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 SeptemberJune 30, 2011
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 | (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. Yesþx Noo¨
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). Yesþx Noo¨
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 | ||||||||
| Smaller reporting company | ¨ | |||||||
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso¨ Noþx
As of October 28, 2011July 27, 2012, 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 | 165,833,557 |
Index to Form 10-Q
| Page Number | ||||||||
| 3 | ||||||||
| 4 | ||||||||
| 5 | ||||||||
| 6 | ||||||||
| 7 | ||||||||
| 8 | ||||||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||||||||
| 34 | ||||||||
| 34 | ||||||||
| 34 | ||||||||
| Exhibit 31.1 | ||||||||
VERISK ANALYTICS, INC.
As of SeptemberJune 30, 20112012 and December 31, 2010
| 2011 | ||||||||
| unaudited | 2010 | |||||||
| (In thousands, except for share and per share data) | ||||||||
ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 52,846 | $ | 54,974 | ||||
| Available-for-sale securities | 4,828 | 5,653 | ||||||
| Accounts receivable, net of allowance for doubtful accounts of $4,432 and $4,028 (including amounts from related parties of $471 and $515, respectively) (1) | 152,803 | 126,564 | ||||||
| Prepaid expenses | 23,591 | 17,791 | ||||||
| Deferred income taxes, net | 3,681 | 3,681 | ||||||
| Federal and foreign income taxes receivable | 2,141 | 15,783 | ||||||
| State and local income taxes receivable | 3,606 | 8,923 | ||||||
| Other current assets | 28,268 | 7,066 | ||||||
| Total current assets | 271,764 | 240,435 | ||||||
| Noncurrent assets: | ||||||||
| Fixed assets, net | 110,328 | 93,409 | ||||||
| Intangible assets, net | 232,533 | 200,229 | ||||||
| Goodwill | 712,561 | 632,668 | ||||||
| Deferred income taxes, net | 23,340 | 21,879 | ||||||
| State income taxes receivable | 1,708 | 1,773 | ||||||
| Other assets | 27,699 | 26,697 | ||||||
| Total assets | $ | 1,379,933 | $ | 1,217,090 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 146,358 | $ | 111,995 | ||||
| Acquisition related liabilities | — | 3,500 | ||||||
| Short-term debt and current portion of long-term debt | 165,670 | 437,717 | ||||||
| Pension and postretirement benefits, current | 4,663 | 4,663 | ||||||
| Fees received in advance (including amounts from related parties of $1,329 and $1,231, respectively) (1) | 189,310 | 163,007 | ||||||
| Total current liabilities | 506,001 | 720,882 | ||||||
| Noncurrent liabilities: | ||||||||
| Long-term debt | 853,580 | 401,826 | ||||||
| Pension benefits | 78,090 | 95,528 | ||||||
| Postretirement benefits | 21,329 | 23,083 | ||||||
| Other liabilities | 79,806 | 90,213 | ||||||
| Total liabilities | 1,538,806 | 1,331,532 | ||||||
| Commitments and contingencies | ||||||||
| Stockholders’ equity/(deficit): | ||||||||
| Verisk Class A common stock, $.001 par value; 1,200,000,000 shares authorized; 350,338,030 and 150,179,126 shares issued and 148,621,259 and 143,067,924 outstanding as of September 30, 2011 and December 31, 2010, respectively | 88 | 39 | ||||||
| Verisk Class B (Series 1) common stock, $.001 par value; 0 and 400,000,000 shares authorized; 0 and 198,327,962 shares issued and 0 and 12,225,480 outstanding as of September 30, 2011 and December 31, 2010, respectively | — | 47 | ||||||
| Verisk Class B (Series 2) common stock, $.001 par value; 400,000,000 shares authorized; 193,665,008 shares issued and 14,771,340 outstanding as of September 30, 2011 and December 31, 2010, respectively | 49 | 49 | ||||||
| Unearned KSOP contributions | (779 | ) | (988 | ) | ||||
| Additional paid-in capital | 837,473 | 754,708 | ||||||
| Treasury stock, at cost, 380,610,439 and 372,107,352 shares as of September 30, 2011 and December 31, 2010, respectively | (1,438,315 | ) | (1,106,321 | ) | ||||
| Retained earnings | 496,267 | 293,827 | ||||||
| Accumulated other comprehensive losses | (53,656 | ) | (55,803 | ) | ||||
| Total stockholders’ deficit | (158,873 | ) | (114,442 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 1,379,933 | $ | 1,217,090 | ||||
| 2012 | ||||||||
| unaudited | 2011 | |||||||
| (In thousands, except for share and per share data) | ||||||||
ASSETS |
| |||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 97,198 | $ | 191,603 | ||||
Available-for-sale securities | 4,782 | 5,066 | ||||||
Accounts receivable, net of allowance for doubtful accounts as of June 30, 2012 and December 31, 2011 of $4,088 and $4,158, respectively | 173,607 | 153,339 | ||||||
Prepaid expenses | 28,492 | 21,905 | ||||||
Deferred income taxes, net | 15,613 | 3,818 | ||||||
Federal and foreign income taxes receivable | 27,705 | 25,242 | ||||||
State and local income taxes receivable | 3,638 | 11,433 | ||||||
Other current assets | 46,460 | 41,248 | ||||||
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|
|
| |||||
Total current assets | 397,495 | 453,654 | ||||||
Noncurrent assets: | ||||||||
Fixed assets, net | 133,731 | 119,411 | ||||||
Intangible assets, net | 363,555 | 226,424 | ||||||
Goodwill | 934,762 | 709,944 | ||||||
Deferred income taxes, net | — | 10,480 | ||||||
Other assets | 23,800 | 21,193 | ||||||
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| |||||
Total assets | $ | 1,853,343 | $ | 1,541,106 | ||||
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LIABILITIES AND STOCKHOLDERS’ EQUITY/(DEFICIT) |
| |||||||
Current liabilities: | ||||||||
Accounts payable and accrued liabilities | $ | 153,684 | $ | 162,992 | ||||
Acquisition related liabilities | — | 250 | ||||||
Short-term debt and current portion of long-term debt | 201,783 | 5,554 | ||||||
Pension and postretirement benefits, current | 2,912 | 4,012 | ||||||
Fees received in advance | 253,880 | 176,842 | ||||||
|
|
|
| |||||
Total current liabilities | 612,259 | 349,650 | ||||||
Noncurrent liabilities: | ||||||||
Long-term debt | 1,054,395 | 1,100,332 | ||||||
Pension benefits | 24,997 | 109,161 | ||||||
Postretirement benefits | 10,624 | 18,587 | ||||||
Deferred income taxes, net | 41,880 | — | ||||||
Other liabilities | 62,506 | 61,866 | ||||||
|
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|
| |||||
Total liabilities | 1,806,661 | 1,639,596 | ||||||
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Commitments and contingencies | ||||||||
Stockholders’ equity/(deficit): | ||||||||
Common stock, $.001 par value; 1,200,000,000 shares authorized; 544,003,038 shares issued and 165,721,412 and 164,285,227 outstanding as of June 30, 2012 and December 31, 2011, respectively | 137 | 137 | ||||||
Unearned KSOP contributions | (591 | ) | (691 | ) | ||||
Additional paid-in capital | 963,052 | 874,808 | ||||||
Treasury stock, at cost, 378,281,626 and 379,717,811 shares as of June 30, 2012 and December 31, 2011, respectively | (1,563,079 | ) | (1,471,042 | ) | ||||
Retained earnings | 724,517 | 576,585 | ||||||
Accumulated other comprehensive losses | (77,354 | ) | (78,287 | ) | ||||
|
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|
| |||||
Total stockholders’ equity/(deficit) | 46,682 | (98,490 | ) | |||||
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| |||||
Total liabilities and stockholders’ equity/(deficit) | $ | 1,853,343 | $ | 1,541,106 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
3
For The Three and Nine Month PeriodsSix Months Ended SeptemberJune 30, 20112012 and 2010
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (In thousands, except for share and per share data) | ||||||||||||||||
| Revenues (including amounts from related parties of $4,699 and $14,789 for the three months ended September 30, 2011 and 2010 and $13,882 and $45,202 for the nine months ended September 30, 2011 and 2010, respectively) (1) | $ | 340,098 | $ | 287,354 | $ | 980,247 | $ | 845,185 | ||||||||
| Expenses: | ||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 137,619 | 117,005 | 393,360 | 346,998 | ||||||||||||
| Selling, general and administrative | 51,475 | 40,982 | 156,640 | 121,134 | ||||||||||||
| Depreciation and amortization of fixed assets | 10,798 | 10,035 | 32,958 | 29,908 | ||||||||||||
| Amortization of intangible assets | 8,797 | 6,158 | 26,129 | 20,482 | ||||||||||||
| Acquisition related liabilities adjustment | — | (544 | ) | (3,364 | ) | (544 | ) | |||||||||
| Total expenses | 208,689 | 173,636 | 605,723 | 517,978 | ||||||||||||
| Operating income | 131,409 | 113,718 | 374,524 | 327,207 | ||||||||||||
| Other income/(expense): | ||||||||||||||||
| Investment income | 99 | 59 | 99 | 183 | ||||||||||||
| Realized (loss)/gain on securities, net | (86 | ) | 9 | 401 | 70 | |||||||||||
| Interest expense | (14,593 | ) | (8,484 | ) | (39,093 | ) | (25,395 | ) | ||||||||
| Total other expense, net | (14,580 | ) | (8,416 | ) | (38,593 | ) | (25,142 | ) | ||||||||
| Income before income taxes | 116,829 | 105,302 | 335,931 | 302,065 | ||||||||||||
| Provision for income taxes | (45,842 | ) | (42,422 | ) | (133,491 | ) | (125,406 | ) | ||||||||
| Net income | $ | 70,987 | $ | 62,880 | $ | 202,440 | $ | 176,659 | ||||||||
| Basic net income per share of Class A and Class B: | $ | 0.43 | $ | 0.35 | $ | 1.21 | $ | 0.98 | ||||||||
| Diluted net income per share of Class A and Class B: | $ | 0.41 | $ | 0.34 | $ | 1.16 | $ | 0.94 | ||||||||
| Weighted average shares outstanding: | ||||||||||||||||
| Basic | 164,195,325 | 178,687,236 | 166,728,786 | 179,744,297 | ||||||||||||
| Diluted | 171,169,658 | 187,188,667 | 174,255,965 | 188,728,438 | ||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| (In thousands, except for share and per share data) | ||||||||||||||||
Revenues (including amounts from related parties of $0 and $4,787 for the three months ended June 30, 2012 and 2011 and $0 and $9,183 for the six months ended June 30, 2012 and 2011, respectively) (1) | $ | 373,226 | $ | 327,280 | $ | 719,727 | $ | 640,149 | ||||||||
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| |||||||||
Expenses: | ||||||||||||||||
Cost of revenues (exclusive of items shown separately below) | 147,074 | 131,185 | 280,404 | 255,741 | ||||||||||||
Selling, general and administrative | 62,473 | 55,909 | 116,452 | 105,165 | ||||||||||||
Depreciation and amortization of fixed assets | 13,090 | 10,855 | 24,734 | 22,160 | ||||||||||||
Amortization of intangible assets | 12,187 | 8,877 | 20,774 | 17,332 | ||||||||||||
Acquisition related liabilities adjustment | — | (3,364 | ) | — | (3,364 | ) | ||||||||||
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Total expenses | 234,824 | 203,462 | 442,364 | 397,034 | ||||||||||||
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Operating income | 138,402 | 123,818 | 277,363 | 243,115 | ||||||||||||
Other income/(expense): | ||||||||||||||||
Investment income/(loss) | 156 | (10 | ) | 261 | — | |||||||||||
Realized (loss)/gain on securities, net | (30 | ) | 125 | 300 | 487 | |||||||||||
Interest expense | (17,377 | ) | (14,885 | ) | (33,762 | ) | (24,500 | ) | ||||||||
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Total other expense, net | (17,251 | ) | (14,770 | ) | (33,201 | ) | (24,013 | ) | ||||||||
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Income before income taxes | 121,151 | 109,048 | 244,162 | 219,102 | ||||||||||||
Provision for income taxes | (47,820 | ) | (43,471 | ) | (96,230 | ) | (87,649 | ) | ||||||||
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Net income | $ | 73,331 | $ | 65,577 | $ | 147,932 | $ | 131,453 | ||||||||
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Basic net income per share | $ | 0.44 | $ | 0.39 | $ | 0.89 | $ | 0.78 | ||||||||
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Diluted net income per share | $ | 0.43 | $ | 0.38 | $ | 0.86 | $ | 0.75 | ||||||||
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Weighted average shares outstanding: | ||||||||||||||||
Basic | 165,946,009 | 166,960,806 | 165,391,500 | 167,995,517 | ||||||||||||
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Diluted | 171,901,349 | 174,634,046 | 171,626,084 | 175,799,120 | ||||||||||||
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| (1) | See Note 13. Related Parties for further information. |
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
VERISK ANALYTCS, INC.
For The Year Ended December 31, 2010Three and The NineSix Months Ended SeptemberJune 30, 2012 and 2011
| Accumulated | Total | |||||||||||||||||||||||||||||||||||||||
| Common Stock Issued | Unearned | Additional | Other | Stockholders’ | ||||||||||||||||||||||||||||||||||||
| Verisk | Verisk | KSOP | Paid-in | Treasury | Retained | Comprehensive | (Deficit)/ | |||||||||||||||||||||||||||||||||
| Verisk Class A | Class B (Series 1) | Class B (Series 2) | Par Value | Contributions | Capital | Stock | Earnings | Losses | Equity | |||||||||||||||||||||||||||||||
| (In thousands, except for share data) | ||||||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2010 | 125,815,600 | 205,637,925 | 205,637,925 | $ | 130 | $ | (1,305 | ) | $ | 652,573 | $ | (683,994 | ) | $ | 51,275 | $ | (53,628 | ) | $ | (34,949 | ) | |||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 242,552 | — | 242,552 | ||||||||||||||||||||||||||||||
| Other comprehensive loss | — | — | — | — | — | — | — | — | (2,175 | ) | (2,175 | ) | ||||||||||||||||||||||||||||
| Comprehensive income | 240,377 | |||||||||||||||||||||||||||||||||||||||
| Conversion of Class B-1 common stock upon follow-on public offering (Note 1) | 7,309,963 | (7,309,963 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Conversion of Class B-2 common stock upon follow-on public offering (Note 1) | 11,972,917 | — | (11,972,917 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Treasury stock acquired - Class A (7,111,202 shares) | — | — | — | — | — | — | (212,512 | ) | — | — | (212,512 | ) | ||||||||||||||||||||||||||||
| Treasury stock acquired - Class B-1 (7,583,532 shares) | — | — | — | — | — | — | (199,936 | ) | — | — | (199,936 | ) | ||||||||||||||||||||||||||||
| Treasury stock acquired - Class B-2 (374,718 shares) | — | — | — | — | — | — | (9,879 | ) | — | — | (9,879 | ) | ||||||||||||||||||||||||||||
| KSOP shares earned | — | — | — | — | 317 | 11,256 | — | — | — | 11,573 | ||||||||||||||||||||||||||||||
| Stock options exercised (including tax benefit of $49,015) | 5,579,135 | — | — | 5 | — | 84,492 | — | — | — | 84,497 | ||||||||||||||||||||||||||||||
| Net share settlement of taxes upon exercise of stock options | (503,043 | ) | — | — | — | — | (15,051 | ) | — | — | — | (15,051 | ) | |||||||||||||||||||||||||||
| Stock based compensation | — | — | — | — | — | 21,298 | — | — | — | 21,298 | ||||||||||||||||||||||||||||||
| Other stock issuances | 4,554 | — | — | — | — | 140 | — | — | — | 140 | ||||||||||||||||||||||||||||||
| Balance, December 31, 2010 | 150,179,126 | 198,327,962 | 193,665,008 | $ | 135 | $ | (988 | ) | $ | 754,708 | $ | (1,106,321 | ) | $ | 293,827 | $ | (55,803 | ) | $ | (114,442 | ) | |||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | — | 202,440 | — | 202,440 | ||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | — | — | — | — | 2,147 | 2,147 | ||||||||||||||||||||||||||||||
| Comprehensive income | 204,587 | |||||||||||||||||||||||||||||||||||||||
| Conversion of Class B-1 common stock (Note 1) | 198,327,962 | (198,327,962 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
| Treasury stock acquired - Class A (10,215,240 shares) | — | — | — | — | — | — | (340,101 | ) | — | — | (340,101 | ) | ||||||||||||||||||||||||||||
| KSOP shares earned | — | — | — | — | 209 | 9,421 | — | — | — | 9,630 | ||||||||||||||||||||||||||||||
| Stock options exercised (including tax benefit of $35,643) | 1,830,942 | — | — | 2 | — | 55,980 | 8,096 | — | — | 64,078 | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | — | 17,288 | — | — | — | 17,288 | ||||||||||||||||||||||||||||||
| Other stock issuances | — | — | — | — | — | 76 | 11 | — | — | 87 | ||||||||||||||||||||||||||||||
| Balance, September 30, 2011 | 350,338,030 | — | 193,665,008 | $ | 137 | $ | (779 | ) | $ | 837,473 | $ | (1,438,315 | ) | $ | 496,267 | $ | (53,656 | ) | $ | (158,873 | ) | |||||||||||||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| (In thousands) | ||||||||||||||||
Net income | $ | 73,331 | $ | 65,577 | $ | 147,932 | $ | 131,453 | ||||||||
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Other comprehensive income, net of tax: | ||||||||||||||||
Unrealized holding loss on investments | (116 | ) | (126 | ) | (313 | ) | (252 | ) | ||||||||
Unrealized foreign currency (loss)/gain | (287 | ) | 235 | (134 | ) | 573 | ||||||||||
Pension and postretirement unfunded liability adjustment | 452 | 1,220 | 1,380 | 1,974 | ||||||||||||
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Total other comprehensive income | 49 | 1,329 | 933 | 2,295 | ||||||||||||
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Comprehensive income | $ | 73,380 | $ | 66,906 | $ | 148,865 | $ | 133,748 | ||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
5
For The NineYear Ended December 31, 2011 and The Six Months Ended SeptemberJune 30, 2011 and 2010
| 2011 | 2010 | |||||||
| (In thousands) | ||||||||
| Cash flows from operating activities: | ||||||||
| Net income | $ | 202,440 | $ | 176,659 | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization of fixed assets | 32,958 | 29,908 | ||||||
| Amortization of intangible assets | 26,129 | 20,482 | ||||||
| Amortization of debt issuance costs | 1,155 | 1,156 | ||||||
| Amortization of debt original issue discount | 51 | — | ||||||
| Allowance for doubtful accounts | 852 | 562 | ||||||
| KSOP compensation expense | 9,630 | 8,651 | ||||||
| Stock-based compensation | 17,288 | 15,990 | ||||||
| Non-cash charges associated with performance based appreciation awards | 627 | 515 | ||||||
| Acquisition related liabilities adjustment | (3,364 | ) | (544 | ) | ||||
| Realized gain on securities, net | (401 | ) | (70 | ) | ||||
| Deferred income taxes | (2,083 | ) | (1,893 | ) | ||||
| Other operating | 133 | 183 | ||||||
| Loss on disposal of assets | 635 | 81 | ||||||
| Excess tax benefits from exercised stock options | (5,470 | ) | (15,083 | ) | ||||
| Changes in assets and liabilities, net of effects from acquisitions: | ||||||||
| Accounts receivable | (24,445 | ) | (40,654 | ) | ||||
| Prepaid expenses and other assets | (3,229 | ) | (1,331 | ) | ||||
| Federal and foreign income taxes | 48,925 | 27,005 | ||||||
| State and local income taxes | 5,382 | 2,768 | ||||||
| Accounts payable and accrued liabilities | 12,509 | (3,255 | ) | |||||
| Fees received in advance | 24,841 | 29,551 | ||||||
| Other liabilities | (20,809 | ) | (8,874 | ) | ||||
| Net cash provided by operating activities | 323,754 | 241,807 | ||||||
| Cash flows from investing activities: | ||||||||
| Acquisitions, net of cash acquired of $590 and $1,556, respectively | (121,721 | ) | (6,386 | ) | ||||
| Earnout payments | (3,500 | ) | — | |||||
| Proceeds from release of acquisition related escrows | — | 283 | ||||||
| Escrow funding associated with acquisitions | (19,560 | ) | (1,500 | ) | ||||
| Purchases of available-for-sale securities | (1,422 | ) | (324 | ) | ||||
| Proceeds from sales and maturities of available-for-sale securities | 1,722 | 645 | ||||||
| Purchases of fixed assets | (41,925 | ) | (22,206 | ) | ||||
| Net cash used in investing activities | (186,406 | ) | (29,488 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of long-term debt, net of original issue discount | 448,956 | — | ||||||
| Repayment of short-term debt refinanced on a long-term basis | (295,000 | ) | — | |||||
| Repurchase of Verisk Class A common stock | (340,122 | ) | (129,762 | ) | ||||
| Repayment of current portion of long-term debt | (125,000 | ) | — | |||||
| Proceeds from issuance of short-term debt with original maturities of three months or greater | 120,000 | — | ||||||
| Proceeds/(repayments) of short-term debt, net | 22,311 | (65,230 | ) | |||||
| Payment of debt issuance cost | (4,542 | ) | (1,781 | ) | ||||
| Net share settlement of taxes upon exercise of stock options | — | (15,051 | ) | |||||
| Excess tax benefits from exercised stock options | 5,470 | 15,083 | ||||||
| Proceeds from stock options exercised | 28,433 | 20,161 | ||||||
| Net cash used in financing activities | (139,494 | ) | (176,580 | ) | ||||
| Effect of exchange rate changes | 18 | (11 | ) | |||||
| (Decrease)/Increase in cash and cash equivalents | (2,128 | ) | 35,728 | |||||
| Cash and cash equivalents, beginning of period | 54,974 | 71,527 | ||||||
| Cash and cash equivalents, end of period | $ | 52,846 | $ | 107,255 | ||||
| Supplemental disclosures: | ||||||||
| Taxes paid | $ | 82,526 | $ | 96,745 | ||||
| Interest paid | $ | 25,876 | $ | 24,351 | ||||
| Non-cash investing and financing activities: | ||||||||
| Repurchase of Verisk Class A common stock included in accounts payable and accrued liabilities | $ | 2,244 | $ | 5,808 | ||||
| Deferred tax asset/(liability) established on date of acquisition | $ | 1,280 | $ | (349 | ) | |||
| Capital lease obligations | $ | 7,683 | $ | 1,265 | ||||
| Capital expenditures included in accounts payable and accrued liabilities | $ | 778 | $ | 743 | ||||
| Increase in goodwill due to acquisition related escrow distributions | $ | — | $ | 6,996 | ||||
| Accrual of acquisition related liabilities | $ | — | $ | 2,000 | ||||
| �� | Accumulated | |||||||||||||||||||||||||||||||||||||||
| Unearned | Additional | Other | Total | |||||||||||||||||||||||||||||||||||||
| Common Stock Issued | KSOP | Paid-in | Treasury | Retained | Comprehensive | Stockholders’ | ||||||||||||||||||||||||||||||||||
| Class A | Class B (Series 1) | Class B (Series 2) | Par Value | Contributions | Capital | Stock | Earnings | Losses | Equity/(Deficit) | |||||||||||||||||||||||||||||||
| (In thousands, except for share data) | ||||||||||||||||||||||||||||||||||||||||
Balance, December 31, 2010 | 150,179,126 | 198,327,962 | 193,665,008 | $ | 135 | $ | (988 | ) | $ | 754,708 | $ | (1,106,321 | ) | $ | 293,827 | $ | (55,803 | ) | $ | (114,442 | ) | |||||||||||||||||||
Net income | — | — | — | — | — | — | — | 282,758 | — | 282,758 | ||||||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | — | — | (22,484 | ) | (22,484 | ) | ||||||||||||||||||||||||||||
Conversion of Class B (Series 1) common stock | 198,327,962 | (198,327,962 | ) | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Conversion of Class B (Series 2) common stock | 193,665,008 | — | (193,665,008 | ) | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||
Treasury stock acquired—Class A (11,326,624 shares) | — | — | — | — | — | — | (380,710 | ) | — | — | (380,710 | ) | ||||||||||||||||||||||||||||
KSOP shares earned | — | — | — | — | 297 | 12,318 | — | — | — | 12,615 | ||||||||||||||||||||||||||||||
Stock options exercised, including tax benefit of $57,684 (3,716,165 shares reissued from treasury stock) | 1,830,942 | — | — | 2 | — | 85,051 | 15,978 | — | — | 101,031 | ||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | 22,656 | — | — | — | 22,656 | ||||||||||||||||||||||||||||||
Other stock issuances | — | — | — | — | — | 75 | 11 | — | — | 86 | ||||||||||||||||||||||||||||||
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Balance, December 31, 2011 | 544,003,038 | — | — | 137 | (691 | ) | 874,808 | (1,471,042 | ) | 576,585 | (78,287 | ) | (98,490 | ) | ||||||||||||||||||||||||||
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Net income | — | — | — | — | — | — | — | 147,932 | — | 147,932 | ||||||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | — | — | 933 | 933 | ||||||||||||||||||||||||||||||
Treasury stock acquired—Class A (2,351,655 shares) | — | — | — | — | — | — | (107,041 | ) | — | — | (107,041 | ) | ||||||||||||||||||||||||||||
KSOP shares earned | — | — | — | — | 100 | 6,086 | — | — | — | 6,186 | ||||||||||||||||||||||||||||||
Stock options exercised, including tax benefit of $49,974 (3,787,840 shares reissued from treasury stock) | — | — | — | — | — | 68,505 | 15,004 | — | — | 83,509 | ||||||||||||||||||||||||||||||
Stock based compensation | — | — | — | — | — | 13,653 | — | — | — | 13,653 | ||||||||||||||||||||||||||||||
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Balance, June 30, 2012 | 544,003,038 | — | — | $ | 137 | $ | (591 | ) | $ | 963,052 | $ | (1,563,079 | ) | $ | 724,517 | $ | (77,354 | ) | $ | 46,682 | ||||||||||||||||||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
6
For The Six Months Ended June 30, 2012 and 2011
| 2012 | 2011 | |||||||
| (In thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net income | $ | 147,932 | $ | 131,453 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization of fixed assets | 24,734 | 22,160 | ||||||
Amortization of intangible assets | 20,774 | 17,332 | ||||||
Amortization of debt issuance costs and original issue discount | 1,096 | 754 | ||||||
Allowance for doubtful accounts | 461 | 557 | ||||||
KSOP compensation expense | 6,186 | 6,408 | ||||||
Stock based compensation | 13,653 | 12,331 | ||||||
Noncash charges associated with performance-based appreciation awards | — | 583 | ||||||
Acquisition related liabilities adjustment | — | (3,364 | ) | |||||
Realized gain on securities, net | (300 | ) | (487 | ) | ||||
Deferred income taxes | (535 | ) | 1,660 | |||||
Loss on disposal of assets | 21 | 221 | ||||||
Excess tax benefits from exercised stock options | (31,624 | ) | (5,470 | ) | ||||
Other operating | (18 | ) | 30 | |||||
Changes in assets and liabilities, net of effects from acquisitions: | ||||||||
Accounts receivable | (13,652 | ) | (16,979 | ) | ||||
Prepaid expenses and other assets | 4,289 | (8,082 | ) | |||||
Federal and foreign income taxes | 51,957 | 7,703 | ||||||
State and local income taxes | 7,972 | (140 | ) | |||||
Accounts payable and accrued liabilities | (24,124 | ) | (15,190 | ) | ||||
Fees received in advance | 77,038 | 50,520 | ||||||
Pension and postretirement benefits | (90,808 | ) | (9,747 | ) | ||||
Other liabilities | (7,617 | ) | (5,166 | ) | ||||
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Net cash provided by operating activities | 187,435 | 187,087 | ||||||
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Cash flows from investing activities: | ||||||||
Acquisitions, net of cash acquired for 2012 and 2011 of $29,387 and $590, respectively | (331,330 | ) | (121,721 | ) | ||||
Purchase of non-controlling equity investment in non-public companies | (2,000 | ) | — | |||||
Earnout payments | (250 | ) | (3,500 | ) | ||||
Escrow funding associated with acquisitions | (17,000 | ) | (19,560 | ) | ||||
Purchases of fixed assets | (36,532 | ) | (28,171 | ) | ||||
Purchases of available-for-sale securities | (1,128 | ) | (1,338 | ) | ||||
Proceeds from sales and maturities of available-for-sale securities | 1,203 | 1,704 | ||||||
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| |||||
Net cash used in investing activities | (387,037 | ) | (172,586 | ) | ||||
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| |||||
Cash flows from financing activities: | ||||||||
Proceeds from issuance of long-term debt, net of original issue discount | — | 448,956 | ||||||
Repayment of current portion of long-term debt | — | (50,000 | ) | |||||
Repayment of short-term debt refinanced on a long-term basis | — | (295,000 | ) | |||||
Proceeds/(repayments) of short-term debt, net | 150,000 | 72,919 | ||||||
Payment of debt issuance costs | — | (4,434 | ) | |||||
Repurchase of Class A common stock | (106,305 | ) | (214,021 | ) | ||||
Proceeds from stock options exercised | 33,453 | 18,032 | ||||||
Excess tax benefits from exercised stock options | 31,624 | 5,470 | ||||||
Other financing, net | (3,441 | ) | — | |||||
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Net cash provided by/(used in) financing activities | 105,331 | (18,078 | ) | |||||
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Effect of exchange rate changes | (134 | ) | 573 | |||||
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Decrease in cash and cash equivalents | (94,405 | ) | (3,004 | ) | ||||
Cash and cash equivalents, beginning of period | 191,603 | 54,974 | ||||||
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Cash and cash equivalents, end of period | $ | 97,198 | $ | 51,970 | ||||
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Supplemental disclosures: | ||||||||
Taxes paid | $ | 37,736 | $ | 80,924 | ||||
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Interest paid | $ | 26,619 | $ | 17,997 | ||||
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Noncash investing and financing activities: | ||||||||
Repurchase of Class A common stock included in accounts payable and accrued liabilities | $ | 1,936 | $ | 5,292 | ||||
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Deferred tax liability established on date of acquisition | $ | 40,358 | $ | 1,280 | ||||
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Capital lease obligations | $ | 3,043 | $ | 8,013 | ||||
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Capital expenditures included in accounts payable and accrued liabilities | $ | 1,864 | $ | 307 | ||||
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The accompanying notes are an integral part of these condensed consolidated financial statements.
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, mortgage 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 on May 23, 2008 to serve as the parent holding company of Insurance Services Office, Inc. (“ISO”) upon completion of the initial public offering (“IPO”). ISO was formed in 1971 as an advisory and rating organization for the P&C insurance industry to provide statistical and actuarial services, to develop insurance programs and to assist insurance companies in meeting state regulatory requirements. Over the past decade, the Company has broadened its data assets, entered new markets, placed a greater emphasis on analytics, and pursued strategic acquisitions. On October 6, 2009, ISO effected a corporate reorganization whereby the Class A and Class B common stock of ISO were exchanged by the current stockholders for the common stock of Verisk on a one-for-one basis. Verisk immediately thereafter effected a fifty-for-one stock split of its Class A and Class B common stock and equally sub-divided the Class B common stock into two new series of stock, Verisk Class B (Series 1) (“Class B-1”) and Verisk Class B (Series 2) (“Class B-2”).
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 and liabilities, acquisition related liabilities, fair value of stock-basedstock 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 reclassifications have been made related to the segment reporting within Decision Analytics’ revenue categories in the notes to the condensed consolidated financial statements to conform to the respective 2012 presentation.
7
Recent Accounting PronouncementsPronouncement
In SeptemberJune 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08,Testing Goodwill for Impairment(“ASU 2011-08”). Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011. Early adoption is permitted. As the Company has already performed its annual impairment testing as of June 30, 2011, the Company has elected not to early adopt. The Company is currently evaluating the impact of ASU 2011-08 on its consolidated financial statements.
3. Investments:
The following is a summary of available-for-sale securities:
| Gross | Gross | |||||||||||||||
| Adjusted | Unrealized | Unrealized | ||||||||||||||
| Cost | Gains | Losses | Fair Value | |||||||||||||
September 30, 2011 | ||||||||||||||||
| Registered investment companies | $ | 4,499 | $ | 323 | $ | — | $ | 4,822 | ||||||||
| Equity securities | 14 | — | (8 | ) | 6 | |||||||||||
| Total available-for-sale securities | $ | 4,513 | $ | 323 | $ | (8 | ) | $ | 4,828 | |||||||
December 31, 2010 | ||||||||||||||||
| Registered investment companies | $ | 4,398 | $ | 1,248 | $ | — | $ | 5,646 | ||||||||
| Equity securities | 14 | — | (7 | ) | 7 | |||||||||||
| Total available-for-sale securities | $ | 4,412 | $ | 1,248 | $ | (7 | ) | $ | 5,653 | |||||||
| Gross | Gross | |||||||||||||||
| Adjusted | Unrealized | Unrealized | ||||||||||||||
| Cost | Gain | Loss | Fair Value | |||||||||||||
June 30, 2012 | ||||||||||||||||
Registered investment companies | $ | 4,857 | $ | — | $ | (75 | ) | $ | 4,782 | |||||||
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Total available-for-sale securities | $ | 4,857 | $ | — | $ | (75 | ) | $ | 4,782 | |||||||
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December 31, 2011 | ||||||||||||||||
Registered investment companies | $ | 4,618 | $ | 439 | $ | — | $ | 5,057 | ||||||||
Equity securities | 14 | — | (5 | ) | 9 | |||||||||||
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Total available-for-sale securities | $ | 4,632 | $ | 439 | $ | (5 | ) | $ | 5,066 | |||||||
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8
4. Fair Value Measurements:
Certain assets and liabilities of the Company are reported at fair value in the accompanying condensed consolidated balance sheets. Such assets and liabilities include amounts for both financial and non-financial instruments. To increase consistency and comparability of assets and liabilities recorded at fair value, ASC 820-10,Fair Value Measurements (“ASC 820-10”) establishes a three-level fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. ASC 820-10 requires disclosures detailing the extent to which companies measure assets and liabilities at fair value, the methods and assumptions used to measure fair value and the effect of fair value measurements on earnings. In accordance with ASC 820-10, the Company applied the following fair value hierarchy:
| Level 1 | - | Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments. |
| Level 2 | - | Assets and liabilities valued based on observable market data for similar instruments. |
| Level 3 | - | Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that market participant would require. |
The following tables providetable provides information for such assets and liabilities as of SeptemberJune 30, 20112012 and December 31, 2010.2011. The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, acquisitions related liabilities prior to the adoption of ASC 805,Business Combinations(“ASC 805”), and short-term debt approximate their carrying amounts because of the short-term maturity of these instruments. The short-term debt would be a Level 2 liability if it was measured at fair value on the condensed consolidated balance sheets. The fair value of the Company’s long-term debt was estimated at $939,769$1,209,082 and $584,361$1,181,788 as of SeptemberJune 30, 20112012 and December 31, 2010,2011, respectively, and would be a Level 2 liability if the long-term debt was measured at fair value on the condensed consolidated balance sheets. The long-term debt is 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. These assets and liabilities are not presented in the following table.
| Quoted Prices | ||||||||||||||||
| in Active Markets | Significant Other | Significant | ||||||||||||||
| for Identical | Observable | Unobservable | ||||||||||||||
| Total | Assets (Level 1) | Inputs (Level 2) | Inputs (Level 3) | |||||||||||||
September 30, 2011 | ||||||||||||||||
| Cash equivalents — money-market funds | $ | 289 | $ | — | $ | 289 | $ | — | ||||||||
| Registered investment companies (1) | $ | 4,822 | $ | 4,822 | $ | — | $ | — | ||||||||
| Equity securities (1) | $ | 6 | $ | 6 | $ | — | $ | — | ||||||||
December 31, 2010 | ||||||||||||||||
| Cash equivalents — money-market funds | $ | 2,273 | $ | — | $ | 2,273 | $ | — | ||||||||
| Registered investment companies (1) | $ | 5,646 | $ | 5,646 | $ | — | $ | — | ||||||||
| Equity securities (1) | $ | 7 | $ | 7 | $ | — | $ | — | ||||||||
| Contingent consideration under ASC 805 (2) | $ | (3,337 | ) | $ | — | $ | — | $ | (3,337 | ) | ||||||
| Quoted Prices | ||||||||||||
| in Active Markets | Significant Other | |||||||||||
| for Identical | Observable | |||||||||||
| Total | Assets (Level 1) | Inputs (Level 2) | ||||||||||
June 30, 2012 | ||||||||||||
Cash equivalents—money-market funds | $ | 553 | $ | — | $ | 553 | ||||||
Registered investment companies (1) | $ | 4,782 | $ | 4,782 | $ | — | ||||||
December 31, 2011 | ||||||||||||
Cash equivalents—money-market funds | $ | 2,449 | $ | — | $ | 2,449 | ||||||
Registered investment companies (1) | $ | 5,057 | $ | 5,057 | $ | — | ||||||
Equity securities (1) | $ | 9 | $ | 9 | $ | — | ||||||
| (1) | Registered investment companies and equity securities are classified as available-for-sale securities and are valued using quoted prices in active markets multiplied by the number of shares owned. | |
5. Acquisitions:
9
The preliminary purchase price allocation of the acquisition resulted in the following:
| MediConnect | ||||
Accounts receivable | $ | 7,077 | ||
Current assets | 14,918 | |||
Fixed assets | 1,075 | |||
Intangible assets | 157,905 | |||
Goodwill | 223,982 | |||
Other assets | 17,087 | |||
|
| |||
Total assets acquired | 422,044 | |||
Current liabilities | 3,005 | |||
Other liabilities | 70,634 | |||
|
| |||
Total liabilities assumed | 73,639 | |||
|
| |||
Net assets acquired | $ | 348,405 | ||
|
| |||
The amounts assigned to intangible assets by type for the current year acquisition are summarized in the table below:
| Weighted Average Useful Life | MediConnect | |||||
Technology-based | 10 years | $ | 43,110 | |||
Marketing-related | 4 years | 14,782 | ||||
Customer-related | 10 years | 100,013 | ||||
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Total intangible assets | 9 years | $ | 157,905 | |||
|
| |||||
The allocations of the purchase price (noted within the tables above) are all subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition date. The revisions may have an impact on the consolidated financial statements. The allocations of the purchase price will be finalized once all information is obtained, but not to exceed one year from the acquisition date.
The goodwill associated with MediConnect is not deductible for tax purposes. For the three and six months ended June 30, 2012, the Company incurred transaction costs related to this acquisition of $17 and $827, respectively, included within “Selling, general and administrative” expenses in the accompanying condensed consolidated statements of operations.
Supplemental information on an unaudited pro forma basis is presented below as if the acquisition of MediConnect occurred at the beginning of the year 2011. The pro forma information for the six months ended June 30, 2012 and 2011 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 this acquisition been completed at the beginning of 2011. The unaudited pro forma information includes intangible asset amortization charges and incremental borrowing costs as a result of the acquisition, net of related tax, estimated using the Company’s effective tax rate for continuing operations for the periods.
| For the Six Months Ended June 30, | ||||||||
| 2012 | 2011 | |||||||
| (unaudited) | ||||||||
Pro forma revenues | $ | 736,885 | $ | 661,491 | ||||
Pro forma net income | $ | 146,691 | $ | 123,877 | ||||
Pro forma basic income per share | $ | 0.89 | $ | 0.74 | ||||
Pro forma diluted income per share | $ | 0.85 | $ | 0.70 | ||||
2011 Acquisitions
On June 17, 2011, the Company acquired the net assets of Health Risk Partners, LLC (“HRP”), a provider of solutions to optimize revenue, ensure compliance and improve quality of care for Medicare Advantage and Medicaid health plans, for a net cash purchase price of approximately $46,400 and funded $3,000 of indemnity escrows and $10,000 of contingency escrows. Within the Company’s Decision Analytics segment, this acquisition further advances the Company’s position as a major provider of data, analytics, and decision-support solutions to the healthcare vertical market.
On April 27, 2011, the Company acquired 100% of the stock of Bloodhound Technologies, Inc. (“Bloodhound”), a provider of real-time pre-adjudication medical claims editing, for a net cash purchase price of approximately $75,321 and funded $6,560 of indemnity escrows. Within the Company’s Decision Analytics segment, Bloodhound addresses the need of healthcare payers to control fraud and waste in a real-time claims-processing environment, and these capabilities align with the Company’s existing fraud identification tools in the healthcare vertical market.
The goodwill associated with Bloodhound is not deductible for tax purposes; whereas the goodwill associated with HRP is deductible for tax purposes as this was an asset purchase rather than a stock purchase. For the three and six months ended June 30, 2012, the Company incurred no transaction costs related to these acquisitions. In accordance with ASC 805, the allocation of the purchase prices for HRP and Bloodhound was revised during the three- and nine-month periods ended September 30, 2011 and 2010:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, 2011 | September 30, 2010 | September 30, 2011 | September 30, 2010 | |||||||||||||
| Beginning balance | $ | — | $ | 3,853 | $ | 3,337 | $ | 3,344 | ||||||||
| Acquisitions (1) | — | — | — | 491 | ||||||||||||
| Acquisition related liabilities adjustment (1) | — | (544 | ) | (3,364 | ) | (544 | ) | |||||||||
| Accretion on acquisition related liabilities | — | 14 | 27 | 32 | ||||||||||||
| Ending balance | $ | — | $ | 3,323 | $ | — | $ | 3,323 | ||||||||
Acquisition Escrows
Pursuant to the related acquisition agreements, the Company has funded various escrow accounts to satisfy pre-acquisition indemnity and tax claims arising subsequent to the acquisition date, as well as a portion of the contingent payments. At June 30, 2012 and December 31, 2011, the current portion of the escrows amounted to $45,508 and $36,967, and the noncurrent portion of the escrow amounted to $5,000 and $4,508, 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, 20102011 through SeptemberJune 30, 2011,2012, both in total and as allocated to the Company’s operating segments:
| Risk Assessment | Decision Analytics | Total | ||||||||||
| Goodwill at December 31, 2010 (1) | $ | 27,908 | $ | 604,760 | $ | 632,668 | ||||||
| Current year acquisitions | — | 79,893 | 79,893 | |||||||||
| Goodwill at September 30, 2011 (1) | $ | 27,908 | $ | 684,653 | $ | 712,561 | ||||||
| Risk Assessment | Decision Analytics | Total | ||||||||||
Goodwill at December 31, 2011 (1) | $ | 27,908 | $ | 682,036 | $ | 709,944 | ||||||
Current year acquisition | — | 223,982 | 223,982 | |||||||||
Purchase accounting reclassifications | — | 836 | 836 | |||||||||
|
|
|
|
|
| |||||||
Goodwill at June 30, 2012 (1) | $ | 27,908 | $ | 906,854 | $ | 934,762 | ||||||
|
|
|
|
|
| |||||||
| (1) | These balances are net of accumulated impairment charges of $3,244 that occurred prior to January 1, |
The Company finalized the purchase accounting for the acquisitions of HRP and Bloodhound during the quarter ended June 30, 2012. The Company’s purchase accounting reclassifications primarily related to the finalization of HRP and Bloodhound resulted in an increase in goodwill of $836, and an increase in liabilities of $1,233, an increase in other assets of $882 and a decrease in fixed assets of $226. The impact of these adjustments on the consolidated statements of operations for the six months ended June 30, 2012 and 2011 was immaterial.
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, 2011,2012, which resulted in no impairment of goodwill. Based on the results of the impairment assessment as of June 30, 2011, the Company determined that the fair value of its reporting units exceeded their respective carrying value. Given the limited amount of time between the acquisition date and the timing of the Company’s annual impairment test, the fair value of certain reporting units exceeded their carrying value by a moderate amount. There were no goodwill impairment indicators after the date of the last annual impairment test.
10
| Weighted | ||||||||||||||||
| Average | Accumulated | |||||||||||||||
| Useful Life | Cost | Amortization | Net | |||||||||||||
September 30, 2011 | ||||||||||||||||
| Technology-based | 7 years | $ | 234,755 | $ | (150,718 | ) | $ | 84,037 | ||||||||
| Marketing-related | 5 years | 48,103 | (32,167 | ) | 15,936 | |||||||||||
| Contract-based | 6 years | 6,555 | (6,433 | ) | 122 | |||||||||||
| Customer-related | 13 years | 172,236 | (39,798 | ) | 132,438 | |||||||||||
| Total intangible assets | $ | 461,649 | $ | (229,116 | ) | $ | 232,533 | |||||||||
December 31, 2010 | ||||||||||||||||
| Technology-based | 7 years | $ | 210,212 | $ | (136,616 | ) | $ | 73,596 | ||||||||
| Marketing-related | 5 years | 40,882 | (28,870 | ) | 12,012 | |||||||||||
| Contract-based | 6 years | 6,555 | (6,287 | ) | 268 | |||||||||||
| Customer-related | 13 years | 145,567 | (31,214 | ) | 114,353 | |||||||||||
| Total intangible assets | $ | 403,216 | $ | (202,987 | ) | $ | 200,229 | |||||||||
| Weighted Average Useful Life | Cost | Accumulated Amortization | Net | |||||||||||
June 30, 2012 | ||||||||||||||
Technology-based | 7 years | $ | 278,764 | $ | (165,511 | ) | $ | 113,253 | ||||||
Marketing-related | 5 years | 63,552 | (35,907 | ) | 27,645 | |||||||||
Contract-based | 6 years | 6,555 | (6,555 | ) | — | |||||||||
Customer-related | 12 years | 273,237 | (50,580 | ) | 222,657 | |||||||||
|
|
|
|
|
| |||||||||
Total intangible assets | $ | 622,108 | $ | (258,553 | ) | $ | 363,555 | |||||||
|
|
|
|
|
| |||||||||
December 31, 2011 | ||||||||||||||
Technology-based | 7 years | $ | 235,654 | $ | (155,333 | ) | $ | 80,321 | ||||||
Marketing-related | 5 years | 48,770 | (33,190 | ) | 15,580 | |||||||||
Contract-based | 6 years | 6,555 | (6,482 | ) | 73 | |||||||||
Customer-related | 13 years | 173,224 | (42,774 | ) | 130,450 | |||||||||
|
|
|
|
|
| |||||||||
Total intangible assets | $ | 464,203 | $ | (237,779 | ) | $ | 226,424 | |||||||
|
|
|
|
|
| |||||||||
Consolidated amortization expense related to intangible assets for the three months ended SeptemberJune 30, 2012 and 2011, was $12,187 and 2010, was $8,797 and $6,158,$8,877, respectively. Consolidated amortization expense related to intangible assets for the ninesix months ended SeptemberJune 30, 2012 and 2011, was $20,774 and 2010, was $26,129 and $20,482,$17,332, respectively. Estimated amortization expense in future periods through 20162017 and thereafter for intangible assets subject to amortization is as follows:
| Year | Amount | |||
| 2011 | $ | 8,652 | ||
| 2012 | 33,927 | |||
| 2013 | 28,414 | |||
| 2014 | 21,288 | |||
| 2015 | 21,063 | |||
| 2016-Thereafter | 119,189 | |||
| $ | 232,533 | |||
Year | Amount | |||
2012 | $ | 24,092 | ||
2013 | 42,977 | |||
2014 | 35,851 | |||
2015 | 33,387 | |||
2016 | 32,255 | |||
2017 and Thereafter | 194,993 | |||
|
| |||
| $ | 363,555 | |||
|
| |||
11
| Bloodhound | HRP | Total | ||||||||||
| Accounts receivable | $ | 2,278 | $ | 378 | $ | 2,656 | ||||||
| Current assets | 6,646 | 297 | 6,943 | |||||||||
| Fixed assets | 1,091 | 1,147 | 2,238 | |||||||||
| Intangible assets | 34,433 | 24,000 | 58,433 | |||||||||
| Goodwill | 44,870 | 35,023 | 79,893 | |||||||||
| Other assets | 16 | 13,000 | 13,016 | |||||||||
| Deferred income taxes | 1,280 | — | 1,280 | |||||||||
| Total assets acquired | 90,614 | 73,845 | 164,459 | |||||||||
| Current liabilities | 6,869 | 1,445 | 8,314 | |||||||||
| Other liabilities | 1,864 | 13,000 | 14,864 | |||||||||
| Total liabilities assumed | 8,733 | 14,445 | 23,178 | |||||||||
| Net assets acquired | $ | 81,881 | $ | 59,400 | $ | 141,281 | ||||||
| Weighted | ||||||||||||||||
| Average | ||||||||||||||||
| Useful Life | Bloodhound | HRP | Total | |||||||||||||
| Technology-based | 10 years | $ | 16,043 | $ | 8,500 | $ | 24,543 | |||||||||
| Marketing-related | 6 years | 2,221 | 5,000 | 7,221 | ||||||||||||
| Customer-related | 10 years | 16,169 | 10,500 | 26,669 | ||||||||||||
| Total intangible assets | $ | 34,433 | $ | 24,000 | $ | 58,433 | ||||||||||
12
The Company’s effective tax rate for the three and six months ended SeptemberJune 30, 20112012 was 39.2%39.47% and 39.41%, respectively, compared to the effective tax rate for the three and six months ended SeptemberJune 30, 20102011 of 40.3%.39.86% and 40.00%, respectively. The SeptemberJune 30, 20112012 effective tax rate is lower than the SeptemberJune 30, 20102011 effective tax rate primarily due to favorable audit settlements, the continued execution of tax planning strategies and the benefits associated with enacted research and development legislation. Under IR-2011-87, the Internal Revenue Service is providing tax relief to businesses impacted by Hurricane Irene. The relief postponed certain tax filings and payment deadlines to October 31, 2011. As such, the Company deferred its third quarter estimated payment of $22,800 until such date.
Employee Stock Ownership Plan (“KSOP”).
13
The following table presents short-term and long-term debt by issuance:
| Issuance | Maturity | September 30, | December 31, | |||||||||||
| Date | Date | 2011 | 2010 | |||||||||||
| Short-term debt and current portion of long-term debt: | ||||||||||||||
| Syndicated revolving credit facility | Various | Various | $ | 160,000 | $ | 310,000 | ||||||||
| Prudential senior notes: | ||||||||||||||
| 4.60% Series E senior notes | 6/14/2005 | 6/13/2011 | — | 50,000 | ||||||||||
| 6.00% Series F senior notes | 8/8/2006 | 8/8/2011 | — | 25,000 | ||||||||||
| Principal senior notes: | ||||||||||||||
| 6.03% Series A senior notes | 8/8/2006 | 8/8/2011 | — | 50,000 | ||||||||||
| Capital lease obligations and other | Various | Various | 5,670 | 2,717 | ||||||||||
| Short-term debt and current portion of long-term debt | $ | 165,670 | $ | 437,717 | ||||||||||
| Long-term debt: | ||||||||||||||
| Verisk senior notes: | ||||||||||||||
| 5.80% senior notes, less unamortized discount of $993 | 4/6/2011 | 5/1/2021 | $ | 449,007 | $ | — | ||||||||
| Prudential senior notes: | ||||||||||||||
| 6.13% Series G senior notes | 8/8/2006 | 8/8/2013 | 75,000 | 75,000 | ||||||||||
| 5.84% Series H senior notes | 10/26/2007 | 10/26/2013 | 17,500 | 17,500 | ||||||||||
| 5.84% Series H senior notes | 10/26/2007 | 10/26/2015 | 17,500 | 17,500 | ||||||||||
| 6.28% Series I senior notes | 4/29/2008 | 4/29/2013 | 15,000 | 15,000 | ||||||||||
| 6.28% Series I senior notes | 4/29/2008 | 4/29/2015 | 85,000 | 85,000 | ||||||||||
| 6.85% Series J senior notes | 6/15/2009 | 6/15/2016 | 50,000 | 50,000 | ||||||||||
| Principal senior notes: | ||||||||||||||
| 6.16% Series B senior notes | 8/8/2006 | 8/8/2013 | 25,000 | 25,000 | ||||||||||
| New York Life senior notes: | ||||||||||||||
| 5.87% Series A senior notes | 10/26/2007 | 10/26/2013 | 17,500 | 17,500 | ||||||||||
| 5.87% Series A senior notes | 10/26/2007 | 10/26/2015 | 17,500 | 17,500 | ||||||||||
| 6.35% Series B senior notes | 4/29/2008 | 4/29/2015 | 50,000 | 50,000 | ||||||||||
| Aviva Investors North America: | ||||||||||||||
| 6.46% Series A senior notes | 4/27/2009 | 4/27/2013 | 30,000 | 30,000 | ||||||||||
| Capital lease obligations and other | Various | Various | 4,573 | 1,826 | ||||||||||
| Long-term debt | $ | 853,580 | $ | 401,826 | ||||||||||
| Total debt | $ | 1,019,250 | $ | 839,543 | ||||||||||
| Issuance | Maturity | June 30, | December 31, | |||||||||
| Date | Date | 2012 | 2011 | |||||||||
Short-term debt and current portion of long-term debt: | ||||||||||||
Syndicated revolving credit facility | Various | Various | $ | 150,000 | $ | — | ||||||
Prudential senior notes: | ||||||||||||
6.28% Series I senior notes | 4/29/2008 | 4/29/2013 | 15,000 | — | ||||||||
Aviva Investors senior notes: | ||||||||||||
6.46% Series A senior notes | 4/27/2009 | 4/27/2013 | 30,000 | — | ||||||||
Capital lease obligations and other | Various | Various | 6,783 | 5,554 | ||||||||
|
|
|
| |||||||||
Short-term debt and current portion of long-term debt | 201,783 | 5,554 | ||||||||||
|
|
|
| |||||||||
Long-term debt: | ||||||||||||
Verisk senior notes: | ||||||||||||
5.800% senior notes, less unamortized discount of $915 and $967 as of June 30, 2012 and December 31, 2011, respectively | 4/6/2011 | 5/1/2021 | 449,085 | 449,033 | ||||||||
4.875% senior notes, less unamortized discount of $2,207 and $2,376 as of June 30, 2012 and December 31, 2011, respectively | 12/8/2011 | 1/15/2019 | 247,793 | 247,624 | ||||||||
Prudential senior notes: | ||||||||||||
6.13% Series G senior notes | 8/8/2006 | 8/8/2013 | 75,000 | 75,000 | ||||||||
5.84% Series H senior notes | 10/26/2007 | 10/26/2013 | 17,500 | 17,500 | ||||||||
5.84% Series H senior notes | 10/26/2007 | 10/26/2015 | 17,500 | 17,500 | ||||||||
6.28% Series I senior notes | 4/29/2008 | 4/29/2013 | — | 15,000 | ||||||||
6.28% Series I senior notes | 4/29/2008 | 4/29/2015 | 85,000 | 85,000 | ||||||||
6.85% Series J senior notes | 6/15/2009 | 6/15/2016 | 50,000 | 50,000 | ||||||||
Principal senior notes: | ||||||||||||
6.16% Series B senior notes | 8/8/2006 | 8/8/2013 | 25,000 | 25,000 | ||||||||
New York Life senior notes: | ||||||||||||
5.87% Series A senior notes | 10/26/2007 | 10/26/2013 | 17,500 | 17,500 | ||||||||
5.87% Series A senior notes | 10/26/2007 | 10/26/2015 | 17,500 | 17,500 | ||||||||
6.35% Series B senior notes | 4/29/2008 | 4/29/2015 | 50,000 | 50,000 | ||||||||
Aviva Investors senior notes: | ||||||||||||
6.46% Series A senior notes | 4/27/2009 | 4/27/2013 | — | 30,000 | ||||||||
Capital lease obligations and other | Various | Various | 2,517 | 3,675 | ||||||||
|
|
|
| |||||||||
Long-term debt | 1,054,395 | 1,100,332 | ||||||||||
|
|
|
| |||||||||
Total debt | $ | 1,256,178 | $ | 1,105,886 | ||||||||
|
|
|
| |||||||||
As of June 30, 2012, the Company joinedhas a borrowing capacity of $725,000 under the syndicated revolving credit facility to increase the capacity by $25,000,with Bank of America N.A., JPMorgan Chase Bank N.A., Morgan Stanley Bank N.A., Wells Fargo Bank N.A., Sovereign Bank, RBS Citizens, N.A., Sun Trust Bank, The Northern Trust Company, and TD Bank N.A. Borrowings may be used for a $600,000 total commitment. On March 28,general corporate purposes, including working capital and capital expenditures, acquisitions and share repurchase programs. This committed senior unsecured facility expires in October 2016. As of June 30, 2012 and December 31, 2011, the Company entered into amendments to its revolving credit facilityhad $150,000 and its master shelf agreements to, among other things, permit$0 outstanding under this agreement, respectively. On July 2, 2012, the issuanceCompany repaid $10,000 of the senior notes and guarantees noted below.
14
9. Stockholders’ Deficit:
The Company authorized 335,000,000has 1,200,000,000 shares of ISO Class A redeemable common stock. Effective with the corporate reorganization on October 6, 2009, the ISO Class A redeemable common stock and all Verisk Class B shares sold into the IPO were converted to Veriskauthorized Class A common stock on a one-for-one basis. In addition, the Verisk Class A common stock authorized was increased to 1,200,000,000 shares. The Verisk Class A common shares have rights to any dividend declared by the board of directors, subject to any preferential or other rights of any outstanding preferred stock, and voting rights to elect eight of theall eleven members of the board of directors. The eleventh seat on the board of directors is held by the CEO of the Company.
Share Repurchase Program
The Company has authorized repurchases of directors authorized aup to $900,000 of its common stock through its share repurchase program of the Company’s common stock (the “Repurchase Program”). Under the Repurchase Program, and as of June 30, 2012, the Company mayhad $199,737 available to repurchase up to $600,000 of stock, in the open market or as otherwise determined by the Company.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 Analytics, Inc. 2009 Equity Incentive Plan (the “Incentive Plan”) and the Insurance Services Office, Inc.ISO 1996 Incentive Plan (the “Option 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.
15
Earnings Per Share (“EPS”)
Basic earnings per common shareEPS 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 nine-month periodsthree and six months ended SeptemberJune 30, 20112012 and 2010:
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Numerator used in basic and diluted EPS: | ||||||||||||||||
| Net income | $ | 70,987 | $ | 62,880 | $ | 202,440 | $ | 176,659 | ||||||||
| Denominator: | ||||||||||||||||
| Weighted average number of common shares used in basic EPS | 164,195,325 | 178,687,236 | 166,728,786 | 179,744,297 | ||||||||||||
| Effect of dilutive shares: | ||||||||||||||||
| Potential Class A common stock issuable from stock options and stock awards | 6,974,333 | 8,501,431 | 7,527,179 | 8,984,141 | ||||||||||||
| Weighted average number of common shares and dilutive potential common shares used in diluted EPS | 171,169,658 | 187,188,667 | 174,255,965 | 188,728,438 | ||||||||||||
| Basic EPS of Class A and Class B | $ | 0.43 | $ | 0.35 | $ | 1.21 | $ | 0.98 | ||||||||
| Diluted EPS of Class A and Class B | $ | 0.41 | $ | 0.34 | $ | 1.16 | $ | 0.94 | ||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, 2012 | June 30, 2011 | June 30, 2012 | June 30, 2011 | |||||||||||||
Numerator used in basic and diluted EPS: | ||||||||||||||||
Net income | $ | 73,331 | $ | 65,577 | $ | 147,932 | $ | 131,453 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Denominator: | ||||||||||||||||
Weighted average number of common shares used in basic EPS | 165,946,009 | 166,960,806 | 165,391,500 | 167,995,517 | ||||||||||||
Effect of dilutive shares: | ||||||||||||||||
Potential Class A common shares issuable from stock options and stock awards | 5,955,340 | 7,673,240 | 6,234,584 | 7,803,603 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Weighted average number of common shares and dilutive potential common shares used in diluted EPS | 171,901,349 | 174,634,046 | 171,626,084 | 175,799,120 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Basic net income per share | $ | 0.44 | $ | 0.39 | $ | 0.89 | $ | 0.78 | ||||||||
|
|
|
|
|
|
|
| |||||||||
Diluted net income per share | $ | 0.43 | $ | 0.38 | $ | 0.86 | $ | 0.75 | ||||||||
|
|
|
|
|
|
|
| |||||||||
The potential shares of common stock that were excluded from diluted EPS were 1,555,507781,505 and 2,151,6461,402,980 for the ninesix months ended SeptemberJune 30, 20112012 and 2010,2011, 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:
| September 30, | December 31, | |||||||
| 2011 | 2010 | |||||||
| Unrealized gains on investments, net of tax | $ | 183 | $ | 725 | ||||
| Unrealized foreign currency losses | (774 | ) | (792 | ) | ||||
| Pension and postretirement unfunded liability adjustment, net of tax | (53,065 | ) | (55,736 | ) | ||||
| Accumulated other comprehensive losses | $ | (53,656 | ) | $ | (55,803 | ) | ||
| June 30, | December 31, | |||||||
| 2012 | 2011 | |||||||
Unrealized (losses)/gains on investments, net of tax | $ | (44 | ) | $ | 269 | |||
Unrealized foreign currency losses | (1,109 | ) | (975 | ) | ||||
Pension and postretirement unfunded liability adjustment, net of tax | (76,201 | ) | (77,581 | ) | ||||
|
|
|
| |||||
Accumulated other comprehensive losses | $ | (77,354 | ) | $ | (78,287 | ) | ||
|
|
|
| |||||
16
| Tax Benefit/ | ||||||||||||
| Before Tax | (Expense) | After Tax | ||||||||||
For the Nine Months Ended September 30, 2011 | ||||||||||||
| Unrealized holding loss on investments arising during the year | $ | (926 | ) | $ | 384 | $ | (542 | ) | ||||
| Unrealized foreign currency gain | 18 | — | 18 | |||||||||
| Pension and postretirement unfunded liability adjustment | 3,978 | (1,307 | ) | 2,671 | ||||||||
| Total other comprehensive income | $ | 3,070 | $ | (923 | ) | $ | 2,147 | |||||
For the Nine Months Ended September 30, 2010 | ||||||||||||
| Unrealized holding gain on investments arising during the year | $ | 156 | $ | (65 | ) | $ | 91 | |||||
| Unrealized foreign currency loss | (11 | ) | — | (11 | ) | |||||||
| Pension and postretirement unfunded liability adjustment | 4,278 | (1,682 | ) | 2,596 | ||||||||
| Total other comprehensive income | $ | 4,423 | $ | (1,747 | ) | $ | 2,676 | |||||
All of the Company’s granted equity awards, including outstanding stock options and restricted stock, are covered under the Incentive Plan or the Option Plan. Awards under the Incentive Plan may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance awards, (vi) other share-basedshare based awards, and (vii) cash. Employees, directors and consultants are eligible for awards under the Incentive Plan. On July 1, 2011, the Company began issuing Class A common stock under these plans from the Company’s treasury shares. Cash received from stock option exercises for the ninesix months ended SeptemberJune 30, 2012 and 2011 was $33,453 and 2010 was $28,433 and $20,161,$18,032, respectively. On July 1, 2011,2012, the Company granted 2,5063,174 shares of Class A common stock, 34,01123,027 nonqualified stock options that were immediately vested and 125,50096,750 nonqualified stock options with a one year service vesting period, to the directors of the Company. These options have an exercise price equal to the closing price of the Company’s Class A common stock on the grant date and a ten year contractual term.
On April 1, 2011,2012, the Company granted 1,401,308785,079 nonqualified stock options and 146,664229,009 shares of restricted stock to key employees. The nonqualified stock options have an exercise price equal to the closing price of the Company’s Class A common stock on the grant date,March 30, 2012, 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 Class A common stock on the date of grantMarch 30, 2012 and has a service vesting period of four years. The Company recognizes the expense of the restricted stock ratably over the periods in which the restrictions lapse. The restricted stock is not assignable or transferrable until it becomes vested. As of September 30, 2011, there were 6,955,761 shares of Class A common stock reserved and available for future issuance.
The fair value of the stock options granted during the ninesix months ended SeptemberJune 30, 20112012 and 20102011 was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table:
| September 30, 2011 | September 30, 2010 | |||||||
| Option pricing model | Black-Scholes | Black-Scholes | ||||||
| Expected volatility | 30.44% | 31.08% | ||||||
| Risk-free interest rate | 2.21% | 2.39% | ||||||
| Expected term in years | 5.1 | 4.8 | ||||||
| Dividend yield | 0.00% | 0.00% | ||||||
| Weighted average grant date fair value per stock option | $10.42 | $8.73 | ||||||
| 2012 | 2011 | |||||||
Option pricing model | Black-Scholes | Black-Scholes | ||||||
Expected volatility | 32.25 | % | 30.04 | % | ||||
Risk-free interest rate | 0.97 | % | 2.32 | % | ||||
Expected term in years | 4.8 | 5.3 | ||||||
Dividend yield | 0.00 | % | 0.00 | % | ||||
Weighted average grant date fair value per stock option | $ | 13.70 | $ | 10.48 | ||||
The expected term for a majority of the stock options granted was estimated based on studies of historical experience and projected exercise behavior. However, for certain stock options granted, for which no historical exercise pattern exists, the expected term was estimated using the simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. The volatility factor was based on the average volatility of the 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.
17
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||
| Weighted | Weighted | Weighted | Weighted | |||||||||||||||||||||
| Average | Stock | Average | Average | Stock | Average | |||||||||||||||||||
| Range of | Remaining | Options | Exercise Price | Remaining | Options | Exercise Price | ||||||||||||||||||
| Exercise Prices | Contractual Life | Outstanding | Per Share | Contractual Life | Exercisable | Per Share | ||||||||||||||||||
| $2.16 to $2.96 | 1.3 | 750,980 | $ | 2.74 | 1.3 | 750,980 | $ | 2.74 | ||||||||||||||||
| $2.97 to $4.80 | 1.9 | 2,970,500 | $ | 3.91 | 1.9 | 2,970,500 | $ | 3.91 | ||||||||||||||||
| $4.81 to $8.90 | 3.7 | 3,649,100 | $ | 8.52 | 3.7 | 3,649,100 | $ | 8.52 | ||||||||||||||||
| $8.91 to $15.10 | 5.0 | 2,129,805 | $ | 13.56 | 5.0 | 2,129,805 | $ | 13.56 | ||||||||||||||||
| $15.11 to $17.84 | 7.0 | 5,147,527 | $ | 16.68 | 6.9 | 3,067,652 | $ | 16.85 | ||||||||||||||||
| $17.85 to $22.00 | 8.0 | 2,707,879 | $ | 22.00 | 8.0 | 411,646 | $ | 22.00 | ||||||||||||||||
| $22.01 to $34.91 | 9.0 | 3,577,496 | $ | 30.58 | 8.6 | 647,660 | $ | 29.08 | ||||||||||||||||
| 20,933,287 | 13,627,343 | |||||||||||||||||||||||
| Weighted | ||||||||||||
| Average | Aggregate | |||||||||||
| Number | Exercise Price | Intrinsic | ||||||||||
| of Options | Per Share | Value | ||||||||||
| Outstanding at December 31, 2010 | 23,057,857 | $ | 13.35 | $ | 478,014 | |||||||
| Granted | 1,574,705 | $ | 33.46 | |||||||||
| Exercised | (3,540,589 | ) | $ | 8.03 | $ | 90,706 | ||||||
| Cancelled or expired | (158,686 | ) | $ | 22.44 | ||||||||
| Outstanding at September 30, 2011 | 20,933,287 | $ | 15.69 | $ | 399,354 | |||||||
| Options exercisable at September 30, 2011 | 13,627,343 | $ | 11.25 | $ | 320,578 | |||||||
| Options exercisable at December 31, 2010 | 14,820,447 | $ | 9.22 | $ | 368,466 | |||||||
| Number of Options | Weighted Average Exercise Price | Aggregate Intrinsic Value | ||||||||||
Outstanding at December 31, 2011 | 18,896,405 | $ | 16.55 | $ | 445,510 | |||||||
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| |||||||||||
Granted | 785,079 | $ | 46.97 | |||||||||
Exercised | (3,750,300 | ) | $ | 8.94 | $ | 133,338 | ||||||
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| |||||||||||
Cancelled or expired | (256,133 | ) | $ | 11.88 | ||||||||
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| |||||||||||
Outstanding at June 30, 2012 | 15,675,051 | $ | 19.97 | $ | 459,054 | |||||||
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| |||||||||
Options exercisable at June 30, 2012 | 10,387,287 | $ | 15.68 | $ | 348,780 | |||||||
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| |||||||||
Options exercisable at December 31, 2011 | 12,153,311 | $ | 12.35 | $ | 337,647 | |||||||
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| |||||||||
Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of Verisk’s common stock as of the reporting date. The aggregate intrinsic value of stock options outstanding and exercisable at SeptemberJune 30, 20112012 was $399,354$459,054 and $320,578,$348,780, respectively. In accordance with ASC 718,Stock Compensation, excess tax benefit from exercised stock options is recorded as an increase to additional paid-in capital and a corresponding reduction in 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 ninesix months ended SeptemberJune 30, 20112012 and 2010,2011, the Company recorded excess tax benefit from stock options exercised of $35,643$49,974 and $23,442,$16,530, respectively. The Company realized $5,470$31,624 and $15,083$5,470 of tax benefit within the Company’s quarterly tax payments through SeptemberJune 30, 2012 and 2011, and 2010, respectively.
18
A summary of the status of the restricted stock awarded under the Incentive Plan as of December 31, 20102011 and SeptemberJune 30, 20112012 and changes during the interim period areis presented below:
| Number | Weighted average grant | |||||||
| of shares | date fair value per share | |||||||
| Outstanding at December 31, 2010 | — | $ | — | |||||
| Granted | 150,187 | 33.27 | ||||||
| Forfeited | (2,441 | ) | 33.30 | |||||
| Outstanding at September 30, 2011 | 147,746 | $ | 33.27 | |||||
| Number | Weighted average grant date fair value | |||||||
| of shares | ||||||||
Outstanding at December 31, 2011 | 145,634 | $ | 33.32 | |||||
Granted | 229,009 | $ | 46.97 | |||||
Vested | (36,752 | ) | $ | 33.48 | ||||
Forfeited | (2,779 | ) | $ | 38.44 | ||||
|
| |||||||
Outstanding at June 30, 2012 | 335,112 | $ | 42.57 | |||||
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| |||||||
As of SeptemberJune 30, 2011,2012, there was $44,186$47,945 of total unrecognized compensation costcosts related to nonvested share-based compensation arrangements granted under the Incentive Plan and the Option Plan. That cost is expected to be recognized over a weighted average period of 2.522.75 years. As of SeptemberJune 30, 2011,2012, there were 7,305,9445,287,764 and 147,746335,112 nonvested stock options and restricted stock, respectively, of which 6,301,9924,673,449 and 122,125285,007 are expected to vest. The total grant date fair value of options vested during the ninesix months ended SeptemberJune 30, 2012 and 2011 was $10,053 and 2010 was $15,385 and $11,749,$9,838, respectively. The total grant date fair value of restricted stock vested during the ninesix months ended SeptemberJune 30, 2012 and 2011 was $604.
On May 16, 2012, the Company’s stockholders approved the implementation of an employee stock purchase plan (“ESPP”). The ESPP will commence on October 1, 2012 and offer 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 Class A 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.
11. Pension and Postretirement Benefits:
The Company maintained a qualified defined benefit pension plan for substantially all of its employees hired prior to March 1, 2005 through membership in the Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. The Company has applied the projected unit credit cost method for its Pension Plan, which attributes an equal portion of total projectedFuture benefits provided to each year of employee service. Effective January 1, 2002, the Company amendedparticipants within the Pension Plan to determine future benefitsare determined using a cash balance formula. Under the cash balance formula, each participant has an account, which is credited annually based on salary rates determined by years of service, as well as the interest earned on their previous year-end cash balance. Prior to December 31, 2001, pension plan benefits were based on years of service and the average of the five highest consecutive years’ earnings of the last ten years. Effective March 1, 2005, the Company established theThe Profit Sharing Plan, a defined contribution plan, to replacereplaced the Pension Plan for all eligible employees hired on or after March 1, 2005. The Company also has a nonqualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from the general assets of the Company.
On February 29, 2012, the Company instituted a hard freeze, which eliminated all future compensation and services credits, to participants in the Pension Plan and SERP. Accordingly, the Company remeasured the assets and liabilities of both plans and recognized a curtailment, resulting in a net reduction in the unfunded pension liability of $10,466 as of March 31, 2012. There is no longer a service cost component in the net periodic benefit cost as all participants are considered inactive in both plans. The Company generally amortized the actuarial gains and losses for the plans over the average future service period of the active participants. However, beginning February 29, 2012, the Company is amortizing the actuarial losses over the remaining life of the inactive plan participants since all are now considered inactive. The February 29, 2012 remeasurement utilized a weighted average discount rate of 4.73%, compared to the rate of 4.98% used for the year ended December 31, 2011.
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.
19
| For the Three Months Ended September 30, | ||||||||||||||||
| Pension Plan | Postretirement Plan | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Service cost | $ | 1,590 | $ | 1,603 | $ | — | $ | — | ||||||||
| Interest cost | 5,442 | 5,341 | 251 | 377 | ||||||||||||
| Expected return on plan assets | (6,449 | ) | (5,662 | ) | — | — | ||||||||||
| Amortization of prior service cost | (200 | ) | (200 | ) | (37 | ) | (37 | ) | ||||||||
| Amortization of net actuarial loss | 1,384 | 1,517 | 163 | 72 | ||||||||||||
| Net periodic benefit cost | $ | 1,767 | $ | 2,599 | $ | 377 | $ | 412 | ||||||||
| Employer contributions | $ | 6,489 | $ | 5,512 | $ | 1,125 | $ | 891 | ||||||||
| For the Nine Months Ended September 30, | ||||||||||||||||
| Pension Plan | Postretirement Plan | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Service cost | $ | 4,771 | $ | 4,810 | $ | — | $ | — | ||||||||
| Interest cost | 16,280 | 16,024 | 753 | 908 | ||||||||||||
| Expected return on plan assets | (19,348 | ) | (16,987 | ) | — | — | ||||||||||
| Amortization of prior service cost | (601 | ) | (601 | ) | (109 | ) | (110 | ) | ||||||||
| Amortization of net actuarial loss | 4,199 | 4,550 | 489 | 439 | ||||||||||||
| Net periodic benefit cost | $ | 5,301 | $ | 7,796 | $ | 1,133 | $ | 1,237 | ||||||||
| Employer contributions | $ | 19,144 | $ | 15,223 | $ | 2,507 | $ | 2,944 | ||||||||
| Pension Plan and SERP | Postretirement Plan | |||||||||||||||
| For the Three Months Ended June 30, | ||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost | $ | — | $ | 1,611 | $ | — | $ | — | ||||||||
Interest cost | 4,883 | 5,397 | 175 | 251 | ||||||||||||
Expected return on plan assets | (7,279 | ) | (6,434 | ) | (120 | ) | — | |||||||||
Amortization of prior service credit | — | (201 | ) | (37 | ) | (36 | ) | |||||||||
Amortization of net actuarial loss | 610 | 1,406 | 137 | 163 | ||||||||||||
|
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| |||||||||
Net periodic benefit (credit)/cost | $ | (1,786 | ) | $ | 1,779 | $ | 155 | $ | 378 | |||||||
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| |||||||||
Employer contributions | $ | 72,362 | $ | 6,487 | $ | 5,583 | $ | 1,067 | ||||||||
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| |||||||||
| For the Six Months Ended June 30, | ||||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
Service cost | $ | 282 | $ | 3,181 | $ | — | $ | — | ||||||||
Interest cost | 10,037 | 10,838 | 350 | 502 | ||||||||||||
Expected return on plan assets | (14,347 | ) | (12,899 | ) | (120 | ) | — | |||||||||
Curtailment gain | (779 | ) | — | — | — | |||||||||||
Amortization of prior service credit | (133 | ) | (401 | ) | (75 | ) | (72 | ) | ||||||||
Amortization of net actuarial loss | 2,351 | 2,815 | 275 | 326 | ||||||||||||
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| �� |
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| ||||||||
Net periodic benefit (credit)/cost | $ | (2,589 | ) | $ | 3,534 | $ | 430 | $ | 756 | |||||||
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Employer contributions | $ | 79,355 | $ | 12,655 | $ | 9,652 | $ | 1,382 | ||||||||
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In March 2012, the Company established a voluntary employees beneficiary association plan (the “VEBA Plan”) under Section 501(c)(9) of the Internal Revenue Code to fund the Postretirement Plan. The expected contributionsCompany contributed $5,000 and $8,500 to the PensionVEBA Plan for the three and six months ended June 30, 2012, respectively. The contribution to the Postretirement Plan for the remaining quarters for the year ending December 31, 2011 are2012 is expected to be consistent with this quarter. In addition, in April 2012, the amounts previously disclosed asCompany completed a voluntary prefunding to the Pension Plan of $72,000, which resulted in a total contribution of $78,837 for the year, of which $28,206 was the minimum contribution requirement for 2012. Since the Company has fulfilled the minimum contribution requirement for the year ending December 31, 2010.
12. Segment Reporting:
ASC 280-10,Disclosures About Segments of an Enterprise and Related Information(“ (“ASC 280-10”), establishes standards for reporting information about operating segments. ASC 280-10 requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s CEOChief Executive Officer and Chairman of the Board 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.
Effective December 31, 2011, the Company provided additional disclosure about its revenue within Decision Analytics segment based on the industry vertical groupings of insurance, mortgage and financial services, healthcare, and specialized markets. Previously, the Company disclosed revenues based on the classification of its solutions as fraud identification and detection solutions, loss prediction solutions and loss quantification solutions.
20Risk 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.
2011.
21
| For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||
| September 30, 2011 | September 30, 2010 | |||||||||||||||||||||||
| Risk | Decision | Risk | Decision | |||||||||||||||||||||
| Assessment | Analytics | Total | Assessment | Analytics | Total | |||||||||||||||||||
| Revenues | $ | 139,977 | $ | 200,121 | $ | 340,098 | $ | 136,269 | $ | 151,085 | $ | 287,354 | ||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 49,209 | 88,410 | 137,619 | 49,526 | 67,479 | 117,005 | ||||||||||||||||||
| Selling, general and administrative | 20,065 | 31,410 | 51,475 | 20,341 | 20,641 | 40,982 | ||||||||||||||||||
| Acquisition related liabilities adjustment | — | — | — | — | (544 | ) | (544 | ) | ||||||||||||||||
| Segment EBITDA | 70,703 | 80,301 | 151,004 | 66,402 | 63,509 | 129,911 | ||||||||||||||||||
| Depreciation and amortization of fixed assets | 3,354 | 7,444 | 10,798 | 4,231 | 5,804 | 10,035 | ||||||||||||||||||
| Amortization of intangible assets | 37 | 8,760 | 8,797 | 36 | 6,122 | 6,158 | ||||||||||||||||||
| Operating income | 67,312 | 64,097 | 131,409 | 62,135 | 51,583 | 113,718 | ||||||||||||||||||
| Unallocated expenses: | ||||||||||||||||||||||||
| Investment income | 99 | 59 | ||||||||||||||||||||||
| Realized (loss)/gain on securities, net | (86 | ) | 9 | |||||||||||||||||||||
| Interest expense | (14,593 | ) | (8,484 | ) | ||||||||||||||||||||
| Income before income taxes | $ | 116,829 | $ | 105,302 | ||||||||||||||||||||
| Capital expenditures, including non-cash purchases of fixed assets and capital lease obligations | $ | 2,117 | $ | 11,778 | $ | 13,895 | $ | 3,154 | $ | 4,220 | $ | 7,374 | ||||||||||||
| For the Nine Months Ended | For the Nine Months Ended | |||||||||||||||||||||||
| September 30, 2011 | September 30, 2010 | |||||||||||||||||||||||
| Risk | Decision | Risk | Decision | |||||||||||||||||||||
| Assessment | Analytics | Total | Assessment | Analytics | Total | |||||||||||||||||||
| Revenues | $ | 421,050 | $ | 559,197 | $ | 980,247 | $ | 405,136 | $ | 440,049 | $ | 845,185 | ||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 145,519 | 247,841 | 393,360 | 148,076 | 198,922 | 346,998 | ||||||||||||||||||
| Selling, general and administrative | 62,537 | 94,103 | 156,640 | 58,964 | 62,170 | 121,134 | ||||||||||||||||||
| Acquisition related liabilities adjustment | — | (3,364 | ) | (3,364 | ) | — | (544 | ) | (544 | ) | ||||||||||||||
| Segment EBITDA | 212,994 | 220,617 | 433,611 | 198,096 | 179,501 | 377,597 | ||||||||||||||||||
| Depreciation and amortization of fixed assets | 11,202 | 21,756 | 32,958 | 12,717 | 17,191 | 29,908 | ||||||||||||||||||
| Amortization of intangible assets | 109 | 26,020 | 26,129 | 109 | 20,373 | 20,482 | ||||||||||||||||||
| Operating income | 201,683 | 172,841 | 374,524 | 185,270 | 141,937 | 327,207 | ||||||||||||||||||
| Unallocated expenses: | ||||||||||||||||||||||||
| Investment income | 99 | 183 | ||||||||||||||||||||||
| Realized gain on securities, net | 401 | 70 | ||||||||||||||||||||||
| Interest expense | (39,093 | ) | (25,395 | ) | ||||||||||||||||||||
| Income before income taxes | $ | 335,931 | $ | 302,065 | ||||||||||||||||||||
| Capital expenditures, including non-cash purchases of fixed assets and capital lease obligations | $ | 8,906 | $ | 39,342 | $ | 48,248 | $ | 6,543 | $ | 17,671 | $ | 24,214 | ||||||||||||
| For the Three Months Ended | For the Three Months Ended | |||||||||||||||||||||||
| June 30, 2012 | June 30, 2011 | |||||||||||||||||||||||
| Decision | Risk | Decision | Risk | |||||||||||||||||||||
| Analytics | Assessment | Total | Analytics | Assessment | Total | |||||||||||||||||||
Revenues | $ | 229,037 | $ | 144,189 | $ | 373,226 | $ | 186,750 | $ | 140,530 | $ | 327,280 | ||||||||||||
Expenses: | ||||||||||||||||||||||||
Cost of revenues (exclusive of items shown separately below) | 101,769 | 45,305 | 147,074 | 82,132 | 49,053 | 131,185 | ||||||||||||||||||
Selling, general and administrative | 39,562 | 22,911 | 62,473 | 32,564 | 23,345 | 55,909 | ||||||||||||||||||
Acquisition related liabilities adjustment | — | — | — | (3,364 | ) | — | (3,364 | ) | ||||||||||||||||
Investment (income)/loss and realized loss/(gain) on securities, net | — | (126 | ) | (126 | ) | — | (115 | ) | (115 | ) | ||||||||||||||
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| �� |
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EBITDA | 87,706 | 76,099 | 163,805 | 75,418 | 68,247 | 143,665 | ||||||||||||||||||
Depreciation and amortization of fixed assets | 9,021 | 4,069 | 13,090 | 7,325 | 3,530 | 10,855 | ||||||||||||||||||
Amortization of intangible assets | 12,187 | — | 12,187 | 8,841 | 36 | 8,877 | ||||||||||||||||||
Investment income/(loss) and realized (loss)/gain on securities, net | — | 126 | 126 | — | 115 | 115 | ||||||||||||||||||
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Operating income | $ | 66,498 | $ | 71,904 | 138,402 | $ | 59,252 | $ | 64,566 | 123,818 | ||||||||||||||
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Investment income/(loss) and realized (loss)/gain on securities, net | 126 | 115 | ||||||||||||||||||||||
Interest expense | (17,377 | ) | (14,885 | ) | ||||||||||||||||||||
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Income before income taxes | $ | 121,151 | $ | 109,048 | ||||||||||||||||||||
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| |||||||||||||||||||||
Capital expenditures, including noncash purchases of fixed assets and capital lease obligations | $ | 16,425 | $ | 5,645 | $ | 22,070 | $ | 12,219 | $ | 3,394 | $ | 15,613 | ||||||||||||
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22
| For the Six Months Ended | For the Six Months Ended | |||||||||||||||||||||||
| June 30, 2012 | June 30, 2011 | |||||||||||||||||||||||
| Decision | Risk | Decision | Risk | |||||||||||||||||||||
| Analytics | Assessment | Total | Analytics | Assessment | Total | |||||||||||||||||||
Revenues | $ | 430,569 | $ | 289,158 | $ | 719,727 | $ | 359,076 | $ | 281,073 | $ | 640,149 | ||||||||||||
Expenses: | ||||||||||||||||||||||||
Cost of revenues (exclusive of items shown separately below) | 189,667 | 90,737 | 280,404 | 159,431 | 96,310 | 255,741 | ||||||||||||||||||
Selling, general and administrative | 73,939 | 42,513 | 116,452 | 62,693 | 42,472 | 105,165 | ||||||||||||||||||
Acquisition related liabilities adjustment | — | — | — | (3,364 | ) | — | (3,364 | ) | ||||||||||||||||
Investment income and realized gain on securities, net | — | (561 | ) | (561 | ) | — | (487 | ) | (487 | ) | ||||||||||||||
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| |||||||||||||
EBITDA | 166,963 | 156,469 | 323,432 | 140,316 | 142,778 | 283,094 | ||||||||||||||||||
Depreciation and amortization of fixed assets | 17,506 | 7,228 | 24,734 | 14,312 | 7,848 | 22,160 | ||||||||||||||||||
Amortization of intangible assets | 20,774 | — | 20,774 | 17,260 | 72 | 17,332 | ||||||||||||||||||
Investment income and realized gain on securities, net | — | 561 | 561 | — | 487 | 487 | ||||||||||||||||||
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Operating income | $ | 128,683 | $ | 148,680 | 277,363 | $ | 108,744 | $ | 134,371 | 243,115 | ||||||||||||||
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Investment income and realized gain on securities, net | 561 | 487 | ||||||||||||||||||||||
Interest expense | (33,762 | ) | (24,500 | ) | ||||||||||||||||||||
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| |||||||||||||||||||||
Income before income taxes | $ | 244,162 | $ | 219,102 | ||||||||||||||||||||
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| |||||||||||||||||||||
Capital expenditures, including noncash purchases of fixed assets and capital lease obligations | $ | 29,657 | $ | 8,345 | $ | 38,002 | $ | 27,564 | $ | 6,789 | $ | 34,353 | ||||||||||||
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| |||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | September 30, | September 30, | |||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| Risk Assessment: | ||||||||||||||||
| Industry-standard insurance programs | $ | 92,894 | $ | 88,644 | $ | 278,140 | $ | 264,115 | ||||||||
| Property-specific rating and underwriting information | 33,107 | 34,507 | 102,621 | 102,733 | ||||||||||||
| Statistical agency and data services | 7,888 | 7,510 | 23,263 | 21,879 | ||||||||||||
| Actuarial services | 6,088 | 5,608 | 17,026 | 16,409 | ||||||||||||
| Total Risk Assessment | 139,977 | 136,269 | 421,050 | 405,136 | ||||||||||||
| Decision Analytics: | ||||||||||||||||
| Fraud identification and detection solutions | 94,663 | 81,584 | 274,317 | 239,574 | ||||||||||||
| Loss prediction solutions | 64,680 | 38,079 | 173,026 | 114,786 | ||||||||||||
| Loss quantification solutions | 40,778 | 31,422 | 111,854 | 85,689 | ||||||||||||
| Total Decision Analytics | 200,121 | 151,085 | 559,197 | 440,049 | ||||||||||||
| Total revenues | $ | 340,098 | $ | 287,354 | $ | 980,247 | $ | 845,185 | ||||||||
| For the Three Months Ended | For the Six Months Ended | |||||||||||||||
| June 30, 2012 | June 30, 2011 | June 30, 2012 | June 30, 2011 | |||||||||||||
Decision Analytics: | ||||||||||||||||
Insurance | $ | 122,210 | $ | 112,334 | $ | 238,546 | $ | 217,634 | ||||||||
Mortgage and financial services | 35,299 | 35,643 | 69,574 | 68,339 | ||||||||||||
Healthcare | 50,381 | 19,322 | 80,829 | 34,939 | ||||||||||||
Specialized markets | 21,147 | 19,451 | 41,620 | 38,164 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Decision Analytics | 229,037 | 186,750 | 430,569 | 359,076 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Risk Assessment: | ||||||||||||||||
Industry-standard insurance programs | 98,010 | 92,389 | 197,144 | 185,246 | ||||||||||||
Property-specific rating and underwriting information | 32,459 | 35,017 | 65,016 | 69,514 | ||||||||||||
Statistical agency and data services | 8,130 | 7,633 | 15,854 | 15,375 | ||||||||||||
Actuarial services | 5,590 | 5,491 | 11,144 | 10,938 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Risk Assessment | 144,189 | 140,530 | 289,158 | 281,073 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total revenues | $ | 373,226 | $ | 327,280 | $ | 719,727 | $ | 640,149 | ||||||||
|
|
|
|
|
|
|
| |||||||||
13. Related Parties:
The Company considers its Verisk Class A and Class B stockholders that own more than 5% of the outstanding stock within thea respective class to be related parties as defined within ASC 850,Related Party Disclosures. In 2011, all of the Company’s outstanding Class B (Series 1) and Class B (Series 2) shares converted to Class A. As a result of the conversion, the Company had no related parties owning more than 5% of a class of stock as of June 30, 2012.
At SeptemberJune 30, 2011, the related partiesthere were three Class A and five Class B stockholders, each owning more than 5% of the respective outstanding Class B shares compared to six Class B stockholders at September 30, 2010 of which four remained unchanged. At September 30, 2011 and 2010, there were three and five Class A stockholders owning more than 5% of the outstanding Class A shares, respectively.class. The Company had accounts receivable, net of $471 and $515 and fees received in advance of $1,329 and $1,231 from related parties as of September 30, 2011 and December 31, 2010, respectively. In addition, the Company had revenues from related parties for the three months ended SeptemberJune 30, 2012 and 2011 of $0 and 2010 of $4,699 and $14,789,$4,787, respectively, and revenues of $13,882$0 and $45,202$9,183 for the ninesix months ended SeptemberJune 30, 2012 and 2011, and 2010, respectively. Although the customers that make up the Company’s related parties have changed from the prior periods, the Company continues to generate revenues from these customers. As of October 6, 2011, the remaining Class B shares converted to Class A common stock (See Notes 1 and 9 for further information). Subsequently, the Company’s related parties will consist of Verisk Class A stock holders that own more than 5% of the outstanding stock.
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 thosethe matters described below. TheWith 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 theyit may have on the Company’s results of operations, financial position or cash flows. This is primarily because many of these cases remainthe matters are in their early stages and only limited discovery has taken place.either not commenced or been completed. Although the Company believes it has strong defenses for the litigation proceedings described below,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.
Claims Outcome AdvisorCitizens Insurance Litigation
On February 28, 2012, the Company was served with a putative nationwide class action complaint filed in February 2005, in Millerthe Florida State Circuit Court for Pasco County Arkansas state court. Defendants included numerous insurance companiesnaming Citizens Property Insurance Corporation (“Citizens”) and providers of software products used by insurers in paying claims. The Company was among the named defendants. Plaintiffs alleged that certain software products, including the Company’s Claims Outcome Advisor productXactware subsidiary. The complaint alleged a class action seeking declaratory and a competing software product sold by Computer Sciences Corporation, improperly estimated the amount to be paid by insurers to their policyholders in connection with claims for bodily injuries.
23
At this time it is not possible to determine the ultimate resolution of, or estimate the liability related to, this matter.
iiXIntellicorp Records, Inc. Litigation
On April 2010,20, 2012, the Company was served with a complaint filed in Alameda County Superior Court in California naming the Company’s subsidiary Insurance Information Exchange or iiX, as well as other information providers in the State of Missouri were served with a summons and class actionIntellicorp Records, Inc. The complaint filed in the United States District Court for the Western District of Missouri alleging violations of the Driver Privacy Protection Act, or the DPPA, entitledtitledJanice Cook, et al.Jane Roe v. ACS State & Local Solutions,Intellicorp Records, Inc. et al.Plaintiffs brought thealleges a nationwide putative class action on their own behalf and on behalf of all similarly situated individuals whose personal information is contained in any motor vehicle record maintained by the State of Missouri andpersons who have not provided express consentbeen the subject of a consumer report furnished to the State of Missouria third party by Intellicorp for the distribution of their personal information foremployment purposes not enumerated by the DPPA and whose personal information has been knowingly obtained and used byreport contained any negative public record of criminal arrest, charge or conviction during the defendants.5 years preceding the filing of the action until final resolution. The class complaint alleges that Intellicorp failed to implement policies and procedures designed to ensure that criminal record information provided to employers is complete and up to date, and failed to notify class members contemporaneously of the defendants knowingly obtained personalfact that criminal record information was being provided to their employers and prospective employers. The complaint seeks statutory damages for a purposethe class in an amount not authorized by the DPPA and seeks liquidated damages in the amount of two thousand fiveless than one hundred dollars for each instance of aand not more than one thousand dollars per violation, of the DPPA, punitive damages, costs and attorneys fees as well as unspecified monetary damages for the destruction of any illegally obtained personal information. The court granted iiX’s motion to dismiss the complaint based on a failure to state a claim on November 19, 2010. Plaintiffs filed a notice of appeal on December 17, 2010 and oral argument was heard by the Eighth Circuit on September 18, 2011. named plaintiff.
At this time, it is not possible to determine the ultimate resolution of, or estimate the liability related to, this matter.
24
In April and December 2011, Verisk Analytics, Inc. (the “Parent Company”) registered senior notes with full and unconditional and joint and several guarantees by certain of its 100 percent wholly-owned subsidiaries and issued certain other debt securities with full and unconditional and joint and several guarantees by certain of its subsidiaries. Accordingly, presented below is 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 SeptemberJune 30, 20112012 and December 31, 20102011 and for the three and ninesix months ended SeptemberJune 30, 20112012 and 2010.2011. 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.
Effective as of December 31, 2011, ISO Staff Services, Inc. (“ISOSS”), a guarantor of the senior notes, merged with and into ISO, also a guarantor of the senior notes, pursuant to which ISO was the surviving corporation. By virtue of the merger, ISO expressly assumed all of the obligations of ISOSS, including the guarantee by ISOSS of the senior notes. The Company corrected certain classifications on the Condensed Consolidating Statement of Cash Flows for the six-month period ended June 30, 2011 within the Guarantor Subsidiaries, which removed a gross-up in the repayments received from other subsidiaries and repayments of advances to other subsidiaries reflected in cash flows from investing activities and cash flows from financing activities, respectively. This correction did not have any impact on the net cash position of the Guarantor Subsidiaries.
25
As of SeptemberJune 30, 2011
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 197 | $ | 25,275 | $ | 27,374 | $ | — | $ | 52,846 | ||||||||||
| Available-for-sale securities | — | 4,828 | — | — | 4,828 | |||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $4,432 (including amounts from related parties of $471) | — | 128,926 | 23,877 | — | 152,803 | |||||||||||||||
| Prepaid expenses | — | 21,515 | 2,076 | — | 23,591 | |||||||||||||||
| Deferred income taxes, net | — | 2,745 | 936 | — | 3,681 | |||||||||||||||
| Federal and foreign income taxes receivable | 5,166 | — | — | (3,025 | ) | 2,141 | ||||||||||||||
| State and local income taxes receivable | 403 | 2,348 | 855 | — | 3,606 | |||||||||||||||
| Intercompany receivables | 196,007 | 386,106 | 122,998 | (705,111 | ) | — | ||||||||||||||
| Other current assets | — | 13,412 | 14,856 | — | 28,268 | |||||||||||||||
| Total current assets | 201,773 | 585,155 | 192,972 | (708,136 | ) | 271,764 | ||||||||||||||
| Noncurrent assets: | ||||||||||||||||||||
| Fixed assets, net | — | 93,591 | 16,737 | — | 110,328 | |||||||||||||||
| Intangible assets, net | — | 83,982 | 148,551 | — | 232,533 | |||||||||||||||
| Goodwill | — | 484,088 | 228,473 | — | 712,561 | |||||||||||||||
| Deferred income taxes, net | — | 64,565 | — | (41,225 | ) | 23,340 | ||||||||||||||
| State income taxes receivable | — | 1,708 | — | — | 1,708 | |||||||||||||||
| Intercompany note receivable | — | 162,239 | — | (162,239 | ) | — | ||||||||||||||
| Investment in subsidiaries | 540,524 | 105,260 | — | (645,784 | ) | — | ||||||||||||||
| Other assets | 4,103 | 21,638 | 1,958 | — | 27,699 | |||||||||||||||
| Total assets | $ | 746,400 | $ | 1,602,226 | $ | 588,691 | $ | (1,557,384 | ) | $ | 1,379,933 | |||||||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)/EQUITY | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | 14,932 | $ | 97,357 | $ | 34,069 | $ | — | $ | 146,358 | ||||||||||
| Short-term debt and current portion of long-term debt | — | 165,154 | 516 | — | 165,670 | |||||||||||||||
| Pension and postretirement benefits, current | — | 4,663 | — | — | 4,663 | |||||||||||||||
| Fees received in advance (including amounts from related parties of $1,329) | — | 168,207 | 21,103 | — | 189,310 | |||||||||||||||
| Intercompany payables | 279,095 | 256,519 | 169,497 | (705,111 | ) | — | ||||||||||||||
| Federal and foreign income taxes payable | — | 2,002 | 1,023 | (3,025 | ) | — | ||||||||||||||
| Total current liabilities | 294,027 | 693,902 | 226,208 | (708,136 | ) | 506,001 | ||||||||||||||
| Noncurrent liabilities: | ||||||||||||||||||||
| Long-term debt | 449,007 | 404,459 | 114 | — | 853,580 | |||||||||||||||
| Intercompany note payables | 162,239 | — | — | (162,239 | ) | — | ||||||||||||||
| Pension and postretirement benefits | — | 99,419 | — | — | 99,419 | |||||||||||||||
| Deferred income taxes, net | — | — | 41,225 | (41,225 | ) | — | ||||||||||||||
| Other liabilities | — | 76,159 | 3,647 | — | 79,806 | |||||||||||||||
| Total liabilities | 905,273 | 1,273,939 | 271,194 | (911,600 | ) | 1,538,806 | ||||||||||||||
| Total stockholders’ (deficit)/equity | (158,873 | ) | 328,287 | 317,497 | (645,784 | ) | (158,873 | ) | ||||||||||||
| Total liabilities and stockholders’ (deficit)/equity | $ | 746,400 | $ | 1,602,226 | $ | 588,691 | $ | (1,557,384 | ) | $ | 1,379,933 | |||||||||
26
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 511 | $ | 47,729 | $ | 48,958 | $ | — | $ | 97,198 | ||||||||||
Available-for-sale securities | — | 4,782 | — | — | 4,782 | |||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $4,088 | — | 128,269 | 45,338 | — | 173,607 | |||||||||||||||
Prepaid expenses | — | 26,043 | 2,449 | — | 28,492 | |||||||||||||||
Deferred income taxes, net | — | 2,557 | 13,056 | — | 15,613 | |||||||||||||||
Federal and foreign income taxes receivable | 6,717 | 27,429 | — | (6,441 | ) | 27,705 | ||||||||||||||
State and local income taxes receivable | 516 | 2,757 | 365 | — | 3,638 | |||||||||||||||
Intercompany receivables | 349,949 | 528,301 | 182,176 | (1,060,426 | ) | — | ||||||||||||||
Other current assets | 12,000 | 25,898 | 8,562 | — | 46,460 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 369,693 | 793,765 | 300,904 | (1,066,867 | ) | 397,495 | ||||||||||||||
Noncurrent assets: | ||||||||||||||||||||
Fixed assets, net | — | 113,471 | 20,260 | — | 133,731 | |||||||||||||||
Intangible assets, net | — | 72,008 | 291,547 | — | 363,555 | |||||||||||||||
Goodwill | — | 482,110 | 452,652 | — | 934,762 | |||||||||||||||
Deferred income taxes, net | — | 49,957 | — | (49,957 | ) | — | ||||||||||||||
Investment in subsidiaries | 762,711 | 456,126 | — | (1,218,837 | ) | — | ||||||||||||||
Other assets | 10,932 | 11,411 | 1,457 | — | 23,800 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 1,143,336 | $ | 1,978,848 | $ | 1,066,820 | $ | (2,335,661 | ) | $ | 1,853,343 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 13,166 | $ | 93,173 | $ | 47,345 | $ | — | $ | 153,684 | ||||||||||
Short-term debt and current portion of long-term debt | — | 201,248 | 535 | — | 201,783 | |||||||||||||||
Pension and postretirement benefits, current | — | 2,912 | — | — | 2,912 | |||||||||||||||
Fees received in advance | — | 216,848 | 37,032 | — | 253,880 | |||||||||||||||
Intercompany payables | 386,610 | 471,317 | 202,499 | (1,060,426 | ) | — | ||||||||||||||
Federal and foreign taxes payable | — | — | 6,441 | (6,441 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 399,776 | 985,498 | 293,852 | (1,066,867 | ) | 612,259 | ||||||||||||||
Noncurrent liabilities: | ||||||||||||||||||||
Long-term debt | 696,878 | 357,416 | 101 | — | 1,054,395 | |||||||||||||||
Pension and postretirement benefits | — | 35,621 | — | — | 35,621 | |||||||||||||||
Deferred income taxes, net | — | — | 91,837 | (49,957 | ) | 41,880 | ||||||||||||||
Other liabilities | — | 51,909 | 10,597 | — | 62,506 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities | 1,096,654 | 1,430,444 | 396,387 | (1,116,824 | ) | 1,806,661 | ||||||||||||||
Total stockholders’ equity | 46,682 | 548,404 | 670,433 | (1,218,837 | ) | 46,682 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ equity | $ | 1,143,336 | $ | 1,978,848 | $ | 1,066,820 | $ | (2,335,661 | ) | $ | 1,853,343 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
As of December 31, 2010
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
ASSETS | ||||||||||||||||||||
| Current assets: | ||||||||||||||||||||
| Cash and cash equivalents | $ | 1 | $ | 31,576 | $ | 23,397 | $ | — | $ | 54,974 | ||||||||||
| Available-for-sale securities | — | 5,653 | — | — | 5,653 | |||||||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $4,028 (including amounts from related parties of $515) | — | 98,817 | 27,747 | — | 126,564 | |||||||||||||||
| Prepaid expenses | — | 15,566 | 2,225 | — | 17,791 | |||||||||||||||
| Deferred income taxes, net | — | 2,745 | 936 | — | 3,681 | |||||||||||||||
| Federal and foreign income taxes receivable | — | 13,590 | 2,193 | — | 15,783 | |||||||||||||||
| State and local income taxes receivable | — | 7,882 | 1,041 | — | 8,923 | |||||||||||||||
| Intercompany receivables | 101,470 | 668,906 | 59,021 | (829,397 | ) | — | ||||||||||||||
| Other current assets | — | 6,720 | 346 | — | 7,066 | |||||||||||||||
| Total current assets | 101,471 | 851,455 | 116,906 | (829,397 | ) | 240,435 | ||||||||||||||
| Noncurrent assets: | ||||||||||||||||||||
| Fixed assets, net | — | 78,928 | 14,481 | — | 93,409 | |||||||||||||||
| Intangible assets, net | — | 75,307 | 124,922 | — | 200,229 | |||||||||||||||
| Goodwill | — | 449,065 | 183,603 | — | 632,668 | |||||||||||||||
| Deferred income taxes, net | — | 64,421 | — | (42,542 | ) | 21,879 | ||||||||||||||
| State income taxes receivable | — | 1,773 | — | — | 1,773 | |||||||||||||||
| Investment in subsidiaries | 326,387 | 20,912 | — | (347,299 | ) | — | ||||||||||||||
| Other assets | — | 10,248 | 16,449 | — | 26,697 | |||||||||||||||
| Total assets | $ | 427,858 | $ | 1,552,109 | $ | 456,361 | $ | (1,219,238 | ) | $ | 1,217,090 | |||||||||
LIABILITIES AND STOCKHOLDERS’ (DEFICIT)/EQUITY | ||||||||||||||||||||
| Current liabilities: | ||||||||||||||||||||
| Accounts payable and accrued liabilities | $ | — | $ | 95,425 | $ | 16,570 | $ | — | $ | 111,995 | ||||||||||
| Acquisition related liabilities | — | — | 3,500 | — | 3,500 | |||||||||||||||
| Short-term debt and current portion of long-term debt | — | 437,457 | 260 | — | 437,717 | |||||||||||||||
| Pension and postretirement benefits, current | — | 4,663 | — | — | 4,663 | |||||||||||||||
| Fees received in advance (including amounts from related parties of $1,231) | — | 137,521 | 25,486 | — | 163,007 | |||||||||||||||
| Intercompany payables | 542,300 | 165,681 | 121,416 | (829,397 | ) | — | ||||||||||||||
| Total current liabilities | 542,300 | 840,747 | 167,232 | (829,397 | ) | 720,882 | ||||||||||||||
| Noncurrent liabilities: | ||||||||||||||||||||
| Long-term debt | — | 401,788 | 38 | — | 401,826 | |||||||||||||||
| Pension and postretirement benefits | — | 118,611 | — | — | 118,611 | |||||||||||||||
| Deferred income taxes, net | — | — | 42,542 | (42,542 | ) | — | ||||||||||||||
| Other liabilities | — | 71,663 | 18,550 | — | 90,213 | |||||||||||||||
| Total liabilities | 542,300 | 1,432,809 | 228,362 | (871,939 | ) | 1,331,532 | ||||||||||||||
| Total stockholders’ (deficit)/equity | (114,442 | ) | 119,300 | 227,999 | (347,299 | ) | (114,442 | ) | ||||||||||||
| Total liabilities and stockholders’ (deficit)/equity | $ | 427,858 | $ | 1,552,109 | $ | 456,361 | $ | (1,219,238 | ) | $ | 1,217,090 | |||||||||
27
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
| ASSETS | ||||||||||||||||||||
Current assets: | ||||||||||||||||||||
Cash and cash equivalents | $ | 76,238 | $ | 76,813 | $ | 38,552 | $ | — | $ | 191,603 | ||||||||||
Available-for-sale securities | — | 5,066 | — | — | 5,066 | |||||||||||||||
Accounts receivable, net of allowance for doubtful accounts of $4,158 | — | 128,214 | 25,125 | — | 153,339 | |||||||||||||||
Prepaid expenses | — | 20,090 | 1,815 | — | 21,905 | |||||||||||||||
Deferred income taxes, net | — | 2,557 | 1,261 | — | 3,818 | |||||||||||||||
Federal and foreign income taxes receivable | 7,905 | 23,024 | — | (5,687 | ) | 25,242 | ||||||||||||||
State and local income taxes receivable | 618 | 10,392 | 423 | — | 11,433 | |||||||||||||||
Intercompany receivables | 250,177 | 482,172 | 147,996 | (880,345 | ) | — | ||||||||||||||
Other current assets | — | 26,094 | 15,154 | — | 41,248 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current assets | 334,938 | 774,422 | 230,326 | (886,032 | ) | 453,654 | ||||||||||||||
Noncurrent assets: | ||||||||||||||||||||
Fixed assets, net | — | 102,202 | 17,209 | — | 119,411 | |||||||||||||||
Intangible assets, net | — | 81,828 | 144,596 | — | 226,424 | |||||||||||||||
Goodwill | — | 481,736 | 228,208 | — | 709,944 | |||||||||||||||
Deferred income taxes, net | — | 50,267 | — | (39,787 | ) | 10,480 | ||||||||||||||
Investment in subsidiaries | 601,380 | 104,430 | — | (705,810 | ) | — | ||||||||||||||
Other assets | 6,218 | 13,059 | 1,916 | — | 21,193 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total assets | $ | 942,536 | $ | 1,607,944 | $ | 622,255 | $ | (1,631,629 | ) | $ | 1,541,106 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT)/EQUITY | ||||||||||||||||||||
Current liabilities: | ||||||||||||||||||||
Accounts payable and accrued liabilities | $ | 6,328 | $ | 117,759 | $ | 38,905 | $ | — | $ | 162,992 | ||||||||||
Acquisition related liabilities | — | — | 250 | — | 250 | |||||||||||||||
Short-term debt and current portion of long-term debt | — | 5,161 | 393 | — | 5,554 | |||||||||||||||
Pension and postretirement benefits, current | — | 4,012 | — | — | 4,012 | |||||||||||||||
Fees received in advance | — | 152,948 | 23,894 | — | 176,842 | |||||||||||||||
Intercompany payables | 338,041 | 354,362 | 187,942 | (880,345 | ) | — | ||||||||||||||
Federal and foreign income taxes payable | — | — | 5,687 | (5,687 | ) | — | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total current liabilities | 344,369 | 634,242 | 257,071 | (886,032 | ) | 349,650 | ||||||||||||||
Noncurrent liabilities: | ||||||||||||||||||||
Long-term debt | 696,657 | 403,586 | 89 | — | 1,100,332 | |||||||||||||||
Pension and postretirement benefits | — | 127,748 | — | — | 127,748 | |||||||||||||||
Deferred income taxes, net | — | — | 39,787 | (39,787 | ) | — | ||||||||||||||
Other liabilities | — | 58,158 | 3,708 | — | 61,866 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities | 1,041,026 | 1,223,734 | 300,655 | (925,819 | ) | 1,639,596 | ||||||||||||||
Total stockholders’ (deficit)/equity | (98,490 | ) | 384,210 | 321,600 | (705,810 | ) | (98,490 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total liabilities and stockholders’ (deficit)/equity | $ | 942,536 | $ | 1,607,944 | $ | 622,255 | $ | (1,631,629 | ) | $ | 1,541,106 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
For The Three Month Period Ended SeptemberJune 30, 2011
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Revenues | $ | — | $ | 300,548 | $ | 43,434 | $ | (3,884 | ) | $ | 340,098 | |||||||||
| Expenses: | ||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | — | 120,206 | 19,471 | (2,058 | ) | 137,619 | ||||||||||||||
| Selling, general and administrative | — | 40,536 | 12,765 | (1,826 | ) | 51,475 | ||||||||||||||
| Depreciation and amortization of fixed assets | — | 8,985 | 1,813 | — | 10,798 | |||||||||||||||
| Amortization of intangible assets | — | 5,207 | 3,590 | — | 8,797 | |||||||||||||||
| Total expenses | — | 174,934 | 37,639 | (3,884 | ) | 208,689 | ||||||||||||||
| Operating income | — | 125,614 | 5,795 | — | 131,409 | |||||||||||||||
| Other income/(expense): | ||||||||||||||||||||
| Investment income | 36 | 905 | 34 | (876 | ) | 99 | ||||||||||||||
| Realized loss on securities, net | — | (86 | ) | — | — | (86 | ) | |||||||||||||
| Interest expense | (7,517 | ) | (7,915 | ) | (37 | ) | 876 | (14,593 | ) | |||||||||||
| Total other expense, net | (7,481 | ) | (7,096 | ) | (3 | ) | — | (14,580 | ) | |||||||||||
| (Loss)/income before equity in net income of subsidiary and income taxes | (7,481 | ) | 118,518 | 5,792 | — | 116,829 | ||||||||||||||
| Equity in net income of subsidiary | 75,729 | 1,741 | — | (77,470 | ) | — | ||||||||||||||
| Provision for income taxes | 2,739 | (47,300 | ) | (1,281 | ) | — | (45,842 | ) | ||||||||||||
| Net income | $ | 70,987 | $ | 72,959 | $ | 4,511 | $ | (77,470 | ) | $ | 70,987 | |||||||||
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
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): | ||||||||||||||||||||
Investment income | 18 | 26 | 112 | — | 156 | |||||||||||||||
Realized loss on securities, net | — | (30 | ) | — | — | (30 | ) | |||||||||||||
Interest expense | (9,875 | ) | (7,488 | ) | (14 | ) | — | (17,377 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other (expense)/income, net | (9,857 | ) | (7,492 | ) | 98 | — | (17,251 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Loss)/income before equity in net income of subsidiaries and income taxes | (9,857 | ) | 123,038 | 7,970 | — | 121,151 | ||||||||||||||
Equity in net income of subsidiaries | 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 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
28
For The NineSix Month Period Ended SeptemberJune 30, 2011
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Revenues | $ | — | $ | 869,481 | $ | 122,398 | $ | (11,632 | ) | $ | 980,247 | |||||||||
| Expenses: | ||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | — | 343,109 | 56,130 | (5,879 | ) | 393,360 | ||||||||||||||
| Selling, general and administrative | — | 122,950 | 39,443 | (5,753 | ) | 156,640 | ||||||||||||||
| Depreciation and amortization of fixed assets | — | 27,166 | 5,792 | — | 32,958 | |||||||||||||||
| Amortization of intangible assets | — | 15,324 | 10,805 | — | 26,129 | |||||||||||||||
| Acquisition related liabilities adjustment | — | (2,800 | ) | (564 | ) | — | (3,364 | ) | ||||||||||||
| Total expenses | — | 505,749 | 111,606 | (11,632 | ) | 605,723 | ||||||||||||||
| Operating income | — | 363,732 | 10,792 | — | 374,524 | |||||||||||||||
| Other income/(expense): | ||||||||||||||||||||
| Investment income/(loss) | 36 | 2,376 | (8 | ) | (2,305 | ) | 99 | |||||||||||||
| Realized gain on securities, net | — | 401 | — | — | 401 | |||||||||||||||
| Interest expense | (15,198 | ) | (26,072 | ) | (128 | ) | 2,305 | (39,093 | ) | |||||||||||
| Total other expense, net | (15,162 | ) | (23,295 | ) | (136 | ) | — | (38,593 | ) | |||||||||||
| (Loss)/income before equity in net income of subsidiary and income taxes | (15,162 | ) | 340,437 | 10,656 | — | 335,931 | ||||||||||||||
| Equity in net income of subsidiary | 212,033 | 3,355 | — | (215,388 | ) | — | ||||||||||||||
| Provision for income taxes | 5,569 | (135,378 | ) | (3,682 | ) | — | (133,491 | ) | ||||||||||||
| Net income | $ | 202,440 | $ | 208,414 | $ | 6,974 | $ | (215,388 | ) | $ | 202,440 | |||||||||
29
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
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): | ||||||||||||||||||||
Investment income | 36 | 100 | 125 | — | 261 | |||||||||||||||
Realized gain on securities, net | — | 300 | — | — | 300 | |||||||||||||||
Interest expense | (19,744 | ) | (13,995 | ) | (23 | ) | — | (33,762 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other (expense)/income, net | (19,708 | ) | (13,595 | ) | 102 | — | (33,201 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Loss)/income before equity in net income of subsidiaries and income taxes | (19,708 | ) | 249,879 | 13,991 | — | 244,162 | ||||||||||||||
Equity in net income of subsidiaries | 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 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
For The Three Month Period Ended SeptemberJune 30, 2010
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Revenues | $ | — | $ | 272,287 | $ | 16,494 | $ | (1,427 | ) | $ | 287,354 | |||||||||
| Expenses: | ||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | — | 108,320 | 9,247 | (562 | ) | 117,005 | ||||||||||||||
| Selling, general and administrative | — | 36,467 | 5,380 | (865 | ) | 40,982 | ||||||||||||||
| Depreciation and amortization of fixed assets | — | 8,794 | 1,241 | — | 10,035 | |||||||||||||||
| Amortization of intangible assets | — | 5,402 | 756 | — | 6,158 | |||||||||||||||
| Acquisition related liabilities adjustment | — | (544 | ) | — | — | (544 | ) | |||||||||||||
| Total expenses | — | 158,439 | 16,624 | (1,427 | ) | 173,636 | ||||||||||||||
| Operating income/(loss) | — | 113,848 | (130 | ) | — | 113,718 | ||||||||||||||
| Other income/(expense): | ||||||||||||||||||||
| Investment income | — | 33 | 9 | 17 | 59 | |||||||||||||||
| Realized gain on securities, net | — | 9 | — | — | 9 | |||||||||||||||
| Interest expense | — | (8,467 | ) | — | (17 | ) | (8,484 | ) | ||||||||||||
| Total other (expense)/income, net | — | (8,425 | ) | 9 | — | (8,416 | ) | |||||||||||||
| Income/(loss) before equity in net income/(loss) of subsidiary and income taxes | — | 105,423 | (121 | ) | — | 105,302 | ||||||||||||||
| Equity in net income/(loss) of subsidiary | 62,880 | (133 | ) | — | (62,747 | ) | — | |||||||||||||
| Provision for income taxes | — | (42,410 | ) | (12 | ) | — | (42,422 | ) | ||||||||||||
| Net income/(loss) | $ | 62,880 | $ | 62,880 | $ | (133 | ) | $ | (62,747 | ) | $ | 62,880 | ||||||||
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Revenues | $ | — | $ | 289,353 | $ | 43,842 | $ | (5,915 | ) | $ | 327,280 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Expenses: | ||||||||||||||||||||
Cost of revenues (exclusive of items shown separately below) | — | 114,120 | 19,906 | (2,841 | ) | 131,185 | ||||||||||||||
Selling, general and administrative | — | 45,936 | 13,047 | (3,074 | ) | 55,909 | ||||||||||||||
Depreciation and amortization of fixed assets | — | 8,739 | 2,116 | — | 10,855 | |||||||||||||||
Amortization of intangible assets | — | 4,797 | 4,080 | — | 8,877 | |||||||||||||||
Acquisition related liabilities adjustment | — | (2,800 | ) | (564 | ) | — | (3,364 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total expenses | — | 170,792 | 38,585 | (5,915 | ) | 203,462 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 118,561 | 5,257 | — | 123,818 | |||||||||||||||
Other income/(expense): | ||||||||||||||||||||
Investment income/(loss) | — | 1,457 | (38 | ) | (1,429 | ) | (10 | ) | ||||||||||||
Realized gain on securities, net | — | 125 | — | — | 125 | |||||||||||||||
Interest expense | (7,681 | ) | (8,562 | ) | (71 | ) | 1,429 | (14,885 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other expense, net | (7,681 | ) | (6,980 | ) | (109 | ) | — | (14,770 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Loss)/income before equity in net income of subsidiaries and income taxes | (7,681 | ) | 111,581 | 5,148 | — | 109,048 | ||||||||||||||
Equity in net income of subsidiaries | 70,428 | 2,702 | — | (73,130 | ) | — | ||||||||||||||
Provision for income taxes | 2,830 | (44,525 | ) | (1,776 | ) | — | (43,471 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 65,577 | $ | 69,758 | $ | 3,372 | $ | (73,130 | ) | $ | 65,577 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED) For The Six Month Period Ended June 30, 2011 |
| |||||||||||||||||||
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Revenues | $ | — | $ | 568,933 | $ | 78,964 | $ | (7,748 | ) | $ | 640,149 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Expenses: | ||||||||||||||||||||
Cost of revenues (exclusive of items shown separately below) | — | 222,903 | 36,659 | (3,821 | ) | 255,741 | ||||||||||||||
Selling, general and administrative | — | 82,414 | 26,678 | (3,927 | ) | 105,165 | ||||||||||||||
Depreciation and amortization of fixed assets | — | 18,181 | 3,979 | — | 22,160 | |||||||||||||||
Amortization of intangible assets | — | 10,117 | 7,215 | — | 17,332 | |||||||||||||||
Acquisition related liabilities adjustment | — | (2,800 | ) | (564 | ) | — | (3,364 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total expenses | — | 330,815 | 73,967 | (7,748 | ) | 397,034 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Operating income | — | 238,118 | 4,997 | — | 243,115 | |||||||||||||||
Other income/(expense): | ||||||||||||||||||||
Investment income/(loss) | — | 1,471 | (42 | ) | (1,429 | ) | — | |||||||||||||
Realized gain on securities, net | — | 487 | — | — | 487 | |||||||||||||||
Interest expense | (7,681 | ) | (18,157 | ) | (91 | ) | 1,429 | (24,500 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other expense, net | (7,681 | ) | (16,199 | ) | (133 | ) | — | (24,013 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
(Loss)/income before equity in net income of subsidiaries and income taxes | (7,681 | ) | 221,919 | 4,864 | — | 219,102 | ||||||||||||||
Equity in net income of subsidiaries | 136,304 | 1,614 | — | (137,918 | ) | — | ||||||||||||||
Provision for income taxes | 2,830 | (88,078 | ) | (2,401 | ) | — | (87,649 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Net income | $ | 131,453 | $ | 135,455 | $ | 2,463 | $ | (137,918 | ) | $ | 131,453 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONSCOMPREHENSIVE INCOME (UNAUDITED)
For The Nine Month PeriodThree Months Ended SeptemberJune 30, 2010
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Revenues | $ | — | $ | 804,186 | $ | 45,649 | $ | (4,650 | ) | $ | 845,185 | |||||||||
| Expenses: | ||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | — | 321,650 | 27,563 | (2,215 | ) | 346,998 | ||||||||||||||
| Selling, general and administrative | — | 107,605 | 15,229 | (1,700 | ) | 121,134 | ||||||||||||||
| Depreciation and amortization of fixed assets | — | 26,588 | 4,055 | (735 | ) | 29,908 | ||||||||||||||
| Amortization of intangible assets | — | 18,401 | 2,081 | — | 20,482 | |||||||||||||||
| Acquisition related liabilities adjustment | — | (544 | ) | — | — | (544 | ) | |||||||||||||
| Total expenses | — | 473,700 | 48,928 | (4,650 | ) | 517,978 | ||||||||||||||
| Operating income/(loss) | — | 330,486 | (3,279 | ) | — | 327,207 | ||||||||||||||
| Other income/(expense): | ||||||||||||||||||||
| Investment income | — | 124 | 82 | (23 | ) | 183 | ||||||||||||||
| Realized gain on securities, net | — | 70 | — | — | 70 | |||||||||||||||
| Interest expense | — | (25,352 | ) | (66 | ) | 23 | (25,395 | ) | ||||||||||||
| Total other (expense)/income, net | — | (25,158 | ) | 16 | — | (25,142 | ) | |||||||||||||
| Income/(loss) before equity in net income/(loss) of subsidiary and income taxes | — | 305,328 | (3,263 | ) | — | 302,065 | ||||||||||||||
| Equity in net income/(loss) of subsidiary | 176,659 | (2,396 | ) | — | (174,263 | ) | — | |||||||||||||
| Provision for income taxes | — | (126,273 | ) | 867 | — | (125,406 | ) | |||||||||||||
| Net income/(loss) | $ | 176,659 | $ | 176,659 | $ | (2,396 | ) | $ | (174,263 | ) | $ | 176,659 | ||||||||
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Net income | $ | 73,331 | $ | 77,530 | $ | 5,008 | $ | (82,538 | ) | $ | 73,331 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized holding loss on investments | (116 | ) | (116 | ) | — | 116 | (116 | ) | ||||||||||||
Unrealized foreign currency loss | (287 | ) | (248 | ) | (254 | ) | 502 | (287 | ) | |||||||||||
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 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
30
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Net income | $ | 147,932 | $ | 156,337 | $ | 7,323 | $ | (163,660 | ) | $ | 147,932 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized holding loss on investments | (313 | ) | (313 | ) | — | 313 | (313 | ) | ||||||||||||
Unrealized foreign currency loss | (134 | ) | (96 | ) | (113 | ) | 209 | (134 | ) | |||||||||||
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 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Net income | $ | 65,577 | $ | 69,758 | $ | 3,372 | $ | (73,130 | ) | $ | 65,577 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized holding loss on investments | (126 | ) | (126 | ) | — | 126 | (126 | ) | ||||||||||||
Unrealized foreign currency gain | 235 | 57 | 234 | (291 | ) | 235 | ||||||||||||||
Pension and postretirement unfunded liability adjustment | 1,220 | 1,220 | — | (1,220 | ) | 1,220 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total other comprehensive income | 1,329 | 1,151 | 234 | (1,385 | ) | 1,329 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Comprehensive income | $ | 66,906 | $ | 70,909 | $ | 3,606 | $ | (74,515 | ) | $ | 66,906 | |||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
CONDENSED CONSOLIDATING STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED)
For The Six Months Ended June 30, 2011
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Net income | $ | 131,453 | $ | 135,455 | $ | 2,463 | $ | (137,918 | ) | $ | 131,453 | |||||||||
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Other comprehensive income, net of tax: | ||||||||||||||||||||
Unrealized holding loss on investments | (252 | ) | (252 | ) | — | 252 | (252 | ) | ||||||||||||
Unrealized foreign currency gain | 573 | 358 | 612 | (970 | ) | 573 | ||||||||||||||
Pension and postretirement unfunded liability adjustment | 1,974 | 1,974 | — | (1,974 | ) | 1,974 | ||||||||||||||
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Total other comprehensive income | 2,295 | 2,080 | 612 | (2,692 | ) | 2,295 | ||||||||||||||
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Comprehensive income | $ | 133,748 | $ | 137,535 | $ | 3,075 | $ | (140,610 | ) | $ | 133,748 | |||||||||
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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)
For The NineSix Month Period Ended SeptemberJune 30, 2011
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Net cash provided by operating activities | $ | 36 | $ | 297,400 | $ | 26,318 | $ | — | $ | 323,754 | ||||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Acquisitions, net of cash acquired of $590 | — | (121,721 | ) | — | — | (121,721 | ) | |||||||||||||
| Earnout payments | — | — | (3,500 | ) | — | (3,500 | ) | |||||||||||||
| Escrow funding associated with acquisitions | — | (19,560 | ) | — | — | (19,560 | ) | |||||||||||||
| Advances provided to other subsidiaries | (3,454 | ) | — | (59,793 | ) | 63,247 | — | |||||||||||||
| Repayments received from other subsidiaries | — | 7,332 | — | (7,332 | ) | — | ||||||||||||||
| Proceeds from repayment of intercompany note receivable | — | 452,761 | — | (452,761 | ) | — | ||||||||||||||
| Purchases of available-for-sale securities | — | (1,422 | ) | — | — | (1,422 | ) | |||||||||||||
| Proceeds from sales and maturities of available-for-sale securities | — | 1,722 | — | — | 1,722 | |||||||||||||||
| Purchases of fixed assets | — | (35,074 | ) | (6,851 | ) | — | (41,925 | ) | ||||||||||||
| Net cash (used in) /provided by investing activities | (3,454 | ) | 284,038 | (70,144 | ) | (396,846 | ) | (186,406 | ) | |||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Proceeds from issuance of long-term debt, net of original issue discount | 448,956 | — | — | — | 448,956 | |||||||||||||||
| Repayment of short-term debt refinanced on a long-term basis | — | (295,000 | ) | — | — | (295,000 | ) | |||||||||||||
| Proceeds from issuance of short-term debt with original maturities of three months or greater | — | 120,000 | — | — | 120,000 | |||||||||||||||
| Proceeds/(repayments) of short-term debt | — | 22,685 | (374 | ) | — | 22,311 | ||||||||||||||
| Repurchase of Verisk Class A common stock | — | (340,122 | ) | — | — | (340,122 | ) | |||||||||||||
| Repayments of advances to other subsidiaries | — | (2,510 | ) | — | 2,510 | — | ||||||||||||||
| Repayment of current portion of long-term debt | — | (125,000 | ) | — | — | (125,000 | ) | |||||||||||||
| Repayment of intercompany note payable | (452,761 | ) | — | — | 452,761 | — | ||||||||||||||
| Advances received from other subsidiaries | 10,344 | — | 48,081 | (58,425 | ) | — | ||||||||||||||
| Payment of debt issuance cost | (2,925 | ) | (1,617 | ) | — | — | (4,542 | ) | ||||||||||||
| Excess tax benefits from exercised stock options | — | 5,470 | — | — | 5,470 | |||||||||||||||
| Proceeds from stock options exercised | — | 28,433 | — | — | 28,433 | |||||||||||||||
| Net cash provided by/(used in) financing activities | 3,614 | (587,661 | ) | 47,707 | 396,846 | (139,494 | ) | |||||||||||||
| Effect of exchange rate changes | — | (78 | ) | 96 | — | 18 | ||||||||||||||
| Increase/(decrease) in cash and cash equivalents | 196 | (6,301 | ) | 3,977 | — | (2,128 | ) | |||||||||||||
| Cash and cash equivalents, beginning of period | 1 | 31,576 | 23,397 | — | 54,974 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 197 | $ | 25,275 | $ | 27,374 | $ | — | $ | 52,846 | ||||||||||
| Supplemental disclosures: | ||||||||||||||||||||
| Increase in intercompany balances from the purchase of treasury stock by Verisk funded directly by ISO | $ | 340,122 | $ | 340,122 | $ | — | $ | — | $ | — | ||||||||||
| Increase in intercompany balances from proceeds received by ISO related to issuance of Verisk common stock from options exercised | $ | 28,433 | $ | 28,433 | $ | — | $ | — | $ | — | ||||||||||
| Issuance of intercompany note payable/(receivable) from amounts previously recorded as intercompany payables/(receivables) | $ | 615,000 | $ | (615,000 | ) | $ | — | $ | — | $ | — | |||||||||
31
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Net cash (used in)/provided by operating activities | $ | (13,015 | ) | $ | 143,124 | $ | 57,326 | $ | — | $ | 187,435 | |||||||||
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| |||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Acquisitions, net of cash acquired of $29,387 | — | (331,330 | ) | — | — | (331,330 | ) | |||||||||||||
Earnout payments | — | — | (250 | ) | — | (250 | ) | |||||||||||||
Purchase of non-controlling equity investments in non-public companies | — | (2,000 | ) | — | — | (2,000 | ) | |||||||||||||
Escrow funding associated with acquisitions | — | (17,000 | ) | — | — | (17,000 | ) | |||||||||||||
Repayments received from other subsidiaries | 12,100 | 148,000 | — | (160,100 | ) | — | ||||||||||||||
Advances provided to other subsidiaries | — | (33,475 | ) | — | 33,475 | — | ||||||||||||||
Purchases of fixed assets | — | (30,002 | ) | (6,530 | ) | — | (36,532 | ) | ||||||||||||
Purchases of available-for-sale securities | — | (1,128 | ) | — | — | (1,128 | ) | |||||||||||||
Proceeds from sales and maturities of available-for-sale securities | — | 1,203 | — | — | 1,203 | |||||||||||||||
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|
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|
| |||||||||||
Net cash provided by/(used in) investing activities | 12,100 | (265,732 | ) | (6,780 | ) | (126,625 | ) | (387,037 | ) | |||||||||||
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Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from short-term debt, net | — | 150,000 | — | — | 150,000 | |||||||||||||||
Repurchase of Verisk Class A common stock | — | (106,305 | ) | — | — | (106,305 | ) | |||||||||||||
Repayment of advances to other subsidiaries | (75,000 | ) | (12,100 | ) | (73,000 | ) | 160,100 | — | ||||||||||||
Advances received from other subsidiaries | 188 | — | 33,287 | (33,475 | ) | — | ||||||||||||||
Excess tax benefits from exercised stock options | — | 31,624 | — | — | 31,624 | |||||||||||||||
Proceeds from stock options exercised | — | 33,453 | — | — | 33,453 | |||||||||||||||
Other financing, net | — | (3,127 | ) | (314 | ) | — | (3,441 | ) | ||||||||||||
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Net cash (used in)/provided by financing activities | (74,812 | ) | 93,545 | (40,027 | ) | 126,625 | 105,331 | |||||||||||||
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Effect of exchange rate changes | — | (21 | ) | (113 | ) | — | (134 | ) | ||||||||||||
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(Decrease)/increase in cash and cash equivalents | (75,727 | ) | (29,084 | ) | 10,406 | — | (94,405 | ) | ||||||||||||
Cash and cash equivalents, beginning of period | 76,238 | 76,813 | 38,552 | — | 191,603 | |||||||||||||||
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Cash and cash equivalents, end of period | $ | 511 | $ | 47,729 | $ | 48,958 | $ | — | $ | 97,198 | ||||||||||
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Supplemental disclosures: | ||||||||||||||||||||
Increase in intercompany balances from the purchase of MediConnect by ISO | $ | 17,000 | $ | 348,330 | $ | 331,330 | $ | — | $ | — | ||||||||||
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Increase in intercompany balances from the purchase of treasury stock by Verisk funded directly by ISO | $ | 106,305 | $ | 106,305 | $ | — | $ | — | $ | — | ||||||||||
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Increase in intercompany balances from proceeds received by ISO related to issuance of Verisk common stock from options exercised | $ | 33,453 | $ | 33,453 | $ | — | $ | — | $ | — | ||||||||||
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For The NineSix Month Period Ended June 30, 2011
| Verisk Analytics, Inc. | Guarantor Subsidiaries | Non-Guarantor Subsidiaries | Eliminating Entries | Consolidated | ||||||||||||||||
Net cash provided by operating activities | $ | — | $ | 173,935 | $ | 13,152 | $ | — | $ | 187,087 | ||||||||||
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|
|
|
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| |||||||||||
Cash flows from investing activities: | ||||||||||||||||||||
Acquisitions, net of cash acquired of $590 | — | (121,721 | ) | — | — | (121,721 | ) | |||||||||||||
Earnout payments | — | — | (3,500 | ) | — | (3,500 | ) | |||||||||||||
Escrow funding associated with acquisitions | — | (19,560 | ) | — | — | (19,560 | ) | |||||||||||||
Advances provided to other subsidiaries | — | — | (31,996 | ) | 31,996 | — | ||||||||||||||
Repayments received from other subsidiaries | — | (13,618 | ) | — | 13,618 | — | ||||||||||||||
Proceeds from repayment of intercompany note receivable | — | 440,950 | — | (440,950 | ) | — | ||||||||||||||
Purchases of fixed assets | — | (23,189 | ) | (4,982 | ) | — | (28,171 | ) | ||||||||||||
Purchases of available-for-sale securities | — | (1,338 | ) | — | — | (1,338 | ) | |||||||||||||
Proceeds from sales and maturities of available-for-sale securities | — | 1,704 | — | — | 1,704 | |||||||||||||||
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Net cash provided by/(used in) investing activities | — | 263,228 | (40,478 | ) | (395,336 | ) | (172,586 | ) | ||||||||||||
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|
|
|
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| |||||||||||
Cash flows from financing activities: | ||||||||||||||||||||
Proceeds from issuance of long-term debt, net of original issue discount | 448,956 | — | — | — | 448,956 | |||||||||||||||
Repayment of short-term debt refinanced on a long-term basis | — | (295,000 | ) | — | — | (295,000 | ) | |||||||||||||
Proceeds/(repayments) of short-term debt, net | — | 73,114 | (195 | ) | — | 72,919 | ||||||||||||||
Repayment of current portion of long-term debt | — | (50,000 | ) | — | — | (50,000 | ) | |||||||||||||
Repayments of advances to other subsidiaries | — | 13,618 | — | (13,618 | ) | — | ||||||||||||||
Repayment of intercompany note payables | (440,950 | ) | — | — | 440,950 | — | ||||||||||||||
Advances received from other subsidiaries | — | — | 31,996 | (31,996 | ) | — | ||||||||||||||
Payment of debt issuance cost | (2,925 | ) | (1,509 | ) | — | — | (4,434 | ) | ||||||||||||
Repurchase of Class A common stock | — | (214,021 | ) | — | — | (214,021 | ) | |||||||||||||
Excess tax benefits from exercised stock options | — | 5,470 | — | — | 5,470 | |||||||||||||||
Proceeds from stock options exercised | — | 18,032 | — | — | 18,032 | |||||||||||||||
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| |||||||||||
Net cash provided by/(used in) financing activities | 5,081 | (450,296 | ) | 31,801 | 395,336 | (18,078 | ) | |||||||||||||
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Effect of exchange rate changes | — | (39 | ) | 612 | — | 573 | ||||||||||||||
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| |||||||||||
Increase/(decrease) in cash and cash equivalents | 5,081 | (13,172 | ) | 5,087 | — | (3,004 | ) | |||||||||||||
Cash and cash equivalents, beginning of period | 1 | 31,576 | 23,397 | — | 54,974 | |||||||||||||||
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Cash and cash equivalents, end of period | $ | 5,082 | $ | 18,404 | $ | 28,484 | — | $ | 51,970 | |||||||||||
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Supplemental disclosures: | ||||||||||||||||||||
Increase in intercompany balances from the purchase of treasury stock by Verisk funded directly by ISO | $ | 214,021 | $ | 214,021 | $ | — | $ | — | $ | — | ||||||||||
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Increase in intercompany balances from proceeds received by ISO related to issuance of Verisk common stock from options exercised | $ | 18,032 | $ | 18,032 | $ | — | $ | — | $ | — | ||||||||||
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Issuance of intercompany note payable/(receivable) from amounts previously recorded as intercompany payables/(receivables) | $ | 615,000 | $ | (615,000 | ) | $ | — | $ | — | $ | — | |||||||||
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16. Subsequent Event:
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. This acquisition further advances the Company’s position within the Decision Analytics segment as a provider of data, analytics, and decision–support solutions in the insurance industry. The cash paid will be adjusted subsequent to close to reflect final balances of certain working capital accounts and other closing adjustments. Due to the limited time since the acquisition date and limitations on access to ALP information prior to the acquisition date, the initial accounting for the business combination is incomplete at this time. As a result, the Company is unable to provide amounts recognized as of the acquisition date for major classes of assets and liabilities acquired and resulting from the transaction, including the information required for contingencies, intangible assets and goodwill. This information will be included in the quarterly report on Form 10-Q for the nine months ending September 30, 2010
| Verisk | Guarantor | Non-Guarantor | Eliminating | |||||||||||||||||
| Analytics, Inc. | Subsidiaries | Subsidiaries | Entries | Consolidated | ||||||||||||||||
| (In thousands) | ||||||||||||||||||||
| Net cash provided by/(used in) operating activities | $ | — | $ | 247,517 | $ | (5,710 | ) | $ | — | $ | 241,807 | |||||||||
| Cash flows from investing activities: | ||||||||||||||||||||
| Acquisitions, net of cash acquired of $1,556 | — | (6,386 | ) | — | — | (6,386 | ) | |||||||||||||
| Proceeds from release of acquisition related escrows | — | 274 | 9 | — | 283 | |||||||||||||||
| Escrow funding associated with acquisitions | — | (1,500 | ) | — | — | (1,500 | ) | |||||||||||||
| Advances provided to other subsidiaries | — | (28,716 | ) | (5,142 | ) | 33,858 | — | |||||||||||||
| Purchases of available-for-sale securities | — | (324 | ) | — | — | (324 | ) | |||||||||||||
| Proceeds from sales and maturities of available-for-sale securities | — | 645 | — | — | 645 | |||||||||||||||
| Purchases of fixed assets | — | (18,356 | ) | (3,850 | ) | — | (22,206 | ) | ||||||||||||
| Net cash used in investing activities | — | (54,363 | ) | (8,983 | ) | 33,858 | (29,488 | ) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||||||||||
| Repayments of short-term debt, net | — | (65,199 | ) | (31 | ) | — | (65,230 | ) | ||||||||||||
| Repurchase of Verisk Class A common stock | — | (129,762 | ) | — | — | (129,762 | ) | |||||||||||||
| Net share settlement of taxes upon exercise of stock options | — | (15,051 | ) | — | — | (15,051 | ) | |||||||||||||
| Advance received from other subsidiaries | — | 16,489 | 17,369 | (33,858 | ) | — | ||||||||||||||
| Payment of debt issuance costs | — | (1,781 | ) | — | — | (1,781 | ) | |||||||||||||
| Excess tax benefits from exercised stock options | — | 15,083 | — | — | 15,083 | |||||||||||||||
| Proceeds from stock options exercised | — | 20,161 | — | — | 20,161 | |||||||||||||||
| Net cash (used in)/provided by financing activities | — | (160,060 | ) | 17,338 | (33,858 | ) | (176,580 | ) | ||||||||||||
| Effect of exchange rate changes | — | 1 | (12 | ) | — | (11 | ) | |||||||||||||
| Increase in cash and cash equivalents | — | 33,095 | 2,633 | — | 35,728 | |||||||||||||||
| Cash and cash equivalents, beginning of period | 1 | 51,005 | 20,521 | — | 71,527 | |||||||||||||||
| Cash and cash equivalents, end of period | $ | 1 | $ | 84,100 | $ | 23,154 | $ | — | $ | 107,255 | ||||||||||
| Supplemental disclosure: | ||||||||||||||||||||
| Increase in intercompany balances from the purchase of treasury stock by Verisk funded directly by ISO | $ | 129,762 | $ | 129,762 | $ | — | $ | — | $ | — | ||||||||||
| Increase in intercompany balances from proceeds received by ISO related to issuance of Verisk common stock from options exercised | $ | 20,161 | $ | 20,161 | $ | — | $ | — | $ | — | ||||||||||
2012.
32
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
The following discussion should be read in conjunction with our historical financial statements and the related notes included withinin our annual report onForm 10-K dated and filed with the Securities and Exchange Commission on February 28, 2011.2012. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors.
We enable risk-bearing businesses to better understand and manage their risks. We provide value to our customers by supplying proprietary data that, combined with our analytic methods, creates embedded decision support solutions. We are the largest aggregator and provider of data pertaining to U.S. property and casualty, or P&C, insurance risks. We offer solutions for detecting fraud in the U.S. P&C insurance, mortgage and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to supply chain to health insurance to supply chain.
Our customers use our solutions to make better risk decisions with greater efficiency and discipline. We refer to these products and services as ‘solutions’solutions due to the integration among our products and the flexibility that enables our customers to purchase components or the comprehensive package of products. These solutions take various forms, including data, statistical models or tailored analytics, all designed to allow our clients to make more logical decisions. We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs.
We organize our business in two segments: Risk Assessment and Decision Analytics. Our Risk Assessment segment provides statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our Risk Assessment segment revenues represented approximately 43%40% and 48%44% of our revenues for the ninesix months ended SeptemberJune 30, 20112012 and 2010,2011, respectively. Our Decision Analytics segment provides solutions our customers use to analyze the processes of the Verisk Risk AnalysisAnalytics Framework: Loss Prediction, Fraud Identificationloss prediction, fraud identification and Detection,detection, and Loss Quantification.loss quantification. Our Decision Analytics segment revenues represented approximately 57%60% and 52%56% of our revenues for the ninesix months ended SeptemberJune 30, 2012 and 2011, and 2010, respectively.
Executive Summary
Key Performance Metrics
We believe our business’s ability to generate recurring revenue and positive cash flow is the key indicator of the successful execution of our business strategy. We use year-over-year revenue growth and EBITDA margin as metrics to measure our performance. EBITDA and EBITDA margin are non-GAAP financial measures within the meaning of Regulation G under the Securities Exchange Act of 1934 (See footnote 1 within the Condensed Consolidated Results of Operations section of Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations).
Revenue growth.We use year-over-year revenue growth as a key performance metric. We assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers, sales to new customers, sales of new or expanded solutions to existing and new customers and strategic acquisitions of new businesses.
EBITDA margin.We use EBITDA margin as a metric to assess segment performance and scalability of our business. We assess EBITDA margin based on our ability to increase revenues while controlling expense growth.
Revenues
We earn revenues through subscriptions long-term agreements and on a transactional basis. Subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year and automatically renewed each year. As a result, the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. Examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language, our claims fraud database or our actuarial services throughout the subscription period. In general,For our subscriptions arrangements, we experience minimal revenue seasonality within the business. Our long-term agreements are generally for periods of three to seven years. We recognize revenue from subscriptions ratably over the term of the subscription and most long-term agreements are recognized ratably over the term of the agreement.
33
Approximately 85%87% and 84% of the revenues in our Risk Assessment segment for the nine-monthsix-month periods ended SeptemberJune 30, 20112012 and 2010,2011, respectively, were derived from subscriptions and long-term agreements for our solutions. Our customers in this segment include most of the P&C insurance providers in the United States. Approximately 57% and 56% of the revenues in our Decision Analytics segment, for each of the nine monthssix-month periods ended SeptemberJune 30, 20112012 and 2010, respectively,2011, were derived from subscriptions and long-term agreements for our solutions.
Principal Operating Costs and Expenses
Personnel expenses are the major component of both our cost of revenues and selling, general and administrative expenses. Personnel expenses include salaries, benefits, incentive compensation, equity compensation costs (described under “Equity Compensation Costs” below), sales commissions, employment taxes, recruiting costs, and outsourced temporary agency costs, which represented 65% and 66% of our total expenses for each of the nine-month periodssix months ended SeptemberJune 30, 2012 and 2011, and 2010, respectively. Our annual salary increases are effective on April 1st of each year. As a result, our personnel expenses increase beginning in the second quarter of each year.
We allocate personnel expenses between two categories, cost of revenues and selling, general and administrative costs, based on the actual costs associated with each employee. We categorize employees who maintain our solutions as cost of revenues, and all other personnel, including executive managers, sales people, marketing, business development, finance, legal, human resources, and administrative services, as selling, general and administrative expenses. A significant portion of our other operating costs, such as facilities and communications, is also either captured within cost of revenues or selling, general and administrative expense based on the nature of the work being performed.
While we expect to grow our headcount over time to take advantage of our market opportunities, we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues. Historically, our EBITDA margin excluding the impact of new acquisitions, has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses.
Cost of Revenues.Our cost of revenues consists primarily of personnel expenses. Cost of revenues also includes the expenses associated with the acquisition and verification of data, the maintenance of our existing solutions and the development and enhancement of our next-generation solutions. Our cost of revenues excludes depreciation and amortization.
Selling, General and Administrative Expense.Our selling, general and administrative expense also consists primarily of personnel costs. A portion of the other operating costs such as facilities, insurance and communications are also allocated to selling, general and administrative costs based on the nature of the work being performed by the employee. Our selling, general and administrative expense excludes depreciation and amortization.
Description of Acquisitions
We acquired four businesses since January 1, 2010, we acquired five businesses.2011. As a result of these acquisitions, our consolidated results of operations may not be comparable between periods. See Note 6 to5 in our condensed consolidated financial statements included in this quarterly report on Form 10-Q.
10-Q for further information.
34
On April 27, 2011, we acquired 100% of the common stock of Bloodhound Technologies, Inc. or Bloodhound, a provider of real-time pre-adjudication medical claims editing. Within our Decision Analytics segment, Bloodhound addresses the need of healthcare payers to control fraud and waste in a real-time claims-processing environment, and these capabilities align with our existing fraud identification tools.
Equity Compensation Costs
We have a leveraged employee stock ownership plan, or ESOP, funded with intercompany debt that includes 401(k), ESOP and profit sharing components to provide employees with equity participation. We make quarterly cash contributions to the plan equal to the debt service requirements or as needed to fund employee benefits.requirements. As the debt is repaid, a percentage of the ESOP loan collateral isshares are released to the ESOP to fund 401(k) matching and profit sharing contributions and the remainder if any, is allocated annually to active employees in proportion to their eligible compensation in relation to total participants’ eligible compensation. We had no ESOP allocation expense for the nine-month periodssix months ended SeptemberJune 30, 20112012 and 2010.2011. We accrue compensation expense over the reporting period equal to the fair value of the ESOP loan collateral to be released to the ESOP.
The amountsamount of our ESOPequity compensation costs recognized for the three and ninesix months ended SeptemberJune 30, 2012 and 2011 and 2010 areis as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2011 | 2010 | 2011 | 2010 | |||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||
ESOP costs by contribution type: | ||||||||||||||||
| 401(k) matching contribution expense | $ | 2,762 | $ | 2,537 | $ | 8,188 | $ | 7,385 | ||||||||
| Profit sharing contribution expense | 460 | 385 | 1,442 | 1,266 | ||||||||||||
| Total ESOP costs | $ | 3,222 | $ | 2,922 | $ | 9,630 | $ | 8,651 | ||||||||
ESOP costs by segment: | ||||||||||||||||
| Risk Assessment ESOP costs | $ | 1,772 | $ | 1,710 | $ | 5,360 | $ | 5,125 | ||||||||
| Decision Analytics ESOP costs | 1,450 | 1,212 | 4,270 | 3,526 | ||||||||||||
| Total ESOP costs | $ | 3,222 | $ | 2,922 | $ | 9,630 | $ | 8,651 | ||||||||
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
(In thousands) | ||||||||||||||||
ESOP costs by contribution type: | ||||||||||||||||
401(k) matching contribution expense | $ | 3,255 | $ | 2,771 | $ | 6,186 | $ | 5,426 | ||||||||
Profit sharing contribution expense | — | 526 | — | 982 | ||||||||||||
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Total ESOP costs | $ | 3,255 | $ | 3,297 | $ | 6,186 | $ | 6,408 | ||||||||
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ESOP costs by segment: | ||||||||||||||||
Risk Assessment ESOP costs | $ | 1,370 | $ | 1,840 | $ | 2,725 | $ | 3,588 | ||||||||
Decision Analytics ESOP costs | 1,885 | 1,457 | 3,461 | 2,820 | ||||||||||||
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Total ESOP costs | $ | 3,255 | $ | 3,297 | $ | 6,186 | $ | 6,408 | ||||||||
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35
Under the terms of our approved equity compensation plans, stock options and other equity awards may be granted to employees. Prior to our IPO, we granted to key employees nonqualified stock options covered under the Insurance Services Office, Inc. 1996 Incentive Plan, or the Option Plan. Subsequent to the IPO, equity awards, including nonqualified stock options and restricted stock, granted to key employees are covered under the Verisk Analytics, Inc. 2009 Equity Incentive Plan, or the Incentive Plan. All of our outstanding stock options and restricted stock are covered under the Incentive Plan or the Option Plan. See Note 10 in our condensed consolidated financial statements included in this quarterly report on Form 10-Q.
36We follow the substantive vesting period approach for awards granted after January 1, 2005, which requires that stock based compensation expense be recognized over the period from the date of grant to the date when the award is no longer contingent on the employee providing additional service. For the three months ended June 30, 2012 and 2011, we recognized $4.4 million and $4.2 million in stock based compensation as a result of accelerated expense recognition on the equity awards granted on April 1, 2012 and 2011, respectively, because such awards were no longer contingent on the employee providing additional service based on our retirement qualifications.
On May 16, 2012, our stockholder’s approved the implementation of an employee stock purchase plan, or ESPP. The ESPP will commence on October 1, 2012 and offer 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 twenty five thousand dollars in any calendar year, to purchase shares of our Class A common stock at a 5.0% discount of its fair market value at the time of purchase. 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.
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | Percentage | September 30, | Percentage | |||||||||||||||||||||
| 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
| (In thousands, except for share and per share data) | ||||||||||||||||||||||||
Statement of income data: | ||||||||||||||||||||||||
| Revenues: | ||||||||||||||||||||||||
| Risk Assessment revenues | $ | 139,977 | $ | 136,269 | 2.7 | % | $ | 421,050 | $ | 405,136 | 3.9 | % | ||||||||||||
| Decision Analytics revenues | 200,121 | 151,085 | 32.5 | % | 559,197 | 440,049 | 27.1 | % | ||||||||||||||||
| Revenues | 340,098 | 287,354 | 18.4 | % | 980,247 | 845,185 | 16.0 | % | ||||||||||||||||
| Expenses: | ||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 137,619 | 117,005 | 17.6 | % | 393,360 | 346,998 | 13.4 | % | ||||||||||||||||
| Selling, general and administrative | 51,475 | 40,982 | 25.6 | % | 156,640 | 121,134 | 29.3 | % | ||||||||||||||||
| Depreciation and amortization of fixed assets | 10,798 | 10,035 | 7.6 | % | 32,958 | 29,908 | 10.2 | % | ||||||||||||||||
| Amortization of intangible assets | 8,797 | 6,158 | 42.9 | % | 26,129 | 20,482 | 27.6 | % | ||||||||||||||||
| Acquisition related liabilities adjustment | — | (544 | ) | (100.0 | )% | (3,364 | ) | (544 | ) | 518.4 | % | |||||||||||||
| Total expenses | 208,689 | 173,636 | 20.2 | % | 605,723 | 517,978 | 16.9 | % | ||||||||||||||||
| Operating income | 131,409 | 113,718 | 15.6 | % | 374,524 | 327,207 | 14.5 | % | ||||||||||||||||
| Other income/(expense): | ||||||||||||||||||||||||
| Investment income | 99 | 59 | 67.8 | % | 99 | 183 | (45.9 | )% | ||||||||||||||||
| Realized (loss)/gain on securities, net | (86 | ) | 9 | (1055.6 | )% | 401 | 70 | 472.9 | % | |||||||||||||||
| Interest expense | (14,593 | ) | (8,484 | ) | 72.0 | % | (39,093 | ) | (25,395 | ) | 53.9 | % | ||||||||||||
| Total other expense, net | (14,580 | ) | (8,416 | ) | 73.2 | % | (38,593 | ) | (25,142 | ) | 53.5 | % | ||||||||||||
| Income before income taxes | 116,829 | 105,302 | 10.9 | % | 335,931 | 302,065 | 11.2 | % | ||||||||||||||||
| Provision for income taxes | (45,842 | ) | (42,422 | ) | 8.1 | % | (133,491 | ) | (125,406 | ) | 6.4 | % | ||||||||||||
| Net income | $ | 70,987 | $ | 62,880 | 12.9 | % | $ | 202,440 | $ | 176,659 | 14.6 | % | ||||||||||||
Basic net income per share | $ | 0.43 | $ | 0.35 | 22.9 | % | $ | 1.21 | $ | 0.98 | 23.5 | % | ||||||||||||
Diluted net income per share | $ | 0.41 | $ | 0.34 | 20.6 | % | $ | 1.16 | $ | 0.94 | 23.4 | % | ||||||||||||
| Weighted average shares outstanding: | ||||||||||||||||||||||||
| Basic | 164,195,325 | 178,687,236 | (8.1 | )% | 166,728,786 | 179,744,297 | (7.2 | )% | ||||||||||||||||
| Diluted | 171,169,658 | 187,188,667 | (8.6 | )% | 174,255,965 | 188,728,438 | (7.7 | )% | ||||||||||||||||
The financial operating data below sets forth the information we believe is useful for investors in evaluating our overall financial performance: | ||||||||||||||||||||||||
| Other data: | ||||||||||||||||||||||||
| EBITDA (1): | ||||||||||||||||||||||||
| Risk Assessment EBITDA | $ | 70,703 | $ | 66,402 | 6.5 | % | $ | 212,994 | $ | 198,096 | 7.5 | % | ||||||||||||
| Decision Analytics EBITDA | 80,301 | 63,509 | 26.4 | % | 220,617 | 179,501 | 22.9 | % | ||||||||||||||||
| EBITDA | $ | 151,004 | $ | 129,911 | 16.2 | % | $ | 433,611 | $ | 377,597 | 14.8 | % | ||||||||||||
The following is a reconciliation of net income to EBITDA: | ||||||||||||||||||||||||
| Net income | $ | 70,987 | $ | 62,880 | 12.9 | % | $ | 202,440 | $ | 176,659 | 14.6 | % | ||||||||||||
| Depreciation and amortization | 19,595 | 16,193 | 21.0 | % | 59,087 | 50,390 | 17.3 | % | ||||||||||||||||
| Investment income and realized gain on securities, net | (13 | ) | (68 | ) | (80.9 | )% | (500 | ) | (253 | ) | 97.6 | % | ||||||||||||
| Interest expense | 14,593 | 8,484 | 72.0 | % | 39,093 | 25,395 | 53.9 | % | ||||||||||||||||
| Provision for income taxes | 45,842 | 42,422 | 8.1 | % | 133,491 | 125,406 | 6.4 | % | ||||||||||||||||
| EBITDA | $ | 151,004 | $ | 129,911 | 16.2 | % | $ | 433,611 | $ | 377,597 | 14.8 | % | ||||||||||||
| Three Months Ended June 30, | Percent | Six Months Ended June 30, | Percent | |||||||||||||||||||||
| 2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
(In thousands, except for share and per share data) | ||||||||||||||||||||||||
Statement of income data: | ||||||||||||||||||||||||
Revenues : | ||||||||||||||||||||||||
Risk Assessment revenues | $ | 144,189 | $ | 140,530 | 2.6 | % | $ | 289,158 | $ | 281,073 | 2.9 | % | ||||||||||||
Decision Analytics revenues | 229,037 | 186,750 | 22.6 | % | 430,569 | 359,076 | 19.9 | % | ||||||||||||||||
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Revenues | 373,226 | 327,280 | 14.0 | % | 719,727 | 640,149 | 12.4 | % | ||||||||||||||||
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Expenses: | ||||||||||||||||||||||||
Cost of revenues (exclusive of items shown separately below) | 147,074 | 131,185 | 12.1 | % | 280,404 | 255,741 | 9.6 | % | ||||||||||||||||
Selling, general and administrative | 62,473 | 55,909 | 11.7 | % | 116,452 | 105,165 | 10.7 | % | ||||||||||||||||
Depreciation and amortization of fixed assets | 13,090 | 10,855 | 20.6 | % | 24,734 | 22,160 | 11.6 | % | ||||||||||||||||
Amortization of intangible assets | 12,187 | 8,877 | 37.3 | % | 20,774 | 17,332 | 19.9 | % | ||||||||||||||||
Acquisition related liabilities adjustment | — | (3,364 | ) | (100.0 | )% | — | (3,364 | ) | (100.0 | )% | ||||||||||||||
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Total expenses | 234,824 | 203,462 | 15.4 | % | 442,364 | 397,034 | 11.4 | % | ||||||||||||||||
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Operating income | 138,402 | 123,818 | 11.8 | % | 277,363 | 243,115 | 14.1 | % | ||||||||||||||||
Other income/(expense): | ||||||||||||||||||||||||
Investment income/(loss) | 156 | (10 | ) | (1660.0 | )% | 261 | — | 100.0 | % | |||||||||||||||
Realized (loss)/gain on securities, net | (30 | ) | 125 | (124.0 | )% | 300 | 487 | (38.4 | )% | |||||||||||||||
Interest expense | (17,377 | ) | (14,885 | ) | 16.7 | % | (33,762 | ) | (24,500 | ) | 37.8 | % | ||||||||||||
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Total other expense, net | (17,251 | ) | (14,770 | ) | 16.8 | % | (33,201 | ) | (24,013 | ) | 38.3 | % | ||||||||||||
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Income before income taxes | 121,151 | 109,048 | 11.1 | % | 244,162 | 219,102 | 11.4 | % | ||||||||||||||||
Provision for income taxes | (47,820 | ) | (43,471 | ) | 10.0 | % | (96,230 | ) | (87,649 | ) | 9.8 | % | ||||||||||||
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Net income | $ | 73,331 | $ | 65,577 | 11.8 | % | $ | 147,932 | $ | 131,453 | 12.5 | % | ||||||||||||
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Basic net income per share | $ | 0.44 | $ | 0.39 | 12.8 | % | $ | 0.89 | $ | 0.78 | 14.1 | % | ||||||||||||
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Diluted net income per share | $ | 0.43 | $ | 0.38 | 13.2 | % | $ | 0.86 | $ | 0.75 | 14.7 | % | ||||||||||||
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Weighted average shares outstanding: | ||||||||||||||||||||||||
Basic | 165,946,009 | 166,960,806 | (0.6 | )% | 165,391,500 | 167,995,517 | (1.6 | )% | ||||||||||||||||
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Diluted | 171,901,349 | 174,634,046 | (1.6 | )% | 171,626,084 | 175,799,120 | (2.4 | )% | ||||||||||||||||
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The financial operating data below sets forth the information we believe is useful for investors in evaluating our overall financial performance: |
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Other data: | ||||||||||||||||||||||||
EBITDA (1): | ||||||||||||||||||||||||
Risk Assessment EBITDA | $ | 76,099 | $ | 68,247 | 11.5 | % | $ | 156,469 | $ | 142,778 | 9.6 | % | ||||||||||||
Decision Analytics EBITDA | 87,706 | 75,418 | 16.3 | % | 166,963 | 140,316 | 19.0 | % | ||||||||||||||||
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EBITDA | $ | 163,805 | $ | 143,665 | 14.0 | % | $ | 323,432 | $ | 283,094 | 14.2 | % | ||||||||||||
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The following is a reconciliation of net income to EBITDA: | ||||||||||||||||||||||||
Net income | $ | 73,331 | $ | 65,577 | 11.8 | % | $ | 147,932 | $ | 131,453 | 12.5 | % | ||||||||||||
Depreciation and amortization | 25,277 | 19,732 | 28.1 | % | 45,508 | 39,492 | 15.2 | % | ||||||||||||||||
Interest expense | 17,377 | 14,885 | 16.7 | % | 33,762 | 24,500 | 37.8 | % | ||||||||||||||||
Provision for income taxes | 47,820 | 43,471 | 10.0 | % | 96,230 | 87,649 | 9.8 | % | ||||||||||||||||
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EBITDA | $ | 163,805 | $ | 143,665 | 14.0 | % | $ | 323,432 | $ | 283,094 | 14.2 | % | ||||||||||||
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| (1) | EBITDA is the financial measure which management uses to evaluate the performance of our segments. “EBITDA” is defined as net income before |
37
EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
Although depreciation and amortization are noncash charges, the assets being depreciated and amortized often will have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and
Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
Consolidated Results of Operations
NineSix Months Ended SeptemberJune 30, 20112012 Compared to NineSix Months Ended SeptemberJune 30, 20102011
Revenues
Revenues were $980.2$719.7 million for the ninesix months ended SeptemberJune 30, 20112012 compared to $845.2$640.1 million for the ninesix months ended SeptemberJune 30, 2010,2011, an increase of $135.0$79.6 million or 16.0%12.4%. In 20112012 and 2010,2011, we acquired three companies Bloodhound, HRP, Bloodhound, 3E, CP, and SA,MediConnect, collectively referred to as recent acquisitions, which we define as acquisitions not owned for a significant portion of both the current period and/or prior period and would therefore impact the comparability of the financial results. Recent acquisitions allwere within theour Decision Analytics segment contributedin the healthcare category and provided an increase of $70.6$34.8 million in revenues for the ninesix months ended SeptemberJune 30, 2011.2012. Excluding recent acquisitions, revenues increased $64.4$44.8 million or 7.0%, which included an increase in our Decision Analytics segment of $36.7 million and an increase in our Risk Assessment segment of $15.9$8.1 million. Refer to the Results of Operations by Segment within this section for further information regarding our revenues.
Cost of Revenues
Cost of revenues was $280.4 million andfor the six months ended June 30, 2012 compared to $255.7 million for the six months ended June 30, 2011, an increase inof $24.7 million or 9.6%. Recent acquisitions, all within our Decision Analytics segment, of $48.5 million.
The increase in salaries and employee benefits of $4.9 million includes an increase of $9.7 million in annual salaries and employee benefits, medical costs, and long term equity compensation plan costs, and was partially offset by a decrease of $13.9$4.8 million in pension cost. The pension cost decreased primarily due to our pension plan freeze, which eliminated all future compensation and services credits to participants of our pension plan.
Selling, General and Administrative Expenses
Selling, general and administrative expenses, or SGA, were $116.5 million for the six months ended June 30, 2012 compared to $105.2 million for the six months ended June 30, 2011, an increase of $11.3 million or 10.7%. Recent acquisitions, all within our Decision Analytics segment, accounted for an increase of $5.7 million, which include annual salary increases, medicalwas primarily related to salaries and employee benefits. Excluding costs pension costs, and equity compensation.associated with our recent acquisitions, SGA increased $5.6 million or 5.3%. The increase was primarily due to a net increase in salaries and employee benefits includes an offsetting reduction in pension cost of $2.1 million. Other increases include leased software expenses$6.4 million, travel and travel related costs of $2.7 million, rent and maintenance expense of $0.1$0.2 million and other operating costsexpenses of $2.3$0.9 million. These increases in costs were partially offset by a decreasedecreases in data costsprofessional fees of $2.4$1.9 million primarily within our Decision Analytics segment.
The increase was primarily due to costs attributable to recent acquisitions of $25.2 million and an increase in salaries and employee benefits costs of $8.4$6.4 million which includeincludes an increase of $7.7 million in annual salary increases,salaries and employee benefits, medical costs, and equity compensation. Ourlong term equity compensation expense, included within salaries, increasedplan costs, and was partially offset by $1.8a decrease of $1.3 million over the prior year periodin pension cost, primarily due to the accelerated expense recognition, which is required when awards granted to employees are no longer contingent on the employee providing additional service based on our retirement qualifications. Other increases were costs attributable to legal and accounting costs of $0.3 million, and other general expenses of $1.6 million.
pension plan freeze.
38
Depreciation and amortization of fixed assets was $33.0$24.7 million for the ninesix months ended SeptemberJune 30, 20112012 compared to $29.9$22.2 million for the ninesix months ended SeptemberJune 30, 2010,2011, an increase of $3.1$2.5 million or 10.2%11.6%. Depreciation and amortization of fixed assets includes depreciation of furniture and equipment, software, computer hardware, and related equipment. The majority of the increase relates to software and hardware costs to support data capacity expansion and revenue growth.
Amortization of Intangible Assets
Amortization of intangible assets was $26.1$20.8 million for the ninesix months ended SeptemberJune 30, 20112012 compared to $20.5$17.3 million for the ninesix months ended SeptemberJune 30, 2010,2011, an increase of $5.6$3.5 million or 27.6%19.9%. The increase was primarily related to amortization of intangible assets associated with recent acquisitions of $10.3 million. This increase was$6.1 million, partially offset by a decrease of $4.7$2.6 million of amortization of intangible assets primarily associated with prior acquisitions that have been fully amortized.
Acquisition Related Liabilities Adjustment
There was no acquisition related liabilities adjustment wasfor the six months ended June 30, 2012 and a benefit of $3.4 million for the ninesix months ended SeptemberJune 30, 2011 compared to the $0.5 million for the nine months ended September 30, 2010.2011. This benefit was a result of a reduction of $3.4 million to contingent consideration due to the reduced probability of the D2 Hawkeye, Inc.D2Hawkeye and SAStrategic Analytics acquisitions achieving the EBITDA and revenue earn-out targets for exceptional performance in fiscal year 2011 established at the time of acquisition.
Investment IncomeIncome/(Loss) and Realized (Loss)/Gain on Securities, Net
Investment incomeincome/(loss) and realized (loss)/gain on securities, net, was a gain of $0.6 million for the six months ended June 30, 2012 and $0.5 million for the ninesix months ended SeptemberJune 30, 2011 compared to a gain of $0.32011.
Interest Expense
Interest expense was $33.8 million for the ninesix months ended SeptemberJune 30, 2010,2012 compared to $24.5 million for the six months ended June 30, 2011, an increase of $0.2 million.
Provision for Income Taxes
The provision for income taxes was $133.5$96.2 million for the nine monthssix month ended SeptemberJune 30, 20112012 compared to $125.4$87.6 million for the ninesix months ended SeptemberJune 30, 2010,2011, an increase of $8.1$8.6 million or 6.4%9.8%. The effective tax rate was 39.7%39.4% for the ninesix months ended SeptemberJune 30, 20112012 compared to 41.5%40.0% for the ninesix months ended SeptemberJune 30, 2010.2011. The effective rate for the ninesix months ended SeptemberJune 30, 20112012 was lower primarily due to a change in deferred tax assets of $2.4 million resulting from reduced tax benefits of Medicare subsidies associated with legislative changes inthan the period ended March 31, 2010. Excluding this charge, the effective rate for the prior period would have been 40.7%. The SeptemberJune 30, 2011 effective tax rate is also lower than the September 30, 2010 effective tax rateprimarily due to favorable audit settlements, the continued execution of tax planning strategies and the benefits associated with enacted research and development legislation.
EBITDA Margin
The EBITDA margin for our consolidated results was 44.9% for the six months ended June 30, 2012 compared to 44.2% for the ninesix months ended SeptemberJune 30, 2011 compared to 44.7% for2011. For the ninesix months ended SeptemberJune 30, 2010. For the nine months ended September 30, 2011,2012, the recent acquisitions mitigated our margin expansion by 1.8%, and was partially offset by0.7%. The increase in margin is primarily attributed to operating leverage as well as cost efficiencies achieved in 2012. For the six months ended June 30, 2011, the acquisition related liabilities adjustment which positively impacted our EBITDA margin by 0.3%0.5%.
39
Revenues
Revenues were $340.1$373.2 million for the three months ended SeptemberJune 30, 20112012 compared to $287.4$327.3 million for the three months ended SeptemberJune 30, 2010,2011, an increase of $52.7$45.9 million or 18.4%14.0%. Recent acquisitions accounted for an increase of $31.1$25.1 million in revenues for the three months ended SeptemberJune 30, 2011.2012, all of which were in Decision Analytics in the healthcare category. Excluding recent acquisitions, revenues increased $21.6$20.8 million or 6.4%, which included an increase in our Decision Analytics segment of $17.1 million and an increase in our Risk Assessment segment of $3.7 million and an increase in our Decision Analytics segment of $17.9 million.
Cost of Revenues
Cost of revenues was $137.6$147.1 million for the three months ended SeptemberJune 30, 20112012 compared to $117.0$131.2 million for the three months ended SeptemberJune 30, 2010,2011, an increase of $20.6$15.9 million or 17.6%12.1%. The increase was primarily due to costs related to recent acquisitions of $14.6$12.8 million, and a net increase in salaries and employee benefits costs of $4.1$1.6 million, which include annual salary increases and medical costs. Included within the net increase in salaries and employee benefits is an offsetting reduction in pension cost of $0.7$2.8 million. Other increases include leased software costs of $1.3 million, rent and maintenance expensefees of $1.0 million, information technology expenses of $0.5 million and other operating expenses of $0.5$0.7 million. These increases were partially offset by a decrease in data costs of $0.9 million primarily within our Decision Analytics segment.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $51.5$62.5 million for the three months ended SeptemberJune 30, 20112012 compared to $41.0$55.9 million for the three months ended SeptemberJune 30, 2010,2011, an increase of $10.5$6.6 million or 25.6%11.7%. The increase was primarily due to costs attributable to recent acquisitions of $7.7$3.5 million, an increase in salaries and employee benefits costs of $2.4$3.3 million, which include annual salary increases, medical costs, commissions, and equity compensation expense, and an increase in other general expenses of $0.6 million. These increases were offset by a decrease of $0.2 million in legal and audit fees.
40
| Three Months Ended September 30, | Percentage | Nine Months Ended September 30, | Percentage | |||||||||||||||||||||
| 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||
| Industry-standard insurance programs | $ | 92,894 | $ | 88,644 | 4.8 | % | $ | 278,140 | $ | 264,115 | 5.3 | % | ||||||||||||
| Property-specific rating and underwriting information | 33,107 | 34,507 | (4.1 | )% | 102,621 | 102,733 | (0.1 | )% | ||||||||||||||||
| Statistical agency and data services | 7,888 | 7,510 | 5.0 | % | 23,263 | 21,879 | 6.3 | % | ||||||||||||||||
| Actuarial services | 6,088 | 5,608 | 8.6 | % | 17,026 | 16,409 | 3.8 | % | ||||||||||||||||
Total Risk Assessment | $ | 139,977 | $ | 136,269 | 2.7 | % | $ | 421,050 | $ | 405,136 | 3.9 | % | ||||||||||||
Provision for our Risk Assessment segment were $20.1Income Taxes
The provision for income taxes was $47.8 million for the three months ended SeptemberJune 30, 20112012 compared to $20.4$43.5 million for the three months ended SeptemberJune 30, 2010, a decrease2011, an increase of $0.3$4.3 million or 1.4%10.0%. The decreaseeffective tax rate was 39.5% for the three months ended June 30, 2012 compared to 39.9% for the three months ended June 30, 2011. The effective tax rate for the three months ended June 30, 2012 was lower than the effective tax rate for the three months ended June 30, 2011 primarily due to a decrease in legal and audit feesthe continued execution of $0.2 million, and other general expenses of $0.3 million. These decreases were offset by an increase in salaries and employee benefit costs of $0.2 million, which included annual salary increases, medical costs and commissions.
EBITDA Margin
The EBITDA margin for our Risk Assessment segmentconsolidated results was 50.6%43.9% for the ninethree months ended SeptemberJune 30, 2012 and 2011. For the three months ended June 30, 2012, recent acquisitions mitigated our margin expansion by 1.0%. For the three months ended June 30, 2011, compared to 48.9% for the nine months ended September 30, 2010. The increase inacquisition related liabilities adjustment positively impacted our EBITDA margin is primarily attributed to operating leverage in the segment as well as cost efficiencies and a reallocation of information technology and corporate resources to our Decision Analytics segment.
Results of Operations
Decision Analytics
Revenues
Revenues for our Decision Analytics segment were $559.2$430.6 million for the ninesix months ended SeptemberJune 30, 20112012 compared to $440.1$359.1 million for the ninesix months ended SeptemberJune 30, 2010,2011, an increase of $119.1$71.5 million or 27.1%19.9%. Recent acquisitions, which are all within the healthcare category, accounted for an increase of $34.8 million in revenues for the six months ended June 30, 2012. Excluding recent acquisitions, our Decision Analytics revenue increased $36.7 million or 10.3%. Our insurance revenue increased $20.9 million primarily due to an increase within our loss quantification solutions as a result of new customers and an increase in our catastrophe modeling services for existing customers, as well an increase in insurance fraud solutions revenue. Excluding the recent acquisitions, our healthcare revenue increased $11.1 million primarily due to an increase in our fraud services as customer contracts were implemented and new sales of risk solutions. Our specialized markets revenue increased $3.5 million as a result of continued penetration of existing customers within our supply chain services and weather and climate risk solutions. Our mortgage and financial services revenue increased $1.2 million, primarily due to the inclusion of property appraisal tools facing the mortgage market revenue of $6.1 million, which was previously reported as part of property-specific rating and underwriting information category within our Risk Assessment segment in 2011. Excluding the property appraisal revenue, our mortgage and financial services revenue decreased $4.9 million from lower volumes within forensic solutions due to the continued challenges in the mortgage market, partially offset by growth in our underwriting solutions.
Revenues for our Decision Analytics segment were $229.0 million for the three months ended June 30, 2012 compared to $186.8 million for the three months ended June 30, 2011, an increase of $42.2 million or 22.6%. Recent acquisitions accounted for an increase of $70.6$25.1 million in revenues for the ninethree months ended SeptemberJune 30, 2011.2012. Excluding the impact of recent acquisitions, revenue increased $48.5 million for the nine months ended September 30, 2011. Our loss quantification solution revenues increased $26.2 million, or 30.5%, as a result of new customer contracts and claims volume increases associated with severe weather conditions and other damages experienced in the United States. Our loss prediction solutions revenue, excluding recent acquisitions, increased $13.0 million, or 11.4%, primarily from increased penetration of our existing customers and new projects.
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Our revenue by category for the periods presented is set forth below:
| Three Months Ended September 30, | Percentage | Nine Months Ended September 30, | Percentage | |||||||||||||||||||||
| 2011 | 2010 | Change | 2011 | 2010 | Change | |||||||||||||||||||
| (In thousands) | (In thousands) | |||||||||||||||||||||||
| Fraud identification and detection solutions | $ | 94,663 | $ | 81,584 | 16.0 | % | $ | 274,317 | $ | 239,574 | 14.5 | % | ||||||||||||
| Loss prediction solutions | 64,680 | 38,079 | 69.9 | % | 173,026 | 114,786 | 50.7 | % | ||||||||||||||||
| Loss quantification solutions | 40,778 | 31,422 | 29.8 | % | 111,854 | 85,689 | 30.5 | % | ||||||||||||||||
Total Decision Analytics | $ | 200,121 | $ | 151,085 | 32.5 | % | $ | 559,197 | $ | 440,049 | 27.1 | % | ||||||||||||
| For Three Months Ended June 30, | Percentage | For Six Months Ended June 30, | Percentage | |||||||||||||||||||||
| 2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Insurance | $ | 122,210 | $ | 112,334 | 8.8 | % | $ | 238,546 | $ | 217,634 | 9.6 | % | ||||||||||||
Mortgage and financial services | 35,299 | 35,643 | (1.0 | )% | 69,574 | 68,339 | 1.8 | % | ||||||||||||||||
Healthcare | 50,381 | 19,322 | 160.7 | % | 80,829 | 34,939 | 131.3 | % | ||||||||||||||||
Specialized markets | 21,147 | 19,451 | 8.7 | % | 41,620 | 38,164 | 9.1 | % | ||||||||||||||||
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Total Decision Analytics | $ | 229,037 | $ | 186,750 | 22.6 | % | $ | 430,569 | $ | 359,076 | 19.9 | % | ||||||||||||
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Cost of Revenues
Cost of revenues for our Decision Analytics segment was $247.9$189.7 million for the ninesix months ended SeptemberJune 30, 20112012 compared to $198.9$159.4 million for the ninesix months ended SeptemberJune 30, 2010,2011, an increase of $49.0$30.3 million or 24.6%19.0%. The increase included $29.8 million in costs attributable to recent acquisitions. Excluding the impact of theserecent acquisitions theof $17.6 million, our cost of revenues increased $19.2by $12.7 million or 8.0%. This increase is primarily due to a net increase in salary and employee benefits of $9.4 million. Other increases include information technology expenses of $1.4 million, rent and maintenance office expenses of $0.7 million, travel and travel related costs of $0.7 million and other operating expenses of $0.6 million. These increases in costs were partially offset by a $0.1 million decrease in data related costs.
The increase in salaries and employee benefits of $9.4 million includes an increase of $10.2 million in annual salaries and employee benefits, medical costs, and long term equity compensation plan costs, and due to the reallocation of certain resources from Risk Assessment relating to property appraisal tools that began in January 2012. These increases were partially offset by a decrease of $0.8 million in pension cost primarily because of our pension plan freeze.
Cost of revenues for our Decision Analytics segment was $101.8 million for the three months ended June 30, 2012 compared to $82.1 million for the three months ended June 30, 2011, an increase of $19.7 million or 23.9%. The increase was primarily due to costs related to recent acquisitions of $12.8 million, and a net increase in salaries and employee benefits costs of $15.1$5.3 million which include annual salary increases and increased medical costs, andpartially from the reallocation of information and technologycertain resources from Risk Assessment. Included within the net increase in salaries and employee benefits is an offsetting reduction in pension cost of $0.3$0.4 million. Other increases include rent and maintenance costsfees of $0.9$0.6 million, leased software costsinformation technology expenses of $2.7$0.7 million and other operating expenses of $2.9$0.7 million. These increases were partially offset by a decrease in data costs of $2.4$0.4 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Decision Analytics segment was $88.4were $74.0 million for the threesix months ended SeptemberJune 30, 20112012 compared to $67.5$62.7 million for the threesix months ended SeptemberJune 30, 2010,2011, an increase of $20.9$11.3 million or 31.0%17.9%. The increase included $14.6 million in costs attributable to recent acquisitions. Excluding the impact of theserecent acquisitions the cost of revenues$5.7 million, SGA increased $6.3$5.6 million or 8.9%. The increase was primarily due to an increase in salaries and employee benefits of $3.8$6.1 million and an increase in other expenses of $0.2 million. These increases in costs were partially offset by a decrease in professional fees of $0.7 million which include annual salary increasesincludes legal and increased medicalmarketing costs.
The net increase in salaries and employee benefits of $6.1 million includes an offsetting reductionincrease of $6.4 million in pension cost of $0.1 million. Other increases include leased softwareannual salaries and employee benefits, medical costs, of $1.3 million, rentcommissions, and maintenancelong term equity compensation plan costs, of $0.6 million and other operating expenses of $1.2 million. These increases werewas partially offset by a decrease of $0.3 million in data costs of $0.6 million.
Selling, general and administrative expenses for our Decision Analytics segment were $94.1$39.6 million for the ninethree months ended SeptemberJune 30, 20112012 compared to $62.1$32.6 million for the ninethree months ended SeptemberJune 30, 2010,2011, an increase of $32.0$7.0 million or 51.4%21.5%. The increase was primarily due to costs attributable to recent acquisitions of $25.2$3.5 million, and an increase in salaries and employee benefits costs of $5.6 million, which include increases$3.7 million. Included within the net increase in annual salary, medicalsalaries and employee benefits is an offsetting reduction in pension cost of $0.2 million. Travel and travel related costs commissions, and equity compensation. Other general expenses also increased $1.4by $0.3 million. These increases were partially offset by a decrease in legal and accounting costs of $0.2 million.
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EBITDA Margin
The EBITDA margin for our Decision Analytics segment was 39.5%38.8% for the ninesix months ended SeptemberJune 30, 20112012 compared to 40.8%39.1% for the ninesix months ended SeptemberJune 30, 2010.2011. For the ninesix months ended SeptemberJune 30, 2011,2012, recent acquisitions mitigated our margin expansion by 2.5%, and a reallocation of information technology and corporate resources mitigated our margin. These mitigating factors were partially offset by0.8%. For the six months ended June 30, 2011, the acquisition related liabilities adjustment which positively impacted our EBITDA margin by 0.6%0.9%.
Risk Assessment
Revenues
Revenues for our Risk Assessment segment were $289.1 million for the six months ended June 30, 2012 as compared to $281.0 million for the six months ended June 30, 2011, an increase of $8.1 million or 2.9%. Revenues were $144.2 million for the three months ended June 30, 2012 as compared to $140.5 million for the three months ended June 30, 2011, an increase of $3.7 million or 2.6%. The overall increase within this segment primarily resulted from an increase in prices derived from continued enhancements to the content of our industry-standard insurance programs’ solutions as well as selling expanded solutions to existing customers. As described with the Decision Analytics segment revenue, beginning January 1, 2012, we reallocated certain property appraisal tools revenue of $3.2 million and $6.1 million for three and six months ended June 30, 2012, respectively, from the property-specific rating and underwriting information category to the mortgage and financial services category.
Our revenue by category for the periods presented is set forth below:
| For Three Months Ended June 30, | Percentage | For Six Months Ended June 30, | Percentage | |||||||||||||||||||||
| 2012 | 2011 | Change | 2012 | 2011 | Change | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Industry-standard insurance programs | $ | 98,010 | $ | 92,389 | 6.1 | % | $ | 197,144 | $ | 185,246 | 6.4 | % | ||||||||||||
Property-specific rating and underwriting information | 32,459 | 35,017 | (7.3 | )% | 65,016 | 69,514 | (6.5 | )% | ||||||||||||||||
Statistical agency and data services | 8,130 | 7,633 | 6.5 | % | 15,854 | 15,375 | 3.1 | % | ||||||||||||||||
Actuarial services | 5,590 | 5,491 | 1.8 | % | 11,144 | 10,938 | 1.9 | % | ||||||||||||||||
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Total Risk Assessment | $ | 144,189 | $ | 140,530 | 2.6 | % | $ | 289,158 | $ | 281,073 | 2.9 | % | ||||||||||||
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Cost of Revenues
Cost of revenues for our Risk Assessment segment was $90.7 million for the six months ended June 30, 2012 compared to $96.3 million for the six months ended June 30, 2011, a decrease of $5.6 million or 5.8%. The decrease was primarily due to a decrease in salaries and employee benefits costs of $4.5 million, primarily related to lower pension cost of $4.0 million, and the reallocation of certain resources to Decision Analytics relating to property appraisal tools that occurred in January 2012. Other decreases were related to data costs of $0.7 million, travel and travel related costs of $0.5 million, and information technology costs of $0.3 million. These decreases were partially offset by an increase in rent and maintenance office expenses of $0.4 million.
Cost of revenues for our Risk Assessment segment was $45.3 million for the three months ended June 30, 2012 compared to $49.1 million for the three months ended June 30, 2011, a decrease of $3.8 million or 7.6%. The decrease was primarily due to a decrease in salaries and employee benefits costs of $3.7 million. Included within the decrease in salaries and employee benefits is a reduction in pension cost of $2.4 million and the reallocation of certain resources to Decision Analytics. Other decreases include information technology expenses of $0.2 and data costs of $0.3 million. These decreases were partially offset by an increase in rent and office maintenance of $0.4 million.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Risk Assessment segment were $42.5 million for the six months ended June 30, 2012 and 2011. There was a net increase in salaries and employee benefits of $0.3 million, travel and travel related costs of $0.2 million and other expenses of $0.7 million. These increases in costs were partially offset by a decrease in professional fees of $1.2 million which includes legal and marketing costs.
The increase in salaries and employee benefits of $0.3 million includes an increase of $1.3 million in annual salaries and employee benefits, medical costs, and long term equity compensation plan costs, and was partially offset by a decrease of $1.0 million in pension cost primarily due to our pension plan freeze.
Selling, general and administrative expenses for our Risk Assessment segment were $22.9 million for the three months ended June 30, 2012 compared to $23.3 million for the three months ended June 30, 2011, a decrease of $0.4 million or 1.9%. The decrease was primarily due to a decrease in salaries and employee benefits costs of $0.4 million, which includes a reduction in pension cost of $0.5 million. Other decreases were professional fees that include legal and marketing costs of $0.5 million. These decreases were partially offset by an increase in travel and travel related costs of $0.3 and other expenses of $0.2 million.
EBITDA Margin
EBITDA margin for our Risk Assessment segment was 54.1% for the six months ended June 30, 2012 compared to 50.8% for the six months ended June 30, 2011. The increase in margin is primarily attributed to operating leverage in the segment as well as cost efficiencies.
Liquidity and Capital Resources
As of SeptemberJune 30, 20112012 and December 31, 2010,2011, we had cash and cash equivalents and available-for saleavailable-for-sale securities of $57.7$102.0 million and $60.6$196.7 million, respectively. Subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year, and manyyear. Subscriptions are automatically renewed at the beginning of each calendar year. We have historically generated significant cash flows from operations. As a result of this factor, as well as the availability of funds under our syndicated revolving credit facility, we believe we will have sufficient cash to meet our working capital and capital expenditure needs, including acquisition contingent payments, and to fuel our future growth plans.
We have historically managed the business with a working capital deficit due to the fact that, as described above, we offer our solutions and services primarily through annual subscriptions or long-term contracts, which are generally prepaid quarterly or annually in advance of the services being rendered. When cash is received for prepayment of invoices, we record an asset (cash and cash equivalents) on our balance sheet with the offset recorded as a current liability (fees received in advance). This current liability is deferred revenue that does not require a direct cash outflow since our customers have prepaid and are obligated to purchase the services. In most businesses, growth in revenue typically leads to an increase in the accounts receivable balance causing a use of cash as a company grows. Unlike these businesses, our cash position is favorably affected by revenue growth, which results in a source of cash due to our customers prepaying for most of our services.
Our capital expenditures, which include non-cashnoncash purchases of fixed assets and capital lease obligations, as a percentage of revenues for the ninesix months ended SeptemberJune 30, 2012 and 2011, were 5.3% and 2010, were 4.9% and 2.9%5.4%, respectively. Expenditures related to developing and enhancing our solutions are predominately related to internal use software and are capitalized in accordance with the accounting guidanceASC 350-40, “Accounting for costsCosts of computer software developedComputer Software Developed or obtainedObtained for internal use.Internal Use.” We also capitalize amounts in accordance with ASC 985-20, “Software to be Sold, Leased or Otherwise Marketed.” The amounts capitalized in accordance with the accounting guidance for software to be sold, leased or otherwise marketed are not significant to the financial statements.
We historically used a portion of our cash for repurchases of our common stock from our stockholders. During the ninesix months ended SeptemberJune 30, 2012 and 2011, we repurchased $340.1$107.0 million of our Class A common stock. During the nine months ended September 30, 2010, we repurchased $135.6and $217.0 million of our Class A common stock, and $15.1 million of shares used in the settlement of taxes upon the exercise of stock options. On July 8, 2011, our board of directors authorized an additional $150.0 million of share repurchases under the Repurchase Program.respectively. See Note 9 to our condensed consolidated financial statements included in this quarterly report on Form 10-Q.
We provide pension and postretirement benefits to certain qualifying active employees and retirees. Based onOn February 29, 2012, we instituted a hard freeze, which eliminated all future compensation and service credits, to all participants in the pension funding policy,plans. In April 2012, we contributed $19.1 million and $15.2 millioncompleted a voluntary prefunding to theour qualified pension plan of $72.0 million, which resulted in a contribution of $78.8 million for the nine months ended September 30, 2011 and 2010, respectively, and expectyear, of which $28.2 million was the minimum contribution requirement for 2012. We do not anticipate further contributions in 2012 to contribute approximately $6.7 millionbe made with respect to theour qualified pension plan in remaining periods of 2011.plan. Under the postretirement plan, we provide certain healthcare and life insurance benefits to qualifying participants; however, participants are required to pay a stated percentage of the premium coverage. In March 2012, we established a voluntary employee’s beneficiary association plan, or VEBA plan, to fund the postretirement plan. We contributed approximately $2.5$5.0 million and $2.9$8.5 million to the VEBA Plan for the three and six months ended June 30, 2012, respectively. We expect the contribution to the postretirement plan in the nine months ended September 30, 2011 and 2010 and expect to contribute approximately $1.7 million infor the remaining periods of 2011.quarters for the year ending December 31, 2012 to be consistent with this quarter. See Note 11 to our condensed consolidated financial statements included in this quarterly report on Form 10-Q.
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We had total debt, excluding capital lease and other obligations, of $1,009.0$1,246.9 million and $835.0$1,096.7 million at SeptemberJune 30, 20112012 and December 31, 2010,2011, respectively. The debt at SeptemberJune 30, 2011 primarily consisted of2012 was issued under our Syndicated Revolving Credit facility (“credit facility”), long-term private placement loan facilities and senior notes and loan facilities drawnissued in 2011 to finance our stock repurchases and acquisitions.
Our credit facility, due October 2016 of $725.0 million, is a committed facility and all of our long-term private placement loan facilities are uncommitted facilities. We have financed and expect to finance our short-term working capital needs, stock repurchases and acquisitions through cash from operations and borrowings from a combination of our credit facility and long-term private placement facilities. As of June 30, 2012, we had $150.0 million outstanding under the credit facility. We borrowed $200.0 million from our credit facility and repaid $50.0 million of this balance during the six months ended June 30, 2012. On April 6, 2011,July 2, 2012, we completedrepaid an issuanceadditional $10.0 million related to the outstanding balance of the credit facility. As of June 30, 2012, our credit facility had $575.0 million of borrowing capacity available.
The credit facility contains certain customary financial and other covenants that, among other things, impose certain restrictions on indebtedness, liens, investments, and capital expenditures. These covenants also place restrictions on mergers, asset sales, sale/leaseback transactions, payments between us and our subsidiaries, and certain transactions with affiliates. The financial covenants require that, at the end of any fiscal quarter, we have a consolidated interest coverage ratio of at least 3.0 to 1.0 and that we maintain a consolidated funded debt leverage ratio below 3.25 to 1.0. We were in compliance with all debt covenants under the credit facility as of June 30, 2012.
We also have long-term private placement loan facilities under uncommitted master shelf agreements with New York Life and Prudential Capital Group, or Prudential, with availabilities at June 30, 2012 in the amounts of $30.0 million and $190.0 million, respectively. We can borrow under the New York Life Master Shelf Agreement until March 16, 2013 and the Prudential Master Shelf Agreement until August 30, 2013.
The notes outstanding under these long-term private placement loan facilities mature over the next four years. Individual borrowings are made at a fixed rate of interest determined at the time of the borrowing and interest is payable quarterly. The weighted average rate of interest with respect to our outstanding borrowings under these facilities was 6.3% for the six months ended June 30, 2012. The uncommitted master shelf agreements contain certain covenants that limit our ability to create liens, enter into sale/leaseback transactions and consolidate, merge or sell assets to another company. Our shelf agreements also contains financial covenants that require that, at the end of any fiscal quarter, we have a consolidated interest coverage ratio of at least 3.0 to 1.0 and a consolidated debt leverage ratio below 3.0 to 1.0 during any period of four fiscal quarters. We were in compliance with all debt covenants under our master shelf agreements as of June 30, 2012.
As of June 30, 2012, we had senior notes in thewith aggregate principal amount of $450.0 million. These senior notes are due on May 1, 2021 and accrue interest at 5.80%. We received net proceeds of $446.0 million after deducting original issue discount, underwriting discount, and commissions of $4.0$700.0 million. The senior notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured and unsubordinated basis by ISO and certain subsidiaries that guarantee our syndicated revolving credit facility, or any amendment, refinancing or replacement thereof. Interest will be payable semi-annually on May 1st and November 1st of each year, beginning on November 1, 2011. Interest accrued from April 6, 2011. We used a portion of the proceeds to repay amounts outstanding under our revolving credit facility. We expect to redraw from our syndicated revolving credit facility over time as needed for our corporate strategy, including for general corporate purposes and acquisitions. The indenture governing the senior notes restricts our ability and our subsidiaries’ ability to, among other things, create certain liens, enter into sale/leaseback transactions and consolidate with, sell, lease, convey or otherwise transfer all or substantially all of our assets, or merge with or into, any other person or entity.
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The following table summarizes our cash flow data for the ninesix months ended SeptemberJune 30, 20112012 and 2010:
| For the Nine Months Ended September 30, | ||||||||
| 2011 | 2010 | |||||||
| (In thousands) | ||||||||
| Net cash provided by operating activities | $ | 323,754 | $ | 241,807 | ||||
| Net cash used in investing activities | $ | (186,406 | ) | $ | (29,488 | ) | ||
| Net cash used in financing activities | $ | (139,494 | ) | $ | (176,580 | ) | ||
| For the Six Months Ended June 30, | ||||||||
| 2012 | 2011 | |||||||
| (In thousands) | ||||||||
Net cash provided by operating activities | $ | 187,435 | $ | 187,087 | ||||
Net cash used in investing activities | $ | (387,037 | ) | $ | (172,586 | ) | ||
Net cash provided by/(used in) financing activities | $ | 105,331 | $ | (18,078 | ) | |||
Operating Activities
Net cash provided by operating activities increased to $323.8$187.4 million for the ninesix months ended SeptemberJune 30, 20112012 from $241.8$187.1 million for the ninesix months ended SeptemberJune 30, 2010.2011. The slight increase in net cash provided by operating activities was principally due to an increase in cash receipts from customers during the ninesix months ended SeptemberJune 30, 2011 and the deferral of our third quarter 2011 federal tax payment to the fourth quarter 2011 as a result of a temporary federal tax relief program related to Hurricane Irene.2012. This increase was partially offset by an increase in operating expense and interest payments primarily related to increased pension contributions during the ninesix months ended SeptemberJune 30, 20112012 compared to the ninesix months ended SeptemberJune 30, 2010.
Investing Activities
Net cash used in investing activities was $186.4$387.0 million for the ninesix months ended SeptemberJune 30, 20112012 compared to $29.5$172.6 million for the ninesix months ended SeptemberJune 30, 2010.2011. The increase in net cash used in investing activities was principally due to an increase in acquisition and escrow related payments of $133.4$209.6 million, primarily related to the acquisitionsacquisition of Bloodhound and HRPMediConnect in the secondfirst quarter of 2011,2012, and an increase in the purchases of fixed assets of $19.7 million.
Financing Activities
Net cash provided by/(used inin) financing activities was $139.5$105.3 million for the ninesix months ended SeptemberJune 30, 20112012 and $176.6$(18.1) million for the ninesix months ended SeptemberJune 30, 2010.2011. Net cash provided by financing activities for the six months ended June 30, 2012 was primarily related to an increase in total net debt of $150.0 million and option exercises of $65.1 million, partially offset by repurchases of our Class A common stock of $106.3 million. Net cash used in financing activities for the ninesix months ended SeptemberJune 30, 2011 was primarily related to a repurchases of our Class A common stock of $340.1$214.0 million partially offset by an increase in total net debt of $166.7$172.4 million. Net cash used in financing activities for the nine months ended September 30, 2010 was primarily related to a decrease in total debt of $67.0 million and repurchases of our Class A common stock of $129.8 million.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Contractual Obligations
There have been no material changes to our contractual obligations outside the ordinary course of our business from those reported in our annual report on Form 10-K and filed with the Securities and Exchange Commission on February 28, 20112012 except as noted below.
Due to our voluntary prefunding and hard freeze of the pension plans (see Note 11 in our condensed consolidated financial statements included in this quarterly report on Form 10-Q), we completed an issuance of senior notes inexpect our contractual obligations payments for the aggregate principal amount of $450.0 million. These senior notes are due on May 1, 2021Pension and accrue interest at 5.80%. We received net proceeds of $446.0 million after deducting discounts and commissions of $4.0 million. The senior notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured and unsubordinated basis by ISO and certain subsidiaries that guarantee our syndicated revolving credit facility or any amendment, refinancing or replacement thereof. Interest is payable semi-annually on May 1st and November 1st of each year, beginning on November 1, 2011. Interest accrued from April 6, 2011.
following amounts:1-3 years $11.2 million,3-5 years $7.3 million, andMore than 5 years $15.4 million.
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Our management’s discussion and analysis of financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements require management to make estimates and judgments that affect reported amounts of assets and liabilities and related disclosures of contingent assets and liabilities at the dates of the financial statements and revenue and expenses during the reporting periods. These estimates are based on historical experience and on other assumptions that are believed to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates, including those related to revenue recognition, goodwill and intangible assets, pension and other post retirement benefits, stock-based compensation, and income taxes. Actual results may differ from these assumptions or conditions. Some of the judgments that management makes in applying its accounting estimates in these areas are discussed under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our annual report on Form 10-K dated and filed with the Securities and Exchange Commission on February 28, 2011.2012. Since the date of our annual report on Form 10-K, there have been no material changes to our critical accounting policies and estimates except for the policy clarification noted below.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Market risks at SeptemberJune 30, 20112012 have not materially changed from those discussed under Item 7A in our annual report on Form 10-K dated and filed with the Securities and Exchange Commission on February 28, 2011.
We maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures. Any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
Our management, with the participation of the Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this quarterly report on Form 10-Q. Based upon the foregoing assessments, our Chief Executive Officer and Chief Financial Officer have concluded that, as of SeptemberJune 30, 2011,2012, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
During the three month period ended SeptemberJune 30, 2011,2012, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| Item 1. | Legal Proceedings |
We are party to legal proceedings with respect to a variety of matters in the ordinary course of business. See Part I Item I. Note 14 to our condensed consolidated financial statements for the ninesix months ended SeptemberJune 30, 20112012 for a description of our significant current legal proceedings, which is incorporated by reference herein.
| Item 1A. | Risk Factors |
There has been no material change in the information provided under the heading “Risk Factors” in our annual report on Form 10-K dated and filed with the Securities and Exchange Commission on February 28, 2011 except for the updated disclosure set forth below.
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| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Recent Sales of Unregistered Securities
There were no unregistered sales of equity securities by the Company during the period covered by this report.
Issuer Purchases of Equity Securities
On April 29, 2010, our board of directors authorized a $150.0 million share repurchase program, or the Repurchase Program, of our common stock. On October 19, 2010, March 11, 2011, and July 8, 2011, our board of directors authorized additional capacity of $150.0 million each, and on January 11, 2012, our board of directors authorized additional capacity of $300.0 million bringing the Repurchase Program to a total of $600.0$900.0 million. Under the Repurchase Program, we may repurchase stock in the open market or as otherwise determined by us. These authorizations have no expiration dates, although they may be suspended or terminated at any time. Our shares repurchased for the quarter ended SeptemberJune 30, 20112012 are set forth below:
| Approximate Dollar | ||||||||||||||||
| Total Number of | Value of Shares that | |||||||||||||||
| Shares Purchased | May Yet Be | |||||||||||||||
| Total Number | Average | as Part of Publicly | Purchased Under the | |||||||||||||
| of Shares | Price Paid | Announced Plans | Plans or Programs | |||||||||||||
| Period | Purchased | per Share | or Programs | (in thousands) | ||||||||||||
| July 1, 2011 through July 31, 2011 | 1,066,497 | $ | 33.95 | 1,066,497 | $ | 134,232 | ||||||||||
| August 1, 2011 through August 31, 2011 | 2,100,159 | $ | 32.43 | 2,100,159 | $ | 66,116 | ||||||||||
| September 1, 2011 through September 30, 2011 | 549,372 | $ | 34.09 | 549,372 | $ | 47,387 | ||||||||||
| Total | 3,716,028 | 3,716,028 | ||||||||||||||
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) | ||||||||||||
April 1, 2012 through April 30, 2012 | 221,200 | $ | 46.79 | 221,200 | $ | 257,504 | ||||||||||
May 1, 2012 through May 31, 2012 | 543,443 | $ | 47.95 | 543,443 | $ | 231,449 | ||||||||||
June 1, 2012 through June 30, 2012 | 669,025 | $ | 47.40 | 669,025 | $ | 199,737 | ||||||||||
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|
| |||||||||||||
| 1,433,668 | 1,433,668 | |||||||||||||||
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| |||||||||||||
| Item 4. | Mine Safety Disclosures |
None.
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| Verisk Analytics, Inc. | ||||||
| (Registrant) | ||||||
| Date: | By: | /s/ Mark V. Anquillare | ||||
Mark V. Anquillare | ||||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer and Duly Authorized Officer) | ||||||
EXHIBIT INDEX
48
Exhibit Number |
Description | ||||
| 31.1 | Certification of the Chief Executive Officer of Verisk Analytics, Inc. pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.* | |||
| 31.2 | Certification of the Chief Financial Officer of Verisk Analytics, Inc. pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.* | |||
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer of Verisk Analytics, | |||
| 99.1 | Verisk Analytics, Inc. 2012 Employee Stock Purchase Plan, as amended* | |
| * | Filed herewith. |
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