
)
 
$
56.06

 
 


Outstanding at March 31, 2015
8,848,426

 
$
31.22

 
$
355,507

Exercisable at March 31, 2015
6,829,041

 
$
23.90

 
$
324,359

Exercisable at December 31, 2014
7,159,895

 
$
24.00

 
$
286,728

Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of Verisk common stock as of the reporting date. In accordance with ASC 718, Stock Compensation ("ASC 718"), excess tax benefit from exercised stock options and restricted stock lapsed 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 and restricted stock lapsed 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 three months ended March 31, 2015 and 2014, the Company recorded excess tax benefits of $4,421 and $7,006, respectively. The Company did not realize any tax benefit within the Company’s quarterly tax payments through March 31, 2015 and 2014, 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 under the 2013 Incentive Plan as of December 31, 2014 and March 31, 2015 and changes during the interim period are presented below: 
 
Number
of Shares
 
Weighted Average Grant
Date Fair Value Per Share
Outstanding at December 31, 2014
442,310

 
$
56.84

Forfeited
(5,367
)
 
$
56.65

Outstanding at March 31, 2015
436,943

 
$
56.79

As of March 31, 2015, there was $35,447 of total unrecognized compensation costs, exclusive of the impact of vesting upon retirement eligibility, related to nonvested share-based compensation arrangements granted under the 2009 and 2013 Incentive Plans. That cost is expected to be recognized over a weighted average period of 2.37 years. As of March 31, 2015, there were 2,019,385 and 436,943 nonvested stock options and restricted stock, respectively, of which 1,634,765 and 362,858 are expected to vest. The total grant date fair value of options vested during the three months ended March 31, 2015 and 2014 was $3,005 and $3,415, respectively. The total grant date fair value of restricted stock vested during the three months ended March 31, 2015 and 2014 was $2,502 and $2,167, respectively.
The Company’s employee stock purchase plan (“ESPP”) offers eligible employees the opportunity to authorize payroll deductions of up to 20.0% of their regular base salary and up to 50.0% 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 5.0% 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 5.0% 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 three months ended March 31, 2015, the Company issued 5,453 shares of common stock at a weighted discounted price of $67.83.

14
Table of Contents

12. Pension and Postretirement Benefits:
The Company maintained a frozen 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 the interest earned on the previous year-end cash balance. The Company also has a frozen non-qualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from the general assets of the Company.
The Company also provides certain healthcare and life insurance benefits to certain qualifying active and retired employees. The Postretirement Health and Life Insurance Plan (the “Postretirement Plan”), which has been frozen, is contributory, requiring participants to pay a stated percentage of the premium for coverage. The components of net periodic (benefit) cost for the three months ended March 31, are summarized below: 
 
Pension Plan and SERP
 
Postretirement Plan
 
2015

2014
 
2015

2014
For the Three Months Ended March 31,
 


 
 
 
 
 
 
 
 
 
Interest cost
$
4,557

 
$
4,813

 
$
134

 
$
163

Expected return on plan assets
 
(8,559
)
 
 
(8,513
)
 
 
(143
)
 
 
(200
)
Amortization of prior service credit
 
—

 
 
—

 
 
(37
)
 
 
(36
)
Amortization of net actuarial loss
 
795

 
 
152

 
 
156

 
 
176

Net periodic (benefit) cost
$
(3,207
)
 
$
(3,548
)
 
$
110

 
$
103

Employer contributions, net
$
217

 
$
195

 
$
(48
)
 
$
—

The expected contributions to the Pension Plan, SERP and Postretirement Plan for the year ending December 31, 2015 are consistent with the amounts previously disclosed as of December 31, 2014.
13. 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 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 President and Chief Executive Officer is identified as the CODM as defined by ASC 280-10. Consistent 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 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 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 claims to find emerging patterns of fraud, and identification of suspicious claims in the insurance and healthcare sectors. The Company discloses revenue within this segment based on the industry vertical groupings of insurance, financial services, healthcare and specialized markets.
On March 11, 2014, the Company sold its mortgage services business, Interthinx, which was part of the Decision Analytics segment. Results of operations for the mortgage services business are reported as a discontinued operation for the three months ended March 31, 2014. Refer to Note 6 for more information.
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.

15
Table of Contents

The two aforementioned operating segments represent the segments for which separate discrete financial information is available and upon which operating results are regularly evaluated by the CODM in order to assess performance and allocate resources. The Company uses 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 2.0% or more of the Company’s consolidated revenues for the three months ended March 31, 2015 or 2014. No individual country outside of the U.S. accounted for 3.0% or more of total consolidated long-term assets as of March 31, 2015 or December 31, 2014.
The following table provides the Company’s revenue and EBITDA by reportable segment for the three months ended March 31, 2015 and 2014, and the reconciliation of EBITDA to operating income as shown in the accompanying condensed consolidated statements of operations:
 
 
For the Three Months Ended

For the Three Months Ended

March 31, 2015

March 31, 2014
 
Decision
Analytics

Risk
Assessment

Total

Decision
Analytics

Risk
Assessment

Total
Revenues
$
288,455


$
170,942


$
459,397


$
247,330


$
162,313


$
409,643

Expenses:

















Cost of revenues (exclusive of items
shown separately below)

(133,244
)


(50,972
)


(184,216
)


(119,759
)


(49,914
)


(169,673
)
Selling, general and administrative

(39,237
)


(19,069
)


(58,306
)


(38,051
)


(19,083
)


(57,134
)
Investment income and others, net

(605
)


67



(538
)


—



9



9

EBITDA from discontinued
operations

—



—



—



55,588



—



55,588

EBITDA

115,369



100,968



216,337



145,108



93,325



238,433

Depreciation and amortization of
fixed assets

(18,480
)


(5,962
)


(24,442
)


(16,031
)


(3,750
)


(19,781
)
Amortization of intangible assets

(14,053
)


(88
)


(14,141
)


(14,124
)


(88
)


(14,212
)
Less: Investment income and others,
net

605



(67
)


538



—



(9
)


(9
)
EBITDA from discontinued
operations

—



—



—



(55,588
)


—



(55,588
)
Operating income
$
83,441


$
94,851


$
178,292


$
59,365


$
89,478


$
148,843


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Operating segment revenue by type of service is provided below:
 
 
For the Three Months Ended March 31,
 
2015
 
2014
Decision Analytics:
 
 
 
 
 
Insurance
$
153,733

 
$
141,430

Financial services
 
35,170

 
 
21,016

Healthcare
 
75,104

 
 
63,896

Specialized markets
 
24,448

 
 
20,988

Total Decision Analytics
 
288,455

 
 
247,330

Risk Assessment:
 
 
 
 
 
Industry-standard insurance programs
 
130,596

 
 
123,817

Property-specific rating and underwriting information
 
40,346

 
 
38,496

Total Risk Assessment
 
170,942

 
 
162,313

Total revenues
$
459,397

 
$
409,643

14. Related Parties:
The Company considers its Class A stockholders that own more than 5.0% of the outstanding common stock to be related parties as defined within ASC 850, Related Party Disclosures. As of March 31, 2015 and December 31, 2014, the Company had no transactions with related parties owning more than 5.0% of its common stock, except for transactions with the KSOP as disclosed in Note 16 Compensation Plans of the Company's consolidated financial statements included in the 2014 Form 10-K filing.
15. 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 they may have on the Company’s results of operations, financial position or cash flows. This is primarily because the matters are generally 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.
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 Jeffrey Moyer. The plaintiff is a current employee of the Company’s former 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.
On July 2, 2013, the Company was served with a putative class action titled Shabnam 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 former 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 any time (i) within 3 years prior to the filing of this action until trial for the Fair Labor Standards Act (FLSA) class and (ii) within four 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;

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(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.
On October 14, 2013, the Company received notice of a claim titled Dejan Nagl v. Interthinx Services, Inc. filed in the California Labor and Workforce Development Agency. The claimant, Dejan Nagl, a former mortgage auditor at the Company’s former subsidiary Interthinx, Inc. in California, filed the claim on behalf of himself and all current and former individuals employed in California as auditors by Interthinx, Inc. for violations of the California Labor Code and Wage Order. The claimant alleges on behalf of himself and other auditors the following causes of action: (1) Failure to provide rest breaks and meal periods in violation of Cal. Lab. Code sections 226.7, 514 and 1198; (2) Failure to pay overtime wages in violation of Cal. Lab. Code sections 510 and 1194; (3) Failure to provide accurate wage statements in violation of Cal. Lab. Code section 226; (4) Failure to timely pay wages in violation of Cal. Lab. Code section 204; and (5) Failures to timely pay wages for violations of Cal. Lab. Code sections 201- 203. The claim seeks compensatory damages and penalties that are associated with the various statutes, costs and attorneys’ fees.
On March 11, 2014, the Company sold 100 percent of the stock of Interthinx (see Note 6 Discontinued Operations for additional details). Pursuant to the terms of the sale agreement, the Company is responsible for the resolution of these matters. In October 2014, the parties agreed to a Joint Stipulation of Settlement and Release resolving the Shaw, Dehdashtian and Nagl matters which provides for a payment of $6,000, the majority of which is to be paid by insurance. The United States District Court for the District of Colorado granted Preliminary Approval of the Joint Stipulation of Settlement and Release on November 21, 2014 and issued its Order granting Final Approval of the Settlement on April 22, 2015.
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, which was amended by the plaintiff on October 18, 2013 (the “Amended Complaint”). 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) engaged AIR Worldwide Corporation as Calculation Agent to compute certain reinsured losses. The Amended Complaint alleges the following causes of action: (1) breach of contract against ISO Services, Inc, AIR Worldwide Corporation, and American Family; (2) unjust enrichment against American Family; (3) conversion against American Family; (4) tortious interference with contract against American Family; (5) declaratory judgment against all defendants and (6) specific performance against all defendants. The Amended Complaint seeks declaratory relief, specific performance, restitution, monetary damages and attorneys’ fees. On November 20, 2013, the three defendants filed motions to dismiss the Amended Complaint. On September 30, 2014, the District Court granted defendants’ motions and dismissed the Amended Complaint in its entirety, with prejudice. Mariah filed a Notice of Appeal on October 28, 2014. Briefing of the appeal was completed on February 13, 2015 and oral argument is scheduled for May 14, 2015.
At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to, this matter.
MediConnect Global, Inc. Litigation
On October 11, 2013, the Company was served with a summons and complaint in an action titled Naveen Trehan v. MediConnect Global, Inc., Amy Anderson and Verisk Health, Inc. filed on October 9, 2013 in the United States District Court for the District of Utah. The complaint, brought by a former minority shareholder of the Company’s subsidiary, MediConnect Global, Inc., arises from MediConnect’s buyout of Naveen Trehan and his family members’ shares on October 15, 2010. Plaintiff claims that the sale of the shares was based on MediConnect’s representations concerning third parties that had expressed interest in an acquisition, merger or investment in MediConnect at that time. Plaintiff claims that MediConnect did not disclose the Company, which purchased MediConnect on March 23, 2012, as a possible suitor. The complaint alleges four causes of action: (1) Breach of fiduciary duty against MediConnect and Amy Anderson for failure to disclose the Company's interest in acquiring, merging with or investing in MediConnect prior to the buyout of his shares; (2) Fraud against  Amy Anderson and MediConnect for intentionally providing false information to plaintiff with the purpose of inducing him to agree to sell his shares at an artificially low price; (3) Negligent misrepresentation against Amy Anderson and MediConnect for their negligent failure to discover and disclose the Company's interest in acquiring MediConnect prior to the buyout of plaintiff’s shares and (4) a Violation of SEC Rule 10b-5 against Amy Anderson and MediConnect for defrauding plaintiff and failing to disclose material information in connection

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with the sale of securities.  The complaint seeks joint and several recoveries from Amy Anderson and MediConnect for compensatory damages, punitive damages, and disgorgement of all profits earned through the investment of plaintiff’s funds, attorneys’ fees, interest and an order from the court that plaintiff’s funds be held in a constructive trust.
At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to this matter.
Insurance Services Office, Inc. Litigation
In October 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 Laurence J. Skelly and Ellen Burke v. Insurance Services Office, Inc. and the Pension Plan for Insurance Organizations. The plaintiffs, former employees of the Company's subsidiary Insurance Services Office, Inc. ("ISO"), bring the action on their own behalf as participants in the Pension Plan for Insurance Organizations and on the behalf of similarly situated participants of the pension plan and ask the court to declare that a certain amendment to the pension plan as of December 31, 2001, which terminated their right to calculate and define the value of their retirement benefit under the pension plan based on their compensation levels as of immediately prior to their “retirement” (the “Unlawful Amendment”), violated the anti-cutback provisions and equitable principles of ERISA. The First Amended Class Action Complaint (the “Amended Complaint”) alleges that (1) the Unlawful Amendment of the pension plan violated Section 502(a)(1)(B) of ERISA as well as the anti-cutback rules of ERISA Section 204(g) and Section 411(d)(6) of the Internal Revenue Code; (2) ISO’s failure to provide an ERISA 204(h) notice in a manner calculated to be understood by the average pension plan participant was a violation of Sections 204(h) and 102(a) of ERISA; and (3) the Living Pension Right was a contract right under ERISA common law and that by terminating that right through the Unlawful Amendment ISO violated plaintiffs’ common law contract rights under ERISA. The Amended Complaint seeks declaratory, equitable and injunctive relief enjoining the enforcement of the Unlawful Amendment and ordering the pension plan and ISO retroactive to the date of the Unlawful Amendment to recalculate the accrued benefits of all class members, indemnification from ISO to the pension plan for costs and contribution requirements related to voiding the Unlawful Amendment, bonuses to the class representatives, costs and attorney’s fees. On September 12, 2014, the District Court granted ISO’s motion to dismiss the Amended Complaint finding that ISO provided ample, clear and sufficient notice of the 2002 Amendment to the Plan and that plaintiffs’ claims were time barred. Plaintiffs filed their Notice of Appeal on October 14, 2014. After oral argument was held on April 21, 2015, the Court of Appeals affirmed the District Court's dismissal of the Amended Complaint by Order dated April 27, 2015.

On August 1, 2014 the Company was served with an Amended Complaint filed in the United States District Court for the District of Colorado titled Snyder, et. al. v. ACORD Corp., et al. The action is brought by nineteen individual plaintiffs, on their own behalf and on behalf of a putative class, against more than 120 defendants, including the Company and its subsidiary, Insurance Services Office, Inc. ("ISO"). Except for the Company, ISO and the defendant Acord Corporation, which provides standard forms to assist in insurance transactions, most of the other defendants are property and casualty insurance companies that plaintiffs claim conspired to underpay property damage claims. Plaintiffs claim that the Company and ISO, along with all of the other defendants, violated state and federal antitrust and racketeering laws as well as state common law. On September 8, 2014, the Court entered an Order striking the Amended Complaint and granting leave to the plaintiffs to file a new complaint. On October 13, 2014, plaintiffs filed their Second Amended Complaint that continues to allege that the defendants conspired to underpay property damage claims, but does not specifically allege what role the Company or ISO played in the alleged conspiracy. The Second Amended Complaint similarly alleges that the Company and ISO, along with all of the other defendants, violated state and federal antitrust and racketeering laws as well as state common law, and seeks all available relief including, injunctive, statutory, actual and punitive damages as well as attorneys’ fees.
At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to this matter.
16. Condensed Consolidated Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries
As of March 31, 2015, Verisk Analytics, Inc. (the “Parent Company”) has registered senior notes (see Note 9) with full and unconditional and joint and several guarantees by certain of its 100 percent owned subsidiaries and has issued certain other unregistered debt securities with full and unconditional and joint and several guarantees by certain 100 percent owned subsidiaries which also guarantee the registered senior notes. The guarantees of the registered senior notes by the guarantor subsidiaries of the Parent Company contain customary release provisions, which provide for the termination of such guarantees upon (i) the sale or other disposition (including by way of consolidation or merger) of the guarantor subsidiary or the sale or disposition of all or substantially all the assets of the guarantor subsidiary (in each case other than to the Parent Company or another guarantor subsidiary or a person who, prior to such sale or other disposition, is an affiliate of the Parent Company or a guarantor subsidiary), (ii) the defeasance or discharge of the registered senior notes, or (iii) such time as the guarantor subsidiary ceases to be a guarantor of any indebtedness under the Credit Facility. Accordingly, presented below is the condensed consolidating financial information

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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 March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014. The investment in subsidiaries are presented in the condensed consolidating financial information using the equity method of accounting, to show the nature of assets held, results of operations, comprehensive income 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. Effective as of December 31, 2014, ISO Strategic Solutions, ("ISOST"), a non-guarantor of the senior notes, merged with and into Insurance Services Office, Inc. ("ISO"), a guarantor of the senior notes, pursuant to which ISO is the surviving corporation and remains a guarantor of the senior notes. As a result, the condensed consolidated balance sheet of ISOST at December 31, 2014 was reclassified from the financial information of the non-guarantor subsidiaries to that of the guarantor subsidiaries. The condensed consolidating statements of operations, statements of comprehensive income and statements of cash flows of the former ISOST subsidiary for the three months ended March 31, 2015 were included in the financial information of the guarantor subsidiaries. On March 11, 2014, the Company sold 100 percent of the stock of Company’s mortgage services business, Interthinx, Inc., a guarantor of the senior notes.  Upon the sale, Interthinx, Inc. was relieved of all its guarantees of the senior notes. 






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CONDENSED CONSOLIDATING BALANCE SHEET (UNAUDITED)
As of March 31, 2015  
 
Verisk
Analytics, Inc.
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminating
Entries
 
Consolidated
 
 
(In thousands)
ASSETS
Current assets:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
613

 
$
95,104

 
$
57,130

 
$
—

 
$
152,847

Available-for-sale securities
 
—

 
 
3,855

 
 
—

 
 
—

 
 
3,855

Accounts receivable, net
 
—

 
 
158,065

 
 
68,572

 
 
—

 
 
226,637

Prepaid expenses
 
—

 
 
25,886

 
 
3,855

 
 
—

 
 
29,741

Intercompany receivables
 
752,451

 
 
1,277,579

 
 
196,801

 
 
(2,226,831
)
 
 
—

Deferred income taxes, net
 
—

 
 
3,335

 
 
1,435

 
 
—

 
 
4,770

Income taxes receivable
 
5,254

 
 
39,004

 
 
—

 
 
(31,465
)
 
 
12,793

Other current assets
 
8,550

 
 
14,220

 
 
580

 
 
—

 
 
23,350

Total current assets
 
766,868

 
 
1,617,048

 
 
328,373

 
 
(2,258,296
)
 
 
453,993

Noncurrent assets:
 
 
 
 
 
 
 
 
 
 
 
 
 

Fixed assets, net
 
—

 
 
259,550

 
 
44,279

 
 
—

 
 
303,829

Intangible assets, net
 
—

 
 
56,382

 
 
335,953

 
 
—

 
 
392,335

Goodwill
 
—

 
 
498,073

 
 
709,071

 
 
—

 
 
1,207,144

Investment in subsidiaries
 
1,880,985

 
 
920,333

 
 
—

 
 
(2,801,318
)
 
 
—

Pension assets
 
—

 
 
22,723

 
 
—

 
 
—

 
 
22,723

Other assets
 
6,408

 
 
17,342

 
 
725

 
 
—

 
 
24,475

Total assets
$
2,654,261

 
$
3,391,451

 
$
1,418,401

 
$
(5,059,614
)
 
$
2,404,499

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Accounts payable and accrued liabilities
$
14,102

 
$
98,971

 
$
29,398

 
$
—

 
$
142,471

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

 
 
205,816

 
 
62

 
 
—

 
 
205,878

Pension and postretirement benefits, current
 
—

 
 
1,894

 
 
—

 
 
—