As filed with the Securities and Exchange Commission on August 12, 2008May 28, 2009
RegistrationNo. 333-333-152973
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Amendment No. 4
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
VERISK ANALYTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
     
Delaware 7374 26-2994223
(State or Other Jurisdiction of
Incorporation or Organization)
 (Primary Standard Industrial
Classification Code Number)
 (I.R.S. Employer
Identification Number)
 
545 Washington Boulevard
Jersey City, NJ 07310-1686
(201) 469-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
 
 
 
Kenneth E. Thompson
Senior Vice President, General Counsel and Corporate Secretary
Verisk Analytics, Inc.
545 Washington Boulevard
Jersey City, NJ 07310-1686
(201) 469-2000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
 
 
 
 
Copies to:
   
Richard J. Sandler
Ethan T. James
Davis Polk & Wardwell
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
 Eric J. Friedman
Richard B. Aftanas
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o                
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o                
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o                
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.
 
Large accelerated filer oAccelerated filer oNon-accelerated filer oþSmaller reporting company o
                                       (Do not check if a smaller reporting company)
 
 
 
 
        
Title of Each Class
  Proposed Maximum Aggregate
  Amount of
  Proposed Maximum Aggregate
  Amount of
of Securities to be Registered  Offering Price(1)(2)  Registration Fee  Offering Price(1)(2)  Registration Fee
Class A common stock, par value $0.001 per share  $750,000,000  $29,475  $750,000,000  $29,475(3)
        
(1) Includes shares of Class A common stock which the underwriters have the right to purchase to cover over-allotments.
 
(2) Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
(3) Previously paid.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
(Subject to Completion)
 
PRELIMINARY PROSPECTUS
Dated August 12, 2008May 28, 2009
 
          Shares
 
(VERISK ANALYTICS, INC. LOGO)
 
Verisk Analytics, Inc.
 
Class A Common Stock
 
 
 
 
This is our initial public offering of common stock. The sellingOur stockholders are selling all of the shares of our Class A common stock, par value $0.001 per share, offered by this prospectus. We are not selling any shares in this offering. We expect the public offering price to be between $      and $      per share. Currently, no public market exists for the shares.
 
After pricing of the offering, we expect that the shares will be listed on the New York Stock Exchange under the symbol “     .”“VA.”
 
Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 10 of this prospectus.
 
 
 
 
     
  
Per Share
 Total
 
Public offering price $        $       
Underwriting discount $        $       
Proceeds, before expenses, to the selling stockholders $        $       
 
The underwriters may also purchase up to an additional           shares of Class A common stock from the selling stockholders at the initial public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments, if any.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The shares will be ready for delivery on or about          , 2008.2009.
 
 
 
 
Merrill Lynch & Co.Morgan Stanley
 
 
 
 
          , 20082009


 

 
TABLE OF CONTENTS
 
     
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  F-1 
EX-10.1: 401(K) SAVINGS PLAN AND EMPLOYEE STOCK OWNERSHIP PLAN
 EX-23.1: CONSENT OF DELOITTE & TOUCHE LLP
 EX-23.2: CONSENT OF DELOITTE & TOUCHE LLP
EX-23.3: CONSENT OF ERNST & YOUNG LLP
 
 
 
 
You should rely only on the information contained in this prospectus. We and the selling stockholders have not authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.
 
Prior to the completion of this offering, we will have effected an internal reorganization whereby our predecessor, Insurance Services Office, Inc., or ISO, will become a wholly-owned subsidiary of the Company and all outstanding shares of ISO common stock will be replaced with common stock of the Company. We will immediately thereafter effect an approximately     -for-one split of our common stock. Unless otherwise stated herein or the context otherwise requires, the terms “Verisk,” the “Company,” “we,” “us,” and “our” refer to Verisk Analytics, Inc. and its consolidated subsidiaries after giving effect to the reorganization described above, and prior to such reorganization these terms refer to ISO and its consolidated subsidiaries through which we are currently conducting our operations. In addition, except as the context otherwise requires, the share and per share information in this prospectus gives effect to the stock split that will occur immediately after the reorganization.
 
Until          , 2008,2009, 25 days after the commencement of this offering, all dealers that buy, sell, or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.


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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including the “Risk Factors” section and the consolidated financial statements and the notes to those statements.
Company Overview
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 detailed actuarial and underwriting 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, healthcare and mortgage industries, and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance.
Our customers use our solutions, in the form of our data, statistical models or tailored analytics, to make more logical decisions. We develop solutions which our customers use to analyze the four key processes in managing risk, in what we define as the Verisk Risk Analysis Framework: Prediction of Loss, Selection and Pricing of Risk, Detection and Prevention of Fraud, and Quantification of Loss.
We organize our business in two segments: Risk Assessment and Decision Analytics.
Risk Assessment:  We are the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our proprietary and unique databases describe premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants and fire suppression capabilities of municipalities in addition to other properties and attributes. Our largest P&C insurance database includes over 14 billion records, and, in each of the past three years, we updated the database with over 2 billion validated new records. We use our data, for example, to create policy language and proprietary risk classifications that are industry standard and to generate prospective loss cost estimates used to price insurance policies.
Decision Analytics:  We provide solutions in each of the four processes of the Verisk Risk Analysis Framework by combining algorithms and analytic methods, which incorporate our proprietary data. Our unique data sets include over 600 million P&C insurance claims, historic natural catastrophe data covering more than 50 countries, data from more than 13 million applications for mortgage loans and over 312 million U.S. criminal records. Customers integrate our solutions into their models, formulas or underwriting criteria to predict potential loss events, ranging from hurricanes and earthquakes to unanticipated healthcare claims. We are a leading developer of catastrophe and extreme event models and offer solutions covering natural and man-made risks, including acts of terrorism. We also develop solutions that allow customers to quantify costs after loss events occur. Our 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, healthcare and mortgage sectors.
We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs. The embedded nature of our solutions serves to strengthen and extend our relationships. In 2008, our U.S. customers included all of the top 100 P&C insurance providers, four of the 10 largest Blue Cross Blue Shield plans, four of the six leading mortgage insurers, 14 of the top 20 mortgage lenders, and the 10 largest global reinsurers. Approximately 97% of our top 100 customers in 2008, as ranked by revenue, have been our customers for each of the last five years. Further, from 2004 to 2008, revenues generated from these top 100 customers grew at a compound annual growth rate, or CAGR, of 12%.
We offer our solutions and services primarily through annual subscriptions or long-term agreements, which are typically pre-paid and represented approximately 76% of our revenues in 2008. For the year ended December 31, 2008, and the three months ended March 31, 2009, we had revenues of $894 million and $246 million, respectively, and net income of $158 million and $45 million, respectively. For the five year


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period ended December 31, 2008, our revenues and net income have grown at a CAGR of 13.0% and 12.4%, respectively.
Our Market Opportunity
We believe there is a long-term trend for companies to set strategy and direct operations using data and analytics to guide their decisions, which has resulted in a large and rapidly growing market for professional and business information. According to a 2008 report from Veronis Suhler Stevenson, an industry consultant, spending on professional and business information services in the U.S. reached $46 billion in 2007 and is projected to grow at a CAGR of 9% through 2012. Another research firm, International Data Corporation, or IDC, in a report dated March 2008, estimates that the business analytics services market, which totaled $32 billion in 2007, will grow at a CAGR of 9% through 2012.
We believe that the consistent decline in the cost of computing power contributes to the trend towards greater use of data and analytics. As a result, larger data sets are assembled faster and at a lower cost per record while the complexity and accuracy of analytical applications and solutions have expanded. This trend has led to an increase in the use of analytic output, which can be generated and applied more quickly, resulting in more informed decision making. As computing power increases, cost decreases and accuracy improves, we believe customers will continue to apply and integrate data and analytic solutions more broadly.
Companies that engage in risk transactions, including P&C insurers, healthcare payors and mortgage lenders and insurers, are particularly motivated to use enhanced analytics because of several factors affecting risk markets, including:
•     the total value of exposures in risk transactions is increasing;
•     the number of participants in risk transactions is often large and the asymmetry of information among participants is often substantial; and
•     the failure to understand risk can lead to large and rapid declines in financial performance.
Our Competitive Strengths
We believe our competitive strengths include the following:
•     Our Solutions are Embedded In Our Customers’ Critical Decision Processes.  Our customers use our solutions to make better risk decisions and to price risk appropriately. In the U.S. P&C insurance industry, our solutions for prospective loss costs, policy language, rating/underwriting rules and regulatory filing services are the industry standard. In the U.S. healthcare and mortgage industries, our predictive models, loss estimation tools and fraud identification applications are the primary solutions that allow customers to understand their risk exposures and proactively manage them. Over the last three years, we have retained 98% of our customers across all of our businesses, which we believe reflects our customers’ recognition of the value they derive from our solutions.
•     Extensive and Differentiated Data Assets and Analytic Methods.  We maintain what we believe are some of the largest, most accurate, and most complete databases in the markets we serve. Much of the information we provide is not available from any other source and would be difficult and costly for another party to replicate. As a result, our accumulated experience and years of significant investment have given us a competitive advantage in serving our customers.
•     Culture of Continuous Improvement.  Our intellectual capital and focus on continuous improvement have allowed us to develop proprietary algorithms and solutions that assist our customers in making informed risk decisions. Our team includes approximately 574 individuals with advanced degrees, certifications and professional designations in such fields as actuarial science, data management, mathematics, statistics, economics, soil mechanics, meteorology and various engineering disciplines. Our compensation and benefit plans are pay-for-performance-oriented, including incentive compensation plans and substantial equity participation by


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employees. As of December 31, 2008 and March 31, 2009, our employees owned approximately 25% of the company.
•     Attractive Operating Model.  We believe we have an attractive operating model due to the recurring nature of our revenues, the scalability of our solutions and the low capital intensity of our business.
Our Growth Strategy
Over the past five years, we have grown our revenues at a CAGR of 13.0% through the successful execution of our business plan. These results reflect strong organic revenue growth, new product development and selected acquisitions. We have made, and continue to make, investments in people, data sets, analytic solutions, technology, and complementary businesses. The key components of our strategy include:
•     Increase Sales to Insurance Customers.  We expect to expand the application of our solutions in insurance customers’ internal risk and underwriting processes. Building on our deep knowledge of, and embedded position in, the insurance industry, we expect to sell more solutions to existing customers tailored to individual insurance segments. By increasing the breadth and relevance of our offerings, we believe we can strengthen our relationships with customers and increase our value to their decision making in critical ways.
•     Develop New, Proprietary Data Sets and Predictive Analytics.  We work with our customers to understand their evolving needs. We plan to create new solutions by enriching our mix of proprietary data sets, analytic solutions and effective decision support across the markets we serve. We constantly seek to add new data sets that can further leverage our analytic methods, technology platforms and intellectual capital.
•     Leverage Our Intellectual Capital to Expand into Adjacent Markets and New Customer Sectors.  Our organization is built on nearly four decades of intellectual property in risk management. We believe we can continue to profitably expand the use of our intellectual capital and apply our analytic methods in new markets, where significant opportunities for long-term growth exist. We also continue to pursue growth through targeted international expansion. We have already demonstrated the effectiveness of this strategy with our expansion into healthcare and non-insurance financial services.
•     Pursue Strategic Acquisitions that Complement Our Leadership Positions.  We will continue to expand our data and analytics capabilities across industries. While we expect this will occur primarily through organic growth, we have and will continue to acquire assets and businesses that strengthen our value proposition to customers. We have developed an internal capability to source, evaluate and integrate acquisitions that have created value for shareholders. We have acquired 15 businesses in the past five years, which in the aggregate have increased their revenue with a weighted average CAGR of 31% over the same period.
Risk Factors
Investing in our common stock involves substantial risk. Please read “Risk Factors” beginning on page 10 for a discussion of certain factors you should consider in evaluating an investment in our common stock.


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Corporate History and Information
We were 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, we have transformed our business by deepening and broadening our data assets, entering new markets, placing a greater emphasis on analytics and pursuing strategic acquisitions to enhance these efforts. Members of our senior management operating team have been with us for an average of almost twenty years. This team has led our transformation to a successful for-profit entity and our expansion from P&C insurance into a variety of new markets.
Our principal executive offices are located at 545 Washington Boulevard, Jersey City, New Jersey,07310-1686 and our telephone number is(201) 469-2000.


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THE OFFERING
Class A common stock offered by the selling stockholders           shares
Class A common stock outstanding           shares
Over-allotment option           shares of Class A common stock from the selling stockholders
Class B common stock outstanding           shares
Sale and transfer restrictions on Class B common stockThe Class B (Series 1) common stock is not transferable until 18 months after the date of this prospectus and the Class B (Series 2) common stock is not transferable until 30 months after the date of this prospectus.
These transfer restrictions are subject to limited exceptions, including transfers to another holder of Class B common stock. See “Description of Capital Stock — Common Stock — Transfer Restrictions.”
Conversion of Class B common stockAfter termination of the restrictions on transfer described above for each series of Class B common stock, such series of Class B common stock will be automatically converted into Class A common stock. No later than 30 months after the date of this prospectus, there will be no outstanding shares of Class B common stock.
In the event that Class B common stock is transferred and converts into Class A common stock, it will have the effect of diluting the voting power of our existing holders of Class A common stock. See “Description of Capital Stock — Common Stock — Conversion.”
Use of proceedsThe Company will not receive any proceeds from sale of Class A common stock in the offering.
Dividend policyFollowing this offering and subject to legally available funds, we currently intend to pay a quarterly dividend, in cash, at an annual rate initially equal to $      per share of Class A common stock (representing a quarterly rate initially equal to $      per share) commencing with the quarter ended           , 2009. Our Class B common stock will share ratably on an as-converted basis in such dividends. The declaration and payment of any dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments and other factors that our board of directors deems relevant.
Stock symbol“VA”


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Unless the context requires otherwise, the number of shares of our Class A common stock to be outstanding after this offering is based on the number of shares outstanding as of March 31, 2009, giving effect to the stock split of          -for-one that will have occurred prior to the completion of this offering. The number of shares of our Class A common stock to be outstanding after this offering does not take into account, unless the context otherwise requires:
•                shares of Class A common stock issuable upon the exercise of outstanding stock options as of March 31, 2009 at a weighted average exercise price of $      per share; and
•     an aggregate of           shares of Class A common stock that will be reserved for future issuances under our 2009 Equity Incentive Plan as of the closing of this offering.


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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary historical financial data should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007 and 2008 are derived from the audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2006 is derived from unaudited consolidated financial statements that are not included in this prospectus. The condensed consolidated statement of operations data for the three-month periods ended March 31, 2008 and 2009 and the condensed consolidated balance sheet data as of March 31, 2009 are derived from unaudited condensed financial statements that are included in this prospectus. The condensed consolidated balance sheet data as of March 31, 2008 is derived from unaudited condensed consolidated financial statements that are not included in this prospectus. The unaudited condensed consolidated financial statements, in our opinion, have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results for the three-month period ended March 31, 2009 are not necessarily indicative of results that may be expected for the fiscal year ended December 31, 2009 or any future period.
From January 1, 2006 to March 31, 2009 we have acquired 10 businesses, which may affect the comparability of our financial statements.
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Statement of income data:
                    
Revenues:                    
Risk Assessment revenues $472,634  $485,160  $504,391  $127,039  $129,566 
Decision Analytics revenues  257,499   317,035   389,159   88,579   116,185 
                     
Revenues  730,133   802,195   893,550   215,618   245,751 
                     
Expenses:                    
Cost of revenues  331,804   357,191   386,897   93,310   107,523 
Selling, general and administrative  100,124   107,576   131,239   28,674   33,320 
Depreciation and amortization of fixed assets  28,007   31,745   35,317   7,907   9,195 
Amortization of intangible assets  26,854   33,916   29,555   8,041   8,510 
                     
Total expenses  486,789   530,428   583,008   137,932   158,548 
                     
Operating income  243,344   271,767   310,542   77,686   87,203 
Other income/(expense):                    
Investment income and realized gains (losses) on securities, net  6,101   9,308   (327)  (458)  (355)
Interest expense  (16,668)  (22,928)  (31,316)  (6,326)  (8,154)
                     
Total other expense, net  (10,567)  (13,620)  (31,643)  (6,784)  (8,509)
Income from continuing operations before income taxes  232,777   258,147   278,899   70,902   78,694 
Provision for income taxes  (91,992)  (103,184)  (120,671)  (29,876)  (33,779)
                     
Income from continuing operations  140,785   154,963   158,228   41,026   44,915 


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     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Loss from discontinued operations, net of tax(1)  (1,805)  (4,589)         
                     
Net income $138,980  $150,374  $158,228  $41,026  $44,915 
                     
Basic income/(loss) per share(2):
                    
Income from continuing operations $34.08  $38.58  $43.26  $10.91  $12.91 
Loss from discontinued operations  (0.44)  (1.14)         
                     
Net income per share $33.64  $37.44  $43.26  $10.91  $12.91 
                     
Diluted income/(loss) per share(2):
                    
Income from continuing operations $32.72  $37.03  $41.59  $10.45  $12.43 
Loss from discontinued operations  (0.42)  (1.10)         
                     
Net income per share $32.30  $35.93  $41.59  $10.45  $12.43 
                     
Weighted average shares outstanding:                    
Basic  4,130,962   4,016,928   3,657,714   3,759,913   3,478,760 
                     
Diluted  4,302,867   4,185,151   3,804,634   3,926,954   3,612,089 
                     
Other data:
                    
EBITDA(3):                    
Risk Assessment EBITDA $202,872  $212,780  $222,706  $58,122  $60,599 
Decision Analytics EBITDA  95,333   124,648   152,708   35,512   44,309 
                     
EBITDA $298,205  $337,428  $375,414  $93,634  $104,908 
                     
Purchases of fixed assets $(25,742) $(32,941) $(30,652) $(9,766) $(8,359)
Net cash provided by operating activities  223,499   248,521   247,906   89,864   135,393 
Net cash (used in)/provided by investing activities  (243,452)  (110,831)  (130,466)  10,415   (66,921)
Net cash provided by/(used in) financing activities  75,907   (212,591)  (107,376)  (98,434)  (56,213)
                     
  As of December 31,  As of March 31, 
  2006  2007  2008  2008  2009 
  (In thousands) 
 
Balance Sheet Data:
                    
Cash and cash equivalents $99,152  $24,049  $33,185  $25,898  $45,006 
Total assets  739,282   830,041   928,877   836,826   1,020,386 
Total debt(4)  448,698   438,330   669,754   517,014   639,087 
Redeemable common stock(5)  1,125,933   1,171,188   749,539   1,017,967   758,436 
Stockholders’ deficit  (1,123,977)  (1,203,348)  (1,009,823)  (1,198,448)  (991,109)
(1)As of December 31, 2007, we discontinued operations of our claim consulting business located in New Hope, Pennsylvania and the United Kingdom. There was no impact of discontinued operations on the results of operations for the periods subsequent to December 31, 2007.

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(2)In conjunction with the initial public offering, the stock of Insurance Services Office, Inc. will convert to stock of Verisk Analytics, Inc., which plans to effect a stock split of its common stock. Giving effect to the approximately          -for-one stock split that will have occurred prior to the completion of this offering, pro forma basic income/(loss) per share from continuing operations and discontinued operations would have been $      and $     , $      and $     , and $      and $      for each of the years ended December 31, 2006, 2007 and 2008, respectively, and $      and $     , and $      and $      for the three months ended March 31, 2008 and 2009, respectively. Pro forma diluted income/(loss) per share from continuing operations and discontinued operations would have been $      and $     , $      and $      , and $      and $      for each of the years ended December 31, 2006, 2007 and 2008, respectively, and $      and $     , and $      and $      for the three months ended March 31, 2008 and 2009, respectively.
(3)EBITDA is the financial measure which management uses to evaluate the performance of our segments. “EBITDA” is defined as income from continuing operations before investment income and interest expense, income taxes, depreciation and amortization. See note 19 to our audited consolidated financial statements and note 15 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
Although EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations or cash flow from operating activities reported under U.S. GAAP. Management uses EBITDA in conjunction with traditional GAAP operating performance measures as part of its overall assessment of company performance. Some of these limitations are:
•     EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
•     EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•     Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and
•     Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
The following is a reconciliation of income from continuing operations to EBITDA:
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands) 
 
Income from continuing operations $140,785  $154,963  $158,228  $41,026  $44,915 
Depreciation and amortization of fixed and intangible assets  54,861   65,661   64,872   15,948   17,705 
Investment income and realized (gains)/losses on securities, net  (6,101)  (9,308)  327   458   355 
Interest expense  16,668   22,928   31,316   6,326   8,154 
Provision for income taxes  91,992   103,184   120,671   29,876   33,779 
                     
EBITDA $298,205  $337,428  $375,414  $93,634  $104,908 
(4) Includes capital lease obligations.
(5)Prior to this offering, we are required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of these securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock.


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RISK FACTORS
You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our Class A common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our Class A common stock could decline due to any of these risks, and you may lose all or part of your investment.
Risks Related to Our Business
General economic, political and market forces and dislocations beyond our control could reduce demand for our solutions and harm our business.
The demand for our solutions may be impacted by domestic and international factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange rates and inflation. The United States economy is currently in a recession and both the future domestic and global economic environments may continue to be less favorable than those of recent years. Any one or more of these factors may contribute to reduced activity and prices in the securities markets generally and could result in a reduction in demand for our solutions, which could have an adverse effect on our results of operation and financial condition.
The current dislocation of the credit markets, and its effect on the economy, may continue to negatively impact financial institutions. A significant additional decline in the value of assets for which risk is transferred in market transactions could have an adverse impact on the demand for our solutions. In addition, the decline of the credit markets has reduced the number of mortgage originators, and therefore, the immediate demand for our related mortgage solutions. Specifically, certain of our fraud detection and prevention solutions are directed at the mortgage market. This decline in asset value and originations and an increase in foreclosure levels has also created greater regulatory scrutiny of mortgage originations and securitization. Any new regulatory regime may change the utility of our solutions for mortgage lenders and other participants in the mortgage lending industry and related derivative markets or increase our costs as we adapt our solutions to new regulation.
We could lose our access to data from external sources which could prevent us from providing our solutions.
We depend upon data from external sources, including data received from customers and various government and public record services, for information used in our databases. In general, we do not own the information in these databases, and the participating organizations could discontinue contributing information to the databases. Our data sources could withdraw or increase the price for their data for a variety of reasons, and we could also become subject to legislative or judicial restrictions on the use of such data, in particular if such data is not collected by the third parties in a way which allows us to legally useand/or process the data. In addition, many of our customers are significant stockholders of our company. Specifically, all of our Class B common stock is owned by insurers who are also our customers and provide us with a significant percentage of our data. If our customers’ percentage of ownership of our common stock decreases in the future, including as a result of this offering, there can be no assurance that our customers will continue to provide data to the same extent or on the same terms. If a substantial number of data sources, or certain key sources, were to withdraw or be unable to provide their data, or if we were to lose access to data due to government regulation or if the collection of data became uneconomical, our ability to provide solutions to our customers could be impacted, which could materially adversely affect our business, reputation, financial condition, operating results and cash flows.
Agreements with our data suppliers are short-term agreements. Some suppliers are also competitors, which may make us vulnerable to unpredictable price increases and may cause some suppliers not to renew certain agreements. Our competitors could also enter into exclusive contracts with our data sources. If our competitors enter into such exclusive contracts, we may be precluded from receiving certain data from these


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suppliers or restricted in our use of such data, which would give our competitors an advantage. Such a termination or exclusive contracts could have a material adverse effect on our business, financial position, and operating results if we were unable to arrange for substitute sources.
We derive a substantial portion of our revenues from the U.S. P&C insurance industry. If the downturn in the U.S. insurance industry continues or that industry does not continue to accept our solutions, our revenues will decline.
Revenues derived from solutions we provide to the U.S. P&C insurance industry account for a substantial portion of our total revenues. During the year ended December 31, 2008 and the three months ended March 31, 2009, approximately 65% and 61%, respectively, of our revenue was derived from solutions provided to the U.S. P&C insurance industry. Also, sales of certain of our solutions are tied to premiums in the U.S. P&C insurance market, which may rise or fall in any given year due to loss experience and capital capacity and other factors in the insurance industry beyond our control. In addition, our revenues will decline if the insurance industry does not continue to accept these solutions. Factors that might affect the acceptance of these solutions by P&C insurers include the following:
•     changes in the business analytics industry;
•     changes in technology;
•     our inability to obtain or use state fee schedule or claims data in our insurance solutions;
•     saturation of market demand;
•     loss of key customers;
•     industry consolidation; and
•     failure to execute our customer-focused selling approach.
A continued downturn in the insurance industry or lower acceptance of our solutions by the insurance industry could result in a decline in revenues from that industry and have a material adverse effect on our financial condition, results of operations and cash flows.
There may be consolidation in our end customer market, which would reduce the use of our services.
Mergers or consolidations among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenues even if these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with or are acquired by other entities that are not our customers, or that use fewer of our services, they may discontinue or reduce their use of our services. The adverse effects of consolidation will be greater in sectors that we are particularly dependent upon, for example, in the P&C insurance services sector. Any of these developments could materially and adversely affect our business, financial condition, operating results and cash flows.
If we are unable to develop successful new solutions or if we experience defects, failures and delays associated with the introduction of new solutions, our business could suffer serious harm.
Our growth and success depends upon our ability to develop and sell new solutions. If we are unable to develop new solutions, or if we are not successful in introducingand/or obtaining regulatory approval or acceptance for new solutions, we may not be able to grow our business, or growth may occur more slowly than we anticipate. In addition, significant undetected errors or delays in new solutions may affect market acceptance of our solutions and could harm our business, financial condition or results of operations. In the past, we have experienced delays while developing and introducing new solutions, primarily due to difficulties developing models, acquiring data and adapting to particular operating environments. Errors or defects in our solutions that are significant, or are perceived to be significant, could result in rejection of our solutions, damage to our reputation, loss of revenues, diversion of development resources, an increase in product liability claims, and increases in service and support costs and warranty claims.


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We will continue to rely upon proprietary technology rights, and if we are unable to protect them, our business could be harmed.
Our success depends, in part, upon our intellectual property rights. To date, we have relied primarily on a combination of copyright, patent, trade secret, and trademark laws and nondisclosure and other contractual restrictions on copying and distribution to protect our proprietary technology. This protection of our proprietary technology is limited, and our proprietary technology could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. Our protection of our intellectual property rights in the United States or abroad may not be adequate and others, including our competitors, may use our proprietary technology without our consent. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could harm our business, financial condition, results of operations and cash flows.
We could face claims for intellectual property infringement, which if successful could restrict us from using and providing our technologies and solutions to our customers.
There has been substantial litigation and other proceedings, particularly in the United States, regarding patent and other intellectual property rights in the information technology industry. There is a risk that we are infringing, or may in the future infringe, the intellectual property rights of third parties. We monitor third-party patents and patent applications that may be relevant to our technologies and solutions and we carry out freedom to operate analyses where we deem appropriate. However, such monitoring and analysis has not been, and is unlikely in the future to be, comprehensive, and it may not be possible to detect all potentially relevant patents and patent applications. Since the patent application process can take several years to complete, there may be currently pending applications, unknown to us, that may later result in issued patents that cover our products and technologies. As a result, we may infringe existing and future third-party patents of which we are not aware. As we expand our operations there is a higher risk that such activity could infringe the intellectual property rights of third parties.
Third-party intellectual property infringement claims and any resultant litigation against us or our technology partners or providers, could subject us to liability for damages, restrict us from using and providing our technologies and solutions or operating our business generally, or require changes to be made to our technologies and solutions. Even if we prevail, litigation is time consuming and expensive to defend and would result in the diversion of management’s time and attention.
If a successful claim of infringement is brought against us and we fail to develop non-infringing technologies and solutions or to obtain licenses on a timely and cost effective basis this could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
Regulatory developments could negatively impact our business.
Because personal, public and non-public information is stored in some of our databases, we are vulnerable to government regulation and adverse publicity concerning the use of our data. We provide many types of data and services that already are subject to regulation under the Fair Credit Reporting Act, Gramm-Leach-Bliley Act, Driver’s Privacy Protection Act, Health Insurance Portability and Accountability Act, the European Union’s Data Protection Directive and to a lesser extent, various other federal, state, and local laws and regulations. These laws and regulations are designed to protect the privacy of the public and to prevent the misuse of personal information in the marketplace. However, many consumer advocates, privacy advocates, and government regulators believe that the existing laws and regulations do not adequately protect privacy. They have become increasingly concerned with the use of personal information, particularly social security numbers, department of motor vehicle data and dates of birth. As a result, they are lobbying for further restrictions on the dissemination or commercial use of personal information to the public and private sectors.


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Similar initiatives are under way in other countries in which we do business or from which we source data. The following legal and regulatory developments also could have a material adverse affect on our business, financial position, results of operations or cash flows:
•     amendment, enactment, or interpretation of laws and regulations which restrict the access and use of personal information and reduce the supply of data available to customers;
•     changes in cultural and consumer attitudes to favor further restrictions on information collection and sharing, which may lead to regulations that prevent full utilization of our solutions;
•     failure of our solutions to comply with current laws and regulations; and
•     failure of our solutions to adapt to changes in the regulatory environment in an efficient, cost-effective manner.
Fraudulent data access and other security breaches may negatively impact our business and harm our reputation.
Security breaches in our facilities, computer networks, and databases may cause harm to our business and reputation and result in a loss of customers. Our systems may be vulnerable to physical break-ins, computer viruses, attacks by hackers and similar disruptive problems. Third-party contractors also may experience security breaches involving the storage and transmission of proprietary information. If users gain improper access to our databases, they may be able to steal, publish, delete or modify confidential third-party information that is stored or transmitted on our networks.
In addition, customers’ misuse of our information services could cause harm to our business and reputation and result in loss of customers. Any such misappropriationand/or misuse of our information could result in us, among other things, being in breach of certain data protection and related legislation.
A security or privacy breach may affect us in the following ways:
•     deterring customers from using our solutions;
•     deterring data suppliers from supplying data to us;
•     harming our reputation;
•     exposing us to liability;
•     increasing operating expenses to correct problems caused by the breach;
•     affecting our ability to meet customers’ expectations; or
•     causing inquiry from governmental authorities.
We may detect incidents in which consumer data has been fraudulently or improperly acquired. The number of potentially affected consumers identified by any future incidents is obviously unknown. Any such incident could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
We typically face a long selling cycle to secure new contracts that requires significant resource commitments, which result in a long lead time before we receive revenues from new relationships.
We typically face a long selling cycle to secure a new contract and there is generally a long preparation period in order to commence providing the services. We typically incur significant business development expenses during the selling cycle and we may not succeed in winning a new customer’s business, in which case we receive no revenues and may receive no reimbursement for such expenses. Even if we succeed in developing a relationship with a potential new customer, we may not be successful in obtaining contractual commitments after the selling cycle or in maintaining contractual commitments after the implementation cycle, which may have a material adverse effect on our business, results of operations and financial condition.


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We may lose key business assets, including loss of data center capacity or the interruption of telecommunications links, the internet, or power sources, which could significantly impede our ability to do business.
Our operations depend on our ability, as well as that of third-party service providers to whom we have outsourced several critical functions, to protect data centers and related technology against damage from hardware failure, fire, power loss, telecommunications failure, impacts of terrorism, breaches in security (such as the actions of computer hackers), natural disasters, or other disasters. The on-line services we provide are dependent on links to telecommunications providers. In addition, we generate a significant amount of our revenues through telesales centers and websites that we utilize in the acquisition of new customers, fulfillment of solutions and services and responding to customer inquiries. We may not have sufficient redundant operations to cover a loss or failure in all of these areas in a timely manner. Certain of our customer contracts provide that our on-line servers may not be unavailable for specified periods of time. Any damage to our data centers, failure of our telecommunications links or inability to access these telesales centers or websites could cause interruptions in operations that materially adversely affect our ability to meet customers’ requirements, resulting in decreased revenue, operating income and earnings per share.
We are subject to significant competition in many of the markets in which we operate and we may not be able to compete effectively.
Some markets in which we operate or which we believe may provide growth opportunities for us are highly competitive, and are expected to remain highly competitive. We compete on the basis of quality, customer service, product and service selection and price. Our competitive position in various market segments depends upon the relative strength of competitors in the segment and the resources devoted to competing in that segment. Due to their size, certain competitors may be able to allocate greater resources to a particular market segment than we can. As a result, these competitors may be in a better position to anticipate and respond to changing customer preferences, emerging technologies and market trends. In addition, new competitors and alliances may emerge to take market share away. We may be unable to maintain our competitive position in our market segments, especially against larger competitors. We may also invest further to upgrade our systems in order to compete. If we fail to successfully compete, our business, financial position and results of operations may be adversely affected.
Acquisitions could result in operating difficulties, dilution and other harmful consequences.
Our long-term business strategy includes growth through acquisitions. Future acquisitions may not be completed on acceptable terms and acquired assets, data or businesses may not be successfully integrated into our operations. Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses. Such risks include, among other things:
•     failing to implement or remediate controls, procedures and policies appropriate for a larger public company at acquired companies that prior to the acquisition lacked such controls, procedures and policies;
•     paying more than fair market value for an acquired company or assets;
•     failing to integrate the operations and personnel of the acquired businesses in an efficient, timely manner;
•     assuming potential liabilities of an acquired company;
•     managing the potential disruption to our ongoing business;
•     distracting management focus from our core businesses;
•     difficulty in acquiring suitable businesses;
•     impairing relationships with employees, customers, and strategic partners;
•     incurring expenses associated with the amortization of intangible assets;


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•     incurring expenses associated with an impairment of all or a portion of goodwill and other intangible assets due to changes in market conditions, weak economies in certain competitive markets, or the failure of certain acquisitions to realize expected benefits; and
•     diluting the share value and voting power of existing stockholders.
The anticipated benefits of many of our acquisitions may not materialize. Future acquisitions or dispositions could result in the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill and other intangible assets, any of which could harm our financial condition.
We typically fund our acquisitions through facilities that are uncommitted. Although we have capacity under our uncommitted facilities, lenders are not required to loan us any funds under such facilities. The current disruptions in the capital markets have caused banks and other credit providers to restrict availability of borrowing and new credit facilities. Therefore, future acquisitions may require us to obtain additional financing, which may not be available on favorable terms or at all.
To the extent the availability of free or relatively inexpensive information increases, the demand for some of our solutions may decrease.
Public sources of free or relatively inexpensive information have become increasingly available recently, particularly through the internet, and this trend is expected to continue. Governmental agencies in particular have increased the amount of information to which they provide free public access. Public sources of free or relatively inexpensive information may reduce demand for our solutions. To the extent that customers choose not to obtain solutions from us and instead rely on information obtained at little or no cost from these public sources, our business and results of operations may be adversely affected.
Our senior leadership team is critical to our continued success and the loss of such personnel could harm our business.
Our future success substantially depends on the continued service and performance of the members of our senior leadership team. These personnel possess business and technical capabilities that are difficult to replace. Members of our senior management operating team have been with us for an average of almost twenty years. However, with the exception of Frank J. Coyne, our Chairman and Chief Executive Officer, we do not expect to have employee contracts with the members of our senior management operating team following this offering. If we lose key members of our senior management operating team, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this may have a material adverse effect on our business, results of operations and financial condition.
We may fail to attract and retain enough qualified employees to support our operations, which could have an adverse effect on our ability to expand our business and service our customers.
Our business relies on large numbers of skilled employees and our success depends on our ability to attract, train and retain a sufficient number of qualified employees. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for employees not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to hire will increase. We will also need to increase our hiring if we are not able to maintain our attrition rate through our current recruiting and retention policies. Increased competition for employees could have an adverse effect on our ability to expand our business and service our customers, as well as cause us to incur greater personnel expenses and training costs.


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We are subject to antitrust and other litigation, and may in the future become subject to further such litigation; an adverse outcome in such litigation could have a material adverse effect on our financial condition, revenues and profitability.
We participate in businesses (particularly insurance-related businesses and services) that are subject to substantial litigation, including antitrust litigation. We are subject to the provisions of a 1995 settlement agreement in an antitrust lawsuit brought by various state Attorneys General and private plaintiffs which imposes certain constraints with respect to insurer involvement in our governance and business. We currently are defending against several putative class action lawsuits in which it is alleged that certain of our subsidiaries unlawfully have conspired with insurers with respect to their payment of insurance claims. See “Business — Legal Proceedings.” Our failure to successfully defend or settle such litigation could result in liability that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenues and profitability. Given the nature of our business, we may be subject to similar litigation in the future. Even if the direct financial impact of such litigation is not material, settlements or judgments arising out of such litigation could include further restrictions on our ability to conduct business, including potentially the elimination of entire lines of business, which could increase our cost of doing business and limit our prospects for future growth.
Our liquidity, financial position and profitability could be adversely affected by further deterioration in U.S. and international credit markets and economic conditions.
Deterioration in the global capital markets has caused financial institutions to seek additional capital, merge with larger financial institutions and, in some cases, fail. These conditions have led to concerns by market participants about the stability of financial markets generally and the strength of counterparties, resulting in a contraction of available credit, even for the most credit-worthy borrowers. Due to recent market events, our liquidity and our ability to obtain financing may be negatively impacted if one of our lenders under our revolving credit facilities or existing shelf arrangements fails to meet its funding obligations. In such an event, we may not be able to draw on all, or a substantial portion, of our uncommitted credit facilities, which would adversely affect our liquidity. Also, if we attempt to obtain future financing in addition to, or replacement of, our existing credit facilities to finance our continued growth through acquisitions or otherwise, the credit market turmoil could negatively impact our ability to obtain such financing.
Risks Related to the Offering
There is no prior public market for our common stock and therefore an active trading market or any specific price for our common stock may not be established.
Currently, there is no public trading market for our common stock. We expect that our Class A common stock will be listed on the New York Stock Exchange under the symbol “VA.” The initial public offering price per share was determined by agreement among us, the selling stockholders and the representatives of the underwriters and may not be indicative of the market price of our common stock after our initial public offering. An active trading market for our common stock may not develop and continue upon the completion of this offering and the market price of our common stock may decline below the initial public offering price.
The market price for our common stock may be volatile.
The market price for our common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
•     actual or anticipated fluctuations in our quarterly operating results;
•     changes in financial estimates by securities research analysts;
•     changes in the economic performance or market valuations of other companies engaged in our industry;


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•     regulatory developments in our industry affecting us, our customers or our competitors;
•     announcements of technological developments;
•     sales or expected sales of additional common stock;
•     continued dislocations and downward pressure in the capital markets; and
•     terrorist attacks or natural disasters or other such events impacting countries where we or our customers have operations.
In addition, securities markets generally and from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may have a material adverse effect on the market price of our common stock.
We plan to issue a number of options to purchase Class A common stock to our directors and employees that could dilute your interest in us.
Upon the closing of this offering we will have           shares of Class A common stock available for issuance to our directors, executive officers and employees in connection with grants of options to purchase Class A common stock under our employee benefits arrangements. Issuances of Class A common stock to our directors, executive officers and employees pursuant to the exercise of stock options under our employee benefits arrangements will dilute your interest in us.
If there are substantial sales of our common stock, our stock price could decline.
The market price of our common stock could decline as a result of sales of a large number of shares of common stock in the market after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem attractive. Upon consummation of this offering, we will have           shares of common stock outstanding. Of these shares, the           shares of common stock offered hereby will be freely tradable without restriction in the public market, unless purchased by our affiliates.
Following this offering, our existing stockholders will beneficially own in the aggregate approximately           shares of our Class A common stock and           shares of our Class B common stock, representing in aggregate approximately     % of our outstanding common stock. Such stockholders will be able to sell their common stock in the public market from time to time without registering them, subject to thelock-up periods described below, and subject to limitations on the timing, amount and method of those sales imposed by securities laws. If any of these stockholders were to sell a large number of their common stock, the market price of our common stock could decline significantly. In addition, the perception in the public markets that sales by them might occur could also adversely affect the market price of our common stock.
In connection with this offering, we, our selling stockholders, our directors and certain members of our management have each agreed to enter into alock-up agreement and thereby be subject to alock-up period, meaning that they and their permitted transferees will not be permitted to sell any of their common stock without the prior consent of the underwriters for 180 days after the date of this prospectus. Although we have been advised that there is no present intention to do so, the underwriters may, in their sole discretion and without notice, release all or any portion of the common stock from the restrictions in any of thelock-up agreements described above. In addition, certain members of our management will be subject to alock-up agreements with us whereby they will not be permitted to sell any of their common stock, subject to certain conditions, for a period of time after the pricing of this initial public offering. See “Certain Relationships and Related Transactions — Letter Agreements.”
Also, pursuant to our amended and restated certificate of incorporation, our Class B stockholders will not be able to sell any of their common stock, subject to certain conditions, to the public for a period of time after the pricing of this initial public offering. Each share of Class B (Series 1) common stock shall convert


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automatically, without any action by the holder, into one share of Class A common stock 18 months after the date of this prospectus. Each share of Class B (Series 2) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 30 months after the date of this prospectus. Our board of directors may approve exceptions to the limitation on transfers of our Class B common stock in their sole discretion, in connection with the sale of such Class B common stock in a public offering registered with the Securities and Exchange Commission or in such other limited circumstances as our board of directors may determine. Any Class B common stock sold to the public will first be converted to Class A common stock. Such further resale of our common stock could cause the price of our common stock to decline. See “Description of Capital Stock — Common Stock — Conversion.”
Pursuant to our equity incentive plans, options to purchase approximately           shares of Class A common stock will be outstanding upon consummation of this offering. Following this offering, we intend to file a registration statement under the Securities Act registering a total of approximately           shares of Class A common stock which will cover the shares available for issuance under our equity incentive plans (including for such outstanding options) as well as shares held for resale by our existing stockholders that were previously issued under our equity incentive plans. Such further issuance and resale of our common stock could cause the price of our common stock to decline.
Also, in the future, we may issue our securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common stock.
The holders of our Class B common stock have the right to elect up to three of our directors and their interests in our business may be different than yours.
Until no Class B common stock remains outstanding, the holders of our Class B common stock will have the right to elect up to three of our directors. Stockholders of the Class B common stock may not have the same incentive to approve a corporate action that may be favorable for the holders of Class A common stock, or their interests may otherwise conflict with yours. For example, holders of our Class B common stock may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us or the use of our solutions, but which might involve risks to holders of our Class A common stock, including a potential decrease in the price of our Class A common stock. See “Description of Capital Stock — Common Stock — Voting Rights.”
Following this offering, changes in our capital structure and level of indebtedness and the terms of anti-takeover provisions under Delaware law and in our amended and restated certificate of incorporation and bylaws could diminish the value of our common stock and could make a merger, tender offer or proxy contest difficult or could impede an attempt to replace or remove our directors.
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable or make it more difficult for stockholders to replace directors even if stockholders consider it beneficial to do so. Our certificate of incorporation and bylaws:
•     authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares to thwart a takeover attempt;
•     prohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of the stock to elect some directors;
•     require that vacancies on the board of directors, including newly-created directorships, be filled only by a majority vote of directors then in office;
•     limit who may call special meetings of stockholders;


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•     authorize the issuance of authorized but unissued shares of common stock and preferred stock without stockholder approval, subject to the rules and regulations of the          ;
•     prohibit stockholder action by written consent, requiring all stockholder actions to be taken at a meeting of the stockholders; and
•     establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
In addition, Section 203 of the Delaware General Corporation Law may inhibit potential acquisition bids for us. Upon completion of this offering, we will be subject to Section 203, which regulates corporate acquisitions and limits the ability of a holder of 15% or more of our stock from acquiring the rest of our stock. Under Delaware law a corporation may opt out of the anti-takeover provisions, but we do not intend to do so.
These provisions may prevent a stockholder from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
We will incur increased costs as a result of being a public company.
As a privately held company, we have not been responsible for the corporate governance and financial reporting practices and policies required of a public company. Following the completion of this offering, we will be a publicly traded company. Once we become a public company, we will incur significant legal, accounting, investor relations and other expenses that we do not currently incur. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the Securities and Exchange Commission, the applicable listing rules and rules implemented by the applicable foreign regulatory agencies, may require changes in corporate governance practices of public companies. We expect such rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.”
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.
MARKET AND INDUSTRY DATA AND FORECASTSRisk Factors
 
Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. These sources generally state that the information they contain has been obtained from sources believed to be reliable, but that the accuracy and completeness of such information is not guaranteed. We have not independently verified any of the data from third-party sources, nor have we ascertained the underlying economic assumptions relied upon therein. Similarly, internal surveys, industry forecasts and market research, which we believe to be reliable based uponInvesting in our management’s knowledge of the industry, have not been independently verified. While we are not aware of any material misstatements regarding our industry data presented herein, our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the headingcommon stock involves substantial risk. Please read “Risk Factors” in this prospectus.


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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus. This summary may not contain allbeginning on page 10 for a discussion of the information thatcertain factors you should consider before deciding to investin evaluating an investment in our Class A common stock. You should read this entire prospectus carefully, including the “Risk Factors” section and the consolidated financial statements and the notes to those statements.
Company Overview
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 detailed actuarial and underwriting 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, healthcare and mortgage industries, and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance.
Our customers use our solutions, in the form of our data, statistical models or tailored analytics, to make more logical decisions. We develop solutions which our customers use to analyze the four key processes in managing risk, in what we define as the Verisk Risk Analysis Framework: Prediction of Loss, Selection and Pricing of Risk, Detection and Prevention of Fraud, and Quantification of Loss.
We organize our business in two segments: Risk Assessment and Decision Analytics.
Risk Assessment:  We are the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our proprietary and unique databases describe premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants and fire suppression capabilities of municipalities in addition to other properties and attributes. Our largest P&C insurance database includes nearly 14 billion records, and, in each of the past three years, we updated the database with over 2 billion validated new records. We use our data, for example, to create policy language and proprietary risk classifications that are industry standard and to generate prospective loss cost estimates used to price insurance policies.
Decision Analytics:  We provide solutions in each of the four processes of the Verisk Risk Analysis Framework by combining algorithms and analytic methods, which incorporate our proprietary data. Our unique data sets include approximately 600 million P&C insurance claims, historic natural catastrophe data covering more than 50 countries, data from more than 13 million applications for mortgage loans and over 300 million U.S. criminal records. Customers integrate our solutions into their models, formulas or underwriting criteria to predict potential loss events, ranging from hurricanes and earthquakes to unanticipated healthcare claims. We are a leading developer of catastrophe and extreme event models and offer solutions covering natural and man-made risks, including acts of terrorism. We also develop solutions that allow customers to quantify costs after loss events occur. Our 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, healthcare and mortgage sectors.
We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs. The embedded nature of our solutions serves to strengthen and extend our relationships. In 2007, our U.S. customers included all of the top 100 P&C insurance providers, four of the 10 largest Blue Cross Blue Shield plans, four of the seven leading mortgage insurers, 14 of the top 20 mortgage lenders, and all of the 10 largest global reinsurers. Approximately 96% of our top 200 customers in 2007, as ranked by revenue, have been our customers for each of the last five years. Further, from 2003 to 2007, revenues generated from these top 200 customers grew at a compound annual growth rate, or CAGR, of 13%.
We offer our solutions and services primarily through annual subscriptions or long-term agreements, which are typically pre-paid and represented approximately 74% of our revenues in 2007. For the year ended December 31, 2007 and the three months ended March 31, 2008, we had revenues of $802 million and $216 million, respectively, and net income of $150 million and $41 million, respectively. For the five year


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period ended December 31, 2007, our revenuesCorporate History and net income have grown at a CAGR of 13.8% and 21.2%, respectively.Information
Our Market Opportunity
 
We believe there iswere 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, we have transformed our business by deepening and broadening our data assets, entering new markets, placing a long-term trendgreater emphasis on analytics and pursuing strategic acquisitions to enhance these efforts. Members of our senior management operating team have been with us for companiesan average of almost twenty years. This team has led our transformation to set strategya successful for-profit entity and direct operations using data and analytics to guide their decisions, which has resulted inour expansion from P&C insurance into a large and rapidly growing market for professional and business information. According to Veronis Suhler Stevenson, an industry consultant, spending on professional and business information services in the U.S. reached $61 billion in 2005 and is projected to grow at a CAGRvariety of 8% through 2010. Another research firm, International Data Corporation, or IDC, estimates that the business analytics services market, which totaled $32 billion in 2007, will grow at a CAGR of 9% through 2012.new markets.
 
We believeOur principal executive offices are located at 545 Washington Boulevard, Jersey City, New Jersey,07310-1686 and our telephone number is(201) 469-2000.


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THE OFFERING
Class A common stock offered by the selling stockholders           shares
Class A common stock outstanding           shares
Over-allotment option           shares of Class A common stock from the selling stockholders
Class B common stock outstanding           shares
Sale and transfer restrictions on Class B common stockThe Class B (Series 1) common stock is not transferable until 18 months after the date of this prospectus and the Class B (Series 2) common stock is not transferable until 30 months after the date of this prospectus.
These transfer restrictions are subject to limited exceptions, including transfers to another holder of Class B common stock. See “Description of Capital Stock — Common Stock — Transfer Restrictions.”
Conversion of Class B common stockAfter termination of the restrictions on transfer described above for each series of Class B common stock, such series of Class B common stock will be automatically converted into Class A common stock. No later than 30 months after the date of this prospectus, there will be no outstanding shares of Class B common stock.
In the event that Class B common stock is transferred and converts into Class A common stock, it will have the effect of diluting the voting power of our existing holders of Class A common stock. See “Description of Capital Stock — Common Stock — Conversion.”
Use of proceedsThe Company will not receive any proceeds from sale of Class A common stock in the offering.
Dividend policyFollowing this offering and subject to legally available funds, we currently intend to pay a quarterly dividend, in cash, at an annual rate initially equal to $      per share of Class A common stock (representing a quarterly rate initially equal to $      per share) commencing with the quarter ended           , 2009. Our Class B common stock will share ratably on an as-converted basis in such dividends. The declaration and payment of any dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments and other factors that our board of directors deems relevant.
Stock symbol“VA”


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Unless the consistent decline incontext requires otherwise, the costnumber of computing power contributesshares of our Class A common stock to be outstanding after this offering is based on the number of shares outstanding as of March 31, 2009, giving effect to the trend towards greater usestock split of          data and analytics. As a result, larger data sets are assembled faster and at a lower cost per record while-for-one that will have occurred prior to the complexity and accuracycompletion of analytical applications and solutions have expanded. This trend has ledthis offering. The number of shares of our Class A common stock to an increase inbe outstanding after this offering does not take into account, unless the use of analytic output, which can be generated and applied more quickly, resulting in more informed decision making. As computing power increases, cost decreases and accuracy improves, we believe customers will continue to apply and integrate data and analytic solutions more broadly.context otherwise requires:
Companies that engage in risk transactions, including P&C insurers, healthcare payors and mortgage lenders and insurers, are particularly motivated to use enhanced analytics because of several factors affecting risk markets, including:
 
 •                shares of Class A common stock issuable upon the totalexercise of outstanding stock options as of March 31, 2009 at a weighted average exercise price of $      per share; and
•     an aggregate of           shares of Class A common stock that will be reserved for future issuances under our 2009 Equity Incentive Plan as of the closing of this offering.


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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following summary historical financial data should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007 and 2008 are derived from the audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2006 is derived from unaudited consolidated financial statements that are not included in this prospectus. The condensed consolidated statement of operations data for the three-month periods ended March 31, 2008 and 2009 and the condensed consolidated balance sheet data as of March 31, 2009 are derived from unaudited condensed financial statements that are included in this prospectus. The condensed consolidated balance sheet data as of March 31, 2008 is derived from unaudited condensed consolidated financial statements that are not included in this prospectus. The unaudited condensed consolidated financial statements, in our opinion, have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results for the three-month period ended March 31, 2009 are not necessarily indicative of results that may be expected for the fiscal year ended December 31, 2009 or any future period.
From January 1, 2006 to March 31, 2009 we have acquired 10 businesses, which may affect the comparability of our financial statements.
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Statement of income data:
                    
Revenues:                    
Risk Assessment revenues $472,634  $485,160  $504,391  $127,039  $129,566 
Decision Analytics revenues  257,499   317,035   389,159   88,579   116,185 
                     
Revenues  730,133   802,195   893,550   215,618   245,751 
                     
Expenses:                    
Cost of revenues  331,804   357,191   386,897   93,310   107,523 
Selling, general and administrative  100,124   107,576   131,239   28,674   33,320 
Depreciation and amortization of fixed assets  28,007   31,745   35,317   7,907   9,195 
Amortization of intangible assets  26,854   33,916   29,555   8,041   8,510 
                     
Total expenses  486,789   530,428   583,008   137,932   158,548 
                     
Operating income  243,344   271,767   310,542   77,686   87,203 
Other income/(expense):                    
Investment income and realized gains (losses) on securities, net  6,101   9,308   (327)  (458)  (355)
Interest expense  (16,668)  (22,928)  (31,316)  (6,326)  (8,154)
                     
Total other expense, net  (10,567)  (13,620)  (31,643)  (6,784)  (8,509)
Income from continuing operations before income taxes  232,777   258,147   278,899   70,902   78,694 
Provision for income taxes  (91,992)  (103,184)  (120,671)  (29,876)  (33,779)
                     
Income from continuing operations  140,785   154,963   158,228   41,026   44,915 


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     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Loss from discontinued operations, net of tax(1)  (1,805)  (4,589)         
                     
Net income $138,980  $150,374  $158,228  $41,026  $44,915 
                     
Basic income/(loss) per share(2):
                    
Income from continuing operations $34.08  $38.58  $43.26  $10.91  $12.91 
Loss from discontinued operations  (0.44)  (1.14)         
                     
Net income per share $33.64  $37.44  $43.26  $10.91  $12.91 
                     
Diluted income/(loss) per share(2):
                    
Income from continuing operations $32.72  $37.03  $41.59  $10.45  $12.43 
Loss from discontinued operations  (0.42)  (1.10)         
                     
Net income per share $32.30  $35.93  $41.59  $10.45  $12.43 
                     
Weighted average shares outstanding:                    
Basic  4,130,962   4,016,928   3,657,714   3,759,913   3,478,760 
                     
Diluted  4,302,867   4,185,151   3,804,634   3,926,954   3,612,089 
                     
Other data:
                    
EBITDA(3):                    
Risk Assessment EBITDA $202,872  $212,780  $222,706  $58,122  $60,599 
Decision Analytics EBITDA  95,333   124,648   152,708   35,512   44,309 
                     
EBITDA $298,205  $337,428  $375,414  $93,634  $104,908 
                     
Purchases of fixed assets $(25,742) $(32,941) $(30,652) $(9,766) $(8,359)
Net cash provided by operating activities  223,499   248,521   247,906   89,864   135,393 
Net cash (used in)/provided by investing activities  (243,452)  (110,831)  (130,466)  10,415   (66,921)
Net cash provided by/(used in) financing activities  75,907   (212,591)  (107,376)  (98,434)  (56,213)
                     
  As of December 31,  As of March 31, 
  2006  2007  2008  2008  2009 
  (In thousands) 
 
Balance Sheet Data:
                    
Cash and cash equivalents $99,152  $24,049  $33,185  $25,898  $45,006 
Total assets  739,282   830,041   928,877   836,826   1,020,386 
Total debt(4)  448,698   438,330   669,754   517,014   639,087 
Redeemable common stock(5)  1,125,933   1,171,188   749,539   1,017,967   758,436 
Stockholders’ deficit  (1,123,977)  (1,203,348)  (1,009,823)  (1,198,448)  (991,109)
(1)As of December 31, 2007, we discontinued operations of our claim consulting business located in New Hope, Pennsylvania and the United Kingdom. There was no impact of discontinued operations on the results of operations for the periods subsequent to December 31, 2007.

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(2)In conjunction with the initial public offering, the stock of Insurance Services Office, Inc. will convert to stock of Verisk Analytics, Inc., which plans to effect a stock split of its common stock. Giving effect to the approximately          -for-one stock split that will have occurred prior to the completion of this offering, pro forma basic income/(loss) per share from continuing operations and discontinued operations would have been $      and $     , $      and $     , and $      and $      for each of the years ended December 31, 2006, 2007 and 2008, respectively, and $      and $     , and $      and $      for the three months ended March 31, 2008 and 2009, respectively. Pro forma diluted income/(loss) per share from continuing operations and discontinued operations would have been $      and $     , $      and $      , and $      and $      for each of the years ended December 31, 2006, 2007 and 2008, respectively, and $      and $     , and $      and $      for the three months ended March 31, 2008 and 2009, respectively.
(3)EBITDA is the financial measure which management uses to evaluate the performance of our segments. “EBITDA” is defined as income from continuing operations before investment income and interest expense, income taxes, depreciation and amortization. See note 19 to our audited consolidated financial statements and note 15 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
Although EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations or cash flow from operating activities reported under U.S. GAAP. Management uses EBITDA in conjunction with traditional GAAP operating performance measures as part of its overall assessment of company performance. Some of these limitations are:
•     EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
•     EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•     Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and
•     Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
The following is a reconciliation of income from continuing operations to EBITDA:
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands) 
 
Income from continuing operations $140,785  $154,963  $158,228  $41,026  $44,915 
Depreciation and amortization of fixed and intangible assets  54,861   65,661   64,872   15,948   17,705 
Investment income and realized (gains)/losses on securities, net  (6,101)  (9,308)  327   458   355 
Interest expense  16,668   22,928   31,316   6,326   8,154 
Provision for income taxes  91,992   103,184   120,671   29,876   33,779 
                     
EBITDA $298,205  $337,428  $375,414  $93,634  $104,908 
(4) Includes capital lease obligations.
(5)Prior to this offering, we are required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of exposuresthese securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock.


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RISK FACTORS
You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our Class A common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our Class A common stock could decline due to any of these risks, and you may lose all or part of your investment.
Risks Related to Our Business
General economic, political and market forces and dislocations beyond our control could reduce demand for our solutions and harm our business.
The demand for our solutions may be impacted by domestic and international factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange rates and inflation. The United States economy is currently in a recession and both the future domestic and global economic environments may continue to be less favorable than those of recent years. Any one or more of these factors may contribute to reduced activity and prices in the securities markets generally and could result in a reduction in demand for our solutions, which could have an adverse effect on our results of operation and financial condition.
The current dislocation of the credit markets, and its effect on the economy, may continue to negatively impact financial institutions. A significant additional decline in the value of assets for which risk is transferred in market transactions could have an adverse impact on the demand for our solutions. In addition, the decline of the credit markets has reduced the number of mortgage originators, and therefore, the immediate demand for our related mortgage solutions. Specifically, certain of our fraud detection and prevention solutions are directed at the mortgage market. This decline in asset value and originations and an increase in foreclosure levels has also created greater regulatory scrutiny of mortgage originations and securitization. Any new regulatory regime may change the utility of our solutions for mortgage lenders and other participants in the mortgage lending industry and related derivative markets or increase our costs as we adapt our solutions to new regulation.
We could lose our access to data from external sources which could prevent us from providing our solutions.
We depend upon data from external sources, including data received from customers and various government and public record services, for information used in our databases. In general, we do not own the information in these databases, and the participating organizations could discontinue contributing information to the databases. Our data sources could withdraw or increase the price for their data for a variety of reasons, and we could also become subject to legislative or judicial restrictions on the use of such data, in particular if such data is not collected by the third parties in a way which allows us to legally useand/or process the data. In addition, many of our customers are significant stockholders of our company. Specifically, all of our Class B common stock is owned by insurers who are also our customers and provide us with a significant percentage of our data. If our customers’ percentage of ownership of our common stock decreases in the future, including as a result of this offering, there can be no assurance that our customers will continue to provide data to the same extent or on the same terms. If a substantial number of data sources, or certain key sources, were to withdraw or be unable to provide their data, or if we were to lose access to data due to government regulation or if the collection of data became uneconomical, our ability to provide solutions to our customers could be impacted, which could materially adversely affect our business, reputation, financial condition, operating results and cash flows.
Agreements with our data suppliers are short-term agreements. Some suppliers are also competitors, which may make us vulnerable to unpredictable price increases and may cause some suppliers not to renew certain agreements. Our competitors could also enter into exclusive contracts with our data sources. If our competitors enter into such exclusive contracts, we may be precluded from receiving certain data from these


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suppliers or restricted in our use of such data, which would give our competitors an advantage. Such a termination or exclusive contracts could have a material adverse effect on our business, financial position, and operating results if we were unable to arrange for substitute sources.
We derive a substantial portion of our revenues from the U.S. P&C insurance industry. If the downturn in the U.S. insurance industry continues or that industry does not continue to accept our solutions, our revenues will decline.
Revenues derived from solutions we provide to the U.S. P&C insurance industry account for a substantial portion of our total revenues. During the year ended December 31, 2008 and the three months ended March 31, 2009, approximately 65% and 61%, respectively, of our revenue was derived from solutions provided to the U.S. P&C insurance industry. Also, sales of certain of our solutions are tied to premiums in the U.S. P&C insurance market, which may rise or fall in any given year due to loss experience and capital capacity and other factors in the insurance industry beyond our control. In addition, our revenues will decline if the insurance industry does not continue to accept these solutions. Factors that might affect the acceptance of these solutions by P&C insurers include the following:
•     changes in risk transactions is increasing;the business analytics industry;
 
 •     the numberchanges in technology;
•     our inability to obtain or use state fee schedule or claims data in our insurance solutions;
•     saturation of participants in risk transactions is often large and the asymmetrymarket demand;
•     loss of information among participants is often substantial;key customers;
•     industry consolidation; and
 
 •     the failure to understandexecute our customer-focused selling approach.
A continued downturn in the insurance industry or lower acceptance of our solutions by the insurance industry could result in a decline in revenues from that industry and have a material adverse effect on our financial condition, results of operations and cash flows.
There may be consolidation in our end customer market, which would reduce the use of our services.
Mergers or consolidations among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenues even if these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with or are acquired by other entities that are not our customers, or that use fewer of our services, they may discontinue or reduce their use of our services. The adverse effects of consolidation will be greater in sectors that we are particularly dependent upon, for example, in the P&C insurance services sector. Any of these developments could materially and adversely affect our business, financial condition, operating results and cash flows.
If we are unable to develop successful new solutions or if we experience defects, failures and delays associated with the introduction of new solutions, our business could suffer serious harm.
Our growth and success depends upon our ability to develop and sell new solutions. If we are unable to develop new solutions, or if we are not successful in introducingand/or obtaining regulatory approval or acceptance for new solutions, we may not be able to grow our business, or growth may occur more slowly than we anticipate. In addition, significant undetected errors or delays in new solutions may affect market acceptance of our solutions and could harm our business, financial condition or results of operations. In the past, we have experienced delays while developing and introducing new solutions, primarily due to difficulties developing models, acquiring data and adapting to particular operating environments. Errors or defects in our solutions that are significant, or are perceived to be significant, could result in rejection of our solutions, damage to our reputation, loss of revenues, diversion of development resources, an increase in product liability claims, and increases in service and support costs and warranty claims.


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We will continue to rely upon proprietary technology rights, and if we are unable to protect them, our business could be harmed.
Our success depends, in part, upon our intellectual property rights. To date, we have relied primarily on a combination of copyright, patent, trade secret, and trademark laws and nondisclosure and other contractual restrictions on copying and distribution to protect our proprietary technology. This protection of our proprietary technology is limited, and our proprietary technology could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. Our protection of our intellectual property rights in the United States or abroad may not be adequate and others, including our competitors, may use our proprietary technology without our consent. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could harm our business, financial condition, results of operations and cash flows.
We could face claims for intellectual property infringement, which if successful could restrict us from using and providing our technologies and solutions to our customers.
There has been substantial litigation and other proceedings, particularly in the United States, regarding patent and other intellectual property rights in the information technology industry. There is a risk that we are infringing, or may in the future infringe, the intellectual property rights of third parties. We monitor third-party patents and patent applications that may be relevant to our technologies and solutions and we carry out freedom to operate analyses where we deem appropriate. However, such monitoring and analysis has not been, and is unlikely in the future to be, comprehensive, and it may not be possible to detect all potentially relevant patents and patent applications. Since the patent application process can take several years to complete, there may be currently pending applications, unknown to us, that may later result in issued patents that cover our products and technologies. As a result, we may infringe existing and future third-party patents of which we are not aware. As we expand our operations there is a higher risk that such activity could infringe the intellectual property rights of third parties.
Third-party intellectual property infringement claims and any resultant litigation against us or our technology partners or providers, could subject us to liability for damages, restrict us from using and providing our technologies and solutions or operating our business generally, or require changes to be made to our technologies and solutions. Even if we prevail, litigation is time consuming and expensive to defend and would result in the diversion of management’s time and attention.
If a successful claim of infringement is brought against us and we fail to develop non-infringing technologies and solutions or to obtain licenses on a timely and cost effective basis this could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
Regulatory developments could negatively impact our business.
Because personal, public and non-public information is stored in some of our databases, we are vulnerable to government regulation and adverse publicity concerning the use of our data. We provide many types of data and services that already are subject to regulation under the Fair Credit Reporting Act, Gramm-Leach-Bliley Act, Driver’s Privacy Protection Act, Health Insurance Portability and Accountability Act, the European Union’s Data Protection Directive and to a lesser extent, various other federal, state, and local laws and regulations. These laws and regulations are designed to protect the privacy of the public and to prevent the misuse of personal information in the marketplace. However, many consumer advocates, privacy advocates, and government regulators believe that the existing laws and regulations do not adequately protect privacy. They have become increasingly concerned with the use of personal information, particularly social security numbers, department of motor vehicle data and dates of birth. As a result, they are lobbying for further restrictions on the dissemination or commercial use of personal information to the public and private sectors.


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Similar initiatives are under way in other countries in which we do business or from which we source data. The following legal and regulatory developments also could have a material adverse affect on our business, financial position, results of operations or cash flows:
•     amendment, enactment, or interpretation of laws and regulations which restrict the access and use of personal information and reduce the supply of data available to customers;
•     changes in cultural and consumer attitudes to favor further restrictions on information collection and sharing, which may lead to largeregulations that prevent full utilization of our solutions;
•     failure of our solutions to comply with current laws and rapid declinesregulations; and
•     failure of our solutions to adapt to changes in financial performance.the regulatory environment in an efficient, cost-effective manner.
 
Fraudulent data access and other security breaches may negatively impact our business and harm our reputation.
Security breaches in our facilities, computer networks, and databases may cause harm to our business and reputation and result in a loss of customers. Our Competitive Strengthssystems may be vulnerable to physical break-ins, computer viruses, attacks by hackers and similar disruptive problems. Third-party contractors also may experience security breaches involving the storage and transmission of proprietary information. If users gain improper access to our databases, they may be able to steal, publish, delete or modify confidential third-party information that is stored or transmitted on our networks.
In addition, customers’ misuse of our information services could cause harm to our business and reputation and result in loss of customers. Any such misappropriationand/or misuse of our information could result in us, among other things, being in breach of certain data protection and related legislation.
A security or privacy breach may affect us in the following ways:
•     deterring customers from using our solutions;
•     deterring data suppliers from supplying data to us;
•     harming our reputation;
•     exposing us to liability;
•     increasing operating expenses to correct problems caused by the breach;
•     affecting our ability to meet customers’ expectations; or
•     causing inquiry from governmental authorities.
We may detect incidents in which consumer data has been fraudulently or improperly acquired. The number of potentially affected consumers identified by any future incidents is obviously unknown. Any such incident could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
We typically face a long selling cycle to secure new contracts that requires significant resource commitments, which result in a long lead time before we receive revenues from new relationships.
 
We typically face a long selling cycle to secure a new contract and there is generally a long preparation period in order to commence providing the services. We typically incur significant business development expenses during the selling cycle and we may not succeed in winning a new customer’s business, in which case we receive no revenues and may receive no reimbursement for such expenses. Even if we succeed in developing a relationship with a potential new customer, we may not be successful in obtaining contractual commitments after the selling cycle or in maintaining contractual commitments after the implementation cycle, which may have a material adverse effect on our business, results of operations and financial condition.


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We may lose key business assets, including loss of data center capacity or the interruption of telecommunications links, the internet, or power sources, which could significantly impede our ability to do business.
Our operations depend on our ability, as well as that of third-party service providers to whom we have outsourced several critical functions, to protect data centers and related technology against damage from hardware failure, fire, power loss, telecommunications failure, impacts of terrorism, breaches in security (such as the actions of computer hackers), natural disasters, or other disasters. The on-line services we provide are dependent on links to telecommunications providers. In addition, we generate a significant amount of our revenues through telesales centers and websites that we utilize in the acquisition of new customers, fulfillment of solutions and services and responding to customer inquiries. We may not have sufficient redundant operations to cover a loss or failure in all of these areas in a timely manner. Certain of our customer contracts provide that our on-line servers may not be unavailable for specified periods of time. Any damage to our data centers, failure of our telecommunications links or inability to access these telesales centers or websites could cause interruptions in operations that materially adversely affect our ability to meet customers’ requirements, resulting in decreased revenue, operating income and earnings per share.
We are subject to significant competition in many of the markets in which we operate and we may not be able to compete effectively.
Some markets in which we operate or which we believe may provide growth opportunities for us are highly competitive, and are expected to remain highly competitive. We compete on the basis of quality, customer service, product and service selection and price. Our competitive position in various market segments depends upon the relative strength of competitors in the segment and the resources devoted to competing in that segment. Due to their size, certain competitors may be able to allocate greater resources to a particular market segment than we can. As a result, these competitors may be in a better position to anticipate and respond to changing customer preferences, emerging technologies and market trends. In addition, new competitors and alliances may emerge to take market share away. We may be unable to maintain our competitive strengthsposition in our market segments, especially against larger competitors. We may also invest further to upgrade our systems in order to compete. If we fail to successfully compete, our business, financial position and results of operations may be adversely affected.
Acquisitions could result in operating difficulties, dilution and other harmful consequences.
Our long-term business strategy includes growth through acquisitions. Future acquisitions may not be completed on acceptable terms and acquired assets, data or businesses may not be successfully integrated into our operations. Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses. Such risks include, among other things:
•     failing to implement or remediate controls, procedures and policies appropriate for a larger public company at acquired companies that prior to the acquisition lacked such controls, procedures and policies;
•     paying more than fair market value for an acquired company or assets;
•     failing to integrate the operations and personnel of the acquired businesses in an efficient, timely manner;
•     assuming potential liabilities of an acquired company;
•     managing the potential disruption to our ongoing business;
•     distracting management focus from our core businesses;
•     difficulty in acquiring suitable businesses;
•     impairing relationships with employees, customers, and strategic partners;
•     incurring expenses associated with the amortization of intangible assets;


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•     incurring expenses associated with an impairment of all or a portion of goodwill and other intangible assets due to changes in market conditions, weak economies in certain competitive markets, or the failure of certain acquisitions to realize expected benefits; and
•     diluting the share value and voting power of existing stockholders.
The anticipated benefits of many of our acquisitions may not materialize. Future acquisitions or dispositions could result in the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill and other intangible assets, any of which could harm our financial condition.
We typically fund our acquisitions through facilities that are uncommitted. Although we have capacity under our uncommitted facilities, lenders are not required to loan us any funds under such facilities. The current disruptions in the capital markets have caused banks and other credit providers to restrict availability of borrowing and new credit facilities. Therefore, future acquisitions may require us to obtain additional financing, which may not be available on favorable terms or at all.
To the extent the availability of free or relatively inexpensive information increases, the demand for some of our solutions may decrease.
Public sources of free or relatively inexpensive information have become increasingly available recently, particularly through the internet, and this trend is expected to continue. Governmental agencies in particular have increased the amount of information to which they provide free public access. Public sources of free or relatively inexpensive information may reduce demand for our solutions. To the extent that customers choose not to obtain solutions from us and instead rely on information obtained at little or no cost from these public sources, our business and results of operations may be adversely affected.
Our senior leadership team is critical to our continued success and the loss of such personnel could harm our business.
Our future success substantially depends on the continued service and performance of the members of our senior leadership team. These personnel possess business and technical capabilities that are difficult to replace. Members of our senior management operating team have been with us for an average of almost twenty years. However, with the exception of Frank J. Coyne, our Chairman and Chief Executive Officer, we do not expect to have employee contracts with the members of our senior management operating team following this offering. If we lose key members of our senior management operating team, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this may have a material adverse effect on our business, results of operations and financial condition.
We may fail to attract and retain enough qualified employees to support our operations, which could have an adverse effect on our ability to expand our business and service our customers.
Our business relies on large numbers of skilled employees and our success depends on our ability to attract, train and retain a sufficient number of qualified employees. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for employees not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to hire will increase. We will also need to increase our hiring if we are not able to maintain our attrition rate through our current recruiting and retention policies. Increased competition for employees could have an adverse effect on our ability to expand our business and service our customers, as well as cause us to incur greater personnel expenses and training costs.


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We are subject to antitrust and other litigation, and may in the future become subject to further such litigation; an adverse outcome in such litigation could have a material adverse effect on our financial condition, revenues and profitability.
We participate in businesses (particularly insurance-related businesses and services) that are subject to substantial litigation, including antitrust litigation. We are subject to the provisions of a 1995 settlement agreement in an antitrust lawsuit brought by various state Attorneys General and private plaintiffs which imposes certain constraints with respect to insurer involvement in our governance and business. We currently are defending against several putative class action lawsuits in which it is alleged that certain of our subsidiaries unlawfully have conspired with insurers with respect to their payment of insurance claims. See “Business — Legal Proceedings.” Our failure to successfully defend or settle such litigation could result in liability that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenues and profitability. Given the nature of our business, we may be subject to similar litigation in the future. Even if the direct financial impact of such litigation is not material, settlements or judgments arising out of such litigation could include further restrictions on our ability to conduct business, including potentially the elimination of entire lines of business, which could increase our cost of doing business and limit our prospects for future growth.
Our liquidity, financial position and profitability could be adversely affected by further deterioration in U.S. and international credit markets and economic conditions.
Deterioration in the global capital markets has caused financial institutions to seek additional capital, merge with larger financial institutions and, in some cases, fail. These conditions have led to concerns by market participants about the stability of financial markets generally and the strength of counterparties, resulting in a contraction of available credit, even for the most credit-worthy borrowers. Due to recent market events, our liquidity and our ability to obtain financing may be negatively impacted if one of our lenders under our revolving credit facilities or existing shelf arrangements fails to meet its funding obligations. In such an event, we may not be able to draw on all, or a substantial portion, of our uncommitted credit facilities, which would adversely affect our liquidity. Also, if we attempt to obtain future financing in addition to, or replacement of, our existing credit facilities to finance our continued growth through acquisitions or otherwise, the credit market turmoil could negatively impact our ability to obtain such financing.
Risks Related to the Offering
There is no prior public market for our common stock and therefore an active trading market or any specific price for our common stock may not be established.
Currently, there is no public trading market for our common stock. We expect that our Class A common stock will be listed on the New York Stock Exchange under the symbol “VA.” The initial public offering price per share was determined by agreement among us, the selling stockholders and the representatives of the underwriters and may not be indicative of the market price of our common stock after our initial public offering. An active trading market for our common stock may not develop and continue upon the completion of this offering and the market price of our common stock may decline below the initial public offering price.
The market price for our common stock may be volatile.
The market price for our common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
 
 •     Our Solutions are Embedded In Our Customers’ Critical Decision Processes.  Our customers useactual or anticipated fluctuations in our solutions to make better risk decisions and to price risk appropriately. In the U.S. P&C insurance industry, our solutions for prospective loss costs, policy language, rating/underwriting rules and regulatory filing services are the industry standard. In the U.S. healthcare and mortgage industries, our predictive models, loss estimation tools and fraud identification applications are the primary solutions that allow customers to understand their risk exposures and proactively manage them. Over the last three years, we have retained 98% of our customers across all of our businesses, which we believe reflects our customers’ recognition of the value they derive from our solutions.quarterly operating results;
 
 •     Extensive and Differentiated Data Assets and Analytic Methods.  We maintain what we believe are some of the largest, most accurate, and most complete databaseschanges in the markets we serve. Much of the information we provide is not available from any other source and would be difficult and costly for another party to replicate. As a result, our accumulated experience and years of significant investment have given us a competitive advantage in serving our customers.financial estimates by securities research analysts;
 
 •     Culturechanges in the economic performance or market valuations of Continuous Improvement.  Our intellectual capital and focus on continuous improvement have allowed us to develop proprietary algorithms and solutions that assistother companies engaged in our customers in making informed risk decisions. Our team includes approximately 390 individuals with advanced degrees, certifications and professional designations in such fields as actuarial science, data management, mathematics, statistics, economics, soil mechanics, meteorology and various engineering disciplines. Our compensation and benefit plans are pay-for-performance-industry;


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oriented, including incentive compensation plans and substantial equity participation by employees. Today, our employees own approximately 30% of the company.
 
 •     Attractive Operating Model.  We believeregulatory developments in our industry affecting us, our customers or our competitors;
•     announcements of technological developments;
•     sales or expected sales of additional common stock;
•     continued dislocations and downward pressure in the capital markets; and
•     terrorist attacks or natural disasters or other such events impacting countries where we or our customers have an attractive operating model due to the recurring nature of our revenues, the scalability of our solutions and the low capital intensity of our business.operations.
 
In addition, securities markets generally and from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may have a material adverse effect on the market price of our common stock.
Our Growth StrategyWe plan to issue a number of options to purchase Class A common stock to our directors and employees that could dilute your interest in us.
 
OverUpon the past five years,closing of this offering we will have           shares of Class A common stock available for issuance to our directors, executive officers and employees in connection with grants of options to purchase Class A common stock under our employee benefits arrangements. Issuances of Class A common stock to our directors, executive officers and employees pursuant to the exercise of stock options under our employee benefits arrangements will dilute your interest in us.
If there are substantial sales of our common stock, our stock price could decline.
The market price of our common stock could decline as a result of sales of a large number of shares of common stock in the market after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem attractive. Upon consummation of this offering, we will have           shares of common stock outstanding. Of these shares, the           shares of common stock offered hereby will be freely tradable without restriction in the public market, unless purchased by our affiliates.
Following this offering, our existing stockholders will beneficially own in the aggregate approximately           shares of our Class A common stock and           shares of our Class B common stock, representing in aggregate approximately     % of our outstanding common stock. Such stockholders will be able to sell their common stock in the public market from time to time without registering them, subject to thelock-up periods described below, and subject to limitations on the timing, amount and method of those sales imposed by securities laws. If any of these stockholders were to sell a large number of their common stock, the market price of our common stock could decline significantly. In addition, the perception in the public markets that sales by them might occur could also adversely affect the market price of our common stock.
In connection with this offering, we, our selling stockholders, our directors and certain members of our management have each agreed to enter into alock-up agreement and thereby be subject to alock-up period, meaning that they and their permitted transferees will not be permitted to sell any of their common stock without the prior consent of the underwriters for 180 days after the date of this prospectus. Although we have grown our revenues at a CAGRbeen advised that there is no present intention to do so, the underwriters may, in their sole discretion and without notice, release all or any portion of 13.8% through the successful executioncommon stock from the restrictions in any of thelock-up agreements described above. In addition, certain members of our business plan. These results reflect strong organic revenue growth, new product developmentmanagement will be subject to alock-up agreements with us whereby they will not be permitted to sell any of their common stock, subject to certain conditions, for a period of time after the pricing of this initial public offering. See “Certain Relationships and selected acquisitions. We have made,Related Transactions — Letter Agreements.”
Also, pursuant to our amended and continuerestated certificate of incorporation, our Class B stockholders will not be able to make, investments in people, data sets, analytic solutions, technology, and complementary businesses. The key componentssell any of their common stock, subject to certain conditions, to the public for a period of time after the pricing of this initial public offering. Each share of Class B (Series 1) common stock shall convert


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automatically, without any action by the holder, into one share of Class A common stock 18 months after the date of this prospectus. Each share of Class B (Series 2) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 30 months after the date of this prospectus. Our board of directors may approve exceptions to the limitation on transfers of our strategy include:Class B common stock in their sole discretion, in connection with the sale of such Class B common stock in a public offering registered with the Securities and Exchange Commission or in such other limited circumstances as our board of directors may determine. Any Class B common stock sold to the public will first be converted to Class A common stock. Such further resale of our common stock could cause the price of our common stock to decline. See “Description of Capital Stock — Common Stock — Conversion.”
Pursuant to our equity incentive plans, options to purchase approximately           shares of Class A common stock will be outstanding upon consummation of this offering. Following this offering, we intend to file a registration statement under the Securities Act registering a total of approximately           shares of Class A common stock which will cover the shares available for issuance under our equity incentive plans (including for such outstanding options) as well as shares held for resale by our existing stockholders that were previously issued under our equity incentive plans. Such further issuance and resale of our common stock could cause the price of our common stock to decline.
Also, in the future, we may issue our securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common stock.
The holders of our Class B common stock have the right to elect up to three of our directors and their interests in our business may be different than yours.
Until no Class B common stock remains outstanding, the holders of our Class B common stock will have the right to elect up to three of our directors. Stockholders of the Class B common stock may not have the same incentive to approve a corporate action that may be favorable for the holders of Class A common stock, or their interests may otherwise conflict with yours. For example, holders of our Class B common stock may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us or the use of our solutions, but which might involve risks to holders of our Class A common stock, including a potential decrease in the price of our Class A common stock. See “Description of Capital Stock — Common Stock — Voting Rights.”
Following this offering, changes in our capital structure and level of indebtedness and the terms of anti-takeover provisions under Delaware law and in our amended and restated certificate of incorporation and bylaws could diminish the value of our common stock and could make a merger, tender offer or proxy contest difficult or could impede an attempt to replace or remove our directors.
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable or make it more difficult for stockholders to replace directors even if stockholders consider it beneficial to do so. Our certificate of incorporation and bylaws:
 
 •     Increase Salesauthorize the issuance of “blank check” preferred stock that could be issued by our board of directors to Insurance Customers.  We expectincrease the number of outstanding shares to expand the application of our solutions in insurance customers’ internal risk and underwriting processes. Building on our deep knowledge of, and embedded position in, the insurance industry, we expect to sell more solutions to existing customers tailored to individual insurance segments. By increasing the breadth and relevance of our offerings, we believe we can strengthen our relationships with customers and increase our value to their decision making in critical ways.thwart a takeover attempt;
 
 •     Develop New, Proprietary Data Sets and Predictive Analytics.  We work with our customersprohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of the stock to understand their evolving needs. We plan to create new solutions by enriching our mix of proprietary data sets, analytic solutions and effective decision support across the markets we serve. We constantly seek to add new data sets that can further leverage our analytic methods, technology platforms and intellectual capital.elect some directors;
 
 •     Leverage Our Intellectual Capital to Expand into Adjacent Markets and New Customer Sectors.  Our organization is builtrequire that vacancies on nearly four decadesthe board of intellectual propertydirectors, including newly-created directorships, be filled only by a majority vote of directors then in risk management. We believe we can continue to profitably expand the use of our intellectual capital and apply our analytic methods in new markets, where significant opportunities for long-term growth exist. We also continue to pursue growth through targeted international expansion. We have already demonstrated the effectiveness of this strategy with our expansion into healthcare and non-insurance financial services.office;
 
 •     Pursue Strategic Acquisitionslimit who may call special meetings of stockholders;


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•     authorize the issuance of authorized but unissued shares of common stock and preferred stock without stockholder approval, subject to the rules and regulations of the          ;
•     prohibit stockholder action by written consent, requiring all stockholder actions to be taken at a meeting of the stockholders; and
•     establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that Complement Our Leadership Positions.  We will continue to expand our data and analytics capabilities across industries. While we expect this will occur primarily through organic growth, we have and will continue to acquire assets and businesses that strengthen our value proposition to customers. We have developed an internal capability to source, evaluate and integrate acquisitions that have created value for shareholders. We have acquired 14 businesses in the past five years, which in the aggregate have increased their revenue with a weighted average CAGR of 40% over the same period.can be acted upon by stockholders at stockholder meetings.
 
In addition, Section 203 of the Delaware General Corporation Law may inhibit potential acquisition bids for us. Upon completion of this offering, we will be subject to Section 203, which regulates corporate acquisitions and limits the ability of a holder of 15% or more of our stock from acquiring the rest of our stock. Under Delaware law a corporation may opt out of the anti-takeover provisions, but we do not intend to do so.
These provisions may prevent a stockholder from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
We will incur increased costs as a result of being a public company.
As a privately held company, we have not been responsible for the corporate governance and financial reporting practices and policies required of a public company. Following the completion of this offering, we will be a publicly traded company. Once we become a public company, we will incur significant legal, accounting, investor relations and other expenses that we do not currently incur. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the Securities and Exchange Commission, the applicable listing rules and rules implemented by the applicable foreign regulatory agencies, may require changes in corporate governance practices of public companies. We expect such rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.”
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.
Risk Factors
 
Investing in our common stock involves substantial risk. Please read “Risk Factors” beginning on page 10 for a discussion of certain factors you should consider in evaluating an investment in our common stock.


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Corporate History and Information
 
We were 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, we have transformed our business by deepening and broadening our data assets, entering new markets, placing a greater emphasis on analytics and pursingpursuing strategic acquisitions to enhance these efforts. Members of our senior management operating team have been with us for an average of almost twenty years. This team has led our transformation to a successful for-profit entity and our expansion from P&C insurance into a variety of new markets.
 
Our principal executive offices are located at 545 Washington Boulevard, Jersey City, New Jersey,07310-1686 and our telephone number is(201) 469-2000.


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THE OFFERING
 
Class A common stock offered by the selling stockholders           shares
 
Class A common stock outstanding           shares
 
Over-allotment option           shares of Class A common stock from the selling stockholders
 
Class B common stock outstanding           shares
 
Sale and transfer restrictions on Class B common stockThe Class B (Series 1) common stock is not transferable until 18 months after the date of this prospectus and the Class B (Series 2) common stock is not transferable until 30 months after the date of this prospectus.
 
These transfer restrictions are subject to limited exceptions, including transfers to another holder of Class B common stock. See “Description of Capital Stock — Common Stock — Transfer Restrictions.”
 
Conversion of Class B common stockAfter termination of the restrictions on transfer described above for each series of Class B common stock, such series of Class B common stock will be automatically converted into Class A common stock. No later than 30 months after the date of this prospectus, there will be no outstanding shares of Class B common stock.
 
In the event that Class B common stock is transferred and converts into Class A common stock, it will have the effect of diluting the voting power of our existing holders of Class A common stock. See “Description of Capital Stock — Common Stock — Conversion.”
 
Use of proceedsThe Company will not receive any proceeds from sale of Class A common stock in the offering.
Dividend policyFollowing this offering and subject to legally available funds, we currently intend to pay a quarterly dividend, in cash, at an annual rate initially equal to $      per share of Class A common stock (representing a quarterly rate initially equal to $      per share) commencing with the quarter ended           , 2008.2009. Our Class B common stock will share ratably on an as-converted basis in such dividends. The declaration and payment of any dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments and other factors that our board of directors deems relevant.
Stock symbol“VA”


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Unless the context requires otherwise, the number of shares of our Class A common stock to be outstanding after this offering is based on the number of shares outstanding as of March 31, 2008,2009, giving effect to the stock split of          -for-one that will have occurred prior to the completion of this offering. The


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number of shares of our Class A common stock to be outstanding after this offering does not take into account, unless the context otherwise requires:
 
 •                shares of Class A common stock issuable upon the exercise of outstanding stock options as of March 31, 20082009 at a weighted average exercise price of $      per share; and
 •     an aggregate of           shares of Class A common stock that will be reserved for future issuances under our 20082009 Equity Incentive Plan as of the closing of this offering.


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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
 
The following summary historical financial data should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and unaudited condensed consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2005, 2006, 2007 and 20072008 and the consolidated balance sheet data as of December 31, 20062007 and 20072008 are derived from the audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 20052006 is derived from the unaudited consolidated financial statements that are not included in this prospectus. The condensed consolidated statement of operations data for the three-month periods ended March 31, 2007 and 2008 and 2009 and the condensed consolidated balance sheet data as of March 31, 2009 are derived from unaudited condensed financial statements that are included in this prospectus. The condensed consolidated balance sheet data as of March 31, 2008 areis derived from unaudited condensed consolidated financial statements that are included in this prospectus and the consolidated balance sheet data as of March 31, 2007 is derived from unaudited condensed consolidated financial statements that is not included in this prospectus. The unaudited condensed consolidated financial statements, in our opinion, have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results for the three-month period ended March 31, 20082009 are not necessarily indicative of results that may be expected for the fiscal year ended December 31, 20082009 or any future period.
Since
From January 1, 20052006 to March 31, 2009 we have acquired 10 businesses, which may affect the comparability of our financial statements.
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2005  2006  2007  2007  2008 
  (In thousands, except for share and per share data) 
 
Statement of income data:
                    
Revenues:                    
Risk Assessment revenues $448,875  $472,634  $485,160  $121,797  $127,039 
Decision Analytics revenues  196,785   257,499   317,035   77,037   88,579 
                     
Revenues  645,660   730,133   802,195   198,834   215,618 
                     
Expenses:                    
Cost of revenues  294,911   331,804   357,191   86,987   93,310 
Selling, general and administrative  88,723   100,124   107,576   27,925   28,674 
Depreciation and amortization of fixed assets  22,024   28,007   31,745   7,582   7,907 
Amortization of intangible assets  19,800   26,854   33,916   8,923   8,041 
              ��      
Total expenses  425,458   486,789   530,428   131,417   137,932 
                     
Operating income  220,202   243,344   271,767   67,417   77,686 
Other income/(expense):                    
Investment income and realized gains (losses) on securities, net  2,932   6,101   9,308   2,094   (458)
Interest expense  (10,465)  (16,668)  (22,928)  (5,773)  (6,326)
                     
Total other expense  (7,533)  (10,567)  (13,620)  (3,679)  (6,784)
Income from continuing operations before income taxes  212,669   232,777   258,147   63,738   70,902 
Provision for income taxes  (85,722)  (86,921)  (103,184)  (24,867)  (29,876)
                     
Income from continuing operations  126,947   145,856   154,963   38,871   41,026 
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Statement of income data:
                    
Revenues:                    
Risk Assessment revenues $472,634  $485,160  $504,391  $127,039  $129,566 
Decision Analytics revenues  257,499   317,035   389,159   88,579   116,185 
                     
Revenues  730,133   802,195   893,550   215,618   245,751 
                     
Expenses:                    
Cost of revenues  331,804   357,191   386,897   93,310   107,523 
Selling, general and administrative  100,124   107,576   131,239   28,674   33,320 
Depreciation and amortization of fixed assets  28,007   31,745   35,317   7,907   9,195 
Amortization of intangible assets  26,854   33,916   29,555   8,041   8,510 
                     
Total expenses  486,789   530,428   583,008   137,932   158,548 
                     
Operating income  243,344   271,767   310,542   77,686   87,203 
Other income/(expense):                    
Investment income and realized gains (losses) on securities, net  6,101   9,308   (327)  (458)  (355)
Interest expense  (16,668)  (22,928)  (31,316)  (6,326)  (8,154)
                     
Total other expense, net  (10,567)  (13,620)  (31,643)  (6,784)  (8,509)
Income from continuing operations before income taxes  232,777   258,147   278,899   70,902   78,694 
Provision for income taxes  (91,992)  (103,184)  (120,671)  (29,876)  (33,779)
                     
Income from continuing operations  140,785   154,963   158,228   41,026   44,915 


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     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2005  2006  2007  2007  2008 
  (In thousands, except for share and per share data) 
 
Loss from discontinued operations, net of tax(1)  (2,574)  (1,805)  (4,589)  (610)   
                     
Net income $124,373  $144,051  $150,374  $38,261  $41,026 
                     
Basic income/(loss) per share(2):
                    
Income from continuing operations $29.81  $35.31  $38.58  $9.49  $10.91 
Loss from discontinued operations  (0.61)  (0.44)  (1.14)  (0.15)   
                     
Net income per share $29.20  $34.87  $37.44  $9.34  $10.91 
                     
Diluted income/(loss) per share:
                    
Income from continuing operations $28.45  $33.85  $37.03  $9.10  $10.45 
Loss from discontinued operations  (0.58)  (0.42)  (1.10)  (0.14)   
                     
Net income per share $27.87  $33.43  $35.93  $8.96  $10.45 
                     
Weighted average shares outstanding:                    
Basic  4,258,989   4,130,962   4,016,928   4,096,320   3,759,913 
                     
Diluted  4,462,109   4,308,976   4,185,151   4,269,444   3,926,954 
                     
Other data:
                    
EBITDA(3):                    
Risk Assessment EBITDA $195,951  $202,872  $212,780  $51,778  $58,122 
Decision Analytics EBITDA  66,075   95,333   124,648   32,144   35,512 
                     
EBITDA $262,026  $298,205  $337,428  $83,922  $93,634 
                     
Purchases of fixed assets $(24,019) $(25,742) $(32,941) $(14,406) $(9,766)
Net cash provided by operating activities  174,071   223,499   248,521   92,735   89,864 
Net cash (used in) provided by investing activities  (107,444)  (243,452)  (110,831)  (39,454)  10,415 
Net cash (used in) provided by financing activities  (90,954)  75,907   (212,591)  (26,577)  (98,434)
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Loss from discontinued operations, net of tax(1)  (1,805)  (4,589)         
                     
Net income $138,980  $150,374  $158,228  $41,026  $44,915 
                     
Basic income/(loss) per share(2):
                    
Income from continuing operations $34.08  $38.58  $43.26  $10.91  $12.91 
Loss from discontinued operations  (0.44)  (1.14)         
                     
Net income per share $33.64  $37.44  $43.26  $10.91  $12.91 
                     
Diluted income/(loss) per share(2):
                    
Income from continuing operations $32.72  $37.03  $41.59  $10.45  $12.43 
Loss from discontinued operations  (0.42)  (1.10)         
                     
Net income per share $32.30  $35.93  $41.59  $10.45  $12.43 
                     
Weighted average shares outstanding:                    
Basic  4,130,962   4,016,928   3,657,714   3,759,913   3,478,760 
                     
Diluted  4,302,867   4,185,151   3,804,634   3,926,954   3,612,089 
                     
Other data:
                    
EBITDA(3):                    
Risk Assessment EBITDA $202,872  $212,780  $222,706  $58,122  $60,599 
Decision Analytics EBITDA  95,333   124,648   152,708   35,512   44,309 
                     
EBITDA $298,205  $337,428  $375,414  $93,634  $104,908 
                     
Purchases of fixed assets $(25,742) $(32,941) $(30,652) $(9,766) $(8,359)
Net cash provided by operating activities  223,499   248,521   247,906   89,864   135,393 
Net cash (used in)/provided by investing activities  (243,452)  (110,831)  (130,466)  10,415   (66,921)
Net cash provided by/(used in) financing activities  75,907   (212,591)  (107,376)  (98,434)  (56,213)
 
                     
  As of December 31,  As of March 31, 
  2005  2006  2007  2007  2008 
        (In thousands)       
 
Balance Sheet Data:
                    
Cash and cash equivalents $42,822  $99,152  $24,049  $125,878  $25,898 
Total assets  466,244   744,731   828,483   846,668   842,445 
Total debt(4)  276,964   448,698   438,330   447,655   517,014 
Redeemable common stock(5)  901,089   1,125,933   1,171,188   1,158,693   1,017,967 
Stockholders’ deficit  (938,294)  (1,116,357)  (1,195,728)  (1,142,421)  (1,190,826)
                     
  As of December 31,  As of March 31, 
  2006  2007  2008  2008  2009 
  (In thousands) 
 
Balance Sheet Data:
                    
Cash and cash equivalents $99,152  $24,049  $33,185  $25,898  $45,006 
Total assets  739,282   830,041   928,877   836,826   1,020,386 
Total debt(4)  448,698   438,330   669,754   517,014   639,087 
Redeemable common stock(5)  1,125,933   1,171,188   749,539   1,017,967   758,436 
Stockholders’ deficit  (1,123,977)  (1,203,348)  (1,009,823)  (1,198,448)  (991,109)
 
(1)As of December 31, 2007, we discontinued operations of our claim consulting business located in New Hope, Pennsylvania and the United Kingdom. There was no impact of discontinued operations on the results of operations for the periods subsequent to December 31, 2007.

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(2)In conjunction with the initial public offering, the stock of Insurance Services Office, Inc. will convert to stock of Verisk Analytics, Inc., which plans to effect a stock split of its common stock. Giving effect to

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the approximately          -for-one stock split that will have occurred prior to the completion of this offering, pro forma basic earningsincome/(loss) per share from continuing operations and discontinued operations would have been $      and $     , $      and $     , and $      and $      for each of the years ended December 31, 2005, 2006, 2007 and 2007,2008, respectively, and $      and $     , and $      and $      for the three months ended March 31, 20072008 and 2008,2009, respectively. Diluted earningsPro forma diluted income/(loss) per sharesshare from continuing operations and discontinued operations would have been $      and $     , $      and $      , and $      and $      for each of the years ended December 31, 2005, 2006, 2007 and 20072008, respectively, and $      and $     , and $      and $      for the three months ended March 31, 20072008 and 2008,2009, respectively.
(3)EBITDA is the financial measure which management uses to evaluate the performance of our segments. “EBITDA” is defined as income from continuing operations before investment income and interest expense, income taxes, depreciation and amortization. See note 1819 to our audited consolidated financial statements and note 1615 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus. Management believes that this financial measure
Although EBITDA is frequently used by securities analysts, lenders and the information we provide are useful to investors because they permit investors to view our performance using the same tools that management uses to gauge progressothers in achieving our goals. This presentationtheir evaluation of companies, EBITDA mayhas limitations as an analytical tool, and should not be directly comparableconsidered in isolation, or as a substitute for an analysis of our results of operations or cash flow from operating activities reported under U.S. GAAP. Management uses EBITDA in conjunction with traditional GAAP operating performance measures as part of its overall assessment of company performance. Some of these limitations are:
•     EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
•     EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
•     Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to similarly titled measures of otherbe replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and
•     Other companies since not all companies use identical calculations.in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.
 
The following is a reconciliation of income from continuing operations to EBITDA:
 
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2005  2006  2007  2007  2008 
  (In thousands) 
 
Income from continuing operations $126,947  $145,856  $154,963  $38,871  $41,026 
Depreciation and amortization of fixed and intangible assets  41,824   54,861   65,661   16,505   15,948 
Interest and investment (income) loss  (2,932)  (6,101)  (9,308)  (2,094)  458 
Interest expense  10,465   16,668   22,928   5,773   6,326 
Provision for income taxes  85,722   86,921   103,184   24,867   29,876 
                     
EBITDA $262,026  $298,205  $337,428  $83,922  $93,634 
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands) 
 
Income from continuing operations $140,785  $154,963  $158,228  $41,026  $44,915 
Depreciation and amortization of fixed and intangible assets  54,861   65,661   64,872   15,948   17,705 
Investment income and realized (gains)/losses on securities, net  (6,101)  (9,308)  327   458   355 
Interest expense  16,668   22,928   31,316   6,326   8,154 
Provision for income taxes  91,992   103,184   120,671   29,876   33,779 
                     
EBITDA $298,205  $337,428  $375,414  $93,634  $104,908 
(4) Includes capital lease obligations.
 
(4)Includes capital lease obligations.
(5)Prior to this offering, we are required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of these securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock.


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RISK FACTORS
 
You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our Class A common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our Class A common stock could decline due to any of these risks, and you may lose all or part of your investment.
 
Risks Related to Our Business
General economic, political and market forces and dislocations beyond our control could reduce demand for our solutions and harm our business.
The demand for our solutions may be impacted by domestic and international factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange rates and inflation. The United States economy is currently in a recession and both the future domestic and global economic environments may continue to be less favorable than those of recent years. Any one or more of these factors may contribute to reduced activity and prices in the securities markets generally and could result in a reduction in demand for our solutions, which could have an adverse effect on our results of operation and financial condition.
The current dislocation of the credit markets, and its effect on the economy, may continue to negatively impact financial institutions. A significant additional decline in the value of assets for which risk is transferred in market transactions could have an adverse impact on the demand for our solutions. In addition, the decline of the credit markets has reduced the number of mortgage originators, and therefore, the immediate demand for our related mortgage solutions. Specifically, certain of our fraud detection and prevention solutions are directed at the mortgage market. This decline in asset value and originations and an increase in foreclosure levels has also created greater regulatory scrutiny of mortgage originations and securitization. Any new regulatory regime may change the utility of our solutions for mortgage lenders and other participants in the mortgage lending industry and related derivative markets or increase our costs as we adapt our solutions to new regulation.
 
We could lose our access to data from external sources which could prevent us from providing our solutions.
 
We depend upon data from external sources, including data received from customers and various government and public record services, for information used in our databases. In general, we do not own the information in these databases, and the participating organizations could discontinue contributing information to the databases. Our data sources could withdraw or increase the price for their data for a variety of reasons, and we could also become subject to legislative or judicial restrictions on the use of such data, in particular if such data is not collected by the third parties in a way which allows us to legally useand/or process the data. In addition, many of our customers are significant stockholders of our company. Specifically, all of our Class B common stock is owned by insurers who are also our customers and provide us with a significant percentage of our data. If our customers’ percentage of ownership of our common stock decreases in the future, including as a result of this offering, there can be no assurance that our customers will continue to provide data to the same extent or on the same terms. If a substantial number of data sources, or certain key sources, were to withdraw or be unable to provide their data, or if we were to lose access to data due to government regulation or if the collection of data became uneconomical, our ability to provide solutions to our customers could be impacted, which could materially adversely affect our business, reputation, financial condition, operating results and cash flows.
 
Agreements with our data suppliers are short-term agreements. Some suppliers are also competitors, which may make us vulnerable to unpredictable price increases and may cause some suppliers not to renew certain agreements. Our competitors could also enter into exclusive contracts with our data sources. If our competitors enter into such exclusive contracts, we may be precluded from receiving certain data from these


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suppliers or restricted in our use of such data, which would give our competitors an advantage. Such a termination or exclusive contracts could have a material adverse effect on our business, financial position, and operating results if we were unable to arrange for substitute sources.
 
We derive a substantial portion of our revenues from the U.S. P&C insurance industry. If there is athe downturn in the U.S. insurance industry continues or that industry does not continue to accept our solutions, our revenues will decline.
 
Revenues derived from solutions we provide to the U.S. P&C insurance industry account for a substantial portion of our total revenues. During the year ended December 31, 2008 and the three months ended March 31, 2008,2009, approximately 67%65% and 61%, respectively, of our revenue was derived from solutions provided to the U.S. P&C insurance industry. Also, sales of certain of our solutions are tied to premiums in the U.S. P&C insurance market, which may rise or fall in any given year due to loss experience and capital capacity and other factors in the insurance industry beyond our control. In addition, our revenues will decline if the insurance industry does not continue to accept these solutions. Factors that might affect the acceptance of these solutions by P&C insurers include the following:
 
 •     changes in the business analytics industry;
 
 •     changes in technology;
 
 •     our inability to obtain or use state fee schedule or claims data in our insurance solutions;
 
 •     saturation of market demand;
 
 •     loss of key customers;


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 •     industry consolidation; and
 
 •     failure to execute our customer-focused selling approach.
 
A continued downturn in the insurance industry or lower acceptance of our solutions by the insurance industry could result in a decline in revenues from that industry and have a material adverse effect on our financial condition, results of operations and cash flows.
 
There may be consolidation in our end customer market.market, which would reduce the use of our services.
 
Mergers or consolidations among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenues even if these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with or are acquired by other entities that are not our customers, or that use fewer of our services, they may discontinue or reduce their use of our services. The adverse effects of consolidation will be greater in sectors that we are particularly dependent upon, for example, in the P&C insurance services sector. Any of these developments could materially and adversely affect our business, financial condition, operating results and cash flows.
 
If we are unable to develop successful new solutions or if we experience defects, failures and delays associated with the introduction of new solutions, our business could suffer serious harm.
 
Our growth and success depends upon our ability to develop and sell new solutions. If we are unable to develop new solutions, or if we are not successful in introducingand/or obtaining regulatory approval or acceptance for new solutions, we may not be able to grow our business, or growth may occur more slowly than we anticipate. In addition, significant undetected errors or delays in new solutions may affect market acceptance of our solutions and could harm our business, financial condition or results of operations. In the past, we have experienced delays while developing and introducing new solutions, primarily due to difficulties developing models, acquiring data and adapting to particular operating environments. Errors or defects in our solutions that are significant, or are perceived to be significant, could result in rejection of our solutions, damage to our reputation, loss of revenues, diversion of development resources, an increase in product liability claims, and increases in service and support costs and warranty claims.


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We will continue to rely upon proprietary technology rights, and if we are unable to protect them, our business could be harmed.
 
Our success depends, in part, upon our intellectual property rights. To date, we have relied primarily on a combination of copyright, patent, trade secret, and trademark laws and nondisclosure and other contractual restrictions on copying and distribution to protect our proprietary technology. This protection of our proprietary technology is limited, and our proprietary technology could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. Our protection of our intellectual property rights in the United States or abroad may not be adequate and others, including our competitors, may use our proprietary technology without our consent. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could harm our business, financial condition, results of operations and cash flows.
 
We could face claims for intellectual property infringement.infringement, which if successful could restrict us from using and providing our technologies and solutions to our customers.
 
There has been substantial litigation and other proceedings, particularly in the United States, regarding patent and other intellectual property rights in the information technology industry. There is a risk that we are infringing, or may in the future infringe, the intellectual property rights of third parties. We monitor third-party patents and patent applications that may be relevant to our technologies and solutions and we carry out freedom to operate analyses where we deem appropriate. However, such monitoring and analysis has not been,


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and is unlikely in the future to be, comprehensive, and it may not be possible to detect all potentially relevant patents and patent applications. Since the patent application process can take several years to complete, there may be currently pending applications, unknown to us, that may later result in issued patents that cover our products and technologies. As a result, we may infringe existing and future third-party patents of which we are not aware. As we expand our operations there is a higher risk that such activity could infringe the intellectual property rights of third parties.
 
Third-party intellectual property infringement claims and any resultant litigation against us or our technology partners or providers, could subject us to liability for damages, restrict us from using and providing our technologies and solutions or operating our business generally, or require changes to be made to our technologies and solutions. Even if we prevail, litigation is time consuming and expensive to defend and would result in the diversion of management’s time and attention.
 
If a successful claim of infringement is brought against us and we fail to develop non-infringing technologies and solutions or to obtain licenses on a timely and cost effective basis this could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
 
We are subject to significant governmental regulation.Regulatory developments could negatively impact our business.
 
Because personal, public and non-public information is stored in some of our databases, we are vulnerable to government regulation and adverse publicity concerning the use of our data. We provide many types of data and services that already are subject to regulation under the Fair Credit Reporting Act, Gramm-Leach-Bliley Act, Driver’s Privacy Protection Act, Health Insurance Portability and Accountability Act, the European Union’s Data Protection Directive and to a lesser extent, various other federal, state, and local laws and regulations. These laws and regulations are designed to protect the privacy of the public and to prevent the misuse of personal information in the marketplace. However, many consumer advocates, privacy advocates, and government regulators believe that the existing laws and regulations do not adequately protect privacy. They have become increasingly concerned with the use of personal information, particularly social security numbers, department of motor vehicle data and dates of birth. As a result, they are lobbying for further restrictions on the dissemination or commercial use of personal information to the public and private sectors.


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Similar initiatives are under way in other countries in which we do business or from which we source data. The following legal and regulatory developments also could have a material adverse affect on our business, financial position, results of operations or cash flows:
 
 •     amendment, enactment, or interpretation of laws and regulations which restrict the access and use of personal information and reduce the supply of data available to customers;
 
 •     changes in cultural and consumer attitudes to favor further restrictions on information collection and sharing, which may lead to regulations that prevent full utilization of our solutions;
 
 •     failure of our solutions to comply with current laws and regulations; and
 
 •     failure of our solutions to adapt to changes in the regulatory environment in an efficient, cost-effective manner.
 
Fraudulent data access and other security breaches may negatively impact our business and harm our reputation.
 
Security breaches in our facilities, computer networks, and databases may cause harm to our business and reputation and result in a loss of customers. Our systems may be vulnerable to physical break-ins, computer viruses, attacks by hackers and similar disruptive problems. Third-party contractors also may experience security breaches involving the storage and transmission of proprietary information. If users gain improper access to our databases, they may be able to steal, publish, delete or modify confidential third-party information that is stored or transmitted on our networks.


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In addition, customers’ misuse of our information services could cause harm to our business and reputation and result in loss of customers. Any such misappropriationand/or misuse of our information could result in us, among other things, being in breach of certain data protection and related legislation.
 
A security or privacy breach may affect us in the following ways:
 
 •     deterring customers from using our solutions;
 
 •     deterring data suppliers from supplying data to us;
 
 •     harming our reputation;
 
 •     exposing us to liability;
 
 •     increasing operating expenses to correct problems caused by the breach;
 
 •     affecting our ability to meet customers’ expectations; or
 
 •     causing inquiry from governmental authorities.
 
We may detect incidents in which consumer data has been fraudulently or improperly acquired. The number of potentially affected consumers identified by any future incidents is obviously unknown. Any such incident could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
 
We typically face a long selling cycle to secure new contracts that requires significant resource commitments, which result in a long lead time before we receive revenues from new relationships.
 
We typically face a long selling cycle to secure a new contract and there is generally a long preparation period in order to commence providing the services. We typically incur significant business development expenses during the selling cycle and we may not succeed in winning a new customer’s business, in which case we receive no revenues and may receive no reimbursement for such expenses. Even if we succeed in developing a relationship with a potential new customer, we may not be successful in obtaining contractual commitments after the selling cycle or in maintaining contractual commitments after the implementation cycle, which may have a material adverse effect on our business, results of operations and financial condition.


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We may lose key business assets, including loss of data center capacity or the interruption of telecommunications links, the internet, or power sources, which could significantly impede our ability to do business.
 
Our operations depend on our ability, as well as that of third-party service providers to whom we have outsourced several critical functions, to protect data centers and related technology against damage from hardware failure, fire, power loss, telecommunications failure, impacts of terrorism, breaches in security (such as the actions of computer hackers), natural disasters, or other disasters. The on-line services we provide are dependent on links to telecommunications providers. In addition, we generate a significant amount of our revenues through telesales centers and websites that we utilize in the acquisition of new customers, fulfillment of solutions and services and responding to customer inquiries. We may not have sufficient redundant operations to cover a loss or failure in all of these areas in a timely manner. Certain of our customer contracts provide that our on-line servers may not be unavailable for specified periods of time. Any damage to our data centers, failure of our telecommunications links or inability to access these telesales centers or websites could cause interruptions in operations that materially adversely affect our ability to meet customers’ requirements, resulting in decreased revenue, operating income and earnings per share.
 
We are subject to significant competition in many of the markets in which we operate.operate and we may not be able to compete effectively.
 
Some markets in which we operate or which we believe may provide growth opportunities for us are highly competitive, and are expected to remain highly competitive. We compete on the basis of quality, customer service, product and service selection and price. Our competitive position in various market segments


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depends upon the relative strength of competitors in the segment and the resources devoted to competing in that segment. Due to their size, certain competitors may be able to allocate greater resources to a particular market segment than we can. As a result, these competitors may be in a better position to anticipate and respond to changing customer preferences, emerging technologies and market trends. In addition, new competitors and alliances may emerge to take market share away. We may be unable to maintain our competitive position in our market segments, especially against larger competitors. We may also invest further to upgrade our systems in order to compete. If we fail to successfully compete, our business, financial position and results of operations may be adversely affected.
 
Acquisitions could result in operating difficulties, dilution and other harmful consequences.
 
Our long-term business strategy includes growth through acquisitions. Future acquisitions may not be completed on acceptable terms and acquired assets, data or businesses may not be successfully integrated into our operations. Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses. Such risks include, among other things:
 
 •     failing to implement or remediate controls, procedures and policies appropriate for a larger public company at acquired companies that prior to the acquisition lacked such controls, procedures and policies;
 
 •     paying more than fair market value for an acquired company or assets;
 
 •     failing to integrate the operations and personnel of the acquired businesses in an efficient, timely manner;
 
 •     assuming potential liabilities of an acquired company;
 
 •     managing the potential disruption to our ongoing business;
 
 •     distracting management focus from our core businesses;
 
 •     difficulty in acquiring suitable businesses;
 
 •     impairing relationships with employees, customers, and strategic partners;
 
 •     incurring expenses associated with the amortization of intangible assets;


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 •     incurring expenses associated with an impairment of all or a portion of goodwill and other intangible assets due to changes in market conditions, weak economies in certain competitive markets, or the failure of certain acquisitions to realize expected benefits; and
 
 •     diluting the share value and voting power of existing stockholders.
 
The anticipated benefits of many of our acquisitions may not materialize. Future acquisitions or dispositions could result in the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill and other intangible assets, any of which could harm our financial condition. Future
We typically fund our acquisitions through facilities that are uncommitted. Although we have capacity under our uncommitted facilities, lenders are not required to loan us any funds under such facilities. The current disruptions in the capital markets have caused banks and other credit providers to restrict availability of borrowing and new credit facilities. Therefore, future acquisitions may require us to obtain additional financing, which may not be available on favorable terms or at all.
 
To the extent the availability of free or relatively inexpensive information increases, the demand for some of our solutions may decrease.
 
Public sources of free or relatively inexpensive information have become increasingly available recently, particularly through the internet, and this trend is expected to continue. Governmental agencies in particular have increased the amount of information to which they provide free public access. Public sources of free or relatively inexpensive information may reduce demand for our solutions. To the extent that customers choose not to obtain solutions from us and instead rely on information obtained at little or no cost from these public sources, our business and results of operations may be adversely affected.


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Our senior leadership team is critical to our continued success and the loss of such personnel could harm our business.
 
Our future success substantially depends on the continued service and performance of the members of our senior leadership team. These personnel possess business and technical capabilities that are difficult to replace. Members of our senior management operating team have been with us for an average of almost twenty years. However, with the exception of Frank J. Coyne, our Chairman and Chief Executive Officer, we do not expect to have employee contracts with the members of our senior management operating team following this offering. If we lose key members of our senior management operating team, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this may have a material adverse effect on our business, results of operations and financial condition.
 
We may fail to attract and retain enough qualified employees to support our operations.operations, which could have an adverse effect on our ability to expand our business and service our customers.
 
Our business relies on large numbers of skilled employees and our success depends on our ability to attract, train and retain a sufficient number of qualified employees. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for employees not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to hire will increase. We will also need to increase our hiring if we are not able to maintain our attrition rate through our current recruiting and retention policies. Increased competition for employees could have an adverse effect on our ability to expand our business and service our customers, as well as cause us to incur greater personnel expenses and training costs.


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We are subject to antitrust and other litigation, and may in the future become subject to further such litigation; an adverse outcome in such litigation could have a material adverse effect on our financial condition, revenues and profitability.
 
We participate in businesses (particularly insurance-related businesses and services) that are subject to substantial litigation, including antitrust litigation. We are subject to the provisions of a 1995 settlement agreement in an antitrust lawsuit brought by various state Attorneys General and private plaintiffs which imposes certain constraints with respect to insurer involvement in our governance and business. We currently are defending against several putative class action lawsuits in which it is alleged that certain of our subsidiaries unlawfully have conspired with insurers with respect to their payment of insurance claims. See “Business — Legal Proceedings.” Our failure to successfully defend or settle such litigation could result in liability that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenues and profitability. Given the nature of our business, we may be subject to similar litigation in the future. Even if the direct financial impact of such litigation is not material, settlements or judgments arising out of such litigation could include further restrictions on our ability to conduct business, including potentially the elimination of entire lines of business, which could increase our cost of doing business and limit our prospects for future growth.
 
GeneralOur liquidity, financial position and profitability could be adversely affected by further deterioration in U.S. and international credit markets and economic political and market forces and dislocations beyond our control could reduce demand for our solutions and harm our business.conditions.
 
The demand for our solutions may be impacted by domestic and international factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange rates and inflation. The United States economy is currently undergoing a period of slowdown, which some observers view as a possible recession and both the future domestic and global economic environments may continue to be less favorable than those of recent years. Any one or more of these factors may contribute to reduced activity and pricesDeterioration in the securitiesglobal capital markets has caused financial institutions to seek additional capital, merge with larger financial institutions and, in some cases, fail. These conditions have led to concerns by market participants about the stability of financial markets generally and could resultthe strength of counterparties, resulting in a reductioncontraction of available credit, even for the most credit-worthy borrowers. Due to recent market events, our liquidity and our ability to obtain financing may be negatively impacted if one of our lenders under our revolving credit facilities or existing shelf arrangements fails to meet its funding obligations. In such an event, we may not be able to draw on all, or a substantial portion, of our uncommitted credit facilities, which would adversely affect our liquidity. Also, if we attempt to obtain future financing in demand foraddition to, or replacement of, our solutions, whichexisting credit facilities to finance our continued growth through acquisitions or otherwise, the credit market turmoil could have an adverse effect onnegatively impact our results of operation and financial condition.ability to obtain such financing.
 
The current global dislocation of the credit markets, which have significantly contributed to the slowdown described above, has not yet been fully accounted for by many financial institutions. A significant


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additional decline in the value of assets for which risk is transferred in market transactions could have an adverse impact on the demand for our solutions. In addition, the decline of the credit markets has reduced the number of mortgage originators, and therefore, the immediate demand for our related mortgage solutions. Specifically, certain of our fraud detection and prevention solutions are directed at the mortgage market. This decline in asset value and originations and an increase in foreclosure levels has also created greater regulatory scrutiny of mortgage originations and securitization. Any new regulatory regime may change the utility of our solutions for mortgage lenders and other participants in the mortgage lending industry and related derivative markets or increase our costs as we adapt our solutions to new regulation.
Risks Related to the Offering
 
There is no prior public market for our common stock and therefore an active trading market or any specific price for our common stock may not be established.
 
Currently, there is no public trading market for our common stock. We expect that our Class A common stock will be listed on the New York Stock Exchange under the symbol “     .”“VA.” The initial public offering price per share was determined by agreement among us, the selling stockholders and the representatives of the underwriters and may not be indicative of the market price of our common stock after our initial public offering. An active trading market for our common stock may not develop and continue upon the completion of this offering and the market price of our common stock may decline below the initial public offering price.
 
The market price for our common stock may be volatile.
 
The market price for our common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
 
 •     actual or anticipated fluctuations in our quarterly operating results;
 
 •     changes in financial estimates by securities research analysts;
 
 •     changes in the economic performance or market valuations of other companies engaged in our industry;


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 •     regulatory developments in our industry affecting us, our customers or our competitors;
 
 •     announcements of technological developments;
 
 •     sales or expected sales of additional common stock;
 
 •     continued dislocations and downward pressure in the capital markets; and
 
 •     terrorist attacks or natural disasters or other such events impacting countries where we or our customers have operations.
 
In addition, securities markets generally and from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may have a material adverse effect on the market price of our common stock.
 
We plan to issue a number of options to purchase Class A common stock to our directors and employees that could dilute your interest in us.
 
Upon the closing of this offering we will have           shares of Class A common stock available for issuance to our directors, executive officers and employees in connection with grants of options to purchase Class A common stock under our employee benefits arrangements. Issuances of Class A common stock to our directors, executive officers and employees pursuant to the exercise of stock options under our employee benefits arrangements will dilute your interest in us.


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If there are substantial sales of our common stock, our stock price could decline.
 
The market price of our common stock could decline as a result of sales of a large number of shares of common stock in the market after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem attractive. Upon consummation of this offering, we will have           shares of common stock outstanding. Of these shares, the           shares of common stock offered hereby will be freely tradable without restriction in the public market, unless purchased by our affiliates.
 
Following this offering, our existing stockholders will beneficially own in the aggregate approximately           shares of our Class A common stock and           shares of our Class B common stock, representing in aggregate approximately     % of our outstanding common stock. Such stockholders will be able to sell their common stock in the public market from time to time without registering them, subject to thelock-up periods described below, and subject to limitations on the timing, amount and method of those sales imposed by securities laws. If any of these stockholders were to sell a large number of their common stock, the market price of our common stock could decline significantly. In addition, the perception in the public markets that sales by them might occur could also adversely affect the market price of our common stock.
 
In connection with this offering, we, our selling stockholders, our directors and certain members of our management have each agreed to enter into alock-up agreement and thereby be subject to alock-up period, meaning that they and their permitted transferees will not be permitted to sell any of their common stock without the prior consent of the underwriters for 180 days after the date of this prospectus. Although we have been advised that there is no present intention to do so, the underwriters may, in their sole discretion and without notice, release all or any portion of the common stock from the restrictions in any of thelock-up agreements described above. In addition, certain members of our management will be subject to alock-up agreements with us whereby they will not be permitted to sell any of their common stock, subject to certain conditions, for a period of time after the pricing of this initial public offering. See “Certain Relationships and Related Transactions — Letter Agreements.”
Also, pursuant to our amended and restated certificate of incorporation, our Class B stockholders will not be able to sell any of their common stock, subject to certain conditions, to the public for a period of time after the pricing of this initial public offering. Each share of Class B (Series 1) common stock shall convert


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automatically, without any action by the holder, into one share of Class A common stock 18 months after the date of this prospectus. Each share of Class B (Series 2) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 30 months after the date of this prospectus. Our board of directors may approve exceptions to the limitation on transfers of our Class B common stock in their sole discretion, in connection with the sale of such Class B common stock in a public offering registered with the Securities and Exchange Commission or in such other limited circumstances as our board of directors may determine. Any Class B common stock sold to the public will first be converted to Class A common stock. Such further resale of our common stock could cause the price of our common stock to decline. See “Description of Capital Stock — Common Stock — Conversion.”
 
Pursuant to our equity incentive plans, options to purchase approximately           shares of Class A common stock will be outstanding upon consummation of this offering. Following this offering, we intend to file a registration statement under the Securities Act registering a total of approximately           shares of Class A common stock which will cover the shares available for issuance under our equity incentive plans (including for such outstanding options) as well as shares held for resale by our existing stockholders that were previously issued under our equity incentive plans. Such further issuance and resale of our common stock could cause the price of our common stock to decline.
 
Also, in the future, we may issue our securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common stock.
 
The holders of our Class B common stock have the right to elect up to three of our directors and their interests in our business may be different than yours.
 
Until no Class B common stock remains outstanding, the holders of our Class B common stock will have the right to elect up to three of our directors. Stockholders of the Class B common stock may not have the same incentive to approve a corporate action that may be favorable for the holders of Class A common stock, or their interests may otherwise conflict with yours. For example, holders of our Class B common stock may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us or the use of our solutions, but which might involve risks to holders of our Class A common stock, including a potential decrease in the price of our Class A common stock. See “Description of Capital Stock — Common Stock — Voting Rights.”


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Following this offering, changes in our capital structure and level of indebtedness and the terms of anti-takeover provisions under Delaware law and in our amended and restated certificate of incorporation and bylaws could diminish the value of our common stock and could make a merger, tender offer or proxy contest difficult or could impede an attempt to replace or remove our directors.
 
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable or make it more difficult for stockholders to replace directors even if stockholders consider it beneficial to do so. Our certificate of incorporation and bylaws:
 
 •     authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares to thwart a takeover attempt;
 
 •     prohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of the stock to elect some directors;
 
 •     require that vacancies on the board of directors, including newly-created directorships, be filled only by a majority vote of directors then in office;
 
 •     limit who may call special meetings of stockholders;


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 •     authorize the issuance of authorized but unissued shares of common stock and preferred stock without stockholder approval, subject to the rules and regulations of the          ;
 
 •     prohibit stockholder action by written consent, requiring all stockholder actions to be taken at a meeting of the stockholders; and
 
 •     establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
 
In addition, Section 203 of the Delaware General Corporation Law may inhibit potential acquisition bids for us. Upon completion of this offering, we will be subject to Section 203, which regulates corporate acquisitions and limits the ability of a holder of 15% or more of our stock from acquiring the rest of our stock. Under Delaware law a corporation may opt out of the anti-takeover provisions, but we do not intend to do so.
 
These provisions may prevent a stockholder from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
 
We will incur increased costs as a result of being a public company.
 
As a privately held company, we have not been responsible for the corporate governance and financial reporting practices and policies required of a public company. Following the completion of this offering, we will be a publicly traded company. Once we become a public company, we will incur significant legal, accounting, investor relations and other expenses that we do not currently incur. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the Securities and Exchange Commission, the applicable listing rules and rules implemented by the applicable foreign regulatory agencies, may require changes in corporate governance practices of public companies. We expect such rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.”
 
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.
MARKET AND INDUSTRY DATA AND FORECASTS
Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. We believe the data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data. Certain data and forecasts used in this prospectus predate the current economic downturn. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.


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THE REORGANIZATION
On May 23, 2008, in contemplation of our initial public offering, we formed Verisk Analytics, Inc., a Delaware corporation, to be the new holding company for our business. It was initially formed as a wholly-owned subsidiary of Insurance Services Office, Inc. Prior to the completion of this offering, we will have effected an internal reorganization whereby ISO will become a wholly-owned subsidiary of Verisk and all outstanding shares of ISO common stock will be replaced with common stock of Verisk.
This transaction will occur by the stockholders of ISO exchanging their Class A common stock and Class B common stock in ISO for Class A common stock and Class B common stock in Verisk, respectively, on a one-for-one basis. The Class B common stock of Verisk is sub-divided equally into two series of Class B common stock, Class B (Series 1) common stock and Class B (Series 2) common stock, as described in this prospectus. As part of this reorganization, our existing equity based compensation plans will be assigned to Verisk. As a result, all outstanding options issued under our existing equity based compensation plans will become options to acquire common stock of Verisk.
Immediately after the reorganization we will effect an approximately     -for-one split of our common stock in order to have a price per share equal to the mid-point of the range set forth on the cover page of this prospectus.


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USE OF PROCEEDS
 
The selling stockholders are selling all of the shares of common stock in this offering and we will not receive any proceeds from the sale of the shares.
 
DIVIDEND POLICY
 
Following this offering and subject to legally available funds, we currently intend to pay a quarterly dividend, in cash, at an annual rate initially equal to $      per share of Class A common stock (representing a quarterly rate initially equal to $      per share) commencing with the quarter ended          , 2008.2009. Our Class B common stock will share ratably on an as-converted basis in such dividends. The declaration and payment of any dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments, and other factors that our board of directors deems relevant.


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CAPITALIZATION
 
The following table sets forth our capitalization as of March 31, 2008:2009:
 
 •     on an actual basis; and
 
 •     on an as adjusted basis to give effect to changes in the terms of our capital stock in connection with this initial public offering and the consequent expiration of our obligations to redeem our Class A common stock.
 
This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.
 
         
  As of March 31, 2008 
  Actual  As Adjusted 
  (in thousands,
 
  except share numbers) 
 
Long-term debt (including current portion of long-term debt) $517,014  $517,014 
         
Redeemable common stock:(1)        
Class A redeemable common stock, stated at redemption value, $0.01 par value; 6,700,000 shares authorized; 2,986,359 shares issued and 997,567 outstanding  1,072,702    
Unearned Class A common stock ESOP shares  (3,940)   
Notes receivable from stockholders(2)  (50,795)   
         
Total redeemable common stock  1,017,967    
         
Stockholders’ deficit:        
Class A common stock, $0.001 par value per share, 20,000,000 shares authorized; 10,004,500 shares issued and 2,863,359 shares outstanding(3)     30 
Class B (Series 1 and 2) common stock, $0.001 par value per share,           shares authorized,           shares issued and           shares outstanding(3)  100   100 
Additional paid-in capital  21,272   548,461 
Class A common stock unearned ESOP shares     (3,940)
Accumulated other comprehensive loss  (25,023)  (25,023)
(Accumulated deficit)/retained earnings  (503,181)  904,040 
Class B common stock, treasury stock, 7,140,758 shares  (683,994)  (1,545,732)
         
Total stockholders’ deficit  (1,190,826)  (122,064)
         
Total capitalization $344,155  $394,950 
         
         
  As of March 31, 2009 
  Actual  As Adjusted 
  (In thousands,
 
  except share numbers) 
 
Long-term debt (including short-term debt and current portion of long-term debt) $639,087  $639,087 
         
Redeemable common stock:(1)        
Class A redeemable common stock, stated at redemption value, $0.01 par value; 6,700,000 shares authorized 3,008,536 shares issued and 713,523 outstanding and vested options at intrinsic value  761,627    
Class A unearned common stock ESOP shares  (3,191)   
         
Total redeemable common stock  758,436    
         
Stockholders’ deficit:        
Class A common stock, $      par value per share,      shares authorized;      shares issued and      shares outstanding(2)     30 
Class B (Series 1 and 2) common stock, $      par value per share,           shares authorized,           shares issued and           shares outstanding(2)  100   100 
Additional paid-in capital(3)     535,722 
Class A unearned common stock ESOP shares(3)     (3,191)
Accumulated other comprehensive loss  (81,340)  (81,340)
(Accumulated deficit)/retained earnings  (225,875)   
Class B (Series 1 and 2) common stock, treasury stock,      shares  (683,994)  (683,994)
         
Total stockholders’ deficit  (991,109)  (232,673)
         
Total capitalization $406,414  $406,414 
         
(1)Prior to this offering, we were required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of these securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock.
 
(2)Prior to the filing of this prospectus, we provided full recourse loans to directors and senior management in connection with exercising their stock options. The loan program has been terminated and all of these loans have been repaid.
(3)Giving effect to the approximately           -for-one stock split that will have occurred prior to the completion of this offering.
(3)Prior to the completion of this offering, we intend to accelerate the allocation of a portion of the shares to the ESOP, which will result in anon-recurringnon-cash charge of approximately $      million, based on the mid-point of the range set forth on the cover page of this prospectus.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
The following selected historical financial data should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and unaudited condensed consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2005, 2006, 2007 and 20072008 and the consolidated balance sheet data as of December 31, 20062007 and 20072008 are derived from the audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 20032004 and 20042005 and the consolidated balance sheet data as of December 31, 2003, 2004, 2005 and 20052006 are derived from the unaudited consolidated financial statements that are not included in this prospectus. The condensed consolidated statement of operations data for the three-month periods ended March 31, 20072008 and 20082009 and the condensed consolidated balance sheet data as of March 31, 20082009 are derived from unaudited condensed consolidated financial statements that are included in this prospectus and theprospectus. The condensed consolidated balance sheet data as of March 31, 2007 are2008 is derived from unaudited condensed consolidated financial statements that are not included in this prospectus. The unaudited condensed consolidated financial statements, in our opinion, have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results for the three-month period ended March 31, 20082009 are not necessarily indicative of results that may be expected for the fiscal year ended December 31, 20082009 or any future period.
Since
From January 1, 20032004 to March 31, 2009 we have acquired 1415 businesses, which may affect the comparability of our financial statements.
                             
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2003  2004  2005  2006  2007  2007  2008 
  (In thousands, except for share and per share data) 
 
Statement of income data:
                            
Revenues:                            
Risk Assessment revenues $359,186  $403,616  $448,875  $472,634  $485,160  $121,797  $127,039 
Decision Analytics revenues  118,897   144,711   196,785   257,499   317,035   77,037   88,579 
                             
Revenues  478,083   548,327   645,660   730,133   802,195   198,834   215,618 
                             
Expenses:                            
Cost of revenues  256,917   263,332   294,911   331,804   357,191   86,987   93,310 
Selling, general and administrative  75,075   81,020   88,723   100,124   107,576   27,925   28,674 
Depreciation and amortization of fixed assets  20,261   19,569   22,024   28,007   31,745   7,582   7,907 
Amortization of intangible assets  9,927   11,412   19,800   26,854   33,916   8,923   8,041 
                             
Total expenses  362,180   375,333   425,458   486,789   530,428   131,417   137,932 
                             
Operating income  115,903   172,994   220,202   243,344   271,767   67,417   77,686 
Other income/(expense):                            
Investment income and realized gains (losses) on securities, net  3,789   950   2,932   6,101   9,308   2,094   (458)
Interest expense  (2,333)  (5,241)  (10,465)  (16,668)  (22,928)  (5,773)  (6,326)
                             
Total other expense  1,456   (4,291)  (7,533)  (10,567)  (13,620)  (3,679)  (6,784)
Income from continuing operations before income taxes  117,359   168,703   212,669   232,777   258,147   63,738   70,902 
Provision for income taxes  (47,745)  (68,925)  (85,722)  (86,921)  (103,184)  (24,867)  (29,876)
                             
Income from continuing operations  69,614   99,778   126,947   145,856   154,963   38,871   41,026 
Loss from discontinued operations, net of tax(1)  (12)  (508)  (2,574)  (1,805)  (4,589)  (610)   
                             
Net income $69,602  $99,270  $124,373  $144,051  $150,374  $38,261  $41,026 
                             
                             
     Three Months Ended
 
  Year Ended December 31,  March 31, 2009 
  2004  2005  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Statement of income data:
                            
Revenues:                            
Risk Assessment revenues $403,616  $448,875  $472,634  $485,160  $504,391  $127,039  $129,566 
Decision Analytics revenues  144,711   196,785   257,499   317,035   389,159   88,579   116,185 
                             
Revenues  548,327   645,660   730,133   802,195   893,550   215,618   245,751 
                             
Expenses:                            
Cost of revenues  263,332   294,911   331,804   357,191   386,897   93,310   107,523 
Selling, general and administrative  81,020   88,723   100,124   107,576   131,239   28,674   33,320 
Depreciation and amortization of fixed assets  19,569   22,024   28,007   31,745   35,317   7,907   9,195 
Amortization of intangible assets  11,412   19,800   26,854   33,916   29,555   8,041   8,510 
                             
Total expenses  375,333   425,458   486,789   530,428   583,008   137,932   158,548 
                             
Operating income  172,994   220,202   243,344   271,767   310,542   77,686   87,203 
Other income/(expense):                            
Investment income and realized gains/(losses) on securities, net  950   2,932   6,101   9,308   (327)  (458)  (355)
Interest expense  (5,241)  (10,465)  (16,668)  (22,928)  (31,316)  (6,326)  (8,154)
                             
Total other expense, net  (4,291)  (7,533)  (10,567)  (13,620)  (31,643)  (6,784)  (8,509)
Income from continuing operations before income taxes  168,703   212,669   232,777   258,147   278,899   70,902   78,694 
Provision for income taxes  (68,925)  (85,722)  (91,992)  (103,184)  (120,671)  (29,876)  (33,779)
                             
Income from continuing operations  99,778   126,947   140,785   154,963   158,228   41,026   44,915 
Loss from discontinued operations, net of tax(1)  (508)  (2,574)  (1,805)  (4,589)         
                             
Net income $99,270  $124,373  $138,980  $150,374  $158,228  $41,026  $44,915 
                             
Basic income/(loss) per share(2):
                            
Income from continuing operations $20.12  $29.81  $34.08  $38.58  $43.26  $10.91  $12.91 
Loss from discontinued operations  (0.10)  (0.61)  (0.44)  (1.14)         
                             
Net income per share $20.02  $29.20  $33.64  $37.44  $43.26  $10.91  $12.91 
                             


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     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2003  2004  2005  2006  2007  2007  2008 
  (In thousands, except for share and per share data) 
 
Basic income/(loss) per share(2):
                            
Income from continuing operations $10.91  $20.12  $29.81  $35.31  $38.58  $9.49  $10.91 
Loss from discontinued operations     (0.10)  (0.61)  (0.44)  (1.14)  (0.15)   
                             
Net income per share $10.91  $20.02  $29.20  $34.87  $37.44  $9.34  $10.91 
                             
Diluted income/(loss) per share:
                            
Income from continuing operations $10.62  $19.28  $28.45  $33.85  $37.03  $9.10  $10.45 
Loss from discontinued operations     (0.10)  (0.58)  (0.42)  (1.10)  (0.14)   
                             
Net income per share $10.62  $19.18  $27.87  $33.43  $35.93  $8.96  $10.45 
                             
Weighted average shares outstanding:                            
Basic  6,382,836   4,958,161   4,258,989   4,130,962   4,016,928   4,096,320   3,759,913 
                             
Diluted  6,557,950   5,174,281   4,462,109   4,308,976   4,185,151   4,269,444   3,926,954 
                             
Other data:
                            
Purchases of fixed assets  (14,385)  (17,516)  (24,019)  (25,742)  (32,941)  (14,406)  (9,766)
Net cash provided by operating activities  131,340   174,780   174,071   223,499   248,521   92,735   89,864 
Net cash (used in) provided by investing activities  19,731   (41,851)  (107,444)  (243,452)  (110,831)  (39,454)  10,415 
Net cash (used in) provided by financing activities  (150,912)  (114,280)  (90,954)  75,907   (212,591)  (26,577)  (98,434)
                             
     Three Months Ended
 
  Year Ended December 31,  March 31, 2009 
  2004  2005  2006  2007  2008  2008  2009 
  (In thousands, except for share and per share data) 
 
Diluted income/(loss) per share(2):
                            
Income from continuing operations $19.28  $28.45  $32.72  $37.03  $41.59  $10.45  $12.43 
Loss from discontinued operations  (0.10)  (0.58)  (0.42)  (1.10)         
                             
Net income per share $19.18  $27.87  $32.30  $35.93  $41.59  $10.45  $12.43 
                             
Weighted average shares outstanding:                            
Basic  4,958,161   4,258,989   4,130,962   4,016,928   3,657,714   3,759,913   3,478,760 
                             
Diluted  5,174,281   4,462,109   4,302,867   4,185,151   3,804,634   3,926,954   3,612,089 
                             
Other data:
                            
Purchases of fixed assets $(17,516) $(24,019) $(25,742) $(32,941) $(30,652) $(9,766) $(8,359)
Net cash provided by operating activities  174,780   174,071   223,499   248,521   247,906   89,864   135,393 
Net cash used in investing activities  (41,851)  (107,444)  (243,452)  (110,831)  (130,466)  10,415   (66,921)
Net cash (used in)/provided by financing activities  (114,280)  (90,954)  75,907   (212,591)  (107,376)  (98,434)  (56,213)
 
                             
  Year Ended December 31,  As of March 31, 
  2003  2004  2005  2006  2007  2007  2008 
  (In thousands) 
 
Balance Sheet Data:
                            
Cash and cash equivalents $48,954  $67,700  $42,822  $99,152  $24,049  $125,878  $25,898 
Total assets  344,145   386,496   466,244   744,731   828,483   846,668   842,445 
Total debt(3)  112,880   206,152   276,964   448,698   438,330   447,655   517,014 
Redeemable common stock(4)  380,246   722,532   901,089   1,125,933   1,171,188   1,158,693   1,017,967 
Stockholders’ deficit  (313,240)  (732,762)  (938,294)  (1,116,357)  (1,195,728)  (1,142,421)  (1,190,826)
                             
  As of December 31,  As of March 31, 
  2004  2005  2006  2007  2008  2008  2009 
  (In thousands) 
 
Balance Sheet Data:
                            
Cash and cash equivalents $67,700  $42,822  $99,152  $24,049  $33,185  $25,898  $45,006 
Total assets  386,496   466,244   739,282   830,041   928,877   836,826   1,020,386 
Total debt(3)  206,152   276,964   448,698   438,330   669,754   517,014   639,087 
Redeemable common stock(4)  722,532   901,089   1,125,933   1,171,188   749,539   1,017,967   758,436 
Stockholders’ deficit  (740,478)  (940,843)  (1,123,977)  (1,203,348)  (1,009,823)  (1,198,448)  (991,109)
 
(1)As of December 31, 2007, we discontinued operations of our claim consulting business located in New Hope, Pennsylvania and the United Kingdom. There was no impact of discontinued operations on the results of operations for the periods subsequent to December 31, 2007.
(2)In conjunction with the initial public offering, the stock of Insurance Services Office, Inc. will convert to stock of Verisk Analytics, Inc., which plans to effect a stock split of its common stock. Giving effect to the approximately          -for-one stock split that will have occurred prior to the completion of this offering, pro forma basic earningsincome/(loss) per share from continuing operations and discontinued operations would have been $      and $     , $      and $     , $      and $     , $      and $     , and $      and $      for each of the years ended December 31, 2003, 2004, 2005, 2006, 2007 and 2007,2008, respectively, and $      and $      and $      and $     , for the three months ended March 31, 20072008 and 2008,2009, respectively. Diluted earningsPro forma diluted income/(loss) per sharesshare from continuing operations and discontinued operations would have been $      and $     , $      and $     , $      and $     , $      and $     , $      and $     , $      and $     , and $      and $      for each of the years ended December 31, 2004, 2005, 2006, 2007 and 2007,2008, respectively, and $      and $      and $      and $     , for the three months ended March 31, 20072008 and 2008,2009, respectively.
(3)Includes capital lease obligations.
 
(4)Prior to this offering, we are required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of these securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock.

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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 elsewhere in this prospectus, as well as the discussion under “Selected Consolidated Financial Data.” 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, including but not limited to those listed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
 
We enable risk-bearing businesses to better understand and manage their risks. We provide value to our customers by supplying proprietary data that, combined with our analytic methods, creates embedded decision support solutions. We are the largest aggregator and provider of data pertaining to U.S. property and casualty, or P&C, insurance risks. We offer solutions for detecting fraud in the U.S. P&C insurance, mortgage and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance.
 
Our customers use our solutions to make better risk decisions with greater efficiency and discipline. We refer to these products and services as ‘solutions’ due to the integration among our products and the flexibility that enables our customers to purchase components or the comprehensive package of products. These solutions take various forms, including data, statistical models or tailored analytics, all designed to allow our clients to make more logical decisions. We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs.
 
We organize our business in two segments: Risk Assessment and Decision Analytics. Our Risk Assessment segment provides statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our Risk Assessment segment revenues represented approximately 60%56% and 59%53% of our revenues for the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, respectively. Our Decision Analytics segment provides solutions our customers use to analyze the four processes of the Verisk Risk Analysis Framework: Prediction of Loss, Selection and Pricing of Risk, Detection and Prevention of Fraud, and Quantification of Loss. Our Decision Analytics segment revenues represented approximately 40%44% and 41%47% of our revenues for the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, respectively.
 
Executive Summary
 
Key Business Characteristics
 
We believe we have an attractive operating model due to the recurring nature of our revenues, the scalability of our solutions and the low capital intensity of our business.
 
Recurring Nature of Revenues.  We offer our solutions primarily through annual subscriptions or long-term agreements, which are generally pre-paid. For the year ended December 31, 20072008 and the three months ended March 31, 2008, 74%2009, 76% and 73% of our revenues, respectively, were derived from subscriptions and long-term agreements for our solutions. Approximately 96%97% of our top 200100 customers in 2007,2008, as ranked by revenues, have been our customers for each of the last five years. The combination of our historically high renewal rates, which we believe are due to the embedded nature of our solutions and our subscription-based revenue model, results in predictable cash flows.
 
Scalable Solutions.  Our technology infrastructure and scalable solution platforms allow us to accommodate significant additional transaction volumes with limited incremental costs. This operating leverage enabled us to increase our EBITDA margins from 30.6%37.2% in 20032004 to 42.1%42.0% in 2007.2008.
 
Low Capital Intensity.  We have low capital needs that allow us to generate strong cash flow. In 2007,2008, our operating income and capital expenditures as a percentage of revenue were 33.9%34.8% and 4.1%3.7%, respectively.


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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 revenue growth and EBITDA margin as metrics to measure our performance.
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 of new or expanded solutions to existing customers, sales to 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 are automatically renewed each year. As a result, the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. Examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language or our actuarial services throughout the subscription period. In general, we experience minimal seasonality within the business. Our long-term agreements are generally for periods of three to seven years. We recognize revenue from subscriptions ratably over the term of the subscription and most long-term agreements are recognized ratably over the term of the agreement.
 
Certain of our solutions are also paid for by our customers on a transactional basis. For example, we have solutions that allow our customers to access fraud detection tools in the context of an individual mortgage application, obtain property-specific rating and underwriting information to price a policy on a commercial building, or compare a P&C insurance, medical or workers’ compensation claim with information in our databases. For the year ended December 31, 20072008 and the three months ended March 31, 2008, 26%2009, 24% and 27% of our revenues, respectively, were derived from providing transactional solutions. We earn transactional revenues as our solutions are delivered or services performed. In general, transactions are billed monthly at the end of each month.
 
More than 80%82% and 81%84% of the revenues in our Risk Assessment segment for the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, 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, and we have retained approximately 99% of our P&C insurance customer base in each of the last five years. Within our Risk Assessment segment, much of our revenues are based on the data we receive from our customers. The costs for such revenue for the year ended December 31, and 2008 and the three months ended March 31, 2009, were $15.8 million and $4.9 million, respectively, and have increased as a percentage of revenue from 3.3% to 3.8% of our Risk Assessment segment revenues from December 31, 2006 to March 31, 2009. More than 63%68% and 61%62% of the revenues in our Decision Analytics segment, for the yearyears ended December 31, 20072008 and the three months ended March 31, 2008,2009, respectively, were derived from subscriptions and long-term agreements for our solutions.
 
Principal Operating Costs and Expenses
 
Personnel expenses are the major component of both our cost of revenues and selling, general and administrative expenses. Personnel expenses include salaries, benefits, incentive compensation, equity compensation costs (described under “— Equity Compensation Costs” below), sales commissions, employment taxes, recruiting costs and outsourced temporary agency costs, which represented 63% and represented 67%66% of our total expenses for each of the year ended December 31, 20072008 and the three months ended March 31, 2008.2009, respectively.


27


We allocate personnel expenses between two categories, cost of revenues and selling, general and administrative costs based on the actual costs associated with each employee. We categorize employees who maintain our solutions as cost of revenues, and all other personnel, including executive managers, sales people, marketing, business development, finance, legal, human resources and administrative services as selling, general and administrative expenses. A significant portion of our other operating costs, such as facilities and communications, are also either captured within cost of revenues or selling, general and administrative expense, based on the nature of the work being performed.
 
While we expect to grow our headcount over time to take advantage of our market opportunities, we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues. Historically, our EBITDA margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses.
 
Cost of Revenues.  Our cost of revenues consists primarily of personnel expenses. Cost of revenues also includes the expenses associated with the acquisition and verification of data, the maintenance of our existing solutions and the development and enhancement of our next-generation solutions. Within our Risk Assessment segment, muchOur cost of our revenues are based on the data we receive from our customers. The costs for such revenue for the year ended December 31, 2007excludes depreciation and the three months ended March 31, 2008 were


25


$15.6 million and $4.0 million, respectively, and have declined as a percentage of revenue from 3.7% to 3.1% of our Risk Assessment segment revenues from December 31, 2005 to March 31, 2008.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.
EBITDA Margin
Our EBITDA margins for the years ended December 31, 2007 and December 31, 2008, were 42.1% and 42.0%, respectively and 42.7% for the three months ended March 31, 2009. Historically, our EBITDA margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses. Included within the decrease in our EBITDA margin for the year ended December 31, 2008 are costs of $6.5 million associated with the preparation of our initial public offering, representing a 0.7% negative impact on our EBITDA margin.
 
Description of Acquisitions
 
As part of our growth strategy, we intend to continue to selectively acquire companies primarily to augment our Decision Analytics offerings. We have acquired ten10 businesses sincefrom January 2005,2006 to March 2009, all of which are included in our Decision Analytics segment. Specifically, seven of these companies provide fraud identification and detection, solutions and two of these companies provide loss prediction and selection solutions to the healthcare market. In addition, we acquiredIncluded in the above was Xactware, Inc., or Xactware, acquired in 2006, which provides loss quantification solutions for all phases of building repair and reconstruction. As a result of these acquisitions, our consolidated results of operations may not be comparable between periods.
In 2008, we acquired two entities for an aggregate cash purchase price of approximately $19.3 million and funded indemnity escrows totaling $1.5 million. One entity is subject to additional contingent payments ranging from $0 to a maximum of $4.5 million potentially payable in 2011 and 2012, based on achievement of certain predetermined financial results. In 2007, we acquired three companies for an aggregate cash purchase price of approximately $50.0$50.1 million and funded indemnity and contingent payment escrows of $3.3 million and $1.0 million, respectively. As of December 31, 2008, an entity acquired in 2007 achieved certain financial results, whereby an additional contingent payment of $15.2 million is due in April 2009. In 2006, we acquired four companies for an aggregate cash purchase price of approximately $202.1 million, of which $188.0 million relates to Xactware, and funded indemnity and contingent payment escrows of $11.1 million and $3.5 million, respectively. In 2005,Xactware achieved certain financial results, whereby additional contingent payments of $98.1 million was paid in April 2008 and $67.2 million is due in April 2009.


28


On January 14, 2009, we acquired three companiesD2Hawkeye or D2, a privately-owned provider of information and analytic solutions for an aggregatethe healthcare industry, for a net cash purchase price of approximately $62.7$58.9 million of which $7.0 million was used to fund the indemnity escrow. D2 is entitled to receive additional contingent consideration ranging from $0 to $65.7 million based on achievement of certain predetermined EBITDA targets for the fiscal year 2011 and funded contingency escrowspotentially payable in 2012. We have recorded $2.8 million of $14.4 million.contingent consideration from this range, which was estimated as of the acquisition date by using a weighted average probability of achieving the specific predetermined EBITDA targets. Subsequent changes in the estimated fair value of contingent consideration is recorded in the statement of operations.
 
AtOn March 31, 2008,2009, the current and long-term portions of theseall of our indemnity escrows were $4.8$12.7 million and $11.7$8.5 million, respectively. A portion of thesethe escrows and other potential acquisition contingent payments are linked to performance targets and, in some cases, to continued employment of key principals.targets. When tied to continued employment, these contingent payments must be expensed as compensation. Compensation expense related to these acquisition contingent payments for the years ended December 31, 2005, 2006, 2007 and 20072008 were $9.7 million, $9.0 million, $3.6 million and $3.6$0.3 million respectively, and for the three months ended March 31, 20072008 and 20082009 were $1.1$0.3 million and $0.3 million.$0, respectively.
 
Equity Compensation Costs
 
We establishedhave 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. As the debt is repaid, shares are released to the ESOP to fund 401(k) matching and profit sharing contributions and the remainder is allocated annually to active employees in proportion to their eligible compensation in relation to total participantparticipants eligible compensation.


2629


We accrue compensation expense ratably over the reporting period equal to the fair value of the shares to be released to the ESOP. AsDepending on the number of shares released to the plan during the quarter and the fluctuation in the fair value of ourthe shares, has increased, oura corresponding increase or decrease in compensation expense relating to our ESOP has increased as well.will occur. The amount of our equity compensation costs recognized for the years ended December 31, 2005, 2006, 2007 and 20072008 and the three months ended March 31, 20072008 and 20082009 are as follows:
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2005  2006  2007  2007  2008 
  (in thousands) 
 
401(k) matching contribution expense:                    
Risk Assessment $4,466  $4,703  $4,914  $1,327  $1,400 
Decision Analytics  1,689   2,105   2,788   733   823 
                     
Total 401(k) matching contribution expense  6,155   6,808   7,702   2,060   2,223 
                     
Profit sharing contribution expenses:                    
Risk Assessment        473   119   212 
Decision Analytics        268   66   124 
                     
Total profit sharing contribution expense        741   185   336 
                     
ESOP allocation expense:                    
Risk Assessment  5,422   8,105   8,806   1,903   1,994 
Decision Analytics  2,051   3,627   4,997   1,052   1,172 
                     
Total ESOP allocation expense  7,473   11,732   13,803   2,955   3,166 
                     
Total ESOP costs $13,628  $18,540  $22,246  $5,200  $5,725 
                     
                     
     Three Months Ended
 
  Year Ended December 31,  March 31, 
  2006  2007  2008  2008  2009 
  (In thousands) 
 
401(k) matching contribution expense:                    
Risk Assessment $4,703  $4,914  $5,408  $1,400  $1,221 
Decision Analytics  2,105   2,788   3,162   823   883 
                     
Total 401(k) matching contribution expense  6,808   7,702   8,570   2,223   2,104 
                     
Profit sharing contribution expense:                    
Risk Assessment     473   720   212   226 
Decision Analytics     268   421   124   164 
                     
Total profit sharing contribution expense     741   1,141   336   390 
                     
ESOP allocation expense:                    
Risk Assessment  8,105   8,807   7,927   1,994   1,528 
Decision Analytics  3,627   4,997   4,636   1,172   1,105 
                     
Total ESOP allocation expense  11,732   13,804   12,563   3,166   2,633 
                     
Total ESOP cost $18,540  $22,247  $22,274  $5,725  $5,127 
                     
 
Prior to the completion of this offering, we intend to accelerate the allocation of a portion of the shares to the ESOP, which will result in a non-recurring non-cash charge of approximately $      million, based on the mid-point of the range set forth on the cover page of this prospectus. As a result, subsequent to the offering, the non-cash ESOP allocation expense will be substantially reduced. Non-cash charges relating specifically to our 401(k) and profit sharing were $6.8 million, $8.4 million and $8.4$9.7 million for the years ended December 31, 2006, 2007 and 2007,2008, respectively and we expect this level of charges to continue to grow inwere $2.6 million and $2.5 million for the future.three months ended March 31, 2008 and 2009, respectively.
 
In addition, the portion of the ESOP allocation expense related to the appreciation of the value of the shares in the ESOP above the value of those shares when the ESOP was first established is not tax deductible. Therefore, we believe the accelerated allocation will result in a reduction of approximately 3%1.5% to our effective tax rate from 2008in years subsequent to 2009.the completion of our initial public offering.
 
On January 1, 2005, we adopted FAS No. 123(R), “Share-Based Payment,” or FAS No. 123(R), using a prospective approach, which required us to record compensation expense for all awards granted after the date of adoption. Therefore, since January 1, 2005 the expense associated with the number of options granted has increased every year. For example, for the year ended December 31, 2005 we expensed the option grants vested in 2005, but for the year ended December 31, 2006 we expensed the option grants vested in 2005 and 2006. See “— Critical Accounting Policies and Estimates — Stock Based Compensation.”
 
Public Company Expenses
 
Beginning in 2008, our selling, general and administrative costs increased as we prepared for this initial public offering;offering. These costs were $6.5 million and $0.2 million for the year ended December 31, 2008 and the three months ended March 31, 2008, such costs were $0.7 million.2009, respectively. Following the offering, we will incur additional selling, general and administrative expenses related to operating as a public company, such as increased legal


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and accounting expenses, the cost of an investor relations function, costs related to Section 404 of the Sarbanes-Oxley Act of 2002 and increased director and officer insurance premiums.


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Upon the completion of this offering, we expect to grant           shares of our Class A common stock to our directors, officers and employees in the form of stock options, performance shares, performance unit awards, restricted shares or restricted stock awards. Assuming that all of the performance measures are met, we expect the related expense to be approximately $      million, $      million and $      million for 2009, 2010 and 2011, respectively. See “Management — Executive Compensation — Verisk Analytics, Inc. 20082009 Equity Incentive Plan.”
 
Trends Affecting Our Business
A portion of our revenues is related to changes in historical insurance premiums, therefore, our revenues could be positively or negatively affected by growth or declines in premiums for the lines of insurance for which we perform services. The pricing of these solutions is based on an individual customer’s premiums in a prior period, so the pricing is fixed at the inception of each calendar year. The impact of insurance premiums has a more significant impact on the Risk Assessment segment than the Decision Analytics segment. Since 2005, premium growth in the P&C insurance industry has slowed and we expect little or no growth for most insurance lines during 2009. A significant portion of our revenues are from insurance companies. Although business and new sales from these companies have generally remained strong, the current economic environment could negatively impact buying demand for our solutions. In addition, since 2007, the softening of the automobile insurance market negatively impacted our auto premium leakage identification solutions. We do not expect this trend to have a material impact on our liquidity or capital resources.
A portion of our revenues in the Decision Analytics segment are tied to the volume of applications for new mortgages or refinancing of existing mortgages. Turmoil in the mortgage market since 2007 has adversely affected revenue in this segment of our business. This trend began to reverse in late 2008 spurred by lower mortgage interest rates. As a result of the rise in foreclosures and early pay defaults, we have seen and expect to see in the future an increase in revenues from our solutions that help our customers focus on improved underwriting quality of mortgage loans. These solutions help to ensure the application data is accurate and identify and rapidly settle bad loans, which may have been originated based upon fraudulent information.
Recent events within the United States economy have resulted in further tightening in credit availability, which has resulted in higher interest rates for corporate borrowers. To date we have been able to adequately secure credit arrangements for the financing of the business and we will continue to explore financing alternatives in order to fund future growth opportunities. Due to recent market events, our liquidity and our ability to obtain financing may be negatively impacted if one of our lenders under our revolving credit facilities or another financial institution fails to meet its funding obligations. In such an event, we may not be able to draw on all, or a substantial portion, of our uncommitted credit facilities and therefore may have to use current available liquidity to repay our $100.0 million note due in June 2009. Borrowings under our long-term debt facilities are at fixed interest rates. While we expect future borrowings will be at higher interest rates which will translate into higher interest expense in the future, we do not expect this to have a material impact on our business in the near-term.


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Results of Operations
 
Set forth below is our results of operations expressed as a percentage of revenues.
 
                     
     Three Months
 
  Year Ended December 31,  Ended March 31, 
  2005  2006  2007  2007  2008 
 
Statement of income data:
                    
Expenses:                    
Cost of revenues  45.7%  45.4%  44.5%  43.7%  43.3%
Selling, general and administrative  13.7%  13.7%  13.4%  14.0%  13.3%
Depreciation and amortization of fixed assets  3.4%  3.8%  4.0%  3.8%  3.7%
Amortization of intangible assets  3.1%  3.7%  4.2%  4.5%  3.7%
                     
Total expenses  65.9%  66.7%  66.1%  66.1%  64.0%
                     
Operating income  34.1%  33.3%  33.9%  33.9%  36.0%
Other income/(expense):                    
Interest and investment income (loss)  0.5%  0.8%  1.2%  1.1%  (0.2%)
Interest expense  (1.6)%  (2.3)%  (2.9)%  (2.9)%  (2.9)%
                     
Total other income/(expense)  (1.2)%  (1.4)%  (1.7)%  (1.9)%  (3.1)%
Income from continuing operations before income taxes  32.9%  31.9%  32.2%  32.1%  32.9%
Provision for income taxes  (13.3)%  (11.9)%  (12.9)%  (12.5)%  (13.9)%
                     
Income from continuing operations  19.7%  20.0%  19.3%  19.5%  19.0%
Loss from discontinued operations, net of tax  (0.4)%  (0.2)%  (0.6)%  (0.3)%  (—)
                     
Net Income  19.3%  19.7%  18.7%  19.2%  19.0%
                     
EBITDA  40.6%  40.8%  42.1%  42.2%  43.4%
                     
     Three Months Ended
 
  Year Ended December 31,  March 31, 
  2006  2007  2008  2008  2009 
Statement of income data:
                    
Expenses:                    
Cost of revenues  45.4%  44.5%  43.3%  43.3%  43.8%
Selling, general and administrative  13.7%  13.4%  14.7%  13.3%  13.6%
Depreciation and amortization of fixed assets  3.8%  4.0%  4.0%  3.7%  3.7%
Amortization of intangible assets  3.7%  4.2%  3.3%  3.7%  3.5%
                     
Total expenses  66.7%  66.1%  65.2%  64.0%  64.5%
                     
Operating income  33.3%  33.9%  34.8%  36.0%  35.5%
Other income/(expense):                    
Interest and investment income/(loss)  0.8%  1.2%  (0.0)%  (0.2)%  (0.1)%
Interest expense  (2.3)%  (2.9)%  (3.5)%  (2.9)%  (3.3)%
                     
Total other income/(expense)  (1.4)%  (1.7)%  (3.5)%  (3.1)%  (3.4)%
Income from continuing operations before income taxes  31.9%  32.2%  31.2%  32.9%  32.0%
Provision for income taxes  (12.6)%  (12.9)%  (13.5)%  (13.9)%  (13.7)%
                     
Income from continuing operations  19.3%  19.3%  17.7%  19.0%  18.3%
Loss from discontinued operations, net of tax  (0.3)%  (0.6)%  0.0%  0.0%  0.0%
                     
Net Income  19.0%  18.7%  17.7%  19.0%  18.3%
                     
EBITDA  40.8%  42.1%  42.0%  43.4%  42.7%
 
Three Months Ended March 31, 20082009 Compared to Three Months Ended March 31, 20072008
 
Consolidated Results of Operations
 
Revenues
 
Revenues were $245.8 million for the three months ended March 31, 2009 compared to $215.6 million for the three-month periodthree months ended March 31, 2008, compared to $198.8an increase of $30.2 million or 14.0%. An acquisition in the fourth quarter of 2008 and an acquisition in the first quarter of 2009 accounted for an increase of $8.0 million in revenues for the three-month periodthree months ended March 31, 2007, an increase of $16.8 million or 8.4%. During the latter part of 2007, we acquired three companies that accounted for $6.8 million of additional revenues for the three-month period ended March 31, 2008.2009. Excluding these acquisitions, revenues increased $10.0$22.2 million, which included an increase of $5.3 million in our Risk Assessment segment of $2.6 million and an increase of $4.7 million in our Decision Analytics segment.segment of $19.6 million.
 
Cost of Revenues
 
Cost of revenues was $107.5 million for the three months ended March 31, 2009 compared to $93.3 million for the three-month periodthree months ended March 31, 2008, compared to $87.0 million for the three-month period ended March 31, 2007, an increase of $6.3$14.2 million or 7.3%15.2%. The


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increase was primarily due to $4.1 millionan increase in costs attributable to the newly acquired companies and $4.0 million in costs due to increased salaries and employee benefits costs of $7.4 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, and other operating expensescosts related to the newly acquired companies of $0.4$4.8 million. Other increases include software and data costs of $1.2 million, professional consultant fees of $0.7 million and office maintenance fees of $0.7 million. These increases were partially offset by $1.4 milliona decrease in loss on disposal of assets in the period ended March 31, 2007 with no corresponding amount in the current period and lower acquisition contingent payments of $0.8$0.3 million associated withdue to the acquisitions comparedend of the earn-out period and are treated as compensation due to March 31, 2007. These acquisition contingent payments are relatedbeing tied to achievementcontinuing employment, and a decrease in other expenses of performance-related targets for different acquisitions in the periods described.$0.3 million. As a percentage of revenues,revenue, cost of revenues was 43.7% andincreased to 43.8% for the three months ended March 31, 2009 from 43.3% for the three months ended March 31, 2007 and 2008, respectively.2008.


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Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $33.3 million for the three months ended March 31, 2009 compared to $28.7 million for the three-month periodthree months ended March 31, 2008, compared to $27.9 million for the three-month period ended March 31, 2007, an increase of $0.8$4.6 million or 2.7%16.2%. The increase was primarily due to $0.4increased salaries and employee benefits costs of $2.2 million, inwhich include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, costs attributable to the newly acquired companies and $0.7 million in costs related to our legal costs, resulting from the preparation for our initial public offering, as well as salaries and employee related costs of $0.4 million. These increases were partially offset by lower advertising and marketing costs of $0.2 million, lower travel costs of $0.2$2.0 million, and other general expenses of $0.2$1.1 million. This increase was partially offset by a decrease in legal costs of $0.4 million, and a $0.3 million decrease in advertising and marketing costs. As a percentage of revenues, selling, general and administrative expenses decreasedincreased to 13.6% for the three months ended March 31, 2009 from 13.3% from 14.0%.for the three months ended March 31, 2008.
 
Depreciation and Amortization of Fixed Assets
 
Depreciation and amortization of fixed assets were $9.2 million for the three months ended March 31, 2009 compared to $7.9 million for the three-month periodthree months ended March 31, 2008, compared to $7.6 million for the three-month period ended March 31, 2007, an increase of $0.3$1.3 million or 4.3%16.3%. Depreciation and amortization of fixed assets includes depreciation of furniture and equipment, software, computer hardware, and related equipment. As a percentage of revenue,revenues, depreciation and amortization of fixed assets was 3.7% for both three-month periods ended March 31, 2008 and 2009.
Amortization of Intangible Assets
Amortization of intangible assets was $8.5 million for the three months ended March 31, 2009 compared to $8.0 million for the three months ended March 31, 2008, an increase of $0.5 million or 5.8%. As a percentage of revenues, amortization of intangible assets decreased to 3.5% for the three months ended March 31, 2009 from 3.7% for the three months ended March 31, 2008.
Investment Income and Realized Losses on Securities, Net
Investment income and realized losses on securities, net was a loss of $0.4 million for the three months ended March 31, 2009 compared to a loss of $0.5 million for the three months ended March 31, 2008. Investment income and realized losses on securities, net consists of interest income we receive from 3.8%our cash and cash equivalents, dividend income from our available-for-sale securities held with certain financial institutions, and realized amounts associated with the sale of available-for-sale securities. In 2008, investment income also included interest income from shareholder loans. As a percentage of revenues, investment income and realized losses on securities, net was 0.2% and 0.1% for the three months ended March 31, 2008 and 2009, respectively.
Interest Expense
Interest expense was $8.2 million for the three months ended March 31, 2009 compared to $6.3 million for the three months ended March 31, 2008, an increase of $1.9 million or 28.9%. This increase is primarily due to greater debt outstanding of $639.1 million at March 31, 2009 as compared to $517.0 million at March 31, 2008. As a percentage of revenue interest expense increased to 3.3% for the three months ended March 31, 2009 from 2.9% for the three months ended March 31, 2008.
Provision for Income Taxes
The provision for income taxes was $33.8 million for the three months ended March 31, 2009 compared to $29.9 million for the three months ended March 31, 2008, an increase of $3.9 million or 13.1%. The effective tax rate was 42.9% for the three months ended March 31, 2009 compared to 42.1% for the three months ended March 31, 2008. The 2009 rate is higher due to an increase in FIN No. 48 uncertain tax positions and certain initial public offering related costs that are not tax deductible, which are included in our estimate of the annual effective rate. As a percentage of revenues, provision for income taxes decreased to 13.7% for the three months ended March 31, 2009 from 13.9% for the three months ended March 31, 2008.


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EBITDA Margin
The EBITDA margin for our consolidated results was 42.7% for the year ended March 31, 2009 compared to 43.4% for the three months ended March 31, 2008.
Risk Assessment Results of Operations
Revenues
Revenues for our Risk Assessment segment were $129.6 million for the three months ended March 31, 2009 compared to $127.0 million for the three months ended March 31, 2008, an increase of $2.6 million or 2.0%. The increase in our industry-standard insurance programs primarily resulted from an increase in prices derived from continued enhancements to the content of our solutions and the addition of new customers. Our revenue by category for the periods presented is set forth below:
             
  Three Months Ended
    
  March 31,  Percentage
 
  2008  2009  Change 
  (In thousands)    
 
Industry standard insurance programs $83,216  $85,147   2.3%
Property-specific rating and underwriting information  31,678   32,001   1.0%
Statistical agency and data services  6,805   7,058   3.7%
Actuarial services  5,340   5,360   0.4%
Cost of Revenues
Cost of revenues for our Risk Assessment segment was $51.5 million for the three months ended March 31, 2009 compared to $51.4 million for the three months ended March 31, 2008, an increase of $0.1 million or 0.3%. The increase was primarily due to increases in salaries and employee benefits costs of $1.8 million and office maintenance fees of $0.4 million. These increases were offset by decreases in software and data cost of $0.7 million, professional consultant fees of $0.2 million, and other operating expenses of $1.2 million. As a percentage of Risk Assessment revenues, cost of revenues decreased to 39.7% for the three months ended March 31, 2009 from 40.4% for the three months ended March 31, 2008.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Risk Assessment segment were $17.5 million for the three months ended March 31, 2009 compared to $17.6 million for the three months ended March 31, 2008, a decrease of $0.1 million or 0.5%. The decrease was primarily due to a decrease in legal fees of $1.2 million. This decrease was offset by salaries and employee benefit costs of $1.0 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, and other general expenses of $0.1 million. As a percentage of Risk Assessment revenues, selling, general and administrative expenses decreased to 13.5% for the three months ended March 31, 2009 from 13.8% for the three months ended March 31, 2008.
EBITDA Margin
The EBITDA margin for our Risk Assessment segment was 46.8% for the three months ended March 31, 2009 compared to 45.8% for the three months ended March 31, 2008.
Decision Analytics Results of Operations
Revenues
Revenues for our Decision Analytics segment were $116.2 million for the three months ended March 31, 2009 compared to $88.6 million for the three months ended March 31, 2008, an increase of $27.6 million or 31.2%. Late in 2008 and in the first quarter 2009, we acquired two companies. These acquisitions accounted for $8.0 million of additional revenues for the three months ended March 31, 2009,


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which relates to the loss prediction category. Excluding the impact of these acquisitions, revenue increased $19.6 million for the three months ended March 31, 2009. Our fraud identification and detection solutions revenue increased $13.5 million due to an increase in subscription revenues resulting from enhancements to the content of our claim solutions and an increase in revenues in our mortgage fraud and detection solutions in response to the increased scrutiny and refinancing within the mortgage industry. Our loss quantification revenues increased as a result of new customer contracts and volume increases associated with recent floods, hurricanes and wildfires experienced in the United States. Increased revenue in our loss prediction solutions primarily resulted from our acquisitions and increased penetration of our existing customers. Our revenue by category for the periods presented is set forth below:
             
  Three Months Ended
    
  March 31,  Percentage
 
  2008  2009  Change 
  (In thousands)    
 
Fraud identification and detection solutions $50,320  $63,842   26.9%
Loss prediction solutions  21,434   30,953   44.4%
Loss quantification solutions  16,825   21,390   27.1%
Cost of Revenues
Cost of revenues for our Decision Analytics segment was $56.0 million for the three months ended March 31, 2009 compared to $41.9 million for the three months ended March 31, 2008, an increase of $14.1 million or 33.6%. The increase included $4.8 million in costs attributable to the newly acquired companies. Excluding the impact of these acquisitions, the cost of revenues increased $9.3 million, primarily due to an increase in salaries and employee benefits of $5.6 million across a relatively constant employee headcount, which includes annual salary increases, medical costs and equity compensation costs, an increase in software and data costs of $1.9 million, an increase in professional consultant fees of $0.9 million, an increase in office maintenance costs of $0.3 million, and an increase in other operating expenses of $0.9 million. These increases were partially offset by lower acquisition contingent payments of $0.3 million associated with acquisitions recorded in the comparable prior period. As a percentage of Decision Analytics revenues, cost of revenues increased to 48.2% for the three months ended March 31, 2009 from 47.4% for the three months ended March 31, 2008.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $15.8 million for the three months ended March 31, 2009 compared to $11.1 million for the three months ended March 31, 2008, an increase of $4.7 million or 42.5%. The increase was due to costs attributable to the newly acquired companies of $2.0 million, an increase in salaries and employee benefits costs of $1.2 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, an increase in legal costs of $0.8 million, and other general expenses of $1.0 million. This increase was partially offset by lower advertising and marketing costs of $0.3 million. As a percentage of Decision Analytics revenues, selling, general and administrative expenses increased to 13.6% for the three months ended March 31, 2009 from 12.6% for the three months ended March 31, 2008.
EBITDA Margin
The EBITDA margin for our Decision Analytics segment was 38.1% for the three months ended March 31, 2009 compared to 40.1% for the three months ended March 31, 2008.


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Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Consolidated Results of Operations
Revenues
Revenues were $893.6 million for the year ended December 31, 2008 compared to $802.2 million for the year ended December 31, 2007, an increase of $91.4 million or 11.4%. The acquisitions in the latter part of 2007 and the two acquisitions in 2008 accounted for an increase of $38.6 million in revenues for the year ended December 31, 2008. Excluding these acquisitions, revenues increased $52.8 million, which included an increase in our Risk Assessment segment of $19.2 million and an increase in our Decision Analytics segment of $33.6 million.
Cost of Revenues
Cost of revenues was $386.9 million for the year ended December 31, 2008 compared to $357.2 million for the year ended December 31, 2007, an increase of $29.7 million or 8.3%. The increase was primarily due to costs attributable to the newly acquired companies of $25.4 million and an increase in salaries and employee benefits costs of $1.1 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount. Other increases include office maintenance fees of $2.8 million, software and data costs of $3.4 million and other operating expenses of $0.8 million. These increases were partially offset by losses on disposal of assets that were $0.5 million less in the current period as compared to the year ended December 31, 2007. In addition, acquisition contingent payments, which are treated as compensation when tied to continuing employment, were $3.3 million less in the current period as compared to the year ended December 31, 2007 due to a decrease in the amount of potential acquisition contingent payments in 2008 compared to 2007. As a percentage of revenue, cost of revenues decreased to 43.3% for the year ended December 31, 2008 from 44.5% for the year ended December 31, 2007.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $131.2 million for the year ended December 31, 2008 compared to $107.6 million for the year ended December 31, 2007, an increase of $23.6 million or 22.0%. The increase was primarily due to increased salaries and employee benefits costs of $13.5 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, an increase in legal costs of $7.8 million, primarily resulting from the preparation for our initial public offering, costs attributable to the newly acquired companies of $0.9 million, and other general expenses of $2.5 million. This increase was partially offset by lower advertising and marketing costs of $1.1 million. As a percentage of revenues, selling, general and administrative expenses increased to 14.7% for the year ended December 31, 2008 from 13.4% for the year ended December 31, 2007.
Depreciation and Amortization of Fixed Assets
Depreciation and amortization of fixed assets were $35.3 million for the year ended December 31, 2008 compared to $31.7 million for the year ended December 31, 2007, an increase of $3.6 million or 11.3%. Depreciation and amortization of fixed assets includes depreciation of furniture and equipment, software, computer hardware, and related equipment. As a percentage of revenues, depreciation and amortization of fixed assets was 4.0% for both the years ended December 31, 2007 and 2008.
 
Amortization of Intangible Assets
 
Amortization of intangible assets was $8.0$29.6 million for the three-month periodyear ended MarchDecember 31, 2008 compared to $8.9$33.9 million for the three-month periodyear ended MarchDecember 31, 2007, a decrease of $0.9$4.3 million or 9.9%12.9%. The decrease is the result of certain intangible assets having been fully amortized in 2007, partially offset by the increased amortization of intangibles that resulted from our new acquisitions. We amortize intangible assets obtained through acquisitions over the periods that we expect to derive benefit from such assets. As a percentage of


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revenues, amortization of intangible assets decreased to 3.3% for the year ended December 31, 2008 from 4.2% for the year ended December 31, 2007.
 
Investment Income and Realized Gains Gains/(Losses) on Securities, Net
 
Investment income and realized gains gains/(losses) on securities, net was a loss of $0.5$(0.3) million for the three-month periodyear ended MarchDecember 31, 2008 compared to a gain of $2.1$9.3 million for the three-month periodyear ended MarchDecember 31, 2007, a decrease of $2.6$9.6 million. InterestInvestment income and realized gains gains/(losses) on securities, net consists of interest income we receive from our cash and cash equivalents and stockholder loans, dividend income from our available-for-sale securities held with certain financial institutions as well as realized amounts associated with the sale of available-for-sale securities. The decrease primarily resulted from reduced interest income of $1.5$4.6 million coupled with the loss on salesales of securities of $1.3 million and other than temporary impairment of securities of $1.2 million for the three-monthyear ended December 31, 2008 as compared to a gain on our investment portfolio of $2.3 million for the period ended MarchDecember 31, 2008.2007. As a percentage of revenues, investment income and realized gains/(losses) on securities, net decreased to 0.0% for the year ended December 31, 2008 from 1.2% for the year ended December 31, 2007.
 
Interest Expense
 
Interest expense was $6.3$31.3 million for the three-month periodyear ended MarchDecember 31, 2008 compared to $5.8$22.9 million for the three-month periodyear ended MarchDecember 31, 2007, an increase of $0.6$8.4 million or 9.6%36.6%. This increase is primarily due to greater debt outstanding and higher interest rates in the three-month period ended Marchof $669.8 million at December 31, 2008 as compared to the three-month period ended March$438.3 million at December 31, 2007. As a percentage of revenue interest expense increased to 3.5% for the year ended December 31, 2008 from 2.9% for the year ended December 31, 2007.


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Provision for Income Taxes
 
ProvisionThe provision for income taxes was $29.9$120.7 million for the three-month periodyear ended MarchDecember 31, 2008 compared to $24.9$103.2 million for the three-month periodyear ended MarchDecember 31, 2007, an increase of $5.0$17.5 million or 20.1%16.9%. The effective tax rate was 42.1%43.3% for the three-month periodyear ended MarchDecember 31, 2008 compared to 39.0%40.0% for the three-month periodyear ended MarchDecember 31, 2007. The 2008 rate is higher due primarily to an increase in FIN 48 uncertain tax positions and certain initial public offering related costs that are not tax deductible. As a percentage of revenues, provision for income taxes increased to 13.5% for the expiration ofyear ended December 31, 2008 from 12.9% for the federal research and development tax credit benefits at the end of 2007 and a higher state tax liability in 2008.year ended December 31, 2007.
 
Loss from Discontinued Operations, Net of Tax
 
Loss from discontinued operations, net of tax was $0.6$4.6 million for the three-month periodyear ended MarchDecember 31, 2007, resulting from on-going costs of $2.9 million to support customer contracts in our claim consulting business that waswere terminated in 2007, and a goodwill impairment charge of $1.7 million. These costs were partially offset by a net tax benefit of $1.5 million. There was no loss from discontinued operations, net of tax in the year ended December 31, 2008. As a percentage of revenues, loss from discontinued operations, net of tax was 0.6% for the year ended December 31, 2007. This business will not have an impact on our 2008 results.
 
EBITDA Margin
The EBITDA margin for our consolidated results was 42.0% for the year ended December 31, 2008 compared to 42.1% for the year ended December 31, 2007. Included within the decrease in our EBITDA margin are costs of $6.5 million associated with the preparation for our initial public offering, representing a 0.7% negative impact in EBITDA margin.


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Risk Assessment Results of Operations
 
Revenues
 
Revenues for our Risk Assessment segment were $127.0$504.4 million for the three-month periodyear ended MarchDecember 31, 2008 compared to $121.8$485.2 million for the three-month periodyear ended MarchDecember 31, 2007, an increase of $5.2$19.2 million or 4.3%4.0%. The increase was primarily due to an increase in the sales of our industry-standard insurance programs.programs and actuarial services. The increase in our industry-standard insurance programs primarily resulted from an increase in prices derived from continued enhancements to the content of our solutions and the addition of new customers. These increases were partially offset by decreases within property-specific rating and underwriting information, particularly in rate making and policy administration solutions and sales of our auto premium leakage identification solutions, due to a softening in the auto insurance market. Our revenue by category for the periods presented is set forth below:
             
  Year Ended
    
  December 31,  Percentage
 
  2007  2008  Change 
  (In thousands)    
 
Industry standard insurance programs $311,087  $329,858   6.0%
Property-specific rating and underwriting information  126,291   125,835   (0.4)%
Statistical agency and data services  27,282   27,451   0.6%
Actuarial services  20,500   21,247   3.6%
 
Cost of Revenues
 
Cost of revenues for our Risk Assessment segment was $51.4$199.9 million for the three-month periodyear ended MarchDecember 31, 2008 compared to $52.8$204.2 million for the three-month periodyear ended MarchDecember 31, 2007, a decrease of $1.4$4.3 million or 2.7%2.1%. The decrease was primarily due to a decrease in salaries and employee benefits costs of $3.2 million, due to a temporary reallocation of resources to selling, general and administrative projects, and a decrease in other operating expenses of $1.3 millionmillion. This reallocation of resources is temporary and does not impact the headcount. In addition, there was a loss on disposal of assets of $1.3 million in the three-month periodyear ended MarchDecember 31, 2007, a reduction of data purchases of $0.3 million and other operating expenses of $0.8 million. These decreases were2007. The decrease was partially offset by increasesan increase in salariesoffice maintenance fees of $1.1 million and employee benefitan increase in software and data costs of $1.0 million, of which $0.8 million related to increased medical costs. Changes in salaries were minimal across a relatively constant headcount.$0.4 million. As a percentage of Risk Assessment revenues, cost of revenues decreased to 40.4%39.6% for the year ended December 31, 2008 from 43.3%.42.1% for the year ended December 31, 2007.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for our Risk Assessment segment were $17.6$81.8 million for the three monthsyear ended MarchDecember 31, 2008 compared to $17.2$68.2 million for the three-month periodyear ended MarchDecember 31, 2007, an increase of $0.3$13.6 million or 1.9%20.0%. The increase was primarily due to an increase in salaries and employee benefit costs of $7.0 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, an increase in legal fees of $4.9 million partially associated with the preparation for our initial public offering.offering, and other general expenses of $2.0 million. The increase was partially offset by lower advertising and marketing costs of $0.3 million. As a percentage of Risk Assessment revenues, selling, general and administrative expenses decreasedincreased to 13.8%16.2% for the year ended December 31, 2008 from 14.1%. for the year ended December 31, 2007.
 
EBITDA Margin
 
The EBITDA margin for our Risk Assessment segment was 45.8%44.2% for the three monthsyear ended MarchDecember 31, 2008 compared to 42.5%43.9% for the three monthsyear ended MarchDecember 31, 2007. The increase in EBITDA margin occurred despite the inclusion of costs totaling $5.8 million associated with the preparation for our initial public offering, representing a 1.1% negative impact in EBITDA margin.


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Decision Analytics Results of Operations
 
Revenues
 
Revenues for our Decision Analytics segment were $88.6$389.2 million for the three-month periodyear ended MarchDecember 31, 2008 compared to $77.0$317.0 million for the three-month periodyear ended MarchDecember 31, 2007, an increase of $11.5$72.2 million or 15.0%22.7%. During the latter part ofIn 2007 and 2008, we acquired three companies thatand two companies, respectively. These acquisitions accounted for $6.8$3.9 million and $42.5 million of the additional revenues for the three-month periodyears ended MarchDecember 31, 2008.2007 and 2008, respectively. The increase in revenue relating to the acquisitions was $38.6 million, of which $37.0 million relates to the fraud and detection solutions category and $1.6 million relates to the loss prediction category. Excluding the impact of these acquisitions, revenues increased $4.7$33.6 million primarily due to an increase in sales of our loss


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quantification and loss prediction solutions, which was partially offset by a decrease in our fraud identification and detection solutions.for the year ended December 31, 2008. Our loss quantification revenues increased as a result of new customer contracts and volume increases associated with recent floods, hurricanes and wildfires experienced in the United States. Increased revenue in our loss prediction solutions resulted from sales to new customers as well as increased penetration toof our existing customers. Excluding acquisitions, our fraud identification and detection solutions decreased $1.2revenue increased $9.0 million as revenuedue to an increase in subscription revenues resulting from enhancements to the content of our claim solutions, partially offset by a decrease of $4.8 million in revenues in our mortgage businesses decreased $3.1 millionanalytic solutions due to adverse market conditions in that industry, partially offset by increases in our claims solutions as enhancements to the content of our products increased subscription revenues.industry. Our revenue by category for the periods presented is set forth below:
 
                        
 Three Months
    Year Ended
   
 Ended March 31, Percentage
  December 31, Percentage
 
 2007 2008 Change  2007 2008 Change 
 (In thousands)    (In thousands)   
Fraud identification and detection solutions $172,726  $213,994   23.9%
Loss prediction solutions $17,900  $21,434   19.7%   81,110   95,128   17.3%
Fraud identification and detection solutions  44,768   50,320   12.4% 
Loss quantification solutions  14,369   16,825   17.1%   63,199   80,037   26.6%
 
Cost of Revenues
 
Cost of revenues for our Decision Analytics segment was $41.9$187.0 million for the three-month periodyear ended MarchDecember 31, 2008 compared to $34.2$153.0 million for the three-month periodyear ended MarchDecember 31, 2007, an increase of $7.7$34.0 million or 22.7%22.2%. The increase included $4.1$25.4 million in costs attributable to the newly acquired companies. Excluding the impact of these acquisitions, the cost of revenues increased $3.6$8.6 million, primarily due to an increase in salaries and employee benefits of $3.0$4.3 million across a relatively constant employee headcount, includingwhich includes annual salary increases, medical costs and medicalequity compensation costs, an increase in equity compensationsoftware and data costs of $1.0$3.0 million, and an increase in other operating expenses of $1.4$2.9 million and an increase in office maintenance costs of $1.7 million. These increases were partially offset by $0.8 million in lower acquisition contingent payments of $3.3 million associated with acquisitions maderecorded in the comparable prior period. As a percentage of Decision Analytics revenues, cost of revenues increaseddecreased to 47.4%48.1% for the year ended December 31, 2008 from 44.4%.48.3% for the year ended December 31, 2007.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $11.1$49.4 million for the three monthsyear ended MarchDecember 31, 2008 compared to $10.7$39.4 million for the three-month periodyear ended MarchDecember 31, 2007, an increase of $0.4$10.0 million or 3.7%25.5%. The increase of $0.4 million was due to expenses relatingan increase in salaries and employee benefits costs of $6.5 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, an increase in legal costs of $2.9 million of which $0.8 million relates to initial public offering costs, costs attributable to the acquisitions.newly acquired companies of $0.9 million, and other general expenses of $0.5 million. This increase was partially offset by lower advertising and marketing costs of $0.8 million. As a percentage of Decision Analytics revenues, selling, general and administrative expenses decreasedincreased to 12.6%12.7% for the year ended December 31, 2008 from 13.9%.12.4% for the year ended December 31, 2007.


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EBITDA Margin
 
The EBITDA margin for our Decision Analytics segment was 40.1%39.2% for the three monthsyear ended MarchDecember 31, 2008 compared to 41.7%39.3% for the three monthsyear ended MarchDecember 31, 2007. Included within the decrease in our EBITDA margin are costs of $0.7 million associated with the preparation for our initial public offering, representing a 0.2% negative impact in EBITDA margin.
 
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 
Consolidated Results of Operations
 
Revenues
 
Revenues were $802.2 million for the year ended December 31, 2007 compared to $730.1 million for the year ended December 31, 2006, an increase of $72.1 million or 9.9%. This increase was primarily due to the inclusion of Xactware, which was acquired in August 2006, for the full year, as well as several other acquisitions made during the latter part of 2006 and during 2007. Xactware contributed $63.2 million in revenues for the year ended December 31, 2007 compared to $22.2 million for the year ended December 31, 2006 and revenues from other acquisitions increased $6.5 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. Excluding the impact of these acquisitions, revenues increased $24.6 million which was comprised of an increase of $12.5 million in our Risk Assessment segment and an increase of $12.0 million in our Decision Analytics segment.


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Cost of Revenues
 
Cost of revenues was $357.2 million for the year ended December 31, 2007 compared to $331.8 million for the year ended December 31, 2006, an increase of $25.4 million or 7.7%. The increase was primarily due to $22.7 million in costs attributable to the inclusion of the full year results of our acquisitions in 2006 and the acquisitions in 2007. Excluding these acquisitions, our cost of revenues increased by $2.6 million partially due to an increase in salaries and benefits of $12.5 million resulting from growth in headcount and other operating expenses of $1.0 million. These increases were partially offset by a decrease in acquisition contingent payments tied to continuing employment of $8.7 million. As a percentage of revenue,revenues, cost of revenues decreased to 44.5% for the year ended December 31, 2007 from 45.4% for the year ended December 31, 2006.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $107.6 million for the year ended December 31, 2007 compared to $100.1 million for the year ended December 31, 2006, an increase of $7.5 million or 7.5%7.4%. The increase was due to $4.2 million in costs attributable to the inclusion of the results of our acquisitions in 2006 and 2007. Excluding these acquisitions, our selling, general and administrative costs increased by $3.3 million primarily as a result of an increase in salaries and benefits of $2.4 million, an increase in equity compensation costs of $1.1 million and an increase in financial system upgrade costs of $0.7 million and $0.6 million of advertising costs. These increases were partially offset by a $1.8 million decrease in sales commission expense resulting from a change in commission rates in 2007. As a percentage of revenue, selling, general and administrative expenses decreased to 13.4% from 13.7%.
 
Depreciation and Amortization of Fixed Assets
 
Depreciation and amortization of fixed assets were $31.7 million for the year ended December 31, 2007 compared to $28.0 million for the year ended December 31, 2006, an increase of $3.7 million or 13.3%. This increase is primarily due to our continuing investment in developing new products and enhancements to existing products as well as the continued investment in our technology infrastructure to support and grow our revenues. As a percentage of revenue, depreciation and amortization of fixed assets increased to 4.0% from 3.8%.


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Amortization of Intangible Assets
 
Amortization of intangibles assets was $33.9 million for the year ended December 31, 2007 compared to $26.9 million for the year ended December 31, 2006, an increase of $7.0 million or 26.3%. This increase is the result of having a full year of amortization in 2007 on the intangible assets related to the acquisition of Xactware in 2006, partially offset by the final amortization during 2007 of intangible assets related to other acquisitions.
 
Investment Income and Realized Gains (Losses) on Securities, Net
 
Investment income and realized gains (losses) on securities, net was $9.3 million for the year ended December 31, 2007 compared to $6.1 million for the year ended December 31, 2006, an increase of $3.2 million or 52.6%. This increase is primarily due to a $2.0 million gain on our investment portfolio as well as an increase of $1.0 million in interest income primarily earned on acquisition escrow deposits.
 
Interest Expense
 
Interest expense was $22.9 million for the year ended December 31, 2007 compared to $16.7 million for the year ended December 31, 2006, an increase of $6.2 million or 37.6%. This increase is primarily the result of an increase in the weighted average balance of debt outstanding as well as higher rates of interest on long-term borrowings.


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Provision for Income Taxes
 
Provision for income taxes was $103.2 million for the year ended December 31, 2007 compared to $86.9$92.0 million for the year ended December 31, 2006, an increase of $16.3$11.2 million or 18.7%12.2%. The effective tax rate was 40.0% for the year ended December 31, 2007 compared to 37.3%39.5% for the year ended December 31, 2006, which included the favorable settlement of certain tax contingencies.
 
Loss from Discontinued Operations, Net of Tax
 
Loss from discontinued operations, net of tax was $4.6 million for the year ended December 31, 2007 compared to $1.8 million for the year ended December 31, 2006, an increase of $2.8 million or 154.2%, reflecting exit costs, net of tax, including $1.7 million in the impairment of goodwill, associated with the discontinuation of our claim consulting business.
 
Risk Assessment Results of Operations
 
Revenues
 
Revenues for our Risk Assessment segment were $485.2 million for the year ended December 31, 2007 compared to $472.6 million for the year ended December 31, 2006, an increase of $12.5 million or 2.7%. The increase was primarily due to an increase in the sales of our industry-standard insurance programs, which was partially offset by a decrease in the sales of our auto premium leakage identification solutions due to a softening in the auto insurance market. The increase in our industry-standard insurance programs primarily results from an increase in prices derived from continued enhancements to the content of our solutions and to a lesser extent, changes in our customer’s premium volumes. Increases from sales of additional lines of our services to existing customers are offset by lost revenue resulting from consolidation


41


within the property and casualty insurance industry. Our revenue by category for the periods presented is set forth below:
             
  Year Ended
  
  December 31, Percentage
  2006 2007 Change
  (In thousands)  
 
Industry standard insurance programs $303,957  $311,087   2.3%
Property-specific rating and underwriting information  123,627   126,291   2.2%
Statistical agency and data services  25,793   27,282   5.8%
Actuarial services  19,257   20,500   6.5%
 
Cost of Revenues
 
Cost of revenues for our Risk Assessment segment was $204.2 million for the year ended December 31, 2007 compared to $203.9 million for the year ended December 31, 2006, an increase of $0.3 million or 0.1%. The increase was primarily due to salary and benefit increases of $2.0 million and an increase in equity compensation costs of $2.3 million. These increases were offset by a decrease in outsourced temporary agency costs of $1.9 million, a decrease in software maintenance expenses of $1.2 million, and a decrease in acquisition contingent payments associated with acquisitions of $1.1 million. As a percentage of Risk Assessment revenues, cost of revenues decreased to 42.1% from 43.1%.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for our Risk Assessment segment were $68.2 million for the year ended December 31, 2007 compared to $65.9 million for the year ended December 31, 2006, an increase of $2.3 million or 3.5%. The increase was primarily due to an increase in salary and benefits of $2.0 million, $0.6 million in costs to upgrade our financial systems and an increase in equity compensation costs of $0.9 million, partially offset by a decrease in commission expense of $1.4 million, resulting from a change in the commission plan in 2007. As a percentage of Risk Assessment revenues, selling, general and administrative expenses increased to 14.1% from 13.9%.
 
EBITDA Margin
 
The EBITDA margin for our Risk Assessment segment was 43.9% for the year ended December 31, 2007 compared to 42.9% for the year ended December 31, 2006.
 
Decision Analytics Results of Operations
 
Revenues
 
Revenues for our Decision Analytics segment were $317.0 million for the year ended December 31, 2007 compared to $257.5 million for the year ended December 31, 2006, an increase of $59.5 million or 23.1%. This increase reflects the inclusion of Xactware, our loss quantification solution, which was acquired in August 2006, for the full year, as well as several other acquisitions made during the latter part of 2006 and


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during 2007. Xactware contributed $63.2 million in revenues for the year ended December 31, 2007 compared to $22.2 million for the year ended December 31, 2006 and the other acquisitions contributed $6.5 million of additional 2007 revenue compared to the year ended December 31, 2006. Excluding the impact of these acquisitions, revenues increased $12.0 million primarily due to an increase in sales of our loss prediction solutions resulting from revenue from new customers as well as increased usage by our existing customers. Within our fraud identification and detection solutions, growth in our claims solutions and criminal record


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products were offset by decreased revenue of $10.6 million in our mortgage solutions due to adverse market conditions in that industry. Our revenue by category for the periods presented is set forth below:
 
                        
 Year Ended
    Year Ended
   
 December 31, Percentage
  December 31,�� Percentage
 
 2006 2007 Change  2006 2007 Change 
 (In thousands)    (In thousands)   
Fraud identification and detection solutions $168,189  $172,726   2.7%
Loss prediction solutions $67,129  $81,110   20.8%  67,129   81,110   20.8%
Fraud identification and detection solutions  168,189   172,726   2.7%
Loss quantification solutions  22,181   63,199   184.9%  22,181   63,199   184.9%
 
Cost of Revenues
 
Cost of revenues for our Decision Analytics segment was $153.0 million for the year ended December 31, 2007 compared to $127.9 million for the year ended December 31, 2006, an increase of $25.1 million or 19.6%. The increase was primarily due to $22.7 million in costs attributable to the inclusion of the full year results of our acquisitions in 2006 and the acquisitions completed in 2007. Excluding these acquisitions, our cost of revenues increased by $2.4 million, partially due to salary and benefit increases of $5.9 million, an increase in equity compensation costs of $1.8 million, an increase in outsourced temporary agency fees of $2.8 million and an increase of $0.7 million in leased software, partially offset by a decrease in acquisition contingent payments tied to continuing employment of $7.6 million and $1.4 million on disposal of assets. As a percentage of Decision Analytics revenues, cost of revenues decreased to 48.3% from 49.7%.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $39.4 million for our Decision Analytics segment for the year ended December 31, 2007 compared to $34.2 million for the year ended December 31, 2006, an increase of $5.2 million or 15.0%. The increase was primarily due to $4.2 million in costs attributable to the acquired businesses. Excluding these acquisitions, the increase in selling, general and administrative expenses was $1.0 million, primarily due to an increase of $0.4 million of salaries and benefits and $0.4 million in advertising costs. As a percentage of Decision Analytics revenues, selling, general and administrative expenses decreased to 12.4% from 13.3%.
 
EBITDA Margin
 
The EBITDA margin for our Decision Analytics segment was 39.3% for the year ended December 31, 2007 compared to 37.0% for the year ended December 31, 2006.
Year Ended December 31, 2006 Compared to Year Ended December 31, 2005
Consolidated Results of Operations
Revenues
Revenues were $730.1 million for the year ended December 31, 2006 compared to $645.7 million for the year ended December 31, 2005, an increase of $84.5 million or 13.1%. This increase in part reflected the inclusion of acquisitions made in 2006, which contributed $23.6 million in revenues for the year ended December 31, 2006, and acquisitions made in 2005, which contributed $16.4 million of revenues for the year ended December 31, 2006 compared to $12.3 million for the year ended December 31, 2005. Excluding these


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acquisitions, revenues increased $56.8 million which was comprised of an increase of $23.8 million in our Risk Assessment segment and an increase of $33.0 million in our Decision Analytics segment.
Cost of Revenues
Cost of revenues was $331.8 million for the year ended December 31, 2006 compared to $294.9 million for the year ended December 31, 2005, an increase of $36.9 million or 12.5%. The increase was primarily due to $17.9 million in costs attributable to the inclusion of the full year results of our acquisitions in 2005 and the acquisitions completed in 2006. Excluding these acquisitions, the increase in cost of revenues is $19.0 million, consisting primarily of increases in personnel costs of $18.9 million. The increase in personnel costs consists of $10.7 million of salaries and benefits resulting from growth in headcount, a $6.5 million increase in equity compensation costs and a $1.0 million increase in pension costs. As a percentage of revenue, cost of revenues decreased slightly to 45.4% from 45.7%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses were $100.1 million for the year ended December 31, 2006 compared to $88.7 million for the year ended December 31, 2005, an increase of $11.4 million or 12.9%. The increase was due to $3.8 million in costs attributable to the inclusion of the full year results of our acquisitions in 2005 and the partial year results of the acquisitions completed in 2006. Excluding these acquisitions, our selling general and administrative costs increased by $7.6 million, primarily as a result of an increase in legal costs of $3.4 million, an increase in salary and benefits of $1.7 million as a result of growth in headcount, an increase in commissions of $1.8 million as a result of an increase in new sales and an increase in equity compensation costs of $1.5 million. As a percentage of revenue, selling, general and administrative expenses remained unchanged at 13.7%.
Depreciation and Amortization of Fixed Assets
Depreciation and amortization of fixed assets were $28.0 million for the year ended December 31, 2006 compared to $22.0 million for the year ended December 31, 2005, an increase of $6.0 million or 27.2%. This increase is primarily due to investments in our technology infrastructure, as well as continuing investments in developing and enhancing our solutions. As a percentage of revenue, depreciation and amortization of fixed assets increased to 3.8% from 3.4%.
Amortization of Intangible Assets
Amortization of intangible assets increased to $26.9 million in the year ended December 31, 2006 compared to $19.8 million for the year ended December 31, 2005, an increase of $7.1 million or 35.6%. This increase is primarily due to the amortization of intangibles related to the acquisition of Xactware during August 2006.
Investment Income and Realized Gains (Losses) on Securities, Net
Investment income and realized gains (losses) on securities, net was $6.1 million for the year ended December 31, 2006 compared to $2.9 million for the year ended December 31, 2005, an increase of $3.2 million or 108.1%. This increase is primarily due to a $2.6 million increase in interest earned on money market accounts, interest received on acquisition escrow deposits and interest earned on stockholder loans as well as a $0.3 million increase in dividend income.
Interest Expense
Interest expense was $16.7 million for the year ended December 31, 2006 compared to $10.5 million for the year ended December 31, 2005, an increase of $6.2 million or 59.3%. The increase is primarily the result of higher average debt outstanding as well as higher rates of interest on long-term borrowings.


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Provision for Income Taxes
Provision for income taxes was $86.9 million for the year ended December 31, 2006 compared to $85.7 million for the year ended December 31, 2005, an increase of $1.2 million or 1.4%. The effective tax rate was 37.3% for the year ended December 31, 2006, which included the favorable settlement of certain tax contingencies, compared to 40.3% for the year ended December 31, 2005.
Loss from Discontinued Operations, Net of Tax
Loss from discontinued operations, net of tax was $1.8 million for the year ended December 31, 2006 compared to $2.6 million for the year ended December 31, 2005, a decrease of $0.8 million or 29.9%, primarily resulting from a $1.1 million impairment charge, net of tax, in 2005.
Risk AssessmentQuarterly Results of Operations
Revenues
Revenues for our Risk Assessment segment were $472.6 million for the year ended December 31, 2006 compared to $448.9 million for the year ended December 31, 2005, an increase of $23.8 million or 5.3%. The increase was primarily due to an increase in the sales of our industry-standard insurance programs and an increase in the demand for our property-specific rating and underwriting information.
Cost of Revenues
Cost of revenues for our Risk Assessment segment was $203.9 million for the year ended December 31, 2006 compared to $191.5 million for the year ended December 31, 2005, an increase of $12.4 million or 6.5%. The increase was primarily due to an increase in salary and benefits of $14.6 million and an increase in equity compensation costs of $3.0 million, partially offset by a decrease in legal costs of $1.2 million and professional consulting costs of $0.9 million. As a percentage of Risk Assessment revenues, cost of revenues increased to 43.1% from 42.6%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Risk Assessment segment were $65.9 million for the year ended December 31, 2006 compared to $61.4 million for the year ended December 31, 2005, an increase of $4.5 million or 7.3%. The increase was primarily due to an increase in equity compensation costs of $1.3 million, an increase in sales commission expense of $1.2 million and an increase in legal expense of $2.9 million. As a percentage of Risk Assessment revenues, selling, general and administrative expenses increased to 13.9% from 13.7%.
EBITDA Margin
 
The EBITDA marginfollowing table sets forth our quarterly unaudited consolidated statement of operations data for our Risk Assessment segment was 42.9% foreach of the year ended December 31, 2006 compared to 43.7% for the year ended December 31, 2005.
Decision Analytics Results of Operations
Revenues
Revenues for our Decision Analytics segment were $257.5 million for the year ended December 31, 2006 compared to $196.8 million for the year ended December 31, 2005, an increase of $60.7 million or 30.9%. During 2006 and 2005, we acquired seven companies that accounted for $27.7 million of additional revenues for the year ended December 31, 2006. Excluding the impact of these acquisitions, revenues increased $33.0 million due to an increase in sales of our loss prediction solutions, resulting from revenue from new customers as well as increased usage by our existing customers and an increase in revenue from our fraud identification and detection solutions due to continued enhancementseight quarters in the solutions which resultedperiod ended March 31, 2009. In management’s opinion, the data has been prepared on the same basis as the audited consolidated financial statements included in increased sales.this prospectus, and reflects all necessary adjustments for a fair presentation of this data. The increase from acquisitions was primarily due toresults of historical periods are not necessarily indicative of the inclusionresults of Xactware, which was


36


purchased in August 2006 and generated $22.2 million in revenue subsequent to the acquisition. Our revenue by categoryoperations for the periods presented is set forth below:a full year or any future period.
             
  Year Ended
    
  December 31,  Percentage
 
  2005  2006  Change 
  (In thousands)    
 
Loss prediction solutions $53,527  $67,129   25.4%
Fraud identification and detection solutions  143,258   168,189   17.4%
Loss quantification solutions     22,181    
 
Cost of Revenues
                                 
  For the Quarter Ended 
  June 30,  September 30,  December 31,  March 31,  June 30,  September 30,  December 31,  March 31, 
  2007  2008  2009 
  (In thousands) 
 
Statement of income data:
                                
Revenues:
                                
Risk Assessment revenues $122,759  $120,997  $119,607  $127,039  $126,317  $125,186  $125,849  $129,566 
Decision Analytics revenues  78,395   78,726   82,877   88,579   95,755   99,205   105,620   116,185 
                                 
Revenues  201,154   199,723   202,484   215,618   222,072   224,391   231,469   245,751 
Expenses:
                                
Cost of Revenues  89,515   85,343   95,346   93,310   97,368   98,307   97,912   107,523 
Selling, general and administrative  27,675   26,989   24,987   28,674   30,354   32,265   39,946   33,320 
Depreciation and amortization of fixed assets  7,916   7,799   8,448   7,907   8,517   9,054   9,839   9,195 
Amortization of intangible assets  8,317   7,724   8,952   8,041   6,896   7,041   7,577   8,510 
                                 
Total expenses  133,423   127,855   137,733   137,932   143,135   146,667   155,274   158,548 
                                 
Operating income  67,731   71,868   64,751   77,686   78,937   77,724   76,195   87,203 
Other income/(expense):
                                
Investment income and realized gains/(losses) on securities, net  2,869   1,725   2,620   (458)  775   2   (646)  (355)
Interest expense  (5,701)  (5,578)  (5,876)  (6,326)  (7,847)  (8,393)  (8,750)  (8,154)
                                 
Total other expense, net  (2,832)  (3,853)  (3,256)  (6,784)  (7,072)  (8,391)  (9,396)  (8,509)
                                 
Income from continuing operations before taxes  64,899   68,015   61,495   70,902   71,865   69,333   66,799   78,694 
Provision for income taxes  (27,565)  (28,841)  (21,911)  (29,876)  (31,942)  (28,493)  (30,360)  (33,779)
                                 
Income from continuing operations  37,334   39,174   39,584   41,026   39,923   40,840   36,439   44,915 
Loss from discontinued operations, net of tax  (692)  (2,020)  (1,267)               
                                 
Net income $36,642  $37,154  $38,317  $41,026  $39,923  $40,840  $36,439  $44,915 
Other data:
                                
EBITDA:                                
Risk Assessment EBITDA $53,041  $55,199  $52,762  $58,122  $55,378  $53,813  $55,393  $60,599 
Decision Analytics EBITDA  30,923   32,192   29,389   35,512   38,972   40,006   38,218   44,309 
                                 
EBITDA $83,964  $87,391  $82,151  $93,634  $94,350  $93,819  $93,611  $104,908 
 
Cost of revenues for our Decision Analytics segment was $127.9 million for the year ended December 31, 2006 compared to $103.4 million for the year ended December 31, 2005, an increase of $24.5 million, or 23.7%. The increase was primarily due to $17.9 million in costs attributable to the inclusion of the full year results of our acquisitions in 2005 and the acquisitions completed during 2006. Excluding these acquisitions, our cost of revenues increased by $6.6 million. The increase in cost of revenues was primarily due to increases in personnel costs of $4.5 million and a loss on disposal of assets of $1.4 million. The increase in personnel costs consists of $1.5 million of salaries and benefits resulting from annual salary increases across a relatively constant employee headcount and a $3.0 million increase in equity compensation costs. As a percentage of Decision Analytics revenues, cost of revenues decreased to 49.7% from 52.5%.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for our Decision Analytics segment were $34.2 million for the year ended December 31, 2006 compared to $27.3 million for the year ended December 31, 2005, an increase of $6.9 million or 25.3%. The increase was primarily due to $3.8 million in costs attributable to the acquired businesses. Excluding these acquisitions, the increase in selling, general and administrative expenses was $3.3 million primarily due to an increase in personnel costs of $2.6 million and an increase in commissions of $0.6 million. As a percentage of Decision Analytics revenues, selling, general and administrative expenses decreased to 13.3% from 13.9%.
EBITDA Margin
The EBITDA margin for our Decision Analytics segment was 37.0% for the year ended December 31, 2006 compared to 33.6% for the year ended December 31, 2005.
Liquidity and Capital Resources
 
As of December 31, 20072008 and March 31, 2008,2009, we had cash and cash equivalents and available-for-saleavailable-for sale securities of $52.4$38.3 million and $32.6$49.8 million, respectively. Subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year, and they are automatically renewed at the beginning of each calendar year. Accordingly, our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. As a result of these billings and related receipts, our accounts receivable and fees received in advance at March 31, 2008 were $20.2 million and $69.6 million higher than the balances at December 31, 2007, respectively. We have historically generated significant cash flows from operations. As a result of this factor, as well as the availability of funds under our committed credit facilities, we believe we will have sufficient cash to meet our working capital and capital expenditure needs, including potential acquisitions.acquisition contingent payments.
 
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


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direct cash outflow since our customers have prepaid and are obligated to purchase the


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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 as a percentage of revenues for the years ended December 31, 2005, 2006, 2007 and 20072008 were 3.7%3.5%, 3.5%4.1% and 4.1%3.7%, respectively, and for the three months ended March 31, 20072008 and 20082009 were 7.2%4.5% and 4.5%.4.7%, respectively. We estimate our capital expenditures for the remainder of 20082009 to be approximately $25.3$32 million, which primarily includes expenditures on our technology infrastructure and our continuing investments in developing and enhancing our solutions. Expenditures related to developing and enhancing our solutions are predominately related to internal use software and are capitalized in accordance with AICPA SOP No. 98-1, “Accounting for Costs of Computer Software Developed or Obtained for Internal Use.” The amounts capitalized in accordance with FAS No. 86 “Software to be Sold, Leased or Otherwise Marketed,” are not significant to the financial statements.
 
To provide liquidity to our stockholders, we have also historically used our cash for repurchases of our common stock from our stockholders. For the years ended December 31, 2005, 2006, 2007 and 20072008 we repurchased $181.2 million,or redeemed $128.0 million, $204.8 million and $204.8$392.6 million, respectively, of our common stock and for the three months ended March 31, 20072008 and 20082009 we repurchased $34.3or redeemed $191.2 million and $191.2$25.9 million, respectively, of our common stock. A substantial portion of the share redemption included in the totals above were completed pursuant to the terms of the Insurance Service Office, Inc. 1996 Incentive Plan, which will automatically terminate upon consummation of this offering. Therefore, we do not expect to continue our historical practice of using cash for common stock repurchases to provide liquidity to our stockholders.
 
Financing and Financing Capacity
 
We had total debt, excluding capital lease and other obligations, of $440.0 million, $425.0 million and royalties, of $505.2$659.0 million at December 31, 2006, 2007 and 2008, respectively, and $628.5 million at March 31, 2008 and $265.3 million, $440.0 million and $425.2 million at December 31, 2005, 2006 and 2007, respectively.2009. Approximately $395.0$545.0 million of this debt at March 31, 20082009 was held under long-term loan facilities drawn to finance our stock repurchases and acquisitions and the remaining $110.0$83.5 million was held pursuant to our revolving credit facilities.
All of our long-term loan facilities are uncommitted facilities and our short-term loan facilities are primarily committed facilities.
 
We have available long-term loan facilities under uncommitted master shelf agreements with several financial institutionsPrudential Capital Group (“Prudential”), New York Life and Aviva Investors North America (“Aviva”) with available capacity at March 31, 2009 in the aggregate amount of $230.0 million.$65.0 million, $15.0 million and $50.0 million, respectively. We can borrow under these uncommitted master shelf agreements over the life ofPrudential facility until February 28, 2010, under the facilities, which have remaining terms ranging from one to two years.New York Life facility until March 16, 2010, and under the Aviva facility until December 10, 2011. Our notes mature over the next seven years. Individual borrowings are made at a fixed rate of interest and interest is payable quarterly. The uncommitted master shelf agreements contain covenants that, among other things, require us to comply with financial covenants pertaining to fixed charge coverage and leverage ratios. As of the date of this prospectus, we are in full compliance with all of the covenants contained in these agreements. The weighted average rate of interest with respect to our outstanding long-term borrowings was 5.36%5.45% and 5.45%5.76% for the three months ended March 31, 20072008 and 2008,2009, respectively, and 3.90%4.75%, 4.75%5.23% and 5.23%5.64% for the years ended December 31, 2005, 2006, 2007 and 2007,2008, respectively. As described in note 14 of our audited consolidated financial statements and note 10 of our unaudited condensed consolidated financial statements, we have $100.0 million of debt maturing in June 2009. We plan to refinance the majority of this debt upon maturity through our long-term shelf facilities. If we are not able to fully secure financing from our long-term shelf facilities or find the rates unattractive, we may elect to refinance through a combination of long-term shelf facilities, short-term committed facilities and cash from operations.
 
We have financed and expect to finance our short-term working capital needs and acquisition contingent payments, through cash from operations and borrowings from a combination of our long term shelf facilities and short-term creditcommitted facilities, which are made at variable rates of interest based on LIBOR plus 0.65%0.80% to 0.95%. We had $30.0$114.0 million and $110.0$83.5 million in short-term borrowings outstanding as of December 31, 20072008 and March 31, 2008,2009, respectively. We had $125.0additional capacity of $161.5 million in short-term committed credit facilities available to us at March 31, 2009.


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On January 30, 2009, we entered into a $30.0 million revolving credit facility with Wachovia Bank, N.A. that matures on September 30, 2009. This facility is committed and interest is payable at maturity at a rate to be determined at the time of borrowing. Upon maturity of this facility we may convert all of or a principal portion not less than $1.0 million of the aggregate principal balance of revolving credit loans then outstanding into a one year term loan. We did not have any amount outstanding under this facility as of March 31, 2009.
The uncommitted master shelf agreements and short-term loan facilities contain certain covenants that limit our ability to create liens, enter into sale and leaseback transactions and consolidate, merge or sell assets to another company. The uncommitted master shelf agreements also contain financial covenants that require us to maintain a fixed charge coverage of no less than 275% and a leverage ratio of no more than 300%. As of December 31, 2008, the Company was in violation of which $45.0 are committed lines.an affirmative covenant that requires the Company to notify each lender within 30 days of the time an entity meets the criteria of a material subsidiary. In February 2009, the Company obtained a waiver from each of the lenders and amended its uncommitted master shelf agreements and revolving credit facilities to have two of its 100% owned subsidiaries, Verisk Health, Inc. and Interthinx, Inc., fully and unconditionally and jointly and severally guarantee all of its obligations under the master shelf agreements and revolving credit facilities.
On April 27, 2009, we issued a senior promissory notes under an uncommitted master shelf agreement with Aviva Investors North America, Inc. in the aggregate principal amount of $30.0 million due April 27, 2013. Interest is payable quarterly at a fixed rate of 6.46%.
 
Cash Flow
 
The following table summarizes our cash flow data for the years ended December 31, 2005, 2006, 2007 and 20072008 and for the three months ended March 31, 20072008 and 2008.2009.
 
                     
  For the Year Ended
  For the Three Months
 
  December 31  Ended March 31, 
  2005  2006  2007  2007  2008 
  (In thousands) 
 
Net cash provided by operating activities $174,071  $223,499  $248,521  $92,735  $89,864 
Net cash (used in) provided by investing activities $(107,444) $(243,452) $(110,831) $(39,454) $10,415 
Net cash (used in) provided by financing activities $(90,954) $75,907  $(212,591) $(26,577) $(98,434)


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  For the Years Ended December 31,  For the Three Months Ended March 31, 
  2006  2007  2008  2008  2009 
  (In thousands)       
 
Net cash provided by operating activities $223,499  $248,521  $247,906  $89,864  $135,393 
Net cash used in investing activities $(243,452) $(110,831) $(130,466) $10,415  $(66,921)
Net cash provided by/(used in) financing activities $75,907  $(212,591) $(107,376) $(98,434) $(56,213)


Operating Activities
 
Net cash provided by operating activities decreased from $92.7increased to $135.4 million for the three months ended March 31, 2007 to2009 from $89.9 million for the three months ended March 31, 2008. The $2.8increase in net cash provided by operating activities was principally due to an increase in cash receipts of $42.6 million and a decrease in salary and employee related payments of $10.2 million due to an additional pay-cycle that occurred during the three months ended March 31, 2008. Our payroll is processed on a bi-weekly basis thereby requiring an additional pay-cycle once every ten years. This increase was partially offset by an increase in tax payments of $5.2 million and an increase in interest payments of $2.0 million during the three months ended March 31, 2009 compared to the three months ended March 31, 2008.
Net cash provided by operating activities decreased to $247.9 million for the year ended December 31, 2008 from $248.5 million for the year ended December 31, 2007. The decrease in net cash provided by operating activities was principally due to an additional pay-cycle of $10.2 million that occurred in 2008. In addition, we had a $5.0 million minimum required funding to our pension plan and one-time payments associated with the accelerated timingpreparation for our initial public offering. This decrease was mitigated by growth in net income of tax$7.9 million and decreased payments for the three months ended March 31, 2008.
associated with acquisition related liabilities of $11.5 million. Net cash provided by operating activities was $174.1increased to $248.5 million for the year ended December 31, 2005,2007 from $223.5 million for the year ended December 31, 2006 and $248.5 million for the year ended December 31, 2007.2006. The $25.0 million increase in net cash provided by operating activities from 2006 to 2007 of $25.0 million was principally due to growth in net


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income and improved accounts receivable collections, partially offset by reduced growth in our cash received in advance from our customers. The $49.4 million increase in net cash provided by operating activities from 2005 to 2006 primarily reflected strong growth in net income and an increase in cash received in advance from customers, partially offset by reduced growth of trade accounts payable and accrued liabilities for the year ended December 31, 2006 compared to the year ended December 31, 2005.
 
Investing Activities
 
Net cash used in investing activities was $66.9 million for the three months ended March 31, 2009 compared to net cash provided by investing activities wasof $10.4 million for the three months ended March 31, 2008. NetThe increase in net cash used byin investing activities was $39.5principally due to the acquisition of D2Hawkeye for $51.6 million, forand escrow funding associated with this acquisition of $7.0 million. In addition, net proceeds from sales and maturities of available-for-sale securities declined by $20.8 million during the three months ended March 31, 2009 compared to the three months ended March 31, 2008.
Net cash used in investing activities was $130.5 million for the year ended December 31, 2008 and $110.8 million for the year ended December 31, 2007. The increase in net cash provided byused in investing activities was principally due to proceedsthe payment of acquisition related liabilities of $98.1 million, resulting from achievement of post-acquisition performance targets, and the salespurchase of exchange-traded funds and a decreasecost-method investments of $5.8 million. These increases are partially offset by decreases in purchases of fixed assets.
available-for-sale securities of approximately $43.7 million, cash paid for acquisitions of $31.7 million and cash inflows related to the termination of the stockholder loan program of $3.9 million. Net cash used by investing activities was $110.8 million for the year ended December 31, 2007 and $243.5 million for the year ended December 31, 2006 and $107.4 million for the year ended December 31, 2005.2006. The decrease in net cash used by investing activities from 2006 to 2007 and the increase in net cash used by investing activities from 2005 to 2006 werewas principally due to the acquisition of Xactware during August 2006.
 
Financing Activities
 
Net cash used byin financing activities was $56.2 million for the three months ended March 31, 2009 and $98.4 million for the three months ended March 31, 2008 and $26.62008. The decrease in net cash used in financing activities was principally due to a decrease in repurchases of common stock of $165.1 million forduring the three months ended March 31, 2009 compared to the three months ended March 31, 2008. This decrease was partially offset by a decrease in proceeds from the issuance of short-term debt, net of repayments, of $109.4 million, and a decrease in excess tax benefits from exercised stock options of $13.5 million.
Net cash used in financing activities was $107.4 million for the year ended December 31, 2008 and $212.6 million for the year ended December 31, 2007. The increasedecrease in net cash used byin financing activities was principally due to the redemptions or repurchases of common stock, partially offset byan increase in proceeds from the issuance of long-term debt.
debt and short-term debt of $65.0 million and $84.0 million, respectively, proceeds from the repayment of exercise price loans of $29.5 million and a decrease in the repayment of short-term debt of $100.7 million. These increases were partially offset by additional repurchases of common stock of $187.8 million compared to 2007. Net cash used byin financing activities was $212.6 million for the year ended December 31, 2007 and net cash provided by financing activities was $75.9 million for the year ended December 31, 2006, and net cash used by financing activities was $91.0 million for the year ended December 31, 2005.2006. The change in net cash provided by financing activities from 2006 to 2007 and the change in net cash used by financing activities from 2005 to 2006 werewas principally due to the repurchases of common stock and the repayment of our short-termshort term debt.


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Contractual Obligations
 
The following table summarizes our contractual obligations and commercial commitments at December 31, 2007,2008, and the future periods in which such obligations are expected to be settled in cash:
 
                                        
 Payments Due by Period  Payments Due by Period 
   Less than
     More than
    Less than
     More than
 
 Total 1 Year 1-3 Years 3-5 Years 5 Years  Total 1 Year 1-3 Years 3-5 Years 5 Years 
 (In thousands)  (In thousands) 
Contractual obligations
                                        
Long-term debt $496,638  $21,512  $143,967  $149,594  $181,565  $675,637  $128,890  $175,279  $186,189  $185,279 
Capital lease obligations  12,401   4,818   7,419   164      10,162   5,315   4,800   47    
Operating leases  209,409   19,285   37,115   35,562   117,447   199,662   20,554   39,714   36,174   103,220 
ESOP contribution  8,000            8,000 
Earnout and contingent payment  123,700   100,300   23,400         82,700   82,700          
Pension and postretirement(1)  215,221   11,059   79,773   70,206   54,183 
Other long-term liabilities(1)(2)  322,029   27,091   56,342   60,210   178,386   12,914   377   1,106   433   10,998 
                      
Total(2)(3) $1,172,177  $173,006  $268,243  $245,530  $485,398  $1,196,296  $248,895  $300,672  $293,049  $353,680 
                      
 
 
(1)Other long-term liabilities shown in the table above consists of our pension plan, deferred compensation plan and the post-retirement plan, including administrative expenses, net of employee contributions and net of the federal Medical subsidy. We also have a deferred compensation plan for our Board of Directors. Our funding policy is to contribute an amount at least equal to the minimum legal funding requirement. Based
(2)Other long-term liabilities shown in the table above consists of our ESOP contributions and our employee-related deferred compensation plan. We also have a deferred compensation plan for our Board of Directors; however, based on past performance and the uncertainty of the dollar amounts to be paid, if any, we have excluded such amounts from the above table.table
 
(2)(3)We have FIN 48 obligations that represent uncertainUnrecognized tax positions related to temporary differencesbenefits of $7.7approximately $31.7 million that have been omitted from the table above. Approximately $32.0 million of unrecognized tax benefits have been recorded as liabilities in accordance with FIN 48, which have been omitted from the table above, and we are uncertain as to if or when such amounts may be settled, with the exception of those amounts subject to a statute of limitation. Related to the unrecognized tax benefits, not included in the table above, we have also recorded a liability for potential penalties and interest of $7.0$8.1 million.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Management considers the policies discussed below to be critical to understanding our financial statements because their application places the most significant demands on management’s judgment, and requires management to make estimates about the effect of matters that are inherently uncertain. Actual results may differ from those estimates.
 
Revenue Recognition
 
The Company’s revenues are primarily derived from sales of services and revenue is recognized as services are preformed and information is delivered to our customers. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, fees and/or price isare fixed or determinable and collectability is reasonably assured. Revenues for subscription services are recognized ratably over the subscription term, usually one year. Revenues from transaction-based fees are recognized as information is delivered to customers, assuming all other revenue recognition criteria are met.


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The Company also has term based software licenses where the only remaining undelivered element is post-contract customer support or PCS, including unspecified upgrade rights on a when and if available basis. The Company recognizes revenue for these licenses ratably over the duration of the license term. The


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Company also provides hosting or software solutions that provide continuous access to information and include PCS and recognizes revenue ratably over the duration of the license term. In addition, the determination of certain of our services revenues requires the use of estimates, principally related to transaction volumes in instances where these volumes are reported to us by our clients on a monthly basis in arrears. In these instances, we estimate transaction volumes based on average actual volumes reported by our customers in the past. Differences between our estimates and actual final volumes reported are recorded in the period in which actual volumes are reported. We have not experienced significant variances between our estimates of these services revenues reported to us by our customers and actual reported volumes in the past.
 
We invoice our customers in annual, quarterly, or monthly installments. Amounts billed and collected in advance are recorded as fees received in advance on the balance sheet and are recognized as the services are performed and revenue recognition criteria are met.
 
Stock-Based Compensation
 
On January 1, 2005, we adopted FAS No.  123(R) using a prospective approach, which required us to record compensation expense for all awards granted after the date of adoption. The following table illustrates the amount of compensation expense resulting from the implementation of FAS No.  123(R) using the prospective approach for the years ended December 31, 2005, 2006, 2007, 2008 and the three months ended March 31, 20072008 and 2008.
                     
  For the Year Ended
  For the Three Months Ended
 
  December 31  March 31, 
  2005  2006  2007  2007  2008 
  (In thousands) 
 
2005 grants $4,094  $2,661  $2,424  $620  $579 
2006 grants      3,487   2,512   627   586 
2007 grants          3,308   274   656 
2008 grants*                  231 
Total stock-based compensation $4,094  $6,148  $8,244  $1,521  $2,052 
2009.
 
*Only includes grants through March 31, 2008
                     
     For the Three
 
  For the Year Ended
  Months Ended
 
  December 31  March 31 
  2006  2007  2008  2008  2009 
  (In thousands)       
 
2005 grants $2,661  $2,424  $2,209  $579  $181 
2006 grants  3,487   2,512   1,870   586   390 
2007 grants     3,308   2,561   656   628 
2008 grants        3,241   231   806 
                     
Total stock-based compensation $6,148  $8,244  $9,881  $2,052  $2,005 
                     
 
According to FAS No. 123(R) we only use the prospective approach for the prior four years of grants, each of which havehas a four year vesting term, therefore our 2009 financial statements will reflect compensation expenses relating to grants from 2006 to 2009.
 
The fair value of equity awards is measured on the date of grant using a Black-Scholes option-pricing model, which requires the use of several estimates, including expected term, expected risk-free interest rate, expected volatility and expected dividend yield.
 
Under FAS No. 123(R), stock-based compensation cost is measured at the grant date, based on the fair value of the awards granted, and is recognized as expense over the requisite service period. Option grants are expensed ratably over the four-year vesting period. We follow the substantive vesting period approach for awards granted after the adoption of FAS No. 123(R), 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.
 
We estimate expected forfeitures of equity awards at the date of grant and recognize compensation expense only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.
The fair value of the common stock underlying the stock-based compensation is determined quarterly on or about the final day of the quarter. The valuation methodology is based on a variety of qualitative and quantitative factors including the nature of the business and history of the enterprise, the economic outlook in general, the condition of the specific industries in which we operate, the financial condition of the business, our ability to generate free cash flow, and goodwill or other intangible asset value.


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The fair value of our common stock is determined using generally accepted valuation methodologies, including the use of the guideline company method. This determination of fair market value employs both a comparable company analysis, which examines the valuation multiples of public companies deemed comparable, in whole or in part, to us and a discounted cash flow analysis that determines a present value of the projected future cash flows of the business. The comparable companies are comprised of a combination of public companies in the financial services information and technology businesses. These methodologies have been consistently applied since 1997. We regularly assess the underlying assumptions used in the valuation methodologies, including the comparable companies to be used in the analysis, the future forecasts of revenue and earnings, and the impact of market conditions on factors such as the weighted average cost of capital. These assumptions are reviewed quarterly, with a more comprehensive evaluation performed annually. For the comparable company analysis, the share price and financial performance of these comparables are updated quarterly based on the most recent public information. Our stock price is also impacted by the number of shares outstanding. As the number of shares outstanding has declined overtime, our share price has increased. The determination of the fair value of our common stock requires us to make judgments that are complex and inherently subjective. If different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.
As of December 31, 2008, our share price declined as compared to the prior year. This decline is primarily due to the extreme downturn in equity markets adversely impacting the valuation multiples of our comparable companies. The effect of the market downturn was partially offset by our solid revenue growth and productivity improvements that resulted in enhanced earnings.
Goodwill and Intangibles
 
Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of the businesses acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized. Intangible assets determined to have definite lives are amortized over their useful lives. 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, using the guidance and criteria described in FAS No. 142, “Goodwill and Other Intangible Assets.” This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. For the yearsyear ended December 31, 2005 and 2007, we recorded an impairment charge of $1.5 million and $1.7 million respectively, included in loss from discontinued operations, net of tax in the consolidated statements of operations. During fiscal year 2008, we performed an impairment test as of June 30, 2008 and confirmed that no impairment charge was necessary. Due to several factors, including the current downturn in the equity markets and the resulting decline of our share price at December 31, 2008, and the anticipation of our public offering, we performed an additional impairment test as of December 31, 2008 and confirmed that goodwill was not impaired.
 
As of March 31, 2008,2009, we had goodwill and net intangible assets of $479.9$615.0 million, which represents 58.2%60.3% of our total assets. There are many assumptions and estimates used that directly impact the results of impairment testing, including an estimate of future expected revenues, earnings and cash flows, useful lives and discount rates applied to such expected cash flows in order to estimate fair value. We have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose for determining the fair value of our reporting units. To mitigate undue influence, we set criteria and benchmarks that are reviewed and approved by various levels of management and reviewed by other independent parties. The determination of whether or not goodwill or indefinite-lived acquired intangible assets have become impaired involves a significant level of judgment in the assumptions and estimates underlying the approach used to determine the value of our reporting units. Changes in our strategy or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets and goodwill.
 
Pension and Postretirement
 
In September 2006, the FASB issued FAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” FAS No. 158 requires that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement benefit plans on their


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consolidated balance sheets and recognize as a component of other comprehensive income (loss), net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost. Additional minimum pension liabilities and related intangible assets are also derecognized upon adoption of the new standard. We adopted FAS No. 158 as of December 31, 2006.
The projected
Certain assumptions are used in the determination of our annual net period benefit obligationcost and the net periodic benefit cost fordisclosure of the funded status of these plans are based on third-party actuarial assumptions and estimates that are reviewed by management on an annual basis.plans. The principal assumptions concern the discount rate used to measure the projected benefit obligation, the expected future rate of return on plan assets and the expected rate of future compensation increases. We revise these assumptions based on an annual evaluation of long-term trends and market conditions that may have an impact on the cost of providing retirement benefits.
In determining the discount rate, we utilize market conditionsquoted rates from long-term bond indices, and changes in long-term bond rates over the past year, cash flow models and other data sources management considerswe consider reasonable based upon the profile of the remaining service life of eligible employees. As part of our evaluation, we calculate the approximate average yields on securities that were selected to match our separate projected cash flows for both the pension and postretirement plans. Our separate benefit plan cash flows are input into actuarial models that include data for corporate bonds rated AA or better at the measurement date. The output from the actuarial models are assessed against the prior year’s discount rate and quoted rates for long-term bond indices. For our pension plan at December 31, 2008, we determined this rate to be 6.0%, a decrease of 0.25% from the 6.25% rate used at December 31, 2007. Our postretirement rate is consistent with our pension plan rate at December 31, 2008.
The expected long-term rate of return on plan assets is determined by taking into consideration the weighted-average expected returnour analysis of our actual historical investment returns to a broader long-term forecast adjusted based on our assettarget investment allocation, asset return data, historical return data, and the current economic environment. Our investment guidelines target an investment portfolio allocation of 40% debt securities and 60% equity securities. As of December 31, 2008, the plan assets were allocated 46% debt, 51% equity securities, and 3% to other investments. We have used our target investment allocation to derive the expected return as we believe this allocation will be retained on an ongoing basis that will commensurate with the projected cash flows of the plan. The expected return for each investment category within our target investment allocation is developed using average historical rates of return for each targeted investment category, considering the projected cash flow of the pension plan. The difference between this expected return and the actual return on plan assets is generally deferred and recognized over subsequent periods through future net periodic benefit costs. During 2008, the market values of these investments declined in conjunction with the global economic downturn. Although the global economic downturn had a significant effect on the fair value of the plan assets at December 31, 2008, we believe that the use of the average historical rates of returns is consistent with the timing and amounts of expected contributions to the plans and benefit payments to plan participants. This decline in market value is the principal reason that net periodic benefit pension cost for the three months ended March 31, 2009 is $5.0 million as compared to $0.4 million for the three months ended March 31, 2008, an increase of $4.6 million. We would expect this increase in net periodic benefit pension cost to continue in the remaining quarters of 2009 and also that we will have significantly greater funding obligations in 2010 and thereafter until the market recovers. We believe these considerations provide the basis for reasonable assumptions ofwith respect to the expected long-term rate of return on plan assets.
The rate of compensation increase is based on our long-term plans for such increases. The measurement date used to determine the benefit obligation and plan assets is December 31. The future benefit payments for the postretirement plan are net of the federal Medical subsidy.


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A one percent change in discount rate, future rate of return on plan assets and the rate of future compensation would have the following effects:
 
                                
 1% Decrease 1% Increase  1% Decrease 1% Increase 
   Projected Benefit
   Projected Benefit
    Projected Benefit
   Projected Benefit
 
 Benefit Cost Obligation Benefit Cost Obligation  Benefit Cost Obligation Benefit Cost Obligation 
 (In thousands)  (In thousands) 
Discount rate $483  $40,166  $673  $(33,861) $256  $41,123  $375  $(34,712)
Expected return on asset  3,326      (3,326)     3,326      (3,326)   
Rate of compensation  (520)  (2,906)  530   2,932   (321)  (2,217)  340   2,306 
 
A one percent change in assumed healthcare cost trend rates would have the following effects:
 
         
  1% Decrease  1% Increase 
  (In thousands) 
 
Effect on total of service and interest cost components $(7) $4 
Effect on the healthcare component of the accumulated postretirement benefit obligation  (136)  76 
         
  1% Decrease  1% Increase 
  (In thousands) 
 
Effect on total of service and interest cost components $(63) $59 
Effect on the healthcare component of the accumulated postretirement benefit obligation $(86) $24 
 
Income Taxes
 
In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the underlying businesses. The calculation of our tax liabilities also involves dealing with uncertainties in the application and evolution of complex tax laws and regulations in other jurisdictions.
 
On January 1, 2007, we adopted FASBInterpretation No. 48, Accounting for Uncertainty in Income Taxes— an interpretation of FASB Statement No. 109, or FIN 48. FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. As a result of the implementation of FIN 48, we recognized approximately a $10.3 millionan increase in the liability for unrecognized tax benefits of approximately $10.3 million, which was accounted for as an increase to the January 1, 2007 balance of accumulated deficit.
 
We recognize tax liabilities in accordance with FIN 48 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. If the tax liabilities relate to tax uncertainties existing at the date of the acquisition of a business, the adjustment of such tax liabilities will result in an adjustment to the goodwill recorded at the date of acquisition. For any in-process acquisitions subject to FAS No. 141(R), we will expense all tax liabilities related to tax uncertainties.
 
As of December 31, 20072008 we have federal and state income tax net operating loss carryforwards of $6.7 million and $104.1$88.2 million, which will expire at various dates from 20082009 through 2027.2028. Such net operating loss carryforwards expire as follows:
 
     
20082009 - 20152016 $78.856.8 million 
20162017 - 20202021  0.6 million 
20212022 - 20272028  31.430.8 million 
     
  $110.888.2 million 
     


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The significant majority of the state net operating loss carryforwards were generated by a subsidiary that employs our internal staff as a result of favorable tax deductions from the exercise of employee stock


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options for the years ended December 31, 2004, 2005, 2006 and 2006.2007. This subsidiary’s state net operating loss carryforwards will not be utilized unless the subsidiary is profitable prior to their respective expiration dates.
 
We also have foreign net operating loss carryforwards of $6.0 million that have no expiration date. We believe that it is reasonably possible that approximately $3.4 million of our currently remainingestimate unrecognized tax positions each of which are individually insignificant,$5.3 million that may be recognized by the endMarch 31, 2010, due to expiration of 2008 as a resultstatutes of a lapselimitations and resolution of the statuteaudits with taxing authorities, net of limitations.additional uncertain tax positions.
 
Recent Accounting Pronouncements
In December 2007, the FASB issued FAS No. 141 (revised 2007),“Business Combinations”(“FAS No. 141(R)”). FAS No. 141(R) replaces FAS No. 141,“Business Combinations”(“FAS No. 141”). FAS No. 141(R) primarily requires an acquirer to recognize the assets acquired and the liabilities assumed, measured at their fair values as of that date. This replaces FAS No. 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. Generally, FAS No. 141(R) will become effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
 
For a discussion of additional recent accounting pronouncements, seerefer to note 2(n)2(p) to the audited consolidated financial statements and note 2(p)2 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus.
 
Qualitative and Quantitative Disclosures about Market Risk
 
Interest Rate Risk
 
We are exposed to market risk from fluctuations in interest rates. At March 31, 20082009 we had borrowings outstanding under our revolving credit facilities of $110.0$83.5 million, which bear interest at variable rates based on LIBOR plus 0.65%0.80% to 0.95%. A change in interest rates on this variable rate debt impacts our pre-tax income and cash flows, but does not impact the fair value of the instruments. Based on our overall interest rate exposure at March 31, 2008,2009, a one percent change in interest rates would result in a change in annual pretax interest expense of approximately $1.1$0.8 million based on our current level of borrowings.


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BUSINESS
 
Company Overview
 
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 detailed actuarial and underwriting 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, healthcare and mortgage industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance.
 
Our customers use our solutions to make better risk decisions with greater efficiency and discipline. We refer to these products and services as ‘solutions’ due to the integration among our services and the flexibility that enables our customers to purchase components or the comprehensive package. 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. In 2007,2008, our U.S. customers included all of the top 100 P&C insurance providers, four of the 10 largest Blue Cross and Blue Shield plans, four of the sevensix leading mortgage insurers, 14 of the top 20 mortgage lenders and all of the 810 largest global reinsurers. We believe that our commitment to our customers and the embedded nature of our solutions serve to strengthen and extend our relationships. For example, approximately 96%97% of our top 200100 customers in 2007,2008, as ranked by revenue, have been our customers for each of the last five years. Further, from 20032004 to 2007,2008, revenues generated from these top 200100 customers grew at a compound annual growth rate, or CAGR, of 13%12%.
 
We help those businesses address what we believe are the four primary decision making processes essential for managing risk as set forth below in the Verisk Risk Analysis Framework:
 
The Verisk Risk Analysis Framework
 
RISK ANALYSIS FRAMEWORK
 
These four processes correspond to various functional areas inside our customers’ operations:
 
 •     our loss predictions are typically used by P&C insurance and healthcare actuaries, advanced analytics groups and loss control groups to help drive their own assessments of future losses;
 
 •     our risk selection and pricing solutions are typically used by underwriters as they manage their books of business;
 
 •     our fraud detection and prevention tools are used by P&C insurance, healthcare and mortgage underwriters to root out fraud prospectively and by claims departments to speed claims and find fraud retroactively; and
 
 •     our tools to quantify loss are primarily used by claims departments, independent adjustors and contractors.
 
We add value by linking our solutions across these four key processes; for example, we use the same modeling methods to support the pricing of homeowner’s insurance policies and to quantify the actual losses when damage occurs to insured homes.
 
We offer our solutions and services primarily through annual subscriptions or long-term agreements, which are typically pre-paid and represented approximately 74%76% of our revenue in 2007.2008. Our subscription-based revenue model, in combination with high renewal rates, results in large and predictable cash flows. For the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, we had revenue of $802$894 million and $216$246 million, respectively, and net income of $150$158 million and $41$45 million, respectively. For


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the five year period ended December 31, 2007,2008, our revenues and net income have grown at a CAGR of 13.8%13.0% and 21.2%12.4%, respectively.
 
We organize our business in two segments: Risk Assessment and Decision Analytics.
 
Risk Assessment:  We are the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our 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. Our largest P&C insurance database, containing information on every transaction associated with a policy, from inception to information on losses, includes almostover 14 billion records, and, in each of the past three years, we updated the database with over 2 billion validated new records to improve the timeliness, quality and accuracy of our data and actuarial analysis. We use our data for example to create policy language and proprietary risk classifications that are industry-standard and to generate prospective loss cost estimates used to price insurance policies.
 
As an example of how customers use our Risk Assessment services, P&C insurers use our Specific Property Information suite, or SPI Plus, to underwrite and price commercial property risks. SPI Plus is built on a proprietary database of approximately 2.7 million buildings and more than 5.4 million individual businesses occupying those buildings. We maintain information about each building’s construction, occupancy, protective features (e.g., sprinkler systems) and exposure to hazards — collectively known as COPE data — all of which is critical to our customers’ decision making processes. SPI Plus provides detailed narratives regarding hazards of construction and occupancy and unique building-specific analytics that assess the adequacy of sprinkler systems, probable maximum loss due to fire and the overall hazard level in relation to similar buildings. SPI Plus also includes our assessments of municipal fire suppression capability and building code enforcement, and a building’s exposure to additional perils such as wind, crime and flood damage. In addition to underwriting and pricing decisions, our customers use this product for loss cost estimates and to encourage property owners to reduce hazards and employ protection features, such as automatic fire-detection, fire-suppression systems, portable fire extinguishers, standpipe systems and watchman services. Customers receive our data and analytics via the internet. Typically, our loss cost estimates will be automatically entered into an insurer’s policy administration system for rating of the insurance policy, while the COPE data and narrative about the building will be accessed as the underwriter determines whether or not to offer coverage for the building.
 
For the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, our Risk Assessment segment produced revenue of $485$504 million and $127$130 million, representing 60%56% and 59%53% of our total revenue, respectively, and EBITDA of $213$223 million and $58$61 million, representing 63%59% and 62%58% of our total EBITDA, respectively. This segment’s revenue and EBITDA have a CAGR of 7.8%5.7% and 14.3%7.6%, respectively, for the five-year period ended December 31, 2007.2008.
 
Decision Analytics:  We provide solutions in each of the four processes of the Verisk Risk Analysis Framework by combining algorithms and analytic methods, which incorporate our proprietary data. Other unique data sets include approximatelyover 600 million P&C insurance claims, historical natural catastrophe data covering more than 50 countries, data from more than 13 million applications for mortgage loans and over 300312 million U.S. criminal records. Customers integrate our solutions into their models, formulas or underwriting criteria to predict potential loss events, ranging from hurricanes and earthquakes to unanticipated healthcare claims. We are a leading developer of catastrophe and extreme event models and offer solutions covering natural and man-made risks, including acts of terrorism. We also develop solutions that allow customers to quantify costs after loss events occur. For example, in 2007 we provided repair cost estimates for more than 60% of the personal property claims paid in the United States based on total amount of claims paid according to A.M. Best. Our 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, healthcare and mortgage sectors.
 
As an example of how customers use our Decision Analytics products, our CLASIC/2 enterprise software system is used by insurance companies to determine potential losses, and the probability of such losses, for the insurance or reinsurance they provide in regions prone to natural catastrophes such as


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hurricanes, earthquakes, hailstorms and tornadoes. The catastrophe models underlying our software are based on the physical principles of meteorology, geology and other sciences, as well as the statistical analysis of historical time series of data on prior natural catastrophes. Our software consists of sophisticated stochastic simulation procedures for projecting the location and severity of future catastrophes and powerful computer models of how natural catastrophes behave and impact buildings and the man-made environment. Our software includes algorithms that translate estimated losses and insurance terms, such as coverages and deductibles, into output that guide underwriters as they select and price risks. Customers receive our software and host the application on their own servers, and link their own databases in order to run their risks through our models. An underwriter can enter the address and characteristics of a single prospective property in manual mode, or the underwriter can work in batch mode where the software reads a file with the addresses and characteristics of many prospective properties. The software returns a series of estimates of the total amount of loss likely in the next year including the amount and cost of damage due to each peril (e.g., earthquake, hurricane, hailstorms and tornadoes), the total expected loss from all perils combined, and the estimated average annual loss. Underwriters use our software to translate damage and loss estimates into a series of recommendations for structuring insurance policies including recommended levels of coverage, deductibles, policy limits and a host of other insurance terms. All of these terms are then fed into the insurers’ policy administration software to determine the premiums to be charged for insurance.
 
In addition to analyzing individual risks, insurance companies can use CLASIC/2’s reporting and visualization tools at the corporate level to assess the aggregate risk and geographic concentration of entire portfolios of risk to determine capital adequacy, to decide how much reinsurance to buy, and to assess the mix of business in their portfolio.
 
For the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, our Decision Analytics segment produced revenue of $317$389 million and $89$116 million, representing 40%44% and 41%47% of our total revenue, respectively, and EBITDA of $125$153 million and $36$44 million, representing 37%41% and 38%42% of our total EBITDA, respectively. This segment’s revenue and EBITDA had a CAGR of 27.8%28.1% and 55.4%41.6%, respectively, for the five-year period ended December 31, 2007.2008.
 
Our Market Opportunity
 
We believe there is a long-term trend for companies to set strategy and direct operations using data and analytics to guide their decisions, which has resulted in a large and rapidly growing market for professional and business information. According to a 2008 report from Veronis Suhler Stevenson, an industry consultant, spending on professional and business information services in the U.S. reached $61$46 billion in 20052007 and is projected to grow at a CAGR of 8%9% through 2010.2012. Another research firm, International Data Corporation, or IDC, in a report dated March 2008, estimates that the business analytics services market, which totaled $32 billion in 2007, will grow at a CAGR of 9% through 2012.
 
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We believe that the consistent decline in the cost of computing power contributes to the trend towards greater use of data and analytics. As a result, larger data sets are assembled faster and at a lower cost per record while the complexity and accuracy of analytical applications and solutions have expanded. This trend has led to an increase in the use of analytic output, which can be generated and applied more quickly, resulting in more informed decision making. As computing power increases, cost decreases and accuracy improves, we believe customers will continue to apply and integrate data and analytic solutions more broadly.
 
Companies that engage in risk transactions, including P&C insurers, healthcare payors and mortgage lenders and insurers, are particularly motivated to use enhanced analytics because of several factors affecting risk markets:
 
 •     the total value of exposures in risk transactions is increasing;
 
 •     the number of participants in risk transactions is often large and the asymmetry of information among participants is often substantial; and
 
 •     the failure to understand risk can lead to large and rapid declines in financial performance.
 
The total value of exposures in risk transactions is increasing
 
Across our target markets, the number and value of the assets managed in risk transactions exhibits long-term growth. For example:
 
 •     U.S. property value exposed to hurricanes continues to increase dramatically due to population dynamics and increase of wealth among other factors, with the current trend predicting a doubling of losses every ten years. At this rate, a repeat of the 1926 Great Miami hurricane could result in $500 billion in economic damage as soon as the 2020’s according to Natural Hazards Review; and
 
 •     U.S. health expenditures have grown at a CAGR of 7% between 1997 and 2007 and are expected to grow at roughly the same levelover 6% annually through 20162018, according to data compiled by the U.S. Department of Health and Human Services; and
 
 •     theThe total value of outstanding households’U.S. mortgage debt outstanding ingrew from $10.7 trillion at the United States has increased by 11% annuallyend of 2004 to $14.6 trillion at December 31, 2008, a CAGR of over the past ten years according to the Federal Reserve.8%.
 
The number of participants in risk transactions is often large and the asymmetry of information among participants is often substantial
 
Many risk transactions involve multiple participants who either structure the transaction or bear some of the risk. For example, in the P&C insurance industry, a single commercial building might be assessed, underwritten and insured by a combination of insurance agents and brokers, managing general agents, loss inspection consultants, underwriters, reinsurers, corporate risk managers and capital markets participants looking to securitize the risk of catastrophic loss. In the healthcare industry, insurers and third-party administrators strive to refine their understanding of transactions at the point at which care is delivered to the patient and to determine the legitimacy of claims filed by providers and insureds.insurers. Investors in mortgages are far removed from the mortgage brokers and lenders who originate the loans, the appraisers who assess the mortgaged properties, the servicers who manage the cash flows associated with the mortgages, and the packagers who assemble pools of loans to be securitized.
 
Due to the greater separation of counterparties and the potential asymmetry of data about underlying risks available to counterparties, the different participants in such transactions are in jeopardy of knowing less than their counterparties about the risk they bear. In the securitization and trading markets, this problem is exacerbated by the loss of information through the pooling of risks.
 
One outcome of asymmetric information is fraudulent transactions. The Coalition Against Insurance Fraud estimates that the cost of fraud in the U.S. P&C insurance industry is as high as $80 billion each year.


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The U.S. government estimates fraudulent billings to U.S. healthcare programs, both public and private, to be between 3% to 10% of total annual healthcare expenditures, or between $67$71 billion and $226$238 billion in 2007.2008.
 
Failure to understand risk can lead to large and rapid declines in performance
 
Any company that bears risk will find its profits predominantly tied directly to its ability to select risks. In the P&C insurance industry, the cost of goods sold is unknown to the insurer at the time the insurance policy is written. Therefore, efficient pricing of insurance policies depends on the ability to predict the potential losses and costs associated with underwriting each policy. There are a significant number of factors which correlate with the size of a potential loss, including weather, geographic location of risk, insured characteristics and prior claims costs. An insurance company differentiates itself by utilizing appropriate and reliable data and complex analytics to select the risks that will have the best risk-return profile. The importance of predicting loss in order to select and price risk, and the linkage of these analytics to profitability, is true for all companies participating in risk-bearing transactions.
 
The current U.S. mortgage crisis provides an example of how failure to understand risk can lead to a rapid loss of performance by companies that bear risk. As the housing sector and mortgage origination market expanded rapidly in the first half of this decade, the need for underwriting discipline and risk analysis was underestimated by mortgage brokers, lenders, investors and regulators. We believe the mortgage “bubble” that ended in 2007 masked the need to integrate analytics into the origination and securitization processes in order to manage exposures and profits. The rising level of mortgage default and fraud in 2007 and 2008, combined with severe contraction in the mortgage origination market, has forced 38 mortgage-related entities199 and 111 of the top originators into failure in 2007 and 2008, and 150 in 2007,respectively, according to the Mortgage Daily. The Mortgage Bankers Association reports a drop from 5,000 mortgage bankers in 2007 to 3,500 mortgage bankers in 2008, based upon lenders that originated at least 100 loans each year. This in turn has heightened awareness among various participants in the market of the need to improve the quality of mortgage underwriting analysis, in part through more sophisticated use of data. This sophisticated use of data may extend beyond the acceptance or rejection of risk to include risk-based pricing in order to enhance financial performance in the face of a challenging market.
 
Our Competitive Strengths
 
We believe our competitive strengths include the following:
 
Our Solutions are Embedded In Our Customers’ Critical Decision Processes
 
Our customers use our solutions to make better risk decisions and to price risk appropriately. These solutions are embedded in our customers’ critical decision processes. In the U.S. P&C insurance industry, our solutions for prospective loss costs, policy language, rating/underwriting rules and regulatory filing services are the industry standard. Our decision analytics solutions facilitate the profitable underwriting of policies. In the U.S. healthcare and mortgage industries, our predictive models, loss estimation tools and fraud
identification applications are the primary solutions that allow customers to understand their risk exposures and proactively manage them. Over the last three years, we have retained 98% of our customers across all of our businesses, which we believe reflects our customers’ recognition of the value they derive from our solutions.
 
Extensive and Differentiated Data Assets and Analytic Methods
 
We maintain what we believe are some of the largest, most accurate, and most complete databases in the markets we serve. Our unique, proprietary data assets allow us to provide our customers with a comprehensive set of risk analytics and decision support solutions. Our largest data sets are sourced from our customers and are not available from any other vendor. Much of the information we provide is not available from any other source and would be difficult and costly for another party to replicate. As a result, our accumulated experience and years of significant investment have given us a competitive advantage in serving our customers. By continuously adding records to our data sets we are able to refresh and to refine our data assets, risk models and other analytic methods.


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Culture of Continuous Improvement
 
Our intellectual capital and focus on continuous improvement have allowed us to develop proprietary algorithms and solutions that assist our customers in making informed risk decisions. Our skilled workforce understands issues affecting our targeted markets and to develop analytic solutions tailored to these markets. Our team includes approximately 390574 individuals with advanced degrees, certifications and professional designations in such fields as actuarial science, data management, mathematics, statistics, economics, soil mechanics, meteorology and various engineering disciplines. Leveraging the expertise of our people, we have been able to continuously improve our operations by constantly enhancing the timeliness, relevance and quality of our solutions. Over the last three years, we have retained over 95% of our most highly-rated employees. Over the last decade, we transitioned our compensation and benefit plans to be pay-for-performance-oriented, including incentive compensation plans and greater equity participation by employees. Today,As of December 31, 2008 and March 31, 2009, our employees ownowned approximately 30%25% of the company.
 
Attractive Operating Model
 
We believe we have an attractive operating model due to the recurring nature of our revenues, the scalability of our solutions and the low capital intensity of our business.
 
Recurring Nature of Revenues.  We offer our solutions and services primarily through annual subscriptions or long-term agreements, which are generally pre-paid and represented approximately 74%76% of our revenues in 2007.2008. The combination of our historically high renewal rates, which we believe are due to the embedded nature of our solutions, and our subscription-based revenue model, results in predictable cash flows.
 
Scalable Solutions.  Our technology infrastructure and scalable solution platforms allow us to accommodate significant additional transaction volumes with limited incremental costs. This operating leverage enabled us to increase our EBITDA margins from 30.6%37.2% in 20032004 to 42.1%42.0% in 2007.2008.
 
Low Capital Intensity.  We have low capital needs that allow us to generate strong cash flow. In 2007,2008, our operating income and capital expenditures as a percentage of revenue were 33.9%34.8% and 4.1%3.7%, respectively.
 
Our Growth Strategy
 
Over the past five years, we have grown our revenues at a CAGR of 13.8%13.0% through the successful execution of our business plan. These results reflect strong organic revenue growth, new product development and selected acquisitions. To build on our base revenue, we use our intellectual property and customer relationships to generate insight into where we may more effectively extract or apply data. We then innovate or adapt analytics that expand the range, utility and predictive capabilities of our solutions to grow our revenues profitably. We have made, and continue to make, investments in people, data sets, analytic solutions, technology, and complementary businesses.
 
To serve our customers and grow our business, we aggressively pursue the following strategies:
 
Increase Sales to Insurance Customers
 
We expect to expand the application of our solutions in insurance customers’ underwriting and claims processes. We encourage our customers to share more data with us to enhance the power of our analytics so that our customers can profit from improved risk management decisions. Building on our deep knowledge of, and embedded position in, the insurance industry, we expect to sell more solutions to existing customers tailored to specific lines of insurance. In addition, as our databases continue to grow, we believe the predictive capability of our algorithms will also improve, enhancing the value of our existing offerings and increasing demand for our solutions. By increasing the breadth and relevance of our offerings, we believe we can strengthen our relationships with customers and increase our value to their decision making in critical ways.


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Develop New, Proprietary Data Sets and Predictive Analytics
 
We work with our customers to understand their evolving needs. We plan to create new solutions by enriching our mix of proprietary data sets, analytic solutions and effective decision support across the markets we serve. Our data sets produce analytics focused on emergent risks and evolving issues within both new and current customer segments. We constantly seek to add new data that can further leverage our analytic methods, technology platforms and intellectual capital. Current areas of focus in the U.S. include commercial loss histories, detailed policy level information, vehicle-generated data, loan levelloan-level mortgage data, pharmaceutical claims and healthcare claims data. We believe this strategy will spur revenue growth and improve profitability.
 
Leverage Our Intellectual Capital to Expand into Adjacent Markets and New Customer Sectors
 
Our organization is built on nearly four decades of intellectual property in risk management. We believe we can continue to profitably expand the use of our intellectual capital and apply our analytic methods in new markets, where significant opportunities for long-term growth exist. For example, we have leveraged our skills in predictive models for losses in the healthcare segment into providing predictive analytic solutions for workers’ compensation claims. In addition, we are leveraging our industry-leading solutions for detecting fraud in mortgage insurance to enhance the accuracy of our mortgage lending fraud platform. We also continue to pursue growth through targeted international expansion. We have already demonstrated the effectiveness of this strategy with our expansion into healthcare and non-insurance financial services. We believe there are numerous opportunities to repurpose our existing data assets and analytic capabilities to expand into new markets.
 
Pursue Strategic Acquisitions that Complement Our Leadership Positions
 
We will continue to expand our data and analytics capabilities across industries. While we expect this will occur primarily through organic growth, we have and will continue to acquire assets and businesses that strengthen our value proposition to customers. We primarily focus on smaller acquisitions of differentiated proprietary data that is complementary to our own, analytical applications or models that can leverage our proprietary data and businesses that address new risk markets. Our acquisitions have been, and will continue to be, primarily focused within our Decision Analytics segment. We have developed an internal capability to source, evaluate and integrate acquisitions that have created value for shareholders. We have acquired 1415 businesses in the past five years, which in the aggregate have increased their revenue with a weighted average CAGR of 40%31% over the same period.
 
Our History
 
We trace our history to 1971, when Insurance Services Office, Inc., or ISO, started operations as a not-for-profit advisory and rating organization providing services for the U.S. P&C insurance industry. ISO was formed as an association of insurance companies to gather statistical data and other information from insurers and report to regulators, as required by law. ISO’s original functions also included developing programs to help insurers define and manage insurance products and providing information to help insurers determine their own independent premium rates. Insurers used and continue to use our offerings primarily in their product development, underwriting and rating functions. Today, those businesses form the core of our Risk Assessment segment.
 
Over the past decade, we have transformed our business beyond its original functions by deepening and broadening our data assets, developing a set of integrated risk management solutions and services and addressing new markets through our Decision Analytics segment.
 
Our expansion into analytics began when we acquired the American Insurance Services Group and certain operations and assets of the National Insurance Crime Bureau in 1997 and 1998, respectively. Those organizations brought to the company large databases of insurance claims, as well as expertise in detecting and preventing claims fraud. To further expand our Decision Analytics segment, we acquired AIR Worldwide in 2002, the technological leader in catastrophe modeling. In 2004, we entered the healthcare space by acquiring several businesses that now offer web-based analytical and reporting systems for health insurers,


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provider organizations and self-insured employers. In 2005 we entered the mortgage lending sector, acquiring the first of several businesses that now provide automated fraud detection, compliance and decision support solutions for the U.S. mortgage industry. In 2006, to bolster our position in the claims field we acquired Xactware, a leading supplier of estimating software for professionals involved in building repair and reconstruction.
 
These acquisitions have added scale, geographic reach, highly skilled workforces, and a wide array of new capabilities to our Decision Analytics segment. They have helped to make us a leading provider of information and decision analytics for customers involved in the business of risk in the U.S. and selectively around the world.
 
Our senior management operating team, which includes our chief executive officer, chief financial officer, chief operating officer, general counsel and the three senior officers who lead our largest business units, have been with us for an average of almost twenty years. This team has led our transformation to a successful for-profit entity, focused on growth with our U.S. P&C insurer customers and expansion into a variety of new markets.
 
Products and Services
 
Risk Assessment Segment
 
Our Risk Assessment segment serves our P&C insurance customers and focuses on the first two decision making processes in our Risk Analysis Framework: prediction of loss and selection and pricing of risk. Within this segment, we also provide solutions to help our insurance customers comply with their reporting requirements in each U.S. state in which they operate. Our customers include most of the P&C insurance providers in the United States and we have retained approximately 99% of our P&C insurance customer base within the Risk Assessment segment in each of the last five years.
 
For the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, our Risk Assessment segment produced revenues of $485$504 million and $127$130 million, representing 60%56% and 59%53% of our total revenues, respectively, and EBITDA of $213$223 million and $58$61 million, representing 63%59% and 62%58% of our total EBITDA, respectively. This segment’s revenues and EBITDA have a CAGR of 7.8%5.7% and 14.3%7.6%, respectively, for the five-year period ended December 31, 2007.2008.
 
Statistical Agent and Data Services
 
The P&C insurance industry is heavily regulated in the United States. P&C insurers have a legal responsibilityare required to collect statistical data about their premiums and losses and to report that data to regulators in every state in which they operate. Our statistical agent services have enabled P&C insurers to meet these regulatory requirements for over 30 years. We aggregate the data and, as a licensed “statistical agent” in all 50 states, Puerto Rico and the District of Columbia, we report these statistics to insurance regulators. We are able to capture significant economies of scale given the level of penetration of this service within the U.S. P&C insurance industry.
 
To provide our customers and the regulators the information they require, we maintain one of the largest private databases in the world. Over the past four decades, we have developed core expertise in acquiring, processing, managing and operating large and comprehensive databases that are the foundation of our Risk Assessment segment. We use our proprietary technology to assemble, organize and update vast amounts of detailed information submitted by our customers. We supplement this data with publicly available information.
 
Each year, P&C insurers send us approximately 2.5 billion detailed individual records of insurance transactions, such as insurance premiums collected or losses incurred. We maintain a database of almostover 14 billion statistical records, including approximately 5 billion commercial lines records and approximately 9 billion personal lines records. We collect unit-transaction detail of each premium and loss record, which enhances the validity, reliability and accuracy of our data sets and our actuarial analyses. Our proprietary quality process includes almost 2,500 separate checks to ensure that data meet our high standards of quality.


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Actuarial Services
 
We provide actuarial services to help our customers price their risks as they underwrite. We project future losses and loss expenses utilizing a broad set of data. These projections tend to be more reliable than if our customers used solely their own data. We provide loss costs by coverage, class, territory, and many other categories. Our customers can use our estimates of future loss costs in making independent decisions about the prices charged for their policies. For most P&C insurers, in most lines of business, we believe our loss costs are an essential input to rating decisions. We make a number of actuarial adjustments, including loss development and loss adjustment expenses before the data is used to estimate future loss costs. Our actuarial services are also used to create the analytics underlying our industry-standard insurance programs described below.
 
Our employees include over 200 actuarial professionals, including 3941 Fellows and 2124 Associates of the Casualty Actuarial Society, as well as 145154 Chartered Property Casualty Underwriters, 912 Certified and 2523 Associate Insurance Data Managers, 166178 members of the Insurance Data Management Association and 138145 professionals with advanced degrees, including PhDs in mathematics and statistical modeling who review both the data and the models.
 
Using our large database of premium and loss data, our actuaries are able to perform sophisticated analyses using our predictive models and analytic methods to help our P&C insurance customers with pricing, loss reserving, and marketing. We distribute a significant number of actuarial products and offer flexible services to meet our customers’ needs. In addition, our actuarial consultants provide customized services for our clients that include assisting them with the development of independent insurance programs, analysis of their own underwriting experience, development of classification systems and rating plans and a wide variety of other business decisions. We also supply information to a wide variety of customers in other markets including reinsurance, government agencies and real estate.
 
Industry-Standard Insurance Programs
 
We are the recognized leader in the United States for industry-standard insurance programs that help P&C insurers define coverages and issue policies. Our policy language, prospective loss cost information and policywritingpolicy writing rules can serve as integrated turnkey insurance programs for our customers. Insurance companies need to ensure that their policy language, rules, and rates comply with all applicable legal and regulatory requirements. Insurers must also make sure their policies remain competitive by promptly changing coverages in response to changes in statutes or case law. To meet their needs, we process and interface with state regulators on average over 4,000 filings each year, ensuring smooth implementation of our rules and forms. When insurers choose to develop their own alternative programs, our industry-standard insurance programs also help regulators make sure that such insurers’ policies meet basic coverage requirements.
 
Standardized coverage language, which has been tested in litigation and tailored to reflect judicial interpretation, helps to ensure consistent treatment of claimants. As a result, our industry-standard language also simplifies claim settlements and can reduce the occurrence of costly litigation, because our language causes the meaning of coverage terminology to become established and known. Our policy language includes standard coverage language, endorsements and policy writing support language that assist our customers in understanding the risks they assume and the coverages they are offering. With these policy programs, insurers also benefit from economies of scale. We have over 200 specialized lawyers and insurance experts reviewing changes in each state’s insurance rules and regulations, including on average over 11,000 legislative bills, 750 regulatory actions and 2,000 court cases per year, to make any required changes to our policy language and rating information.
 
To cover the wide variety of risks in the marketplace, we offer a broad range of policy programs. For example, in the homeowner’s line of insurance, we maintain policy language and rules for six basic coverages, 172 national endorsements, and 469 state-specific endorsements. Overall, we provide policy language, prospective loss costs, policy writing rules and a variety of other solutions for 24 lines of insurance.


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Property-Specific Rating and Underwriting Information
 
We gather information on individual properties and communities so that insurers can use our information to evaluate and price personal and commercial property insurance, as well as commercial liability insurance. Our property-specific rating and underwriting information allow our customers to understand, quantify, underwrite, mitigate and avoid potential loss for residential and commercial properties. Our database contains loss costs and other vital information on approximately 2.7 million specifically-rated andclass-rated commercial buildings in the United States and also holds information on approximately 4.5 million individual businesses occupying those buildings. We have a staff of more than 600 field representatives strategically located around the United States who observe and report on conditions at commercial and residential properties, evaluate community fire-protection capabilities and assess the effectiveness of municipal building-code enforcement. Each year, our field staff visits over 350,000 commercial properties to collect information on new buildings and verify building attributes.
 
We also provide proprietary analytic measures of the ability of individual communities to mitigate losses from important perils. Nearly every property insurer in the United States uses our evaluations of community firefighting capabilities to help determine premiums for fire insurance throughout the country. We provide field-verified and validated data on the fire protection services for more than 46,000 fire response jurisdictions. We also offer services to evaluate the effectiveness of community enforcement of building codes and the efforts of communities to mitigate damage from flooding. Further, we provide information on the insurance rating territories, premium taxes, crime risk and hazards of windstorm, earthquake, wildfire and other perils. To supplement our data on specific commercial properties and individual communities, we have assembled, from a variety of internal and third-party sources, information on hazards related to geographic locations representing every postal address in the United States. Insurers use this information not only for policy quoting but also for analyzing risk concentration in geographical areas.
 
Decision Analytics Segment
 
In the Decision Analytics segment, we support all four phases of our Risk Analysis Framework. We develop predictive models to forecast scenarios and produce both standard and customized analytics that help our customers better predict loss; select and price risk; detect fraud before and after a loss event; and quantify losses.
 
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As we develop our models to quantify loss and detect fraud, we improve our ability to predict the loss and prevent the fraud from happening. We believe this provides us with a significant competitive advantage over firms that do not offer solutions which operate both before and after loss events.


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For the year ended December 31, 20072008 and the three months ended March 31, 2008,2009, our Decision Analytics segment produced revenues of $317$389 million and $89$116 million, representing 40%44% and 41%47% of our total revenues, respectively, and EBITDA of $125$153 million and $36$44 million, representing 37%41% and 38%42% of our total EBITDA, respectively. This segment’s revenues and EBITDA have a CAGR of 27.8%28.1% and 55.4%41.6%, respectively, for the five-year period ended December 31, 2007.2008.
 
Fraud Detection and Prevention
 
P&C Insurance
 
We are a leading provider of fraud-detection tools for the P&C insurance industry. Our fraud solutions improve our customers’ profitability by both predicting the likelihood that fraud is occurring and detecting suspicious activity after it has occurred. When a claim is submitted, our system searches our database and returns information about other claims filed by the same individuals or businesses (either as claimants or insureds)insurers) that help our customers determine if fraud has occurred. The system searches for matches in identifying information fields, such as name, address, Social Security number, vehicle identification number, driver’s license number, tax identification number, or other parties to the loss. Our system also includes advanced name and address searching to perform intelligent searches and improve the overall quality of the matches. Information from match reports speeds payment of meritorious claims while providing a defense against fraud and can lead to denial of a claim, negotiation of a reduced award, or further investigation by the insurer or law enforcement.
 
We have a comprehensive system used by claims adjusters and investigations professionals to process claims and fight fraud. Claims databases are one of the key tools in the fight against insurance fraud. The benefits of a single all-claims database include improved efficiency in reporting data and searching for information, enhanced capabilities for detecting suspicious claims, and superior information for investigating fraudulent claims, suspicious individuals and possible fraud rings. Our database contains information on more than 575600 million claims and is the world’s largest database of claims information. Insurers and other participants submit new claim reports, more than 250,000238,000 a day on average, across all categories of the U.S. P&C insurance industry.
 
We also provide a service allowing insurers to report thefts of automobiles and property, improving the chances of recovering those items; a service that helps owners and insurers recover stolen heavy construction and agricultural equipment; an expert scoring system that helps distinguish between suspicious and meritorious claims; and products that use link-analysis technology to help visualize and fight insurance fraud.
 
We have begun to expand our fraud solutions to overseas markets. We built and launched a system in Israel in 2006 that provides claims fraud detection, claims investigation support and some underwriting services to all Israeli insurers.
 
Mortgage
 
We are a leading provider of automated fraud detection, compliance and decision-support tools for the mortgage industry. Utilizing our own loan level application database combined with actual mortgage loan performance data, we have established a risk scoring system which increases our customers’ ability to detect fraud. We provide solutions that detect fraud through each step of the mortgage lifecycle and provide regulatory compliance solutions that perform instant compliance reviews of each mortgage application. Our fraud solutions can improve our customers’ profitability by predicting the likelihood that a customer account is experiencing fraud. Our solution analyzes customer transactions in real time and generates recommendations for immediate action which are critical to stopping fraud and abuse. These applications can also detect some organized fraud schemes that are too complex and well-hidden to be identified by other methods.
 
Effective fraud detection relies on pattern identification, which in turn requires us to identify, isolate and track mortgage applications through time. Histories of multiple loans, both valid and fraudulent, are required to compare a submitted loan both to actual data and heuristic analyses. For this reason, unless fraud


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detection solutions are fueled by comprehensive data, their practicality is limited. Our proprietary database contains more than 13 million current and historical loan applications collected over the past three years. This database contains data from loan applications as well as supplementary third-party data.
 
Our technology employs sophisticated models to identify patterns in the data. Our solution provides a score which predicts whether the information provided by a mortgage applicant is correct. Working with data obtained through our partnership with a credit bureau, we have demonstrated a strong correlation between fraudulent information in the application and the likelihood of both foreclosure and early payment default on loans. We believe our solution is based upon a more comprehensive set of loan level information than any other provider in the mortgage industry.
 
We also provide forensic audit services for the mortgage origination and mortgage insurance industries. Our predictive screening tools predict which defaulted loans are the most likely candidates for full audits for the purpose of detecting fraud. We then generate detailed audit reports on defaulted mortgage loans. Those reports serve as a key component of the loss mitigation strategies of mortgage loan insurers. The recent turmoil in the mortgage industry has created a period of unprecedented opportunity for growth in demand for our services, as we believe most mortgage insurers do not have the in-house capacity to respond to, and properly review, all of their defaulted loans for evidence of fraud.
 
Healthcare
 
We offer solutions that help healthcare claims payors detect fraud, abuse and overpayment. Our approach combines computer-based modeling and profiling of claims with analysis performed by clinical experts. We run our customers’ claims through our proprietary analytic system to identify potential fraud, abuse and overpayment, and then a registered nurse, physician, or other clinical specialist skilled in coding and reimbursement decisions reviews all suspect claims and billing patterns. This combination of system and human review is unique in the industry and we believe offers improved accuracy for paying claims.
 
We analyze the patterns of claims produced by individual physicians, physiciansphysicians’ practices, hospitals, dentists and pharmacies to locate the sources of fraud. After a suspicious source of claims is identified, our real-time analytic solutions investigate each claim individually for particular violations including upcoding, multiple billings, services claimed but not rendered and billing by unlicensed providers. By finding the individual claims with the most cost-recovery potential, and also minimizing the number of false-positive indications of fraud, we enable the special investigation units of healthcare payors to efficiently control their claims costs while maintaining high levels of customer service to their insureds.insurers.
 
We also offer web-based reporting tools that let payors take definitive action to prevent overpayments or payment of fraudulent claims. The tools provide the documentation that helps to identify, investigate, and prevent abusive and fraudulent activity by providers.
 
Prediction of Loss and Selection and Pricing of Risk
 
P&C Insurance
 
We pioneered the field of probabilistic catastrophe modeling used by insurers, reinsurers and financial institutions to manage their catastrophe risk. Our models of global natural hazards, which form the basis of our solutions, enable companies to identify, quantify, and plan for the financial consequences of catastrophic events. We have developed models covering natural hazards, including hurricanes, earthquakes, winter storms, tornadoes, hailstorms and flood for potential loss events in more than 50 countries. We have also developed and introduced a probabilistic terrorism model capable of quantifying the risk in the United States from this emerging threat, which supports pricing and underwriting decisions down to the level of an individual policy.
 
Healthcare
 
We are a leading provider of healthcare business intelligence and predictive modeling. We provide analytical and reporting systems to health insurers, provider organizations and self-insured employers. Those


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organizations use our solutions to review their healthcare data, including information on claims, membership, providers and utilization, and provide cost trends, forecasts and actuarial, financial and utilization analyses.
 
For example, our solutions allow our customers to predict medical costs and improve the financing and organization of health services. Our predictive models help our customers identify high-cost cases for care- and disease-management intervention, compare providers adjusting for differences in health, predict resource use for individuals and populations, establish health-based and performance-based payments, negotiate payments and incentives, negotiate premium rates and measure return on investment.
 
We also provide our customers healthcare consulting services using complex clinical analyses to uncover reasons behind cost and utilization increases. Physicians and hospitals are adopting and acquiring new technologies, drugs and devices more rapidly than ever before. We provide financial and actuarial consulting, clinical consulting, technical and implementation services and training services to help our customers manage costs and risks to their practices.
 
We are also beginning to expand our healthcare business internationally. We have recently secured an agreement with the German government to develop a risk-adjustment methodology based on our solutions. Our diagnosis-based risk-adjustment methods and predictive modeling tools will support the German healthcare system in the improvement of quality and efficiency of care.
 
Quantification of Loss
 
P&C Insurance
 
We provide data, analytic and networking products for professionals involved in estimating all phases of building repair and reconstruction. We provide solutions for every phase of a building’s life, including:
 
 •     estimating replacement costs during the insurance underwriting process;
 
 •     quantifying the ultimate cost of repair or reconstruction of damaged or destroyed buildings;
 
 •     aiding in the settlement of insurance claims; and
 
 •     tracking the process of repair or reconstruction and facilitating communication among insurers, adjusters, contractors and policyholders.
 
To help our customers estimate replacement costs, we also provide a solution that assists contractors and insurance adjusters to estimate repairs using a patented plan-sketching program. The program allows our customers to sketch floor plans, roof plans and wall-framing plans and automatically calculates material and labor quantities for the construction of walls, floors, footings and roofs.
 
We also offer our customers access to wholesale and retail price lists, which include structural repair and restoration pricing for 466 separate economic areas in North America. We revise this information at least once per quartermonthly and, in the aftermath of a major disaster, we can update the price lists as often as weekly to reflect rapid price changes. Our structural repair and cleaning database contains more than 11,000 unit-cost line items. For each line item such as smoke cleaning, water extraction and hazardous cleanup, we provide time and material pricing, including labor, labor productivity rates (for new construction and restoration), labor burden and overhead, material costs and equipment costs. We improve our pricing data by analyzing the actual claims experience of our customers to verify our estimates. We estimate that approximately 62%more than 60% of all homeowners’ claims settled in the U.S. in 2007 used our solution. Such a large percentage of the industry’s claims leads to accurate pricing information which we believe is unmatched in the industry.
 
We also estimate industry-wide insured losses from individual catastrophic events. We report information on disasters and determine the extent and type of damage, dates of occurrence, and geographic areas affected. We define a catastrophe as an event that causes $25 million or more in direct insured losses to property and that affects a significant number of policyholders and insurers. For each catastrophe, our loss estimate represents anticipated industry-wide insurance payments for property lines of insurance covering fixed property, building contents, time-element losses, vehicles and inland marine (diverse goods and properties). We assign a serial number that allows our customers to track losses and reserves related to a single, discrete event.


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Under many reinsurance contracts and catastrophe bonds, our serial number is important for determining which losses will trigger reinsurance coverage or payment.
 
Our estimates allow our customers to set loss reserves, deploy field adjusters and verify internal company estimates. Our estimates also keep insurers, their customers, regulators, and other interested parties informed about the total costs of disasters. We also provide our customers access to daily reports on severe weather and catastrophes and we maintain a database of information on catastrophe losses in the United States since 1950.
 
Healthcare
 
Bodily injury and workers’ compensation claims present a complex array of medical, legal and occupational issues. We offer a comprehensive claims-management solution that helps our customers manage bodily injury claims, workers’ compensation claims and accident-related comparative-liability claims. We have a database of our customers’ claims histories, including detailed settlements, medical conditions, provider information and litigation issues, to help them deal with bodily injury claims. Our system also contains a library of more than 18,700 medical conditions to help our customers better understand injuries, treatments, complications and pre-existing conditions. This allows our customers to identify developing trends in claims settlements that may lead to changes in underwriting, legaland/or training practices.
 
Our database also enables our customers to track and direct their workers’ compensation cases, including evaluating the medical and occupational situation of each claimant, maintain consistency and quality in claims handling and to develop optimal return-to-work plans. In addition, we have solutions which assist our customers in better identifying and evaluating accident-related comparative liability claims. This helps our customers to manage each claim until settlement.
 
Our Customers
 
Risk Assessment Customers
 
The customers in our Risk Assessment segment include the top 100 P&C insurance providers in the United States, including AIG, Allstate, CNA, Hartford, Liberty Mutual, Nationwide, Fireman’s Fund, State Farm, Travelers and Zurich. Our statistical agent services are used by a substantial majority of P&C insurance providers in the United States to report to regulators. Our actuarial services and industry-standard insurance programs are used by the majority of insurers and reinsurers in the United States. In addition, certain agencies of the federal government, including the Federal Emergency Management Agency, or FEMA, as well as county and state governmental agencies and organizations, use our solutions to help satisfy government needs for risk assessment and emergency response information. In 2007,2008 our largest Risk Assessment customer accounted for 5.2%4.9% of segment revenues, and our top ten customers accounted for 27.4%27.8% of segment revenues. Please see “Certain Relationships and Related Transactions — Customer Relationships” for more information on our relationship with our principal stockholders.
 
Decision Analytics Customers
 
In the Decision Analytics segment, we provide our P&C insurance solutions to the majority of the P&C insurers in the United States. Specifically, our claims database serves thousands of customers, representing more than 92% of the P&C insurance industry by premium volume, 26 state workers’ compensation insurance funds, 607 self-insureds, 465583 self-insurers, 459 third-party administrators, several state fraud bureaus, and many law-enforcement agencies involved in investigation and prosecution of insurance fraud. In addition, our catastrophe modeling solutions have been used in more than 60%approximately 70% of the dollar value of catastrophe bond securitizations through 2007.2008. Also, P&C insurance companies using our building and repair solutions handle over 60% of the property claims in the United States. MoreWe estimate that more than 80% of insurance repair contractors and service providers in the United States and Canada with computerized estimating systems use our building and repair pricing data.
 
In the U.S. healthcare industry, our customers include numerous Blue Cross and Blue Shield plans, Kaiser Permanente and Munich Reinsurance. In 2007,2008, our largest customer in the Decision Analytics segment


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accounted for 4.6%3.8% of segment revenues and our top ten Decision Analytics customers accounted for 17.8%20.5% of segment revenues.


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In the U.S. mortgage industry, we have more than 1,100950 customers, including Wells Fargo, Citigroup and Bank of America and Wachovia.America. We provide our solutions to 14 of the top 20 mortgage lenders and 4four of the top 6six mortgage insurers, United Guarantee,Guaranty, RMIC, PMI and Old Republic Insured Credit Services.Genworth. We have been providing services to mortgage insurers for over 20 years.
 
Our Competitors
 
We believe no single competitor currently offers the same scope of services and market coverage we provide. The breadth of markets we serve exposes us to a broad range of competitors.
 
Risk Assessment Competitors
 
Our Risk Assessment segment operates primarily in the U.S. P&C insurance industry, where we enjoy a leading market presence. We have a number of competitors in specific lines or services.
 
We encounter competition from a number of sources, including insurers who develop internal technology and actuarial methods for proprietary insurance programs. Competitors also include other statistical agents including the National Independent Statistical Service, the Independent Statistical Service, and other advisory organizations providing underwriting rules, prospective loss costs and coverage language, such as the American Association of Insurance Services and Mutual Services Organization.
 
Competitors for our property-specific rating and underwriting information are primarily limited to a number of regional providers of commercial property inspections and surveys, including Overland Solutions, Inc. and Regional Reporting, Inc. We also compete with a variety of organizations that offer consulting services, primarily specialty technology and consulting firms. In addition, a customer may use its own internal resources rather than engage an outside firm for these services. Our competitors also include information technology product and services vendors including CDS, Inc., management and strategy consulting firms including Deloitte, and smaller specialized information technology firms and analytical services firms including Pinnacle Consulting and EMB.
 
Decision Analytics Competitors
 
In the P&C insurance claims market and catastrophe modeling market, certain products are offered by a number of companies, including, ChoicePoint (loss histories and motor vehicle records for personal lines underwriting), Explore Information Services (personal automobile underwriting) and Risk Management Solutions (catastrophe modeling). We believe that our P&C insurance industry expertise, combined with our ability to offer multiple applications, services and integrated solutions to individual customers, enhances our competitiveness against these competitors with more limited offerings. In the healthcare market, certain products are offered by a number of companies, including Computer Sciences Corporation (evaluation of bodily injury and workers’ compensation claims), Fair Isaac Corporation (workers’ compensation and healthcare claims cost containment) and Ingenix, McKesson and Medstat (healthcare predictive modeling and business intelligence). Competitive factors include application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance and support the applications or services and price. In the mortgage analytics solutions market, our competitors include First American CoreLogic and DataVerify Corporation (mortgage lending fraud identification) and ComplianceEase and Mavent (mortgage regulatory compliance). We believe that none of our competitors in the mortgage analytics market offers the same expertise in fraud detection analytics or forensic audit capabilities.
 
Development of New Solutions
 
We take a market-focused team approach to developing our solutions. Our operating units are responsible for developing, reviewing and enhancing our various products and services. Our data management and production team designs and manages our processes and systems for market data procurement, proprietary


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data production and quality control. Our Enterprise Data Management, or EDM, team supports our efforts to create new information and products from available data and explores new methods of collecting data. EDM is focused on understanding and documentingbusiness-unit and corporate data assets and data issues; sharing


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and combining data assets across the enterprise; creating an enterprise data strategy; facilitating research and product development; and promoting cross-enterprise communication.
 
Our software development team builds the technology used in many of our solutions. As part of our product-development process, we continually solicit feedback from our customers on the value of our products and services and the market’s needs. We have established an extensive system of customer advisory panels, which meet regularly throughout the year to help us respond effectively to the needs of our markets. In addition, we use frequent sales calls, executive visits, user group meetings, and other industry forums to gather information to match the needs of the market with our product development efforts. We also use a variety of market research techniques to enhance our understanding of our clients and the markets in which they operate.
 
We are currently funding 45 product43 solutions development initiatives for new and enhanced offerings, including:
 
 •     LOCATION Analyst, a new portfolio-assessment system that uses proprietary insurance industry data, visual maps and sophisticated reporting to help insurers make better risk management decisions;
 
 •     360Value, an innovative web-based system for estimating replacement values of residential, commercial and agricultural properties; and
 
 •     Predictive models to help insurers classify, segment and price risks for a variety of lines of insurance.
 
We also add to our offerings through an active acquisition program. Since 2003,2004, we have acquired 1415 businesses, which have allowed us to enter new markets, offer new products and enhance the value of existing products with additional proprietary sources of data.
 
When we find it advantageous, we augment our proprietary data sources and systems by forming alliances with other leading information providers and technology companies and integrating their product offerings into our offerings. This approach gives our customers the opportunity to obtain the information they need from a single source and more easily integrate the information into their workflows.
 
Sales, Marketing and Customer Support
 
We sell our products and services primarily through direct interaction with our clients. We employ a three-tier sales structure that includes salespeople, product specialists and sales support. As of March 31, 2008,2009, we had a sales force of 182163 people. Within the company, several areas have sales teams that specialize in specific products and services. These specialized sales teams sell specific, highly technical product sets to targeted markets.
 
To provide account management to our largest customers, we segment the insurance market into two groups. National Accounts constitutes our 20 largest customers and Strategic Accounts includes all other insurance companies. Each market segment has its own sales team. Salespeople are responsible for our overall relationship with P&C insurance companies.
 
Salespeople participate in both customer-service and sales activities. They provide direct support, interacting frequently with assigned customers to assure a positive experience using our services. Salespeople also seek out new sales opportunities and provide support to the rest of the sales team. We believe our salespeople’s product knowledge and local presence differentiates us from our competition. Product specialists have product expertise and work with salespeople on specific opportunities for their assigned products. Both salespeople and product specialists have responsibility for identifying new sales opportunities. A team approach and a common customer relationship management system allow for effective coordination between the two groups.


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We go to market using a number of brands, including:
 
(GRAPH)(GRAPH)
Sources of our Data
The data we use to perform our analytics and power our solutions are sourced through six different kinds of data arrangements. First, we gather data from our customers within agreements that also permit our customers to use the solutions created upon their data. These agreements remain in effect unless the data contributor chooses to opt out and represent our primary method of data gathering. It is very rare that contributors elect not to continue providing us data. Second, we have agreements with data contributors in which we specify the particular uses of their data and provide to the data contributors their required levels of privacy, protection of data and where necessary de-identification of data. These agreements represent no cost to us and generally feature a specified period of time for the data contributions and require renewal. Third, we “mine” data found inside the transactions supported by our solutions; as an example, we utilize the claims settlement data generated inside our repair cost estimating solution to improve the cost factors used in our models. Again, these arrangements represent no cost to us and we obtain the consent of our customers to make use of their data in this way. Fourth, we source data generally at no cost from public sources including federal, state and local governments. Fifth, we gather data about the physical characteristics of commercial properties through the direct observation of our field staff that also perform property surveys at the request of, and facilitated by, property insurers. Lastly, we purchase data from data aggregators under contracts that reflect prevailing market pricing for the data elements purchased, including county tax assessor records, descriptions of hazards such as flood plains and professional licenses. In all our modes of data collection, we are the owners of whatever derivative solutions we create using the data. Because of the efficiency of our data gathering methods and the lack of any cost associated with a large portion of our data, our costs to source data were 1.8% and 2.0% of revenues for the year ended December 31, 2008 and the three months ended March 31, 2009, respectively.
 
Information Technology
 
Technology
 
Our information technology systems are fundamental to our success. They are used for the storage, processing, access and delivery of the data which forms the foundation of our business and the development and delivery of our solutions provided to our clients. Much of the technology we use and provide to our clients is developed, maintained and supported by approximately 800 employees. We generally own or have secured ongoing rights to use for the purposes of our business all the customer-facing applications which are material to our operations. We support and implement a mix of technologies, focused on implementing the most efficient technology for any give business requirement or task.


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Customers connect to our systems using a number of different technologies, including internet, VPN, dedicated network connections, Frame Relay and Value Added Network services through vendors such as Advantis and IVANS. We utilize Computer Associates Unicenter, Hewlett Packard Insight Manager, Compuware Vantage and other best-of-breed point technologies to aggressively monitor and automate the management of our environment and applications as well as event-driven operational alerts.
 
Data Centers
 
We have two primary data centers in Jersey City, New Jersey and Orem, Utah. In addition, we have data centers dedicated to certain business units, including AIR and DxCG in Boston and AISG Claimsearch in Israel. In addition to these key data centers, we also have a number of smaller data centers located in other states.
 
Disaster Recovery
 
We are committed to a framework for business continuity management and carry out annual reviews of the state of preparedness of each business unit. All of our critical databases, systems and contracted client services are also regularly recovered. We also have documented disaster recovery plans in place for each of our major data centers and each of our solutions. Our primary data center recovery site is in New York State, approximately 50 miles northwest of Jersey City, New Jersey.
 
Security
 
We have adopted a wide range of measures to ensure the security of our IT infrastructure and data. Security measures generally cover the following key areas: physical security; logical security of the perimeter; network security such as firewalls; logical access to the operating systems; deployment of virus detection


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software; and appropriate policies and procedures relating to removable media such as laptops. All laptops are encrypted and media leaving our premises that is sent to a third-party storage facility is also encrypted. This commitment has led us to achieve certification from CyberTrust (an industry leader in information security certification) since 2002.
 
Intellectual Property
 
We own a significant number of intellectual property rights, including copyrights, trademarks, trade secrets and patents. Specifically, our policy language, insurance manuals, software and databases are protected by both registered and common law copyrights, and the licensing of those materials to our customers for their use represents a large portion of our revenue. We also own in excess of 200 trademarks in the U.S. and foreign countries, including the names of our products and services and our logos and tag lines, many of which are registered. We believe many of our trademarks, trade names, service marks and logos to be of material importance to our business as they assist our customers in identifying our products and services and the quality that stands behind them. We consider our intellectual property to be proprietary, and we rely on a combination of statutory (e.g., copyright, trademark, trade secret and patent) and contractual safeguards in a comprehensive intellectual property enforcement program to protect them wherever they are used.
 
We also own several software method and processing patents and have several pending patent applications in the U.S. that complement our products. The patents and patent applications include claims which pertain to technology, including a patent for our Claims Outcome Advisor software, our ISO-ITS rating and policy administration software and for our Xactware Sketch product. We believe the protection of our proprietary technology is important to our success and we will continue to seek to protect those intellectual property assets for which we have expended substantial research and development capital and which are material to our business.
 
In order to maintain control of our intellectual property, we enter into license agreements with our customers, granting each customer a license to use our products and services, including our software and databases. This helps to maintain the integrity of our proprietary intellectual property and to protect the embedded information and technology contained in our solutions. As a general practice, employees,


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contractors and other parties with access to our proprietary information sign agreements that prohibit the unauthorized use or disclosure of our proprietary rights, information and technology.
 
Employees
 
As of March 31, 20082009, we employed 3,2633,544 full-time and 141196 part-time employees. None of our employees are represented by unions. We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements.
 
Properties
 
Our headquarters are in Jersey City, New Jersey. As of March 31, 2008,2009, our principal offices consisted of the following properties:
 
         
Location
 Square Feet  Lease Expiration Date 
 
Jersey City, New Jersey  390,991   May 21, 2021 
Orem, Utah  68,343   January 1, 2017 
Boston, Massachusetts  47,000   March 31, 2015 
Agoura Hills, California  28,666   October 30, 2011 
South Jordan, Utah  23,505   May 31, 2014 
 
We also lease offices in 15 states in the United States and the District of Columbia and Puerto Rico and offices outside the United States to support our international operations in China, England, Israel, India, Japan, Germany and Germany.Nepal.


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We believe that our properties are in good operating condition and adequately serve our current business operations. We also anticipate that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms for future expansion.
 
Regulation
 
Because our business involves the distribution of certain personal, public and non-public data to businesses and governmental entities that make eligibility, service and marketing decisions based on such data, certain of our solutions and services are subject to regulation under federal, state and local laws in the United States and, to a lesser extent, foreign countries. Examples of such regulation include the Fair Credit Reporting Act, which regulates the use of consumer credit report information; the Gramm-Leach-Bliley Act, which regulates the use of non-public personal financial information held by financial institutions and applies indirectly to companies that provide services to financial institutions; the Health Insurance Portability and Accountability Act, which restricts the public disclosure of patient information and applies indirectly to companies that provide services to healthcare businesses; the Drivers Privacy Protection Act, which prohibits the public disclosure, use or resale by any state’s department of motor vehicles of personal information about an individual that was obtained by the department in connection with a motor vehicle record, except for a “permissible purpose” and various other federal, state and local laws and regulations.
 
These laws generally restrict the use and disclosure of personal information and provide consumers certain rights to know the manner in which their personal information is being used, to challenge the accuracy of such informationand/or to prevent the use and disclosure of such information. In certain instances, these laws also impose requirements for safeguarding personal information through the issuance of data security standards or guidelines. Certain state laws impose similar privacy obligations, as well as obligations to provide notification of security breaches in certain circumstances.
 
We are also licensed as a rating, rate service, advisory or statistical organization under state insurance codes in all fifty states, Puerto Rico, Guam, the Virgin Islands and the District of Columbia. As such an advisory organization, we provide statistical, actuarial, policy language development and related products and services to property/casualty insurers, including advisory prospective loss costs, other prospective cost information, manual rules and policy language. We also serve as an officially designated statistical agent of


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state insurance regulators to collect policy-writing and loss statistics of individual insurers and compile that information into reports used by the regulators.
 
Many of our products, services and operations as well as insurer use of our services are subject to state rather than federal regulation by virtue of the McCarran-Ferguson Act. As a result, many of our operations and products are subject to reviewand/or approval by state regulators. Furthermore, our operations involving licensed advisory organization activities are subject to periodic examinations conducted by state regulators and our operations and products are subject to state antitrust and trade practice statutes within or outside state insurance codes, which are typically enforced by state attorneys generaland/or insurance regulators.
 
Legal Proceedings
 
We are a party to legal proceedings with respect to a variety of matters in the ordinary course of business. Except asbusiness, including those matters described below, we do not believe that any legal proceedingsbelow. We are unable, at the present time, to which we aredetermine the ultimate resolution of or provide a party wouldreasonable estimate of the range of possible loss attributable to these matters or the impact they may have a material impact on our results of operations, financial position, or cash flows. This is primarily because many of these cases remain in their early stages and only limited discovery has taken place. Although we believe that we have strong defenses for the litigations proceedings described below, we could in the future incur judgments or fines or enter into settlements of claims that could have a material adverse effect on ourits results of operations, financial position or cash flows.
 
Claims Outcome Advisor Litigation
 
Hensley, et al. v. Computer Sciences Corporation et al.is a putative nationwide class action complaint, filed in February 2005, in Miller County, Arkansas state court. Defendants include numerous insurance companies and providers of software products used by insurers in paying claims. We are among the


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named defendants. Plaintiffs allege that certain software products, including our Claims Outcome Advisor product and a competing software product sold by Computer Sciences Corporation, improperly estimated the amount to be paid by insurers to their policyholders in connection with claims for bodily injuries. The parties to this case are currently engaged in fact and class certification discovery.
 
We have entered into settlement agreements with plaintiffs asserting claims relating to the use of Claims Outcome Advisor by defendants Hanover Insurance Group, Progressive Car Insurance, and Liberty Mutual Insurance Group. Each of these settlements has beenwas granted final approval by the court and together theythe settlements resolve the claims asserted in this case against us with respect to the above insurance companies, who settled the claims against them as well. A provision was made in the 2006 financials for this proceeding and the total amount wethe Company paid in 2008 with respect to these settlements was less than $2$2.0 million. A fourth defendant, The Automobile Club of California, thatwhich is alleged to have used Claims Outcome Advisor has not settled. Plaintiffs have agreed to dismiss uswas dismissed from the caseaction. On August 18, 2008, pursuant to the agreement of the parties the Court ordered that the claims against us be dismissed with prejudice onceprejudice.
Hanover Insurance Group has made a discoverydemand for reimbursement, pursuant to an indemnification provision contained in a December 30, 2004 License Agreement between Hanover and the Company, of its settlement and defense costs in the Hensley class action. Specifically, Hanover has demanded $2.5 million including $0.6 million in attorneys’ fees and expenses. We dispute relatingthat Hanover is entitled to certain documents is resolved.any reimbursement pursuant to the License Agreement. We have entered into a tolling agreement with Hanover in order to allow the parties time to resolve the dispute without litigation.
 
Xactware Litigation
 
ThreeThe following two lawsuits have been filed by or on behalf of groups of Louisiana insurance policyholders who claim, among other things, that certain insurers who used products and price information supplied by our subsidiary, Xactware subsidiary (and those of another provider) did not fully compensate policyholders for property damage covered under their insurance policies. The plaintiffs seek to recover compensation for their damages in an amount equal to the difference between the amount paid by the defendants and the fair market repair/restoration costs of their damaged property.


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Schafer v. State Farm Fire & Cas. Co., et al. is a putative class action pending against us and State Farm Fire & Casualty Company filed in March 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. The court dismissed the antitrust claim as to both defendants and dismissed all claims against us other than fraud, which will proceed to the discovery phase along with the remaining claims against State Farm. Plaintiffs have moved to certify a class with respect to the fraud and breach of contract claims.claims which the defendants have opposed. The class certification hearing was held on April 8, 2009 and the parties are awaiting the court’s decision.
 
Mornay v. Travelers Ins. Co., et al. is a putative class action pending against us and Travelers Insurance Company filed in November 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. As in Schafer, the court dismissed the antitrust claim as to both defendants and dismissed all claims against us other than fraud. The court has stayed all proceedings in the case pending resolutionan appraisal of a contractual appraisal proceeding to resolve any dispute as to whether the named plaintiffs received the amount to which they were entitled under theirlead plaintiff’s insurance policy.claims.
Louisiana ex rel. Foti v. Allstate Ins. Co.is a putative parens patriae action filed by the Louisiana Attorney General in Louisiana state court against numerous insurance companies, the Company, and other solution providers, and consultants. The complaint contains allegations of an antitrust conspiracy among the defendants with respect to the payment of insurance claims for property damage. Defendants removed the case to the Eastern District of Louisiana. A motion to remand the case to state court was denied by the district court. That decision was affirmed by the United States Court of Appeals for the Fifth Circuit.
 
At this time it is not possible to determine the ultimate resolution of, or estimate the liability related to, these matters. No provision for losses has been provided in connection with the Xactware litigation.
 
iiX Litigation
 
In March 2007, our subsidiary, Insurance Information Exchange, or iiX, subsidiary, as well as other information providers and insurers in the State of Texas, were served with a summons and class action complaint filed in the United States District Court for the Eastern District of Texas alleging violations of the Driver Privacy Protection Act, or the DPPA. Plaintiffs brought the action on their own behalf and on behalf of all similarly situated individuals whose personal information is contained in any motor vehicle record maintained by the State of Texas and who have not provided express consent to the State of Texas for the distribution of their personal information for purposes not enumerated by the DPPA and whose personal information has been knowingly obtained and used by the defendants. The complaint alleges that the defendants knowingly obtained personal information pertaining to class plaintiffs from motor vehicle records maintained by the State of Texas and that the obtaining and use of this personal information was not for a purpose authorized by the DPPA. The complaint seeks liquidated damages in the amount of $2,500 for theeach instance of a violation of the DPPA, punitive damages and punitive damages. We have filed athe destruction of any illegally obtained personal information. The Court granted iiX’s motion to dismiss the complaint based on failure to state a claim and lack of standing, and a decision on that motion is pending.the plaintiffs are appealing the dismissal.


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MANAGEMENT
 
Executive Officers and Directors
 
The following table sets forth information regarding the executive officers and directors of the Company, as of March 31, 2008:2009:
 
       
Name
 
Age
 
Position
 
Frank J. Coyne  5960  Chairman of the Board of Directors, President and Chief Executive Officer
Scott G. Stephenson  5152  Executive Vice President and Chief Operating Officer
Mark V. Anquillare  4243  Senior Vice President and Chief Financial Officer
Kenneth E. Thompson  4849  Senior Vice President, General Counsel and Corporate Secretary
Carole J. Banfield  6869  Executive Vice President — Information Services and Government Relations
Vincent Cialdella  5758  Senior Vice President — AISG
Kevin B. Thompson  56  Senior Vice President — Insurance Services
J. Hyatt Brown  7172  Director
Glen A. Dell  7273  Director
Henry J. Feinberg  5657  Director
Christopher M. Foskett  5052  Director
Constantine P. Iordanou  5859  Director
John F. Lehman, Jr.   65Director
Stephen W. Lilienthal5867  Director
Samuel G. Liss  5153  Director
Andrew G. Mills  55  Director
Arthur J. Rothkopf  7374  Director
Barbara D. Stewart  6566  Director
David B. Wright  5960  Director
 
A brief biography of each executive officer and director follows.
 
Executive Officers
 
Frank J. Coynehas been our Chairman, President and Chief Executive Officer since 2002. From 2000 to 2002, Mr. Coyne served as our President and Chief Executive Officer and he served as our President and Chief Operating Officer from 1999 to 2000. Mr. Coyne joined the Company from Kemper Insurance Cos. where he was Executive Vice President Specialty and Risk Management Groups. Previously, he served in a variety of positions with General Accident Insurance, and was elected its President and Chief Operating Officer in 1991. He has also held executive positions with Lynn Insurance Group, Reliance Insurance Co. and PMA Insurance Co.
 
Scott G. Stephensonhas been our Chief Operating Officer since June 2008 and leader of our Decision Analytics segment. From 2002 to 2008, Mr. Stephenson served as our Executive Vice President and he served as President of our Intego Solutions business from 2001 to 2002. Mr. Stephenson joined the Company from Silver Lake Partners, a technology-oriented private equity firm, where he was anexecutive-in-residence from 1999 to 2001. From 1989 to 1999 Mr. Stephenson was a partner with The Boston Consulting Group, eventually rising to senior partner and member of the firm’s North American operating committee.
 
Mark V. Anquillarehas been our Senior Vice President and Chief Financial Officer since 2007. Mr. Anquillare joined the Company as Director of Financial Systems in 1992 and since joining the Company, Mr. Anquillare has held various management positions, including Assistant Vice President, Vice President and


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Controller and Senior Vice President and Controller. Prior to 1992, Mr. Anquillare was employed by the Prudential Insurance Company of America. Mr. Anquillare is a Fellow of the Life Management Institute.
 
Kenneth E. Thompsonhas been our Senior Vice President, General Counsel and Corporate Secretary since 2006. Prior to joining the Company in 2006, Mr. Thompson was a partner of McCarter & English, LLP from 1997 to 2006. Mr. Thompson also serves on the board of directors of Measurement Specialties, Inc.
 
Carole J. Banfieldhas been our Executive Vice President Information Services and Government Relations Department focused on our Risk Assessment segment since 1996. Ms. Banfield joined the Company in 1970 as an assistant actuary in the Homeowners Actuarial Division and since 1977 has held various management positions, including Vice President Government and Industry Relations. Ms. Banfield began her career with the National Bureau of Casualty Underwriters in 1962. Ms. Banfield is a member of the American Academy of Actuaries and an Associate of the Casualty Actuarial Society. She currently serves on the board of directors of the American Society of Workers’ Compensation Professionals, the Insurance Data Management Association and on the Industry Advisory Group of ACORD.
 
Vincent Cialdellahas been our Senior Vice President, AISG since April 2008 in our Decision Analytics segment. Prior to April 2008, Mr. Cialdella served as Vice President of ISO Claims Solutions, a division of AISG, since 2000. Mr. Cialdella’s career at the Company spans approximately thirty years, during which he has served as Assistant Vice President of Software Products, Corporate Systems and Application Development Support Center.
 
Kevin B. Thompsonhas been our Senior Vice President, Insurance Services since 2003 focused on our Risk Assessment segment. Mr. Thompson joined the Company in 1974 and has held various management positions, including Vice President, Insurance Services, Vice President, Personal and Standard Commercial Lines, Vice President, Standard Commercial Lines, Assistant Vice President, Commercial Casualty Actuarial. Mr. Thompson is also a memberMember of the American Academy of Actuaries and an associate and fellowFellow of the Casualty Actuarial Society. From 1996 to 1999 he served as vice president of admissionsVice President - Admissions of the Casualty Actuarial Society and as a directorMember of the Board of Directors from 1994 to 1996.
 
Class A Directors
 
Christopher M. Fosketthas served as one of our directors since 1999. Mr. Foskett iswas a Managing Director and Global Head of the Financial Institutions Group in Citigroup’s Corporate Bank since 2007.from 2007 to 2008. From 2003 to 2007, Mr. Foskett was Head of Sales and Relationship Management for Citigroup Global Transaction Services. He also served as Global Industry Head for the Insurance and Investment Industries in Citigroup’s Global Corporate Bank from 1999 to 2003. Previously, he held various roles in Citigroup’s mergers and acquisitions group.
 
David B. Wrighthas served as one of our directors since 1999. Mr. Wright has been Chairman and Chief Executive Officer of Verari Systems since 2006. Before joining Verari Systems, he was Executive Vice President, Office of the CEO, Strategic Alliances and Global Accounts of EMC Corporation from 2004 to 2006. Between 2001 and 2004 he was Chairman and Chief Executive Officer of Legato Systems and from 1997 to 2000 Mr. Wright was the President and Chief Executive Officer of Amdahl Corporation. Mr. Wright is also a director on the board of VA Software and ActiveIdentity.
 
John F. Lehman, Jr. has served as one of our directors since 1995. Mr. Lehman is Chairman of J. F. Lehman & Co., an investment firm that he founded in 1991. Prior to founding J. F. Lehman & Co., he was Managing Director of Paine Webber, Inc. from 1988 to 1991. In 1981, Mr. Lehman was appointed Secretary of the Navy by President Reagan and served in that capacity until 1987. Mr. Lehman was a member of the bipartisan September 11 Commission and serves on the board of directors of Ball Corp., EnerSys, Inc., Hawaii Superferry Inc., Atlantic Marine, Oao Technology Solutions Inc. and Special Devices, Incorporated.
 
Andrew G. Millshas served as one of our directors since 2002. Mr. Mills has been President of The King’s College in New York, NY since 2007. He is the former Chairman of Intego Solutions LLC, which he founded in 2000. Mr. Mills previously served as Chief Executive Officer of The Thomson Corporation’s Financial and Professional Publishing unit and as a member of Thomson’s board of directors. In 1984, he lead


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thestart-up operations of Business Research Corporation and was responsible for overseeing its sale and integration into The Thompson Corporation. He began his career with Courtaulds Ltd. and joined The Boston Consulting Group in 1979. Mr. Mills is on the board of directors of The King’s College, Lexington Christian Academy, Camp of the Woods and Hope Christian Church, and is a member of the Massachusetts State Board of the Salvation Army.
 
Arthur J. Rothkopfhas served as one of our directors since 1993. Mr. Rothkopf has served as Senior Vice President and Counselor to the President of the U.S. Chamber of Commerce since July of 2005. From 1993 to 2005, Mr. Rothkopf was President of Lafayette College in Easton, Pennsylvania. Prior to serving as President of Lafayette College, Mr. Rothkopf was General Counsel and Deputy Secretary of the U.S. Department of Transportation, appointed by President George H. W. Bush. From 1967 through 1991, he practiced law with the Washington, D.C., firm of Hogan & Hartson, where he was a senior partner. Mr. Rothkopf is a Trustee of American University in Washington D.C.
 
J. Hyatt Brownhas served as one of our directors since 2003. Mr. Brown has been Chairman and Chief Executive Officer of Brown & Brown, Inc. since 1993. Mr. Brown is a Trustee of Stetson University in Florida, a past member of the Florida Board of Regents and a member of the Florida Council of 100. He was elected to the Florida House of Representatives in 1972 and was elected Speaker in 1978. Mr. Brown retired as Speaker in 1980. He also serves on the board of directors of Rock-Tenn Company, the FPL Group Inc. and the Daytona International Speedway Corporation.
 
Glen A. Dellhas served as one of our directors since 1995. Mr. Dell is a retired Partner of MapleWood Equity Partners LP. Mr. Dell served as a Partner of MapleWood Equity Partners LP from 1998 to 2007. From 1992 to 1997, Mr. Dell served as President of Investcorp Management Services Inc., where he was responsible for post-acquisition management of Investcorp’s portfolio of companies in North America. He has also served as a consultant, specializing in interim management services, and held executive positions with General Electric Co., International Paper Co., and JWT Group, Inc. Mr. Dell was a member of the board of directors of Parts Depot, Inc. until February 28, 2008.
 
Henry J. Feinberghas served as one of our directors since 1996. Since 2000, Mr. Feinberg has been a Partner of Technology Crossover Ventures, a private equity and venture capital firm. Previously, Mr. Feinberg was Chairman and Chief Executive Officer of Rand McNally & Company. Mr. Feinberg is also a director of Adknowledge, Inc., CosmoCom, Inc., eLoyalty Corporation, FXall and Yield Management Services Ltd.
 
Barbara D. Stewarthas served as one of our directors since 1995. Ms. Stewart has been President of Stewart Economics, Inc., a consulting firm that specializes in the insurance business and its regulation, since 1981. Before forming Stewart Economics, Ms. Stewart was Corporate Economist of the Chubb Group of Insurance Companies. Ms. Stewart is also a director of The Main Street America Group; a former director of Capital Re Corporation; a former overseer of The School of Risk Management, Insurance, and Actuarial Science of St. John’s University; and a member of the Editorial Board ofRisk Management and Insurance Review.
 
Class B Directors
 
Constantine P. Iordanouhas served as one of our directors since 2001. Mr. Iordanou has served as President and Chief Executive Officer of Arch Capital Group Limited, or ACGL, since August 2003 and as director of ACGL since January 2002. From January 2002 through July 2003, he was Chief Executive Officer of Arch Capital (U.S.) Inc., a wholly owned subsidiary of ACGL. Prior to joining ACGL in 2002, Mr. Iordanou served in various capacities for Zurich Financial Services and its affiliates, including as Senior Executive Vice President of Group Operations and Business Development of Zurich Financial Services, President ofZurich-American Specialties Division, Chief Operating Officer and Chief Executive Officer of Zurich American and Chief Executive Officer of Zurich North America. Prior to joining Zurich in March of 1992, he served as President of the Commercial Casualty division of the Berkshire Hathaway Group and served as Senior Vice President with the American Home Insurance Company, a member of the American International Group.


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Samuel G. Lisshas served as one of our directors since 2005. Mr. Liss has been Executive Vice President at The Travelers Companies since 2004. Before the merger of The St. Paul and Travelers Companies, Mr. Liss served as Executive Vice President at The St. Paul from February 2003 to April 2004. From 1994 to 2001, Mr. Liss was a Managing Director at Credit Suisse First Boston, or CSFB, initially focused on equity research across a range of financial institution sectors and subsequently serving in a Senior Investment Banking relationship, advisory and execution role in CSFB’s Financial Institutions Group, including leadership of its asset management industry practice. Mr. Liss was a senior equity analyst at Salomon Brothers from 1980 to 1994.
 
Stephen W. Lilienthalhas served as one of our directors since 2008. Mr. Lilienthal has been Chairman of the Board of Directors and Chief Executive Officer of CNA Financial Corporation, or CNA, and its insurance subsidiaries since August 2002. Prior to that time, he was President and Chief Executive Officer, Property and Casualty Operations of the CNA insurance companies. He is a member of the Executive and Finance Committees of CNA and has been a director of CNA since August of 2001. Mr. Lilienthal is also a director of American Institute for Chartered Property Casualty Underwriters, After School Matters, Northwestern Memorial Foundation, World Business Chicago, The Executives’ Club of Chicago and Boys and Girls Clubs of Chicago.
Board Composition
 
The number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation. From the date of this prospectus until the earlier of (a) the30-month anniversary of the date of this prospectus or (b) the date on which there are no shares of Class B common stock issued and outstanding, our board of directors will consist of between 11 and 13 directors, and will be comprised as follows:
 
 •     between eight to ten Class A directors; and
 
 •     three Class B directors.
 
See “Description of Capital Stock — Anti-Takeover Effects of Delaware Law — Staggered Boards.”
 
Director Independence
 
Our board of directors currently consists of 1312 directors, 1211 of which are “independent” as defined under applicable listing rules. One Class B seat on our board of directors is currently vacant. Currently, the following individuals serve on our board of directors as independent directors: J. Hyatt Brown, Glen A. Dell, Henry J. Feinberg, Christopher M. Foskett, Constantine P. Iordanou, John F. Lehman, Jr., Stephen W. Lilienthal, Samuel G. Liss, Andrew G. Mills, Arthur J. Rothkopf, Barbara D. Stewart and David B. Wright.
 
Board Committees
 
Our by-laws provide that the board of directors may designate one or more committees. We currently have the following committees: Executive Committee, Audit Committee, Compensation Committee, Finance and Investment Committee, and Nominating and Corporate Governance Committee.
 
The Executive Committee currently consists of Frank J. Coyne (Chair), Glen A. Dell, Constantine P. Iordanou, John F. Lehman, Jr. and Arthur J. Rothkopf. The Executive Committee exercises all the power and authority of the board of directors (except those powers and authorities that are reserved to the full board of directors under Delaware law) between regularly scheduled board of directors meetings. The Executive Committee also makes recommendations to the full board of directors on various matters. The Executive Committee meets as necessary upon the call of the chairman of the board of directors.
 
The Audit Committee currently consists of Arthur J. Rothkopf (Chair), Henry J. Feinberg, Christopher M. Foskett, Andrew G. Mills and Barbara D. Stewart, all of whom are “independent” as defined under applicable listing rules. Each member of our Audit Committee is financially literate, as such term is interpreted by our board of directors. Ms. Barbara D. Stewart is an “audit committee financial expert” as that term is


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defined under the Securities and Exchange Commission rules. The Audit Committee reviews and, as it deems appropriate, recommends to the board of directors the internal accounting and financial controls for the Company and the accounting principles and auditing practices and procedures to be employed in preparation and review of the financial statements of the Company. The Audit Committee also provides assistance to our board of directors in fulfilling its responsibilities with respect to our compliance with legal and regulatory requirements. In addition, the Audit Committee also makes recommendations to the board of directors concerning the engagement of the independent accounting firm and the scope of the audit to be undertaken by such auditors.


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The Compensation Committee currently consists of John F. Lehman, Jr. (Chair), Glen A. Dell, Constantine P. Iordanou and David B. Wright, all of whom are “independent” as defined under applicable listing rules. The Compensation Committee reviews and, as it deems appropriate, recommends to the board of directors policies, practices and procedures relating to the compensation of the officers and other managerial employees and the establishment and administration of employee benefit plans. The Compensation Committee also exercises all authority under the Company’s employee equity incentive plans and advises and consults with the officers of the Company as may be requested regarding managerial personnel policies.
 
The Finance and Investment Committee currently consists of Glen A. Dell (Chair), Frank J. Coyne, Henry J. Feinberg, Christopher M. Foskett and John F. Lehman, Jr. The Finance and Investment Committee meets annually and at such other times as necessary to establish, monitor and evaluate the Company’s investment policies, practices and advisors, and to advise management and the board of directors on the financial aspects of strategic and operational directions, including financial plans, capital planning, financing alternatives, and acquisition opportunities.
 
The Nominating and Corporate Governance Committee currently consists of Constantine P. Iordanou (Chair), Frank J. Coyne, Arthur J. Rothkopf and David B. Wright. Mr. Constantine P. Iordanou, Arthur J. Rothkopf and David B. Wright are “independent” as defined under applicable listing rules. Following this offering, we expect that the Nominating and Corporate Governance Committee will be comprised of independent directors in accordance with applicable requirements. The Nominating and Corporate Governance Committee reviews and, as it deems appropriate, recommends to the board of directors policies and procedures relating to director and board of directors committee nominations and corporate governance policies.
 
Code of Business Conduct and Ethics
 
Our board of directors has established a code of business conduct and ethics that applies to our employees, agents, independent contractors, consultants, officers and directors. Any waiver of the code of business conduct and ethics may be made only by our board of directors and will be promptly disclosed as required by law or stock exchange regulations. The board of directors has not granted any waivers to the code of business conduct and ethics.
 
Corporate Governance Guidelines
 
Our board of directors has adopted corporate governance guidelines that comply with the applicable listing requirements and the regulations of the Securities and Exchange Commission.
 
Compensation Committee Interlocks and Insider Participation
 
No member of the Compensation Committee is a current or former officer of the Company or any of our subsidiaries. In addition, there are no compensation committee interlocks with the board of directors or compensation committee of any other company.
 
Directors’ Compensation and Benefits
 
Annual Retainer.  Effective June 1, 2007, each non-employee director receives a retainer fee of $50,000 per year for membership on the board of directors. Each non-employee director who chairs a


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committee receives an additional $5,000 retainer fee, with the exception of the chairpersons of the Audit Committee and Compensation Committee, each of whom receives an additional $12,500 annual retainer fee.
 
Each non-employee director may elect to receive his or her annual retainer in the form of (i) cash, (ii) deferred cash, (iii) shares of Class A common stock, (iv) deferred shares of Class A common stock, (v) options to purchase Class A common stock or (vi) a combination of (i), (ii), (iii), (iv) and (v), except that not more than 50% of the Annual Retainer may be paid in cash. Any portion of the annual retainer taken in options are exercisable for a period of ten years from the date of grant (subject to earlier termination if the individual ceases to be a director of the Company), vest immediately, and have an exercise price equal to the fair market value of the Class A common stock on the date of grant.


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Meeting Attendance Fees.  Each non-employee director receives a $1,500 fee for each board of directors or Committee meeting attended in person. Meeting attendance fees are payable only in cash or deferred cash.
 
Stock Option Grants.  Effective as of the 2007 Annual Meeting of Stockholders, each non-employee director receives an annual option grant having a Black-Scholes value of $125,000. The initial awarding of such options is being phased in over a period of three years, so that, from 2007 through 2009, each non-employee director receives (or received) the initial grant in the year he or she is (or was) re-elected. Such options, and any portion of the Annual Retainer Fees elected to be taken as options are exercisable for a period of ten years from the date of grant (subject to earlier termination if the individual ceases to be a director of the Company), vest on the first anniversary of the date of grant, and have an exercise price equal to the fair market value of the Class A common stock on the date of grant. Prior to the 2007 Annual Meeting of Stockholders, each non-employee director was granted an option to purchase 1,500 shares of Class A common stock every three years upon his or her re-election to the Board.
 
Employee-directors receive no additional compensation for service on the board of directors. Mr. Frank J. Coyne is the onlyemployee-director.
 
The table below shows compensation paid to or earned by the directors during 2007.2008. As noted above, directors may elect to receive compensation in various forms other than cash. Also, prior to 2007, directors received stock option grants every three years upon their re-election to the board. We are required to report equity awards based on accounting expense. The amounts shown for each director are not uniform because accounting expense will differ in part depending on how each director elected to receive his or her compensation and the years in which they were re-elected to the board.
                 
  Fees Earned or
  Stock Awards
  Option Awards
  Total
 
Name
 Paid in Cash ($)  ($)(1)  ($)(1)  ($) 
 
Joseph A. Brandon(2)  7,500   25,080   52,271   84,851 
J. Hyatt Brown(3)  32,500   25,080   97,725   155,305 
Glen A. Dell(4)  10,500      152,725   163,225 
Henry J. Feinberg(5)  10,500      147,725   158,225 
Christopher M. Foskett(6)  31,000   12,540      43,540 
Constantine Iordanou(7)        117,500   117,500 
John F. Lehman, Jr.(8)        125,000   125,000 
Samuel G. Liss(9)  32,000      149,996   181,996 
Andrew G. Mills(10)  4,500      112,500   117,000 
Arthur J. Rothkopf(11)  9,000   62,700   62,500   134,200 
Barbara D. Stewart(12)  9,000      97,725   106,725 
David B. Wright(13)  9,000   50,160   27,271   86,431 
2008 DIRECTOR COMPENSATION
                 
  Fees Earned or
  Stock Awards
  Option Awards
  Total
 
Name
 Paid in Cash ($)  ($)(1)  ($)(1)  ($) 
 
Joseph A. Brandon(2)  4,500         4,500 
J. Hyatt Brown(3)  32,500   25,000   48,863   106,363 
Glen A. Dell(4)  10,500      103,863   114,363 
Henry J. Feinberg(5)  12,000      98,863   110,863 
Christopher M. Foskett(6)  12,000   12,500   87,500   112,000 
Constantine Iordanou(7)        180,000   180,000 
John F. Lehman, Jr.(8)        187,500   187,500 
Stephen W. Lilienthal(9)     12,500      12,500 
Samuel G. Liss(10)  31,000      73,863   104,863 
Andrew G. Mills(11)  7,500      175,000   182,500 
Arthur J. Rothkopf(12)  9,000   62,500   125,000   196,500 
Barbara D. Stewart(13)  10,500   50,000   48,863   109,363 
David B. Wright(14)  9,000   50,000   62,500   121,500 
 
(1)The amounts associated with option awards reflect the expense incurred for accounting purposes in accordance with FAS 123R for options granted in 2008 and prior years. For a discussion of the assumptions used to calculate the amounts shown in the option awards and stock awards columns, see note 2(j) of the notes to our audited consolidated financial statements included as part of this prospectus.
 
(2)Mr. Brandon received options during 2007 withwas a fair value of $25,000, and stock awards with a fair value of $25,080. As of December 31, 2007, Mr. Brandon owned options covering 3,635 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 2007 relating to option grants made in 2006.director until June 27, 2008.


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(3)Mr. Brown received stock awards during 20072008 with a fair value of $25,080.$25,000. As of December 31, 2007,2008, Mr. Brown owned 354 stock awards and options covering 3,000 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 20072008 relating to option grants made in 2006.
 
(4)Mr. Dell received options during 20072008 with a fair value of $55,000. As of December 31, 2007,2008, Mr. Dell owned options covering 1,724746 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 20072008 relating to option grants made in 2006.


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(5)Mr. Feinberg received options during 20072008 with a fair value of $50,000. As of December 31, 2007,2008, Mr. Feinberg owned options covering 3,7392,963 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 20072008 relating to option grants made in 2006.
 
(6)Mr. Foskett received stock awards and options during 20072008 with a fair value of $12,540.$12,500 and $87,500, respectively. As of December 31, 2007,2008, Mr. Foskett owned 4790 stock awards and options covering 1,0001,112 shares.
 
(7)Mr. Iordanou received options during 20072008 with a fair value of $117,500. As of December 31, 2007,2008, Mr. Iordanou owned options covering 8,796 shares.
(8)Mr. Lehman received options during 2007 with a fair value of $125,000. As of December 31, 2007, Mr. Lehman owned options covering 2,517 shares.
(9)Mr. Liss received options during 2007 with a fair value of $25,000. As of December 31, 2007, Mr. Liss owned options covering 1,8709,042 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 20072008 relating to option grants made in 2007.
(8)Mr. Lehman received options during 2008 with a fair value of $125,000. As of December 31, 2008, Mr. Lehman owned options covering 1,797 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 2008 relating to option grants made in 2007.
(9)Mr. Lilienthal received stock awards during 2008 with a fair value of $12,500. Mr. Lilienthal was a director from June 27, 2008 until December 17, 2008.
(10)Mr. Liss received options during 2008 with a fair value of $25,000. As of December 31, 2008, Mr. Liss owned options covering 1,982 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 2008 relating to option grants made in 2006.
 
(10)(11)Mr. Mills received options during 20072008 with a fair value of $112,500. As of December 31, 2007,2008, Mr. Mills owned options covering 5,6085,832 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 2008 relating to option grants made in 2007.
 
(11)(12)Mr. Rothkopf received stock awards and options during 20072008 with a fair value of $62,500 and $62,500, respectively. As of December 31, 2008, Mr. Rothkopf owned 219 stock awards and options covering 1,021 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 2008 relating to option grants made in 2007.
(13)Ms. Stewart received stock awards during 2008 with a fair value of $62,700.$50,000. As of December 31, 2007, Mr. Rothkopf owned options covering 2,021 shares.
(12)As of December 31, 2007,2008, Ms. Stewart owned 1,1421,524 stock awards and options covering 1,500 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 20072008 relating to option grants made in 2006.
 
(13)(14)Mr. Wright received stock awards and options during 20072008 with a fair value of $50,160.$50,000 and $62,500, respectively. As of December 31, 2007,2008, Mr. Wright owned 116 stock awards and options covering 3,6423,142 shares. The amount shown in the option column above includes expense amounts recognized, under FAS 123R, in 2007 relating to option grants made in 2006.
Where no information is given as to a particular type of award with respect to any individual, such individual did not hold or receive such an award during or as of the end of the last fiscal year, as the case may be.
 
EXECUTIVE COMPENSATION
 
Compensation Discussion and Analysis
 
Our business requires a highly skilled work force. While the capital intensity of our business is low, our human capital requirements are great. As noted elsewhere in this prospectus, our business depends on our senior leadership team, who possess business and technical capabilities that would be difficult, and costly, to replace. We have designed our compensation program to address these needs.
 
This section discusses the principles underlying our policies and decisions relating to the compensation of our principal executive officer, our principal financial officer, and our other three most highly compensated executive officers. This information describes the manner and context in which compensation is earned by and awarded to these Named Executive Officers, or NEOs, and provides perspective on the tables and narrative that follow.


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Compensation Program Objectives
We believe the
The compensation program for our NEOs must attract, reward, motivate and retain the highly-qualified individuals we need to plan and execute our business strategy. We believe the program motivates managers by directly linking a portion of compensation both to the Company’s performance and the individual’s performance. To foster this direct link, we have designed our program so that a significant percentage of aan NEO’s compensation is variable rather than fixed. This percentage increases with seniority, because we believe that the decisions of more senior managers have a greater impact on our performance.


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Executives will earn variable compensation (cash awards and stock options) only if warranted by Company and individual performance. Variable compensation for our NEOs consists of an annual cash payment pursuant to our Short Term Incentive, or STI, program and a long-term equity incentive award (typically in the form of stock options) pursuant to our Long Term Incentive, or LTI, program. We believe the design of our compensation program effectively encourages our senior managers to act in a manner that benefits the Company by creating long-term value for our stockholders.
 
Elements of the Company’s Compensation Program
 
We currently provide the following elements of compensation to our NEOs:
 
 •     base salary;
 
 •     annual cash incentive awards;
 
 •     long-term equity incentive awards; and
 
 •     health, welfare and retirement plans.
 
Each compensation element fulfills one or more of our compensation program objectives.
 
Base Salary
 
We pay base salaries to attract, reward and retain managers, and so that in recruiting and retaining senior executives we are not disadvantaged by being seen as offering a lower level of fixed compensation for a given position level. We reviewadjust salaries annually to maintain competitive market levels, which are based on the experience and scope of responsibilities of each NEO. We perform our own internal analysis of prevailing market levels of salary for comparable positions. This analysis utilizes our general knowledge of the industry, anecdotal evidence gained by our human resources professionals in the hiring and termination process and, when available, commercially prepared market surveys obtained by our human resources professionals. In addition, in 2008 we retained Fredric W. Cook & Co. (“Cook”) to assess the competitiveness of compensation for certain members of senior management. The compensation of all NEOs other than Mr. Coyne was included in the Cook assessment. The Cook assessment compared the current compensation of certain members of our senior management to data from two proprietary third-party surveys and to information obtained by reviewing the proxy statements of fourteen publicly traded companies. The public companies whose compensation information was reviewed by Cook in its analysis were Acxiom, DST Systems, Dun & Bradstreet, Equifax, FactSet Research Systems, Fair Isaac, Fidelity National Information Services, IHS, IMS Health, Moody’s, Morningstar, MSCI, RiskMetrics and Solera Holdings.
Our internal analysis, and the 2008 assessment performed by Cook, provide a framework within which our compensation decisions are made. This information is provided to Mr. Coyne and the Compensation Committee to assist them in evaluating the competitiveness of our compensation practices. This evaluation, and the evaluations of individual and company performance described below in “Analysis of 2008 Variable Compensation”, are utilized in the determination of compensation of our NEOs. We believe the base salaries of our NEOs are approximately at the midpoint of comparable salaries, based on the analysis above.
The base salary of our Chief Executive Officer, or CEO, is determined by the Compensation Committee. The base salary of each of our other NEOs is determined by the CEO, subject to approval by the Compensation Committee. All NEO’s other than Mr. Kenneth Thompson are long-term employees. Their base


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salaries were initially determined by the Compensation Committee (in the case of Mr. Coyne) or by Mr. Coyne, with the approval of the Compensation Committee (in the case of others) based on the assessment described above. Mr. Kenneth Thompson joined the Company in October 2006. His base salary was determined at the time he was hired based on our assessment of prevailing market compensation practices for comparable positions developed during the recruiting process. Base salary as a percentage of total compensation differs based on an executive’s position and function. Generally, executives with the highest position and level of responsibility, and thus the greatest ability to influence our performance through their decision making, have the smallest percentage of their total compensation fixed as salary. Annual adjustments to base salary are determined by the Compensation Committee, in the case of Mr. Coyne, and by Mr. Coyne with the approval of the Compensation Committee, in the case of other NEOs, based on the assessment of prevailing market compensation practices described above, and based on the subjective evaluation of individual performance factors discussed below in “Analysis of 2008 Variable Compensation.” We have historically placed greater emphasis on the incentivizing potential of variable compensation;compensation to incent employees to create long-term value for this reason we have generally maintained salaries at a level that we believe is below the prevailing range for similar positions.our stockholders.
 
Annual Cash Incentive Awards
Annual cash incentive awards are paid to all eligible employees, including NEOs, pursuant to our STI Plan. At the conclusion of each year, the Compensation Committee establishes financial performance goals for the coming year under our STI program. The specified financial performance goals relate to growth in revenue and EBITDA margin, and are derived from our strategic and business growth plan. We selected revenue growth and EBITDA margin growth as the criteria for STI because 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. For 2007, the Compensation Committee established these growth targets at 10% and 28% respectively, with each factor having equal weight. Minimum thresholds were set at 6% and 25%, respectively, and maximum levels at 15% and 35%, respectively. In addition, to these pre-determined revenue growth and EBITDA margin goals, the Compensation Committee evaluates the accomplishment during the year of other financial and nonfinancial performance measures that we believe position the Company to achieve long-term future growth. These include enhancements to productivity, achievement of new sales, accomplishment of strategic and operational initiatives and completion of acquisitions and strategic relationships. The Compensation Committee has discretion to increase or decreaseAt the sizeconclusion of the performance year, funding of the aggregate STI pool to account for specific considerations applicable to a particular year.
Funding of the STI poolall eligible employees is determined by the Compensation Committee, taking into account the recommendation of the CEO, at the conclusion of the performance year based on the degree to which goals are achieved during the year.
Within the STI pool, awards are made for each NEO based upon a subjective review of each individual’s performance for the year. Targets for STI awards are expressed as a percentage of base salary,


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which percentage differs based on an executive’s position and function. There is discretion to pay an individual above or below their target STI award based on the assessment of that individual’s performance. The STI award for our CEO is determined by the Compensation Committee. The STI awards for each of our other NEOs are determined by the CEO, subject to approval by the Compensation Committee. Awards under the STI plan are in the form of cash payments. Cash STI awards are paid in March, in respect of performance for the prior year.
See “Analysis of 2008 Variable Compensation” for a discussion of how we determined 2008 STI awards for NEOs.
 
Long-Term Equity Incentive Awards
Long term equity incentive awards are made annually to eligible employees, including NEOs, pursuant to our LTI Plan. Awards under the LTI plan are generally in the form of option grants. The LTI plan also permits us to grant restricted stock awards, however that has not been our practice because we believe options provide a more effective incentive to increase the value of the Company. Also, our Employee Stock Ownership Plan, or ESOP, described below under “— Health, Welfare and Retirement Plans,” has enabled us to grant interests in our stock to our executives, also providing a directional, less highly leveraged incentive to increase share value.
The number of shares underlying an option grant under the LTI program is determined by a grant date value of the option award using a Black-Scholes formula, calculated by an independent valuation specialist we retain for that purpose. The target award value for each executive is expressed as a percentage of base salary, and is subject to the achievement of Company and individual performance goals, in the same way as for STI discussed above.
practice. In general, option awards under the LTI plan are made in March andor April, in respect of prior year performance. Option awards have an exercise price equal to the fair market value of our Class A common stock on the date of grant, which is determined pursuant to the most recently conducted appraisal performed in connection with our ESOP. The number of shares underlying an option grant under the LTI program is determined by a grant date value of the option award using a Black-Scholes formula.
 
Our practice has been to award Mr. Frank J. Coyne option grants under the LTI plan at irregular intervals. Certain of Mr. Coyne’s options have beenwere historically granted at an exercise price above the then-current fair market value of our Class A common stock. Mr. Coyne’s last option award was in 2005. We anticipate that after the completion of this offering,beginning in 2010, Mr. Coyne will be considered for option awards annually, with an exercise price at the then-current fair market value of our shares, in the same manner as other NEOs. Mr. Mark V. Anquillare was named Chief Financial Officer
At the conclusion of a plan year, the Compensation Committee determines the aggregate number of options issuable to all eligible participants under the LTI program by evaluating the same performance goals used to determine the aggregate funding amount under the STI Program.


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See “Analysis of 2008 Variable Compensation” for a discussion of how we determined 2008 LTI awards for NEOs.
2008 Variable Compensation Goals
At the conclusion of 2007, the Compensation Committee established the following revenue growth and EBITDA Margin goals for determination of aggregate award pools available to all eligible employees under both the LTI and STI Plans for 2008:
         
  Revenue Growth  EBITDA Margin 
 
Maximum  15%  37%
Superior  12%  34%
Target  10%  30%
Threshold  6%  27%
During 2008, we achieved revenue growth between the specified Target and Superior performance goals, and EBITDA Margin above the Maximum performance goal. The Compensation Committee primarily considered the degree to which these goals were achieved, together with financial and nonfinancial performance measures including preparation for this offering, enhancements to productivity, achievement of new sales, accomplishment of strategic and operational initiatives and completion of acquisitions and strategic relationships, in March 2007,determining the aggregate LTI and received an additional option award on June 30, 2007 in connection with that appointment.STI pools for all eligible employees.
See “Analysis of 2008 Variable Compensation” for a discussion of how we determined 2008 LTI awards for NEOs.
 
Analysis of 20072008 Variable Compensation
The
For individual NEOs, cash awards under the STI program and option awards under the LTI program are highly variable and not systematic, and are not based on fixed target amounts. Individual awards are determined based on the subjective judgment of the Compensation Committee established(in the 2007 funding levelscase of Mr. Coyne) and of Mr. Coyne (with the concurrence of the Compensation Committee) in the case of other NEOs. There is no fixed relationship between an individual NEO’s LTI and STI awards. In reaching their subjective determinations about aggregate compensation, the Compensation Committee and Mr. Coyne seek to allocate a meaningful portion of total compensation in the form of LTI awards in order to incent employees to create long-term value for our stockholders.
For individual NEO’s, other than Mr. Coyne, the STI and LTI award poolsawards are made based on Mr. Coyne’s subjective evaluation of their individual performance and on the analysis of prevailing market compensation levels described above. Factors considered include the successful operation of an NEO’s business unit or functional department including, where applicable, enhancements to productivity and profitability, achievement of new sales, revenue generated from new products, accomplishment of strategic and operational initiatives and completion of acquisitions and strategic relationships. For NEO’s other than Mr. Coyne, the additional factors described below were considered by Mr. Coyne and the Compensation Committee in determining their STI and LTI awards. The factors noted were not given any specific weights, but rather informed the actual revenue growth and EBITDA margin growthbasis for the year,subjective conclusion of Mr. Coyne regarding the contribution of each individual to our overall performance.
Mr. Stephenson: the continued improvement in focus on our strategic initiatives; leadership in our business development initiatives, including the successful completion of three acquisitions\strategic alliances; and evaluatingstrong performance in positioning the other financial and nonfinancialcompany for successful performance measures described above that we believe positionafter the Company to achieve sustainable long-term growth. Total payouts toIPO.
Mr. Anquillare: the strong performance rendered in all employees eligible to participate were 84%aspects of the maximum STI amountIPO process; enhancement of our financing facilities during a difficult credit market; and 76%strengthening of our finance staff and financial reporting and oversight.


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Mr. Kenneth Thompson: the strong execution in support of the maximum LTI amount.IPO process and the design of the pre-IPO reorganization approved by our stockholders; and oversight insuring compliance with laws, rules, regulations and values.
Mr. Kevin Thompson: the strong execution in delivery of high quality products to our risk assessment customers while supporting innovation for new risk assessment strategies.
 
The 2008 STI award to Mr. Coyne was determined based upon the Compensation Committee’s evaluation of Company performance.performance and subjective evaluation of several non-financial factors including Mr. Coyne’s leadership in all aspects of the IPO process, obtaining overwhelming stockholder approval of management’s plan to achieve stockholder liquidity, and positioning the company for success into the future. In making its determination the Compensation Committee recognized the Mr. Coyne’s strong execution on strategy, EBITDA margin growth achieved by the Company, as well as strong revenue performance in a difficult economic environment. Mr. Coyne did not receive an LTI award, due to our prior practice of making LTI awards to the CEO at irregular intervals.
 
The amount of any annual increase in base salary, STI andor LTI awards to eachaward is based on the subjective evaluation of the Compensation Committee in the case of Mr. Coyne, and of Mr. Coyne (with the approval of the Compensation Committee) in the case of other NEOs. Although the Company’s financial performance is a factor taken into consideration, the specific amount of an increase in any component of an NEOs were2008 compensation is not tied directly to an overall Company financial performance metric but rather reflects a subjective determination by the Compensation Committee or Mr. Coyne, as the case may be, that the amount of the increase is appropriate based on their level of responsibility, and Mr. Coyne’s evaluation of their individual performance with respect to the successful operation of their business units or functional departments and their success in positioning the Company for the future.matters considered as set forth above.
 
Health, Welfare and Retirement Plans
 
We offer health and welfare benefit programs including medical, dental, life, accident and disability insurance. The Company contributes a percentage of the cost of these benefits. These benefits are available to substantially all employees, and the percentage of the Company’s contribution is the same for all.


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Our tax-qualified retirement plans include:
 
 •     a combined 401(k) Savings Plan and ESOP,
 
 •     a defined benefit pension plan with (i) a traditional final pay formula applicable to employees who were 49 years old with 15 years of service as of January 1, 2002, and (ii) a cash balance formula applicable to other employees hired prior to March 1, 2005, and
 
 •     a profit sharing plan (as a component of the 401(k) plan) which is available to employees hired on or after March 1, 2005.
 
Our non-qualified retirement plans include a supplemental pension and savings (401(k)) plan for highly compensated employees. The combined 401(k) Savings Plan and ESOP and the pension/profit sharing plans are broad-based plans available to substantially all of our employees, including the NEOs. The supplemental retirement plans are offered to our highly paid employees, including our NEOs, to restore to them amounts to which they would be entitled under our tax qualified plans but which they are precluded from receiving under those plans by IRS limits. The supplemental retirement plans are unsecured obligations of the Company.
 
We established our ESOP at the time we converted from non-profit to for-profit status, in order to foster an ownership culture in the Company, and to strengthen the link between compensation and value created for stockholders. This plan has enabled our employees to hold an ownership interest in the Company as well as providing a stock vehicle for Company matching contributions to our 401(k) and profit sharing plans, which has allowed employees to monitor directly, and profit from, the increasing value of our stock since our conversion in 1997.


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Use of Comparative Compensation Data
 
To ensure that our compensation levels remain reasonable and competitive, we have engaged Frederic W. Cook & Co., Inc., or Cook, to advise the Compensation Committee on executive compensation. We have used comparative data available from market surveys conducted by Cook as one component in our decision making process relating to the base salary and STI and LTI targetsawards for our executive team. Cook most recently evaluated our executive compensation levels in the fall of 2007.2008.
 
Employment Agreements
 
We do not currently have employment agreements with any of our NEOs. Mr. Coyne and the Company were parties to an employment agreement that expired on July 1, 2005. We expect to enter into an employment agreement with Mr. Coyne and change of control agreements with each of our other NEOs, to become effective upon the consummation of this offering. We believe that these agreements are desirable to retain the services of these individuals in whom the Company has a significant investment.
 
Impact of prior equity awards on current compensation
 
In general, we do not take into account prior equity grants, ESOP balances or amounts realized on the exercise or vesting of prior option grants in determining the number of options to be granted, because we believe we should pay an annualized market value for an executive’s position, sized according to the performance level of the individual in the position. However, because our prior practice has been to grant equity awards to the CEO on an irregular basis, these factors have been considered in connection with Mr. Coyne’s compensation. We anticipate that after the completion of this offering,beginning in 2010, Mr. Coyne will be considered for option awards annually, at the then-current fair market value of our shares, in the same manner as other NEOs. The Committee also considers prior equity grants (and related wealth accumulations) of executives in assessing the recruitment/retention risk for executives.


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Stock Ownership Requirements for Executives
 
Senior executives are subject to minimum stock ownership requirements. The CEO is required to hold stock andin-the-money options with a value equal to 200% of his annual salary plus aan STI target. The other NEOs are required to hold stock andin-the-money options with a value equal to 100% of their annual salary plus an STI target. This requirement must be met no later than the third anniversary of the executive’s first becoming an officer. As of DecemberMarch 31, 2007,2009, Messrs. Coyne, Stephenson, BoehningKevin Thompson and Anquillare each held common stock andin-the-money options in excess of the requirements. Mr. Kenneth Thompson joined the Company in 2006 and needsis required to satisfy the requirement in October 2009.


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Executive Compensation and Benefits
 
The following table sets forth information concerning the compensation paid to and earned by the Company’s NEOs for the yearyears ended December 31, 2007.2007 and 2008.
 
                         
        Change in Pension
    
        Value and
    
      Non-Equity
 Non-qualified
    
    Option
 Incentive Plan
 Deferred
    
    Awards ($)
 Compensation ($)
 Compensation
 All Other
  
Name and Principal Position
 Salary ($) (1) (2) Earnings ($) Compensation ($) Total ($)
Frank J. Coyne  898,654   1,062,800   2,000,000   300,610   80,907(3)  4,342,971 
Chairman, President and
Chief Executive Officer
                        
Mark V. Anquillare  256,769   247,512   300,000   63,668   11,868(4)  879,817 
Senior Vice President and
Chief Financial Officer
                        
Scott G. Stephenson  419,812   644,107   600,000   83,782   52,386(5)  1,800,087 
Executive Vice President and Chief Operating Officer                        
Kenneth E. Thompson  355,000   276,646   300,000      15,173(6)  946,819 
Senior Vice President,
General Counsel and
Corporate Secretary
                        
Richard Boehning(7)  302,308   458,546   100,000   284,068   12,044(8)  1,156,966 
Senior Vice President                        
Kenneth G. Geraghty(9)  78,058   241,342      5,485   119,738(10)  444,623 
Former Chief Financial Officer                        
2008 SUMMARY COMPENSATION TABLE
 
                             
          Change in Pension
    
          Value and
    
        Non-Equity
 Non-qualified
    
      Option
 Incentive Plan
 Deferred
    
      Awards ($)
 Compensation ($)
 Compensation
 All Other
  
Name and Principal Position
 Year Salary ($) (1) (2) Earnings ($) Compensation ($) Total ($)
Frank J. Coyne  2008   1,036,154   1,062,800   2,800,000   401,539   59,691(3)  5,360,184 
Chairman, President and  2007   898,564   1,060,800   2,000,000   300,610   80,907(4)  4,342,971 
Chief Executive Officer                            
Mark V. Anquillare  2008   303,462   445,530   400,000   86,594   10,641(5)  1,246,227 
Senior Vice President and  2007   256,769   247,512   300,000   63,668   11,868(6)  879,817 
Chief Financial Officer                            
Scott G. Stephenson  2008   451,539   923,841   675,000   92,011   49,758(7)  2,192,149 
Executive Vice President and  2007   419,812   644,107   600,000   83,782   52,386(8)  1,800,087 
Chief Operating Officer                            
Kenneth E. Thompson  2008   385,385   421,965   350,000      10,928(9)  1,168,278 
Senior Vice President,  2007   355,000   276,646   300,000      15,173(10)  946,819 
General Counsel and Corporate Secretary                            
Kevin B. Thompson  2008   246,538   293,961   220,000   46,356   11,230(11)  818,085 
Senior Vice President                            
 
(1)The amounts in this column reflect the expense incurred for accounting purposes in accordance with FAS 123R for options granted in 20072008 and prior years under the LTI plan. For a discussion of the assumptions used to calculate the amounts shown in this column, see note 2(j) of the notes to our audited consolidated financial statements included as part of this prospectus.
(2)The amounts in this column are cash incentive awards under the STI plan in respect of performance for the yearyears ended December 31, 2007.2007 and 2008.
(3)Amount includes $16,429 for life insurance premiums, a 401(k) matching contribution of $10,350 and $32,912 for costs of personal benefits, including club memberships, automobile allowance and reimbursement of personal travel expenses.
(4)Amount includes $15,187 for life insurance premiums, a 401(k) matching contribution of $10,125 and $55,595 for costs of personal benefits, including club memberships ($44,439)of $44,439, and automobile allowance.
(4)(5)Amount includes a 401(k) matching contribution of $10,350.
(6)Amount includes a 401(k) matching contribution of $11,625.
(5)(7)Amount includes a 401(k) matching contribution of $10,350 and $38,355 for costs of personal benefits, including commutation via commercial air carrier between the Company’s headquarters and the executive’s home and temporary living quarters near the Company’s headquarters of $25,891. Costs of commercial air travel were determined using average rates incurred for such travel.
(8)Amount includes a 401(k) matching contribution of $10,125 and $41,291 for costs of personal benefits, including commutation via commercial air carrier between the Company’s headquarters and the executive’s home at a cost of $32,367, and temporary living quarters near the Company’s headquarters ($25,891).headquarters. Costs of commercial air travel were determined using average rates incurred for such travel.
(6)(9)Amount includes a 401(k) matching contribution of $10,350.
(10)Amount includes a 401(k) matching contribution of $10,125.


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(7)Mr. Boehning retired from the Company on January 31, 2008.
(8)(11)Amount includes a 401(k) matching contribution of $10,125.
(9)Mr. Geraghty was Chief Financial Officer until the termination of his employment effective March 8, 2007.
(10)Includes a severance payment of $99,310 and a 401(k) matching contribution of $10,125.$10,263.


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Grants of Plan-Based Awards
 
The following table sets forth information concerning grants of plan-based awards made to the NEOs during the Company’s fiscal year ended 2007.2008. We generally grant options in March or April, based on performance for the prior year. However, due to SEC regulations, the options shown in this table as granted in 2007 (other than Mr. Anquillare’s promotion grant)2008 related to 20062007 performance, and we consider them to be part of the NEOs’ 20062007 compensation.
                         
         All Other
          
      Estimated
  Option
        Grant Date
 
      Future Payouts
  Awards:
        Fair Value of
 
      Under Non-Equity
  Number of
  Exercise or
     Stock and
 
      Incentive Plan
  Securities
  Base Price
  Stock
  Option
 
      Awards  Underlying
  of Option
  Value on
  Awards
 
Name
 Grant Date Approval Date Target ($)  Options  Awards ($/Sh)  Grant Date  ($) 
 
Frank J. Coyne      2,700,000             
Mark V. Anquillare March 1, 2007 February 22, 2007  486,000   2,100   755   755   437,703 
  June 30, 2007 June 18, 2007     300   836   836   73,443 
Scott G. Stephenson March 1, 2007 February 22, 2007  756,000   5,200   755   755   1,083,836 
Kenneth E. Thompson March 1, 2007 February 22, 2007  648,000   2,000   755   755   416,860 
Richard Boehning(1) March 1, 2007 February 22, 2007  549,000   2,200   755   755   458,546 
Kenneth G. Geraghty(2)                        
 
(1)Mr. Boehning retired from the Company on January 31, 2008.
(2)Mr. Geraghty was Chief Financial Officer until the termination of his employment effective March 8, 2007.
2008 GRANTS OF PLAN BASED AWARDS
                           
        All Other
      
      Estimated
 Option
     Grant Date
      Future Payouts
 Awards:
     Fair Value of
      Under Non-Equity
 Number of
 Exercise or
   Stock and
      Incentive Plan
 Securities
 Base Price
 Stock
 Option
      Awards Underlying
 of Option
 Value on
 Awards
Name
 
Grant Date
 
Approval Date
 Target ($) Options Awards ($/Sh) Grant Date ($)
 
Frank J. Coyne        NA             
Mark V. Anquillare March 1, 2008  January 30, 2008   NA   4,000   862   862   818,880 
Scott G. Stephenson March 1, 2008  January 30, 2008   NA   5,500   862   862   1,125,960 
Kenneth E. Thompson March 1, 2008  January 30, 2008   NA   3,000   862   862   614,160 
Kevin B. Thompson March 1, 2008  January 30, 2008   NA   2,000   862   862   409,440 


7688


Outstanding Equity Awards at Fiscal Year End
 
The following table sets forth information concerning unexercised options, stock that has not vested and equity incentive plan awards for the NEOs as of the end of the Company’s fiscal year ended 2007.2008.
 
                 
Option Awards(1)
    Number of
  Number of
      
    Securities
  Securities
      
    Underlying
  Underlying
      
    Unexercised
  Unexercised
  Option
   
  Date of
 Options (#)
  Options (#)
  Exercise
  Option
Name
 Option Grant Exercisable  Unexercisable  Price ($)  Expiration Date
 
Frank J. Coyne July 1, 2000  10,000      100  July 1, 2010
  July 1, 2000  50,000      110  July 1, 2010
  December 18, 2002  75,000      155  December 18, 2012
  June 29, 2005  30,000   20,000   420  June 29, 2015
                 
Mark V. Anquillare March 1, 2001  1,250      92  March 1, 2011
  March 1, 2002  1,750      108  March 1, 2012
  March 1, 2003  5,000      144  March 1, 2013
  March 1, 2004  3,750   1,250   231  March 1, 2014
  March 1, 2005  1,250   1,250   437  March 1, 2015
  March 1, 2006  525   1,575   565  March 1, 2016
  March 1, 2007     2,100   755  March 1, 2017
  June 1, 2007     300   836  June 1, 2017
                 
Scott G. Stephenson March 1, 2003  18,750      144  March 1, 2013
  March 1, 2004  9,750   3,250   231  March 1, 2014
  March 1, 2005  4,000   4,000   437  March 1, 2015
  March 1, 2006  4,050   1,350   565  March 1, 2016
  March 1, 2007     5,200   755  March 1, 2017
                 
Kenneth E. Thompson October 2, 2006  1,000   3,000   681  October 2, 2016
  March 1, 2007     2,000   755  March 1, 2017
                 
Richard Boehning March 1, 2003  1,250      144  March 1, 2013
  March 1, 2004  1,000   1,000   231  March 1, 2014
  March 1, 2005  625   1,250   437  March 1, 2015
  March 1, 2006  575   1,725   565  March 1, 2016
  March 1, 2007     2,200   755  March 1, 2017
Kenneth G. Geraghty              
2008 OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
                 
Option Awards(1)
    Number of
  Number of
      
    Securities
  Securities
      
    Underlying
  Underlying
      
    Unexercised
  Unexercised
  Option
   
  Date of
 Options (#)
  Options (#)
  Exercise
  Option
Name
 
Option Grant
 Exercisable  Unexercisable  Price ($)  Expiration Date
 
Frank J. Coyne July 1, 2000  10,000      100  July 1, 2010
  July 1, 2000  50,000      110  July 1, 2010
  December 18, 2002  75,000      155  December 18, 2012
  June 29, 2005  40,000   10,000   420  June 29, 2015
Mark V. Anquillare March 1, 2001  1,250      92  March 1, 2011
  March 1, 2002  1,750      108  March 1, 2012
  March 1, 2003  5,000      144  March 1, 2013
  March 1, 2004  5,000      231  March 1, 2014
  March 1, 2005  1,875   625   437  March 1, 2015
  March 1, 2006  1,050   1,050   565  March 1, 2016
  March 1, 2007  525   1,575   755  March 1, 2017
  June 1, 2007  75   225   836  June 1, 2017
  March 1, 2008     4,000   862  March 1, 2018
Scott G. Stephenson March 1, 2003  18,750      144  March 1, 2013
  March 1, 2004  13,000      231  March 1, 2014
  March 1, 2005  6,000   2,000   437  March 1, 2015
  March 1, 2006  2,700   2,700   565  March 1, 2016
  March 1, 2007  1,300   3,900   755  March 1, 2017
  March 1, 2008     5,500   862  March 1, 2018
Kenneth E. Thompson October 2, 2006  2,000   2,000   681  October 2, 2016
  March 1, 2007  500   1,500   755  March 1, 2017
  March 1, 2008     3,000   862  March 1, 2018
Kevin B. Thompson March 1, 2003  3,000      144  March 1, 2013
  March 1, 2004  3,000      231  March 1, 2014
  March 1, 2005  1,275   425   437  March 1, 2015
  March 1, 2006  900   900   565  March 1, 2016
  March 1, 2007  450   1,350   755  March 1, 2017
  March 1, 2008     2,000   862  March 1, 2018
 
(1)The right to exercise stock options vests ratably on the first, second, third and fourth anniversaries of the date of grant for options granted to NEOs other than Mr. Coyne. A portion of Mr. Coyne’s options with an exercise price above the grant date fair market value vested immediately.


7789


 
Option Exercises and Stock Vested
 
The following table sets forth information concerning each exercise of stock options and stock appreciation rights for the NEOs during 2007.2008. No stock, restricted stock or restricted stock unit awards held by any NEO vested during 2007.2008.
 
         
  Option Awards 
  Number of
    
  Shares Acquired
  Value
 
  on Exercise
  Realized on
 
Name
 (#)  Exercise ($) 
 
Frank J. Coyne      
Mark V. Anquillare      
Scott G. Stephenson      
Kenneth E. Thompson      
Richard Boehning      
Kenneth G. Geraghty  4,850   2,172,400 
2008 OPTION EXERCISES AND STOCK VESTED
         
  Option Awards 
  Number of
    
  Shares Acquired
  Value
 
  on Exercise
  Realized on
 
Name
 (#)  Exercise ($) 
 
Frank J. Coyne      
Mark V. Anquillare      
Scott G. Stephenson      
Kenneth E. Thompson      
Kevin B. Thompson  2,674   2,350,446 
 
Pension Plans
 
The following table sets forth information with respect to each plan that provides for payments or other benefits at, following, or in connection with retirement.
 
Employees hired prior to March 1, 2005 participate in the Pension Plan for Insurance Organizations, or PPIO, a multiple-employer pension plan in which we participate. The PPIO provides a traditional final pay formula pension benefit, payable as an annuity, to employees who were 49 years old with 15 years of service as of January 1, 2002. Effective January 1, 2002, this formula benefit was frozen for all eligible employees. Effective January 1, 2002, a cash balance pension benefit, also payable as an annuity, was established under the PPIO. Employees hired prior to January 1, 2002 receive their frozen traditional benefit as well as their cash balance benefit. Employees hired from January 1, 2002 to March 1, 2005 receive only the cash balance benefit. The Supplemental Cash Balance Plan and Supplemental Executive Retirement Plan, (the “Supplemental Plan”) provideor the Supplemental Plan, provides a benefit to which the participant would be entitled under the PPIO but which is subject to caps imposed by IRS regulations. Employees hired on or after March 1, 2005 are not eligible to participate in the PPIO or the Supplemental Plan.
               
    Number of Years
  Present Value of
  Payments During
 
    Credited Service
  Accumulated Benefit
  Last Fiscal Year
 
Name
 Plan Name (#)  ($)  ($) 
 
Frank J. Coyne PPIO  9   94,469    
  Supplemental Plan  9   1,433,441    
               
Mark V. Anquillare PPIO  16   168,385    
  Supplemental Plan  16   99,879    
               
Scott G. Stephenson PPIO  7   90,848    
  Supplemental Plan  7   249,177    
               
Kenneth E. Thompson    NA   NA   NA 
               
Richard Boehning PPIO  10   867,347    
  Supplemental Plan  10   1,163,069    
               
Kenneth G. Geraghty PPIO  7   41,737   65,570 
  Supplemental Plan  7   64,364    
2008 PENSION BENEFITS
               
    Number of Years
  Present Value of
  Payments During
 
    Credited Service
  Accumulated Benefit
  Last Fiscal Year
 
Name
 Plan Name (#)  ($)  ($) 
 
Frank J. Coyne PPIO  10   170,267    
  Supplemental Plan  10   1,759,182    
Mark V. Anquillare PPIO  17   205,114    
  Supplemental Plan  17   149,744    
Scott G. Stephenson PPIO  8   105,221    
  Supplemental Plan  8   326,815    
Kenneth E. Thompson    NA   NA   NA 
Kevin B. Thompson PPIO  35   698,377    
  Supplemental Plan  35   305,894    


7890


Nonqualified Deferred Compensation Table
 
The following table sets forth information with respect to each defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified.
                     
              Aggregate
 
  Executive
  Registrant
  Aggregate
  Aggregate
  Balance
 
  Contributions
  Contributions
  Earnings
  Withdrawals/
  at end of
 
  in Last FY
  in Last FY
  in Last FY
  Distributions
  Last FY
 
Name
 ($)  ($)  ($)  ($)  ($) 
 
Frank J. Coyne               
Mark V. Anquillare               
Scott G. Stephenson               
Kenneth E. Thompson               
Richard Boehning               
Kenneth G. Geraghty        54,242      1,215,357 
 
20072008 NONQUALIFIED DEFERRED COMPENSATION
                     
              Aggregate
 
  Executive
  Registrant
  Aggregate
  Aggregate
  Balance
 
  Contributions
  Contributions
  Earnings
  Withdrawals/
  at End of
 
  in Last FY
  in Last FY
  in Last FY
  Distributions
  Last FY
 
Name
 ($)(1)  ($)  ($)  ($)  ($) 
 
Frank J. Coyne  48,369   1,275         749,566 
Mark V. Anquillare  5,638   682         128,571 
Scott G. Stephenson  13,523   1,275   3,373      154,583 
Kenneth E. Thompson  9,323   1,151         22,561 
Kevin B. Thompson  111,392   1,362   13,044      571,594 
(1)All amounts shown are also shown in the Executive Compensation and Benefits table in the “Salary” and/or “Non-Equity Incentive Plan Compensation” column.
2008 Potential Payments upon Termination or Change in Control
 
There are no agreements or arrangements in place applicable to the NEOs relating to payments upon termination or change of control, other than severance payments upon termination (other than for cause) available to all salaried employees.
 
We expect that, prior to completing this offering, we will enter into an employment agreement with Frank J. Coyne that will incorporate provisions for payments to be made upon termination of his employment. Payments will be due in the event Mr. Coyne’s employment is involuntarily terminated by the Company without cause, or is voluntarily terminated by Mr. Coyne for “good reason,” which will be defined in the agreement.
 
We expect the agreement to provide that, upon a qualifying termination event, Mr. Coyne will be entitled to:
 
 (i) a pro rata STI award,award;
 
 (ii) a severance payment equal to his base salary plus a target bonus amount multiplied by the lesser of (a) the number of years remaining in the term of his employment contract or (b) two;
 
 (iii) continuation of health benefits (at his expense) for 18 months; and
 
 (iv) immediate vesting of any remaining unvested options.
 
The amount of the pro rata bonus will be at target level if the termination of employment occurs following a change of control, and will otherwise be determined by the Compensation Committee at the end of the year based on Company performance. The severance and pro-rata bonus amounts will be payable in cash, in a lump sum. Receipt of these benefits is conditioned upon Mr. Coyne executing a general release of claims against the Company, and complying with confidentiality, non-compete and nonsolicitation agreements for a period of 24 months. If this agreement had been in place at December 31, 2007,2008, in the event of a qualifying termination Mr. Coyne would be entitled to cash payments totaling $4,500,000.$5,000,000.
 
In addition, we expect that, prior to completion of this Offering, the Company will enter into Severance Agreements with the other NEOs currently employed by the Company. These agreements will incorporate provisions for payments to be made to the NEOs upon termination of their employment. Payments will be due in the event the executive’s employment is involuntarily terminated by the Company without cause, or is voluntarily terminated by the executive for “good reason,” which will be defined in the agreements, within a two-year period following a “change of control.”


7991


We expect these agreements to provide that, upon a qualifying termination event, a NEO (other than Mr. Coyne) will be entitled to:
 
 (v)(i) a pro rata STI award;
 
 (vi)(ii) a severance payment equal to the executive’s base salary plus a target bonus amount times two;
 
 (vii)(iii) continuation of health benefits (at the executives expense) for 18 months; and
 
 (viii)(iv) immediate vesting of any remaining unvested options.
 
The severance and pro rata bonus amounts will be payable in cash, in a lump sum. Receipt of these benefits is conditioned upon the executive executing a general release of claims against the Company, and complying with confidentiality, non-compete and nonsolicitation agreements for a period of 24 months. If these agreements had been in place at December 31, 2007,2008, in the event of a qualifying termination Mr. Stephenson would be entitled to cash payments totaling $1,470,000,$1,540,000, Mr. Anquillare would be entitled to cash payments totaling $945,000, and$1,050,000, Mr. Kenneth E. Thompson would be entitled to cash payments totaling $1,260,000.$1,312,500, and Mr. Kevin B. Thompson would be entitled to cash payments totaling $840,000. The Compensation Committee retained Frederic W. Cook & Co. to assist in determining the appropriate benefit levels and triggering events to be included in these agreements. The benefit levels and triggering events expected to be included in the agreements described above are based on prevailing market compensation practices.
 
Verisk Analytics, Inc. 20082009 Equity Incentive Plan
 
We expect to adopt the Verisk Analytics, Inc. 20082009 Equity Incentive Plan, or the Incentive Plan, prior to the consummation of this offering. The Incentive Plan will replace the Insurance Services Office, Inc. 1996 Incentive Plan, or the 1996 Plan, pursuant to which LTI awards are currently granted. The purposes of the Incentive Plan will be (i) to advance the interests of the Company by attracting and retaining high caliber employees and other key individuals, (ii) to continue to align the interests of recipients of LTI awards with the interest of the Company’s stockholders by increasing the proprietary interest of such recipients in our growth and success as measured by the value of our stock and (iii) to motivate award recipients to act in the long-term best interests of our stockholders.
 
Shares Available.             shares of our Class A common stock may be subject to awards under the Incentive Plan, or the Plan Share Limit, subject to adjustment in the event of a stock split, reverse stock split, stock dividend, recapitalization, reorganization, merger, consolidation, combination, exchange of shares,split-up, extraordinary dividend or distribution, spin-off, warrants or rights offering to purchase common stock at a price substantially below fair market value, or other similar event. If, with respect to any award, such award is cancelled, forfeited, or terminates or expires unexercised, or if shares are tendered or withheld from an award to pay the option price or satisfy a tax withholding obligation, such shares may again be issued under the Incentive Plan.
 
Eligibility.  All employees eligible for LTI awards under the 1996 Plan will be eligible for awards under the Incentive Plan.
 
Administration.  The administration of the Incentive Plan will be overseen by the Compensation Committee. The Compensation Committee will have the authority to interpret the Incentive Plan and make all determinations necessary or desirable for the administration of the Incentive Plan. The Compensation Committee will have discretion to select participants and determine the form, amount and timing of each award to such persons, the exercise price or base price associated with the award, the time and conditions of exercise or settlement of the award and all other terms and conditions of an award.
 
Forms of Awards.  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, or SARs, (iii) restricted stock, (iv) restricted stock units, (v) performance grants (vi) other share based award and (vii) cash. Such awards may be for partial-year, annual or multi-year periods.


92


Options are rights to purchase a specified number of shares of our Class A common stock at a price fixed by our Compensation Committee, but not less than fair market value of our Class A common stock on the date of grant. Options generally expire no later than 10 years after the date of grant. Options will become exercisable at such time and in such installments as our Compensation Committee will determine, and the


80


Compensation Committee will determine the period of time, if any, after termination of employment, death, or disability during which options may be exercised.
 
An SAR entitles the holder to receive, upon exercise, an amount equal to any positive difference between the fair market value of one share of our Class A common stock on the date the SAR is exercised and the exercise price, multiplied by the number of shares of common stock with respect to which the SAR is exercised. Our Compensation Committee will have the authority to determine whether the amount to be paid upon exercise of an SAR will be paid in cash, Class A common stock (including restricted stock) or a combination of cash and Class A common stock.
 
Restricted stock consists of shares of our Class A common stock subject to a restriction on transfer during a period of time or until performance measures are satisfied, as established by our Compensation Committee. Unless otherwise set forth in the agreement relating to a restricted stock award, the holder will have all rights as a stockholder, including voting rights, the right to receive dividends and the right to participate in any capital adjustment applicable to all holders of common stock. However, our Compensation Committee may determine that distributions with respect to shares of common stock will be deposited with the Company and will be subject to the same restrictions as the shares of common stock with respect to which such distribution was made.
��
A restricted stock unit is a right to receive a specified number of shares of our Class A common stock (or the fair market value thereof in cash, or any combination of our common stock and cash, as determined by our Compensation Committee), subject to the expiration of a specified restriction periodand/or the achievement of any performance measures selected by the Compensation Committee, consistent with the terms of the Incentive Plan. The restricted stock unit award agreement will specify whether the award recipient is entitled to receive dividend equivalents with respect to the number of shares of our Class A common stock subject to the award. Prior to the settlement of a restricted stock unit award in our Class A common stock, the award recipient will have no rights as a stockholder of our Company with respect to our Class A common stock subject to the award.
 
Performance grants are awards whose final value or amount, if any, is determined by the degree to which specified performance measures have been achieved during a performance period set by our Compensation Committee. Performance periods can be partial-year, annual or multi-year periods, as determined by our Compensation Committee. Performance measures that may be used include (without limitation) one or more of the following: the attainment by a share of Class A common stock of a specified value within or for a specified period of time, earnings per share, earnings before interest expense and taxes, return to stockholders (including dividends), return on equity, earnings, revenues, cash flow or cost reduction goals, operating profit, pretax return on total capital, economic value added or any combination of the foregoing. Such criteria and objectives may relate to results obtained by the individual, the Company, a subsidiary, or an affiliate, or any business unit or division thereof, or may relate to results obtained relative to a specific industry or a specific index. Payment may be made in the form of cash, Class A common stock, restricted stock, restricted stock units or a combination thereof, as specified by our Compensation Committee.
 
Annual incentive awards are generally cash awards based on the degree to which certain of any or all of a combination of individual, team, department, division, subsidiary, group or corporate performance objectives are met or not met. Our Compensation Committee may establish the terms and provisions, including performance objectives, for any annual incentive award.
 
An award agreement may contain additional terms and restrictions, including vesting conditions, not inconsistent with the terms of the Incentive Plan, as the Compensation Committee may determine.
 
We intend to file with the SEC a registration statement onForm S-8 covering the shares of our Class A common stock issuable under the Incentive Plan.


8193


 
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
Indebtedness of Directors and Management
 
As of the date of this offering, we do not have any loans outstanding with any director or executive officer. Prior to this offering, we loaned money to certain of our directors and employees, including certain executive officers, to enable them to exercise their options to purchase our Class A common stock. These loans were made pursuant to promissory notes and stock pledge agreements, whereby the director or employee pledged shares issued upon the exercise of the options in order to secure repayment of the loan amount. In addition to the shares pledged as collateral, the Company would have full recourse to the personal assets of the borrower in the event of default.
 
The loans were made in an amount equal to the purchase price of the Class A common stock and, in some cases, the amount of income tax payable upon exercise of the option. The loans had terms ranging from three to nine years and interest rates based on the Internal Revenue Service applicable federal rates. Payments of the principal and interest were deferred until the end of the loan terms.
 
The following table sets forth information concerning the indebtedness owed by our directors and executive officers over the previous three years. The amounts noted at each date below represent the largest aggregate amount of indebtedness outstanding at any time during that period, except that the amounts for August 12,December 31, 2008 represent the amount outstanding on that date.
 
                 
  Year Ended
  Year Ended
  Year Ended
  As of
 
  December 31, 2005  December 31, 2006  December 31, 2007  August 12, 2008 
  (In thousands) 
 
Frank J. Coyne $  $6,449  $  $ 
Scott G. Stephenson  5,003   5,160   5,323    
Mark V. Anquillare  487   503   519    
Carole J. Banfield  3,466   4,193   4,930    
Vincent Cialdella  528   766   1,428    
Kevin B. Thompson  313          
Glen A. Dell  1,930   2,496   3,107    
Henry J. Feinberg  1,665   1,727   1,791    
John F. Lehman  1,930   1,991   2,054    
Arthur J. Rothkopf  1,801   1,862   1,921    
Barbara D. Stewart     438   457    
David B. Wright  467   489   511    
Kenneth G. Geraghty(1)  7,206   8,716   10,588    
                 
  Year Ended
 Year Ended
 Year Ended
 As of
  December 31, 2006 December 31, 2007 December 31, 2008 March 31, 2009
  (In thousands)
 
Frank J. Coyne $6,449  $  $      $     
Scott G. Stephenson  5,160   5,323       
Mark V. Anquillare  503   519       
Carole J. Banfield  4,193   4,930       
Vincent Cialdella  766   1,428       
Kevin B. Thompson  315          
Glen A. Dell  2,496   3,107       
Henry J. Feinberg  1,727   1,791       
John F. Lehman  1,991   2,054       
Arthur J. Rothkopf  1,862   1,921       
Barbara D. Stewart  438   457       
David B. Wright  489   511       
Kenneth G. Geraghty(1)  8,716   10,588       
 
(1)Mr. Geraghty was Chief Financial Officer of the Company until termination of his employment effective March 8, 2007.
 
Since January 1, 2005, certainAll of our loans outstanding with our directors and executive officers have been repaid. On January 20, 2005, January 2, 2007 and April 2, 2007, Frank J. Coyne repaid loans in the amounts of $7.7 million, $3.8 million and $2.5 million, plus interest of $0.4 million $0.2 million and 0.1$0.1 million, respectively. On August 7, 2008, Scott G. Stephenson repaid loans in the amount of $4.7 million, plus interest of $0.7 million. On August 7, 2008, Mark V. Anquillare repaid loans in the amount of $0.5 million, plus interest of $66 thousand. On August 7, 2008, Carole J. Banfield repaid a loan in the amount of $5.2 million, plus interest of $0.6 million. On August 7, 2008, Vincent Cialdella repaid a loan in the amount of $1.3 million, plus interest of $0.1 million. On April 26, 2006, Kevin B. Thompson repaid loans in the amount of $0.3 million, plus interest of $13 thousand. On August 7, 2008, Glen A. Dell repaid a loan in the amount of $2.7 million, plus interest of $0.4 million. On April 4, 2008, Henry J. Feinberg repaid a loan in the amount of $1.5 million, plus interest of $0.3 million. On April 15, 2005 and April 26, 2006, Kevin B. ThompsonAugust 7, 2008, John F. Lehman repaid loans in the amountsamount of $0.4 million and $0.3$1.8 million, plus interest of $33 thousand and $13 thousand, respectively.$0.3 million. On August 7, 2008, Arthur J. Rothkopf repaid loans in the


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amount of $1.6 million, plus interest of $0.3 million. On August 7, 2008, Barbara D. Stewart repaid a loan in the amount of $0.4 million, plus interest of $46 thousand. On August 7, 2008, David B. Wright repaid loans in the amount of $0.4 million, plus interest of $82 thousand. On January 2, 2008, Kenneth G. Geraghty repaid loans in the amounts of $9.6 million, plus interest of $1.0 million.


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Share Repurchases
 
HoldersPursuant to the terms of the 1996 Plan, holders of our Class A common stock, including directors and executive officers, had a right to require us to repurchase their shares at the then-current value determined byon the most recent appraisal conducted pursuant to our ESOP.date of repurchase. This right terminates upon completion of this offering. Since January 1, 2005,2006, we have repurchased 270,955279,151 shares of Class A common stock from our ESOP for an aggregate amount of $169$215 million. As specified in the 1996 Plan, the price per share paid for such repurchases, which ranged from $565 to $892 per share, was equal to the value of our Class A common stock as most recently established prior to the date of each repurchase pursuant to our ESOP. Since January 1, 2005,2006, we have repurchased Class A common stock from our directors, executive officers and holders of greater than five percent of our Class A common stock for the following aggregate amounts:
 
                 
  Year Ended
  Year Ended
  Year Ended
  Six Months Ended
 
  December 31, 2005  December 31, 2006  December 31, 2007  June 30, 2008 
  (In thousands) 
 
Frank J. Coyne $70,262  $26,931  $16,436  $ 
Carole J. Banfield  3,838   2,511   8,060   5,447 
Vincent Cialdella  55   838   413   15 
Kevin B. Thompson  546   1,971   2,525    
Glen A. Dell  1,374   594   612    
Henry J. Feinberg           13,417 
Kenneth G. Geraghty(1)  417      916   62,993 
Fred R. Marcon(2)  1,086   10,438   6,019   83,256 
                 
  Year Ended
  Year Ended
  Year Ended
  Three Months Ended
 
  December 31, 2006  December 31, 2007  December 31, 2008  March 31, 2009 
  (In thousands) 
 
Frank J. Coyne $26,931  $16,436  $  $  — 
Scott G. Stephenson        6,505    
Carole J. Banfield  2,511   8,060   5,447    
Vincent Cialdella  838   413   1,923    
Kevin B. Thompson  1,971   2,525   3,039    
Glen A. Dell  594   62   2,031    
Henry J. Feinberg        13,417    
John F. Lehman, Jr.         3,815    
Arthur J. Rothkopf        8,987    
David B. Wright  978          
Kenneth G. Geraghty(1)     916   62,993    
Fred R. Marcon(2)  10,438   6,019   83,256    
 
(1)Mr. Geraghty was our Chief Financial Officer until termination of his employment effective March 8, 2007.
 
(2)Mr. Marcon was our Chairman and Chief Executive Officer and was the beneficial owner of greater thatthan 5% of our Class A common stockstock.
 
We have also, from time to time, repurchased shares of our Class B common stock. Since January 1, 2005,2006, we have not repurchased any Class B common stock from any stockholder that owns greater than five percent of our Class B common stock.
 
Customer Relationships
 
The stockholders who own greater than five percent of our Class B common stock alsopurchase solutions from both our Risk Assessment and Decision Analytics segments. They purchase our solutions in the ordinary course of business. business pursuant to agreements on terms substantially similar and not more favorable to those in our agreements with other customers purchasing the same solutions. The agreements provide them with a non-exclusive non-transferable license to use our solutions and are in effect until the customer chooses to discontinue the use our solutions. Our customers provide us with data in connection with some of the solutions they purchase from us. Stockholders who own greater than five percent of our Class B common stock provide us with data in connection with those solutions on terms substantially similar and not more favorable to those under which our other customers supply us similar data.


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We received fees from the Hartford Financial Services Group, Inc. of $15.1 million, $16.0 million, $16.4 million, and $16.4$14.0 million for the years ended December 31, 2005, 2006, 2007 and 2007, respectively, and $3.5 million for the three months ended March 31, 2008.2008, respectively. We received fees from The Travelers Companies, Inc. of $27.3 million, $29.3 million, $31.0 million, and $31.0$31.8 million for the years ended December 31, 2005, 2006, 2007 and 2007, respectively, and $7.5 million for the three months ended March 31, 2008.2008, respectively. Samuel G. Liss, one of our Class B directors, is Executive Vice President of Strategic Development and Executive Vice President of Financial, Professional and International Insurance at The Travelers Companies. We received fees from CNA Financial Corporation of $10.7 million, $9.7 million, $9.3 million, and $9.3$10.6 million for the years ended December 31, 2005, 2006, 2007 and 2007, respectively, and $2.6 million for the three months ended March 31, 2008.2008, respectively. Stephen W. Lilienthal, one of oura Class B directors,director from June 27, 2008 through December 17, 2008, is the former Chairman of the Board and Chief Executive Officer of CNA Financial Corporation. We received fees from American Financial Group, Inc. of $3.9 million, $4.3 million, $4.5 million, and $4.5$5.6 million for the years ended December 31, 2005, 2006, 2007 and 2007, respectively, and $1.3 million for the three months ended March 31, 2008.2008, respectively. We received fees from American International Group, Inc. of $16.9 million, $18.9 million, $16.7 million, and $16.7$18.6 million for the years ended December 31, 2005, 2006, 2007 and 2007, respectively, and $4.4 million for the three months ended March 31, 2008.2008, respectively. We received fees from ACE Group Holdings, Inc. of $5.4 million, $5.6 million, $6.4 million, and $6.4$7.4 million for the years ended December 31, 2005, 2006, 2007 and 2007, respectively, and $1.8 million for the three months ended March 31, 2008.2008, respectively.
 
We also purchase insurance coverage in the ordinary course of business from certain of our stockholders who own greater than five percent of our Class B common stock. We paid insurance coverage premiums to CNA Financial Corporation of $0.3 million, $0.3 million, and $0.3 million for the years ended December 31,


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2006, 2007, and 2007, respectively, and $0.1 million for the three months ended March 31, 2008.2008 respectively. We paid insurance coverage premiums to American International Group, Inc. of $1.5 million, $0.5 million, and $0.5$0.6 million for the years ended December 31, 20052006, 2007, and 2007, respectively, and $0.1 million for the three months ended March 31, 2008. We paid insurance coverage premiums to ACE Group Holdings, Inc. of $0.3 million for the year ended December 31, 2005.2008, respectively.
 
Letter Agreements
 
We have entered into letter agreements with each of our directors and executive officers whereby they have agreed that 50% of their Class A common stock (minus any shares sold in this offering) not previously sold in a registered public offering may not be sold until 18 months after the closing of this offering and the remaining percentage of their shares not previously sold in a registered public offering may not be sold until 30 months after the closing of this offering. In addition, our directors and executive officers have agreed that during the time periods described above, they will not execute any hedging agreement or swap or any other arrangement that transfers or disposes of, directly or indirectly, any of their shares or any securities convertible into or exercisable or exchangeable for such stock or any of the economic consequences of ownership of their shares, whether settled in cash or stock. Any of our directors or executive officers having reached the age of 70 will no longer be restricted from selling their shares pursuant to such letter agreements.
 
Family Relationships
 
We employ Michael Coyne as Executive Vice President of our UrixVerisk Healthcare subsidiary. From March 27, 2006 to March 9, 2008 we employed Mr. Coyne aswas the chief operating officer of DXCG, Inc., a predecessor to Urix.Verisk Healthcare. Mr. Coyne received salary and bonus of $137,923, $172,877, $226,615 and $226,615$269,808 in the aggregate for each of the years ended December 31, 2005, 2006, 2007 and 2007,2008, respectively, and received options to purchase 760 shares and 400 shares of our Class A common stock in 2007.2007 and 2008, respectively. Mr. Coyne is the son of Frank J. Coyne, our Chairman of the Board of Directors, President and Chief Executive Officer. We believe that the compensation paid to Mr. Coyne was comparable with compensation paid to other employees with similar levels of responsibility and years of service.
 
We employ Christine Pia as Associate Counsel in our Law Department. Ms. Pia received salary of $55,288, $146,535 and $146,535$148,138 for the five months ended December 31, 2006 and the yearyears ended December 31, 2007 and 2008, respectively. Ms. Pia is the daughter of Frank J. Coyne, our Chairman of the Board of Directors, President and Chief Executive Officer. We believe that the compensation paid to Ms. Pia was comparable with compensation paid to other employees with similar levels of responsibility and years of service.


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ESOP
 
We established an ESOP funded with intercompany debt that includes 401(k), ESOP and profit sharing components to provide employees with equity participation. The trustee of the ESOP is GreatBanc Trust Company. The ESOP owns greater than five percent of our Class A common stock. We make quarterly cash contributions to the plan equal to the debt service requirements. As the debt is repaid, shares are released to the ESOP to fund 401(k) matching and profit sharing contributions and the remainder is allocated annually to active employees in proportion to their eligible compensation in relation to total participant eligible compensation. The amount of our ESOP costs recognized for the years ended December 31, 2005, 2006, 2007 and 20072008 were $13.6 million, $18.5 million, $22.2 million and $5.2$22.3 million, respectively,respectively.
Voting rights with respect to shares of our Class A common stock owned by the ESOP are exercised by the trustee of the ESOP. Prior to the completion of this offering, in the case of a corporate merger or consolidation, recapitalization, reclassification, liquidation, dissolution, or sale of substantially all assets, the trustee was required to vote shares allocated to an ESOP participant’s account as directed by the ESOP participant. For shares of stock not allocated to a participant’s account, and for all other corporate matters, the three months ended March 31, 2008 was $5.7 million.shares were voted in accordance with the discretion of the trustee. Upon completion of this offering, the trustee will vote shares allocated to an ESOP participants’ account as directed by the ESOP participant for all matters submitted to a vote of our Class A stockholders. Shares of stock not allocated to a participant’s account will continue to be voted in accordance with the discretion of the trustee.
Statement of Policy Regarding Transactions with Related Persons
Prior to the completion of this offering, our board of directors will adopt a written statement of policy regarding transactions with related persons. Our related person policy requires that a “related person” (as defined as in paragraph (a) of Item 404 ofRegulation S-K) must promptly disclose to the corporate secretary any “related person transaction” (defined as any transaction that is reportable by us under Item 404(a) ofRegulation S-K in which we were or are to be a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest) and all material facts with respect thereto. The corporate secretary will then promptly communicate that information to the board of directors or the designated board committee. No related person transaction will be consummated without the approval or ratification of the board of directors or any committee of the board of directors consisting exclusively of disinterested directors. The board of directors has initially designated the Nominating and Corporate Governance Committee to approve any related person transaction. It is our policy that directors interested in a related person transaction will recuse themselves from any vote of a related person transaction in which they have an interest.


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PRINCIPAL AND SELLING STOCKHOLDERS
 
The following table sets forth information regarding beneficial ownership of our Class A common stock and Class B common stock as of          , 2008,2009, by:
 
 •     each person whom we know to own beneficially more than 5% of our common stock;
 
 •     each of the directors and named executive officers individually;
 
 •     all directors and executive officers as a group; and
 
 •     each of the selling stockholders, which consist of the entities and individuals shown as having shares listed in the column “Number of Shares Being Offered.”
 
In accordance with the rules of the Securities and Exchange Commission, beneficial ownership includes voting or investment power with respect to securities and includes the shares issuable pursuant to stock options that are exercisable within 60 days of          , 2008.2009. Shares issuable pursuant to stock options are deemed outstanding for computing the percentage of the person holding such options but are not outstanding for computing the percentage of any other person. The percentage of beneficial ownership for the following table is based on           shares of Class A common stock and shares of Class B common stock outstanding as of          , 2008.2009. Unless otherwise indicated, the address for each listed stockholder is:c/o Verisk Analytics, Inc., 545 Washington Boulevard, Jersey City, New Jersey,07310-1686. To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock.
 
                         
              Shares Beneficially
 
              Owned After the Offering(1) 
  Class of ourOur
  Shares Beneficially Owned Before
  Number
  Common Stock
    
Name and Address of
 Common
  the Offering  of Shares
  Beneficially
    
Beneficial Owner Stock  Number  Percent  Being Offered  Owned  Percent 
 
Principal Stockholders:
Employee Stock Ownership Plan                        
The Hartford Financial Services Group, Inc.                         
The Travelers Companies, Inc.                         
CNA Financial Corporation                        
American Financial Group, Inc.                         
American International Group, Inc.                         
ACE Group Holdings, Inc.                         
Directors and Executive Officers:
                        
Frank J. Coyne                        
Scott G. Stephenson                        
Mark V. Anquillare                        
Kenneth E. Thompson                        
Carole J. Banfield                        
Vincent Cialdella                        
Kevin B. Thompson                        
J. Hyatt Brown                        
Glen A. Dell                        
Henry J. Feinberg                        
Christopher M. Foskett
Constantine P. Iordanou


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              Shares Beneficially
 
              Owned After the Offering(1) 
  Class of ourOur
  Shares Beneficially Owned Before
  Number
  Common Stock
    
Name and Address of
 Common
  the Offering  of Shares
  Beneficially
    
Beneficial Owner Stock  Number  Percent  Being Offered  Owned  Percent 
 
John F. Lehman, Jr. Christopher M. Foskett                        
Stephen W. LilienthalConstantine P. Iordanou
John F. Lehman, Jr.                         
Samuel G. Liss                        
Andrew G. Mills                        
Arthur J. Rothkopf                        
Barbara D. Stewart                        
David B. Wright                        
All 1918 directors and executive officers as a group                        
 
(1)Assumes no exercise of the underwriters’ over-allotment option. See “Underwriting.”

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DESCRIPTION OF CAPITAL STOCK
 
Following this offering, our authorized capital stock will consist of 1,200,000,000 shares of Class A common stock, par value $0.001 per share, 800,000,000 shares of Class B common stock, par value $0.001 per share, sub-divided into the following two series of Class B common stock: (1) 400,000,000 shares of Class B (series(Series 1) common stock and (2) 400,000,000 shares of Class B (series(Series 2) common stock, and 80,000,000 shares of preferred stock, par value $0.001 per share.
 
The following descriptions are summaries of the material terms of our Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, and the descriptions are qualified by reference to those documents. Please refer to the more detailed provisions of the Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws, copies of which are filed with the Securities and Exchange Commission as exhibits to our registration statement and applicable law.
 
Common Stock
 
Voting Rights
 
Holders of our common stock have the sole right and power to vote on all matters on which a vote of stockholders is to be taken, except as provided by statute or resolution of our board of directors in connection with the issuance of preferred stock in accordance with our Amended and Restated Certificate of Incorporation. The holders of Class A common stock and Class B common stock generally have identical rights, except that only holders of Class A common stock are entitled to vote on the election of Class A directors and only holders of Class B common stock are entitled to vote on the election of Class B directors.
 
From the consummation of this offering of our Class A common stock until the earlier of (a) the30-month anniversary of the date of this prospectus or (b) the date on which there are no shares of Class B common stock issued and outstanding, the amendment of certain of the provisions in our amended and restated certificate of incorporation will require the affirmative vote of at least two-thirds of the votes cast thereon by the outstanding shares of each of the Class A common stock and the Class B common stock, voting separately as a class. These provisions include certain of the limitations described below under “— Dividend Rights,” “— Liquidation Rights,” “— Transfer Restrictions,” “— Conversion,” “— Beneficial Ownership Limitations” and “Anti-Takeover Effects of Delaware Law — Staggered Boards.” From and after the earlier of the events described above, the amendment of the provisions described below under “— Beneficial Ownership Limitations” in our amended and restated certificate of incorporation will require the affirmative vote of at least two-thirds of the voting power of the outstanding shares of common stock.
 
Dividend Rights
 
Our Class A common stock and Class B common stock will share equally (on a per share basis) in any dividend declared by our board of directors, subject to any preferential or other rights of any outstanding preferred stock and to the distinction that any stock dividends will be paid in shares of Class A common stock to the holders of our Class A common stock and in shares of Class B common stock to the holders of our Class B common stock.
 
Liquidation Rights
 
Upon liquidation, dissolution or winding up, our Class A common stock and Class B common stock will be entitled to receive ratably the assets available for distribution to the stockholders after payment of liabilities and payment of preferential and other amounts, if any, payable on any outstanding preferred stock.
 
Transfer Restrictions
 
Shares of our Class B (Series 1) common stock are not transferable until 18 months after the date of this prospectus. Shares of our Class B (Series 2) common stock are not transferable until 30 months after the


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date of this prospectus. Upon the consummation of this offering, the above described limitations on transfer are, however, subject to the following exceptions:
 
 •     any transfer to us by any person or entity;
 
 •     any transfer of any shares of Class B common stock of either series to any other holder of Class B common stock or its affiliate;
 
 •     any transfer of any shares of Class B common stock of any applicable series to an affiliate of such holder; and
 
 •     any transfer by a holder of Class B common stock to any person that succeeds to all or substantially all of the assets of such holder, whether by merger, consolidation, amalgamation, sale of substantially all assets or other similar transactions.
 
Our board of directors may approve exceptions to the limitation on transfers of our Class B common stock in their sole discretion, in connection with the sale of such Class B common stock in a public offering registered with the Securities and Exchange Commission or in such other limited circumstances as our board of directors may determine. Any Class B common stock sold to the public will first be converted to Class A common stock.
 
Conversion
 
Our Class A common stock is not convertible into any other shares of our capital stock. Each share of Class B (Series 1) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 18 months after the date of this prospectus. Each share of Class B (Series 2) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 30 months after the date of this prospectus. The conversion rate applicable to any conversion of shares of our Class B common stock shall always be one-to-one (i.e., one share of Class B common stock will, upon transfer, be converted into one share of Class A common stock).
 
Once transferred and converted into Class A common stock, the Class B common stock shall not be reissued. No class of common stock may be subdivided or combined unless the other class of common stock concurrently is subdivided or combined in the same proportion and in the same manner.
 
No conversions of shares of Class B common stock will be effected prior to the expiration of the transfer restrictions described under “— Transfer Restrictions,” although our board of directors may make exceptions to such transfer restrictions.
 
Beneficial Ownership Limitations
 
Our amended and restated certificate of incorporation will prohibit any insurance company from beneficially owning more than ten percent of the aggregate outstanding shares of our common stock. If any transfer is purportedly effected which, if effected, would result in a violation of this limitation, the intended transferee will acquire no rights in respect of the shares in excess of this limitation, and the purported transfer of such number of excess shares will be null and void. In this context an insurance company means any insurance company whose primary activity is the writing of insurance or the reinsuring of risks underwritten by insurance companies or any other entity controlling, controlled by or under common ownership, management or control with such insurer or reinsurer
 
Preferred Stock
 
The board of directors has the authority to issue the preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, dividend rates, conversion rights, voting rights, terms of redemption, redemption prices, liquidation preferences and the number of shares constituting any series or the designation of such series, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of


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the Company without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. At present, we have no plans to issue any of the preferred stock.
 
Anti-Takeover Effects of Delaware Law
 
Following consummation of this offering, we will be subject to the “business combination” provisions of Section 203 of the Delaware General Corporation Law. In general, such provisions prohibit a publicly held Delaware corporation from engaging in various “business combination” transactions with any interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, unless
 
 •     the transaction is approved by the board of directors prior to the date the interested stockholder obtained such status;
 
 •     upon consummation of the transaction which resulted in the stockholder becoming an interested stockholder, the stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced; or
 
 •     on or subsequent to such date the business combination is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least 662/3% of the outstanding voting stock which is not owned by the interested stockholder.
 
A “business combination” is defined to include mergers, asset sales and other transactions resulting in financial benefit to a stockholder. In general, an “interested stockholder” is a person who, together with affiliates and associates, owns (or within three years, did own) 15% or more of a corporation’s voting stock. The statute could prohibit or delay mergers or other takeover or change in control attempts with respect to the Company and, accordingly, may discourage attempts to acquire us even though such a transaction may offer the our stockholders the opportunity to sell their stock at a price above the prevailing market price.
 
Advance Notice of Proposals and Nominations
 
Our bylaws establish advance notice procedures with regard to stockholders’ proposals relating to the nomination of candidates for election as directors or other business to be brought before meetings of its stockholders. These procedures provide that notice of such stockholders’ proposals must be timely given in writing to our secretary prior to the meeting at which the action is to be taken. Generally, to be timely, notice must be received at our principal executive offices not less than 60 days nor more than 90 days prior to the first anniversary date of the annual meeting for the preceding year. The notice must contain certain information specified in the bylaws.
 
Limits on Written Consents
 
Our amended and restated certificate of incorporation prohibits stockholder action by written consent.
 
Limits on Special Meetings
 
Our amended and restated certificate of incorporation and bylaws provide that special meetings of the stockholders may be called by our board of directors, the chairman of the board, the Chief Executive Officer, the President or our Secretary.
 
Staggered Boards
 
Our board of directors is divided into three classes serving staggered terms. The number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation. From the date of this prospectus until the earlier of (a) the30-month anniversary of the date of this prospectus or (b) the date on which there are no shares of Class B common stock issued and outstanding, our board of directors will consist of between 11 and 13 directors, and will be comprised as follows:
 
 •     between eight to ten Class A directors; and
 
 •     three Class B directors.


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Vacancies on our board of directors among the Class A directors will be filled by a majority of the remaining Class A directors and vacancies among the Class B directors will be filled by a majority of the remaining Class B directors.
 
From and after the earlier of the events described above, there will no longer be Class B directors, and each director will be elected for a three-year term by the holders of a plurality of the votes cast by the holders of shares of common stock present in person or represented by proxy at the meeting and entitled to vote on the election of the directors.
 
Listing
 
We expect to list our Class A common stock on the New York Stock Exchange under the symbol “          .”“VA.”
 
Transfer Agent and Registrar
 
The Transfer Agent and Registrar for the Class A common stock is .American Stock Transfer & Trust Company, LLC.


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MATERIAL U.S. FEDERAL TAX CONSIDERATIONS FOR
NON-U.S. HOLDERS OF COMMON STOCK
 
The following is a general discussion of the material U.S. federal income and estate tax consequences of the ownership and disposition of common stock by a beneficial owner that is a“non-U.S. holder”, other than anon-U.S. holder that owns, or has owned, actually or constructively, more than 5% of the Company’s common stock. A“non-U.S. holder” is a person or entity that, for U.S. federal income tax purposes, is:
 
 •     a non-resident alien individual, other than certain former citizens and residents of the United States subject to tax as expatriates,
 
 •     a corporation, or other entity treated as a corporation for U.S. federal income tax purposes, created or organized in or under the laws of a jurisdiction other than the United States or any state or political subdivision thereof; or
 
 •     an estate or trust, other than an estate or trust the income of which is subject to U.S. federal income taxation regardless of its source.
 
A“non-U.S. holder” does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual should consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange, or other disposition of common stock.
 
A“non-U.S. holder” does not include an individual who is present in the United States for 183 days or more in the taxable year of disposition and is not otherwise a resident of the United States for U.S. federal income tax purposes. Such an individual is urged to consult his or her own tax advisor regarding the U.S. federal income tax consequences of the sale, exchange or other disposition of common stock.
 
This discussion is based on the Internal Revenue Code of 1986, as amended (the “Code”), and administrative pronouncements, judicial decisions and final, temporary and proposed Treasury Regulations, changes to any of which subsequent to the date of this prospectus may affect the tax consequences described herein. This discussion does not address all aspects of U.S. federal income and estate taxation that may be relevant tonon-U.S. holders in light of their particular circumstances or to non U.S. holders that may be subject to special treatment under U.S. federal tax laws, such as financial institutions, insurance companies, tax-exempt organizations, hybrid entities, partnership and other pass-through entities, stockholders or beneficiaries ofnon-U.S. holders, broker-dealers, persons subject to the alternative minimum tax, persons that receive the common stock of the Company as compensation, or persons that hold the common stock of the Company as part of a hedge, straddle, conversion transaction, synthetic security or other integrated investment. Furthermore, this discussion does not address any tax consequences arising under the laws of any state, local or foreign jurisdiction. Prospective holders are urged to consult their tax advisors with respect to the particular tax consequences to them of owning and disposing of common stock, including the consequences under the laws of any state, local or foreign jurisdiction.
 
Dividends
 
Distributions will constitute dividends for U.S. federal income tax purposes to the extent paid from the current or accumulated earnings and profits of the Company, as determined under U.S. federal income tax principles. To the extent the distributions exceed the current and accumulated earnings and profits of the Company, such distributions will constitute a return of capital and will first reduce a holder’s adjusted tax basis in its common stock and, thereafter, will be treated as capital gain. Distributions that constitute dividends for U.S. federal income tax purposes that are paid to anon-U.S. holder of common stock generally will be subject to withholding tax at a 30% rate or a reduced rate specified by an applicable income tax treaty. In order to obtain a reduced rate of withholding, anon-U.S. holder will be required to provide an Internal Revenue ServiceForm W-8BEN certifying its entitlement to benefits under a treaty.
 
The withholding tax does not apply to dividends paid to anon-U.S. holder who provides aForm W-8ECI, certifying that the dividends are effectively connected with thenon-U.S. holder’s conduct of a


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trade or business within the United States. Effectively connected dividends, net of certain deductions and credits, will be subject to regular U.S. income tax as if thenon-U.S. holder were a U.S. person, unless an applicable income tax treaty provides otherwise. Anon-U.S. corporation receiving effectively connected dividends may also be subject to an additional “branch profits tax” imposed at a rate of 30% (or a lower rate provided by any applicable income tax treaty).
 
Gain on Disposition of Common Stock
 
Anon-U.S. holder generally will not be subject to U.S. federal income tax on gain realized on a sale or other disposition of common stock unless:
 
 •     the gain is effectively connected with a trade or business of thenon-U.S. holder in the United States, subject to an applicable income treaty providing otherwise, or
 
 •     the Company is or has been a U.S. real property holding corporation at any time within the five-year period preceding the disposition or thenon-U.S. holder’s holding period, whichever period is shorter, and its common stock has ceased to be traded on an established securities market prior to the beginning of the calendar year in which the sale or disposition occurs.
 
The Company believes that it is not, and does not anticipate becoming, a U.S. real property holding corporation.
 
Gain that is effectively connected with a U.S. trade or business will be subject to regular U.S. income tax as if thenon-U.S. holder were a U.S. person, subject to an applicable income tax treaty providing otherwise. Anon-U.S. corporation with effectively connected gains may also be subject to additional “branch profits tax” imposed at a rate of 30% (or a lower treaty rate).
 
Information Reporting Requirements and Backup Withholding
 
Information returns will be filed with the Internal Revenue Service in connection with payments of dividends. This information also may be made available to the tax authorities in thenon-U.S. holder’s country of residence. Anon-U.S. holder may have to comply with certification procedures to establish that it is not a U.S. person in order to avoid information reporting and backup withholding with respect to payments of dividends and the proceeds from a sale or other disposition of common stock. The certification procedures required to claim a reduced rate of withholding under a treaty generally should also satisfy the certification requirements necessary to avoid the backup withholding tax as well. The amount of any backup withholding from a payment to anon-U.S. holder will be allowed as a credit against such holder’s U.S. federal income tax liability and may entitle such holder to a refund,provided that the required information is timely furnished to the Internal Revenue Service.
 
Federal Estate Tax
 
Individualnon-United States Holders and entities the property of which is potentially includible in such an individual’s gross estate for U.S. federal estate tax purposes (for example, a trust funded by such an individual and with respect to which the individual has retained certain interests or powers), should note that, absent an applicable treaty benefit, the common stock will be treated as U.S. situs property subject to U.S. federal estate tax.


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SHARES ELIGIBLE FOR FUTURE SALE
 
Prior to this offering, there has been no market for our common stock. Future sales of substantial amounts of our Class A common stock in the public market could adversely affect market prices prevailing from time to time. Furthermore, because only a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions on resale as described below, there may be sales of substantial amounts of our Class A common stock in the public market after the restrictions lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.
 
Upon completion of this offering, we will have           shares of Class A common stock outstanding, assuming no exercise of any options and warrants outstanding as of          , 2008,2009, and shares of Class B common stock outstanding. Of these shares,           shares of Class A common stock, (or           shares of Class A common stock if the underwriters exercise their over-allotment option in full), sold in this offering will be freely transferable without restriction or registration under the Securities Act, except for any shares purchased by one of our existing “affiliates,” as that term is defined in Rule 144 under the Securities Act. The remaining           shares of Class A common stock existing are “restricted shares” as defined in Rule 144. Restricted shares may be sold in the public market only if registered or if they qualify for an exemption from registration under the Securities Act.
 
In addition, immediately following this offering, our existing stockholders will hold           shares of our Class B (series 1) common stock (or           shares if the underwriters exercise their over-allotment option in full), each of which will, on the18-month anniversary of the date of this prospectus, be automatically converted for shares of our Class A common stock on a one-for-one basis. Also, immediately following this offering, our existing stockholders will hold           shares of our Class B (series 2) common stock (or           shares if the underwriters exercise their over-allotment option in full), each of which will, on the30-month anniversary of the date of this prospectus, be automatically converted for shares of our Class A common stock on a one-for-one basis. Any shares of Class A common stock issuable upon conversion of such shares will be freely tradable without restriction or registration under the Securities Act by persons other than our affiliates.
 
As a result of the contractual180-daylock-up period described below and the provisions of Rules 144 and 701, these shares will be available for sale in the public market as follows:
 
   
Number of Shares of Class A Common Stock
 
Date
 
  On the date of this prospectus.
  After 180 days from the date of this prospectus (subject, in some cases, to volume limitations).
  At various times after 180 days from the date of this prospectus (subject, in some cases, to volume limitations).
 
Rule 144
 
In general, under Rule 144 under the Securities Act of 1933, as in effect on the date of this prospectus, beginning 90 days after the effective date of this offering, a person who is not one of our affiliates who has beneficially owned shares of our common stock for at least six months may sell shares without restriction, provided the current public information requirements of Rule 144 continue to be satisfied. In addition, any person who is not one of our affiliates at any time during the three months preceding a proposed sale, and who has beneficially owned shares of our common stock for at least one year would be entitled to sell an unlimited number of shares without restriction. Our affiliates who have beneficially owned shares of our common stock for at least six months are entitled to sell within any three-month period a number of shares that does not exceed the greater of:
 
 •     one percent of the number of shares of our common stock then outstanding, which will equal approximately           shares immediately after this offering; and


93106


 •     the average weekly trading volume of our common stock on the           during the four calendar weeks preceding the filing of a notice on Form 144 with respect to the sale.
 
Sales of restricted shares under Rule 144 are also subject to requirements regarding the manner of sale, notice, and the availability of current public information about us. Rule 144 also provides that affiliates relying on Rule 144 to sell shares of our common stock that are not restricted shares must nonetheless comply with the same restrictions applicable to restricted shares, other than the holding period requirement.
 
Rule 701
 
In general, under Rule 701, any of our employees, directors, officers, consultants or advisors who purchases shares from us in connection with a compensatory stock or option plan or other written agreement before the effective date of this offering is entitled to resell such shares 90 days after the effective date of this offering in reliance on Rule 144, without having to comply with the holding period requirements or other restrictions contained in Rule 701.
 
The Securities and Exchange Commission has indicated that Rule 701 will apply to typical stock options granted by an issuer before it becomes subject to the reporting requirements of the Securities Exchange Act of 1934, along with the shares acquired upon exercise of such options, including exercises after the date of this prospectus. Securities issued in reliance on Rule 701 are restricted securities and, subject to the contractual restrictions described above, beginning 90 days after the date of this prospectus, may be sold by persons other than “affiliates,” as defined in Rule 144, subject only to the manner of sale provisions of Rule 144 and by “affiliates” under Rule 144 without compliance with its one-year minimum holding period requirement.
 
Stock Options
 
As of          , 2008,2009, options to purchase a total of           shares of Class A common stock were outstanding. All of the shares subject to options are subject tolock-up agreements. An additional          shares of Class A common stock were available for future option grants under our stock plans.
 
Upon completion of this offering, we intend to file a registration statement under the Securities Act covering all shares of common stock subject to outstanding options or issuable pursuant to our 20082009 Equity Incentive Plan. Shares registered under this registration statement will be available for sale in the open market, subject to Rule 144 volume limitations applicable to affiliates, vesting restrictions with us or the contractual restrictions described below.
 
Lock-up Agreements
 
Our officers, directors and substantially all of our stockholders, who hold an aggregate of approximately           shares of our Class A common stock and           shares of our Class B common stock, have agreed, subject to limited exceptions, not to offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, or enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any shares of common stock or any securities convertible into or exercisable or exchangeable for shares of common stock for a period of 180 days after the date of this prospectus, without the prior written consent of Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated. We have also agreed not to waive the provision of our certificate of incorporation relating to restrictions on transfer for a period of 180 days from the date of this prospectus without first obtaining the written consent of the representatives.
 
Of the shares to be released,           shares will be eligible for sale, in some cases subject only to the volume, manner of sale and notice requirements of Rule 144. In addition, Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated may in their sole discretion choose to release any or all of these shares from these restrictions prior to the180-day period.


94107


 
UNDERWRITING
 
Merrill Lynch, Pierce, Fenner & Smith Incorporated and Morgan Stanley & Co. Incorporated are acting as representatives of the underwriters named below. Under the terms and subject to the conditions described in an underwriting agreement among us, the selling stockholders and the underwriters, the selling stockholders have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from the selling stockholders, the number of shares indicated below.
 
     
  Number of
 
Underwriter
 Shares 
 
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
             
Morgan Stanley & Co. Incorporated    
     
Total    
     
 
The underwriters have agreed to purchase all of the shares of Class A common stock if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the non-defaulting underwriters may be increased or the underwriting agreement may be terminated.
 
The underwriters are offering the shares, subject to prior sale, when, as and if transferred to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers’ certificates and legal opinions.
 
Indemnification
 
We and the selling stockholders have agreed to indemnify the underwriters against some liabilities, including liabilities under the Securities Act of 1933, as amended, or to contribute to payments the underwriters may be required to make in respect of those liabilities to the extent set forth in the underwriting agreement.
 
Over-allotment Option
 
Some of the selling stockholders have granted the underwriters options to purchase up to           additional shares of our Class A common stock, at the public offering price less the underwriting discount. The underwriters may exercise these options for 30 days from the date of this prospectus solely to cover any over-allotments. If the underwriters exercise these options, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares from the selling stockholders proportionate to that underwriter’s initial amount reflected in the above table.
 
Commissions and Discounts
 
The underwriters propose to offer the shares of Class A common stock to the public at the public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $      per share. The underwriters may allow, and the dealers may re-allow, a discount not in excess of $      per share to other dealers. After the public offering, the public offering price, concession and discount may be changed.


95108


The following table shows the per share initial public offering price, underwriting discount and proceeds before expenses to the selling stockholders. The information assumes either no exercise or full exercise by the underwriters of their over-allotment option.
 
             
  Per Share  Without Option  With Option 
 
Public offering price $            $            $           
Underwriting discount $   $   $  
Proceeds, before expenses, to the selling stockholders $   $   $ 
 
Our expenses related to the offering, not including the underwriting discount, are estimated to be $     .
 
Lock-up Agreements
 
We and substantially all our stockholders have agreed, subject to certain exceptions, not to sell, transfer or otherwise dispose of or hedge any shares of Class A common stock or securities convertible or exchangeable into our Class A common stock for at least 180 days after the date of this prospectus without first obtaining the written consent of the representatives. We have also agreed not to waive the provision of our certificate of incorporation relating to restrictions on transfer for a period of 180 days from the date of this prospectus.
 
Notwithstanding the foregoing, if the 180th day after the date of this prospectus occurs within 17 days following an earnings release by us or the occurrence of material news or a material event related to us, or if we intend to issue an earnings release within 16 days following the 180th day, the180-day period will be extended to the 18th day following such earnings release or the occurrence of the material news or material event, unless such extension is waived by the representatives.
 
These lockup agreements also apply to Class A common stock or securities convertible or exchangeable into our Class A common stock or securities convertible or exchangeable into our Class A common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition.
 
Listing
 
We have applied to list our Class A common stock on the New York Stock Exchange under the symbol “          .”“VA.”
 
Offering Price Determination
 
Before the offering, there has been no public market for our Class A common stock. The initial public offering price will be determined through negotiations among us, the representatives of the selling stockholders and the underwriters. In addition to prevailing market conditions, the factors considered in determining the initial public offering price will be:
 
 •     the valuation multiples of publicly traded companies that the representatives believe to be comparable with us;
 
 •     our financial information;
 
 •     the history of, and the prospects for, our company and the industry in which we compete;
 
 •     an assessment of our management, our past and present operations, and the prospects for, and timing of, our future revenues;
 
 •     the present state of our business; and
 
 •     the factors listed above in relation to market values and various valuation measures of other companies engaged in activities similar to ours.


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An active trading market for our shares may not develop. It is also possible that after the offering the shares will not trade in the public market at or above the public offering price.


96


Discretionary Sales
 
The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.
 
Price Stabilization, Short Positions and Penalty Bids
 
Until the distribution of the shares is completed, Securities and Exchange Commission rules may limit the ability of the underwriters and selling group members from bidding for and purchasing our Class A common stock. However, the representatives may engage in transactions that stabilize the price of our Class A common stock, such as bids or purchases to peg, fix or maintain that price.
 
If the underwriters create a short position in the Class A common stock in connection with the offering, i.e., if they sell more shares than are listed on the cover of this prospectus, the representatives may elect to reduce any short position by purchasing shares in the open market. The representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. The underwriters may sell more shares than could be covered by exercising all of the over-allotment option, in which case they would have to cover these sales through open market purchases. Purchases of the Class A common stock to stabilize its price or to reduce a short position may cause the price of the Class A common stock to be higher than it might be in the absence of such purchases.
 
The representatives may also impose a penalty bid on underwriters and selling group members. This means that if the representatives purchase our Class A common stock in the open market to reduce the underwriters’ short position or to stabilize the price of such Class A common stock, they may reclaim the amount of the selling concession from the underwriters and selling group members who sold those shares. The imposition of a penalty bid may also affect the price of the shares in that it discourages resales of shares.
 
Neither we nor any of the underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our Class A common stock. In addition, neither we nor any of the underwriters makes any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.
 
Electronic Prospectus Delivery
 
In connection with this offering, prospectus in electronic format may be made available on the internet sites or through other online services maintained by one or more of the underwriters participating in this offering, or by their affiliates. In those cases, prospective investors may view offering terms online. Depending upon the particular underwriter, prospective investors may be allowed to place orders online. The underwriters may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for online distributions will be made on the same basis as other allocations.
 
Other than this prospectus in electronic format, the information concerning any underwriter’s web site and any information contained in any other web site maintained by an underwriter is not intended to be part of this prospectus or the registration statement, has not been approvedand/or endorsed by us or any underwriter in its capacity as underwriter. Investors should not rely on such information.
 
Other Relationships
 
Each of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us. They have received, and they will in the future receive, customary fees and commissions for these transactions.


110


Sales in Other Jurisdictions
 
In relation to each member state of the European Economic Area which has implemented the Prospectus Directive, or a Relevant Member State, each underwriter represents and agrees that with effect


97


from and including the date on which the Prospectus Directive is implemented in that Relevant Member State, or the Relevant Implementation Date, it has not made and will not make an offer of shares to the public in that Relevant Member State prior to the publication of a prospectus in relation to the shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that it may, with effect from and including the Relevant Implementation Date, make an offer of shares to the public in that Relevant Member State at any time:
 
 •     to legal entities which are authorized or regulated to operate in the financial markets or, if not so authorized or regulated, whose corporate purpose is solely to invest in securities;
 
 •     to any legal entity which has two or more of (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than €43,000,000 and (3) an annual net turnover of more than €50,000,000, as shown in its last annual or consolidated accounts;
 
 •     to fewer than 100 natural or legal persons (other than qualified investors as defined in the Prospectus Directive) subject to obtaining the prior content of the manager for any such offer; or
 
 •     in any other circumstances which do not require the publication by us of a prospectus pursuant to Article 3 of the Prospectus Directive.
 
For the purposes of this provision, (i) the expression an “offer of shares to the public” in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the shares to be offered so as to enable an investor to decide to purchase or subscribe the shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and (ii) the expression “Prospectus Directive” meansDirective 2003/71/EC and includes any relevant implementing measure in such Relevant Member State.
 
We have been advised by the underwriters that:
 
 •     they have complied and will comply with all applicable provisions of the Financial Services and Markets Act 2000, or FSMA, with respect to anything done by them in relation to our common stock in, from or otherwise involving the United Kingdom; they have only communicated or caused to be communicated and will only communicate or cause to be communicated any invitation or inducement to engage in investment activity (within the meaning of Section 21 of the FSMA) received by them in connection with the issue or sale of our common stock in circumstances in which Section 21(1) of the FSMA does not apply to us; and
 
 •     they and each of their affiliates have not (i) offered or sold and will not offer or sell in Hong Kong, by means of any document, our common stock other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance or (ii) issued or had in their possession for the purposes of issue, and will not issue or have in their possession for the purposes of issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to our common stock, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to our common stock which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the Securities and Futures Ordinance and any rules made under that Ordinance. The contents of this document have not been reviewed by any regulatory authority


111


in Hong Kong. You are advised to exercise caution in relation to the offer. If you are in any doubt about any of the contents of this document, you should obtain independent professional advice.


98


 
VALIDITY OF COMMON STOCK
 
The validity of the issuance of the shares of common stock offered hereby will be passed upon for the Company by Davis Polk & Wardwell, New York, New York. Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York, is representing the underwriters.
 
EXPERTS
 
The consolidated financial statements of Insurance Services Office, Inc. as of December 31, 20072008 and 2006,2007, and for each of the three years in the period ended December 31, 2007,2008, included in this prospectus and the related financial statement schedule included elsewhere in the registration statement, have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the registration statement (which report expresses an unqualified opinion on the financial statements and financial statement schedule and includes explanatory paragraphs referring to the adoption of FASB Interpretation No. 48,Accounting for Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109 and Statement of Financial Accounting Standards No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132 (R)). Such financial statements and financial statement schedule have been included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
 
The balance sheet of Verisk Analytics, Inc. as of June 30, 2008March 31, 2009 included in this prospectus has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report appearing herein and elsewhere in the registration statement. Such balance sheet is included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.
The consolidated financial statements of Xactware, Inc. at December 31, 2005 and 2004, and for the years then ended, appearing in this prospectus and registration statement have been audited by Ernst & Young LLP, independent auditors, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
 
WHERE YOU CAN FIND MORE INFORMATION
 
We have filed with the Securities and Exchange Commission a registration statement onForm S-1 under the Securities Act with respect to the common stock offered hereby. This prospectus does not contain all of the information set forth in the registration statement and the related exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or other document are not necessarily complete and in each instance, if such contract or document is filed as an exhibit, please refer to the copy of such document, as each statement is qualified in all respects by such reference. You may read and copy the registration statement, including the exhibits and schedules at the Securities and Exchange Commission’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at1-800-SEC-0330. In addition, the Securities and Exchange Commission maintains an internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the Securities and Exchange Commission. The address of that site is www.sec.gov. The registration statement, including the exhibits and schedules, are also available for reading and copying at the offices of          .
 
As a result of the offering, we will become subject to the full informational requirements of the Securities Exchange Act of 1934, as amended. We will fulfill our obligations with respect to such requirements by filing periodic reports and other information with the Securities and Exchange Commission. We intend to furnish our stockholders with annual reports containing consolidated financial statements certified by an independent registered public accounting firm. We also maintain an internet site at www.verisk.com. Our website and the information contained in it or connected to it shall not be deemed to be incorporated into this prospectus or the registration statement.


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VERISK ANALYTICS, INC.
 
INDEX TO FINANCIAL STATEMENTS
 
     
  Page
 
Insurance Services Office, Inc. Condensed Consolidated Financial Statements as of March 31, 20082009 and for the Three Months Ended March 31, 20072008 and 20082009 (unaudited)
    
  F-2 
  F-3 
  F-4 
  F-5 
  F-7 
Verisk Analytics, Inc. Financial Statement as of June 30, 2008
F-26
F-27
F-28
Insurance Services Office, Inc. Consolidated Financial Statements as of DecemberMarch 31, 2006 and 2007 and for the Years Ended December 31, 2005, 2006 and 20072009
    
  F-29 
F-30
F-31
Insurance Services Office, Inc. Consolidated Financial Statements as of December 31, 2007 and 2008 and for the Years Ended December 31, 2006, 2007 and 2008
F-32
  F-30F-33 
  F-31F-34 
  F-32F-35 
  F-33F-36 
  F-35
Xactware Consolidated Financial Statements for the Years Ended December 2005 and 2004
F-80
F-81
F-82
F-83
F-84
F-85F-38 


F-1


INSURANCE SERVICES OFFICE, INC.
 
CONDENSED CONSOLIDATED BALANCE SHEETS

As of December 31, 20072008 and March 31, 20082009
 
        
   2009
 
         2008 unaudited 
   2008
  (In thousands, except for
 
 2007 unaudited  share and per share data) 
 (In thousands, except for share and per share data) 
ASSETS
ASSETS
ASSETS
Current assets:                
Cash and cash equivalents $24,049  $25,898  $33,185  $45,006 
Available-for-sale securities  28,350   6,663   5,114   4,779 
Accounts receivable, net (including amounts from related parties of $949 and $12,568, respectively)  86,488   106,683 
Notes receivable from stockholders  347   1,246 
Accounts receivable, net (including amounts from related parties of $3,421 and $4,136, respectively)  83,941   115,288 
Prepaid expenses  7,609   14,498   13,010   17,944 
Deferred income taxes  22,654   22,087   4,490   4,490 
Federal and state taxes receivable  3,003    
Federal and foreign income taxes receivable  12,311    
State and local income taxes receivable  689   1,614 
Other current assets  8,525   7,773   16,187   15,109 
          
Total current assets  181,025   184,848   168,927   204,230 
Noncurrent assets:                
Fixed assets, net  85,436   87,225   82,587   87,071 
Intangible assets, net  141,160   133,119   112,713   128,011 
Goodwill  339,891   346,732   447,372   487,003 
Notes receivable from stockholders  12,356   9,282 
Deferred income taxes  55,679   68,126   100,256   90,064 
State income taxes receivable  8,112   8,112 
Other assets  12,936   13,113   8,910   15,895 
          
Total assets $828,483  $842,445  $928,877  $1,020,386 
     
     
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:                
Accounts payable and accrued liabilities $78,234  $47,781  $83,381  $66,388 
Acquisition related liabilities  100,300   104,050   82,700   78,100 
Short-term debt  35,171   113,820 
Short-term debt and current portion of long term debt  219,398   189,966 
Pension and postretirement benefits, current  4,636   4,754   5,397   5,397 
Fees received in advance (including amounts from related parties of $5,817 and $11,879)  127,907   197,526 
Federal and state taxes payable     11,749 
Fees received in advance (including amounts from related parties of $3,699 and $12,438, respectively)  114,023   203,693 
Federal and foreign income taxes payable     15,004 
          
Total current liabilities  346,248   479,680   504,899   558,548 
Noncurrent liabilities:                
Long-term debt  403,159   403,194   450,356   449,121 
Pension benefits  17,637   46,500   133,914   135,160 
Postretirement benefits  23,894   23,988   23,798   23,172 
Other liabilities  62,085   61,942   76,194   87,058 
          
Total liabilities  853,023   1,015,304   1,189,161   1,253,059 
Redeemable common stock:                
Class A redeemable common stock, stated at redemption value, $.01 par value; 6,700,000 shares authorized; 2,922,253 and 2,986,434 shares issued and 1,163,066 and 997,642 outstanding as of December 31, 2007 and March 31, 2008, respectively  1,217,942   1,072,702 
Unearned Class A common stock KSOP shares  (4,129)  (3,940)
Notes receivable from stockholders  (42,625)  (50,795)
Class A redeemable common stock, stated at redemption value, $.01 par value; 6,700,000 shares authorized; 3,007,761 and 3,008,536 shares issued and 746,139 and 713,523 outstanding as of December 31, 2008 and March 31, 2009, respectively, and vested options at intrinsic value  752,912   761,627 
Class A unearned common stock KSOP shares  (3,373)  (3,191)
          
Total redeemable common stock  1,171,188   1,017,967   749,539   758,436 
Commitments and contingencies                
Stockholders’ deficit:                
Class B common stock, $.01 par value; 20,000,000 shares authorized; 10,004,500 shares issued and 2,873,412 and 2,863,742 outstanding as of December 31, 2007 and March 31, 2008, respectively  100   100 
Additional paid-in-capital     21,272 
Class B common stock, $.01 par value; 20,000,000 shares authorized; 10,004,500 shares issued and 2,863,742 outstanding as of December 31, 2008 and March 31, 2009  100   100 
Accumulated other comprehensive loss  (8,699)  (25,023)  (82,434)  (81,340)
Accumulated deficit  (508,136)  (503,181)  (243,495)  (225,875)
Class B common stock, treasury stock, 7,131,088 and 7,140,758 shares in 2007 and 2008, respectively  (678,993)  (683,994)
Class B common stock, treasury stock, 7,140,758 shares as of December 31, 2008 and March 31, 2009  (683,994)  (683,994)
          
Total stockholders’ deficit  (1,195,728)  (1,190,826)  (1,009,823)  (991,109)
          
Total liabilities and stockholders’ deficit $828,483  $842,445  $928,877  $1,020,386 
          
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


F-2


INSURANCE SERVICES OFFICE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For theThe Three Months Ended March 31, 20072008 and 20082009
 
         
  2007  2008 
  (In thousands, except for share and per share data) 
 
Revenues (including revenues from related parties of $22,048 and $21,136 for 2007 and 2008, respectively) $198,834  $215,618 
Expenses:        
Cost of revenues (exclusive of items shown separately below)  86,987   93,310 
Selling, general and administrative  27,925   28,674 
Depreciation and amortization of fixed assets  7,582   7,907 
Amortization of intangible assets  8,923   8,041 
         
Total expenses  131,417   137,932 
Operating income  67,417   77,686 
Other income/(expense):        
Investment income  2,100   816 
Realized gains (losses) on securities, net  12   (1,274)
Interest expense  (5,773)  (6,326)
Other expense  (18)   
         
Total other expense, net  (3,679)  (6,784)
         
Income from continuing operations before income taxes  63,738   70,902 
Provision for income taxes  (24,867)  (29,876)
         
Income from continuing operations  38,871   41,026 
         
Loss from discontinued operations, net of tax benefit of $197 in 2007  (610)   
         
Net income $38,261  $41,026 
         
Basic income/(loss) per share of Class A and Class B:        
Income from continuing operations $9.49  $10.91 
Loss from discontinued operations  (0.15)   
         
Net income per share $9.34  $10.91 
         
Diluted income/(loss) per share of Class A and Class B:        
Income from continuing operations $9.10  $10.45 
Loss from discontinued operations  (0.14)   
         
Net income per share $8.96  $10.45 
         
Weighted average shares outstanding:        
Basic  4,096,320   3,759,913 
         
Diluted  4,269,444   3,926,954 
         
Pro forma basic income/(loss) per share of Class A and Class B (unaudited):        
Income from continuing operations        
Loss from discontinued operations        
         
Pro forma net income per share        
         
Pro forma diluted income/(loss) per share of Class A and Class B (unaudited):        
Income from continuing operations        
Loss from discontinued operations        
         
Pro forma net income per share        
         
Weighted average shares used in pro forma per share amounts:        
Basic        
         
Diluted        
         
         
  2008  2009 
  (In thousands, except for share and per share data) 
 
Revenues (includes revenue from related parties of $21,136 and $24,087 for 2008 and 2009, respectively) $215,618  $245,751 
Expenses:        
Cost of revenues (exclusive of items shown separately below)  93,310   107,523 
Selling, general and administrative  28,674   33,320 
Depreciation and amortization of fixed assets  7,907   9,195 
Amortization of intangible assets  8,041   8,510 
         
Total expenses  137,932   158,548 
         
Operating income  77,686   87,203 
Other income/(expense):        
Investment income  816   43 
Realized losses on securities, net  (1,274)  (398)
Interest expense  (6,326)  (8,154)
         
Total other expense, net  (6,784)  (8,509)
         
Income before income taxes  70,902   78,694 
Provision for income taxes  (29,876)  (33,779)
         
Net income  41,026   44,915 
         
Basic net income per share of Class A and Class B $10.91  $12.91 
         
Diluted net income per share of Class A and Class B $10.45  $12.43 
         
Weighted average shares outstanding:        
Basic  3,759,913   3,478,760 
         
Diluted  3,926,954   3,612,089 
         
Pro forma basic net income per share of Class A and Class B:        
         
Pro forma diluted net income per share of Class A and Class B:        
         
Weighted average shares used in pro forma per share amounts:        
Basic        
         
Diluted        
         
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


F-3


INSURANCE SERVICES OFFICE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)
For theThe Year Ended December 31, 20072008 and theThe Three Months Ended March 31, 20082009
 
                                                    
   Accumulated
     Additional
        Accumulated
         
   Other
     Paid-In
   Total
    Other
 Class B Common Stock Total
 
 Accumulated
 Comprehensive
 Class B Common Stock Capital
 Treasury
 Stockholders’
  Accumulated
 Comprehensive
     Treasury
 Stockholders’
 
 Deficit Income (Loss) Shares Par Value Class A Stock Deficit  Deficit Loss Shares Par Value Stock Deficit 
 (In thousands, except for share data)    (In thousands, except for share data)   
Balance, January 1, 2007 $(457,557) $(16,017)  10,004,500  $100  $  $(642,883) $(1,116,357)
Balance, January 1, 2008 $(515,756) $(8,699)  10,004,500  $100  $(678,993) $(1,203,348)
Comprehensive income:                                                   
Net income  150,374                  150,374   158,228               158,228 
Other comprehensive gains     7,318         ��      7,318 
Other comprehensive losses     (73,735)           (73,735)
      
Comprehensive income                    157,692                  84,493 
Treasury stock acquired — Class B common stock                 (36,110)  (36,110)              (5,001)  (5,001)
KSOP shares earned              21,463      21,463 
Stock-based compensation              8,244      8,244 
Stock options exercised for 72,083 shares (including tax benefit of $12,798)  (36,646)           12,798      (23,848)
Cumulative effect adjustment to adopt FIN No. 48  (10,338)                 (10,338)
Increase in redemption value of Class A common stock  (153,969)           (42,505)     (196,474)
Decrease in redemption value of Class A common stock  114,033               114,033 
                            
Balance, December 31, 2007 $(508,136) $(8,699)  10,004,500  $100  $  $(678,993) $(1,195,728)
Balance, December 31, 2008 $(243,495) $(82,434)  10,004,500  $100  $(683,994) $(1,009,823)
                            
Comprehensive income:                                                   
Net income  41,026                  41,026   44,915               44,915 
Other comprehensive losses     (16,324)              (16,324)     1,094            1,094 
      
Comprehensive income                    24,702                  46,009 
Treasury stock acquired — Class B common stock                 (5,001)  (5,001)
KSOP shares earned              5,536      5,536 
Stock-based compensation              2,052      2,052 
Stock options exercised for 63,561 shares (including tax benefit of $13,684)  (36,871)           13,684      (23,187)
Decrease in redemption value of Class A common stock  800                  800 
Increase in redemption value of Class A common stock  (27,295)              (27,295)
                            
Balance, March 31, 2008 $(503,181) $(25,023)  10,004,500  $100  $21,272  $(683,994) $(1,190,826)
Balance, March 31, 2009 $(225,875) $(81,340)  10,004,500  $100  $(683,994) $(991,109)
                            
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


F-4


INSURANCE SERVICES OFFICE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For theThe Three Months Ended March 31, 20072008 and 20082009
 
                
 2007 2008  2008 2009 
 (In thousands)  (In thousands) 
Cash flows from operating activities:                
Net income $38,261  $41,026  $41,026  $44,915 
Adjustments to reconcile net income to net cash provided by operating activities:                
Depreciation and amortization of fixed assets  7,605   7,907   7,907   9,195 
Amortization of intangible assets  8,923   8,041   8,041   8,510 
Allowance for doubtful accounts  156   349 
KSOP compensation expense  5,230   5,725   5,725   5,127 
Acquisition related compensation expense  300    
Stock-based compensation  1,521   2,052   2,052   2,005 
Non-cash charges associated with acquisition related payments     300 
Non-cash charges associated with other employee compensation plans  348   1,175 
Accrued interest on notes receivable from stockholders  (584)  (458)
Non-cash charges associated with the sale of covered call options  275    
Realized (gains) losses on securities  (12)  1,274 
Non-cash charges associated with performance based appreciation awards  1,175   610 
Interest income on notes receivable from stockholders  (458)   
Realized losses on securities  1,274   398 
Deferred income taxes  (381)  567   567   766 
Other operating  14   14   14   15 
Loss (gain) on disposal of fixed assets  1,419   (9)
Excess tax benefits from stock options exercised  (8,821)  (13,684)
Changes in assets and liabilities, net of effects from acquisitions and dispositions:        
Accounts receivable, net  (18,812)  (20,195)
Federal and state taxes receivable  5,450   3,003 
(Gain)/loss on disposal of assets  (9)  228 
Excess tax benefits from exercised stock options  (13,684)  (171)
Changes in assets and liabilities, net of effects from acquisitions:        
Accounts receivable  (20,351)  (28,219)
Prepaid expenses and other assets  (2,941)  (6,753)  (6,753)  (3,637)
Federal and state taxes payable  19,256   25,433 
Federal and foreign income taxes  26,573   27,785 
State and local income taxes  1,863   (860)
Accounts payable and accrued liabilities  (29,080)  (34,581)  (32,413)  (24,060)
Acquisition related liabilities  (2,168)  (300)
Fees received in advance  64,747   69,619   69,619   88,692 
Other liabilities  317   (592)  (592)  4,045 
          
Net cash provided by operating activities  92,735   89,864   89,864   135,393 
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


F-5


INSURANCE SERVICES OFFICE, INC.
 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued) (UNAUDITED)
For theThe Three Months Ended March 31, 20072008 and 20082009
                
 2007 2008  2008 2009 
 (In thousands)  (In thousands) 
Cash flows from investing activities:                
Acquisitions  (713)   
Earnout payments  (2,591)   
Acquisitions, net of cash acquired of $9,477 in 2009     (51,618)
Escrow funding associated with acquisitions     (7,000)
Purchases of available-for-sale securities  (20,940)  (29)  (29)  (365)
Proceeds from sales of available-for-sale securities  130   21,194 
Proceeds from sales and maturities of available-for-sale securities  21,194   421 
Purchases of fixed assets  (14,406)  (9,766)  (9,766)  (8,359)
Proceeds from receipt of notes receivable from stockholders  151    
Issuance of notes receivable from stockholders  (1,085)  (984)  (984)   
          
Net cash (used in) provided by investing activities  (39,454)  10,415 
Net cash provided by/(used in) investing activities  10,415   (66,921)
Cash flows from financing activities:                
Proceeds from issuance of short-term debt     80,000 
Proceeds from issuance of short-term debt, net  80,000    
Redemption of Class A common stock  (33,834)  (186,022)  (186,022)  (25,881)
Repurchase of Class B common stock  (506)  (5,001)  (5,001)   
Repayment of short-term debt  (1,058)  (1,250)
Excess tax benefits from stock options exercised  8,821   13,684 
Proceeds from exercises of stock options     155 
Repayment of short-term debt, net  (1,250)  (30,682)
Excess tax benefits from exercised stock options  13,684   171 
Proceeds from stock options exercised  155   179 
          
Net cash used in financing activities  (26,577)  (98,434)  (98,434)  (56,213)
          
Effect of exchange rate changes  22   4   4   (438)
          
Increase in cash and cash equivalents  26,726   1,849   1,849   11,821 
Cash and cash equivalents, beginning of period  99,152   24,049   24,049   33,185 
          
Cash and cash equivalents, end of period $125,878  $25,898  $25,898  $45,006 
          
Supplemental disclosures:        
Taxes paid $873  $6,034 
     
Interest paid $6,153  $8,178 
     
Non-cash investing and financing activities:                
Loans made to directors and officers in connection with the exercise of stock options $9,898  $17,183  $17,183  $ 
          
Stock redemptions used to repay notes receivable from stockholders’ maturities and to exercise stock options $12,741  $12,627 
Redemption of Class A common stock used to repay maturities of notes receivable from stockholders $12,627  $ 
          
KSOP stock redemption funded in the prior year $2,643  $ 
Redemption of Class A common stock used to fund the exercise of stock options $1,114  $ 
     
Deferred tax liability established on date of acquisition $  $(8,744)
          
Capital lease obligations $  $81  $81  $ 
          
Increase in goodwill due to acquisition related liabilities $24,768  $5,618 
Capital expenditures included in accounts payable and accrued liabilities $  $3,225 
          
Escrow distribution $  $1,223 
Decrease in goodwill due to finalization of acquisition related liabilities $  $(4,300)
          
Increase in goodwill due to acquisition related escrow distributions $1,223  $ 
     
 
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.


F-6


INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(Amounts in thousands, except for share and per share data, unless otherwise stated)
 
1.  Organization:
 
Insurance Services Office, Inc. and its consolidated subsidiaries (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, creates embedded decision support solutions. The Company is one of the largest aggregators and providers of data pertaining to U.S. property and casualty (“P&C”) or P&C insurance risks.risks in the United States of America (“U.S.”). The Company offers solutions for detecting fraud in the U.S. P&C insurance, mortgage and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance. The Company provides solutions, including data, statistical models or tailored analytics, all designed to allow clients to make more logical decisions.
 
The Company 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 pursuingpursued strategic acquisitions.
On June 27, 2008, the Company’s stockholders approved certain corporate governance changes necessary to allow the Company to proceed with a proposed initial public offering (“IPO”). Immediately prior to the completion of the proposed IPO, the Company will undergo a corporate reorganization whereby the Class A and Class B common stock of the Company will be exchanged by the current stockholders for the common stock of Verisk Analytics, Inc. (“Verisk”) on a one-for-one basis. Verisk, formed on May 23, 2008, was established to serve as the parent holding company of Insurance Services Office, Inc.
All stock options granted under the Insurance Services Office, Inc. 1996 Incentive Plan will be transferred to Verisk, without modification to the terms of the options other than that such options will be exercisable for Class A common stock of Verisk. Class A common stock of Verisk will not be redeemable by the holder and only Class A common stock will be offered to the public.
Upon consummation of the IPO, two new series of Class B common stock, Class B (Series 1) common stock (the“Class B-1”) and Class B (Series 2) common stock (the“Class B-2”) will be formed and 50 percent of each Class B stockholders’ existing Class B common stock will be converted into shares of newClass B-1 common stock and the remaining 50 percent of each Class B stockholders’ existing Class B common stock will be converted into shares of newClass B-2 common stock. Each share ofClass B-1 common stock shall convert automatically, without any action by the stockholder, into one share of Class A common stock 18 months after the date of the IPO. Each share ofClass B-2 common stock shall convert automatically, without any action by the stockholder, into one share of Class A common stock 30 months after the date of the IPO. In conjunction with the IPO, Verisk plans to effect a stock split of Class A and B common stock. The strike price of stock options will be adjusted based on the effect of the stock split.
 
2.  Basis of Presentation and Summary of Significant Accounting PoliciesPolicies:
 
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include acquisition purchase price allocations, the fair value of goodwill, the realization of deferred tax assets, acquisition related liabilities, fair value of stock based compensation, liabilities for pension and postretirement benefits, fair value of the Company’s


F-7


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
common stock, and the estimate for the allowance for doubtful accounts. Actual results may ultimately differ from those estimates.
 
The condensed consolidated financial statements as of March 31, 20082009 and for the three months ended March 31, 20072008 and 20082009 in the opinion of management, include all adjustments, consisting only of normal recurring accruals, to present fairly the Company’s financial position, results of operations and cash flows. The operating results for the three months ended March 31, 20082009 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements and related notes for the three months ended March 31, 20082009 have been prepared on the same basis as and should be read in conjunction with the consolidated financial statements as of December 31, 20062007 and 20072008 and for each of the three years ended December 31, 2005, 2006, 2007 and 2007.2008. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules of the Securities and Exchange Commission. The Company believes the disclosures made are adequate to keep the information presented from being misleading.
 
Recent Accounting Pronouncements
 
In June 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITFNo. 06-11,Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards, (“EITFNo. 06-11”), that an entity should recognize a realized tax benefit associated with dividends on affected securities charged to retained earnings as an increase in Additional Paid in Capital (“APIC”). The amount recognized in APIC should be included in the APIC pool. When an entity’s estimate of forfeitures increases or actual forfeitures exceed its estimates, the amount of tax benefits previously recognized in APIC should be reclassified into the statement of operations. The amount reclassified is limited to the APIC pool balance on the reclassification date. EITFNo. 06-11 applies prospectively to the income tax benefits of dividends declared on affected


F-7


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
securities. The adoption of EITFNo. 06-11, effective January 1, 2008, did not have an impact on the financial statements as the Company does not currently pay dividends on its common stock.
In December 2007, the FASB issued FAS No. 141 (revised 2007),Business Combinations(“FAS No. 141(R)”). FAS No. 141(R) replacesFAS No. 141,Business Combinations(“FAS No. 141”). FAS No. 141(R) primarily requires an acquirer to recognize the assets acquired and the liabilities assumed, measured at their fair values as of that date. This replaces FAS No. 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. Generally, FAS No. 141(R) will become effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The impact of adopting FAS No. 141(R) will be dependent on the2008, except for tax provisions which apply to business combinations thatregardless of acquisition date. As the Company may pursue and complete after its effective date.
Inhad expensed all in-process acquisition related costs incurred during the year ended December 2007, the FASB issued FAS No. 160,Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51,(“FAS No. 160”). FAS No. 160 requires that a noncontrolling interest in a subsidiary be reported as equity and the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. FAS No. 160 is effective for the Company on January 1, 2009 except the presentation and disclosure requirements which are required to be applied retrospectively for all periods presented. Earlier adoption of FAS No. 160 is prohibited. The Company is currently evaluating the impact that31, 2008, the adoption of FAS No. 160 will have141(R) on itsJanuary 1, 2009 had no impact on the Company’s consolidated financial statements. The Company made one acquisition during the three months ended March 31, 2009 and accounted for the acquisition under FAS No. 141(R).
 
In February 2008, the FASB issued FASB Staff Position (“FSP”) FSPFAS No.157-2,Effective Date of FASB Statement No. 157(“FSPFAS No. 157-2”), which delays the effective date of FAS No. 157,Fair Value Instruments(“FAS No. 157”), for non-recurring non-financial assets and liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. Non-financial assets and liabilities include, among others: intangible assets acquired through business combinations; long-lived assets when assessing potential impairment; and liabilities associated with restructuring activities. TheEffective January 1, 2009, the Company is currently assessinghas adopted the impact the adoptiondisclosure provisions of FSPFAS No. 157-2 for its non-recurring non-financial assets and liabilities, will have, if any, on its consolidated financial statements.
In March 2008, the FASB issued FAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FAS No. 133(“FAS No. 161”). FAS No. 161 seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding their impact on financial position, financial performance, and cash flows. To achieve this increased transparency, FAS No. 161 requires the disclosure of theexcept those recognized or disclosed at fair value of derivative instruments and gains and losses inon a tabular format; the disclosure of derivative features that are credit risk-related; and cross-referencing within the footnotes. FAS No. 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. The Company is currently assessing the impact the adoption of FAS No. 161 will have, if any, on its consolidated financial statements.recurring basis.
 
In April 2008, the FASB issued FSPNo. 142-3,Determination of the Useful Life of Intangible Assets(“FSPNo. 142-3”). FSPNo. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142,Goodwill and Other Intangible Assets (“FAS No. 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141(R), and other U.S. GAAP. FSPNo. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. The adoption of FSPNo. 142-3, effective January 1, 2009, had no impact on the Company’s consolidated financial statements.
In October 2008, the FASB issued FSPFAS No. 157-3,Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active(“FSPFAS No. 157-3”). FSPFAS No. 157-3 clarifies the


F-8


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
application of FAS No. 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSPNo. 157-3 was effective upon issuance, including prior periods for which financial statements had not been issued. Effective January 1, 2009, the Company has adopted the disclosure provisions of FSPNo. 157-3 for its non-recurring non-financial assets and liabilities, except those recognized or disclosed at fair value on a recurring basis.
periods within those
In December 2008, the Financial Accounting Standards Board (“FASB”) released Staff Position (“FSP”) No. 132(R)-1,Employer’s Disclosure about Postretirement Benefit Plan Assets(“FSPNo. 132R-1”). FSPNo. 132R-1 amends FASB Statement No. 132 (revised 2003),Employers’ Disclosures about Pensions and Other Postretirement Benefits,to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSPNo. 132R-1 is effective for financial statements issued for fiscal years. Early adoption is prohibited.years ending after December 15, 2009. The Company is currently evaluating the potential impact if any, the adoption of FSPNo. 142-3132R-1 on its consolidated financial statements.
In April 2009, the FASB issued FSPFAS 115-2 andFAS 124-2,Recognition and Presentation of Other-Than-Temporary Impairments(“FSPFAS 115-2/124-2”). FSPFAS 115-2/124-2 requires entities to separate an other-than-temporary impairment of a debt security into two components when there are credit related losses associated with the impaired debt security for which management asserts that it does not have the intent to sell the security, and it is more likely than not that it will not be required to sell the security before recovery of its cost basis. The amount of the other-than-temporary impairment related to a credit loss is recognized in earnings, and the amount of the other-than-temporary impairment related to other factors is recorded in other comprehensive loss. FSPFAS 115-2/124-2 is effective for periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the impact of FSPFAS 115-2/124-2 on its consolidated financial statements.
In April 2009, the FASB issued FSP No. 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies(“FSPNo. 141R-1”),to provide further guidance on assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of FASB No. 5,Accounting for Contingencies(“FAS No. 5”) if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies that are subject to specific guidance in FAS 141(R). FSPNo. 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The majority of the impact of adopting FSPNo. 141R-1 will havebe dependent on the business combinations that the Company may pursue and complete after its effective date.
In April 2009, the FASB issued FSPFAS 157-4,Determining Fair Value When Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and Identifying Transactions that are Not Orderly(“FSPFAS 157-4”). Under FSPFAS 157-4, if an entity determines that there has been a significant decrease in the volume and level of activity for the asset or the liability in relation to the normal market activity for the asset or liability (or similar assets or liabilities), then transactions or quoted prices may not accurately reflect fair value. In addition, if there is evidence that the transaction for the asset or liability is not orderly, the entity shall place little, if any, weight on that transaction price as an indicator of fair value. FSPFAS 157-4 is effective for periods ending after June 15, 2009, with early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the impact of FSPFAS 157-4 on its consolidated financial statements.
In April 2009, the FASB issued FSPFAS 107-1 and Accounting Principles Board (“APB”)28-1,Interim Disclosures about Fair Value of Financial Instruments(“FSPFAS 107-1 and APB28-1”). FSPFAS 107-1 and APB28-1 require disclosures about fair value of financial instruments in interim and annual financial statements. FSPFAS 107-1 and APB28-1 are effective for periods ending after June 15, 2009, with


F-9


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
early adoption permitted for periods ending after March 15, 2009. The Company is currently evaluating the impact of FSPFAS 107-1 and APB28-1 on its consolidated financial statements.
 
3.  Concentration of Credit Risk:
 
Financial instruments that potentially expose the Company to credit risk consist primarily of cash and cash equivalents, available for saleavailable-for-sale securities and accounts receivable, which are generally not collateralized. The Company maintains its cash and cash equivalents with higher credit quality financial institutions in order to limit the amount of credit exposure. The total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) to a maximum amount of $100$250 per bank.bank at December 31, 2008 and March 31, 2009. At MarchDecember 31, 2008, the Company had cash balances on deposit with fivesix banks, that exceeded the balance insured by the FDIC limit by approximately $15,489.$20,917. At March 31, 2009, the Company had cash balances on deposit with four banks, that exceeded the balance insured by the FDIC limit by approximately $31,616. At December 31, 2008 and March 31, 2009, the Company also had cash on deposit with foreign banks of approximately $10,070.$11,311 and $12,333, respectively.
 
The Company considers the concentration of credit risk associated with its trade accounts receivable to be commercially reasonable and believes that such concentration does not result in the significant risk of near-term severe adverse impacts. The Company’s top fifty customers for the three months ended March 31, 2008 and 2009, represent approximately 42% and 40% of revenue, respectively, with no individual customer accounting for more than 4% of revenue.
revenue during the three months ended March 31, 2008 and 2009. No individual customer comprised more than 10% of accounts receivable as ofat December 31, 20072008 and March 31, 2008.2009.
 
4.  Accounts Receivables:
 
Accounts receivables consist of the following:
 
                
 December 31,
 March 31,
  December 31,
 March 31,
 
 2007 2008  2008 2009 
Billed receivables $88,370  $111,157  $81,302  $110,090 
Unbilled receivables  6,365   3,753   9,036   11,385 
          
Total receivables  94,735   114,910   90,338   121,475 
Less allowance for doubtful accounts  (8,247)  (8,227)  (6,397)  (6,187)
          
Accounts receivable, net $86,488  $106,683  $83,941  $115,288 
          
 
5.Notes Receivable from Stockholders:
Notes receivable from stockholders consists of recourse loans issued by the Company to directors and senior management in connection with exercising stock options. These loans for the exercise price are classified as a component of “Redeemable common stock” on the accompanying consolidated balance sheets. These loans may also include loans for the tax liability and accrued interest incurred in connection with exercising stock options and these loans are included in “Notes receivable from stockholders”’ as a component of total assets on the accompanying consolidated balance sheets. As of December 31, 2007 and March 31, 2008 approximately $55,328 and $61,323, respectively, of notes receivable from stockholders were outstanding. At December 31, 2007 and March 31, 2008, $2,776 and $7,003, respectively, of notes receivable from stockholders were due in one year. These notes were issued at rates approximating market rates of interest. Payments of principal and interest related to the notes are generally deferred until the end of the loan terms, which range from three to nine years. Interest income on notes receivable from stockholders was $583 and $458 during the three months ended March 31, 2007 and 2008, respectively.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
6.  Investments:
 
The following is a summary of available-for-sale securities:
 
                 
     Gross
  Gross
    
     Unrealized
  Unrealized
    
December 31, 2007
 Cost  Gains  Losses  Fair Value 
 
Registered investment companies $29,036  $     —  $  (686) $28,350 
                 
                                
   Gross
 Gross
      Gross
 Gross
   
   Unrealized
 Unrealized
      Unrealized
 Unrealized
   
March 31, 2008
 Cost Gains Losses Fair Value 
 Cost Gains Losses Fair Value 
December 31, 2008
                
Registered investment companies $ 6,596  $    67  $     —  $ 6,663  $5,162  $  $(48) $5,114 
                  
March 31, 2009
                
Registered investment companies $4,708  $71  $  $4,779 
         
 
Proceeds from sales and maturities of investmentsavailable-for-sale securities were $130$21,194 and $21,194$421 for the three month periods ended March 31, 2007 and 2008, respectively. Realized gains and losses on registered investment companies for the three month periods ended March 31, 2007 and 2008 were $12 and ($1,274), respectively.
Investment income during the three months ended March 31, 2007 includes interest income from cash2008 and cash equivalents, interest income from notes receivable from stockholders,2009, respectively. Realized losses on the sale of shares of registered


F-10


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
investment companies for the three months ended March 31, 2008 and dividend income from investments of $1,652, $583,2009 were $1,274 and $45,$398, respectively.
Investment income during the three months ended March 31, 2008 includes interest income from cash and cash equivalents, interest income from notes receivable from stockholders, and dividend income from investments of $229, $458 and $129, respectively.
From time to time, the Company has entered into certain derivative transactions involving the sale of covered call options on underlying investments held by the Company. As of March 31, 2007, the fair value of the derivative liability associated with the covered call options was $275. This amount was recognized as a reduction to investment Investment income for the three months ended March 31, 2007. The gain on call premiums of $95 was recognized as investment income for the three months ended March 31, 2007. The Company did not enter into any derivative transactions during the three months ended March 31, 2008.2009 includes interest income from cash and cash equivalents and dividend income from investments of $35 and $8, respectively.
The Company has investment in private equity securities in which the Company acquired non-controlling interests and no readily determinable market value exists. These securities were accounted for under the cost method, in accordance with APB No. 18,The Equity Method of Accounting for Investments in Common Stock. At December 31, 2008 and March 31, 2009, the carrying values of such securities was approximately $5,853 for both periods and has been included in non-current other assets in the accompanying condensed consolidated financial statements.
 
7.6.  Fair Value Measurements
 
Effective January 1, 2008, the Company adopted the provisions of FAS No. 157,Fair Value Measurements, (“FAS No. 157”), which defines fair value, establishes a framework for measuring fair value under U.S. GAAP and expands fair value measurement disclosures. In February 2008, the FASB delayed the effective date of FAS No. 157 until fiscal years beginning after November 15, 2008 for all nonfinancialnon-financial assets and nonfinancialnon-financial liabilities, except those that are recognized or disclosed at least annually. Therefore, effectiveEffective January 1, 2008, the Company has adopted the provisions of FAS No. 157 only for its financial assets and liabilities recognized or disclosed at fair value on a recurring basis. Effective January 1, 2009, the Company has adopted the provisions of FAS No. 157 for its non-financial assets and liabilities recognized or disclosed at fair value.
 
To increase consistency and comparability in fair value measures, FAS No. 157 establishes a three-level fair value hierarchy to prioritize the inputs used in valuation techniques between observable inputs that reflect quoted prices in active markets, inputs other than quoted prices with observable market data, and unobservable data (e.g., a company’s own data). FAS No. 157 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 FAS No. 157, 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.


F-10


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
Level 2 — Assets and liabilities valued based on observable market data for similar instruments.
Level 3 —
Level 1 —Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments.
Level 2 —Assets and liabilities valued based on observable market data for similar instruments.
Level 3 —Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require.


F-11


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
The following table summarizes fair value measurements by level at December 31, 2008 and March 31, 20082009 for assets and other balances measured at fair value on a recurring basis:
 
                                
   Quoted Prices
        Quoted Prices
     
   in Active Markets
 Significant Other
 Significant
    in Active Markets
 Significant Other
 Significant
 
   for Identical
 Observable
 Unobservable
    for Identical
 Observable
 Unobservable
 
 2008 Assets (Level 1) Inputs (Level 2) Inputs (Level 3)  Total Assets (Level 1) Inputs (Level 2) Inputs (Level 3) 
December 31, 2008
                
Available-for-sale securities(1) $6,663  $    6,663  $       —  $  $5,114  $5,114  $  $ 
Redeemable common stock(2)  1,072,702         1,072,702 
Class A redeemable common stock(2) $752,912  $  $  $752,912 
March 31, 2009
                
Available-for-sale securities(1) $4,779  $4,779  $  $ 
Class A redeemable common stock(2) $761,627  $  $  $761,627 
Contingent consideration under FAS No. 141(R)(3) $2,800  $  $  $2,800 
 
 
(1)Available-for-sale equity securities are valued using quoted prices in active market prices multiplied by the number of shares owned.
 
(2)RedemptionThe fair value for these shares is determined by an appraiser. See note 12 for a reconciliation of the beginning and ending balance for theCompany’s Class A redeemable common stock is established for purposes of the ISO 401 (K) Savings and Employee Stock Ownership Plan (“KSOP”) generally on the final day of the quarter and such price is utilized for all share transactions in the subsequent quarter. The current valuation in effect for the three monthsKSOP is also considered the fair value for Class A redeemable common stock and related transactions within the Insurance Services Office, Inc. 1996 Incentive Plan. See Note 11 for a description of the valuation process.
(3)Under FAS No. 141(R), contingent consideration is recognized at fair value at the end of each reporting period. Subsequent changes in the fair value of contingent consideration is recorded in the statement of operations. See Note 8 for further information regarding the 2009 acquisitions. For the quarter ended March 31, 2008 which is measured at fair value using level 3 inputs.2009, no adjustments to the initial assessment were required.
 
Effective January 1,The table below includes a roll-forward of the Company’s Class A redeemable common stock from December 31, 2008 the Company adopted FAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115(“FAS No. 159”). FAS No. 159 permits companies to choose to measure certain financial instruments and other items at fair value. The standard requires that unrealized gains and losses are reported in earnings for items measured using the fair value option. The Company has elected not to apply the fair value option to its eligible financial assets and liabilities, and accordingly, the adoption of FAS No. 159 had no impact on the consolidated financial statements.March 31, 2009:
     
  Significant
 
  Unobservable
 
  Inputs (Level 3) 
 
Balance, December 31, 2008 $752,912 
Redemptions and exercise of stock, net  (25,701)
Increase in fair value(1)  34,416 
     
Balance, March 31, 2009 $761,627 
     
(1)See Note 11 for a description of the valuation process.


F-12


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
8.7.  Goodwill and Intangible Assets:
 
The following is a summary of the change in goodwill from December 31, 20072008 through March 31, 2008,2009, both in total and as allocated to the Company’s operating segment:segments:
 
             
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Goodwill at December 31, 2007 $27,908  $311,983  $339,891 
Escrow distribution     1,223   1,223 
Earnout related payments     5,618   5,618 
             
Goodwill at March 31, 2008 $27,908  $318,824  $346,732 
             
             
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Goodwill at December 31, 2008 $27,908  $419,464  $447,372 
Current year acquisitions     44,286   44,286 
Finalization of acquisition related liabilities     (4,300)  (4,300)
Purchase accounting reclassifications     (355)  (355)
             
Goodwill at March 31, 2009 $27,908  $459,095  $487,003 
             


F-11


INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
As of December 31, 2007 and March 31, 2008, theThe Company’s intangible assets and related accumulated amortization consisted of the following:
 
                                
 Weighted
        Weighted Average
   Accumulated
   
 Average
   Accumulated
    Useful Life Cost Amortization Net 
December 31, 2007
 Useful Life Cost Amortization Net 
December 31, 2008
                
Technology-based  5 years  $164,317  $(80,419) $83,898   5 years  $164,127  $(98,810) $65,317 
Marketing-related  4 years   25,846   (13,667)  12,179   4 years   31,733   (18,363)  13,370 
Contract-based  6 years   6,555   (5,596)  959   6 years   6,555   (5,940)  615 
Customer-related  13 years   57,906   (13,782)  44,124   12 years   53,317   (19,906)  33,411 
              
Total intangible assets     $254,624  $(113,464) $141,160      $255,732  $(143,019) $112,713 
              
 
                                
 Weighted
        Weighted Average
   Accumulated
   
 Average
   Accumulated
    Useful Life Cost Amortization Net 
March 31, 2008
 Useful Life Cost Amortization Net 
March 31, 2009
                
Technology-based  5 years  $164,317  $(85,552) $78,765   6 years  $176,274  $(103,632) $72,642 
Marketing-related  4 years   25,846   (14,764)  11,082   4 years   38,614   (20,265)  18,349 
Contract-based  6 years   6,555   (5,793)  762   6 years   6,555   (5,946)  609 
Customer-related  13 years   57,906   (15,396)  42,510   12 years   58,097   (21,686)  36,411 
              
Total intangible assets     $254,624  $(121,505) $133,119      $279,540  $(151,529) $128,011 
              
 
Consolidated amortization expense related to intangible assets for the three-month periodsthree months ended March 31, 20072008 and 2008,2009, was approximately $8,923$8,041 and $8,041,$8,510, respectively. Estimated amortization expense through 20122013 and thereafter for intangible assets subject to amortization is as follows:
 
        
Year
 Amount  Amount 
2008 (remainder of) $21,984 
2009  27,920  $24,668 
2010  22,721  $27,957 
2011  16,455  $21,421 
2012  14,319  $17,506 
2013 $11,933 
Thereafter  29,720  $24,526 


F-13


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
9.8.  Acquisitions and Discontinued Operations:Acquisitions:
 
2008 Acquisitions
In 2008, the Company acquired two entities for an aggregate cash purchase price of approximately $19,270 and funded indemnity escrows totaling $1,500. At March 31, 2009, these escrows have been included in other assets in the condensed consolidated balance sheet of the accompanying financial statements. These acquisitions were accounted for under the purchase method. Accordingly, the purchase price, excluding indemnification escrows, was allocated to assets acquired based on their estimated fair values as of the acquisition dates. Each entity’s operating results have been included in the Company’s consolidated results from the respective dates of acquisition. A description of the two entities purchased in 2008 is as follows:
On January 11, 2007,November 14, 2008, the Company acquired the remaining 20% of the stock of National Equipment Register (“NER”), resulting in 100% ownership, in order to more closely align operations with existing businesses. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financials results for 2007 and 2008. NER is a provider of solutions to increase the recovery rate of stolen equipment and reduce the costs associated with theft for owners and insurers.
On March 23, 2007, the Company acquired the rights, title, and interest of the name, trade name, and service mark, “Rex Depot” and other intangiblenet assets of Smith Sekelsky Web Products, LLC.ZAIO’s two divisions, United Systems Software Company (“ZAIO”) and Day One Technology. The assets associated with this acquisition further enhance the capability of the Company’s appraisal software offerings.
On November 20, 2008, the Company acquired 100% of the stock of Atmospheric and Environmental Research, Inc. (“AER”). The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for the years ended 2010 and 2011. The acquisition of AER further enhances the Company’s environmental and scientific research and predictive modeling. The allocation of the purchase price to intangible assets, goodwill, accrued liabilities, contingent escrows, and the determination of a FASB Interpretation No. 48Accounting for Uncertainty in Income Taxes(“FIN No. 48”) liability for the AER acquisition is subject to revisions based on the results of the final determination of estimated fair values, which are not expected to be material to the consolidated financial statements.
2009 Acquisitions
On January 14, 2009, the Company acquired 100% of the stock of D2Hawkeye, Inc. (“D2”), a privately-owned provider of data mining, decision support, clinical quality analysis, and risk analysis tools for the healthcare industry. The Company believes this acquisition will enhance the Company’s position in the healthcare analytics and predictive modeling market by providing new market, cross-sell, and diversification opportunities for the Company’s expanding healthcare solutions.
The total net cash purchase price was $51,618, and the Company funded $7,000 of indemnity escrows, which is included in “Other assets” in accompanying condensed consolidated balance sheet. The preliminary allocation of purchase price resulted in accounts receivable of $3,477, current assets of $269, fixed assets of $2,322, finite lived intangible assets with no residual value of $23,808, goodwill of $44,286, current liabilities of $4,000, other liabilities of $9,800, and deferred tax liabilities of $8,744. Other liabilities consist of a $7,000 payment due to the seller in April 2010, assuming no pre-acquisition indemnity claims arise subsequent to the acquisition date, and $2,800 of contingent consideration, which was estimated as of the acquisition date by using a weighted average probability of achieving the specific predetermined EBITDA targets, which could result in a payment ranging from $0 to $65,700 for the fiscal year ending December 31, 2011. The terms of the contingent consideration include a range that allows the sellers to benefit from the potential growth of D2; however, the amount recorded as of March 31, 2009 represents management’s best estimate based on the prior financial results as well as management’s current best estimate of the future growth of revenue and EBITDA. Under FAS No. 141(R), contingent consideration is recognized at fair value at the end of each reporting period. Subsequent changes in the estimated fair value of contingent consideration is recorded in the statement of operations. For the year ended December 31, 2008 and for the three months ended March 31, 2009, the Company incurred legal expenses related to this acquisition of $366 and $287, respectively, included within “Selling, general, and administrative expenses” in the accompanying condensed consolidated statements of operations.


F-12F-14


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
The amounts assigned to intangible assets by type are summarized in the table below:
In 2007,
         
  Weighted Average
    
  Useful Life  Total 
 
Technology-based  10 years  $12,147 
Marketing-related  5 years   6,881 
Customer-related  6 years   4,780 
         
Total intangible assets  8 years  $23,808 
         
The allocation of the Company discontinued operations of its claims consulting business located in New Hope, PApurchase price to intangible assets, goodwill, accrued liabilities, other liabilities, acquisition contingent payments, and the United Kingdom.determination of a FIN No. 48 liability is subject to revisions based on the results of the final determination of estimated fair values as of the acquisition date. Such revisions may have a material impact on the consolidated financial statements. The resultsvalue of goodwill associated with this acquisition is currently included within the Decision Analytics segment. However, the final assignment of goodwill to the operating segments has not been finalized, as it is expected that additional synergies will be realized within the Risk Assessment segment. The goodwill for this business were accountedacquisition is not deductible for as discontinued operations intax purposes. Included within the condensed consolidated financial statements for the three months ended March 31, 2007. There was no impact of discontinued operations on the results of operations for the three months endedending March 31, 2008. The summarized, combined statements2009 are revenues of $4,152 and $72 of operating income from discontinued operations for the three-month period ended March 31, 2007 is as follows:
     
  March 31,
 
  2007 
 
Revenues $839 
     
Pre-tax loss $(807)
Tax benefit  197 
     
Loss from discontinued operations, net of tax $(610)
     
Depreciation expense related to the discontinued operations for the three months ended March 31, 2007 was $23.associated with D2.
 
10.9.  Income Taxes:
 
The Company’s annual estimated effective tax rate for fiscal year 2007 is 40.0%2008 was 43.3% compared to the estimated effective tax rate for fiscal year 20082009 of 42.1%42.9%.
 
Effective January 1, 2007, the Company adopted FIN No. 48, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. For each tax position, the Company must determine whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is then measured to determine the amount of benefit to recognize within the financial statements. No benefits may be recognized for tax positions that do not meet the more likely than not threshold.
 
Included in the total unrecognized tax benefits of $32,030$31,765 at March 31, 20082009 was $24,368$17,024 that, if recognized, would have a favorable effect on the Company’s effective tax rate. The remaining unrecognized tax benefits would not affect the Company’s effective tax rate.
In addition, the Company estimates $5,275 of unrecognized tax positions that may be recognized by March 31, 2010, due to expiration of statutes of limitations and resolution of audits with taxing authorities, net of additional uncertain tax positions.
The Company’s practicepolicy is to recognize interest and penalties associated with income taxes as a component of income tax expense. At December 31, 20072008 and March 31, 2008,2009, approximately $7,033$8,116 and $7,942,$8,024, respectively, was accrued in the Company’s condensed consolidated balance sheet for the payment of interest and penalties associated with income taxes.uncertain tax positions. The Company files federal income tax returns in the U.S. and various state, local and foreign income tax returns. All of the U.S. federal, state and local income tax returns filed by the Company are subject to examination by the Internal Revenue Service and the state and local tax authorities until the expiration of the relevant statute of limitations.


F-13F-15


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
11.10.  Debt:
 
The following table presents short-term and long-term debt by issuance:
 
                 
  Issuance
  Maturity
  December 31,
  March 31,
 
  Date  Date  2007  2008 
 
Short-term debt:                
Bank of America  10/25/2006   4/25/2007  $15,000  $ 
Bank of America  10/25/2007   4/25/2008      15,000 
Bank of America  3/10/2008   4/9/2008      25,000 
Bank of America  3/31/2008   4/14/2008      10,000 
JPMorgan Chase  12/31/2007   1/3/2008   15,000    
JPMorgan Chase  3/10/2008   4/9/2008      20,000 
JPMorgan Chase  3/26/2008   4/7/2008      10,000 
JPMorgan Chase  3/28/2008   4/4/2008      10,000 
JPMorgan Chase  3/31/2008   4/14/2008      20,000 
Capital lease obligations  Various   Various   4,408   3,379 
Other  Various   Various   763   441 
                 
Short-term debt         $35,171  $113,820 
                 
Long-term debt:                
Prudential senior notes:                
4.46% Series D senior notes  6/14/2005   6/13/2009  $100,000  $100,000 
4.60% Series E senior notes  6/14/2005   6/13/2011   50,000   50,000 
6.00% Series F senior notes  8/8/2006   8/8/2011   25,000   25,000 
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 
Principal senior notes:                
6.03% Series A senior notes  8/8/2006   8/8/2011   50,000   50,000 
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  3/16/2007   10/26/2013   17,500   17,500 
5.87% Series A senior notes  3/16/2007   10/26/2015   17,500   17,500 
Other obligations:                
Capital lease obligations  Various   Various   7,299   7,343 
Other  Various   Various   860   851 
                 
Long-term debt         $403,159  $403,194 
                 
                 
  Issuance
  Maturity
  December 31,
  March, 31
 
  Date  Date  2008  2009 
 
Short-term and current portion of
long-term debt:
                
Bank of America  12/15/2008   1/15/2009  $5,000  $ 
Bank of America  12/17/2008   1/17/2009   30,000    
Bank of America  12/22/2008   1/22/2009   15,000    
Bank of America  12/24/2008   1/24/2009   5,000    
Bank of America  2/17/2009   5/17/2009      5,000 
Bank of America  2/17/2009   5/17/2009      30,000 
JPMorganChase  12/1/2008   1/2/2009   10,000    
JPMorganChase  12/12/2008   1/12/2009   4,000    
JPMorganChase  12/18/2008   1/20/2009   20,000    
JPMorganChase  12/24/2008   1/24/2009   20,000    
JPMorganChase  12/29/2008   1/29/2009   5,000    
JPMorganChase  3/12/2009   4/12/2009      21,000 
JPMorganChase  3/20/2009   6/20/2009      7,547 
JPMorganChase  3/26/2009   4/27/2009      20,000 
Prudential: 4.46% Series D senior notes  6/14/2005   6/13/2009   100,000   100,000 
Capital lease obligations  Various   Various   5,058   4,945 
Other  Various   Various   340   1,474 
                 
Short-term debt and current portion of long-term debt         $219,398  $189,966 
                 


F-16


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
                 
  Issuance
  Maturity
  December 31,
  March, 31
 
  Date  Date  2008  2009 
 
Long-term debt:                
Prudential senior notes:                
4.60% Series E senior notes  6/14/2005   6/13/2011  $50,000  $50,000 
6.00% Series F senior notes  8/8/2006   8/8/2011   25,000   25,000 
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 
Principal senior notes:                
6.03% Series A senior notes  8/8/2006   8/8/2011   50,000   50,000 
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 
Other obligations:                
Capital lease obligations  Various   Various   4,723   3,739 
Other  Various   Various   633   382 
                 
Long-term debt         $450,356  $449,121 
                 
 
Accrued interest associated with the Company’s outstanding debt obligations was $2,548$4,092 and $2,721$4,068 as of December 200731, 2008 and March 31, 2008,2009, respectively. Consolidated interest expense associated with the Company’s outstanding debt obligations was $5,682$6,189 and $6,189$8,070 for the three-month periods ended March 31, 2007 and 2008, respectively.


F-14


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
During the three months ended March 31, 2008 the Company utilized additional short-term borrowings from revolving credit facilities with Bank of America and JPMorgan Chase to repurchase Class A common stock.2009, respectively. As of March 31, 2008,2009, the interest on the outstanding borrowings under the revolving credit facilities with Bank of America and JPMorgan ChaseJPMorganChase is payable monthly at a weighted average ratesinterest rate of 5.08%2.19% and 4.19%1.55%, respectively.
On January 30, 2009, the Company entered into a $30,000 revolving credit facility with Wachovia Bank, N.A. that matures on September 30, 2009. This facility is committed with a one time fee of $50 and a fee of 0.25% of the unused portion. Interest is payable at maturity at a rate to be determined at the time of borrowing. Upon maturity of this facility the Company may convert all or a principal portion not less than $1,000 of the aggregate principal balance of revolving credit loans then outstanding into a one year term loan. The Company did not have any amount outstanding under this facility as of March 31, 2009.
 
12.11.  Redeemable Common Stock:
 
On November 18, 1996, the Company authorized 6,700,000 shares of Class A shares.redeemable common stock. The Class A shares arestock is reserved for the use in incentive plans for key employees and directors under the Option Plan, and for issuance to the ISO 401(k) Savings and Employee Stock Ownership Plan (the “KSOP”). The Class A shares havestock has voting rights to elect nine of the thirteen members of the board of directors. The Company’s Certificate of Incorporation limits those who may own Class A sharesstock to current and former employees or directors, the KSOP and trusts by or for the benefit of immediate family members of employees and former employees.
 
Under the terms of the Option Plan, Class A sharesstock resulting from exercised options that are held by the employee for more than six months and one day may be put to the Company and redeemed at the then

F-17


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
current fair value at the date of the redemption request of the Class A shares.stock. For options granted in 2002 through 2004, the Company has the ability to defer the cash settlement of the redemption up to one year. For options granted after 2004, the Company has the ability to defer the cash settlement of the redemption for up to two years. Under the terms of the KSOP, eligible participants may elect to diversify 100% of their 401(k) and up to 35% of their ESOP contributions that were made in the form of Class A shares.stock. In addition, upon retirement or termination, participants in the KSOP are required to liquidate their ownership in Class A common shares.stock. Since the Class A sharesstock distributed under the Option Plan and KSOP areis subject to the restrictions above, the participant currently has the right to require the Company to repurchase sharesstock based on the then current fair value of the Class A shares.stock.
The fair value of the Company’s Class A redeemable common stock is established for purposes of the KSOP, generally on the final day of the quarter and such price is utilized for all share transactions in the subsequent quarter. The current valuation in effect for the KSOP is also considered fair value for Class A redeemable common stock and related transactions within the Insurance Services Office, Inc. 1996 Incentive Plan.
The valuation methodology is based on a variety of qualitative and quantitative factors including the nature of the business and history of the enterprise, the economic outlook in general and the condition of the specific industries in which the Company operates, the financial condition of the business, the Company’s ability to generate free cash flow, and goodwill or other intangible asset value. This determination of the fair market value employs both a comparable public company analysis, which examines the valuation multiples of companies deemed comparable, in whole or in part, to the Company, and a discounted cash flow analysis that determines a present value of the projected future cash flows of the business. The Company regularly assesses the underlying assumptions used in the valuation methodologies. As a result, the Company has utilized this quarterly fair value for all its Class A redeemable common stock transactions, as required by terms of the KSOP and the Insurance Services Office, Inc. 1996 Incentive Plan.
 
The Company follows SEC Accounting Series Release (“ASR”) No. 268,Presentation in Financial Statements of Preferred Redeemable Stock(“ASR No. 268”). ASR No. 268 requires the Company to record Class A sharesstock and vested stock options at full redemption value at each balance sheet date as the redemption of these securities is not solely within the control of the Company. Redemption value for the Class A sharesstock is determined quarterly on or about the final day of the quarter for purposes of the KSOP. AtThe fourth quarter 2008 valuation was finalized on December 31, 2007 and March 31, 2008, the appraisedwhich resulted in a fair value was $862 and $867 per share respectively.of $778. The fair value calculated for the first quarter 2009 was $805 per share, and will be used for all Class A stock transactions from April 1, 2009 through the earlier of the consummation of the proposed IPO or the calculation of the fair value for the second quarter 2009. The redemption value of the Class A sharesredeemable common stock and vested options at intrinsic value at December 31, 20072008 and March 31, 20082009 totaled $1,217,942$752,912 and $1,072,702,$761,627, respectively, which includes $215,380$172,408, and $207,810,$187,242, respectively, of aggregate intrinsic value of outstanding unexercised vested stock options.
 
During the three-month periodsthree months ended March 31, 20072008 and 2008, 37,9472009, 229,605 and 229,60533,391 Class A shares were redeemed by the Company at ana weighted average price of $756.67$862.83 and $862.83$775.10 per share, respectively. Included in Class A repurchased shares were $7,856$15,344 and $15,344$82 for shares primarily utilized to satisfy minimum tax withholdings on options exercised during the three-month periodsthree months ended March 31, 20072008 and 2008,2009, respectively.
 
Subsequent changes to the redemption value of the securities is charged first to retained earnings; once retained earnings is depleted, then to additionalpaid-in-capital, if additionalpaid-in-capital is also depleted, then to accumulated deficit. During the three months ended March 31, 20082009 the balanceredemption value of


F-15F-18


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
the Class A redeemable common stock decreasedincreased by $145,240.$8,715. Additional information regarding the changes in redeemable common stock for the three months ended March 31, 20082009 is provided in the table below.
 
                     
        Class A
  Notes
  Total
 
  Class A Common Stock  Unearned
  Receivable
  Redeemable
 
     Redemption
  KSOP
  from
  Common
 
  Shares  Value  Shares  Stockholders’  Stock 
 
Balance, January 1, 2008  2,922,253  $1,217,942  $(4,129) $(42,625) $1,171,188 
Redemption of Class A common stock     (198,649)     9,012   (189,637)
KSOP shares earned        189      189 
Stock options exercised  64,181   54,209      (17,182)  37,027 
Decrease in redemption value of Class A common stock     (800)        (800)
                     
Balance, March 31, 2008  2,986,434  $1,072,702  $(3,940) $(50,795) $1,017,967 
                     
                     
              Total
 
  Class A Common Stock  Redeemable
 
     Redemption
  Unearned
  Additional
  Common
 
  Shares  Value  KSOP  Paid-in-Capital  Stock 
 
Balance, December 31, 2008  746,139  $752,912  $(3,373) $  $749,539 
Redemption of Class A common stock  (33,391)  (25,881)        (25,881)
KSOP shares earned        182   4,945   5,127 
Stock based compensation           2,005   2,005 
Stock options exercised (including tax benefit of $171)  775   180      171   351 
Increase in redemption value of Class A common stock     34,416      (7,121)  27,295 
                     
Balance, March 31, 2009  713,523  $761,627  $(3,191) $  $758,436 
                     
 
13.12.  Stockholders’ Deficit:
 
On November 18, 1996, the Company authorized 20,000,000 Class B shares. The Class B shares have the same rights as Class A shares with respect to dividends and economic ownership, but have voting rights to elect three of the thirteen directors. The thirteenth seat on the board of directors is held by the chief executive officer of the Company. The Company repurchased 1,117 and 9,670 Class B shares during the three month periodsmonths ended March 31, 2007 and 2008 at an average price of $453.00 and $517.20 per share, respectively.share. The Company did not repurchase any Class B shares during the three months ended March 31, 2009.
 
Earnings Per Share
 
Basic earnings per common share is computed by dividing income available to common shareholdersstockholders by the weighted average number of common shares outstanding during the period, less the weighted average ESOP shares of common stock that have not been committed to be released. The computation of diluted earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding using the treasury stock method, if the dilutive potential common shares, such as stock awards and stock options, had been issued.


F-16F-19


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for the three month periodsmonths ended March 31:31, 2008 and 2009:
 
             
  Net Income
  Shares
  Per-Share
 
March 31, 2007
 (Numerator)  (Denominator)  Amount 
 
Basic EPS:            
Net income available to common stockholders $38,261   4,096,320  $9.34 
             
Effect of dilutive securities      173,124     
             
Diluted EPS:            
Net income available to common stockholders plus assumed conversions $38,261   4,269,444  $8.96 
             
March 31, 2008
            
             
Basic EPS:            
Net income available to common stockholders $41,026   3,759,913  $10.91 
             
Effect of dilutive securities      167,041     
             
Diluted EPS:            
Net income available to common stockholders plus assumed conversions $41,026   3,926,954  $10.45 
             
         
  March 31,
  March 31,
 
  2008  2009 
 
Numerator used in basic and diluted EPS:        
Net income $41,026  $44,915 
         
Denominator:        
Weighted average number of common shares used in basic EPS  3,759,913   3,478,760 
Effect of dilutive shares:        
Potential Class A redeemable common stock issuable upon the exercise of stock options  167,041   133,329 
         
Weighted average number of common shares and dilutive potential common shares used in diluted EPS  3,926,954   3,612,089 
         
Basic EPS $10.91  $12.91 
         
Diluted EPS $10.45  $12.43 
         
Pro forma basic income per share of Class A and Class B:        
Pro forma net income per share        
         
Pro forma diluted income per share of Class A and Class B:        
Pro forma net income per share        
         
Weighted average shares used in pro forma per share amounts:        
Basic        
         
Diluted        
         
 
The potential shares of common stock that were excluded from diluted earnings per share were 110,364108,949 and 108,949106,033 for the three month periodsmonths ended March 31, 20072008 and 2008,2009, respectively, because the effect of including these potential shares was antidilutive.
 
Unaudited pro forma net income (loss) per share is presented for additional information only. As disclosed in “Note 20Note 1 — Subsequent Events”,Organization, Verisk Analytics, Inc. (“Verisk”) will become the new holding company offor Insurance Services Office, Inc. In conjunctionconnection with the initial public offering, the stock of Insurance Services Office, Inc. will convert tobe exchanged for the stock of Verisk and Verisk plans to affect a stock split of its common stock. Pro forma net income (loss) per share is computed as if thisthe stock split occurred at the beginning of 2007.2009.
 
Accumulated Other Comprehensive Loss
 
The following is a summary of accumulated other comprehensive loss:
 
                
 December 31,
 March 31,
  December 31,
 March 31,
 
 2007 2008  2008 2009 
Unrealized (losses) gains on investments $(412) $39 
Unrealized foreign currency gains  154   158 
Unrealized (losses)/gains on investments $(31) $40 
Unrealized foreign currency losses  (773)  (1,211)
Pension and postretirement unfunded liability adjustment  (8,441)  (25,220)  (81,630)  (80,169)
          
Accumulated other comprehensive loss $(8,699) $(25,023) $(82,434) $(81,340)
          


F-17F-20


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
The before tax and after tax amounts for these categories, and the related tax benefit benefit/(expense) included in other comprehensive loss are summarized below:
 
                        
   Tax
      Tax Benefit/
   
   Benefit
    Before Tax (Expense) After Tax 
March 31, 2007
 Before Tax (Expense) After Tax 
Unrealized holding losses on investments arising during the year $184  $(80) $104 
Reclassification adjustment for amounts included in net income  (12)  5   (7)
Unrealized foreign currency gains  22      22 
Pension and postretirement unfunded liability adjustment  204   368   572 
       
Total other comprehensive gain $398  $293  $691 
       
March 31, 2008
                        
 
Unrealized holding losses on investments arising during the year $(367) $170  $(197) $(367) $170  $(197)
Reclassification adjustment for amounts included in net income  1,120   (472)  648   1,120   (472)  648 
Unrealized foreign currency gains  4      4   4      4 
Pension and postretirement unfunded liability adjustment  (29,527)  12,748   (16,779)  (29,527)  12,748   (16,779)
              
Total other comprehensive loss $(28,770) $12,446  $(16,324) $(28,770) $12,446  $(16,324)
              
March 31, 2009
            
Unrealized holding losses on investments arising during the year $(267) $108  $(159)
Reclassification adjustment for amounts included in net income  386   (156)  230 
Unrealized foreign currency losses  (438)     (438)
Pension and postretirement unfunded liability adjustment  2,450   (989)  1,461 
       
Total other comprehensive loss $2,131  $(1,037) $1,094 
       
 
14.13.  Stock Option Plan:
 
During 1998, the Company adopted the Insurance Services Office, Inc. 1996 Incentive Plan (the “Option Plan”). The Option Plan provides for the granting of options to key employees and directors of the Company. Options granted have varying exercisevesting dates within four years after grant date and expire after ten years. SharesStock obtained through the exercise of stock options that are held by the employee for more than six months and one day may be put to the Company and redeemed at the then current fair value of the Class A shares.common stock. For options granted in 2002 through 2004, the Company has the ability to defer the redemption for one year. For options granted after 2004, the Company has the ability to defer the redemption for up to two years. During the three months ended March 31, 20082009 and the year ended December 31, 2007,2008, stock options granted had an exercise price equal to fair value of the Class A common stock on date of grant. There are 1,992,7952,055,742 shares of Class A common stock approved for issuance under the plan, of which up to 18,01075,000 options to purchase shares were authorized for future grants at March 31, 2008.2009. Cash received from stock option exercises for the three months ended March 31, 2008 and 2009 was $155.$155 and $179. On April 1, 2009, the Company granted to key employees and directors 66,245 stock options with an exercise price equal to fair value, a ten year contractual term and vesting over a four year period.
A summary of options outstanding under the Option Plan as of March 31, 2009, and changes during the three months then ended is presented below:
             
     Weighted
  Aggregate
 
  Number
  Average
  Intrinsic
 
  of Options  Exercise Price  Value 
 
Outstanding at December 31, 2008  463,145  $389.39  $179,981 
             
Exercised  (775) $231.00  $424 
             
Cancelled or expired  (935) $806.64     
             
Outstanding at March 31, 2009  461,435  $388.81  $192,043 
             
Options exercisable at March 31, 2009  373,738  $304.00  $187,242 
             


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INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
A summary of option activity under the Option Plan as of March 31, 2008, and changes from the year ended December 31, 2007 is presented below:
             
     Weighted
  Aggregate
 
  Number
  Average
  Intrinsic
 
  of Options  Exercise Price  Value 
 
Outstanding at December 31, 2007  496,753  $320.46  $269,012 
             
Granted  56,990  $862.00     
Exercised  (64,181) $287.51   36,871 
             
Cancelled or expired  (233) $719.06     
             
Outstanding at March 31, 2008  489,329  $387.38  $234,692 
             
Options exercisable at March 31, 2008  333,013  $242.97  $207,810 
             
 
Exercise prices for options outstanding and exercisable at March 31, 20082009 ranged from $71$92 to $862$892 as outlined in the following table:
 
                                                
 Options Outstanding Options Exercisable  Options Outstanding Options Exercisable 
 Weighted-
     Weighted-
      Weighted-
   Weighted-
 Weighted-
   Weighted-
 
 Average
 Stock
 Weighted-
 Average
 Stock
 Weighted-
  Average
 Stock
 Average
 Average
 Stock
 Average
 
Range of
 Remaining
 Options
 Average
 Remaining
 Options
 Average
  Remaining
 Options
 Exercise
 Remaining
 Options
 Exercise
 
Exercise Prices
 Contractual Life Outstanding Exercise Price Contractual Life Exercisable Exercise Price  Contractual Life Outstanding Price Contractual Life Exercisable Price 
$ 71 to $110  2.6   78,879  $106.47   2.6   78,879  $106.47 
$116 to $144  5.2   45,652  $141.91   5.2   45,652  $141.91 
$145 to $231  5.4   118,400  $182.21   5.4   118,400  $182.21 
$92 to $110  1.5   72,329  $107.24   1.5   72,329  $107.24 
$111 to $148  3.9   45,102  $141.89   3.9   45,102  $141.89 
$149 to $231  4.1   112,475  $179.64   4.1   112,475  $179.64 
$232 to $445  7.3   93,252  $416.87   7.3   59,824  $411.30   6.1   88,150  $415.70   6.1   78,150  $415.15 
$446 to $681  8.3   47,106  $590.46   8.3   19,771  $599.38   7.1   41,346  $594.01   7.1   29,813  $597.80 
$682 to $862  9.4   106,040  $814.96   8.8   10,487  $763.43 
$682 to $892  8.5   102,033  $821.76   8.4   35,869  $808.19 
          
      489,329           333,013           461,435           373,738     
          
 
The fair value ofDuring the stock options granted during the threetwelve months ended March 31, 2008 was estimated on2009, the date of grant using a Black-Scholes option valuation model that uses the assumptions noted inCompany granted the following table.stock options with exercise prices and Black-Scholes values as follows:
                 
  Number of
  Fair Value
     Black-Scholes
 
  Stock Options
  of Common
  Exercise
  Value of
 
Grant Dates
 Granted  Stock(1)  Price  Options 
 
July 1, 2008  5,357  $892.00  $892.00  $223.56 
July 1, 2008  600  $892.00  $892.00  $241.85 
 
(1)March 31, 2008
Option pricing modelBlack-Scholes
Expected volatility28.15%
Risk-free interest rate2.50%
Expected term in years5.1
Dividend yield1.90%
Weighted average grant dateThe fair value per option$204.72for these shares is the current valuation in effect for the KSOP. The fair value is also utilized for all Class A share transactions for the Insurance Services Office, Inc. 1996 Incentive Plan.
The expected term (estimated period of time outstanding) for awards granted subsequent to January 1, 2008 was estimated based on studies of historical experience and projected exercise behavior. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. Expected volatility for awards prior to January 1, 2008 was based on historical volatility for a period equal to the stock option’s expected term, ending on the day of grant, and calculated on a quarterly basis for purposes of the KSOP. For awards granted after January 1, 2008, the volatility factor was based on an average of the historical stock prices of a group of the Company’s peers over


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
the most recent period commensurate with the expected term of the stock option award. The expected dividends yield was based on the Company’s expected annual dividend rate on the date of grant.
The Company estimates expected forfeitures of equity awards at the date of grant and recognizes compensation expense only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Changes in the forfeiture assumptions may impact the total amount of expense ultimately recognized over the requisite service period, and may impact the timing of expense recognized over the requisite service period.
 
As of March 31, 2008,2009, there was $27,473$16,719 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Option Plan. That cost is expected to be recognized over a weighted-average period of 2.92.06 years. The total grant date fair value of shares vested during the three month periodsmonths ended March 31, 20072008 and 20082009 was $6,238$2,389 and $2,389,$2,825, respectively.
 
15.14.  Pension and Postretirement Benefits:
 
Prior to January 1, 2002, the Company maintained a qualified defined benefit pension plan for substantially all of its employees through membership in the Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. The Company has applied the projected unit credit cost method for its pension plan, which attributes an equal portion of total projected benefits to each year of employee service. Effective January 1, 2002, the Company amended the Pension Plan to determine future benefits using a cash balance formula. Under the cash balance formula, each participant has an account, which is credited annually based on salary rates determined by years of service, as well as the interest earned on their previous year endyear-end cash balance. Prior to December 31, 2001, pension plan benefits were based on years of service and the average of the five highest consecutive years’ earnings of the last ten years. Effective March 1, 2005, the Company established the Profit Sharing Plan, a defined contribution plan, to replace the Pension Plan for all eligible employees hired on or after March 1, 2005. The Company also has a non-qualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from the general assets of the Company.
 
The Company also provides certain healthcare and life insurance benefits for both active and retired employees. The Postretirement Health and Life Insurance Plan (“the Postretirement(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


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
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.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
The components of the net periodic benefit cost for the Pension Plan and the Postretirement Plan are as follows:
 
                 
  For the Three Months Ended March 31, 
  Pension Plan  Postretirement Plan 
  2007  2008  2007  2008 
 
Service cost $2,038  $1,938  $  $ 
Interest cost  5,238   5,422   417   425 
Amortization of transition obligation        41   50 
Recognized net actuarial loss        1    
Expected return on Plan assets  (6,865)  (6,860)      
Amortization of prior year service cost  (200)  (200)      
Amortization of net actuarial (gain) loss  143   125       
                 
Net periodic expense $354  $425  $459  $475 
                 
Employer contributions $  $962  $807  $389 
                 
                 
  For the Three Months Ended March 31, 
  Pension Plan  Postretirement Plan 
  2008  2009  2008  2009 
 
Service cost $1,938  $1,915  $  $ 
Interest cost  5,422   5,329   425   400 
Amortization of transition obligation        50   50 
Expected return on plan assets  (6,860)  (4,608)      
Amortization of prior service cost  (200)  (200)      
Amortization of net actuarial loss  125   2,550      50 
                 
Net periodic benefit cost $425  $4,986  $475  $500 
                 
Employer contributions $962  $1,445  $389  $1,024 
                 
 
PaymentsThe expected contributions to the Pension Plan and the Postretirement Plan for the year ended December 31, 2009 are consistent with the amounts previously disclosed as of December 31, 2007.2008.
 
16.15.  Segment Reporting
 
FAS No. 131,Disclosures About Segments of an Enterprise and Related Information(“FAS No. 131”), establishes standards for reporting information about operating segments. FAS No. 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s CEO and Chairman of the Board is identified as the chief operating decision maker (“CODM”) as defined by FAS No. 131. To align with the internal management of the Company’s business operations based on product and service offerings, the Company hasis organized into the following two operating segments, Risk Assessment and Decision Analytics. These designations have been made as the discrete operating results are reviewed by the Company’s chief decision maker to assess profitability. The Company does not allocate investment income, interest income, interest expense or income tax expense, since these items are not considered in evaluating the segment’s overall operating performance. The Company does not evaluate the financial performance of each segment based on assets.segments:
 
Risk Assessment:  The Company is the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. The Company’s databases include cleansed and standardized records describing premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants and fire suppression capabilities of municipalities. The Company uses this data to create policy language and proprietary risk classifications that are industry standards and to generate prospective loss cost estimates used to price insurance policies.
 
Decision Analytics:  The Company develops solutions that its customers use to analyze the four key processes in managing risk: ‘prediction of loss,’ ‘selection and pricing of risk,’ ‘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 four 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 offer 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,


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
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.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
The two aforementioned operating segments represent the segments for which separate discrete financial information is available and upon which operating results are regularly evaluated by the CODM in order to assess performance and allocate resources. The Company uses segment EBITDA as the profitability measure for making decisions regarding ongoing operations. Segment EBITDA is income from continuing operations before investment income and interest expense, income taxes, depreciation and amortization. Segment EBITDA is the measure of operating results used to assess corporate performance and optimal utilization of debt and acquisitions. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, software license fees, consulting, travel, and third-party information services. Indirect costs are generally allocated to the segments using fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. The Company does not allocate investment income, realized losses, interest income, interest expense or income tax expense, since these items are not considered in evaluating the segment’s overall operating performance. The CODM does not evaluate the financial performance of each segment based on assets. On a geographic basis, no individual country outside of the United States accounted for 1% or more of the Company’s consolidated revenue for the three months ended March 31, 2008 or 2009. No individual country outside of the United States accounted for 1% or more of total consolidated long-term assets as of December 31, 2008 or March 31, 2009.
 
The following table provides the Company’s revenue and operating income performance by reportable segment for the three month periodsmonths ended March 31, 20072008 and 2008:2009, as well as a reconciliation to income before income taxes for all years presented in the accompanying condensed consolidated statements of operations:
 
            
             For the Three Months Ended
 
 March 31, 2007  March 31, 2008 
 Risk
 Decision
    Risk
 Decision
   
 Assessment Analytics Total  Assessment Analytics Total 
Revenues $121,797  $77,037  $198,834  $127,039  $88,579  $215,618 
Expenses:                        
Cost of revenues  52,793   34,194   86,987 
Cost of revenues (exclusive of items shown separately below)  51,367   41,943   93,310 
Selling, general, and administrative  17,226   10,699   27,925   17,550   11,124   28,674 
              
Segment EBITDA  51,778   32,144   83,922   58,122   35,512   93,634 
Depreciation and amortization of fixed assets  4,598   2,984   7,582   4,504   3,403   7,907 
Amortization of intangible assets  347   8,576   8,923   232   7,809   8,041 
              
Operating income  46,833   20,584   67,417   53,386   24,300   77,686 
              
Unallocated expenses:                        
Investment income          2,100           816 
Realized gains on securities, net          12 
Realized losses on securities, net          (1,274)
Interest expense          (5,773)          (6,326)
Other expense          (18)
      
Consolidated income from continuing operations before income taxes         $63,738 
Consolidated income before income taxes         $70,902 
      
Capital expenditures $7,818  $6,588  $14,406  $2,852  $6,914  $9,766 
              
 
             
  March 31, 2008 
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Revenues $127,039  $88,579  $215,618 
Expenses:            
Cost of revenues  51,367   41,943   93,310 
Selling, general, and administrative  17,550   11,124   28,674 
             
Segment EBITDA  58,122   35,512   93,634 
Depreciation and amortization of fixed assets  4,504   3,403   7,907 
Amortization of intangible assets  232   7,809   8,041 
             
Operating income  53,386   24,300   77,686 
             
Unallocated expenses:            
Investment income          816 
Realized gains on securities, net          (1,274)
Interest expense          (6,326)
             
Consolidated income from continuing operations before income taxes         $70,902 
             
Capital expenditures $2,852  $6,914  $9,766 
             


F-22F-24


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
             
  For the Three Months Ended
 
  March 31, 2009 
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Revenues $129,566  $116,185  $245,751 
Expenses:            
Cost of revenues (exclusive of items shown separately below)  51,499   56,024   107,523 
Selling, general, and administrative  17,468   15,852   33,320 
             
Segment EBITDA  60,599   44,309   104,908 
Depreciation and amortization of fixed assets  4,812   4,383   9,195 
Amortization of intangible assets  169   8,341   8,510 
             
Operating income  55,618   31,585   87,203 
             
Unallocated expenses:            
Investment income          43 
Realized losses on securities, net          (398)
Interest expense          (8,154)
             
Consolidated income before income taxes  ��      $78,694 
             
Capital expenditures $2,904  $8,680  $11,584 
             
 
Operating segment revenue by type of service is provided below:
 
                
 March 31,
 March 31,
  For the Three Months Ended 
 2007 2008  March 31,
 March 31,
 
 2008 2009 
Risk Assessment        
Subscription services $96,480  $102,931 
Transaction-based services  25,317   24,108 
Risk Assessment:        
Industry standard insurance programs $83,216  $85,147 
Property-specific rating and underwriting information  31,678   32,001 
Statistical agency and data services  6,805   7,058 
Actuarial services  5,340   5,360 
          
Total Risk Assessment $121,797  $127,039   127,039   129,566 
          
Decision Analytics        
Decision Analytics:        
Fraud identification and detection solutions $44,768  $50,320   50,320   63,842 
Loss prediction solutions  17,900   21,434   21,434   30,953 
Loss quantification solutions  14,369   16,825   16,825   21,390 
          
Total Decision Analytics $77,037  $88,579   88,579   116,185 
          
Total consolidated revenues $198,834  $215,618  $215,618  $245,751 
          
 
17.16.  Research and Development CostsCosts:
 
Research and development costs, which primarily relaterelated to the personnel and related overhead costs incurred in developing new products and services, are expensed as incurred. Such costs were $1,461$2,249 and $2,249

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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
$3,097 for the three month periodsmonths ended March 31, 20072008 and 2008,2009, respectively, and were included in selling, general and administrative expenses.expenses in the accompanying condensed consolidated statement of operations.
 
18.17.  Related Parties:
 
The Company considers its Class A and Class B stockholders that own more than 5% of the outstanding stock within the respective class to be related parties as defined withinFAS No. 57,Related Party Disclosures. At March 31, 2008,2009, there were sixseven Class B stockholders each owning more than 5% of the outstanding Class B shares. Two of these sixseven Class B stockholders have employees whothat serve on the Company’s board of directors.
 
The Company incurred expenses associated with the payment of insurance coverage premiums to certain of the largest stockholders aggregating $267$206 and $206$112 for the three month periodsmonths ended March 31, 20072008 and 2008,2009, respectively. These expenses are included in cost of revenues and selling, general and administrative in the condensed consolidated statements of operations.
 
19.18.  Commitments and Contingencies:
 
The Company is a party to legal proceedings with respect to a variety of matters in the ordinary course of business. Includingbusiness, including those matters described below, thebelow. The Company is unable, at the present time, to determine the ultimate resolution of or provide a reasonable estimate of the range of possible loss attributable to these matters or the impact they may have on the Company’s results of operations, financial position, or cash flows. This is primarily because many of these cases remain in their early stages and only limited discovery has taken place. Although the Company believes it has strong defenses for the litigation proceedings described below, the Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations, financial position or cash flows.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
 
Claims Outcome Advisor Litigation
 
Hensley, et al. v. Computer Sciences Corporation et al.is a putative nationwide class action complaint, filed in February 2005, in Miller County, Arkansas state court. Defendants include numerous insurance companies and providers of software products used by insurers in paying claims. The Company is among the named defendants. Plaintiffs allege that certain software products, including the Company’s Claims Outcome Advisor product and a competing software product sold by Computer Sciences Corporation, improperly estimated the amount to be paid by insurers to their policyholders in connection with claims for bodily injuries. The parties to this case are currently engaged in fact and class certification discovery.
 
The Company has entered into settlement agreements with plaintiffs asserting claims relating to the use of Claims Outcome Advisor by defendants Hanover Insurance Group, Progressive Car Insurance, and Liberty Mutual Insurance Group. Each of these settlements has beenwas granted final approval by the court and together theythe settlements resolve the claims asserted in this case against the Company with respect to the above insurance companies, who settled the claims against them as well. A provision was made in the 2006 financials for this proceeding and the total amount the Company paid in 2008 with respect to these settlements was less than $2 million.$2,000. A fourth defendant, The Automobile Club of California, thatwhich is alleged to have used Claims Outcome Advisor has not settled. Plaintiffs have agreedwas dismissed from the action. On August 18, 2008, pursuant to dismissthe agreement of the parties the Court ordered that the claims against the Company frombe dismissed with prejudice.
Hanover Insurance Group has made a demand for reimbursement, pursuant to an indemnification provision contained in a December 30, 2004 License Agreement between Hanover and the case with prejudice onceCompany, of its settlement and defense costs in the Hensley class action. Specifically, Hanover has demanded $2,536 including $600 in attorneys’ fees and expenses. The Company disputes that Hanover is entitled to any reimbursement


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
pursuant to the License Agreement. The Company and Hanover have entered into a discoverytolling agreement in order to allow the parties time to resolve the dispute relating to certain documents is resolved.without litigation.
 
Xactware Litigation
 
ThreeThe following two lawsuits have been filed by or on behalf of groups of Louisiana insurance policyholders who claim, among other things, that certain insurers who used products and price information supplied by the Company’s Xactware subsidiary (and those of another provider) did not fully compensate policyholders for property damage covered under their insurance policies. The plaintiffs seek to recover compensation for their damages in an amount equal to the difference between the amount paid by the defendants and the fair market repair/restoration costs of their damaged property.
 
Schafer v. State Farm Fire & Cas. Co.,et al.is a putative class action pending against the Company and State Farm Fire & Casualty Company filed in March 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. The court dismissed the antitrust claim as to both defendants and dismissed all claims against the Company other than fraud, which will proceed to the discovery phase along with the remaining claims against State Farm. Plaintiffs have moved to certify a class with respect to the fraud and breach of contract claims.claims which the defendants have opposed. The class certification hearing was held on April 8, 2009, and the parties are awaiting the court’s decision.
 
Mornay v. Travelers Ins. Co., et al. is a putative class action pending against the Company and Travelers Insurance Company filed in November 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. As in Schafer, the court dismissed the antitrust claim as to both defendants and dismissed all claims against the Company other than fraud. The court has stayed all proceedings in the case pending resolutionan appraisal of a contractual appraisal proceeding to resolve any dispute as to whether the named plaintiffs received the amount to which they were entitled under theirlead plaintiff’s insurance policy.claim.
 
Louisiana ex rel. Foti v. Allstate Ins. Co.At this time, it is a putative parens patriae action filed bynot possible to determine the Louisiana Attorney General in Louisiana state court against numerous insurance companies,ultimate resolution of or estimate the Company, and other solution providers, and consultants. The complaint contains allegations of an antitrust conspiracy among the defendants with respectliability related to the payment of insurance claims for property damage. Defendants removed the case to the Eastern District of Louisiana. A motion to remand the case to state court was denied by the district court Schaferand that denial was affirmed by the United States Court of Appeals for the Fifth Circuit.
No provision for losses has been provided in connection with the Xactware Litigation.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
Mornaymatters.
 
iiX Litigation
 
In March 2007, the Company’s subsidiary, Insurance Information Exchange, or iiX, subsidiary, as well as other information providers and insurers in the State of Texas, were served with a summons and class action complaint filed in the United States District Court for the Eastern District of Texas alleging violations of the Driver Privacy Protection Act, (the “DPPA”).or the DPPA. Plaintiffs brought the action on their own behalf and on behalf of all similarly situated individuals whose personal information is contained in any motor vehicle record maintained by the State of Texas and who have not provided express consent to the State of Texas for the distribution of their personal information for purposes not enumerated by the DPPA and whose personal information has been knowingly obtained and used by the defendants. The complaint alleges that the defendants knowingly obtained personal information pertaining to class plaintiffs from motor vehicle records maintained by the State of Texas and that the obtaining and use of this personal information was not for a purpose authorized by the DPPA. The complaint seeks liquidated damages in the amount of $3 for each instance of a violation of the DPPA, punitive damages and punitive damages.the destruction of any illegally obtained personal information. The Company has filed aCourt granted iiX’s motion to dismiss the complaint based on failure to state a claim and lack of standing, and a decision on that motion is pending.the plaintiffs are appealing the dismissal.
 
20.19.  Subsequent Events:
 
On JuneApril 27, 2008, the Company’s stockholders approved certain corporate governance changes necessary to allow2009, the Company to proceedissued senior promissory notes under an uncommitted master shelf agreement with Aviva Investors North America, Inc. in the aggregate principal amount of $30,000 due April 27, 2013. Interest is payable quarterly at a proposed initial public offering (“IPO”). Immediately prior to the completionfixed rate of the proposed IPO,6.46%.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) — (Continued)
In May 2009, the Company will undergofinalized the Xactware acquisition contingent liability and made a corporate reorganization wherebypayment of $62,900, which is included in “Acquisition related liabilities” in the Class A and Class B common stock of the Company will be exchanged by the current stockholders for the common stock of Verisk Analytics, Inc. (“Verisk”). Verisk, formed on May 23, 2008, was established to serve as the parent holding company of Insurance Services Office, Inc. Upon consummation of the IPO, two new series of Class B common stock, Class B (Series 1) common stock (the “B-1 Common Stock”) and Class B (Series 2) common stock (the “B-2 Common Stock”) will be formed and 50 percent of each Class B stockholders’ existing Class B common stock will be converted into shares of newB-1 common stock and the remaining 50 percent of each Class B stockholders’ existing Class B common stock will be converted into shares of new B-2 common stock. Each share of Class B (Series 1) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 18 months after the date of the IPO. Each share of Class B (Series 2) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 30 months after the date of the IPO. Only Class A common stock, which will not be subject to redemption by Verisk, will be offered to the public. In conjunction with the initial public offering, Verisk plans to effect a stock split of the common stock.
accompanying condensed consolidated balance sheets. The Company provided full recourse loanscorrespondingly recorded a reduction of $4,300 to directorsgoodwill and senior management in connection with exercising their stock options. This loan program has been terminated and allacquisition related liabilities as of such loans have been repaid.March 31, 2009.
 
**************


F-25F-28


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholder of
Verisk Analytics, Inc.
Jersey City, New Jersey
 
We have audited the accompanying balance sheet for Verisk Analytics, Inc. (the “Company”) as of June 30, 2008.March 31, 2009. This financial statement is the responsibility of the Company’s management. Our responsibility is to express an opinion on this financial statement based on our audit.
 
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the balance sheet is free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the balance sheet, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall balance sheet presentation. We believe that our audit of the balance sheet provides a reasonable basis for our opinion.
 
In our opinion, such balance sheet presents fairly, in all material respects, the financial position of Verisk Analytics, Inc. at June 30, 2008,March 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
 
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
August 12, 2008
May 28, 2009


F-26F-29


VERISK ANALYTICS, INC.
 
As of March 31, 2009
June 30, 2008
 
        
ASSETS
ASSETS
ASSETS
Cash $1,000  $1,000 
      
Total assets $1,000  $1,000 
      
LIABILITIES AND STOCKHOLDERS’ EQUITY
Total liabilities $  $ 
Commitments and contingencies        
Stockholders’ equity:    
Stockholder’s equity:    
Common stock, $.01 par value; 1,000 shares authorized; 100 shares issued $1  $1 
Additional paid-in capital  999   999 
      
Total stockholders’ equity $1,000 
Total stockholder’s equity $1,000 
      
Total liabilities and stockholders’ equity $1,000 
Total liabilities and stockholder’s equity $1,000 
      
 
The accompanying notes are an integral part of this financial statement.


F-27F-30


VERISK ANALYTICS, INC.
 
 
1.  Organization:
 
Verisk Analytics, Inc.Inc (the “Company”), formed on May 23, 2008, was established to serve as the parent holding company of Insurance Services Office, Inc.Inc (“ISO”). The Company is currently a wholly owned subsidiary of ISO. Immediately prior to the completion of the proposed initial public offering, (“IPO”), ISOthe Company will undergo a corporate reorganization whereby the Class A and Class B common stock of the CompanyISO will be exchanged by the current shareholdersstockholders for the common stock of the Company. Company on a one-for-one basis.
Upon consummation of the IPO, two new series of Class B Common Stock,common stock, Class B (Series 1) Common Stockcommon stock (the “B-1 Common Stock”“Class B-1”) and Class B (Series 2) Common Stockcommon stock (theB-2Class B-2”) Common Stock”) will be formed and 50 percent of each ISO Class B stockholders’ existing Class B Common Stockcommon stock will be converted into shares of the Company’s newClass B-1 Common Stock common stock and the remaining 50 percent of each ISO Class B stockholders’ existing Class B Common Stockcommon stock will be converted into shares of the Company’s newClass B-2 Common Stock. common stock. Each share of the Company’sClass B (Series 1)B-1 common stock shall convert automatically, without any action by the holder,stockholder, into one share of Class A common stock 18 months after the date of the IPO. Each share of the Company’sClass B (Series 2)B-2 common stock shall convert automatically, without any action by the holder,stockholder, into one share of Class A common stock 30 months after the date of the IPO. Only Class A Common Stock, which will not be subject to redemption by the Company, will be offered to the public. In conjunction with the initial public offering,IPO, the Company plans to effect a stock split of theboth classes of common stock.
Class A common stock of the Company will not be redeemable by the holder and only Class A common stock will be offered to the public. All stock options granted under the Insurance Services Office, Inc. 1996 Incentive Plan will be transferred to the Company, without modification to the terms of the options other than such options will be exercisable for Class A common stock of Company.
Since the Company’s formation on May 23, 2008, there has been no operating activity.
 
2.  Basis of Presentation:
 
The accompanying financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America.
 
3.  Commitments and Contingencies:
 
The Company does not have any commitments and contingencies.


F-28F-31


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
To the Board of Directors and Stockholders of
Insurance Services Office, Inc.
Jersey City, New Jersey
 
We have audited the accompanying consolidated balance sheets of Insurance Services Office, Inc. and subsidiaries (the “Company”) as of December 31, 20072008 and 2006,2007, and the related consolidated statements of operations, changes in stockholders’ deficit, and cash flows for each of the three years in the period ended December 31, 2007.2008. Our audits also included the financial statement schedule listed in the Index at Item 16. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the CompanyInsurance Services Office, Inc. and subsidiaries as of December 31, 20072008 and 2006,2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2007,2008, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
 
As discussed in Note 2 to the consolidated financial statements, effective January 1, 2007, the Company adopted Financial Accounting Standards Board Interpretation No. 48,Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109.
 
As discussed in Note 2 to the consolidated financial statements, the Company adopted the recognition and disclosure provisions of Statement of Financial Accounting Standards No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans — an amendment of FASB Statements No. 87, 88, 106 and 132(R), effective December 31, 2006.
 
/s/  Deloitte & Touche LLP
 
 
Parsippany, New Jersey
August 12, 2008April 10, 2009


F-29F-32


INSURANCE SERVICES OFFICE, INC.
 
As of December 31, 20062007 and 20072008
        
         2007 2008 
 2006 2007  (In thousands, except for share and per share data) 
 (In thousands, except for share and per share data) 
ASSETS
Current assets:                
Cash and cash equivalents $99,152  $24,049  $24,049  $33,185 
Available-for-sale securities  7,257   28,350   28,350   5,114 
Accounts receivable, net (including amounts from related parties of $1,364 and $949, respectively)  91,725   86,488 
Notes receivable from stockholders’  4,271   347 
Accounts receivable, net (including amounts from related parties of $949 and $3,421, respectively)  86,488   83,941 
Notes receivable from stockholders  347    
Prepaid expenses  8,929   7,609   7,609   13,010 
Deferred income taxes  19,019   22,654   22,654   4,490 
Federal and state taxes receivable  5,449   3,003 
Federal and foreign income taxes receivable  4,561   12,311 
State and local income taxes receivable     689 
Other current assets  13,191   8,525   8,525   16,187 
          
Total current assets  248,993   181,025   182,583   168,927 
Noncurrent assets:                
Fixed assets, net  70,470   85,436   85,436   82,587 
Intangible assets, net  139,718   141,160   141,160   112,713 
Goodwill  224,680   339,891   339,891   447,372 
Notes receivable from stockholders’  11,883   12,356 
Notes receivable from stockholders  12,356    
Deferred income taxes  37,294   55,679   55,679   100,256 
State income taxes receivable     8,112 
Other assets  11,693   12,936   12,936   8,910 
          
Total assets $744,731  $828,483  $830,041  $928,877 
          
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ DEFICIT
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:                
Accounts payable and accrued liabilities $66,710  $78,234  $78,234  $83,381 
Acquisition related liabilities  13,414   100,300   100,300   82,700 
Short-term debt  120,851   35,171 
Short-term debt and current portion of long term debt  35,171   219,398 
Pension and postretirement benefits, current  4,324   4,636   4,636   5,397 
Fees received in advance (including amounts from related parties of $8,677 and $5,817, respectively)  124,136   127,907 
Fees received in advance (including amounts from related parties of $5,817 and $3,699, respectively)  127,907   114,023 
State and local income taxes payable  9,178    
          
Total current liabilities  329,435   346,248   355,426   504,899 
Noncurrent liabilities:                
Long-term debt  327,847   403,159   403,159   450,356 
Pension benefits  29,185   17,637   17,637   133,914 
Postretirement benefits  26,525   23,894   23,894   23,798 
Other liabilities  22,163   62,085   62,085   76,194 
          
Total liabilities  735,155   853,023   862,201   1,189,161 
Redeemable common stock        
Class A redeemable common stock, stated at redemption value, $.01 par value; 6,700,000 shares authorized; 2,849,885 and 2,922,253 shares issued and 1,347,540 and 1,163,066 outstanding in 2006 and 2007, respectively  1,183,049   1,217,942 
Unearned Class A common stock KSOP shares  (4,913)  (4,129)
Notes receivable from stockholders’  (52,203)  (42,625)
Redeemable common stock:        
Class A redeemable common stock, stated at redemption value, $.01 par value; 6,700,000 shares authorized; 2,922,253 and 3,007,761 shares issued and 1,163,066 and 746,139 outstanding in 2007 and 2008, respectively, and vested options at intrinsic value  1,217,942   752,912 
Class A unearned common stock KSOP shares  (4,129)  (3,373)
Notes receivable from stockholders  (42,625)   
          
Total redeemable common stock  1,125,933   1,171,188   1,171,188   749,539 
Commitments and contingencies                
Stockholders’ deficit:                
Class B common stock, $.01 par value; 20,000,000 shares authorized; 10,004,500 shares issued and 2,945,900 and 2,873,412 outstanding in 2006 and 2007, respectively  100   100 
Class B common stock, $.01 par value; 20,000,000 shares authorized; 10,004,500 shares issued and 2,873,412 and 2,863,742 outstanding in 2007 and 2008, respectively  100   100 
Accumulated other comprehensive loss  (16,017)  (8,699)  (8,699)  (82,434)
Accumulated deficit  (457,557)  (508,136)  (515,756)  (243,495)
Class B common stock, treasury stock, 7,058,600 and 7,131,088 shares in 2006 and 2007, respectively  (642,883)  (678,993)
Class B common stock, treasury stock, 7,131,088 and 7,140,758 shares in 2007 and 2008, respectively  (678,993)  (683,994)
          
Total stockholders’ deficit  (1,116,357)  (1,195,728)  (1,203,348)  (1,009,823)
          
Total liabilities and stockholders’ deficit $744,731  $828,483  $830,041  $928,877 
          
 
The accompanying notes are an integral part of these consolidated financial statements.


F-30F-33


INSURANCE SERVICES OFFICE, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2005, 2006, 2007 and 20072008
 
                        
 2005 2006 2007  2006 2007 2008 
 (In thousands, except for share
  (In thousands, except for share and per share data) 
 and per share data) 
Revenues (includes revenues from related parties of $79,269, $83,919 and $84,891 for 2005, 2006 and 2007, respectively) $645,660  $730,133  $802,195 
Revenues (includes revenue from related parties of $83,919, $84,891 and $90,227 for 2006, 2007 and 2008, respectively) $730,133  $802,195  $893,550 
Expenses:                        
Cost of revenues (exclusive of items shown separately below)  294,911   331,804   357,191   331,804   357,191   386,897 
Selling, general and administrative  88,723   100,124   107,576   100,124   107,576   131,239 
Depreciation and amortization of fixed assets  22,024   28,007   31,745   28,007   31,745   35,317 
Amortization of intangible assets  19,800   26,854   33,916   26,854   33,916   29,555 
              
Total expenses  425,458   486,789   530,428   486,789   530,428   583,008 
              
Operating income  220,202   243,344   271,767   243,344   271,767   310,542 
Other income/(expense):                        
Investment income  2,919   6,585   8,442   6,585   8,442   2,233 
Realized gains (losses) on securities, net  27   (375)  857 
Realized (losses)/gains on securities, net  (375)  857   (2,511)
Interest expense  (10,465)  (16,668)  (22,928)  (16,668)  (22,928)  (31,316)
Other income (expense)  (14)  (109)  9 
Other (expense)/income  (109)  9   (49)
              
Total other expense, net  (7,533)  (10,567)  (13,620)  (10,567)  (13,620)  (31,643)
              
Income from continuing operations before income taxes  212,669   232,777   258,147   232,777   258,147   278,899 
Provision for income taxes  (85,722)  (86,921)  (103,184)  (91,992)  (103,184)  (120,671)
              
Income from continuing operations  126,947   145,856   154,963   140,785   154,963   158,228 
              
Loss from discontinued operations, net of tax benefit of $721, $712 and $1,496 in 2005, 2006 and 2007, respectively  (2,574)  (1,805)  (4,589)
Loss from discontinued operations, net of tax benefit of $712, $1,496 and $0 in 2006, 2007 and 2008, respectively  (1,805)  (4,589)   
              
Net income $124,373  $144,051  $150,374  $138,980  $150,374  $158,228 
              
Basic income/(loss) per share of Class A and Class B:                        
Income from continuing operations $29.81  $35.31  $38.58  $34.08  $38.58  $43.26 
Loss from discontinued operations  (0.61)  (0.44)  (1.14)  (0.44)  (1.14)   
              
Net income per share $29.20  $34.87  $37.44  $33.64  $37.44  $43.26 
              
Diluted income/(loss) per share of Class A and Class B:                        
Income from continuing operations $28.45  $33.85  $37.03  $32.72  $37.03  $41.59 
Loss from discontinued operations  (0.58)  (0.42)  (1.10)  (0.42)  (1.10)   
              
Net income per share $27.87  $33.43  $35.93  $32.30  $35.93  $41.59 
              
Weighted average shares outstanding:                        
Basic  4,258,989   4,130,962   4,016,928   4,130,962   4,016,928   3,657,714 
              
Diluted  4,462,109   4,308,976   4,185,151   4,302,867   4,185,151   3,804,634 
              
Pro forma basic income/(loss) per share of Class A and Class B (unaudited):                        
Income from continuing operations                        
Loss from discontinued operations                        
      
Pro forma net income per share                        
      
Pro forma diluted income/(loss) per share of Class A and Class B (unaudited):                        
Income from continuing operations                        
Loss from discontinued operations                        
      
Pro forma net income per share                        
      
Weighted average shares used in pro forma per share amounts (unaudited):                        
Basic                        
      
Diluted                        
      
 
The accompanying notes are an integral part of these consolidated financial statements.


F-31F-34


INSURANCE SERVICES OFFICE, INC.
 
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For The Years Ended December 31, 2005, 2006, 2007 and 20072008
 
                                                    
   Accumulated
     Additional
        Accumulated
         
   Other
     Paid-In
   Total
    Other
       Total
 
 Accumulated
 Comprehensive
 Class B Common Stock Capital
 Treasury
 Stockholders’
  Accumulated
 Comprehensive
 Class B Common Stock Treasury
 Stockholders’
 
 Deficit Income (Loss) Shares Par Value Class A Stock Deficit  Deficit Loss Shares Par Value Stock Deficit 
 (In thousands, except for share data)    (In thousands, except for share data)   
Balance, January 1, 2005 $(135,830) $191   10,004,500  $100  $  $(602,390) $(737,929)
Comprehensive income:                            
Net income  124,373                  124,373 
Other comprehensive losses     (2,925)              (2,925)
Balance, January 1, 2006 (as previously reported) $(293,892) $(2,734)  10,004,500  $100  $(641,768) $(938,294)
Correction — see note 23  (2,549)              (2,549)
                
Comprehensive income                    121,448 
Treasury stock acquired — Class B common stock                 (39,378)  (39,378)
KSOP shares earned              12,955      12,955 
Stock-based compensation              4,094      4,094 
Stock options exercised for 233,608 shares (including tax benefit of $27,852)  (70,854)           27,852      (43,002)
Increase in redemption value of Class A common stock  (211,581)           (44,901)     (256,482)
               
Balance, December 31, 2005 $(293,892) $(2,734)  10,004,500  $100  $  $(641,768) $(938,294)
               
Balance, January 1, 2006 (as corrected)  (296,441)  (2,734)  10,004,500   100   (641,768)  (940,843)
Comprehensive income:                                                    
Net income  144,051                  144,051   138,980               138,980 
Other comprehensive gains     2,352               2,352      2,352            2,352 
      
Comprehensive income                    146,403                  141,332 
Adjustment to adopt FAS No. 158, net of tax of $9,317     (15,635)              (15,635)
Incremental adjustment to adopt FAS No. 158, net of tax of $9,317     (15,635)           (15,635)
Treasury stock acquired — Class B common stock                 (1,115)  (1,115)              (1,115)  (1,115)
KSOP shares earned              17,969      17,969 
Stock-based compensation              6,148      6,148 
Stock options exercised for 179,967 shares (including tax benefit of $31,964)  (81,516)           31,964      (49,552)  (81,516)              (81,516)
Increase in redemption value of Class A common stock  (226,200)           (56,081)     (282,281)  (226,200)              (226,200)
                            
Balance, December 31, 2006 $(457,557) $(16,017)  10,004,500  $100  $  $(642,883) $(1,116,357) $(465,177) $(16,017)  10,004,500  $100  $(642,883) $(1,123,977)
                            
Comprehensive income:                                                    
Net income  150,374                  150,374   150,374               150,374 
Other comprehensive gains     7,318               7,318      7,318            7,318 
      
Comprehensive income                    157,692                  157,692 
Treasury stock acquired — Class B common stock                 (36,110)  (36,110)              (36,110)  (36,110)
KSOP shares earned              21,463      21,463 
Stock-based compensation              8,244      8,244 
Stock options exercised for 72,083 shares (including tax benefit of $12,798)  (36,655)           12,798      (23,857)  (36,655)              (36,655)
Cumulative effect adjustment to adopt FIN No. 48  (10,338)                 (10,338)  (10,338)              (10,338)
Increase in redemption value of Class A common stock  (153,960)           (42,505)     (196,465)  (153,960)              (153,960)
                            
Balance, December 31, 2007 $(508,136) $(8,699)  10,004,500  $100  $  $(678,993) $(1,195,728) $(515,756) $(8,699)  10,004,500  $100  $(678,993) $(1,203,348)
                            
Comprehensive income:                        
Net income  158,228               158,228 
Other comprehensive losses     (73,735)           (73,735)
   
Comprehensive income                 84,493 
Treasury stock acquired — Class B common stock              (5,001)  (5,001)
Decrease in redemption value of Class A common stock  114,033               114,033 
             
Balance, December 31, 2008 $(243,495) $(82,434)  10,004,500  $100  $(683,994) $(1,009,823)
             
 
The accompanying notes are an integral part of these consolidated financial statements.


F-32F-35


INSURANCE SERVICES OFFICE, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2005, 2006, 2007 and 20072008
 
                        
 2005 2006 2007  2006 2007 2008 
 (In thousands)  (In thousands) 
Cash flows from operating activities:                        
Net income $124,373  $144,051  $150,374  $138,980  $150,374  $158,228 
Adjustments to reconcile net income to net cash provided by operating activities:                        
Depreciation and amortization of fixed assets  22,123   28,119   31,843   28,119   31,843   35,317 
Amortization of intangible assets  19,800   26,854   33,916   26,854   33,916   29,555 
Allowance for doubtful accounts  2,148   3,286   1,536 
KSOP compensation expense  13,793   18,779   22,247   18,779   22,247   22,274 
Acquisition related compensation expense  9,027   3,605   300 
Stock-based compensation  4,094   6,148   8,244   6,148   8,244   9,881 
Non-cash charges associated with other employee compensation plans  601   1,909   2,182 
Non-cash charges/(credits) associated with performance based appreciation awards  1,909   2,182   (91)
Goodwill impairment  1,500      1,744      1,744    
Accrued interest on notes receivable from stockholders’  (1,516)  (2,190)  (2,454)
Realized (gains) losses on securities  (27)  375   (857)
Interest income on notes receivable from stockholders  (2,190)  (2,454)  (1,050)
Proceeds from payment of interest on notes receivable from stockholders        2,318 
Realized losses/(gains) on securities  375   (857)  2,511 
Deferred income taxes  (7,776)  (11,848)  (5,698)  (11,848)  (5,698)  19,895 
Other operating  185   216   298   216   298   284 
Loss on disposal of fixed assets     2,374   1,791 
Loss on disposal of assets  2,374   1,791   1,082 
Excess tax benefits from exercised stock options  (27,852)  (31,964)  (12,798)  (31,964)  (12,798)  (26,099)
Changes in assets and liabilities, net of effects from acquisitions and dispositions:                        
Accounts receivable, net  (12,263)  (3,987)  7,194 
Accounts receivable  (6,135)  3,908   3,609 
Prepaid expenses and other assets  (3,486)  (1,751)  2,213   (1,751)  2,213   (6,486)
Federal and state taxes receivable  25,938   19,262   13,062 
Federal and foreign income taxes  15,634   18,137   5,969 
State and local income taxes  8,699   (5,075)  (5,977)
Accounts payable and accrued liabilities  9,656   (7,014)  (8,294)  1,452   1,759   3,075 
Acquisition related liabilities  (17,493)  (13,658)  (2,200)
Fees received in advance  3,682   27,219   3,751   27,219   3,751   (1,042)
Other liabilities  1,246   6,947   (237)  6,947   (237)  (4,983)
              
Net cash provided by operating activities  174,071   223,499   248,521   223,499   248,521   247,906 
 
The accompanying notes are an integral part of these consolidated financial statements.


F-33F-36


INSURANCE SERVICES OFFICE, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For the Years Ended December 31, 2005, 2006, 2007 and 20072008
 
                        
 2005 2006 2007  2006 2007 2008 
 (In thousands)  (In thousands) 
Cash flows from investing activities:                        
Acquisitions, net of cash acquired of $3,466, $532 and $120, respectively  (59,249)  (201,617)  (50,658)
Acquisitions, net of cash acquired of $532, $120 and $365, respectively  (201,617)  (50,658)  (18,951)
Purchase of cost-method investments        (5,800)
Earnout payments  (10,771)     (3,191)     (3,191)  (98,100)
Proceeds from release of contingent escrows  2,024   297   3,039   297   3,039   558 
Escrow funding associated with acquisitions  (14,354)  (14,600)  (4,375)  (14,600)  (4,375)  (1,500)
Purchases of available-for-sale securities  (496)  (35,081)  (44,101)  (35,081)  (44,101)  (361)
Proceeds from sales and maturities of available-for-sale securities  402   34,893   22,872   34,893   22,872   21,724 
Purchases of fixed assets  (24,019)  (25,742)  (32,941)  (25,742)  (32,941)  (30,652)
Proceeds from receipt of notes receivable from stockholders’  4      301 
Issuance of notes receivable from stockholders’  (985)  (1,602)  (1,777)
Proceeds from repayment of notes receivable from stockholders     301   3,863 
Issuance of notes receivable from stockholders  (1,602)  (1,777)  (1,247)
              
Net cash used in investing activities  (107,444)  (243,452)  (110,831)  (243,452)  (110,831)  (130,466)
 
Cash flows from financing activities:                        
Proceeds from issuance of short-term debt  15,000   15,000   30,000 
Proceeds from issuance of short-term debt, net  15,000   30,000   114,000 
Proceeds from issuance of long-term debt  220,000   175,000   85,000   175,000   85,000   150,000 
Redemption of Class A common stock  (141,857)  (126,857)  (168,660)  (126,857)  (168,660)  (387,561)
Repurchase of Class B common stock  (39,378)  (1,115)  (36,110)  (1,115)  (36,110)  (5,001)
Proceeds from issuance of Class A common stock  100       
Repayment of short-term debt  (172,884)  (18,356)  (136,008)  (18,356)  (136,008)  (35,287)
Excess tax benefits from exercised stock options  27,852   31,964   12,798   31,964   12,798   26,099 
Proceeds from exercised stock options  213   271   389 
Proceeds from repayment of exercise price loans classified as a component of redeemable common stock        29,482 
Proceeds from stock options exercised  271   389   892 
              
Net cash (used in) provided by financing activities  (90,954)  75,907   (212,591)
Net cash provided by/(used in) financing activities  75,907   (212,591)  (107,376)
Effect of exchange rate changes  (551)  376   (202)  376   (202)  (928)
              
(Decrease) increase in cash and cash equivalents  (24,878)  56,330   (75,103)
Increase/(decrease) in cash and cash equivalents  56,330   (75,103)  9,136 
Cash and cash equivalents, beginning of year  67,700   42,822   99,152   42,822   99,152   24,049 
              
Cash and cash equivalents, end of year $42,822  $99,152  $24,049  $99,152  $24,049  $33,185 
              
Supplemental disclosures:                        
Taxes paid $66,841  $78,800  $94,258  $78,800  $94,258�� $99,323 
              
Interest paid $9,814  $14,901  $22,752  $14,901  $22,752  $28,976 
              
Non-cash investing and financing activities:                        
Loans made to directors and officers in connection with the exercise of stock options $(12,573) $(24,438) $(15,130) $(24,438) $(15,130) $(20,148)
              
Stock redemptions used to repay notes receivable from stockholders’ maturities and to exercise stock options $32,720  $13,854  $35,429 
Redemption of Class A common stock used to repay maturities of notes receivable from stockholders $12,577  $32,389  $42,202 
       
Redemption of Class A common stock used to fund the exercise of stock options $1,277  $3,040  $4,281 
              
KSOP stock redemption funded in the prior year $  $10,001  $2,643  $10,001  $2,643  $ 
              
Deferred tax (liability) asset established on date of acquisition $(8,918) $7,542  $24 
Deferred tax asset/(liability) established on date of acquisition $7,542  $24  $(2,963)
              
Capital lease obligations $8,712  $  $9,554  $  $9,554  $2,610 
              
Capital expenditures included in accounts payable and accrued liabilities $  $  $4,688  $  $4,688  $ 
              
Increase in goodwill due to acquisition related liabilities $1,000  $4,362  $98,343  $4,362  $98,343  $82,400 
              
Increase in goodwill due to acquisition related escrow distributions $1,936  $4,455  $4,388 
       
 
The accompanying notes are an integral part of these consolidated financial statements.


F-34F-37


INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data, unless otherwise stated)
 
1.  Organization:
 
Insurance Services Office, Inc. and its consolidated subsidiaries (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, creates embedded decision support solutions. The Company is one of the largest aggregators and providers of data pertaining to U.S. property and casualty (“P&C”) or P&C insurance risks.risks in the United States of America (“U.S.”). The Company offers solutions for detecting fraud in the U.S. P&C insurance, mortgage and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance. The Company provides solutions, including data, statistical models or tailored analytics, all designed to allow clients to make more logical decisions.
 
The Company 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 pursuingpursued strategic acquisitions.
On June 27, 2008, the Company’s stockholders approved certain corporate governance changes necessary to allow the Company to proceed with a proposed initial public offering (“IPO”). Immediately prior to the completion of the proposed IPO, the Company will undergo a corporate reorganization whereby the Class A and Class B common stock of the Company will be exchanged by the current stockholders for the common stock of Verisk Analytics, Inc. (“Verisk”) on a one-for-one basis. Verisk, formed on May 23, 2008, was established to serve as the parent holding company of Insurance Services Office, Inc.
All stock options granted under the Insurance Services Office, Inc. 1996 Incentive Plan will be transferred to Verisk, without modification to the terms of the options other than that such options will be exercisable for Class A common stock of Verisk. Class A common stock of Verisk will not be redeemable by the holder and only Class A common stock will be offered to the public.
Upon consummation of the IPO, two new series of Class B common stock, Class B (Series 1) common stock (the“Class B-1”) and Class B (Series 2) common stock (the“Class B-2”) will be formed and 50 percent of each Class B stockholders’ existing Class B common stock will be converted into shares of newClass B-1 common stock and the remaining 50 percent of each Class B stockholders’ existing Class B common stock will be converted into shares of newClass B-2 common stock. Each share ofClass B-1 common stock shall convert automatically, without any action by the stockholder, into one share of Class A common stock 18 months after the date of the IPO. Each share ofClass B-2 common stock shall convert automatically, without any action by the stockholder, into one share of Class A common stock 30 months after the date of the IPO. In conjunction with the IPO, Verisk plans to effect a stock split of class A and B common stock. The strike price of stock options will be adjusted based on the effect of the stock split.
 
2.  Basis of Presentation and Summary of Significant Accounting Policies:
 
The accompanying financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include acquisition purchase price allocations, the fair value of goodwill, the realization of deferred tax assets, acquisition related liabilities, fair value of stock based compensation, liabilities for pension and postretirement benefits, fair value of the Company’s common stock, and the estimate


F-38


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
for the allowance for doubtful accounts. Actual results may ultimately differ from those estimates. Reclassifications from “Accounts payable and accrued liabilities” to “Acquisition related liabilities”, and from “Noncurrent pension benefits” to “Pension and postretirement benefits, current” in an amountCertain reclassifications within the consolidated statement of $254cash flows have been made in the 2006 consolidated balance sheetand 2007 to conform to the 2007 presentation.2008 presentation in order to provide additional information regarding the changes in allowance for doubtful accounts, acquisition related liabilities, state and local income taxes, and federal and foreign income taxes. Significant accounting policies include the following:
 
(a) Intercompany Accounts and Transactions
 
The consolidated financial statements include the accounts of Insurance Services Office, Inc. and subsidiaries. All intercompany accounts and transactions have been eliminated.
 
(b) Revenue Recognition
The following describes the Company’s primary types of revenues and the applicable revenue recognition policies. The Company’s revenues are primarily derived from sales of services and revenue is recognized as services are performed and information is delivered to our customers. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, feesand/or price is fixed or determinable and collectability is reasonably assured.
Industry Standard Insurance Programs, Statistical Agent and Data Services, and Actuarial Services
Industry standard insurance programs, statistical agent and data services and actuarial services are sold to participating insurance company customers under annual agreements covering a calendar year where the price is determined at the inception of the agreement. In accordance with SEC Staff Accounting Bulletin No. 104Revenue Recognition(“SAB No. 104”), the Company


F-35


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following describes the Company’s primary types of revenues and the applicable revenue recognition policies. The Company’s revenues are primarily derived from sales of services and revenue is recognized as services are performed and information is delivered to our customers. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, fees and/or price is fixed or determinable and collectability is reasonably assured. Revenue is recognized net of applicable sales tax withholdings.
 
Industry Standard Insurance Programs, Statistical Agent and Data Services, and Actuarial Services
Industry standard insurance programs, statistical agent and data services and actuarial services are sold to participating insurance company customers under annual agreements covering a calendar year where the price is determined at the inception of the agreement. In accordance with SEC Staff Accounting Bulletin No. 104Revenue Recognition(“SAB No. 104”), the Company recognizes revenue ratably over the term of these annual agreements, as services are performed and continuous access to information is provided to information over the entire term of the agreements.
 
Property-Specific Rating and Underwriting Information
 
The Company provides property specific rating information through reports issued for specific commercial properties, for which revenue is recognized when the report is delivered to the customer, assuming all other revenue recognition criteria are met.
 
In addition, the Company provides hosting or software solutions that provide continuous access to information about the properties being insured and underwriting information in the form of standard policy forms to be used by customers. As the customer has a contractual right to take possession of the software without significant penalty, revenues from these arrangements are recognized in accordance with American Institute of Certified Public Accountants (“AICPA”) Statement of Position (“SOP”)No. 97-2,Software Revenue Recognition, as amended bySOP No. 98-9, Modification ofSOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions(“SOP No.97-2”). The Company recognizes software license revenue when the arrangement does not require significant production, customization, or modification of the software and the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred, fees are fixed or determinable, and collections are probable. These software arrangements include post-contract customer support (“PCS”). Currently, the Company recognizes software license revenue ratably over the duration of the annual license term as vendor specific objective evidence (“VSOE”) of PCS the only remaining undelivered element, cannot be established in accordance withSOP No. 98-9, Modification ofSOP 97-2, Software Revenue Recognition, With Respect to Certain Transactions(“SOP No. 97-2”). The Company recognizes software license revenue when the arrangement does not require significant production, customization, or modification of the software and the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred, fees are fixed or determinable, and collections are probable. These software arrangements include post-contract customer support (“PCS”). Currently, the Company recognizes software license revenue ratably over the duration of the annual license term as vendor specific objective evidence (“VSOE”) of PCS the only remaining undelivered element, cannot be established in accordance with SOPNo. 97-2.


F-39


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Fraud Identification and Detection Solutions
 
Fraud identification and detection solutions are comprised of transaction-based fees recognized as information is delivered to customers, assuming all other revenue recognition criteria have been met.
 
Loss Prediction
 
Loss prediction solutions consist of term-based software licenses and revenues are recognized in accordance withSOP No. 97-2. These software arrangements include PCS, which includes unspecified upgrades on a when and if available basis. The Company recognizes software license revenue ratably over the duration of the annual license term as VSOE of PCS, the only remaining undelivered element, cannot be established in accordance withSOP No. 97-2.
The Company also provides software hosting arrangements to customers whereby the customer does not have the right to take possession of the software. Revenues from these contracts are recognized in accordance with EITFNo. 00-03,Application of AICPA Statement of Position97-2 to Arrangements that Include the Right to Use Software Stored on Another Entity’s Hardware(“EITFNo. 00-03”). As these arrangements include PCS throughout the hosting term, revenues from these multiple element arrangements are recognized in accordance with EITFNo. 00-21,Revenue Arrangements with Multiple Deliverables(“EITFNo. 00-21”). The Company recognizes revenue ratably over the duration of the license term, which range from one to five years, since the elements do not have stand alone value.
Loss Quantification Solutions
Loss quantification solutions consist of term-based software subscription licenses and revenues are recognized in accordance withSOP No. 97-2. These software arrangements include PCS, which includes unspecified upgrades on a when and if available basis. The Company recognizes software license revenue ratably over the duration of the annual license term as VSOE of PCS, the only remaining undelivered element, cannot be established in accordance with SOPNo. 97-2.
The Company also provides software hosting arrangements to customers whereby the customer does not have the right to take possession of the software. Revenues from these contracts are recognized in accordance with EITFNo. 00-03,Application of AICPA Statement of Position97-2 to Arrangements that Include the Right to Use Software Stored on Another Entity’s Hardware(“EITFNo. 00-03”). As these arrangements include PCS throughout the hosting term, revenues from these multiple element arrangements are recognized in accordance with EITFNo. 00-21,Revenue Arrangements with Multiple Deliverables(“EITFNo. 00-21”). The Company recognizes revenue ratably over the duration of the license term, which range from one to five years, since the elements do not have stand alone value.
Loss Quantification Solutions
Loss quantification solutions consist of term-based software subscription licenses and revenues are recognized in accordance with SOP No.97-2. These software arrangements include PCS, which includes unspecified upgrades on a when and if available basis. Customers are billed for access on a monthly basis and the Company recognizes revenue accordingly.


F-36


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
With respect to an insignificant percentage of revenues, the Company uses contract accounting, as required bySOP No. 97-2, when the arrangement with the customer includes significant customization, modification, or production of software. For these elements, revenue is recognized in accordance withSOP No. 81-1,Accounting for Performance of Construction Type and Certain Production-Type Contracts,using the percentage-of-completion method, which requires the use of estimates. In such instances, management is required to estimate the input measures, based on hours incurred to date compared to total estimated hours of the project, with consideration also given to output measures, such as contract milestones, when applicable. Adjustments to estimates are made in the period in which the facts requiring such revisions become known and, accordingly, recognized revenues and profits are subject to revisions as the contract progresses to completion. The Company considers the contract substantially complete when there is compliance with all performance specifications and there are no remaining costs or potential risk.
 
(c) Fees Received in Advance
The Company invoices its customers in annual, quarterly, monthly, or milestone installments. Amounts billed and collected in advance of contract terms are recorded as fees received in advance on the balance sheet and are recognized as the services are performed and the applicable revenue recognition criteria are met.
(d) Fixed Assets and Finite-lived Intangible Assets
Property and equipment, internal-use software and finite-lived intangibles are stated at cost less accumulated depreciation and amortization which are computed on a straight-line basis over their


F-40


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company invoices its customers in annual, quarterly, monthly, or milestone installments. Amounts billed and collected in advance of contract terms are recorded as a fees received in advance on the balance sheet and are recognized as the services are performed and the applicable revenue recognition criteria are met.
(d) Fixed Assets
Property and equipment, internal-use software and finite-lived intangibles are stated at cost less accumulated depreciation and amortization which are computed on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
 
The Company’s internal software development costs primarily relate to internal-use software. Such costs are capitalized in the application development stage in accordance with AICPASOP No. 98-1,Accounting for the Costs of Computer Software Developed or Obtained for Internal Use. Software development costs are amortized on a straight-line basis over a three year period which management believes represents the useful life of these capitalized costs.
 
In accordance with Statement of Financial Accounting Standards (“FAS”) FAS No. 144,Accounting for the Impairment or Disposal of Long-Lived Assets, whenever events or changes in circumstances indicate that the carrying amount of long-lived assets and finite-lived intangible assets may not be recoverable, the Company reviews its long-lived assets and finite-lived intangible assets for impairment by first comparing the carrying value of the assets to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the assets. If the carrying value exceeds the sum of the assets’ undiscounted cash flows, the Company estimates an impairment loss by taking the difference between the carrying value and fair value of the assets.
 
(e) Capital and Operating Leases
 
The Company leases various property, plant and equipment. Leased property is accounted for under FAS No. 13,Accounting for Leases(“FAS No. 13”). Accordingly, leased property that meets certain criteria is capitalized and the present value of the related lease payments is recorded as a liability. Amortization of assets under capital leases is computed utilizing the straight-line method over the shorter of the remaining lease term or the estimated useful life (principally 3 to 4 years for computer equipment and automobiles).
 
All other leases are accounted for as operating leases. Rent expense for operating leases, which may have rent escalation provisions or rent holidays, are recorded on a straight-line basis over the non-cancelable bases lease period in accordance with FAS No. 13. The initial lease term generally includes the build-out period, where no rent payments are typically due under the terms of the lease.


F-37


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The difference between rent expense and rent paid is recorded as deferred rent. Construction allowances received from landlords are recorded as a deferred rent credit and amortized to rent expense over the term of the lease.
 
(f) Investments
 
The Company’s investments at December 31, 20062007 and 20072008 included registered investment companies and private equity securities. The Company accounts for short-term investments in accordance with SFAS 115,Accounting for Certain Investments in Debt and Equity Securities.The appropriate classification of all short term investments is determined as of each balance sheet date.
There were no investments classified as trading securities and U.S. common stock.at December 31, 2007 or 2008. All investments with readily determinable market values are classified as available-for-sale as defined in FAS No. 115,Accounting for Certain Investments in Debt and Equity Securities.available-for-sale. While these investments are not held with the specific intention to sell them, they may be sold to support the Company’s investment strategies. All available-for-sale investments are carried at fair value. The cost of all available-for-sale investments sold is based on the specific identification method, with the exception of mutual fund-based investments, which is based on the weighted average cost method. Dividend income is accrued on the ex-dividend date.
 
The Company performs periodic reviews of its investment portfolio when individual holdings have experienced a decline in fair value below their respective cost. The Company considers a number of factors in the evaluation of whether a decline in value is other-than-temporary including: (a) the financial condition and near term prospects of the issuer; (b) the Company’s ability and intent


F-41


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
to retain the investment for a period of time sufficient to allow for an anticipated recovery in value; and (c) the period and degree to which the market value has been below cost. Where the decline is deemed to be other-than-temporary, a charge is recorded to realized investment losses, and a new cost basis is established for the investment.
 
In November 2005, the Financial Accounting Standard Board (“FASB”) released Staff Position (“FSP”) Nos.FAS 115-1 andFAS 124-1,The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments.The FSP addresses the determination as to when an investment is considered impaired, whether that impairment is other-than-temporary, and the measurement of an impairment loss. It also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The Company adopted these new pronouncements for its other-than-temporary impairment analysis as of January 1, 2006. The adoption of these did not have a significant impact on the financial position or results of operations of the Company.
 
The Company’s investments in private equity securities are included in “Other Assets.assets.” Those securities are carried at cost, as the Company owns less than 20% and does not otherwise have the ability to exercise significant influence. These securities are written down to their estimated realizable value, when management considers there is an other-than-temporary decline in value, based on financial information received and the business prospects of the entity.
 
(g) Fair Value of Financial Instruments
 
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and acquisition related liabilities are approximately equal to their carrying amounts because of the short-term maturity of these instruments. The fair value of stockholders’ note receivables was estimated at $65,002$55,328 and $55,553$0 and is based on the Applicable Federal Rates as published by the Internal Revenue Service as of December 31, 20062007 and 2007,2008, respectively. The fair value of the long-term debt was estimated at $329,725$407,784 and $407,784$569,699 and is based on 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 as of December 31, 20062007 and 2007,2008, respectively.


F-38


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
(h) Accounts Receivable and Allowance for Doubtful Accounts
 
Accounts receivable is generally recorded at the invoiced amount. The allowance for doubtful accounts is estimated based on an analysis of the aging of the accounts receivable, historical write-offs, customer payment patterns, individual customer creditworthiness, current economic trends,and/or establishment of specific reserves for customers in adverse financial condition. The Company reassesses the adequacy of the allowance for doubtful accounts on a periodic basis.
 
(i) Foreign Currency
 
The Company has determined local currencies are the functional currencies of the foreign operations. The assets and liabilities of foreign subsidiaries are translated at the year-end rate of exchange and statement of income items are translated at the average rates prevailing during the year. The resulting translation adjustment is recorded as a component of accumulated other comprehensive income (loss)loss in stockholders’ deficit.
 
(j) Stock Based Compensation
 
The Company follows FAS No. 123(R),Share-Based Payment(“FAS No. 123(R)”). FAS No. 123(R) is a revision of FAS No. 123, as amended,Accounting for Stock-Based Compensation, and supersedes Accounting Principles Board (“APB”) Opinion No. 25,Accounting for


F-42


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stock Issued to Employees(“APB No. 25”). Under FAS No. 123(R), stock-based compensation cost is measured at the grant date, based on the fair value of the options granted, and is recognized as expense over the requisite service period. On January 1, 2005, the Company adopted FAS No. 123(R) using a prospective approach, as required under FAS No. 123(R). Under this application, the Company is required to record compensation expense for all awards granted after the date of adoption.
 
FAS No. 123(R) 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 (the “substantive vesting period”). The Company’s 1996 Incentive Plan Stock Option Agreement (the “Option Plan”) provides an accelerated vesting for awards provided to employees who retire at the minimum age of 62 and completes at least five years of prior service. For these awards, the Company follows the substantive vesting period approach.
 
The fair value of the stock options granted is estimated on the date of grant using a Black-Scholes option valuation model that uses the assumptions noted in the following table.
             
  2006  2007  2008 
 
Option pricing model  Black-Scholes   Black-Scholes   Black-Scholes 
Expected volatility  13.53%  13.40%  28.02%
Risk-free interest rate  4.59%  4.54%  2.58%
Expected term in years  6.18   6.19   5.0 
Dividend yield        1.81%
Weighted average grant date fair value per stock option $166.25  $210.69  $206.68 
The expected term (estimated period of time outstanding) for awards granted subsequent to January 1, 2008 was estimated based on studies of historical experience and projected exercise behavior. Prior to January 1, 2008, the expected term was estimated using the simplified method as defined in SAB No. 107, in which the expected term equals the average of graded vesting term and the contractual term. 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. Expected volatility for awards prior to January 1, 2008 was based on the Company’s historical volatility for a period equal to the stock option’s expected term, ending on the day of grant, and calculated on a quarterly basis as determined for purposes of the KSOP. The Company estimatesFor awards granted after January 1, 2008, the expected volatility factor was based on the fair value of its Class A common shares as determined quarterly. These values are utilized by the Company to provide liquidity to stockholders under the provisionsaverage volatility of the Company’s defined contribution plan and Option Plan. Thepeers, calculated using historical daily closing prices over the most recent period commensurate with the expected term of the stock option award. Prior to 2008, the expected dividend yield haswas not been included in the fair value calculation as the Company hasdid not and does not expect to pay dividends. For awards granted after January 1, 2008, the expected dividends yield was based on the Company’s expected annual dividend rate on the date of grant.
The Company estimates expected forfeitures of equity awards at the date of grant and recognizes compensation expense only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Changes in the forfeiture assumptions may impact the total amount of expense ultimately recognized over the requisite service period, and may impact the timing of expense recognized over the requisite service period.
 


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
             
  2005  2006  2007 
 
Option pricing model  Black-Scholes   Black-Scholes   Black-Scholes 
Expected volatility  13.77%  13.53%  13.40%
Risk-free interest rate  4.08%  4.59%  4.54%
Expected term in years  6.13   6.18   6.19 
Dividend yield         
The per option weighted average grant date fair value of stock options granted during 2005, 2006 and 2007 was $103.94, $167.49 and $210.69, respectively. Stock-based compensation expense in 2005 caused income before income taxes to decrease by $4,094 and net income to decrease by $2,432. Stock-based compensation expense in 2006 caused income before income taxes to decrease by $6,148 and net income to decrease by $3,846. Stock-based compensation expense in 2007 caused income before income taxes to decrease by $8,244 and net income to decrease by $4,988.
(k) Research and development costs
 
Research and development costs, which primarily relate to the personnel and related overhead costs incurred in developing new services for our customers, are expensed as incurred. Such


F-43


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
costs were $5,191, $7,007, $8,944 and $8,944$11,054 in 2005, 2006, 2007 and 2007,2008, respectively, and were included in selling, general and administrative expenses.
 
(l) Income Taxes
 
The Company accounts for income taxes under the asset and liability method under FAS No. 109,Accounting for Income Taxes(“FAS No. 109”), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
 
Deferred tax assets are recorded to the extent these assets are more likely than not to be realized. In making such determination, the Company considers all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies and recent financial operations. Valuation allowances are recognized to reduce deferred tax assets if it is determined to be more likely than not that all or some of the potential deferred tax assets will not be realized.
 
In July 2006, the FASB issued Financial Interpretation (“FIN”) No. 48,Accounting for Uncertainty in Income Taxes(“FIN No. 48”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with FAS No. 109. FIN No. 48 provides that a tax benefit from an uncertain tax position may be recognized based on the technical merits when it is more-likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes. Income tax positions must meet a more likely than not recognition threshold at the effective date to be recognized upon the adoption of FIN No. 48 and in subsequent periods. This interpretation also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition.
 
The Company adopted the provisions of FIN No. 48,on January 1, 2007. As a result of the implementation of FIN No. 48, the Company recognized approximately a $10,338 increase in the

F-40


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
liability for unrecognized tax benefits, which was accounted for as an increase to the January 1, 2007, balance of accumulated deficit. The balance sheet line items impacted by this increase are as follows:
 
        
Increase in non-current deferred income taxes $13,933  $13,933 
Increase in federal and state taxes receivable $7,620 
Decrease in federal and state taxes payable $7,620 
Increase in other liabilities $31,891  $31,891 
Increase in accumulated deficit $10,338  $10,338 
 
The Company recognizes interest and penalties related to unrecognized tax benefits within the income tax expense line in the accompanying consolidated statements of operations. Accrued interest and penalties are included within “Other liabilities” on the accompanying consolidated balance sheets.
 
Prior to adopting FIN No. 48, the Company’s policy was to maintain tax contingency liabilities for potential audit issues. The tax contingency liabilities were based on an estimate of the probable amount of additional taxes that may be due in the future. Any additional taxes due would be determined only upon completion of current and future federal state and international tax audits. At December 31, 2006, the Company had $7,620 of tax contingency liabilities included in “Foreign and state taxes receivable.”
(l) Earnings Per Share
(l) Earnings Per Share
 
Basic and diluted earnings per share (“EPS”) are determined in accordance with FAS No. 128,Earnings per Share, which specifies the computation, presentation and disclosure requirements for earnings per share. Basic EPS excludes all dilutive common stock equivalents. It is based upon the weighted average number of common shares outstanding during the period. Diluted


F-44


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
EPS, as calculated using the treasury stock method, reflects the potential dilution that would occur if the Company’s dilutive outstanding stock options were exercised. For purposes of calculating earnings per share, Class A and Class B common shares are combined since both classes have identical rights to earnings.
 
(m) Pension and Postretirement Benefits
(m) Pension and Postretirement Benefits
 
In September 2006, the FASB issued FAS No. 158,Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans(“FAS No. 158”). FAS No. 158 requires the recognition of the funded status of a benefit plan in the balance sheet; the recognition in other comprehensive income of gains or losses and prior service costs or credits arising during the period, but which are not included as components of periodic benefit cost and the measurement of defined benefit plan assets and obligations as of the balance sheet date. The Company adopted FAS No. 158 as of December 31, 2006. The Company utilizes a valuation date of December 31. See “Note 1718 — Pension and Postretirement Benefits” for additional disclosures required by FAS No. 158 and the effects of adoption.
 
(n) Product Warranty Obligations
(n) Product Warranty Obligations
 
The Company provides warranty coverage for certain of its products. The Company recognizes a product warranty obligation when claims are probable and can be reasonably estimated. As of December 31, 20062007 and 2007,2008, product warranty obligations were not significant.
 
In the ordinary course of business, the Company enters into numerous agreements that contain standard indemnities whereby the Company indemnifies another party for breaches of confidentiality, infringement of intellectual property or gross negligence. Such indemnifications are primarily granted under licensing of computer software. Most agreements contain provisions to limit the maximum potential amount of future payments that the Company could be required to make under these indemnifications, however the Company is not able to develop an estimate of the maximum


F-41


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
potential amount of future payments to be made under these indemnifications as the triggering events are not subject to predictability.
 
(o) Loss contingencies
(o) Loss contingencies
 
The Company accrues for costs relating to litigation, claims and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates are based on management’s judgment. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.
 
(p) Recent Accounting Pronouncements
In September 2006, the FASB issued FAS No. 157,Fair Value Measurements. This statement enhances existing guidance for measuring assets and liabilities using fair value, such as emphasizing that fair value is a market-based measurement, not an entity-specific measurement, and sets out a fair value hierarchy with the highest priority being quoted prices in active markets. FAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007; however, the FASB provided a one-year deferral for implementation of this standard for non-financial assets and liabilities. The adoption of FAS No. 157 will not have a material impact on how we measure fair value, but will require additional disclosures.
In February 2008, the FASB issued FSPFAS 157-2,Effective Date of FASB Statement No. 157(“FSPFAS 157-2”), which delays the effective date of FAS No. 157 for non-recurring non-financial assets and liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. Non-financial assets and liabilities include, among others: intangible assets acquired through business combinations; long-lived assets when assessing potential impairment; and liabilities associated with restructuring activities. The Company is currently assessing the impact the adoption of FSPFAS 157-2 for non-recurring non-financial assets and liabilities will have, if any, on its consolidated financial statements.
In February 2007, the FASB issued FAS No. 159,The Fair Value Option for Financial Assets & Financial Liabilities — Including an Amendment of FAS No. 115(“FAS No. 159”). FAS No. 159 permits companies to choose to measure certain financial instruments and other items at fair value. The standard requires that unrealized gains and losses are reported in earnings for items measured using the fair value option. FAS No. 159 is effective for fiscal years beginning after November 15, 2007. FAS No. 159 was effective for the Company on January 1, 2008 and it did not elect the fair value option for any of its qualifying financial instruments.
(p) Recent Accounting Pronouncements
 
In June 2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITFNo. 06-11,Accounting for Income Tax Benefits of Dividends on Share-Based Payment Awards, (“EITFNo. 06-11”), that an entity should recognize a realized tax benefit associated with dividends on affected securities charged to retained earnings as an increase in Additional Paid in Capital (“APIC”). The amount recognized in APIC should be included in the APIC pool. When an entity’s estimate of forfeitures increases or actual forfeitures exceed its estimates, the amount of tax benefits previously recognized in APIC should be reclassified into the statement of operations. The amount reclassified is limited to the APIC pool balance on the reclassification date. EITFNo. 06-11 applies prospectively to the income tax benefits of dividends declared on affected securities. The adoption of EITFNo. 06-11, effective January 1, 2008, did not have an impact on the Company’s consolidated financial statements as historically the Company doeshas not currently paypaid dividends on its common stock.


F-45


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
In December 2007, the FASB issued FAS No. 141 (revised 2007),Business Combinations(“FAS No. 141(R)”). FAS No. 141(R) replacesFAS No. 141,Business Combinations(“FAS No. 141”).


F-42


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
FAS No. 141(R) primarily requires an acquirer to recognize the assets acquired and the liabilities assumed, measured at their fair values as of that date. This replaces FAS No. 141’s cost-allocation process, which required the cost of an acquisition to be allocated to the individual assets acquired and liabilities assumed based on their estimated fair values. Generally, FAS No. 141(R) will become effective for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.2008, except for tax provisions which apply to business combinations regardless of acquisition date. The majority of the impact of adopting FAS No. 141(R) will be dependent on the business combinations that the Company may pursue and complete after its effective date. For any in-process acquisitions subject to FAS No. 141(R), the Company has expensed all transaction related costs incurred during the year ended December 31, 2008.
 
In December 2007,February 2008, the FASB issued FSPFAS No. 160,157-2,Noncontrolling Interests in Consolidated Financial Statements — an amendmentEffective Date of ARBFASB Statement No. 51,157(“FSPFAS No. 160”157-2”). FAS No. 160 requires that a noncontrolling interest in a subsidiary be reported as equity and, which delays the amount of consolidated net income specifically attributable to the noncontrolling interest be identified in the consolidated financial statements. It also calls for consistency in the manner of reporting changes in the parent’s ownership interest and requires fair value measurement of any noncontrolling equity investment retained in a deconsolidation. FAS No. 160 is effective for the Company on January 1, 2009 except the presentation and disclosure requirements which are required to be applied retrospectively for all periods presented. Earlier adoptiondate of FAS No. 160 is prohibited.157,Fair Value Instruments, for non-recurring non-financial assets and liabilities, except those recognized or disclosed at fair value in the financial statements on a recurring basis, until fiscal years beginning after November 15, 2008. Non-financial assets and liabilities include, among others: intangible assets acquired through business combinations; long-lived assets when assessing potential impairment; and liabilities associated with restructuring activities. The Company is currently evaluatingassessing the impact that the adoption of FSPFAS No. 160157-2 for non-recurring non-financial assets and liabilities will have, if any, on its consolidated financial statements.
 
In March 2008, the FASB issued FAS No. 161,Disclosures about Derivative Instruments and Hedging Activities — An Amendment of FAS No. 133(“FAS No. 161”). FAS No. 161 seeks to improve financial reporting for derivative instruments and hedging activities by requiring enhanced disclosures regarding their impact on financial position, financial performance, and cash flows. To achieve this increased transparency, FAS No. 161 requires the disclosure of the fair value of derivative instruments and gains and losses in a tabular format; the disclosure of derivative features that are credit risk-related; and cross-referencing within the footnotes. FAS No. 161 is effective prospectively for financial statements issued for fiscal years and interim periods beginning after November 15, 2008, with early application permitted. TheSince the Company is currently assessing the impactdoes not anticipate entering into any derivative transactions, the adoption of FAS No. 161 will not have if any,an impact on the Company’sits consolidated financial statements.
 
In April 2008, the FASB issued FSPNo. 142-3,Determination of the Useful Life of Intangible Assets(“FSPNo. 142-3”). FSPNo. 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FAS No. 142,Goodwill and Other Intangible Assets (“FAS No. 142”). The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under FAS No. 142 and the period of expected cash flows used to measure the fair value of the asset under FAS No. 141(R), and other U.S. GAAP. FSPNo. 142-3 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years. Early adoption is prohibited. The Company is currently evaluating the potential impact, if any,any; however, the Company does not believe the adoption of FSPNo. 142-3 will have a material impact on its consolidated financial statements.
In June 2008, the FASB issued FSPEITF 03-6-1,Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities(“FSPEITF 03-6-1”), which addresses whether instruments granted in share-based payment transactions are participating securities


F-46


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
prior to vesting and, therefore, need to be included in the computation of earnings per share under the two-class method described in FAS No. 128,Earnings per Share. FSPEITF 03-6-1, is effective retrospectively for financial statements issued for fiscal years and interim periods beginning after December 15, 2008. The Company’s unvested share-based payments are not participating and the Company does not believe FSPEITF 03-6-1 will have an impact on the computation of earnings per share.
In December 2008, the FASB issued FSP No. 132(R)-1,Employer’s Disclosure about Postretirement Benefit Plan Assets(“FSPNo. 132R-1”). FSPNo. 132R-1 amends FASB Statement No. 132 (revised 2003),Employers’ Disclosures about Pensions and Other Postretirement Benefits,to provide guidance on an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan. FSPNo. 132R-1 is effective for financial statements issued for fiscal years ending after December 15, 2009.
In April 2009, the FASB issued FSP No. 141(R)-1,Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies(“FSPNo. 141R-1”),to provide further guidance on assets acquired and liabilities assumed in a business combination that arise from contingencies that would be within the scope of FASB No. 5,Accounting for Contingencies(“FAS No. 5”) if not acquired or assumed in a business combination, except for assets or liabilities arising from contingencies that are subject to specific guidance in FAS 141(R). FSPNo. 141R-1 is effective for assets or liabilities arising from contingencies in business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008.
 
3.  Concentration of Credit Risk:
 
Financial instruments that potentially expose the Company to credit risk consist primarily of cash and cash equivalents, available for sale securities and accounts receivable, which are generally not collateralized. The Company maintains its cash and cash equivalents with higher credit quality financial institutions in order to limit the amount of credit exposure. The total cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) to a maximum amount of $100 and $250 per bank.bank at December 31, 2007 and 2008, respectively. At December 31, 2007 and 2008, the Company had cash balances on deposit with five banks and six banks, respectively, that exceeded the balance insured by the FDIC limit by


F-43


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
approximately $11,567.$11,567 and $20,917, respectively. At MarchDecember 31, 2007 and 2008, the Company also had cash on deposit with foreign banks of approximately $8,385.$8,385 and $11,311, respectively.
 
The Company considers the concentration of credit risk associated with its trade accounts receivable to be commercially reasonable and believes that such concentration does not result in the significant risk of near-term severe adverse impacts. The Company’s top fifty customers for the yearyears ended December 31, 2006, 2007 and 2008, represent approximately 45%, 44% and 45% of revenue, respectively, with no individual customer accounting for more than 4% of revenue.revenue during the years ending December 31, 2007 and 2008. No individual customer comprised more than 10% of accounts receivable at December 31, 20062007 and 2007.2008.
 
4.  Cash and Cash Equivalents:
 
Cash and cash equivalents consist of cash in banks, money market funds, commercial paper and other liquid instruments with original maturities of 90 days or less at the time of purchase.


F-47


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
5.  Accounts Receivables:
 
Accounts receivables consist of the following at December 31:
 
                
 2006 2007  2007 2008 
Billed receivables $90,366  $88,370  $88,370  $81,302 
Unbilled receivables  6,632   6,365   6,365   9,036 
          
Total receivables  96,998   94,735   94,735   90,338 
Less allowance for doubtful accounts  (5,273)  (8,247)  (8,247)  (6,397)
          
Accounts receivable, net $91,725  $86,488  $86,488  $83,941 
          
 
6.  Notes Receivable from Stockholders:
 
Notes receivable from stockholders consists ofThe Company provided full recourse loans, issued bycallable at the CompanyCompany’s discretion, to directors and senior management in connection with exercising their stock options. These loans for the exercise price are classified as a component of “Redeemable common stock” on the accompanying consolidated balance sheets. These loans may also includeincluded loans for the tax liability and accrued interest incurred in connection with exercising stock options and these loans are included in “Notes receivable from stockholders” as a component of total assets“Total assets” on the accompanying consolidated balance sheets. As of December 31, 20062007 and 2007,2008 approximately $68,357$55,328 and $55,328,$0, respectively, of notes receivable from stockholders were outstanding. At December 31, 2006 and 2007, $9,913 and $2,776, respectively, of notes receivable from stockholders were due within one year. These notes were issued at rates approximating market rates of interest. Payments of principal and interest related to thesethe notes are generally deferred until the end of the loan terms, which range from three to nine years. Interest income on notes receivable from shareholdersstockholders was $1,516, $2,190, $2,454 and $2,454$1,050 during the years ended December 31, 2005, 2006, 2007 and 2008, respectively. At December 31, 2007 respectively.


F-44


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)and 2008, $2,776 and $0, respectively, of notes receivable from stockholders had maturities of one year or less. As of August 7, 2008, this loan program was terminated and the loans were called by the Company. The termination of the loan program resulted in cash inflows of $2,318 in operating activities, $3,863 in investing activities and $29,482 in financing activities for the year ended December 31, 2008.
 
7.  Investments:
 
The following is a summary of available-for-sale securities at December 31:
 
                 
     Gross
  Gross
    
     Unrealized
  Unrealized
    
  Cost  Gains  Losses  Fair Value 
 
2006
                
U.S. common stock $15  $  $  $15 
Registered investment companies  6,736   506      7,242 
                 
Total available-for-sale securities $6,751  $506  $  $7,257 
                 
                 
     Gross
  Gross
    
     Unrealized
  Unrealized
    
  Cost  Gains  Losses  Fair Value 
 
2007
                
Registered investment companies $29,036  $  $(686) $28,350 
                 
                 
     Gross
  Gross
    
     Unrealized
  Unrealized
    
  Cost  Gains  Losses  Fair Value 
 
2007 Registered investment companies $29,036  $  $(686) $28,350 
                 
2008 Registered investment companies $5,162  $  $(48) $5,114 
                 
 
Noncurrent other assets includeThe Company has investment in private equity securities forin which the Company acquired non-controlling interests and no readily determinable market value exists. These securities were accounted for under the cost method, in accordance with APB No. 18,The Equity Method of Accounting for Investments in Common Stock. At December 31, 2006,2007 and 2007,December 31, 2008, the carrying value which approximated the estimated fair valuevalues of such securities waswere approximately $200$53 and $0, respectively.$5,853, respectively, and has been included in “Other current assets” in the accompanying consolidated financial statements.
 
Proceeds from sales and maturities of investmentsavailable-for-sale securities were $402, $34,893, $22,872 and $22,872$21,724 for 2005, 2006, 2007 and 2007,2008, respectively.


F-48


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Realized gains,gains/(losses), including write downs related to other-than-temporary impairments of available-for-sale securities and noncurrent other assets were as follows:follows at December 31:
 
                        
 2005 2006 2007  2006 2007 2008 
Gross realized gains/(losses) on sale of registered investment securities $114  $922  $(1,306)
Other than temporary impairment of registered investment securities        (1,205)
Gross realized gains on U.S. common stock $  $  $135      135    
Gross realized gains on registered investment companies  27   114   922 
Impairment of U.S. common stock     (205)     (205)      
Impairment of private equity securities     (284)  (200)  (284)  (200)   
              
Realized gains (losses) on securities, net $27  $(375) $857 
Realized (losses)/gains on investments, net $(375) $857  $(2,511)
              
 
Investment income in 2005 includes interest income from cash and cash equivalents, interest income from notes receivable from stockholders, and dividend income from investments of $1,306, $1,516, and $96, respectively. Investment income in 2006 includes interest income from cash and cash equivalents, interest income from notes receivable from stockholders, and dividend income from investments of $3,315, $2,190, and $424, respectively. Investment income in 2007 includes interest income from cash and cash equivalents, interest income from notes receivable from stockholders, and dividend income from investments of $4,096, $2,456,$4,098, $2,454, and $435, respectively. Investment income in 2008 includes interest income from cash and cash equivalents, interest income from notes receivable from stockholders, and dividend income from investments of $897, $1,050, and $286, respectively.
 
From time to time, the Company has entered into certain derivative transactions involving the sale of covered call options on underlying investments held by the Company. As of December 31, 2006 and December 31, 2007, these call options either expired or were exercised. The gain on the call premiums of $656 and $1,455 was recognized as investment income in 2006 and 2007, respectively. The Company did not enter into any derivative transactions during the year ended December 31, 2008.
8.  Fair Value Measurements
Effective January 1, 2008, the Company adopted the provisions of FAS No. 157,Fair Value Measurements, (“FAS No. 157”), which defines fair value, establishes a framework for measuring fair value under U.S. GAAP and expands fair value measurement disclosures. In February 2008, the FASB delayed the effective date of FAS No. 157 until fiscal years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial liabilities, except those that are recognized or disclosed at least annually. Therefore, effective January 1, 2008, the Company has adopted the provisions of FAS No. 157 only for its financial assets and liabilities recognized or disclosed at fair value on a recurring basis.
To increase consistency and comparability in fair value measures, FAS No. 157 establishes a three-level fair value hierarchy to prioritize the inputs used in valuation techniques between observable inputs that reflect quoted prices in active markets, inputs other than quoted prices with observable market data, and unobservable data (e.g., a company’s own data). FAS No. 157 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 FAS No. 157, 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.


F-45F-49


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Level 3 —Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require.
The following table summarizes fair value measurements by level at December 31, 2008 for assets and other balances measured at fair value on a recurring basis:
                     
     Quoted Prices
          
     in Active Markets
  Significant Other
  Significant
    
  December 31,
  for Identical
  Observable
  Unobservable
    
  2008  Assets (Level 1)  Inputs (Level 2)  Inputs (Level 3)    
 
Available-for-sale securities(1) $5,114  $5,114  $  $     
Redeemable common stock(2) $752,912  $  $  $752,912     
(1)Available-for-sale equity securities are valued using quoted prices in active market multiplied by the number of shares owned.
(2)The fair value of the Company’s Class A redeemable common stock is established for purposes of the ISO 401 (K) Savings and Employee Stock Ownership Plan (“KSOP”) generally on the final day of the quarter and such price is utilized for all share transactions in the subsequent quarter. The current valuation in effect for the KSOP is also considered the fair value for Class A redeemable common stock and related transactions within the Insurance Services Office, Inc. 1996 Incentive Plan. See Note 15 for a description of the valuation process.
The table below includes a roll-forward of the Company’s redeemable common stock from January 1, 2008 to December 31, 2008:
     
  Significant
 
  Unobservable
 
  Inputs (Level 3) 
 
Balance, January 1, 2008 $1,217,942 
Redemptions, exercise and issuance of stock, net  (408,495)
Decrease in fair value(1)  (56,535)
     
Balance, December 31, 2008 $752,912 
     
(1)See Note 15 for a description of the valuation process.
Effective January 1, 2008, the Company adopted FAS No. 159,The Fair Value Option for Financial Assets and Financial Liabilities Including an Amendment of FASB Statement No. 115(“FAS No. 159”). FAS No. 159 permits companies to choose to measure certain financial instruments and other items at fair value. The standard requires that unrealized gains and losses are reported in earnings for items measured using the fair value option. The Company has elected not to apply the fair value option to its eligible financial assets and liabilities, and accordingly, the adoption of FAS No. 159 had no impact on the consolidated financial statements.


F-50


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
8.9.  Fixed Assets:
 
The following is a summary of fixed assets at December 31:
 
                                
     Accumulated
        Accumulated
   
     Depreciation and
        Depreciation and
   
 Useful Life Cost Amortization Net  Useful Life Cost Amortization Net 
2006
                
Furniture and office equipment  3-10 years  $77,372  $(56,252) $21,120 
Leasehold improvements  Lease term   23,573   (6,271)  17,302 
Purchased software  3 years   25,663   (20,759)  4,904 
Software development costs  3 years   58,047   (38,048)  19,999 
Leased equipment  3-4 years   21,093   (13,948)  7,145 
       
Total fixed assets     $205,748  $(135,278) $70,470 
       
2007
                                
Furniture and office equipment  3-10 years  $102,745  $(67,687) $35,058   3-10 years  $102,745  $(67,687) $35,058 
Leasehold improvements  Lease term   24,049   (7,876)  16,173   Lease term   24,049   (7,876)  16,173 
Purchased software  3 years   30,918   (25,431)  5,487   3 years   30,918   (25,431)  5,487 
Software development costs  3 years   69,758   (45,632)  24,126   3 years   69,758   (45,632)  24,126 
Leased equipment  3-4 years   17,080   (12,488)  4,592   3-4 years   17,080   (12,488)  4,592 
              
Total fixed assets     $244,550  $(159,114) $85,436      $244,550  $(159,114) $85,436 
              
2008
                
Furniture and office equipment  3-10 years  $97,900  $(74,429)  23,471 
Leasehold improvements  Lease term   27,624   (9,920)  17,704 
Purchased software  3 years   41,419   (30,869)  10,550 
Software development costs  3 years   78,046   (55,304)  22,742 
Leased equipment  3-4 years   17,556   (9,436)  8,120 
       
Total fixed assets     $262,545  $(179,958) $82,587 
       
 
Consolidated depreciation and amortization expense on fixed assets for the years ended December 31, 2005, 2006, 2007 and 2007,2008, was approximately $22,024, $28,007, $31,745 and $31,745,$35,317, of which $5,281, $6,403, $7,584 and $7,584$10,091 related to capitalizedamortization of software development costs, respectively. Leased equipment includes amounts held under capital leases for automobiles, computer software, and computer equipment.
 
9.10.  Goodwill and Intangible Assets:
 
Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of the businesses acquired. Goodwill and intangible assets deemed to have indefinite lives and are not amortized. Intangible assets determined to have finite lives are amortized over their useful lives. Goodwill and intangible assets with indefinite lives are subject to impairment testing annually as of June 30, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. The Company completed the required annual impairment test as of June 30, 2008, which resulted in no impairment of goodwill in 2008. This testing compares carrying values of each reporting unit to its fair values and, whenvalues. If the fair value is lower than carrying value,of the reporting unit exceeds the carrying value of thesethe net assets including goodwill assigned to that reporting unit, goodwill is reduced tonot impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value.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, than an impairment loss is recorded for the difference between the carrying amount and the implied fair value of goodwill. For the years ended December 31, 2005, 2006, 2007, and 2007,2008, the Company recorded an impairment charge of $1,500, $0, $1,744, and $1,744,$0, respectively, included in “Loss from discontinued operations, net of tax” in the consolidated statements of operations.


F-46F-51


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following is a summary of the change in goodwill for the years ended December 31, 20062007 and 2007,2008, both in total and as allocated to the Company’s operating segments:
 
                        
 Risk
 Decision
    Risk
 Decision
   
 Assessment Analytics Total  Assessment Analytics Total 
Goodwill at December 31, 2005 $23,303  $126,295  $149,598 
Goodwill at December 31, 2006 $27,665  $197,015  $224,680 
Accrual of acquisition related liabilities  243   98,100   98,343 
Current year acquisitions     69,328   69,328      14,157   14,157 
Earnout related payments  4,362   8,934   13,296 
Reclassifications to deferred income taxes     (7,542)  (7,542)
       
Goodwill at December 31, 2006  27,665   197,015   224,680 
Current year acquisitions     14,157   14,157 
Earnout related payments  243   102,555   102,798 
Escrow distribution     4,455   4,455 
Impairment charge     (1,744)  (1,744)     (1,744)  (1,744)
              
Goodwill at December 31, 2007 $27,908  $311,983  $339,891   27,908   311,983   339,891 
Accrual of acquisition related liabilities     82,400   82,400 
Current year acquisitions     12,845   12,845 
Purchase accounting reclassification     7,848   7,848 
Escrow distribution     4,388   4,388 
              
Goodwill at December 31, 2008 $27,908  $419,464  $447,372 
       
 
During the second quarter of 2008, the Company finalized the purchase price allocation associated with the acquisitions of HealthCare, Insight, LLC (“HCI”) and NIA Consulting, LTD (“NIA”). The finalization of the purchase accounting for HCI resulted in a reduction primarily of customer-related intangible assets and corresponding increase to goodwill of $7,009, and the final working capital adjustment of $825. The finalization of the purchase accounting for NIA, which includes the final working capital and other adjustments resulted in an increase to goodwill of $9. During the fourth quarter of 2008, the Company adjusted the purchase price allocation associated with the acquisition of Predicted Solutions, which resulted in an increase to goodwill of $5.
In April 2008, the Company paid $98,100 for Xactware contingent payments previously recorded within “Acquisition related liabilities” in the accompanying consolidated balance sheet. Certain other acquisitions include contingent payment provisions that are not related to continuing employment and are payable upon the achievement of certain financial results for 2008. As of December 31, 20062008, based on actual achievement of Xactware and 2007,NIA’s financial results, the Company has recorded an increase to goodwill and a corresponding increase to “Acquisition related liabilities” in the accompanying consolidated balance sheet of $82,400.
The Company’s intangible assets and related accumulated amortization consisted of the following:following at December 31:
 
                                
 Weighted
        Weighted
       
 Average
   Accumulated
    Average
   Accumulated
   
 Useful Life Cost Amortization Net  Useful Life Cost Amortization Net 
2006
                
2007
                
Technology-based  6 years  $157,946  $(55,869) $102,077   5 years  $164,317  $(80,419) $83,898 
Marketing-related  4 years   16,990   (10,678)  6,312   4 years   25,846   (13,667)  12,179 
Contract-based  6 years   6,555   (4,641)  1,914   6 years   6,555   (5,596)  959 
Customer-related  9 years   37,775   (8,360)  29,415   13 years   57,906   (13,782)  44,124 
              
Total intangible assets     $219,266  $(79,548) $139,718      $254,624  $(113,464) $141,160 
              
 
                 
  Weighted
          
  Average
     Accumulated
    
  Useful Life  Cost  Amortization  Net 
 
2007
                
Technology-based  5 years  $164,317  $(80,419) $83,898 
Marketing-related  4 years   25,846   (13,667)  12,179 
Contract-based  6 years   6,555   (5,596)  959 
Customer-related  13 years   57,906   (13,782)  44,124 
                 
Total intangible assets     $254,624  $(113,464) $141,160 
                 


F-47F-52


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                 
  Weighted Average
     Accumulated
    
  Useful Life  Cost  Amortization  Net 
 
2008
                
Technology-based  5 years  $164,127  $(98,810) $65,317 
Marketing-related  4 years   31,733   (18,363)  13,370 
Contract-based  6 years   6,555   (5,940)  615 
Customer-related  12 years   53,317   (19,906)  33,411 
                 
Total intangible assets     $255,732  $(143,019) $112,713 
                 
 
Consolidated amortization expense related to intangible assets for the years ended December 31, 2005, 2006, 2007 and 2007,2008, was approximately $19,800, $26,854, $33,916 and $33,916,$29,555, respectively. Estimated amortization expense through 20122013 and thereafter for intangible assets subject to amortization is as follows:
 
        
Year
 Amount  Amount 
2008 $30,025 
2009 $27,920  $29,698 
2010 $22,721  $24,502 
2011 $16,455  $17,932 
2012 $14,319  $14,034 
2013 $8,461 
Thereafter $29,720  $18,086 
 
10.11.  Acquisitions and Discontinued Operations:
2006 Acquisitions
In 2006, the Company acquired four entities for an aggregate cash purchase price of approximately $202,149, of which $187,956 relates to Xactware, and funded indemnity and contingent payment escrows totaling $11,100 and $3,500, respectively. At December 31, 2007, the current and long-term portions of these escrows amounted to $543 and $10,700 and have been included in “Other current assets” and “Other assets”, respectively, in the accompanying consolidated financial statements. At December 31, 2008, these escrows amounted to $10,923 and have been included in “Other current assets” in the accompanying consolidated financial statements. These acquisitions were accounted for under the purchase method. Accordingly, the purchase price, excluding contingency escrows, was allocated to assets acquired based on their estimated fair values as of the dates of acquisition. Each entity’s operating results have been included in the Company’s consolidated results from the respective dates of acquisition. A description of the four entities purchased in 2006 follows:
On March 28, 2006, the Company acquired 100% of the net assets of RegsData, Inc. (“RegsData”), a Milford, CT based provider of automated mortgage-licensing compliance services allowing the ability to manage and monitor third-party relationships and provide a comprehensive solution for the mortgage industry. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for the trailing15-month period ending June 30, 2007.
On August 8, 2006, the Company acquired 100% of the net assets of Xactware, Inc. (“Xactware”), an Orem, UT based provider of repair estimation and data analysis to assist property insurance carriers and their business partners in adjusting property claims, thus delivering more comprehensive products and services to the Company’s property insurance claims customers. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for 2007 and 2008.

F-53


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On August 23, 2006, the Company acquired 100% of the net assets of Domus Systems, Inc. (“Domus”), a Los Angeles, CA based provider of automated compliance and reporting services to the affordable-housing industry. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for 2007.
On October 11, 2006, the Company acquired 100% of the net assets of Urix LLC (“Urix”), a Cheshire, CT based provider of cutting-edge healthcare and employer reporting solutions. Urix is a leading developer of web-based healthcare analytic solutions that are both scalable and cost-effective on a national level. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for 2007.
The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition for the acquisitions that occurred in 2006. The goodwill associated with the 2006 acquisitions is included in the Decision Analytics segment.
             
  Xactware  All other  Total 
 
Current assets $7,061  $926  $7,987 
Property and equipment  2,320   107   2,427 
Other assets  11      11 
Intangible assets  121,603   7,234   128,837 
Goodwill(1)  63,309   6,019   69,328 
             
Total assets acquired  194,304   14,286   208,590 
Current liabilities  6,348   93   6,441 
             
Total liabilities assumed  6,348   93   6,441 
             
Net assets acquired $187,956  $14,193  $202,149 
             
(1)These amounts do not include earnout payments or the release of contingent escrows.
Supplemental information on an unaudited pro forma basis is presented below as if the acquisition of Xactware occurred at the beginning of 2006. The pro forma information presented below is based on estimates and assumptions, which the Company believes are reasonable and is 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 2006. The unaudited pro forma information includes intangible asset amortization charges and incremental borrowing costs as a result of the acquisition, net of related tax impacts, estimated using the Company’s effective tax rate for continuing operations for each period.
     
  2006 
 
Pro forma revenues $761,192 
Pro forma net income $142,939 
Pro forma basic income per share of Class A and Class B $34.60 
Pro forma diluted income per share of Class A and Class B $33.22 


F-54


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The amounts assigned to intangible assets by type for the 2006 acquisitions are summarized in the table below:
                 
  Weighted
          
  Average
          
  Useful Life  Xactware  All Other  Total 
 
Technology-based  6 years  $94,604  $5,221  $99,825 
Marketing-related  3 years   4,640   1,074   5,714 
Customer-related  12 years   22,359   939   23,298 
                 
Total intangible assets  7 years  $121,603  $7,234  $128,837 
                 
As of December 31, 2006, the Company had estimated the allocation of purchase price to goodwill and deferred taxes for the RegsData, Xactware, Domus Systems and Urix acquisitions. In 2007, the Company finalized the RegsData, Xactware, Domus Systems and Urix purchase allocations. The goodwill for all acquisitions is expected to be deductible for tax purposes over 15 years. The acquired intangible assets have useful lives ranging from 2 to 14 years with no residual value.
 
2007 Acquisitions
 
In 2007, the Company acquired five entities for an aggregate cash purchase price of approximately $50,538$50,824 and funded indemnity and contingent payment escrows totaling $3,344 and $1,031, respectively. At December 31, 2007, the current and long-term portions of these escrows amounted to $3,513 and $900 and have been included in “Other current assets” and “Other assets”, respectively.respectively, in the accompanying financial statements. At December 31, 2008, these escrows amounted to $1,010 and have been included in “Other current assets”, in the accompanying consolidated financial statements. These acquisitions were accounted for under the purchase method. Accordingly, the purchase price, excluding contingency escrows, was allocated to assets acquired based on their estimated fair values as of the acquisition dates. Each entity’s operating results have been included in the Company’s consolidated results from the respective dates of acquisition. A description of the five entities purchased in 2007 is as follows:
 
On January 11, 2007, the Company acquired the remaining 20% of the stock of National Equipment Register (“NER”), resulting in 100% ownership, in order to more closely align operations with existing businesses. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financialsfinancial results for 2007 and 2008. NER is a provider of solutions to increase the recovery rate of stolen equipment and reduce the costs associated with theft for owners and insurers.
 
On March 23, 2007, the Company acquired the rights, title, and interest of the name, trade name, and service mark, “Rex Depot” and other intangible assets of Smith Sekelsky Web Products, LLC. The assets associated with this acquisition further enhance the capability of the Company’s appraisal software offerings.
 
On October 3, 2007, the Company acquired 100% of the net assets of HealthCare Insight, LLC (“HCI”), a Salt Lake City, UT based company whose solutions enable healthcare claims payors to prevent fraud, abuse, and overpayment. The acquisition of HCI further supports the Company’s objective as the leading provider of data, analytics, and decision-support solutions for healthcare claims payors. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for 2008. HCI combines automated modeling and profiling of claims with the enhanced accuracy available through clinical validation.
 
On October 12, 2007, the Company acquired 100% of the net assets of NIA Consulting, LTD (“NIA”), a Mason, TX based company, which is a leading provider of fraud detection and forensic


F-55


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
audit services for the home mortgage and mortgage insurance industries. Adding NIA and its proprietary database to the Company’s fraud protection solution strengthens the Company’s search capacity and positions the Company to incorporate more real-world fraud schemes into the Company’s automated solutions. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for 2008.


F-48


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
On December 19, 2007, the Company acquired 100% of the net assets of Predicted Solutions, a leading provider of computer software applications and algorithms for commercial and governmental health plans and Medicaid to help health plan administrators detect and recover losses due to fraud, waste and abuse. The acquisition integrates with the Company’s analytic methodology to provide customers with the information needed to ensure their program integrity through better pharmacy and payment analysis.
 
The allocation of purchase price for the 2007 acquisitions, including the finalization of purchase accounting in 2008, resulted in finite lived intangible assets of $35,358$28,349 with no residual value, goodwill of $14,157,$22,005, and fair value of tangible assets acquired of $581.$470. The goodwill associated with the 2007 acquisitions is included within the Decision Analytics segment. The Company did not assume significant liabilities related to these acquisitions. The goodwill for all acquisitions is expected to be deductible for tax purposes over 15 years. As of December 31, 2007,In 2008, the Company has not finalized the working capital adjustments related to theRex Depot, HCI, NIA and NIA acquisitions due to the timeframe established within the agreements relative to timing of year-end reporting.Predicted Solutions purchase allocations.
 
The amounts assigned to intangible assets by type for the 2007 acquisitions are summarized in the table below:
 
                
 Weighted Average
    Weighted Average
   
 Useful Life Total  Useful Life Total 
Technology-based  4 years  $6,371   4 years  $6,181 
Marketing-related  4 years   8,856   4 years   8,856 
Customer-related  19 years   20,131   23 years   13,312 
      
Total intangible assets     $35,358      $28,349 
      
 
20062008 Acquisitions
 
In 2006,2008, the Company acquired fourtwo entities for an aggregate cash purchase price of approximately $202,149, of which $187,956 relates to Xactware,$19,270 and funded indemnity and contingent payment escrows totaling $11,100 and $3,500, respectively.$1,500. At December 31, 2006, the current and long-term portions of2008, these escrows amounted to $4,100 and $10,500 and have been included in “Other current assets” and “Other assets”, respectively. At December 31, 2007,in the current and long-term portionsconsolidated balance sheet of these escrows amounted to $543 and $10,700 and have been included in “Other current assets” and “Other assets”, respectively.the accompanying financial statements. These acquisitions were accounted for under the purchase method. Accordingly, the purchase price, excluding contingencyindemnification escrows, was allocated to assets acquired based on their estimated fair values as of the dates of acquisition.acquisition dates. Each entity’s operating results have been included in the Company’s consolidated results from the respective dates of acquisition. A description of the fourtwo entities purchased in 20062008 is as follows:
 
On March 28, 2006,November 14, 2008, the Company acquired the net assets of ZAIO’s two divisions, United Systems Software Company (“ZAIO”) and Day One Technology. The assets associated with this acquisition further enhance the capability of the Company’s appraisal software offerings.
On November 20, 2008, the Company acquired 100% of the net assetsstock of RegsData,Atmospheric and Environmental Research, Inc. (“RegsData”AER”), a Milford, CT based provider of automated mortgage-licensing compliance services allowing the ability to manage and monitor third-party relationships and provide a comprehensive solution for the mortgage industry.. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for the trailing15-month period ending June 30, 2007.
On August 8, 2006,years ended 2010 and 2011. The acquisition of AER further enhances the Company acquired 100%Company’s environmental and scientific research and predictive modeling. The allocation of the netpurchase price to intangible assets, goodwill, accrued liabilities, contingent escrows and the determination of Xactware, Inc. (“Xactware”), an Orem, UTa FIN 48 liability for the AER acquisition is subject to revisions based provideron the results of repair estimation and data analysisthe final determination of estimated fair values, which are not expected to assist property insurance carriers and their business partners in adjusting property claims, thus delivering more comprehensive products and servicesbe material to the Company’s property insurance claims customers. The purchase includes a contingent payment provision subject to the achievement of certain predeterminedconsolidated financial results for 2007 and 2008.statements.


F-49F-56


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On August 23, 2006, the Company acquired 100% of the net assets of Domus Systems, Inc. (“Domus”), an Agoura Hills, CA based provider of automated compliance and reporting services to the affordable-housing industry. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for 2007.
On October 11, 2006, the Company acquired 100% of the net assets of Urix LLC (“Urix”), a Cheshire, CT based provider of cutting-edge healthcare and employer reporting solutions. Urix is a leading developer of web-based healthcare analytic solutions that are both scalable and cost-effective on a national level. The purchase includes a contingent payment provision subject to the achievement of certain predetermined financial results for 2007.
 
The following table summarizespreliminary allocation of purchase price for the estimated2008 acquisitions resulted in finite lived intangible assets of $8,117 with no residual value, goodwill of $12,845, and fair valuesvalue of thenet tangible assets acquired and liabilities assumed at the date of acquisition for the acquisitions that occurred in 2006.$(1,692). The goodwill associated with the 20062008 acquisitions is included inwithin the Decision Analytics segment.
             
  Xactware  All other  Total 
 
Current assets $7,061  $926  $7,987 
Property and equipment  2,320   107   2,427 
Other assets  11      11 
Intangible assets  121,603   7,234   128,837 
Goodwill  63,309   6,019   69,328 
             
Total assets acquired  194,304   14,286   208,590 
Current liabilities  6,348   93   6,441 
             
Total liabilities assumed  6,348   93   6,441 
             
Net assets acquired $187,956  $14,193  $202,149 
             
Supplemental information on an unaudited pro forma basis is presented below as if the The Company did not assume significant liabilities related to these acquisitions. The goodwill for this acquisition of Xactware occurred at the beginning of the years 2005 and 2006. The pro forma information presented below is based on estimates and assumptions, which the Company believes are reasonable and is 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 2005 and 2006. The unaudited pro forma information includes intangible asset amortization charges and incremental borrowing costs as result of the acquisition, net of relateddeductible for tax impacts, estimated using the Company’s effective tax rate for continuing operations for each period.
         
  2005  2006 
  (unaudited) 
 
Pro forma revenues $686,851  $761,192 
Pro forma net income $122,901  $148,009 
Pro forma basic income per share of Class A and Class B $28.86  $35.83 
Pro forma diluted income per share of Class A and Class B $27.54  $34.35 


F-50


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)purposes.
 
The amounts assigned to intangible assets by type for the 20062008 acquisitions are summarized in the table below:
 
                        
 Weighted Average
        Weighted Average
   
 Useful Life Xactware All other Total  Useful Life Total 
Technology-based  6 years  $94,604  $5,221  $99,825 
Marketing-related  3 years   4,640   1,074   5,714   3 years  $5,887 
Customer-related  12 years   22,359   939   23,298   5 years   2,230 
          
Total intangible assets     $121,603  $7,234  $128,837      $8,117 
          
As of December 31, 2006, the Company had estimated the allocation of purchase price to goodwill and deferred taxes for the RegsData, Xactware, Domus Systems and Urix acquisitions. In 2007, the Company finalized the RegsData, Xactware, Domus Systems and Urix purchase allocations. The goodwill for all acquisitions is expected to be deductible for tax purposes over 15 years. The acquired intangible assets have useful lives ranging from 2 to 14 years with no residual value.
2005 Acquisitions
In 2005, the Company acquired three entities within the Decision Analytics segment for an aggregate cash purchase price of approximately $62,715 and funded contingency escrows totaling $14,354. These acquisitions were accounted for under the purchase method. Accordingly, the purchase price, excluding contingency escrows, was allocated to assets acquired based on their estimated fair values as of the dates of acquisition. Each entity’s operating results have been included in the Company’s consolidated results from the respective dates of acquisition. A description of the three entities purchased in 2005 follows:
In 2005, the Company made two acquisitions in order to expand its decision analytics services into the mortgage industry. On January 14, 2005, the Company entered into an agreement and plan of merger to purchase 100% of the stock of Appintelligence, Inc. (“Appintelligence”), a Weldon Spring, MO based provider of data integrity, fraud prevention and risk assessment and mitigation tools, designed to maximize loss mitigation and recovery efforts for lenders in the mortgage industry.
On March 31, 2005, the Company entered into an agreement and plan of merger to purchase 100% of the stock of Sysdome, Inc. (“Sysdome”), a Calabasas, CA based provider of fraud-detection and decision-support tools, enabling mortgage professionals to detect identity and property fraud quickly and accurately.
On August 10, 2005, the Company acquired 100% of the net assets of eLiens, a College Station, TX based provider of fast, easy, and economical lien holder and mortgagee notification services to insurance carriers. This acquisition utilized the Company’s expertise of data management for the insurance industry.
As of December 31, 2005, the Company had estimated the allocation of purchase price for deferred taxes and goodwill for the Appintelligence, Sysdome and eLiens acquisitions. In 2006, the Company finalized the Appintelligence, Sysdome and eLiens purchase allocations, resulting in a reallocation of $7,542 from goodwill to deferred taxes. Goodwill and intangible assets recognized in these transactions amounted to approximately $39,663 and $29,343, respectively. The goodwill for Appintelligence and Sysdome is not expected to be deductible for tax purposes, while goodwill for eLiens of $2,816 is expected to be deductible over 15 years. The acquired intangible assets have useful lives ranging from 1 to 7 years with no residual value.


F-51


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Acquisition Contingent Payments
 
The annual aggregate maximum contingent payment, subject to the achievement of certain predetermined financial results, for the year ending December 31, 2008 would be $240,931, of which $191,800 relates to Xactware. A condition of the additional payments for certain of the acquisitions, is the continued employment of key employees resulting in the treatment of such additional payments as compensation expense. Compensation expense related to earn out payments for fiscal 2005, 2006, 2007 and 20072008 was $9,734, $9,027, $3,605 and $3,605,$300, respectively. Based on the actual results of operations and agreements which required the continuing employment of key employees, the Company was required to make payments of $13,414$2,200 and $2,200,$300, in 20062007 and 2007,2008, respectively. For Xactware, contingent payments were not related to continuing employment of key employees, and as such the amount due of $98,100 was treated as additional purchase price. These amounts, which are included in “Acquisition related liabilities” in the accompanying consolidated balance sheet of the accompanying financial statements, were paid the year after they were accrued.
 
Acquisition Contingent 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. The future additional payments that may be required pursuant to the terms of the purchase agreements are not reflected as liabilities in the accompanying consolidated balance sheets, as the final payments are contingent on future events. At December 31, 20062007 and 2007,2008, the current portion of the escrow amounted to $11,465$5,767 and $5,767$12,724, respectively, of which $10,000 relates to Xactware, and has been included in “Other current assets.”assets” in the accompanying consolidated financial statements at December 31, 2008. The indemnification portion of these current escrows were $600$4,083 and $4,083$11,918 at December 31, 20062007 and 2007,2008, respectively. At December 31, 20062007 and 2007,2008, the noncurrent portion of the escrow, all of which are indemnification escrows, amounted to $10,510$11,596 and $11,596, of which $10,000 relates to Xactware, and has been included in “Other assets” at December 31, 2006 and 2007.$1,501, respectively.
 
Discontinued Operations
 
As of December 31, 2007, the Company discontinued operations of its claims consulting business located in New Hope, PAPennsylvania and the United Kingdom. The results for this business were accounted for as discontinued operations in the consolidated financial statements for each of the years in the three year period ended December 31, 2006 and 2007. Within the 2007 pre-tax loss are $2,786 of expenses directly related to the exit activity, which primarily consist of goodwill impairment of $1,744, other current asset write-off of $445, fixed asset disposals


F-57


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
of $265, and employee separation costs of $119. The summarized, combined statements of operations from discontinued operations for the years ended December 31 2005, 2006 and 2007 are as follows:
 
                    
 2005 2006 2007  2006 2007 
Revenues $4,249  $4,456  $2,352  $4,456  $2,352 
            
Pre-tax loss $(3,295) $(2,517) $(6,085) $(2,517) $(6,085)
Tax benefit  721   712   1,496   712   1,496 
            
Loss from discontinued operations, net of tax $(2,574) $(1,805) $(4,589) $(1,805) $(4,589)
            
 
Depreciation expenses related to the discontinued operations for years ending 2005, 2006 and 2007 were $99, $112 and $98, respectively.


F-52


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued) There was no impact of discontinued operations on the results of operations for the year ended December 31, 2008.
 
11.12.  Income Taxes:
 
The tax effects of significant items comprising the Company’s deferred tax assets as of December 31 is as follows:
 
                
 2006 2007  2007 2008 
Employee wages, pensions and other benefits $12,633  $18,118  $18,118  $14,970 
Postretirement benefits  11,923   11,231   11,231   10,163 
Fixed assets  (4,700)  (3,281)  (3,281)  (6,645)
Deferred revenue adjustment  4,632   7,391   7,391   8,979 
Deferred rent adjustment  3,289   3,598   3,598   4,508 
Net operating loss carryover  5,768   6,383   6,383   1,772 
Pension and postretirement unfunded liability adjustment  9,947   5,621   5,621   55,146 
Adjustment for unrealized (gains) losses  (189)  274 
Adjustment for unrealized losses  274   17 
State tax adjustments     15,686   15,686   8,283 
Goodwill amortization  13,159   8,586   8,586   3,774 
Other  1,995   6,260   11,655   10,689 
Valuation allowance  (2,144)  (1,534)  (1,534)  (2,098)
Internally developed software  (5,395)  (4,812)
          
Net deferred tax assets $56,313  $78,333 
Net deferred tax asset $78,333  $104,746 
          
 
As a result of certain realization requirements of FAS No. 123(R), the table of deferred tax assets and liabilities shown above does not include certain deferred tax assets at December 31, 20072008 that arose directly from tax deductions related to equity compensation in excess of compensation recognized for financial reporting. Equity will be increased by $13,436$5,076 if and when such deferred tax assets are ultimately realized. The Company uses tax law ordering for purposes of determining when excess tax benefits have been realized.
 
As of December 31, 2008, a deferred tax liability in the amount of $2,963 was recorded in connection with the acquisition of AER. As of December 31, 2007, a deferred tax asset in the amount of $24 was recorded in connection with the acquisition of HCI. As of December 31, 2006, deferred tax assets in the amount of $823 and $6,719 were recorded in connection with the acquisition of AppIntelligence and Sysdome, respectively. The ultimate realization of the deferred tax assets depends on the Company’s ability to generate sufficient taxable income in the future. The Company has provided for a valuation allowance against the deferred tax asset associated with the capital loss carryforwards


F-58


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
expiring in 2012 and the net operating losses of certain foreign subsidiaries. The Company’s net operating loss carryforwards expire as follows:
 
2008–2015$78.8 million
2016–20200.6 million
2021–202731.4 million
$110.8 million
     
Years
 Amount 
 
2009-2016 $56,803 
2017-2021  577 
2022-2028  30,850 
     
  $88,230 
     
 
A valuation allowance has been established based on management’s evaluation of the likelihood of utilizing the capital loss carryforwards and foreign net operating losses before they expire. Management has determined that the generation of future foreign taxable income to realize the deferred tax assets is uncertain. Other than these items, management has determined, based on the Company’s historical operating performance, that taxable income of the Company will more likely than not be sufficient to fully realize the deferred tax assets.


F-53


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The income tax provision for the years ended December 31 is as follows:
 
                        
 2005 2006 2007  2006 2007 2008 
Current:                        
Federal and foreign $82,723  $86,297  $96,277  $91,368  $96,277  $93,522 
State and local  10,718   12,663   17,843   12,663   17,843   12,358 
              
 $93,441  $98,960  $114,120  $104,031  $114,120  $105,880 
              
Deferred:                        
Federal and foreign $(5,944) $(9,800) $(7,041) $(9,800) $(7,041) $9,789 
State and local  (1,775)  (2,239)  (3,895)  (2,239)  (3,895)  5,002 
              
 $(7,719) $(12,039) $(10,936) $(12,039) $(10,936) $14,791 
              
Provision for income taxes $85,722  $86,921  $103,184  $91,992  $103,184  $120,671 
              
 
The Company’s income tax benefit for discontinued operations for fiscal 2005, 2006, 2007 and 20072008 was $721, $712, $1,496 and $1,496,$0, respectively.
In general, it is the practice of the Company to permanently reinvest the undistributed earnings of its foreign subsidiaries in those operations. As of December 31, 2008, the Company has not made a provision for U.S. or additional foreign withholdings taxes on approximately $2,818 of the unremitted earnings. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under other certain circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in its foreign subsidiaries.


F-59


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The reconciliation between the Company’s effective tax rate on income from continuing operations and the statutory tax rate is as follows for the years ended December 31:
 
                        
 2005 2006 2007  2006 2007 2008 
Federal statutory rate  35.0%  35.0%  35.0%  35.0%  35.0%  35.0%
State and local taxes, net of federal tax benefit  2.7%  2.9%  3.2%  2.9%  3.2%  5.0%
Non-deductible KSOP expenses  2.1%  2.7%  2.9%  2.7%  2.9%  2.7%
State tax adjustments  (0.1)%  (3.1)%  (0.3)%  (0.9)%  (0.3)%  0.0%
Other  0.6%  (0.2)%  (0.8)%  (0.2)%  (0.8)%  0.6%
              
Effective tax rate for continuing operations  40.3%  37.3%  40.0%  39.5%  40.0%  43.3%
              
 
Effective January 1, 2007, the Company adopted FIN No. 48, which prescribes a comprehensive model for the financial statement recognition, measurement, presentation and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. For each tax position, the Company must determine whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is then measured to determine the amount of benefit to recognize within the financial statements. No benefits may be recognized for tax positions that do not meet the more likely than not threshold. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
 
            
Unrecognized tax benefit at January 1, 2007 $27,052 
 2007 2008 
Unrecognized tax benefit at January 1 $27,052  $32,030 
Gross increase in tax positions in prior period        5,958 
Gross decrease in tax positions in prior period        (3,548)
Gross increase in tax positions in current period  7,662   7,662   4,454 
Settlements        (3,240)
Lapse of statute of limitations  (2,684)  (2,684)  (3,995)
        
Unrecognized tax benefit, December 31, 2007 $32,030 
Unrecognized tax benefit at December 31 $32,030  $31,659 
        
 
Included in the total unrecognized tax benefits of $32,030 was $24,368$31,659 is $18,575 that, if recognized, would have a favorable effect on the Company’s effective tax rate. The remaining unrecognized tax benefits would


F-54


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
not affect the Company’s effective tax rate. The gross increase in tax positions in prior periods of $5,958 predominantly relates to transfer pricing adjustments which are offset by a corresponding tax receivable. The gross decrease in tax positions in prior periods of $3,548 is a result of taking into account the 2007 uncertain tax positions which were considered and incorporated in the filing of the 2007 tax returns. The gross increase in tax positions in the current period relates to various ongoing uncertain tax positions involving federal, state and foreign issues. The Company paid and executed a settlement agreement with a taxing authority, which resulted in the reduction of uncertain tax positions of $3,240. The Company’s practice is to recognize interest and penalties associated with income taxes as a component of income tax expense. At January 1,December 31, 2007 and December 31, 2007,2008, approximately $4,879$7,033 and $7,033,$8,116, respectively, wasis accrued in the Company’s consolidated balance sheet for the payment of interest and penalties associated with income taxes. The Company’s unrecognized tax benefits largely include state exposures from allocation of income between jurisdictions, not filing a state tax return, the methods of filing state tax returns, and the utilization of tax credits. The Company does not expect ana significant increase in unrecognized benefits related to state tax exposures within the coming year. In addition, the Company believes that it is reasonably possible that approximately $3,394$5,275 of its currently remaining unrecognized tax positions, each of which is individually insignificant, may be recognized


F-60


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
by the end of 20082009 as a result of a lapsecombination of theaudit settlements and lapses of statute of limitations.limitations, net of additional uncertain tax positions.
 
The Company is subject to taxationtax in the U.S. (for both Federal and multiple states) and in certainvarious state and foreign jurisdictions. The Company’s 2004, 2005 and 2006Company joined by its domestic subsidiaries, files a consolidated income tax years are subject to examination by the U.S. and foreignreturn for Federal income tax authorities.purposes. With somefew exceptions, the Company is no longer subject to U.S. Federal,federal, state and local or foreignnon-U.S. income tax examinations by tax authorities for tax years before 2004.2005. The Internal Revenue Service (“IRS”) commenced an examination of the Company’s U.S. consolidated income tax return for the 2006 tax year. The Company does not expect that the results of this examination will have a material effect on its financial position or results of operations.
 
12.13.  Composition of Certain Financial Statement Captions:
 
The following table presents the components of “Other current assets,” “Accounts payable and accrued liabilities” and “Other liabilities” at December 31:
 
                
 2006 2007  2007 2008 
Other current assets:        
Acquisition contingent escrows $11,465  $5,767 
Other current assets        
Acquisition related escrows $5,767  $12,724 
Other current assets  1,726   2,758   2,758   3,463 
          
Total other current assets $13,191  $8,525  $8,525  $16,187 
          
Accounts payable and accrued liabilities:                
Accrued salaries, benefits and other related costs $43,175  $48,417  $48,417  $44,913 
Other current liabilities  23,535   29,817   29,817   38,468 
          
Total accounts payable and accrued liabilities $66,710  $78,234  $78,234  $83,381 
          
Other liabilities:                
Unrecognized tax benefits $  $39,023  $39,023  $39,735 
Deferred rent  10,044   11,028   11,028   11,883 
Other liabilities  12,119   12,034   12,034   24,576 
          
Total other liabilities $22,163  $62,085  $62,085  $76,194 
          


F-55F-61


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
13.14.  Debt:
 
The following table presents short-term and long-term debt by issuance:issuance as of December 31:
 
                                
     As of December 31,  Issuance
 Maturity
     
 Issuance Date Maturity Date 2006 2007  Date Date 2007 2008 
Short-term debt:                
Prudential senior notes:                
4.11% Series B senior notes  6/10/2004   6/10/2007  $60,000  $ 
4.12% Series C senior notes  6/28/2004   6/28/2007   40,000    
Short-term and current portion of long-term debt:                
Bank of America  10/25/2006   4/25/2007   15,000      10/25/2007   4/25/2008  $15,000  $ 
Bank of America  10/25/2007   4/25/2008      15,000   12/15/2008   1/15/2009      5,000 
JPMorgan Chase  12/31/2007   1/3/2008      15,000 
Bank of America  12/17/2008   1/17/2009      30,000 
Bank of America  12/22/2008   1/22/2009      15,000 
Bank of America  12/24/2008   1/24/2009      5,000 
JPMorganChase  12/31/2007   1/3/2008   15,000    
JPMorganChase  12/1/2008   1/2/2009      10,000 
JPMorganChase  12/12/2008   1/12/2009      4,000 
JPMorganChase  12/18/2008   1/20/2009      20,000 
JPMorganChase  12/24/2008   1/24/2009      20,000 
JPMorganChase  12/29/2008   1/29/2009      5,000 
Prudential: 4.46% Series D senior notes  6/14/2005   6/13/2009      100,000 
Capital lease obligations  Various   Various   5,463   4,408   Various   Various   4,408   5,058 
Other  Various   Various   388   763   Various   Various   763   340 
          
Short-term debt         $120,851  $35,171 
Short-term debt and current portion of long-term debt         $35,171  $219,398 
          
Long-term debt:                                
Prudential senior notes:                                
4.46% Series D senior notes  6/14/2005   6/13/2009  $100,000  $100,000   6/14/2005   6/13/2009  $100,000  $ 
4.60% Series E senior notes  6/14/2005   6/13/2011   50,000   50,000   6/14/2005   6/13/2011   50,000   50,000 
6.00% Series F senior notes  8/8/2006   8/8/2011   25,000   25,000   8/8/2006   8/8/2011   25,000   25,000 
6.13% Series G senior notes  8/8/2006   8/8/2013   75,000   75,000   8/8/2006   8/8/2013   75,000   75,000 
5.84% Series H senior notes  10/26/2007   10/26/2013      17,500   10/26/2007   10/26/2013   17,500   17,500 
5.84% Series H senior notes  10/26/2007   10/26/2015      17,500   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 
Principal senior notes:                                
6.03% Series A senior notes  8/8/2006   8/8/2011   50,000   50,000   8/8/2006   8/8/2011   50,000   50,000 
6.16% Series B senior notes  8/8/2006   8/8/2013   25,000   25,000   8/8/2006   8/8/2013   25,000   25,000 
New York Life senior notes:                                
5.87% Series A senior notes  3/16/2007   10/26/2013      17,500   10/26/2007   10/26/2013   17,500   17,500 
5.87% Series A senior notes  3/16/2007   10/26/2015      17,500   10/26/2007   10/26/2015   17,500   17,500 
6.35% Series B senior notes  4/29/2008   4/29/2015      50,000 
Other obligations:                                
Capital lease obligations  Various   Various   1,814   7,299   Various   Various   7,299   4,723 
Other  Various   Various   1,033   860   Various   Various   860   633 
          
Long-term debt         $327,847  $403,159          $403,159  $450,356 
          


F-62


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Accrued interest associated with the Company’s outstanding debt obligations was $2,239$2,548 and $2,548$4,092 as of December 20062007 and 2007,2008, respectively. Consolidated interest expense associated with the Company’s outstanding debt obligations was $10,238, $16,184, $22,590 and $22,590$30,863 for the years ended December 31, 2005, 2006, 2007 and 2007,2008, respectively.
 
Prudential Master Shelf Agreement
 
On June 13, 2003, the Company authorized the issuance of senior promissory notes (“Prudential Shelf Notes”) under an uncommitted master shelf agreement with Prudential Capital Group (“Prudential”) in the aggregate principal amount of $200,000. On February 1, 2005, the Company amended the shelf agreement to increase the authorization of additional senior promissory notes in the aggregate principal amount by


F-56


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
$150,000. On January 23, 2006, the Company amended the shelf agreement to increase the authorization of additional senior promissory notes in the aggregate principal amount by $100,000. $150,000. On February 1, 2007, the Company amended the shelf agreement to increase the authorization of additional senior promissory notes in the aggregate principal amount by $100,000. Prudential Shelf Notes may be issued and sold until the earliest of (i) February 28, 2010 (ii) the thirtieth day after receiving written notice to terminate; or (iii) the last closing day after which there is no remaining facility available. Interest is payable at a fixed rate or variable floating rate. Fixed rate Prudential Shelf Notes are subject to final maturities not to exceed ten years and, in the case of floating rate Prudential Shelf Notes, not to exceed five years. The Prudential Shelf Note agreement is uncommitted with a one time facility fee of $50. The net proceeds from the notes were utilized to repurchase Class B Company stock, to repay certain maturing notes and revolving credit facilities, and to fund acquisitions. Interest on the notes is payable quarterly.
As of December 31, 2007 and 2008, $285,000 and $385,000, respectively, was outstanding under this agreement. The Prudential Shelf Notes contain covenants that, among other things, require the Company to maintain certain leverage and fixed charge ratios.
 
Principal Master Shelf Agreement
 
On July 10, 2006, the Company authorized the issuance of senior promissory notes (“Principal Shelf Notes”) under an uncommitted master shelf agreement with Principal Global Investors, LLC (“Principal”) in the aggregate principal amount of $75,000. Principal Shelf Notes may be issued and sold until the earliest of (i) July 10, 2009 (ii) the thirtieth day after receiving written notice to terminate; or (iii) the last closing day after which there is no remaining facility available. Interest is payable at a fixed rate or variable floating rate. Fixed rate Principal Shelf Notes are subject to final maturities not to exceed ten years and, in the case of floating rate Principal Shelf Notes, not to exceed five years. The Principal Shelf Note is uncommitted with a one time facility fee of $25, no fees for the first issuance, and fees in the amount equal to 0.125% of the aggregate principal amount for subsequent issuances. The net proceeds from the notes issued were utilized to fund acquisitions. Interest on the notes is payable quarterly.
 
As of December 31, 20062007 and 2007,2008, $75,000 was outstanding under this agreement. The Principal Shelf Notes contain covenants that, among other things, require the Company to maintain certain leverage and fixed charge ratios.
 
New York Life Master Shelf Agreement
 
On March 16, 2007, the Company authorized the issuance of senior promissory notes (“New York Life Shelf Notes”) under an uncommitted master shelf agreement with New York Life in the aggregate principal amount of $100,000. New York Life Shelf Notes may be issued and sold until the earliest of (i) March 16, 2010 (ii) the thirtieth day after receiving written notice to terminate; or (iii) the last closing day after which there is no remaining facility available. Interest is payable at a fixed rate or variable floating rate. Fixed rate New York Life Shelf Notes are subject to final maturities not to exceed ten years and, in the case of floating rate Shelf Notes, not to exceed five years. The New York Life Shelf Note is uncommitted with no fees for the first issuance, and fees in the amount equal to 0.125% of the aggregate principal amount for


F-63


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
subsequent issuances. The net proceeds from the notes issued were utilized to fund acquisitions. Interest on the notes is payable quarterly.
 
As of December 31, 2007 and 2008, $35,000 and $85,000, respectively, was outstanding under this agreement. The New York Life Shelf Notes contain covenants that, among other things, require the Company to maintain certain leverage and fixed charge ratios.


F-57


 
INSURANCE SERVICES OFFICE, INC.Aviva Master Shelf Agreement
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)On December 10, 2008, the Company entered into a $50,000 uncommitted master shelf agreement with Aviva Investors North America, Inc. (“Aviva”). Aviva shelf notes may be issued and sold until the earliest of (i) December 10, 2011 (ii) the thirtieth day after receiving written notice to terminate; or (iii) the last closing day after which there is no remaining facility available. The Aviva master shelf is uncommitted with a one time facility fee of $25, and additional fees in the amount equal to 0.125% of the aggregate principal amount for subsequent issuances. The Aviva master shelf agreement contains certain covenants that, among other things, require the Company to maintain certain leverage and fixed charge ratios. The interest rate will be determined at the time of the borrowing. The Company did not have any notes outstanding under the Aviva master shelf as of December 31, 2008.
 
Debt Maturities
 
The following table reflects the Company’s debt maturities:
 
        
Year
 Amount  Amount 
2008 $35,171 
2009  104,272  $219,398 
2010  3,548  $4,617 
2011  125,305  $125,693 
2012  34  $46 
2013 and thereafter  170,000 
2013 $150,000 
2014 and thereafter $170,000 


F-64


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Revolving Credit Facilities
 
The following table presents the revolving credit facilities outstanding at December 31:
 
                      
     Maximum
                             
 Effective
 Expiration
 Available
   Interest
 Borrowings
  Effective
 Expiration
 Maximum Available Interest
 Borrowings
 
Description
 Date Date Committed Uncommitted Rate Outstanding  Date Date Committed Uncommitted Rate Outstanding 
2006:                      
JPMorgan Chase  9/30/2006   9/30/2007  $25,000  $50,000  LIBOR + .65% $ 
2007:                      
JPMorganChase  10/1/2007   9/30/2008  $25,000  $50,000  LIBOR + .65% $15,000 
Bank of America  9/30/2006   9/30/2007   10,000   40,000  LIBOR + .75%  15,000   9/30/2007   9/30/2008   10,000   50,000  LIBOR + .65%  15,000 
Citibank  10/1/2006   10/31/2007   20,000   30,000  PRIME −1.0%     10/31/2007   10/29/2008   20,000   30,000  LIBOR + .65%   
                      
Morgan Stanley  8/29/2006   8/28/2007      50,000  Determined at the
time of borrowing
     8/29/2007   8/28/2008      50,000  Determined at the
time of borrowing
   
              
Total         $55,000  $170,000    $15,000          $55,000  $180,000    $30,000 
              
2007:                      
JPMorgan Chase  10/1/2007   9/30/2008  $25,000  $50,000  LIBOR + .65% $15,000 
2008:                      
JPMorganChase  10/31/2008   9/30/2009  $25,000  $50,000  LIBOR + .80% $59,000 
Bank of America  9/30/2007   9/30/2008   10,000   50,000  LIBOR + .65%  15,000   9/30/2008   9/30/2009   110,000     LIBOR + .95%  55,000 
Citibank  10/31/2007   10/29/2008   20,000   30,000  LIBOR + .65%   
                      
Morgan Stanley  8/29/2007   8/28/2008      50,000  Determined at the
time of borrowing
     12/9/2008   12/8/2009   30,000     Determined at the
time of borrowing
   
              
Total         $165,000  $50,000    $114,000 
         $55,000  $180,000    $30,000        
       
 
In 2006, theThe Company amended its uncommitted master shelf agreements and revolving credit facilities to have fourfive of its 100% owned subsidiaries, including ISO Claims Services, Inc., ISO Investment Holdings, Inc., AIR Worldwide Corporation, Xactware, Inc. and ISO Services, Inc., fully and unconditionally, and jointly and severally guarantee all of its obligations under the credit facilities. In connection with this amendment, a sharing agreement was created between the Company and a syndicate of lenders in consideration of the exercise of set-off rights in connection with the guaranties. On September 30, 2007, the Company renegotiated the Bank of America credit facility to increase the availability to $60,000 and extend the maturity through September 2008.
The Bank of America committed line has an annual facility fee of $25 and interest on outstanding borrowings is payable monthly, at a rate of 5.59% at December 31, 2007. As of December 31, 20072008, the Company was in violation of an affirmative covenant that requires the Company to notify each lender within 30 days of the time an entity meets the criteria of a material subsidiary. In February 2009, the Company obtained a waiver from each of the lenders and 2006, $15,000amended its uncommitted master shelf agreements and revolving credit facilities to have two additional 100% owned subsidiaries, Verisk Health, Inc. and Interthinx, Inc., fully and unconditionally, and jointly and severally guarantee all of borrowings was outstandingits obligations under thisthe master shelf agreements and revolving credit facility.facilities.
 
In October 2005, the Company renegotiated the revolving credit facility with JPMorganChase to increase the availability to $75,000. Interest on outstanding borrowings is payable monthly,at maturity, at a rate of 4.90%1.73% at December 31, 2007.2008. The committed line has an annuala facility fee of 0.10% of the unused portion and


F-58


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
interest on outstanding borrowings is payable monthly. On September 30, 2007,October 31, 2008, the Company renegotiated the facility to extend the maturity through September 30, 2008.2009. Upon maturity of this facility, the Company may convert all or a principal portion not less than $1,000 of the aggregate principal balance of revolving credit loans then outstanding into a one year term loan. As of December 31, 2007 and 2008, $15,000 and $59,000, respectively, of borrowings waswere outstanding under this credit facility.
The Bank of America committed line has a facility fee of 0.25% of the unused portion and interest on outstanding borrowings is payable at maturity, at a rate of 1.74% at December 31, 2008. On September 30, 2008, the Company renegotiated the facility to extend the maturity through September 30, 2009. On December 5, 2008, the Company renegotiated the Bank of America credit facility to increase the availability to $110,000. Upon maturity of this facility, the Company may convert all or a principal portion not less than $1,000 of the aggregate principal balance of revolving credit loans then outstanding into a one year term loan.


F-65


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
As of December 31, 2007 and 2008 $15,000 and $55,000, respectively, of borrowings were outstanding under this credit facility.
 
On January 23, 2006, the Company entered into a $50,000 revolving credit agreement with Citibank, of which $20,000 iswas committed. Interest is payable monthly at the Prime rate minus 1%.This revolving credit agreement with Citibank expired on October 29, 2008. The Company has the option on the commitment termination datedid not renegotiate to convert the revolver to a one year term loan at a cost of a 10 basis point fee on the converted amount. On October 31, 2007, the agreement was amended to change the interest rate and extend the maturity until October 29, 2008.agreement.
 
In August 2006, the Company entered into a $50,000 revolving credit facility with Morgan Stanley Bank.Stanley. Interest is payable monthly at a rate to be determined at the time of borrowing. On August 29, 2007,December 9, 2008, the Company renegotiatedentered into a new $30,000 revolving credit facility with Morgan Stanley that matures on December 8, 2009. This committed line has a facility fee of 0.375% of the facilityunused portion and interest is payable at maturity at a rate to extendbe determined at the maturity through August 28, 2008.time of borrowing.
 
14.15.  Redeemable Common Stock:
 
On November 18, 1996, the Company authorized 6,700,000 shares of Class A shares.redeemable common stock. The Class A shares arestock is reserved for the use in incentive plans for key employees and directors under the Option Plan, and for issuance to the KSOP.ISO 401(k) Savings and Employee Stock Ownership Plan (the “KSOP”). The Class A shares havestock has voting rights to elect nine of the thirteen members of the board of directors. The Company’s Certificate of Incorporation limits those who may own Class A sharesstock to current and former employees or directors, the KSOP and trusts by or for the benefit of immediate family members of employees and former employees.
 
Under the terms of the Option Plan, Class A sharesstock resulting from exercised options that are held by the employee for more than six months and one day may be put to the Company and redeemed at the then current fair value at the date of the redemption request of the Class A shares.stock. For options granted in 2002 through 2004, the Company has the ability to defer the cash settlement of the redemption up to one year. For options granted after 2004, the Company has the ability to defer the cash settlement of the redemption for up to two years. Under the terms of the KSOP, eligible participants may elect to diversify 100% of their 401(k) and up to 35% of their ESOP contributions that were made in the form of Class A stock. In addition, upon retirement or termination, participants in the KSOP are required to liquidate their ownership in Class A common shares.stock. Since the Class A sharesstock distributed under the Option Plan and KSOP areis subject to the restrictions above, the participant currently has the right to require the Company to repurchase sharesstock based on the then current fair value of the Class A shares.stock.
The fair value of the Company’s Class A redeemable common stock is established for purposes of the KSOP, generally on the final day of the quarter and such price is utilized for all share transactions in the subsequent quarter. The current valuation in effect for the KSOP is also considered fair value for Class A redeemable common stock and related transactions within the Insurance Services Office, Inc. 1996 Incentive Plan.
The valuation methodology is based on a variety of qualitative and quantitative factors including the nature of the business and history of the enterprise, the economic outlook in general and the condition of the specific industries in which the Company operates, the financial condition of the business, the Company’s ability to generate free cash flow, and goodwill or other intangible asset value. This determination of the fair market value employs both a comparable public company analysis, which examines the valuation multiples of companies deemed comparable, in whole or in part, to the Company, and a discounted cash flow analysis that determines a present value of the projected future cash flows of the business. The Company regularly assesses the underlying assumptions used in the valuation methodologies. As a result, the Company has utilized this quarterly fair value for all its Class A redeemable common stock transactions, as required by terms of the KSOP and the Insurance Services Office, Inc. 1996 Incentive Plan.


F-66


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The Company follows SEC Accounting Series Release (“ASR”) No. 268,Presentation in Financial Statements of Preferred Redeemable Stock(“ASR No. 268”). ASR No. 268 requires the Company to record Class A sharesstock and vested stock options at full redemption value at each balance sheet date as the redemption of these securities is not solely within the control of the Company. Redemption value for the Class A sharesstock is determined quarterly on or about the final day of the quarter for purposes of the KSOP. AtThe fourth quarter valuation was finalized on December 31, 20062007 and 2007, the fair value was $7552008 at $862 and $862$778 per Class A share, respectively. The redemption value of the Class A sharesstock and vested options at intrinsic value at December 31, 20062007 and 20072008 totaled $1,183,049$1,217,942 and $1,217,942,$752,912, respectively, which includes $165,656$215,380, and $215,380,$172,408, respectively, of aggregate intrinsic value of outstanding unexercised vested stock options.
 
During 2005,the years ended December 31, 2006, 2007 and 2007, 405,743,2008, 253,000, 256,842 and 256,842502,435 Class A shares were redeemed by the Company at ana weighted average price of $595.70, $803.73 and $863.88 per share, of $430.26, $595.70, $803.73, respectively. Included in Class A repurchased shares redeemed were $86,271, $45,042$45,052, $16,096 and $16,096$19,734 for shares primarily utilized to satisfy minimum tax withholdings on options exercised during the years ended December 31, 2005, 2006, 2007 and 20072008, respectively.


F-59F-67


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Subsequent changes to the redemption value of the securities is charged first to retained earnings; once retained earnings is depleted, then to additionalpaid-in-capital, if additionalpaid-in-capital is also depleted, then to accumulated deficit. During the yearsyear ended December 31, 2005, 2006 and 2007,2008 the increases in redemption valuebalance of redeemable common stock totaled $178,881, $239,195 and $34,893, respectively.decreased by $465,030. Additional information regarding the changes in redeemable common stock for the years ended December 31, 2005, 2006, 2007 and 2007 are2008 is provided in the table below.
 
                                            
       Notes
 Total
          Notes
 Total
 
 Class A Common Stock Receivable
 Redeemable
  Class A Common Stock Receivable
 Redeemable
 
   Redemption
 Unearned
 from
 Common
    Redemption
 Unearned
 Additional
 from
 Common
 
 Shares Value KSOP Stockholders Stock  Shares Value KSOP Paid-in-Capital Stockholders’ Stock 
Balance, January 1, 2005  2,435,584  $764,973  $(6,561) $(35,880) $722,532 
Balance, January 1, 2006  1,420,341  $943,854  $(5,723) $  $(37,042) $901,089 
Redemption of Class A common stock     (88,305)     11,411   (76,894)  (253,000)  (105,670)        9,277   (96,393)
KSOP shares earned        838      838         810   17,969      18,779 
Stock options exercised  233,608   10,484      (12,573)  (2,089)
Stock based compensation           6,148      6,148 
Stock options exercised (including tax benefit of $31,964)  179,967   62,435      31,964   (24,438)  69,961 
Other stock issuances  494   220         220   232   149            149 
Increase in redemption value of Class A common stock     256,482         256,482      282,281      (56,081)     226,200 
           
Balance, December 31, 2005  2,669,686  $943,854  $(5,723) $(37,042) $901,089 
           
Redemption of Class A common stock     (105,670)     9,277   (96,393)
KSOP shares earned        810      810 
Stock options exercised  179,967   62,435      (24,438)  37,997 
Other stock issuances  232   149         149 
Increase in redemption value of                    
Class A common stock     282,281         282,281 
                        
Balance, December 31, 2006  2,849,885  $1,183,049  $(4,913) $(52,203) $1,125,933   1,347,540  $1,183,049  $(4,913) $  $(52,203) $1,125,933 
                        
Redemption of Class A common stock     (190,336)     24,708   (165,628)  (256,842)  (190,336)        24,708   (165,628)
KSOP shares earned        784      784         784   21,463      22,247 
Stock options exercised  72,083   28,526      (15,130)  13,396 
Stock based compensation           8,244      8,244 
Stock options exercised (including tax benefit of $12,798)  72,083   28,526      12,798   (15,130)  26,194 
Other stock issuances  285   238         238   285   238            238 
Increase in redemption value of Class A common stock     196,465         196,465      196,465      (42,505)     153,960 
                        
Balance, December 31, 2007  2,922,253  $1,217,942  $(4,129) $(42,625) $1,171,188   1,163,066  $1,217,942  $(4,129) $  $(42,625) $1,171,188 
                        
Redemption of Class A common stock  (502,435)  (434,044)        62,773   (371,271)
KSOP shares earned        756   21,518      22,274 
Stock based compensation           9,881      9,881 
Stock options exercised (including tax benefit of $26,099)  85,256   25,324      26,099   (20,148)  31,275 
Other stock issuances  252   225            225 
Decrease in redemption value of Class A common stock     (56,535)     (57,498)     (114,033)
             
Balance, December 31, 2008  746,139  $752,912  $(3,373) $  $  $749,539 
             
 
15.16.  Stockholders’ Deficit:
 
On November 18, 1996, the Company authorized 20,000,000 Class B shares. The Class B shares have the same rights as Class A shares with respect to dividends and economic ownership, but have voting rights to elect three of the thirteen directors. The thirteenth seat on the board of directors is held by the chief executive officer of the Company. The Company repurchased 161,837, 2,895, 72,488 and 72,4889,670 Class B shares in 2005, 2006, 2007 and 20072008 at an average price of $243.32, $385.20, $498.15 and $498.15$517.20 per share, respectively.


F-68


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Earnings Per Share
 
Basic earnings per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period, less the weighted average ESOP shares of common stock that have not been committed to be released. The computation of diluted


F-60


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
earnings per share is similar to the computation of basic earnings per share except that the denominator is increased to include the number of additional common shares that would have been outstanding using the treasury stock method, if the dilutive potential common shares, such as stock awards and stock options, had been issued.
 
The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share (“EPS”) computations for the years ended December 31,31:
 
             
  Net Income
  Shares
  Amount
 
  (Numerator)  (Denominator)  Per-Share 
 
2005
            
Basic EPS:            
Net income available to common stockholders $124,373   4,258,989  $29.20 
             
Effect of dilutive securities      203,120     
             
Diluted EPS:            
Net income available to common stockholders plus assumed conversions $124,373   4,462,109  $27.87 
             
2006
            
Basic EPS:            
Net income available to common stockholders $144,051   4,130,962  $34.87 
             
Effect of dilutive securities      178,014     
             
Diluted EPS:            
Net income available to common stockholders plus assumed conversions $144,051   4,308,976  $33.43 
             
2007
            
Basic EPS:            
Net income available to common stockholders $150,374   4,016,928  $37.44 
             
Effect of dilutive securities      168,223     
             
Diluted EPS:            
Net income available to common stockholders plus assumed conversions $150,374   4,185,151  $35.93 
             
             
  2006  2007  2008 
 
Numerator used in basic and diluted EPS:            
Income from continuing operations $140,785  $154,963  $158,228 
Loss from discontinued operations, net of tax benefit  (1,805)  (4,589)   
             
Net income $138,980  $150,374  $158,228 
             
Denominator:            
Weighted average number of common shares used in basic EPS  4,130,962   4,016,928   3,657,714 
Effect of dilutive shares:            
Potential Class A redeemable common stock issuable upon the exercise of stock options  171,905   168,223   146,920 
             
Weighted average number of common shares and dilutive potential common shares used in diluted EPS  4,302,867   4,185,151   3,804,634 
             
Basic EPS:            
Income from continuing operations $34.08  $38.58  $43.26 
Loss from discontinued operations, net of tax benefit  (0.44)  (1.14)   
             
Basic EPS $33.64  $37.44  $43.26 
             
Diluted EPS:            
Income from continuing operations $32.72  $37.03  $41.59 
Loss from discontinued operations, net of tax benefit  (0.42)  (1.10)   
             
Diluted EPS $32.30  $35.93  $41.59 
             
Pro forma basic income/(loss) per share of Class A and Class B (unaudited):            
Income from continuing operations            
Loss from discontinued operations            
             
Pro forma net income per share            
             
Pro forma diluted income/(loss) per share of Class A and Class B (unaudited):            
Income from continuing operations            
Loss from discontinued operations            
             
Pro forma net income per share            
             
Weighted average shares used in pro forma per share amounts (unaudited):            
Basic            
             
Diluted            
             


F-69


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The potential shares of common stock that were excluded from diluted earnings per share were 119,857, 66,570, 60,661 and 60,661101,827 for 2005, 2006, 2007 and 2007,2008, respectively, because the effect of including these potential shares was antidilutive.
 
Unaudited pro forma net income income/(loss) per share is presented for additional information only. As disclosed in “Note 211 — Subsequent Events,”Organization”, Verisk Analytics, Inc. (“Verisk”) will become the new holding company offor Insurance Services Office, Inc. In conjunctionconnection with the initial public offering, the stock of Insurance Services Office, Inc. will convert tobe exchanged for the stock of Verisk and Verisk plans to affect a stock split of its common stock. Pro forma net income income/(loss) per share is computed as if thisthe stock split occurred at the beginning of 2007.


F-61


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2008.
 
Accumulated Other Comprehensive Loss
 
The following is a summary of accumulated other comprehensive loss at December 31:
 
                
 2006 2007  2007 2008 
Unrealized gains (losses) on investments $318  $(412)
Unrealized foreign currency gains  357   154 
Unrealized losses on investments $(412) $(31)
Unrealized foreign currency gains/(losses)  154   (773)
Pension and postretirement unfunded liability adjustment  (16,692)  (8,441)  (8,441)  (81,630)
          
Accumulated other comprehensive loss $(16,017) $(8,699) $(8,699) $(82,434)
          
 
The before tax and after tax amounts for these categories, and the related tax benefit benefit/(expense) included in other comprehensive loss are summarized below:
 
                        
   Tax Benefit
      Tax Benefit/
   
2005
 Before Tax (Expense) After Tax 
2006
 Before Tax (Expense) After Tax 
Unrealized holding gains on investments arising during the year $176  $(70) $106  $467  $(176) $291 
Reclassification adjustment for amounts included in net income  (27)  9   (18)  91   (34)  57 
Unrealized foreign currency losses  (549)     (549)
Minimum pension liability adjustment  (4,126)  1,662   (2,464)
       
Total other comprehensive loss $(4,526) $1,601  $(2,925)
       
2006
            
Unrealized holding gains on investments arising during the year $467  $(176) $291 
Reclassification adjustment for amounts included in net income  91   (34)  57 
Unrealized foreign currency gain  376      376 
Unrealized foreign currency gains  376      376 
Minimum pension liability adjustment  2,814   (1,186)  1,628   2,814   (1,186)  1,628 
              
Total other comprehensive gain $3,748  $(1,396) $2,352  $3,748  $(1,396) $2,352 
              
2007
                        
Unrealized holding losses on investments arising during the year $(2,250) $885  $(1,365) $(2,250) $885  $(1,365)
Reclassification adjustment for amounts included in net income  1,057   (422)  635   1,057   (422)  635 
Unrealized foreign currency losses  (203)     (203)  (203)     (203)
Pension and postretirement unfunded liability adjustment  12,577   (4,326)  8,251 
Minimum pension liability adjustment  12,577   (4,326)  8,251 
              
Total other comprehensive gain $11,181  $(3,863) $7,318  $11,181  $(3,863) $7,318 
              
2008
            
Unrealized holding losses on investments arising during the year $(1,687) $666  $(1,021)
Reclassification adjustment for amounts included in net income  2,325   (923)  1,402 
Unrealized foreign currency losses  (927)     (927)
Pension and postretirement unfunded liability adjustment  (122,714)  49,525   (73,189)
       
Total other comprehensive loss $(123,003) $49,268  $(73,735)
       


F-70


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
16.17.  Compensation Plans:
 
KSOP
 
The Company has established the KSOP for the benefit of eligible employees in the U.S. and Puerto Rico. The KSOP includes both an employee savings component and an employee stock ownership component. The purpose of the combined plan is to enable the Company’s employees to participate in a tax-deferred savings arrangement under Code Sections 401(a) and 401(k), and to provide employee equity participation in the Company through the ESOP accounts.
 
Under the KSOP, eligible employees may make pre-tax and after-tax cash contributions as a percentage of their compensation, subject to certain limitations under the applicable provisions of the Code. The maximum pre-tax contribution that can be made to the 401(k) account as determined under the provisions of Code Section 401(g) is $14, $15, $16 and $16 for 2005, 2006, 2007 and 2007,2008, respectively. Certain eligible participants (age 50 and older) may contribute an additional $4,$5, $5 and $5 on a pre-tax basis for 2005, 2006, 2007 and 2007,


F-62


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2008, respectively. After-tax contributions are limited to 10% of a participant’s compensation. The Company provides quarterly matching contributions in ISO Class A common stock. The quarterly matching contributions are equal to 75% of the first 6% of the participant’s contribution.
 
The Company established the ESOP component as a funding vehicle for the KSOP. This leveraged ESOP acquired 1,143,800 shares of the Company’s Class A common stock at a cost of approximately $33,170 ($29 per share) in January 1997. The ESOP borrowed $33,170 from an unrelated third party to finance the purchase of the ESOP Shares. The common shares were pledged as collateral for its debt. The Company makes annual cash contributions to the KSOP equal to the ESOP’s debt service. As the debt is repaid, shares are released from collateral and are allocated to active employees in proportion to their annual salaries in relation to total participant salaries. The Company accounts for its ESOP in accordance with AICPASOP No. 93-6,Accounting Practices for Certain Employee Stock Ownership Plans(“SOP No. 93-6”)and EITFNo. 89-11,Sponsor’s Balance Sheet Classification of Capital Stock with a Put Option Held by an Employee Stock Ownership Plan(“EITFNo. 89-11”). Accordingly, the shares pledged as collateral are reported as unearned ESOP shares in a contra-temporary equity account in the balance sheets. As shares are committed to be released from collateral, the Company reports compensation expense at the current fair value of the shares, and the shares become outstanding for EPS computations.
 
In 2004, the Company renegotiated the ESOP loan to require interest only payments for the third and fourth quarters of 2004. In December 2004, the Company repaid the ESOP loan and issued a new loan agreement between the Company and the KSOP, thereby extending the allocation of the remaining unreleased shares as of July 1, 2004 through 2013.
 
In 2005, the Company established the ISO Profit Sharing Plan (the “Profit Sharing Plan”), a defined contribution plan, to replace the pension plan for all eligible employees hired on or after March 1, 2005. The Profit Sharing Plan is a component of the KSOP. Eligible employees will participate in the Profit Sharing Plan if they complete 1,000 hours of service each plan year and are employed on December 31 of that year. The Company will make an annual contribution to the Profit Sharing Plan based on the Company’s performance. Participants vest once they have completed four years and 1,000 hours of service. In 2007 and 2008, the profit sharing contribution was funded using Class A common stock. In 2005 and 2006, compensation expense related to the Profit Sharing Plan amounted to $99 and $393 respectively, and was contributed to the KSOP in the form of cash.


F-71


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The KSOP shares as of December 31, were as follows:
 
                
 2006 2007  2007 2008 
Shares released for ESOP allocation  848,730   865,166   865,166   879,948 
Shares released for 401(k) matching  125,670   135,382 
Shares released for 401(k) match  135,382   145,205 
Shares released for the Profit Sharing Plan     860   860   2,327 
Unreleased shares  169,400   142,392   142,392   116,320 
          
Total KSOP shares  1,143,800   1,143,800   1,143,800   1,143,800 
          
Fair value of unreleased shares $127,897  $122,742  $122,742  $90,497 
          
 
The fair value of the Class A shares is determined quarterly as determined for purposes of the KSOP. Upon retirement or termination under the terms of the KSOP, an eligible participant may require the Company to repurchase vested shares based on the then current fair value of the Class A shares. At December 31, 20062007 and 2007,2008, the appraised fair value was $755$862 and $862$778 per share, respectively. KSOP compensation expense for 2005, 2006, 2007 and 20072008 was approximately $13,793, $18,779, $22,247 and $22,247,$22,274, respectively. At December 31, 2006, the Company pre-funded anticipated KSOP share redemptions and recorded a prepaid asset in the consolidated balance sheets of $2,643.


F-63


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Stock Option Plan
 
TheDuring 1998, the Company adopted the Insurance Services Office, Inc. 1996 Incentive Plan (the “Option Plan”). The Option Plan provides for the granting of options to key employees and directors of the Company. Options granted have varying exercisevesting dates within four years after grant date and expire after ten years. SharesStock obtained through the exercise of stock options that are held by the employee for more than six months and one day may be put to the Company and redeemed at the then current fair value of the Class A shares.common stock. For options granted in 2002 through 2004, the Company has the ability to defer the redemption for one year. For options granted after 2004, the Company has the ability to defer the redemption for up to two years. In 2005, stock options granted had an exercise price in excess ofDuring the fair value of the stock on the grant date. In 2006years ended December 31, 2007 and 2007,2008, stock options granted had an exercise price equal to the fair value of the Class A common stock on the grant date.date of grant. There wereare 1,992,795 shares of Class A common stock approved for issuance under the plan, of which up to 62,800, 60,000 and 75,00012,053 options to purchase shares were authorized for future grants at December 31, 2005, 2006 and 2007, respectively.2008. Cash received from stock option exercises for the years ended December 31, 2005, 2006, 2007 and 20072008 was $213, $271, $389 and $389, respectively.$892.


F-72


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
A summary of options outstanding under the Option Plan as of December 31, 2007,2008, and changes during the three years then ended is presented below:
 
                        
   Weighted
 Aggregate
    Weighted
 Aggregate
 
 Number
 Average
 Intrinsic
  Number
 Average
 Intrinsic
 
 of Options Exercise Price Value  of Options Exercise Price Value 
Outstanding at January 1, 2005  765,800  $135.40  $215,649 
   
Granted  129,303  $431.03     
Exercised  (233,608) $110.96  $70,854 
   
Cancelled or expired  (14,467) $247.07     
   
Outstanding at December 31, 2005  647,028  $200.89  $235,589 
Outstanding at January 1, 2006  647,028  $200.89  $235,589 
      
Granted  69,441  $586.53       69,441  $586.53     
Exercised  (179,967) $144.16  $81,516   (179,967) $144.16  $81,516 
      
Cancelled or expired  (12,734) $360.11       (12,734) $360.11     
      
Outstanding at December 31, 2006  523,768  $267.64  $255,264   523,768  $267.64  $255,264 
      
Granted  55,979  $760.35       55,979  $760.35     
Exercised  (72,083) $257.46  $36,655   (72,083) $257.46  $36,655 
      
Cancelled or expired  (10,911) $458.18       (10,911) $458.18     
      
Outstanding at December 31, 2007  496,753  $320.46  $269,012   496,753  $320.46  $269,012 
        
Granted  62,947  $864.84     
Exercised  (85,256) $297.05  $48,399 
   
Cancelled or expired  (11,299) $704.11     
   
Outstanding at December 31, 2008  463,145  $389.39  $179,981 
     
Options exercisable at December 31, 2008  328,994  $253.95  $172,408 
     
Options exercisable at December 31, 2007  329,503  $208.35  $215,380   329,503  $208.35  $215,380 
          
Options exercisable at December 31, 2006  287,617  $179.04  $165,656 
     


F-64


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
A summary of the status of the Company’s nonvested options as of December 31, 20062007 and 2007,2008, and changes during the three years ended December 31, 2005, 2006, 2007 and 2007,2008, is presented below:
 
                
   Weighted
    Weighted
 
   Average
    Average
 
 Number
 Grant-Date
  Number
 Grant-Date
 
 of Options Fair Value  of Options Fair Value 
Nonvested balance at January 1, 2005  449,486  $42.71 
Granted  129,303  $103.94 
Vested  (248,810) $51.18 
Cancelled or expired  (14,467) $53.39 
     
Nonvested balance at December 31, 2005  315,512  $60.63 
     
Nonvested balance at January 1, 2006  315,512  $60.63 
Granted  69,441  $167.49   69,441  $166.25 
Vested  (136,068) $54.86   (136,068) $54.86 
Cancelled or expired  (12,734) $89.34   (12,734) $89.34 
          
Nonvested balance at December 31, 2006  236,151  $93.83   236,151  $93.83 
          
Granted  55,979  $210.69   55,979  $210.69 
Vested  (113,969) $76.89   (113,969) $76.89 
Cancelled or expired  (10,911) $117.45   (10,911) $117.45 
          
Nonvested balance at December 31, 2007  167,250  $142.94   167,250  $142.94 
          
Granted  62,947  $206.68 
Vested  (84,747) $123.87 
Cancelled or expired  (11,299) $184.97 
     
Nonvested balance at December 31, 2008  134,151  $220.60 
     


F-73


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
As of December 31, 2007,2008, there was $18,336$19,543 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Option Plan. That cost is expected to be recognized over a weighted-average period of 2.442.09 years. As of December 31, 2007,2008, there are 167,250134,151 nonvested stock options of which 157,485123,038 are expected to vest. The total grant date fair value of shares vested during the years ended December 31, 2005, 2006, 2007 and 20072008 was $12,734, $7,465, $8,763 and $8,763,$11,803, respectively.
 
Exercise prices for options outstanding and exercisable at December 31, 20072008 ranged from $71$92 to $836$892 as outlined in the following table:
 
                        
                         Options Outstanding Options Exercisable 
 Options Outstanding Options Exercisable        Weighted-
     
 Weighted-
     Weighted-
      Weighted-
   Weighted-
 Average
   Weighted-
 
 Average
 Stock
 Weighted-
 Average
 Stock
 Weighted-
  Average
 Stock
 Average
 Remaining
 Stock
 Average
 
Range of
 Remaining
 Options
 Average
 Remaining
 Options
 Average
  Remaining
 Options
 Exercise
 Contractual
 Options
 Exercise
 
Exercise Prices
 Contractual Life Outstanding Exercise Price Contractual Life Exercisable Exercise Price  Contractual Life Outstanding Price Life Exercisable Price 
$ 71 to $110  2.9   97,260  $104.45   2.9   97,260  $104.45 
$111 to $144  5.2   53,460  $142.01   5.2   53,460  $142.01 
$145 to $231  5.5   135,117  $186.53   5.3   109,967  $176.36 
$92 to $110  1.7   72,329  $107.24   1.7   72,329  $107.24 
$111 to $148  4.1   45,102  $141.89   4.1   45,102  $141.89 
$149 to $231  4.4   113,250  $179.99   4.4   113,250  $179.99 
$232 to $445  7.3   101,504  $418.50   7.3   53,369  $408.19   6.3   88,150  $415.70   6.3   66,260  $411.23 
$446 to $681  8.2   54,337  $586.88   8.3   13,776  $607.84   7.3   41,396  $593.97   7.3   20,411  $612.91 
$682 to $836  9.1   55,075  $760.11   9.4   1,671  $807.89 
$682 to $892  8.8   102,918  $821.75   8.4   11,642  $794.60 
          
      496,753           329,503           463,145           328,994     
          
During the twelve months ended December 31, 2008, the Company granted the following stock options with exercise prices and Black-Scholes values as follows:
                 
  Number of
  Fair Value
     Black-Scholes
 
  Stock Options
  of Common
  Exercise
  Value of
 
Grant Dates
 Granted  Stock(1)  Price  Options 
 
March 1, 2008  56,990  $862.00  $862.00  $204.72 
July 1, 2008  5,357  $892.00  $892.00  $223.56 
July 1, 2008  600  $892.00  $892.00  $241.85 
(1)The fair value of these shares is the current valuation in effect for the KSOP. This fair value is also utilized for all Class A share transactions for the Insurance Services Office, Inc. 1996 Incentive Plan.
 
Performance Based Appreciation Awards
 
In connection with the Company’s acquisition of Applied Insurance Research Inc., Intellicorp, Ltd, AscendantOne, Inc, DxCG, Appintelligence and Sysdome, the Company issued performance based appreciation awards to key employees of these companies. These awards represent the right to receive cash equal to an


F-65


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
amount by which each company’s award unit value exceeds the award unit value on the date of grant. Performance is measured on income from continuing operations before investment expense and interest income, income taxes, depreciation and amortization (“EBITDA”). Each company’s award unit value is based on a multiple of EBITDA. Units granted prior to December 31, 2004 vest at 25% per year and expire after ten years. Units granted after December 31, 2004 vest at 25% per year and expire after four years. In 2005, 2006, 2007 and 2007,2008, compensation expense related to these units amounted to $721, $1,360, $2,296 and $2,296,$(117), respectively. There were no redemptions in 2005, two redemptions in 2006 totaling $59, and four redemptions in 2007 totaling $342.$342 and three redemptions in 2008 totaling $858. The liability for these performance based awards of $2,183$4,137 and $4,137$3,162 at December 31, 20062007 and 2007,2008, respectively, is included in accounts payable and accrued liabilities.


F-74


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Phantom ESOP Plan
 
In 2001, the Company established the ISO Phantom ESOP (“phantom ESOP”) for eligible employees of the Company’s foreign subsidiaries. Eligible employees will participate in the phantom ESOP if they complete 1,000 hours of service each plan year and are employed on December 31 of that year. The Company provides annual contributions to eligible participants in notional shares based on the value of ISO Class A common stock. Participants vest once they have completed four years and 1,000 hours of service. In 2005, 2006, 2007 and 2007,2008, compensation expense related to the phantom ESOP amounted to $601, $608, $228 and $228,$26, respectively. A phantom ESOP liability of $2,153$1,785 and $1,785$1,732 at December 31, 20062007 and 2007,2008, respectively, is included in accounts payable and accrued liabilities.
 
17.18.  Pension and Postretirement Benefits:
 
Prior to January 1, 2002, the Company maintained a qualified defined benefit pension plan for substantially all of its employees through membership in the Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. The Company has applied the projected unit credit cost method for its pension plan, which attributes an equal portion of total projected benefits to each year of employee service. Effective January 1, 2002, the Company amended the Pension Plan to determine future benefits using a cash balance formula. Under the cash balance formula, each participant has an account, which is credited annually based on salary rates determined by years of service, as well as the interest earned on their previous year endyear-end cash balance. Prior to December 31, 2001, pension plan benefits were based on years of service and the average of the five highest consecutive years’ earnings of the last ten years. Effective March 1, 2005, the Company established the Profit Sharing Plan, a defined contribution plan, to replace the Pension Plan for all eligible employees hired on or after March 1, 2005. The Company also has a non-qualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from the general assets of the Company. The SERP liability of $190 and $10,333 is included in short-term pension and postretirement benefits and pension benefits, respectively at December 31, 2007.
 
The Pension Plan’s funding policy is to contribute annually at an amount between the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974 and the maximum amount that can be deducted for federal income tax purposes. The Company contributed $167, $224, $178 and $178$542 to the SERP in 2005, 2006, 2007 and 2007,2008, respectively, and expects to contribute $339$572 in 2008. There was no2009. The minimum required funding for the Pension Plan for the years ended December 31, 2006, 2007 and 2007.2008 were $0, $0 and $5,029, respectively. The Company expects to contribute $5,500$5,471 to the Pension Plan in 2008.2009.
 
The Pension Plan assets consist primarily of investments in various fixed income and equity funds. Investment guidelines are established with each investment manager. These guidelines provide the parameters within which the investment managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements and credit quality standards, where applicable. Investment managers are prohibited from entering into any speculative hedging transactions. The investment objective is to achieve a maximum total return with strong emphasis on preservation of capital in real terms. The domestic equity


F-66


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
portion of the total portfolio should range between 40% and 60%. The international equity portion of the total portfolio should range between 10% and 20%. The fixed income portion of the total portfolio should range between 20% and 40%. The asset allocation at December 31, 20062007 and 2007,2008, and target allocation for 20082009 by asset category are as follows:
 
                        
 Percentage of Plan Assets Target
  Target
 Percentage of Plan Assets 
Asset Category
 2006 2007 Allocation  Allocation 2007 2008 
Equity securities  62%  62%  60%  60%  62%  51%
Debt securities  36%  36%  40%  40%  36%  46%
Other  2%  2%  0%  0%  2%  3%
              
Total  100%  100%  100%  100%  100%  100%


F-75


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The expected rate of return on plan assets for 20062007 and 20072008 of 8.25% is determined by examining expected long term rates of return for each asset class.
 
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.
As discussed The Company expects to contribute $4,987 to the Postretirement Plan in “Note 2 — Basis of Presentation and Summary of Significant Accounting Policies,” the Company adopted FAS No. 158 as of December 31, 2006. FAS No. 158 requires the recognition of the funded status of a benefit plan pension and other post retirement benefit in the balance sheet; the recognition in other comprehensive income of gains or losses and prior service costs or credits arising during the period, but which are not included as components of periodic benefit cost and the measurement of defined benefit plan assets and obligations as of the balance sheet date. Additional minimum pension liabilities were derecognized upon adoption. The adoption of FAS No. 158 affected the consolidated balance sheet as follows:
     
  December 31, 2006 
 
Decrease in accrued and minimum pension liability $1,687 
Increase in postretirement benefits obligations — current  (4,070)
Decrease in postretirement benefits obligations — noncurrent  679 
Increase in pension benefits obligation  (23,248)
     
Increase in accumulated other comprehensive loss, pre-tax  (24,952)
Increase in deferred income tax  9,317 
     
Increase in accumulated other comprehensive loss, net of tax $(15,635)
     


F-67


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)2009.
 
The following tables set forth the changes in the benefit obligations and the plan assets, the unfunded status of the Pension Plan and Postretirement Plan, and the amounts recognized in the Company’s consolidated balance sheets at December 31:
 
                                
 Pension Plan Postretirement Plan  Pension Plan Postretirement Plan 
 2006 2007 2006 2007  2007 2008 2007 2008 
Change in benefit obligation:                                
Benefit obligation at beginning of year $373,375  $373,674  $32,561  $30,595  $373,674  $363,840  $30,595  $28,340 
Service cost  8,464   8,152   5      8,152   7,789       
Interest cost  20,054   20,952   1,716   1,669   20,952   21,698   1,669   1,689 
Actuarial (gain) loss  (8,612)  (15,934)  (476)  441 
Actuarial (gain)/loss  (15,934)  (4,869)  441   2,650 
Plan participants’ contributions        1,894   2,227         2,227   2,738 
Benefits paid  (19,607)  (23,004)  (5,497)  (6,936)  (23,004)  (21,537)  (6,936)  (6,777)
Federal subsidy on benefits paid        392   344         344    
                  
Benefit obligation at end of year $373,674  $363,840  $30,595  $28,340  $363,840  $366,921  $28,340  $28,640 
                  
Accumulated benefit obligation at end of year $350,378  $341,829          $341,829  $356,622         
          
Weighted-average assumptions as of December 31, used to determine benefit obligation:                                
Discount rate  5.75%  6.25%  5.75%  5.75%  6.25%  6.00%  5.75%  6.00%
Rate of compensation increase  3.75%  4.25%  N/A   N/A   4.25%  4.00%  N/A   N/A 
Change in plan assets:                                
Fair value of plan assets at beginning of year $338,338  $344,235  $  $  $344,235  $346,013  $  $ 
Actual return on plan assets, net of expenses  25,280   24,604         24,604   (97,595)      
Employer contributions  224   178   3,211   4,365   178   5,571   4,365   4,039 
Plan participants’ contributions        1,894   2,227         2,227   2,738 
Benefits paid  (19,607)  (23,004)  (5,497)  (6,936)  (23,004)  (21,537)  (6,936)  (6,777)
Subsidies received/receivable        392   344         344    
                  
Fair value of plan assets at end of year $344,235  $346,013  $  $  $346,013  $232,452  $  $ 
                  
Unfunded status at end of year $(29,439) $(17,827) $(30,595) $(28,340) $17,827  $134,469  $28,340  $28,640 
                  


F-76


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The pre-tax components affecting accumulated other comprehensive loss as of December 31, 20062007 and 20072008 are summarized below:
 
                                
 Pension Plan Postretirement Plan  Pension Plan Postretirement Plan 
 2006 2007 2006 2007  2007 2008 2007 2008 
Transition obligation $  $  $997  $831  $  $  $831  $665 
Prior service benefit  (4,918) $(4,117)    $   (4,117)  (3,316)       
Actuarial losses  28,166   14,515   2,394   2,833   14,515   134,183   2,833   5,244 
                  
Accumulated other comprehensive loss, pretax $23,248  $10,398  $3,391  $3,664  $10,398  $130,867  $3,664  $5,909 
                  


F-68


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The components of net periodic benefit cost and the amounts recognized in other comprehensive (gains)/losses are summarized below for the years ended December 31, 2005, 2006, 2007 and 2007:2008:
 
                         
  Pension Plan  Postretirement Plan 
  2005  2006  2007  2005  2006  2007 
 
Service cost $8,413  $8,464  $8,152  $18  $5  $ 
Interest cost  19,755   20,054   20,952   1,866   1,716   1,669 
Amortization of transition obligation           166   166   166 
Recognized net actuarial loss           21   4   2 
Expected return on plan assets  (27,219)  (26,430)  (27,458)         
Amortization of prior service cost  (801)  (801)  (801)         
Amortization of net actuarial loss  607   901   572          
                         
Net periodic expense $755  $2,188  $1,417  $2,071  $1,891  $1,837 
                         
The amounts recognized in other comprehensive income at December 31, 2005, 2006 and 2007 are summarized below:
                         
  Pension Plan  Postretirement Plan 
  2005  2006  2007  2005  2006  2007 
 
Transition obligation  N/A   N/A  $   N/A   N/A  $(166)
Amortization of actuarial (gains) losses  N/A   N/A   (572)  N/A   N/A    
Amortization of prior service benefit  N/A   N/A   801   N/A   N/A    
Actuarial (gains) losses  N/A   N/A   (13,079)  N/A   N/A   439 
                         
Total recognized in other comprehensive income  N/A   N/A   (12,850)  N/A   N/A   273 
                         
Total recognized in net periodic expense and other comprehensive income $755  $2,188  $(11,433) $2,071  $1,891  $2,110 
                         
                         
  Pension Plan  Postretirement Plan 
  2006  2007  2008  2006  2007  2008 
 
Service cost $8,464  $8,152  $7,789  $5  $  $ 
Interest cost  20,054   20,952   21,698   1,716   1,669   1,689 
Amortization of transition obligation           166   166   166 
Recognized net actuarial loss           4   2   241 
Expected return on plan assets  (26,430)  (27,458)  (27,441)         
Amortization of prior service cost  (801)  (801)  (801)         
Amortization of net actuarial loss  901   572   499          
                         
Net periodic benefit cost $2,188  $1,417  $1,744  $1,891  $1,837  $2,096 
Transition obligation  N/A  $  $   N/A  $(166) $(166)
Amortization of actuarial gains  N/A   (572)  (499)  N/A       
Amortization of prior service benefit  N/A   801   801   N/A       
Actuarial (gains)/losses  N/A   (13,079)  120,167   N/A   439   2,411 
                         
Total recognized in other comprehensive (gains)/losses  N/A   (12,850)  120,469   N/A   273   2,245 
                         
Total recognized in net periodic cost and other comprehensive losses /(gains) $2,188  $(11,433) $122,213  $1,891  $2,110  $4,341 
                         
 
The estimated amounts in accumulated other comprehensive loss that is expected to be recognized as components of net periodic benefit cost (credit) during 20082009 are summarized below:
 
                        
 Pension
 Postretirement
    Pension
 Postretirement
   
 Plan Plan Total  Plan Plan Total 
Transition obligation $  $166  $166  $  $166  $166 
Prior service benefit  (801)     (801)  (801)     (801)
Actuarial losses  470      470   10,506   180   10,686 
              
Total $(331) $166  $(165) $9,705  $346  $10,051 
              


F-69F-77


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The weighted-average assumptions as of January 1, 2005, 2006, 2007 and 20072008 used to determine net periodic benefit cost and the amount recognized in the accompanying consolidated balance sheets are provided below:
 
                                              
 Pension Plan Postretirement Plan  Pension Plan Postretirement Plan 
 2005 2006 2007 2005 2006 2007  2006 2007 2008 2006 2007 2008 
Weighted-average assumptions as of January 1, used to determine net benefit cost:                                                
Discount rate  5.75%  5.50%  5.75%  5.75%  5.50%  5.75%  5.50%  5.75%  6.25%  5.50%  5.75%  5.75%
Expected return on plan assets  8.50%  8.25%  8.25%  N/A   N/A   N/A   8.25%  8.25%  8.25%  N/A   N/A   N/A 
Rate of compensation increase  3.75%  3.75%  3.75%  N/A   N/A   N/A   3.75%  3.75%  4.25%  N/A   N/A   N/A 
Amounts recognized in the consolidated balance sheets consist of:                                                
Short-term accrued benefit liability     $(254) $(190)     $(4,070) $(4,446)
Accrued benefit liability      (29,185)  (17,637)      (26,525)  (23,894)
Pension and postretirement benefits, current $254  $190  $555  $4,070  $4,446  $4,842 
Pension and postretirement benefits, noncurrent  29,185   17,637   133,914   26,525   23,894   23,798 
                      
Total accrued benefit liability     $(29,439) $(17,827)     $(30,595) $(28,340)
Total pension and postretirement benefits $29,439  $17,827  $134,469  $30,595  $28,340  $28,640 
                      
 
The following table presents the estimated future benefit payments for the respective plans. The future benefit payments for the postretirement plan are net of the federal Medicare subsidy.
 
                
 Pension
 Postretirement
  Pension
 Postretirement
 
 Plan Plan  Plan Plan 
2008 $22,139  $4,574 
2009 $23,051  $4,368  $23,634  $4,987 
2010 $24,184  $4,062  $24,352  $4,709 
2011 $25,522  $3,722  $25,410  $4,382 
2012 $26,998  $3,291  $26,458  $3,943 
2013-2017 $164,039  $11,156 
2013 $28,114  $3,487 
2014-2018 $159,723  $11,186 
 
The healthcare cost trend rate for 20072008 was 11%10% gradually decreasing to 5% in 2013.2018. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plan. A 1% change in assumed healthcare cost trend rates would have the following effects:
 
                
 1% Decrease 1% Increase  1% Decrease 1% Increase 
Effect on total of service and interest cost components of net periodic postretirement healthcare benefit cost $(7) $4 
Effect of total service and interest cost components of net periodic postretirement healthcare benefit cost $(63) $59 
          
Effect on the healthcare component of the accumulated postretirement benefit obligation $(136) $76  $(86) $24 
          
 
The expected subsidy from the Medicare Prescription Drug, Improvement and Modernization Act of 2003 reduced the Company’s accumulated postretirement benefit obligation by approximately $11,911$9,500 and $9,500$11,050 as of December 31, 20062007 and 2007,2008, and the net periodic benefit cost by approximately $1,407, $1,315, $946 and $946$1,028 in fiscal 2005, 2006, 2007 and 2007,2008, respectively.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
18.19.  Segment Reporting
 
FAS No. 131,Disclosures About Segments of an Enterprise and Related Information(“FAS No. 131”), establishes standards for reporting information about operating segments. FAS No. 131 requires that a public business enterprise report financial and descriptive information about its reportable operating segments.


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INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Operating segments are components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The Company’s CEO and Chairman of the Board is identified as the chief operating decision maker (“CODM”) as defined by FAS No. 131. To align with the internal management of the Company’s business operations based on product and service offerings, the Company is organized into the following two operating segments:
 
Risk Assessment:  The Company is athe 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.
 
Decision Analytics:  The Company develops solutions that its customers use to analyze the four key processes in managing risk: ‘prediction of loss,’ ‘selection and pricing of risk,’ ‘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 four 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 offer solutions covering natural and man-made risks, including acts of terrorism. The Company also develops solutions that allow customers to quantify costs after loss events occur. Fraud solutions include data on claim histories, analysis of mortgage applications to identify misinformation, analysis of claims to find emerging patterns of fraud and identification of suspicious claims in the insurance, mortgage and healthcare sectors.
 
The two aforementioned operating segments represent the segments for which separate discrete financial information is available and upon which operating results are regularly evaluated by the CODM in order to assess performance and allocate resources. The Company uses segment EBITDA as the profitability measure for making decisions regarding ongoing operations. Segment EBITDA is income from continuing operations before investment income and interest expense, income taxes, depreciation and amortization. Segment EBITDA is used to assess corporate performance and is the measure of operating results and to assess optimal utilization of debt and acquisitions by operating segment. Segment operating expenses consist of direct and indirect costs principally related to personnel, facilities, software license fees, consulting, travel, and third-party information services. Indirect costs are generally allocated to the segments using fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. The Company does not allocate investment income, realized gains/(losses), interest income, interest expense or income tax expense, since these items are not considered in evaluating the segment’s overall operating performance. The CODM does not evaluate the financial performance of each segment based on assets. On a geographic basis, no individual country outside of the United States accounted for 1% or more of the Company’s consolidated revenue for the years ending December 31, 2005, 2006, 2007 or 2007.2008. No individual country outside of the United States accounted for 1% or more of total consolidated long-term assets as of December 31, 20062007 or 2007.2008.


F-71F-79


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
The following table provides the Company’s revenue and operating income performance by reportable segment for the years ended December 31, 2005, 2006, 2007 and 2007,2008, as well as a reconciliation to “Income from continuing operations before income taxes” for all years presented in the accompanying consolidated statements of operations:
 
                        
 2005  2006 
 Risk
 Decision
    Risk
 Decision
   
 Assessment Analytics Total  Assessment Analytics Total 
Revenues $448,875  $196,785  $645,660  $472,634  $257,499  $730,133 
Expenses:                        
Cost of revenues (exclusive of items shown separately below)  191,516   103,395   294,911   203,878   127,926   331,804 
Selling, general, and administrative  61,408   27,315   88,723   65,884   34,240   100,124 
              
Segment EBITDA  195,951   66,075   262,026   202,872   95,333   298,205 
Depreciation and amortization of fixed assets  14,373   7,651   22,024   17,931   10,076   28,007 
Amortization of intangible assets  3,239   16,561   19,800   3,001   23,853   26,854 
              
Operating income  178,339   41,863   220,202   181,940   61,404   243,344 
              
Unallocated expenses:                        
Investment income          2,919           6,585 
Realized gains on securities, net          27 
Realized losses on securities, net          (375)
Interest expense          (10,465)          (16,668)
Other expense          (14)          (109)
      
Consolidated income from continuing operations before income taxes         $212,669          $232,777 
      
Capital expenditures $15,667  $8,352  $24,019  $11,753  $13,989  $25,742 
              
 
             
  2007 
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Revenues $485,160  $317,035  $802,195 
Expenses:            
Cost of revenues (exclusive of items shown separately below)  204,182   153,009   357,191 
Selling, general, and administrative  68,198   39,378   107,576 
             
Segment EBITDA  212,780   124,648   337,428 
Depreciation and amortization of fixed assets  19,397   12,348   31,745 
Amortization of intangible assets  1,047   32,869   33,916 
             
Operating income  192,336   79,431   271,767 
             
Unallocated expenses:            
Investment income          8,442 
Realized gains on securities, net          857 
Interest expense          (22,928)
Other expense          9 
             
Consolidated income from continuing operations before income taxes         $258,147 
             
Capital expenditures $33,059  $14,124  $47,183 
             


F-72F-80


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
             
  2006 
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Revenues $472,634  $257,499  $730,133 
Expenses:            
Cost of revenues (exclusive of items shown separately below)  203,878   127,926   331,804 
Selling, general, and administrative  65,884   34,240   100,124 
             
Segment EBITDA  202,872   95,333   298,205 
Depreciation and amortization of fixed assets  17,931   10,076   28,007 
Amortization of intangible assets  3,001   23,853   26,854 
             
Operating income  181,940   61,404   243,344 
             
Unallocated expenses:            
Investment income          6,585 
Realized losses on securities, net          (375)
Interest expense          (16,668)
Other expense          (109)
             
Consolidated income from continuing operations before income taxes         $232,777 
             
Capital expenditures $11,753  $13,989  $25,742 
             
             
  2007 
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Revenues $485,160  $317,035  $802,195 
Expenses:            
Cost of revenues (exclusive of items shown separately below)  204,182   153,009   357,191 
Selling, general, and administrative  68,198   39,378   107,576 
             
Segment EBITDA  212,780   124,648   337,428 
Depreciation and amortization of fixed assets  19,397   12,348   31,745 
Amortization of intangible assets  1,047   32,869   33,916 
             
Operating income  192,336   79,431   271,767 
             
Unallocated expenses:            
Investment income          8,442 
Realized gains on securities, net          857 
Interest expense          (22,928)
Other income          9 
             
Consolidated income from continuing operations before income taxes         $258,147 
             
Capital expenditures $20,258  $12,683  $32,941 
             

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INSURANCE SERVICES OFFICE, INC.
 
             
  2008 
  Risk
  Decision
    
  Assessment  Analytics  Total 
 
Revenues $504,391  $389,159  $893,550 
Expenses:            
Cost of revenues (exclusive of items shown separately below)  199,872   187,025   386,897 
Selling, general, and administrative  81,813   49,426   131,239 
             
Segment EBITDA  222,706   152,708   375,414 
Depreciation and amortization of fixed assets  19,447   15,870   35,317 
Amortization of intangible assets  806   28,749   29,555 
             
Operating income  202,453   108,089   310,542 
             
Unallocated expenses:            
Investment income          2,233 
Realized losses on securities, net          (2,511)
Interest expense          (31,316)
Other income          (49)
             
Consolidated income from continuing operations before income taxes         $278,899 
             
Capital expenditures $12,598  $20,664  $33,262 
             
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Operating segment revenue by type of service is provided below:
 
                        
 For the Years Ended December 31,  For the Years Ended December 31, 
 2005 2006 2007  2006 2007 2008 
Risk Assessment                        
Subscription services $343,899  $361,382  $389,344 
Transaction-based services  104,976   111,252   95,816 
Industry standard insurance programs $303,957  $311,087  $329,858 
Property-specific rating and underwriting information  123,627   126,291   125,835 
Statistical agency and data services  25,793   27,282   27,451 
Actuarial services  19,257   20,500   21,247 
              
Total Risk Assessment  448,875   472,634   485,160   472,634   485,160   504,391 
              
Decision Analytics                        
Fraud identification and detection solutions  143,258   168,189   172,726   168,189   172,726   213,994 
Loss prediction solutions  53,527   67,129   81,110   67,129   81,110   95,128 
Loss quantification solutions     22,181   63,199   22,181   63,199   80,037 
              
Total Decision Analytics  196,785   257,499   317,035   257,499   317,035   389,159 
              
Total consolidated revenues $645,660  $730,133  $802,195  $730,133  $802,195  $893,550 
              
 
19.20.  Related Parties:
 
The Company considers its Class A and Class B stockholders that own more than 5% of the outstanding stock within the respective class to be related parties as defined within FAS No. 57,Related Party Disclosures.Disclosures. At December 31, 2007,2008, there were sixseven Class B stockholders each owning more than 5% of the


F-81


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
outstanding Class B shares. Two of these sixseven Class B stockholders have employees that serve on the Company’s board of directors.
 
The Company incurred expenses associated with the payment of insurance coverage premiums to certain of the largest stockholders aggregating $1,911, $487, $827 and $827$992 in 2005, 2006, 2007, and 2007,2008, respectively. These expenses are included in cost of revenues and selling, general and administrative in the consolidated statements of operations.
 
At December 31, 2007, there were three Class A stockholders each owning2008, the ESOP owns more than 5% of the outstanding Class A shares. One of these stockholders had total indebtedness to the Company of $10,588 at December 31, 2007. This indebtedness was repaid subsequent to December 31, 2007. Another of these stockholders is the ESOP. As discussed in Note 16,15, in December 2004, the Company repaid the prior ESOP loan with an unrelated third party and entered into a loan agreement with the KSOP, which requires quarterly payments through December 31, 2013. As debt is repaid, shares are released to the ESOP to fund 401(k) matching and profit sharing contributions and the remainder is allocated annually to active employees in proportion to their eligible compensation in relation to total participant eligible compensation.


F-74


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
20.21.  Commitments and Contingencies:
 
The Company’s operations are conducted on leased premises. Approximate minimum rentals under long-term noncancelable leases for all leased premises, computer equipment and automobiles are as follows:
 
                   
 Operating
 Capital
    Operating
 Capital
 
Years Ending
 Leases Leases    Leases Leases 
2008 $19,285  $4,818     
2009  18,900   4,136      $20,554  $5,315 
2010  18,215   3,283       20,127   4,418 
2011  18,250   164       19,587   382 
2012  17,312          18,470   47 
2013-2017  75,445        
2018-2022  42,002        
2013  17,704    
2014-2018  71,987    
2019-2023  31,233    
          
Net minimum lease payments $209,409  $12,401      $199,662  $10,162 
      
Less amount representing interest      (694)          381 
      
Present value of net minimum lease capital payments     $11,707          $9,781 
      
 
Most of the leases require payment of property taxes and utilities and, in certain cases, contain renewal options. Operating leases consist of office space. Capital leases consist of computer equipment, office equipment, and leased automobiles. Rent expense on operating leases approximated $19,083, $19,258, $19,833 and $19,833$21,261 in 2005, 2006, 2007 and 2007,2008, respectively.
 
In addition, the Company is a party to legal proceedings with respect to a variety of matters in the ordinary course of business. Including those matters described below, the Company is unable, at the present time, to determine the ultimate resolution of or provide a reasonable estimate of the range of possible loss attributable to these matters or the impact they may have on the Company’s results of operations, financial position, or cash flows. This is primarily because many of these cases remain in their early stages and only limited discovery has taken place. Although the Company believes it has strong defenses for the litigationslitigation proceedings described below, the Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations, financial position or cash flows.


F-82


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Claims Outcome Advisor Litigation
 
Hensley, et al. v. Computer Sciences Corporationet al.is a putative nationwide class action complaint, filed in February 2005, in Miller County, Arkansas state court. Defendants include numerous insurance companies and providers of software products used by insurers in paying claims. The Company is among the named defendants. Plaintiffs allege that certain software products, including the Company’s Claims Outcome Advisor product and a competing software product sold by Computer Sciences Corporation, improperly estimated the amount to be paid by insurers to their policyholders in connection with claims for bodily injuries. The parties to this case are currently engaged in fact and class certification discovery.
 
The Company has entered into settlement agreements with plaintiffs asserting claims relating to the use of Claims Outcome Advisor by defendants Hanover Insurance Group, Progressive Car Insurance, and Liberty Mutual Insurance Group. Each of these settlements has beenwas granted final approval by the court and together theythe settlements resolve the claims asserted in this case against the Company with respect to the above insurance companies, who settled the claims against them as well. A provision was made in the 2006 financials for this proceeding and the total amount the Company paid in 2008 with respect to these settlements was less than $2,000. A fourth defendant, The Automobile Club of California, thatwhich is alleged to have used Claims Outcome Advisor


F-75


INSURANCE SERVICES OFFICE, INC. was dismissed from the action. On August 18, 2008, pursuant to the agreement of the parties the Court ordered that the claims against the Company be dismissed with prejudice.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Hanover Insurance Group has not settled. Plaintiffs have agreedmade a demand for reimbursement, pursuant to dismissan indemnification provision contained in a December 30, 2004 License Agreement between Hanover and the Company, fromof its settlement and defense costs in the case with prejudice onceHensley class action. Specifically, Hanover has demanded $2,536 including $600 in attorneys’ fees and expenses. The Company disputes that Hanover is entitled to any reimbursement pursuant to the License Agreement. The Company and Hanover have entered into a discoverytolling agreement in order to allow the parties time to resolve the dispute relating to certain documents is resolved.without litigation.
 
Xactware Litigation
 
ThreeThe following two lawsuits have been filed by or on behalf of groups of Louisiana insurance policyholders who claim, among other things, that certain insurers who used products and price information supplied by the Company’s Xactware subsidiary (and those of another provider) did not fully compensate policyholders for property damage covered under their insurance policies. The plaintiffs seek to recover compensation for their damages in an amount equal to the difference between the amount paid by the defendants and the fair market repair/restoration costs of their damaged property.
 
Schafer v. State Farm Fire & Cas. Co., et al. is a putative class action pending against the Company and State Farm Fire & Casualty Company filed in March 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. The court dismissed the antitrust claim as to both defendants and dismissed all claims against the Company other than fraud, which will proceed to the discovery phase along with the remaining claims against State Farm. Plaintiffs have moved to certify a class with respect to the fraud and breach of contract claims.claims which the defendants have opposed. The class certification hearing was held on April 8, 2009 and the parties are awaiting the court’s decision.
 
Mornay v. Travelers Ins. Co., et al. is a putative class action pending against the Company and Travelers Insurance Company filed in November 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. As in Schafer, the court dismissed the antitrust claim as to both defendants and dismissed all claims against the Company other than fraud. The court has stayed all proceedings in the case pending resolutionan appraisal of a contractual appraisal proceeding to resolve any dispute as to whether the named plaintiffs received the amount to which they were entitled under theirlead plaintiff’s insurance policy.claim.
 
The third lawsuit,Louisiana ex rel. Foti v. Allstate Ins. Co.  is a putative parens patriae action filed by the Louisiana Attorney General in November 2007 in Louisiana state court against numerous insurance


F-83


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
companies, the Company, and other solution providers, and consultants. The complaint contains allegations of an antitrust conspiracy among the defendants with respect to the payment of insurance claims for property damage.damage and seeks the forfeiture of any illegal profits and treble damages. Defendants removed the case to the Eastern District of Louisiana. A motion to remand the case to state court was denied by the district court and that denialcourt. That decision was affirmed by the United States Court of Appeals for the Fifth Circuit. Defendants filed a motion to dismiss the case. The Attorney General opposed that motion and filed a motion to sever the case in two parts (one seeking injunctive relief and the other seeking treble damages), and to have portions of the case sent back to Louisiana state court. Defendants opposed that motion and at oral argument on December 17, 2008 the court dismissed all claims against the Company.
 
No provision for losses has been provided in connection withAt this time it is not possible to determine the Xactware Litigation.ultimate resolution of, or estimate the liability related to theSchaferandMornaymatters.
 
iiX Litigation
 
In March 2007, the Company’s Insurance Information Exchange, or iiX, subsidiary, as well as other information providers and insurers in the State of Texas, were served with a summons and class action complaint filed in the United States District Court for the Eastern District of Texas alleging violations of the Driver Privacy Protection Act, (“or the DPPA”).DPPA. Plaintiffs brought the action on their own behalf and on behalf of all similarly situated individuals whose personal information is contained in any motor vehicle record maintained by the State of Texas and who have not provided express consent to the State of Texas for the distribution of their personal information for purposes not enumerated by the DPPA and whose personal information has been knowingly obtained and used by the defendants. The complaint alleges that the defendants knowingly obtained personal information pertaining to class plaintiffs from motor vehicle records maintained by the State of Texas and that the obtaining and use of this personal information was not for a purpose authorized by the DPPA. The complaint seeks liquidated damages in the amount of $3 for each instance of a violation of the DPPA, punitive damages and punitive damages.the destruction of any illegally obtained personal information. The Company has filed aCourt granted iiX’s motion to dismiss the complaint based on failure to state a claim and lack of standing, and a decision on that motion is pending.the plaintiff’s are appealing the dismissal.
 
21.22.  Subsequent Events
 
On June 27, 2008,January 14, 2009, the Company acquired D2Hawkeye (“D2”), a privately-owned provider of information and analytic solutions for the healthcare industry, for a net cash purchase price of $58,946 of which $7,000 is used to fund the indemnity escrows. Founded in 2001 and based in Waltham, Massachusetts, D2’s services include data mining, decision support, clinical quality analysis and risk analysis tools. D2 complements and is integrated within the Company’s stockholders approved certain corporate governance changes necessary to allowDecision Analytics segment.
On January 30, 2009, the Company to proceedentered into a $30,000 revolving credit facility with Wachovia Bank, N.A. that matures on September 30, 2009. This facility is committed with a proposed initial public offering (“IPO”). Immediately priorone time fee of $50 and a fee of 0.25% of the unused portion. Interest is payable at maturity at a rate to be determined at the time of borrowing. Upon maturity of this facility the Company may convert all or a principal portion not less than $1,000 of the aggregate principal balance of revolving credit loans then outstanding into a one year term loan.
23.  Correction of Errors
As a result of a review of the Company’s current taxes receivable as of December 31, 2008 conducted subsequent to the completionissuance of the proposed IPO,2007 consolidated financial statements, it was determined that the Company will undergo a corporate reorganization whereby the Class Afederal and Class B common stockstate taxes receivable at December 31, 2007 was overstated by $7,620, with $5,071 of the overstatement occurring in 2006 and $2,549 in prior periods. The Company will be exchanged byalso corrected certain classifications on the current shareholders forconsolidated balance sheet with respect to gross federal and foreign income taxes receivable and gross state and local income taxes payable as of December 31, 2007. The Company believes that the common stock of Verisk. Verisk, formed on May 23, 2008, was establishedchanges are not material to serve as the parent holding company of Insurance Services Office, Inc. Upon consummation of the IPO, two new series of Class Bconsolidated financial statements.


F-76F-84


 
INSURANCE SERVICES OFFICE, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
 
Common Stock, Class B (Series 1) Common Stock (the “B-1 Common Stock”) and Class B (Series 2) Common Stock (the “B-2 Common Stock”) will be formed and 50 percent of each Class B stockholder’s existing Class B Common Stock will be converted into shares of new B-1 Common Stock and the remaining 50 percent of each Class B stockholder’s existing Class B Common Stock will be converted into shares of new B-2 Common Stock. Each share of Class B (Series 1) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 18 months after the date of the IPO. Each share of Class B (Series 2) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 30 months after the date of the IPO. Only Class A Common Stock, which will not be subject to redemption by Verisk, will be offered to the public. In conjunction with the initial public offering, Verisk plans to effect a stock split of the common stock.
The Company provided full recourse loans to directors and senior management in connection with exercising their stock options. This loan program has been terminated and all of such loans have been repaid.
22.  Correction of an Error
In preparation for the initial public offering, the Company undertook a comprehensive review of its revenue recognition policies. As a result of this review conducted subsequent to issuance of the Company’s 2007 consolidated financial statements, it was decided that the revenue recognition for certain license agreements under the provision of SOP No.97-2 were not correctly applied. As a result, the Company overstated “Revenues” and understated “Fees received in advance” related to these license agreements. The following financial statement line items were impacted by the correctionadjustment in the respective periods presented below:
 
                 
  For the Year Ended December 31, 2005 
     Adjustment for
       
  As Previously
  Discontinued
  Correction
  As
 
Caption of Consolidated Statement of Operations Reported  Operations  of Errors  Corrected 
 
Revenues $651,340  $(4,249) $(1,431) $645,660 
Operating income  218,275   3,358   (1,431)  220,202 
Income from continuing operations before income taxes  210,805   3,295   (1,431)  212,669 
Provision for income taxes  (85,534)  (721)  533   (85,722)
Income from continuing operations  125,271   2,574   (898)  126,947 
Net income  125,271      (898)  124,373 
Basic income per share of Class A and Class B from continuing operations  29.41   0.61   (0.21)  29.81 
Basic net income per share of Class A and Class B  29.41      (0.21)  29.20 
Diluted income per share of Class A and Class B from continuing operations  28.08   0.58   (0.21)  28.45 
Diluted net income per share of Class A and Class B  28.08      (0.21)  27.87 
             
  For the year ended December 31, 2006 
  As Previously
  Correction of
    
Caption of Consolidated Statement of Operations Reported  Error  As Corrected 
  (In thousands, except for share and per share data) 
 
Provision for income taxes $(86,921) $(5,071) $(91,992)
Income from continuing operations  145,856   (5,071)  140,785 
Net income $144,051  $(5,071) $138,980 
Basic income per share of Class A and Class B:            
Income from continuing operations per share $35.31  $(1.23) $34.08 
Net income per share  34.87   (1.23)  33.64 
Diluted income per share of Class A and Class B:            
Income from continuing operations per share $33.85  $(1.13) $32.72 
Net income per share  33.43   (1.13)  32.30 
Weighted average diluted shares outstanding  4,308,976   (6,109)  4,302,867 
 


F-77


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
             
  For the Year Ended December 31, 2006 
  As Previously
  Correction
    
Caption of Consolidated Statement of Operations Reported  of Errors  As Corrected 
 
Revenues $731,636  $(1,503) $730,133 
Operating income  244,847   (1,503)  243,344 
Income from continuing operations before income taxes  234,280   (1,503)  232,777 
Provision for income taxes  (87,498)  577   (86,921)
Income from continuing operations  146,782   (926)  145,856 
Net income  144,977   (926)  144,051 
Basic income per share of Class A and Class B from continuing operations  35.54   (0.23)  35.31 
Basic net income per share of Class A and Class B  35.10   (0.23)  34.87 
Diluted income per share of Class A and Class B from continuing operations  34.07   (0.22)  33.85 
Diluted net income per share of Class A and Class B  33.65   (0.22)  33.43 
                 
  For the year ended December 31, 2006 
  As Previously
  Correction of
       
Caption of Consolidated Statement of Cash Flows Reported  Error  Reclassification (1)  As Corrected 
 
Net income $144,051  $(5,071) $  $138,980 
Federal and state taxes receivable  19,262   5,071   (24,333)   
Federal and foreign income taxes        15,634   15,634 
State and local income taxes        8,699   8,699 
 
                 
  For the Year Ended December 31, 2007 
  As Previously
  Other
  Correction
  As
 
Caption of Consolidated Statement of Operations Reported  Adjustments(1)  of Errors  Corrected 
 
Revenues $803,700  $  $(1,505) $802,195 
Operating income  273,272      (1,505)  271,767 
Income from continuing operations before income taxes  259,652      (1,505)  258,147 
Provision for income taxes  (102,546)  (1,221)  583   (103,184)
Income from continuing operations  157,106   (1,221)  (922)  154,963 
Net income  152,517   (1,221)  (922)  150,374 
Basic income per share of Class A and Class B from continuing operations  39.11   (0.30)  (0.23)  38.58 
Basic net income per share of Class A and Class B  37.97   (0.30)  (0.23)  37.44 
Diluted income per share of Class A and Class B from continuing operations  37.53   (0.28)  (0.22)  37.03 
Diluted net income per share of Class A and Class B  36.43   (0.28)  (0.22)  35.93 
                 
  As of December 31, 2006 
  As Previously
  Other
  Correction
    
Caption of Consolidated Balance Sheet Reported  Adjustments(1)  of Errors  As Corrected 
 
Current deferred income taxes $14,387  $  $4,632  $19,019 
Total current assets  244,361      4,632   248,993 
Deferred income taxes  37,315      (21)  37,294 
Total assets  740,120      4,611   744,731 
Fees received in advance  112,509      11,627   124,136 
Total current liabilities  317,554   254   11,627   329,435 
Total liabilities  723,528      11,627   735,155 
Accumulated other comprehensive loss  (15,996)     (21)  (16,017)
Retained earnings (accumulated deficit)  729,971   (1,180,533)  (6,995)  (457,557)
Total stockholders’ equity (deficit)  16,592   (1,125,933)  (7,016)  (1,116,357)
Total liabilities and stockholders’ deficit  740,120      4,611   744,731 

F-78


INSURANCE SERVICES OFFICE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
                            
 As of December 31, 2007  As of December 31, 2007 
 As Previously
 Other
 Correction
    As Previously
 Correction of
   
Caption of Consolidated Balance Sheet Reported Adjustments(1) of Errors As Corrected  Reported Error As Corrected 
Current deferred income taxes $17,373  $66  $5,215  $22,654 
Federal and state taxes receivable $3,003  $(3,003) $ 
Federal and foreign income taxes receivable     4,561   4,561 
Total current assets  172,741   3,069   5,215   181,025   181,025   1,558   182,583 
Deferred income taxes  37,859   17,756   64   55,679 
Total assets  802,379   20,825   5,279   828,483   828,483   1,558   830,041 
Fees received in advance  114,776      13,131   127,907 
State and local income taxes payable     9,178   9,178 
Total current liabilities  339,566   (6,449)  13,131   346,248   346,248   9,178   355,426 
Total liabilities  807,507   32,385   13,131   853,023   853,023   9,178   862,201 
Accumulated other comprehensive loss  (8,763)     64   (8,699)
Retained earnings (accumulated deficit)  882,488   (1,382,708)  (7,916)  (508,136)
Accumulated deficit  (508,136)  (7,620)  (515,756)
Total stockholders’ deficit  (5,128)  (1,182,748)  (7,852)  (1,195,728)  (1,195,728)  (7,620)  (1,203,348)
Total liabilities and stockholders’ deficit  802,379   20,825   5,279   828,483   828,483   1,558   830,041 
 
 
(1)The “Other Adjustments” were requiredReclassifications have been made to prepare the financial statements for the initial public offering and do not represent a change from non-GAAP or incorrect GAAP to GAAP. These adjustments relatedconform to the adoption2008 presentation within the consolidated statement of FIN No. 48 (See note 11) and the classification of Class A shares as redeemable common stock (See note 14).cash flows.


F-79


Report of Independent Auditors
To the Board of Directors and Stockholders
Xactware, Inc.
We have audited the accompanying consolidated balance sheets of Xactware, Inc. and subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of income, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Xactware, Inc. and subsidiaries at December 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States.
/s/  Ernst & Young LLP
Salt Lake City, Utah
May 5, 2006


F-80


Xactware, Inc.
         
  December 31 
  2005  2004 
Assets
        
Current assets:        
Cash and cash equivalents $12,636,914  $7,560,755 
Marketable securities     58,800 
Accounts receivable, net of allowance of $170,000 and $85,000 in 2005 and 2004, respectively  3,450,648   2,600,970 
Unbilled receivables  117,267   995,062 
Current portion of notes receivable from related parties     99,513 
Prepaid expenses and other current assets  433,839   320,369 
         
Total current assets  16,638,668   11,635,469 
Property and equipment:   ��    
Furniture and fixtures  156,078   174,867 
Computer equipment and software  13,574,229   14,126,285 
Leasehold improvements  316,463   269,461 
Other  228,531   527,499 
         
   14,275,301   15,098,112 
Accumulated depreciation  (9,298,899)  (8,415,292)
         
Net property and equipment  4,976,402   6,682,820 
Long-term portion of notes receivable from related parties  145,320   107,652 
Other non-current assets  368,616   302,892 
         
Total assets $22,129,006  $18,728,833 
         
Liabilities and stockholders’ equity
        
Current liabilities:        
Accounts payable $1,097,437  $832,608 
Accrued compensation  1,884,386   1,628,702 
Other accrued expenses  101,825   35,088 
Deferred revenue  3,822,190   2,394,736 
Current portion of long-term debt     2,003,746 
         
Total current liabilities  6,905,838   6,894,880 
Long-term debt     1,700,243 
         
Total liabilities  6,905,838   8,595,123 
Commitments and contingencies        
Stockholders’ equity
        
Common stock — no par value, 100,000,000 shares authorized; 20,836,870 shares issued and outstanding in 2005 and 2004  304,347   304,347 
Retained earnings  14,918,821   9,829,363 
         
Total stockholders’ equity  15,223,168   10,133,710 
         
Total liabilities and stockholders’ equity $22,129,006  $18,728,833 
         
See accompanying notes.


F-81


Xactware, Inc.
         
  Years Ended December 31 
  2005  2004 
 
Net revenues $41,190,993  $32,700,070 
Cost of revenues  4,964,774   4,307,031 
Research and development expenses  12,133,116   10,617,525 
Sales and marketing expenses  3,387,532   2,566,494 
General and administrative expenses  7,350,424   6,808,460 
         
Total costs and expenses  27,835,846   24,299,510 
         
Income from operations  13,355,147   8,400,560 
Interest expense  (135,013)  (252,524)
Interest and other income  213,228   98,477 
         
Net income $13,433,362  $8,246,513 
         
See accompanying notes.


F-82


Xactware, Inc,
                 
  Common Stock     Total
 
  Number
     Retained
  Stockholders’
 
  of Shares  Amount  Earnings  Equity 
 
Balance at January 1, 2004  20,836,870  $304,347  $7,938,264  $8,242,611 
Distributions paid to stockholders          (6,355,414)  (6,355,414)
Net income          8,246,513   8,246,513 
                 
Balance at December 31, 2004  20,836,870   304,347   9,829,363   10,133,710 
Distributions paid to stockholders        (8,343,904)  (8,343,904)
Net income        13,433,362   13,433,362 
                 
Balance at December 31, 2005  20,836,870  $304,347  $14,918,821  $15,223,168 
                 
See accompanying notes.


F-83


Xactware, Inc.
         
  Years Ended December 31 
  2005  2004 
 
Cash flows from operating activities:        
Net income $13,433,362  $8,246,513 
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation  2,528,710   2,602,690 
Gain (loss) on disposal of assets  37,755   (55)
(Gain) loss on marketable securities  (1,817)  (33,572)
Purchase of marketable securities classified as trading     (37,741)
Proceeds from sale of marketable securities classified as trading  60,617   58,013 
Changes in operating assets and liabilities:        
Accounts receivable  (849,678)  (281,675)
Unbilled Receivables  877,795   (995,062)
Prepaid expenses and other current assets  (113,470)  (19,028)
Other non-current assets  (65,724)  (74,559)
Accounts payable  264,829   (423,275)
Other accrued expenses  66,737   15,558 
Accrued compensation  255,684   242,661 
Deferred revenue  1,427,454   197,181 
         
Net cash provided by operating activities  17,922,254   9,497,649 
Cash flows from investing activities:        
Change in notes receivable from related parties  61,845   52,838 
Purchase of property and equipment  (2,262,854)  (2,588,874)
Proceeds from sale of assets  158,600   1,087 
         
Net cash used in investing activities  (2,042,409)  (2,534,949)
Cash flow from financing activities:        
Proceeds from long-term debt     3,334,739 
Payment on long-term debt  (3,703,989)  (2,655,553)
Distributions paid to stockholders  (7,099,697)  (6,355,414)
         
Net cash used in financing activities  (10,803,686)  (5,676,228)
Net increase in cash and cash equivalents  5,076,159   1,286,472 
         
Cash and cash equivalents at beginning of year  7,560,755   6,274,283 
         
Cash and cash equivalents at end of year $12,636,914  $7,560,755 
         
Noncash and supplemental disclosure of cash flow information:        
Cash paid for interest $135,013  $244,053 
         
Distribution of assets to stockholders $1,244,207    
See accompanying notes.


F-84


Xactware, Inc.
December 31, 2005
1.  Summary of Significant Accounting Policies
Nature of Operations
Founded in 1986, Xactware, Inc. is a privately held technology services company specializing in the property insurance, remodeling, and restoration industries. Xactware’s technology tools include software estimating programs for personal computers as well as powerful online systems for replacement cost calculations, estimate tracking, data trending in real time and multimedia construction training tools.
Consolidation
The consolidated financial statements include the financial statements of the Company and its wholly owned subsidiaries Xactware Business Services, LLC, Xactware Information Services, Inc., iSkills, Inc., Xactnet, Inc., and XactSites, Inc. All intercompany accounts and transactions have been eliminated in consolidation.
Reclassifications
Certain previously reported amounts have been reclassified to conform to the current presentation.
Estimates
The preparation of financial statements in accordance with generally accepted accounting principles requires management to use certain estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported revenues and expenses during the reporting period. Although management believes its estimates are appropriate, changes in assumptions utilized in preparing such estimates could cause these estimates to change in the future.
Revenue Recognition
The Company generates net revenues through software subscriptions, contracted development of software products, automated assignment workflow, online structural value estimates, support and maintenance of software products, and training.
Sales of software licenses not under specific development contracts are recognized upon shipment provided that persuasive evidence of an agreement exists, the fee is fixed or determinable and collectibility is probable. The Company records amounts billed to customers related to shipping as revenue and all expenses related to shipping as a cost of revenues. Software subscriptions and renewals of support and maintenance revenues are deferred and recognized ratably over the contract periods. Transaction fee revenues associated with online structural value estimation and automated assignment workflow are recognized when transactions are completed. Training revenues are recognized when services are provided.
For development contracts involving a significant amount of services related to installation, modification, or customization of the software licensed product, the Company recognizes revenue in accordance with the provisions ofSOP No. 81-1,Accounting for Performance of Construction-Type and Certain Production-Type Contracts(“SOP 81-1”). As prescribed bySOP 81-1, the Company recognizes revenue using the percentage-of-completion method based upon available reliable estimates for the costs and effort necessary to complete the services.


F-85


Xactware, Inc.
Notes to Consolidated Financial Statement — (Continued)
Accounts Receivable
Accounts receivable are stated at cost, net of allowances for doubtful accounts. The Company makes judgments as to its ability to collect outstanding receivables and provides allowances when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. Unbilled receivables result from our recognition of contract revenue in advance of contractual billing or progress billing terms.
Property and Equipment
Property and equipment is stated at cost net of accumulated depreciation. Depreciation is computed using the straight-line method over the useful lives of the related assets. Leasehold improvements are amortized over the term of the lease or the useful life of the improvement, whichever is shorter. Other property and equipment includes recreational property and equipment. Maintenance and repairs that do not extend the life or improve the asset are expensed in the year incurred. Weighted average estimated useful lives are as follows:
Furniture and fixtures7 years
Computer equipment and software5 years
Leasehold improvements13 years
Other14 years
The Company purchased additional recreational property and equipment during the year that had a carrying value of approximately $760,000 when it was distributed to stockholders. The Company distributed recreational property and equipment that had a total carrying value of approximately $1.2 million to its stockholders during 2005.
Research and Development
Research and development expenditures are charged to operations as incurred. SFAS No. 86,Accounting for the Costs of Computer Software to Be Sold, Leased or Otherwise Marketed, requires capitalization of certain software development costs subsequent to the establishment of technological feasibility. Based on the Company’s product development process, technological feasibility is established upon the completion of a working model. For the years ended December 31, 2005 and 2004 costs incurred by the Company between the completion of the working model and the point at which the product is ready for general release have been insignificant. Accordingly, the Company has charged all such costs to research and development expense in the period incurred.
Income Taxes
The Company elects to file its federal and state income tax returns under the provisions of Subchapter S for Federal and Utah Revenue Codes, under which income and losses are passed through to the individual stockholders. Accordingly, no provision has been made for federal or state income taxes in the accompanying financial statements.
Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.


F-86


Xactware, Inc.
Notes to Consolidated Financial Statement — (Continued)
Concentration of Business and Credit Risk
The Company’s revenues are concentrated in the development of software programs for the insurance industry and software sales to insurance agents, independent adjusters, and contractors. Significant technological changes in customer requirements, or the emergence of competitive products with new capabilities or technologies, could adversely affect the Company’s operating results.
During the year ended December 31, 2005, sales to one major customer accounted for approximately $7.2 million or 17% of revenues. During the year ended December 31, 2004, sales to one major customer accounted for approximately $6.0 million or 18% of revenues. At December 31, 2005, two customers accounted for 8% and 6% of total accounts receivable, respectively. At December 31, 2004, two customers accounted for 29% and 12% of total accounts receivable, respectively.
The Company maintains 100% of its cash and cash equivalents in a federally insured bank. The Company’s deposits may at times, exceed federal insurance limits. The Company has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk related to its cash and cash equivalents.
The Company grants credit to substantially all of its customers without requiring collateral. This credit risk is mitigated by the financial stability of its major customers and the Company’s reserves for estimated losses. Historical credit losses have not been significant.
Advertising
Advertising costs are expensed as incurred. Advertising expense for the years ended December 31, 2005 and 2004 were $84,635 and $41,758, respectively. Trade show expenses were $78,878 and $65,402 for 2005 and 2004, respectively.
Stock-Based Compensation
The Company has elected to follow Accounting Principles Board Opinion No. 25,Accounting for Stock Issued to Employees(APB 25) and related Interpretations in accounting for its employee stock options rather than adopting the alternative fair value accounting provided for under SFAS No. 123,Accounting for Stock-based Compensation. Under APB 25, because the exercise price of the Company’s stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized.
Pro forma information regarding the net income effect of issuing stock options is required by SFAS No. 123 as if the Company had accounted for its employee stock options under the fair value method. The Company did not grant any stock options for the years ended December 31, 2005 and 2004.
For purposes of pro forma disclosures, the estimated fair value of the options is amortized over the options’ vesting period. The stock compensation expense included in the pro forma disclosure below reflects the amortization of the estimated fair value of options granted prior to the years ended December 31, 2005 and 2004. The full impact on pro forma net income may not be representative of compensation expense in future years.


F-87


Xactware, Inc.
Notes to Consolidated Financial Statement — (Continued)
The following table illustrates the effect on net loss if the Company had applied the fair-value recognition provisions of SFAS 123 to stock-based employee compensation.
         
  December 31 
  2005  2004 
 
Net income, as reported $13,433,362  $8,246,513 
Less stock compensation expense determined under the fair value method  (16,066)  (17,327)
         
Pro forma net income $13,417,296  $8,229,186 
         
Comprehensive Income
The Company has adopted the provisions of SFAS No. 130,Reporting Comprehensive Income. There are no items of other comprehensive income in any of the periods presented and, therefore, net income equals total comprehensive income for all periods.
Recent Accounting Pronouncements
In December 2004, the FASB issued Statement of Financial Accounting Standards No. 123, as revised,Share-Based Payment(FAS 123R), which requires the cost resulting from all stock-based payment transactions to be recognized in the consolidated financial statements. That cost will be measured based on the fair value of the equity instruments issued. Under FAS 123R, the fair value based method for recognition of compensation expense is required to be applied using the prospective transition method. The Company currently measures compensation expense for stock-based employee and director compensation under the intrinsic value method and, as such, generally recognize no compensation costs for these options. The adoption of FAS 123R is not expected to have a material impact on The Company’s consolidated financial statements. The adoption of FAS 123R is effective for the Company beginning on January 1, 2006.


F-88


Xactware, Inc.
Notes to Consolidated Financial Statement — (Continued)
2.  Notes Receivable from Related Parties
         
  December 31 
  2005  2004 
 
Note receivable from a limited liability corporation owned by the Company’s majority stockholder, unsecured, due in monthly installments of $526, including interest at 10.00%, due July 2006 $  $9,209 
Note receivable from a limited liability corporation owned by the Company’s majority stockholder, unsecured, due in monthly installments of $1,373, including interest at 10.00%, due July 2006     24,040 
Note receivable from a stockholder, unsecured, due in annual installments of $17,751, plus accrued interest at 2.88%, due in April 2005     17,710 
Note receivable from a stockholder, unsecured, due in annual installments of $27,465, plus accrued interest at 2.88%, due in April 2005     27,399 
Note receivable from a related party, unsecured, due in full plus accrued interest at 4% in August 2005     10,000 
Note receivable from a related party, unsecured, due in full plus accrued interest at 4.5% in September 2005     12,000 
Note receivable from a limited liability corporation owned by the Company’s majority stockholder, unsecured, due in monthly installments of $1,461, including interest at 5.44%, due May 2012     106,807 
Note receivable from a related party, unsecured, due in full plus accrued interest at 8.25% in December 2008  20,320    
Note receivable from a related party, unsecured, due in full plus accrued interest at 3.83% in December 2014  125,000    
         
   145,320   207,165 
Current portion     (99,513)
         
  $145,320  $107,652 
         
3.  Marketable Securities
In 2005 and 2004, the Company purchased equity securities classified as trading securities totaling $0 and $37,741, respectively. Also, in 2005 and 2004 the Company sold equity securities classified as trading securities totaling $60,617 and $58,013, respectively. These securities were valued at their fair value at December 31, 2004, based on quoted market prices on a national stock exchange. In accordance with SFAS No. 115,Accounting for Certain Investments in Debt and Equity Securities,unrealized and realized holding gains and losses were included in net income. The Company recognized a gain of $1,817 and $33,572 on the securities in 2005 and 2004 respectively. At December 31, 2004, $2,859 of the gain relates to trading securities held by the Company. The Company sold its remaining equity securities during 2005.


F-89


Xactware, Inc.
Notes to Consolidated Financial Statement — (Continued)
4.  Long-Term Debt
         
  December 31 
  2005  2004 
 
Note payable to bank, collateralized by equipment, guaranteed by majority stockholder, payable in monthly installments of $44,935 including interest at the bank’s prime rate plus 0.75%, due June 2006 $         —  $893,258 
Note payable to bank, collateralized by equipment, guaranteed by majority stockholder, payable in quarterly principal installments of $28,571, with interest payable monthly at the bank’s prime rate plus 1.00%, due July 2006     198,925 
Note payable to bank, collateralized by equipment, guaranteed by majority stockholder, payable in monthly installments of $45,872, including interest at the banks prime rate plus 1.5%, due May 2005     223,968 
Note payable to bank, collateralized by equipment, guaranteed by majority stockholder, payable in monthly installments including interest at the banks prime rate plus 0.5%, due March 2007     1,155,475 
Note payable to bank, collateralized by equipment, guaranteed by majority stockholder, payable in monthly installments of $44,815 including interest at 4.75%, due March 2007     1,142,523 
Note payable to financial institution, collateralized by a software license, payable in quarterly installments of $30,842, including interest at 5.92%, due August 2005     89,840 
         
      3,703,989 
Current maturities     (2,003,746)
         
  $  $1,700,243 
         
The Company repaid to the bank the remaining balance of the long term debt principal and related accrued interest during 2005. The Company did not record any gain or loss on the transaction.
5.  Operating Lease Obligations
The Company leases vehicles under non-cancelable operating leases, which expire through December 2008. Lease terms are generally 24 to 39 months. In management’s opinion, the risk of loss on residual value guarantees is minimal. Total vehicle lease expense paid for the years ended December 31, 2005 and 2004 was $157,262 and $126,726, respectively.
The Company leases office facilities under renewable month-to-month operating leases from limited liability corporations (LLC) owned by the stockholders of the Company. Total rent expense paid to these LLC’s for the years ended December 31, 2005 and 2004 was $372,130 and $437,210, respectively. The Company also leases temporary office space under month-to-month operating leases from third parties. Total rent expense for the temporary office space for the years ended December 31, 2005 and 2004 was $118,304 and $96,021, respectively.


F-90


Xactware, Inc.
Notes to Consolidated Financial Statement — (Continued)
Future minimum lease payments under non-cancellable operating leases at December 31, 2005 are as follows:
     
2006 $189,549 
2007  106,356 
2008  40,166 
2009  12,335 
2010 and thereafter   
     
Total minimum lease payments $348,406 
     
6.  Stockholders’ Equity
Common Stock
Authorized common stock consists of 90,000,000 shares of no par voting stock and 10,000,000 shares of no par nonvoting stock. All shares have equal rights to distributions and have equal rights in the event of dissolution or liquidation. There were 20,836,870 no par voting shares outstanding at December 31, 2005 and 2004.
Stock Option Plan
The Company has adopted an Employee Stock Option Plan (the Plan) under which employees, officers, directors, and consultants of the Company or an affiliate or subsidiary are eligible for stock options. The Company has reserved 5,300,000 common shares under the Plan. The Plan allows grants of incentive options and nonqualified options to purchase common shares at a price that is not less than the fair market value on the date of grant. The Board of Directors determines the option price. Generally, the options have a10-year life from the date of grant and vest 20% each year until fully vested.
A summary of stock option activity and related information is as follows:
                 
  Shares
  Outstanding Stock Options  Weighted-
 
  Available
  Number of
  Price per
  Average
 
  for Grant  Shares  Share  Exercise Price 
 
Balance at December 31, 2003  4,725,283   574,717  $0.93  $0.93 
Granted            
Cancelled  12,238   (12,238) $0.93  $0.93 
                 
Balance at December 31, 2004  4,737,521   562,479  $0.93  $0.93 
Granted            
Cancelled  19,114   (19,114) $0.93  $0.93 
                 
Balance at December 31, 2005  4,756,635   543,365  $0.93  $0.93 
                 
Options exercisable at December 31, 2005 and 2004 were 486,496 and 443,501, respectively. The weighted-average remaining contractual life of the options is five years.
7.  Related Party Transactions
Interest income of $8,952 and $13,304 was received on notes from stockholders and a limited liability corporation owned by the majority stockholder during the years ended December 31, 2005 and 2004,


F-91


Xactware, Inc.
Notes to Consolidated Financial Statement — (Continued)
respectively. The Company leases its office facilities from LLC’s owned by the stockholders. During 2005, the Company issued two short-term notes receivable to related parties in the amounts of $20,320 and $125,000, respectively.
8.  Employee Benefits
The Company has a qualified 401(k) profit sharing plan that allows employees to contribute an elected percentage of earnings to the plan. The Company makes a matching contribution of 75% of the contribution up to a maximum of 8% of eligible compensation. Additionally, the Company can make discretionary contributions. Employees are eligible to participate in the plan after three months of service and attainment of age 18.
The Company contributed $525,426 and $419,970 to the plan for the years ended December 31, 2005 and 2004, respectively. In addition, the Company also has established a cafeteria benefit plan, which enables employees to choose among certain benefits, and have the benefit amounts paid for with a portion of employee compensation before federal income or social security taxes are withheld.


F-92


PART II
 
INFORMATION NOT REQUIRED IN PROSPECTUS
 
Item 13.  Other Expenses of Issuance and Distribution.
 
         
  Amount
    
  to be Paid    
 
Registration fee $29,475     
FINRA filing fee $75,500     
Listing fees  *     
Transfer agent’s fees  *     
Printing and engraving expenses  *     
Legal fees and expenses  *     
Accounting fees and expenses  *     
Blue Sky fees and expenses  *     
Miscellaneous  *     
         
Total $*     
         
Amount
to be Paid
Registration fee$29,475
FINRA filing fee$75,500
Listing fees*
Transfer agent’s fees*
Printing and engraving expenses*
Legal fees and expenses*
Accounting fees and expenses*
Miscellaneous*
Total$*
 
*To be completed by amendment.
 
Each of the amounts set forth above, other than the Registration fee and the FINRA filing fee, is an estimate.
 
Item 14.  Indemnification of Directors and Officers.
 
Section 145 of the Delaware General Corporation Law provides that a corporation may indemnify directors and officers as well as other employees and individuals against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any threatened, pending or completed actions, suits or proceedings in which such person is made a party by reason of such person being or having been a director, officer, employee or agent to the Registrant. The Delaware General Corporation Law provides that Section 145 is not exclusive of other rights to which those seeking indemnification may be entitled under any bylaw, agreement, vote of stockholders or disinterested directors or otherwise. Article Twelfth of the Registrant’s Certificate of Incorporation provides for indemnification by the Registrant of its directors, officers and employees to the fullest extent permitted by the Delaware General Corporation Law.
 
Section 102(b)(7) of the Delaware General Corporation Law permits a corporation to provide in its certificate of incorporation that a director of the corporation shall not be personally liable to the corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) for unlawful payments of dividends or unlawful stock repurchases, redemptions or other distributions, or (iv) for any transaction from which the director derived an improper personal benefit. The Registrant’s Certificate of Incorporation provides for such limitation of liability.
 
The Registrant maintains standard policies of insurance under which coverage is provided (a) to its directors and officers against loss rising from claims made by reason of breach of duty or other wrongful act, and (b) to the Registrant with respect to payments which may be made by the Registrant to such officers and directors pursuant to the above indemnification provision or otherwise as a matter of law.
 
The proposed forms of Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provide for indemnification of directors and officers of the Registrant by the underwriters against certain liabilities.


II-1


Item 15.  Recent Sales of Unregistered Securities.
 
On June 2, 2008 we issued an aggregate of 100 shares of our common stock, par value $.01 per share, to Insurance Services Office, Inc. for $.01 per share. The issuance of such shares was not registered under the Securities Act because the shares were offered and sold in a transaction exempt from registration under Section 4(2) of the Securities Act.
 
Since August 1, 2005, Insurance Services Office, Inc. has issued to directors, officers and employees options to purchase 184,575$189,973 shares of Class A common stock with per share exercise prices ranging from $445 to $862,$892, and has issued 353,054360,624 shares of common stock upon exercise of outstanding options. The issuance of stock options and the common stock issuable upon the exercise of such options to directors, officers and employees were deemed to be exempt from registration under the Securities Act in reliance on Rule 701 as promulgated under the Securities Act. The share and per share information in this paragraph does not reflect the stock split the Company will consummate in connection with this offering.
 
Item 16.  Exhibits and Financial Statement Schedules.
 
(a) The following exhibits are filed as part of this Registration Statement:
 
        
Exhibit
Exhibit
  Exhibit
  
Number
Number
 
Description
Number
 
Description
1.1 Form of Underwriting Agreement*1.1 Form of Underwriting Agreement**
3.1 Amended and Restated Certificate of Incorporation*3.1 Amended and Restated Certificate of Incorporation*
3.2 Amended and Restated By-Laws*3.2 Amended and Restated By-Laws*
4.1 Form of Common Stock Certificate*4.1 Form of Common Stock Certificate*
5.1 Opinion of Davis Polk & Wardwell*4.2 Prudential Uncommitted Master Shelf Agreement, dated as of June 13, 2003, among Insurance Services Office, Inc., The Prudential Insurance Company of America, U.S. Private Placement Fund, Baystate Investments, LLC, United of Omaha Life Insurance Company and Prudential Investment Management, Inc.**
10.1 401(k) Savings Plan and Employee Stock Ownership Plan4.3 Amendment No. 1 to the Prudential Uncommitted Master Shelf Agreement, dated February 1, 2005, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
10.2 Verisk Analytics, Inc. 2008 Equity Incentive Plan*4.4 Amendment No. 2 to the Prudential Uncommitted Master Shelf Agreement, dated June 1, 2005, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
21.1 Subsidiaries of the Registrant*4.5 Amendment No. 3 to the Prudential Uncommitted Master Shelf Agreement, dated January 23, 2006, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
23.1 Consent of Deloitte & Touche LLP4.6 Waiver and Amendment No. 4 to the Prudential Uncommitted Master Shelf Agreement, dated February 28, 2007, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
23.2 Consent of Deloitte & Touche LLP4.7 New York Life Uncommitted Master Shelf Agreement, dated as of March 16, 2007, among Insurance Services Office, Inc., New York Life Insurance Company and the other purchasers party thereto**
23.3 Consent of Ernst & Young LLP5.1 Opinion of Davis Polk & Wardwell*
23.4 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)*10.1 401(k) Savings Plan and Employee Stock Ownership Plan**
24.1 Power of Attorney (included on signature page)10.2 Verisk Analytics, Inc. 2009 Equity Incentive Plan*
10.3 Form of Letter Agreement**
10.4 Form of Master License Agreement and Participation Supplement**
10.5 Schedule of Master License Agreements Substantially Identical in All Material Respects to the Form of Master License Agreement and Participation Supplement filed as Exhibit 10.4**
21.1 Subsidiaries of the Registrant*


II-2


     
Exhibit
  
Number
 
Description
 
 23.1 Consent of Deloitte & Touche LLP
 23.2 Consent of Deloitte & Touche LLP
 23.3 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)*
 24.1 Power of Attorney**
 
*To be filed by amendment.
**Previously filed
 
(b) The following financial statement schedule is filed as part of this Registration Statement:
 
     
Schedule
  
Number
 
Description
 
 Schedule II  Valuation and Qualifying Accounts and Reserves
    Years Ended December 31, 2005, 2006, 2007 and 20072008


II-2II-3


Item 17.  Undertakings
 
The undersigned hereby undertakes:
 
(a) The undersigned registrant hereby undertakes to provide to the underwriter at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriter to permit prompt delivery to each purchaser.
 
(b) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referenced in Item 14 of this Registration Statement, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer, or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered hereunder, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
 
(c) The undersigned registrant hereby undertakes that:
 
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective.
 
(2) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.


II-3II-4


SIGNATURES
 
Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Jersey City, State of New Jersey, on the 12th28th day of August, 2008.May, 2009.
 
Verisk Analytics, Inc.
 
 By: /s/  Frank J. Coyne
Name: Frank J. Coyne
 Title: Chief Executive Officer, President and
Chairman of the Board of Directors
 
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Frank J. Coyne and Mark V. Anquillare, and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement and any and all additional registration statements pursuant to Rule 462(b) of the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agents full power and authority to do and perform each and every act in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or either of them or their or his or her substitute or substitutes may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
 
       
Signature
 
Title
 
Date
 
     
/s/  Frank J. Coyne

Frank J. Coyne
 Chief Executive Officer, President
and Chairman of the Board of Directors (principal executive officer)
 August 12, 2008May 28, 2009
     
/s/  Mark V. Anquillare

Mark V. Anquillare
 Chief Financial Officer
(principal financial officer and principal accounting officer)
 August 12, 2008May 28, 2009
     
/s/  J. Hyatt Brown*

J. Hyatt Brown
 Director August 12, 2008May 28, 2009
     
/s/  Glen A. Dell*

Glen A. Dell
 Director August 12, 2008May 28, 2009
     
/s/  Henry J. Feinberg*

Henry J. Feinberg
 Director August 12, 2008May 28, 2009
     
/s/  Christopher M. Foskett*

Christopher M. Foskett
 Director August 12, 2008May 28, 2009
     
/s/  Constantine P. Iordanou*

Constantine P. Iordanou
 Director August 12, 2008May 28, 2009
     
/s/  John F. Lehman, Jr.* 

John F. Lehman, Jr. 
 Director August 12, 2008May 28, 2009
/s/  *

Samuel G. Liss
DirectorMay 28, 2009
/s/  *

Andrew G. Mills
DirectorMay 28, 2009
/s/  *

Arthur J. Rothkopf
DirectorMay 28, 2009


II-4II-5


       
Signature
 
Title
 
Date
 
     
/s/  Stephen W. Lilienthal*

Stephen W. LilienthalBarbara D. Stewart
 Director August 12, 2008May 28, 2009
     
/s/  Samuel G. Liss

Samuel G. Liss
DirectorAugust 12, 2008
/s/  Andrew G. Mills

Andrew G. Mills
DirectorAugust 12, 2008
/s/  Arthur J. Rothkopf

Arthur J. Rothkopf
DirectorAugust 12, 2008
/s/  Barbara D. Stewart

Barbara D. Stewart
DirectorAugust 12, 2008
/s/  David B. Wright*

David B. Wright
 Director August 12, 2008May 28, 2009
*By:
/s/  Mark V. Anquillare

Attorney-in-Fact
May 28, 2009


II-5II-6


Schedule II
 
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2005, 2006, 2007 and 20072008
(In thousands)
 
                                
 Balance at
 Charged to
      Balance at
 Charged to
     
 Beginning
 Costs and
 Deductions —
 Balance at
  Beginning
 Costs and
 Deductions —
 Balance at
 
Description
 of Year Expenses(1) Write-offs(2) End of Year  of Year Expenses(1) Write-offs(2) End of Year 
Year ended December 31, 2005:                
Allowance for doubtful accounts $3,750  $1,554  $(1,681) $3,623 
         
Valuation allowance for income taxes $  $2,144  $  $2,144 
         
 
Year ended December 31, 2006:                                
Allowance for doubtful accounts $3,623  $3,069  $(1,419) $5,273  $3,623  $2,148  $(498) $5,273 
                  
Valuation allowance for income taxes $2,144  $  $  $2,144  $2,144  $  $  $2,144 
                  
 
Year ended December 31, 2007:                                
Allowance for doubtful accounts $5,273  $6,807  $(3,833) $8,247  $5,273  $3,286  $(312) $8,247 
                  
Valuation allowance for income taxes $2,144  $  $(610) $1,534  $2,144  $  $(610) $1,534 
                  
Year ended December 31, 2008:                
Allowance for doubtful accounts $8,247  $1,536  $(3,386) $6,397 
         
Valuation allowance for income taxes $1,534  $564  $  $2,098 
         
                
         
 
(1)Primarily additional reserves for bad debts.
 
 
(2)Primarily accounts receivable balances written off, net of recoveries, and the expiration of loss carryforwards.


S-1


EXHIBIT INDEX
 
        
Exhibit
Exhibit
  Exhibit
  
Number
Number
 
Description
Number
 
Description
1.1 Form of Underwriting Agreement*1.1 Form of Underwriting Agreement**
3.1 Amended and Restated Certificate of Incorporation*3.1 Amended and Restated Certificate of Incorporation*
3.2 Amended and Restated By-Laws*3.2 Amended and Restated By-Laws*
4.1 Form of Common Stock Certificate*4.1 Form of Common Stock Certificate*
5.1 Opinion of Davis Polk & Wardwell*4.2 Prudential Uncommitted Master Shelf Agreement, dated as of June 13, 2003, among Insurance Services Office, Inc., The Prudential Insurance Company of America, U.S. Private Placement Fund, Baystate Investments, LLC, United of Omaha Life Insurance Company and Prudential Investment Management, Inc.**
10.1 401(k) Savings Plan and Employee Stock Ownership Plan4.3 Amendment No. 1 to the Prudential Uncommitted Master Shelf Agreement, dated February 1, 2005, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
10.2 Verisk Analytics, Inc. 2008 Equity Incentive Plan*4.4 Amendment No. 2 to the Prudential Uncommitted Master Shelf Agreement, dated June 1, 2005, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
21.1 Subsidiaries of the Registrant*4.5 Amendment No. 3 to the Prudential Uncommitted Master Shelf Agreement, dated January 23, 2006, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
23.1 Consent of Deloitte & Touche LLP4.6 Waiver and Amendment No. 4 to the Prudential Uncommitted Master Shelf Agreement, dated February 28, 2007, among Insurance Services Office, Inc., The Prudential Insurance Company of America, Prudential Investment Management, Inc. and the other purchasers party thereto**
23.2 Consent of Deloitte & Touche LLP4.7 New York Life Uncommitted Master Shelf Agreement, dated as of March 16, 2007, among Insurance Services Office, Inc., New York Life Insurance Company and the other purchasers party thereto**
23.3 Consent of Ernst & Young LLP5.1 Opinion of Davis Polk & Wardwell*
23.4 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)*10.1 401(k) Savings Plan and Employee Stock Ownership Plan**
24.1 Power of Attorney (included on signature page)10.2 Verisk Analytics, Inc. 2009 Equity Incentive Plan*
10.3 Form of Letter Agreement**
10.4 Form of Master License Agreement and Participation Supplement**
10.5 Schedule of Master License Agreements Substantially Identical in All Material Respects to the Form of Master License Agreement and Participation Supplement filed as Exhibit 10.4**
21.1 Subsidiaries of the Registrant*
23.1 Consent of Deloitte & Touche LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Davis Polk & Wardwell (included in Exhibit 5.1)*
24.1 Power of Attorney**
 
*To be filed by amendment.
**Previously Filed.