sv1za
As filed with the Securities and Exchange Commission on
September 29, 2009
Registration
No. 333-152973
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C.
20549
Amendment No. 7
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
VERISK ANALYTICS,
INC.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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7374
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26-2994223
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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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:
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Richard J. Sandler
Ethan T. James
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Eric J. Friedman
Richard B. Aftanas
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
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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.
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Large
accelerated
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller
reporting
company o
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(Do not check if a smaller reporting company)
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class
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Amount
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Offering Price per
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Aggregate
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Registration
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of Securities to be Registered
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to be Registered(1)
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Share(2)
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Offering Price(2)
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Fee(3)
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Class A common stock, par value $0.001 per share
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97,995,750
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$21.00
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$2,057,910,750
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$114,832
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(1) |
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Includes 12,745,750 shares of common stock that the
underwriters have the option to purchase to cover
over-allotments, if any. |
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(2) |
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Estimated solely for the purpose of calculating the registration
fee pursuant to Rule 457(a) under the Securities Act of
1933. |
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(3) |
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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.
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Subject to Completion Dated
September 29, 2009
PRELIMINARY
PROSPECTUS
85,250,000 Shares
Verisk Analytics,
Inc.
Class A Common
Stock
This is our initial public offering of common stock. Our
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 $19.00 and
$21.00 per share. Currently, no public market exists for the
shares. After pricing of the offering, we expect that the shares
will be listed on The NASDAQ Global Select Market under the
symbol “VRSK.”
Investing in our common stock involves risks that are
described in the “Risk Factors” section beginning on
page 11 of this prospectus.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to the selling stockholders
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$
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$
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The underwriters may also purchase up to an additional
12,745,750 shares of Class A common stock from certain
of 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 ,
2009, which will be the third business day following the pricing
date.
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BofA
Merrill Lynch |
Morgan Stanley |
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J.P.
Morgan |
Wells Fargo Securities |
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Fox-Pitt Kelton Cochran Caronia
Waller
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,
2009
TABLE OF
CONTENTS
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 a fifty-for-one split of
our common stock.
Except as the context otherwise requires, all share and per
share information in this prospectus gives effect to the
fifty-for-one stock split that will occur immediately after the
reorganization.
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.
Until ,
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.
We expect to deliver the shares against payment therefor on or
about the date specified in the last paragraph of the cover page
of this prospectus, which will be the third business day
following the date of the pricing of the shares.
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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. 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 six
months ended June 30, 2009, we had revenues of
$894 million and $504 million, respectively, and net
income of $158 million and $91 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 2009 report from Veronis Suhler Stevenson, an
industry consultant, spending on professional and business
information services in the U.S. reached $49 billion
in 2008 and is projected to grow at a CAGR of 5% through 2013.
Another research firm, International Data Corporation, or IDC,
in a report dated June 2009, estimates that the business
analytics services market, which totaled $35 billion in
2008, will grow at a CAGR of 7% through 2013.
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:
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the total value of exposures in risk transactions is increasing;
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the number of participants in risk transactions is often large
and the asymmetry of information among participants is often
substantial; and
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the failure to understand risk can lead to large and rapid
declines in financial performance.
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Our
Competitive Strengths
We believe our competitive strengths include the following:
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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.
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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.
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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 team
includes approximately 578 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-
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oriented, including incentive compensation plans and substantial
equity participation by employees. As of June 30, 2009, our
employees owned approximately 25% of the company.
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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.
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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:
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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.
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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. We constantly seek to add new data sets that can further
leverage our analytic methods, technology platforms and
intellectual capital.
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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.
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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.
As of June 30, 2009, 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.
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Risk
Factors
Investing in our common stock involves substantial risk. Please
read “Risk Factors” beginning on page 11 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.
4
THE
OFFERING
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Class A common stock offered by the selling stockholders |
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85,250,000 shares |
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Class A common stock outstanding after the offering |
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113,076,100 shares (125,821,850 shares if the underwriters
exercise their over-allotment option in full) |
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Over-allotment option |
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12,745,750 shares of Class A common stock from certain
of the selling stockholders |
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Class B common stock outstanding after the offering |
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66,983,700 shares (54,237,950 shares if the
underwriters exercise their over-allotment option in full) |
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Sale and transfer restrictions on Class B common stock |
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The 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 24 months after the date of
this prospectus. |
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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.” |
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Conversion of Class B common stock |
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After 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 24 months
after the date of this prospectus, there will be no outstanding
shares of Class B common stock. |
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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.” |
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Use of proceeds |
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The Company will not receive any proceeds from the sale of
common stock in the offering. |
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Dividend policy |
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We currently do not intend to pay dividends on our Class A
common stock or Class B common stock. |
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Voting rights |
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The holders of Class A common stock and Class B common stock
generally have identical voting 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) the 24-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. See “Description of
Capital Stock — |
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Common Stock.” See also “Risk Factors — Risks
Related to the Offering — The holders of our Class B common
stock have the right to elect up to three out of twelve of our
directors and their interests in our business may be different
than yours.” |
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
September 15, 2009, giving effect to the stock split of
fifty-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:
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23,898,150 shares of Class A common stock issuable
upon the exercise of outstanding stock options at a weighted
average exercise price of $9.38 per share; and
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an aggregate of 13,750,000 shares of Class A common
stock that will be reserved for future issuances under our 2009
Equity Incentive Plan, including up to 3,177,650 shares of
Class A common stock available for issuance to our
directors, executive officers and employees in connection with
grants of options upon the closing of this offering with an
exercise price equal to the price of the shares sold in this
offering.
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6
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 six-month periods ended
June 30, 2008 and 2009 and the condensed consolidated
balance sheet data as of June 30, 2009 are derived from
unaudited condensed financial statements that are included in
this prospectus. The condensed consolidated balance sheet data
as of June 30, 2008 is derived from unaudited condensed
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 six-month period ended June 30,
2009 are not necessarily indicative of results that may be
expected for the fiscal year ended December 31, 2009 or any
other future period.
From January 1, 2006 to June 30, 2009 we have acquired
10 businesses, which may affect the comparability of our
financial statements.
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Six Months
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Year Ended December 31,
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Ended June 30,
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2006
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2007
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2008
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2008
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2009
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(In thousands, except for share and per share data)
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Statement of income data:
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Revenues:
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Risk Assessment revenues
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$
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472,634
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$
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485,160
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$
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504,391
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$
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253,356
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$
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262,873
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Decision Analytics revenues
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257,499
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317,035
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389,159
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184,334
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240,794
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Revenues
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730,133
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802,195
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893,550
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437,690
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503,667
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Expenses:
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|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
331,804
|
|
|
|
357,191
|
|
|
|
386,897
|
|
|
|
190,678
|
|
|
|
220,501
|
|
Selling, general and administrative
|
|
|
100,124
|
|
|
|
107,576
|
|
|
|
131,239
|
|
|
|
59,028
|
|
|
|
72,225
|
|
Depreciation and amortization of fixed assets
|
|
|
28,007
|
|
|
|
31,745
|
|
|
|
35,317
|
|
|
|
16,424
|
|
|
|
18,913
|
|
Amortization of intangible assets
|
|
|
26,854
|
|
|
|
33,916
|
|
|
|
29,555
|
|
|
|
14,937
|
|
|
|
16,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
486,789
|
|
|
|
530,428
|
|
|
|
583,008
|
|
|
|
281,067
|
|
|
|
328,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
243,344
|
|
|
|
271,767
|
|
|
|
310,542
|
|
|
|
156,623
|
|
|
|
175,054
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and realized gains (losses) on securities, net
|
|
|
6,101
|
|
|
|
9,308
|
|
|
|
(327
|
)
|
|
|
317
|
|
|
|
(273
|
)
|
Interest expense
|
|
|
(16,668
|
)
|
|
|
(22,928
|
)
|
|
|
(31,316
|
)
|
|
|
(14,173
|
)
|
|
|
(16,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(10,567
|
)
|
|
|
(13,620
|
)
|
|
|
(31,643
|
)
|
|
|
(13,856
|
)
|
|
|
(16,950
|
)
|
Income from continuing operations before income taxes
|
|
|
232,777
|
|
|
|
258,147
|
|
|
|
278,899
|
|
|
|
142,767
|
|
|
|
158,104
|
|
Provision for income taxes
|
|
|
(91,992
|
)
|
|
|
(103,184
|
)
|
|
|
(120,671
|
)
|
|
|
(61,818
|
)
|
|
|
(67,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
140,785
|
|
|
|
154,963
|
|
|
|
158,228
|
|
|
|
80,949
|
|
|
|
90,854
|
|
7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
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
|
|
|
$
|
80,949
|
|
|
$
|
90,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income/(loss) per share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
34.08
|
|
|
$
|
38.58
|
|
|
$
|
43.26
|
|
|
$
|
21.73
|
|
|
$
|
26.20
|
|
Loss from discontinued operations
|
|
|
(0.44
|
)
|
|
|
(1.14
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
33.64
|
|
|
$
|
37.44
|
|
|
$
|
43.26
|
|
|
$
|
21.73
|
|
|
$
|
26.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income/(loss) per share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
32.72
|
|
|
$
|
37.03
|
|
|
$
|
41.59
|
|
|
$
|
20.87
|
|
|
$
|
25.21
|
|
Loss from discontinued operations
|
|
|
(0.42
|
)
|
|
|
(1.10
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
32.30
|
|
|
$
|
35.93
|
|
|
$
|
41.59
|
|
|
$
|
20.87
|
|
|
$
|
25.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,130,962
|
|
|
|
4,016,928
|
|
|
|
3,657,714
|
|
|
|
3,724,876
|
|
|
|
3,468,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
4,302,867
|
|
|
|
4,185,151
|
|
|
|
3,804,634
|
|
|
|
3,877,906
|
|
|
|
3,604,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment EBITDA
|
|
$
|
202,872
|
|
|
$
|
212,780
|
|
|
$
|
222,706
|
|
|
$
|
113,500
|
|
|
$
|
121,197
|
|
Decision Analytics EBITDA
|
|
|
95,333
|
|
|
|
124,648
|
|
|
|
152,708
|
|
|
|
74,484
|
|
|
|
89,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
298,205
|
|
|
$
|
337,428
|
|
|
$
|
375,414
|
|
|
$
|
187,984
|
|
|
$
|
210,941
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
$
|
(25,742
|
)
|
|
$
|
(32,941
|
)
|
|
$
|
(30,652
|
)
|
|
$
|
(17,810
|
)
|
|
$
|
(16,195
|
)
|
Net cash provided by operating activities
|
|
|
223,499
|
|
|
|
248,521
|
|
|
|
247,906
|
|
|
|
141,929
|
|
|
|
184,529
|
|
Net cash used in investing activities
|
|
|
(243,452
|
)
|
|
|
(110,831
|
)
|
|
|
(130,466
|
)
|
|
|
(98,402
|
)
|
|
|
(152,683
|
)
|
Net cash provided by/(used in) financing activities
|
|
|
75,907
|
|
|
|
(212,591
|
)
|
|
|
(107,376
|
)
|
|
|
(16,759
|
)
|
|
|
(19,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
99,152
|
|
|
$
|
24,049
|
|
|
$
|
33,185
|
|
|
$
|
50,835
|
|
|
$
|
45,962
|
|
Total assets
|
|
|
739,282
|
|
|
|
830,041
|
|
|
|
928,877
|
|
|
|
867,128
|
|
|
|
1,009,335
|
|
Total debt(4)
|
|
|
448,698
|
|
|
|
438,330
|
|
|
|
669,754
|
|
|
|
642,182
|
|
|
|
689,066
|
|
Redeemable common stock(5)
|
|
|
1,125,933
|
|
|
|
1,171,188
|
|
|
|
749,539
|
|
|
|
1,006,287
|
|
|
|
842,117
|
|
Stockholders’ deficit
|
|
|
(1,123,977
|
)
|
|
|
(1,203,348
|
)
|
|
|
(1,009,823
|
)
|
|
|
(1,186,569
|
)
|
|
|
(1,028,489
|
)
|
|
|
|
(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. |
8
|
|
|
(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. The numbers in the above table do not reflect this
stock split. Giving effect to the fifty-for-one stock split that
will have occurred prior to the completion of this offering, pro
forma basic and diluted income/(loss) per share from continuing
operations and discontinued operations would have been as
follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
Six Months Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
Basic
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.68
|
|
|
$
|
0.77
|
|
|
$
|
0.87
|
|
|
$
|
0.43
|
|
|
$
|
0.52
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per share
|
|
$
|
0.67
|
|
|
$
|
0.75
|
|
|
$
|
0.87
|
|
|
$
|
0.43
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
206,548,100
|
|
|
|
200,846,400
|
|
|
|
182,885,700
|
|
|
|
186,243,800
|
|
|
|
173,409,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.65
|
|
|
$
|
0.74
|
|
|
$
|
0.83
|
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per share
|
|
$
|
0.64
|
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
215,143,350
|
|
|
|
209,257,550
|
|
|
|
190,231,700
|
|
|
|
193,895,300
|
|
|
|
180,204,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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.
|
9
The following is a reconciliation of income from continuing
operations to EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
Year Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Income from continuing operations
|
|
$
|
140,785
|
|
|
$
|
154,963
|
|
|
$
|
158,228
|
|
|
$
|
80,949
|
|
|
$
|
90,854
|
|
Depreciation and amortization of fixed and intangible assets
|
|
|
54,861
|
|
|
|
65,661
|
|
|
|
64,872
|
|
|
|
31,361
|
|
|
|
35,887
|
|
Investment income and realized (gains)/losses on securities, net
|
|
|
(6,101
|
)
|
|
|
(9,308
|
)
|
|
|
327
|
|
|
|
(317
|
)
|
|
|
273
|
|
Interest expense
|
|
|
16,668
|
|
|
|
22,928
|
|
|
|
31,316
|
|
|
|
14,173
|
|
|
|
16,677
|
|
Provision for income taxes
|
|
|
91,992
|
|
|
|
103,184
|
|
|
|
120,671
|
|
|
|
61,818
|
|
|
|
67,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
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|
$
|
298,205
|
|
|
$
|
337,428
|
|
|
$
|
375,414
|
|
|
$
|
187,984
|
|
|
$
|
210,941
|
|
(4) Includes capital lease obligations.
|
|
|
(5) |
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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. |
10
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
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 use
and/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 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 six months ended June 30,
2009, approximately 65% and 60%, 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:
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changes in the business analytics industry;
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changes in technology;
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our inability to obtain or use state fee schedule or claims data
in our insurance solutions;
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saturation of market demand;
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loss of key customers;
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industry consolidation; and
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failure to execute our customer-focused selling approach.
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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 introducing
and/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.
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
12
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. 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:
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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;
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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;
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failure of our solutions to comply with current laws and
regulations; and
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failure of our solutions to adapt to changes in the regulatory
environment in an efficient, cost-effective manner.
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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.
13
In addition, customers’ misuse of our information services
could cause harm to our business and reputation and result in
loss of customers. Any such misappropriation
and/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:
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deterring customers from using our solutions;
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deterring data suppliers from supplying data to us;
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harming our reputation;
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exposing us to liability;
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increasing operating expenses to correct problems caused by the
breach;
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affecting our ability to meet customers’ expectations; or
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causing inquiry from governmental authorities.
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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.
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 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,
14
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:
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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;
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paying more than fair market value for an acquired company or
assets;
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failing to integrate the operations and personnel of the
acquired businesses in an efficient, timely manner;
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assuming potential liabilities of an acquired company;
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managing the potential disruption to our ongoing business;
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distracting management focus from our core businesses;
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difficulty in acquiring suitable businesses;
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impairing relationships with employees, customers, and strategic
partners;
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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
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diluting the share value and voting power of existing
stockholders.
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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
15
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.
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
16
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.
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 operations and financial condition. The current volatility in
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 securitizations. 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 NASDAQ Global Select Market under the symbol
“VRSK.” 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:
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actual or anticipated fluctuations in our quarterly operating
results;
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changes in financial estimates by securities research analysts;
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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;
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announcements of technological developments;
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sales or expected sales of additional common stock;
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17
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continued dislocations and downward pressure in the capital
markets; and
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terrorist attacks or natural disasters or other such events
impacting countries where we or our customers have operations.
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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 an aggregate of
13,750,000 shares of Class A common stock reserved for
future issuances under our 2009 Equity Incentive Plan, including
up to 3,177,650 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 113,076,100 shares of Class A common stock
outstanding. Of these shares, the 85,250,000 shares of
Class A 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
27,826,100 shares of our Class A common stock and
66,983,700 shares of our Class B common stock,
representing in aggregate approximately 52.7% of our outstanding
common stock assuming the over-allotment option is not
exercised. Such stockholders will be able to sell their common
stock in the public market from time to time without
registration, subject to the
lock-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 a
lock-up
agreement and thereby be subject to a
lock-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, subject to certain exceptions. 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 the
lock-up
agreements described above. In addition, certain members of our
management will be subject to
lock-up
agreements with us whereby they will not be permitted to sell
any of their common stock, subject to certain conditions, for a
longer 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 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 24 months after
the date of this prospectus.
18
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 23,898,150 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 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 out of twelve 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;
|
|
|
|
|
•
|
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 NASDAQ Global Select
Market;
|
19
|
|
|
|
•
|
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.
20
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.
21
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 a
fifty-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.
22
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
Our board of directors does not anticipate authorizing the
payment of cash dividends on our Class A common stock or Class B
common stock in the foreseeable future. Any determination to pay
dividends to holders of our Class A common stock or Class B
common stock in the future will be at the discretion of our
board of directors and will depend on many factors, including
our financial condition, results of operations, general business
conditions, contractual restrictions, capital requirements,
business prospects, restrictions on the payment of dividends
under Delaware Law, and any other factors our board of directors
deems relevant.
23
CAPITALIZATION
The following table sets forth our capitalization as of
June 30, 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 unaudited
condensed consolidated interim financial statements, and the
consolidated financial statements and notes thereto appearing
elsewhere in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2009
|
|
|
|
Actual
|
|
|
As Adjusted
|
|
|
|
(In thousands,
|
|
|
|
except share numbers)
|
|
|
Long-term debt (including short-term debt and current portion of
long-term debt)
|
|
$
|
689,066
|
|
|
$
|
689,066
|
|
|
|
|
|
|
|
|
|
|
Redeemable common stock:(1)
|
|
|
|
|
|
|
|
|
Class A redeemable common stock, stated at redemption
value, $0.01 par value; 6,700,000 shares authorized
3,010,843 shares issued and 700,188 outstanding (on a
pre-split basis) and vested options at intrinsic value
|
|
|
845,126
|
|
|
|
—
|
|
Class A unearned common stock ESOP shares
|
|
|
(3,009
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total redeemable common stock
|
|
|
842,117
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
Class A common stock, $0.001 par value per share,
335,000,000 shares authorized actual,
150,542,150 shares issued actual and 35,009,400 shares
outstanding actual; 1,200,000,000 shares authorized as adjusted,
228,830,450 shares issued as adjusted and 113,297,700
shares outstanding as adjusted(2)(3)
|
|
|
—
|
|
|
|
45
|
|
Class B (Series 1 and 2) common stock,
$0.001 par value per share, 1,000,000,000 shares
authorized actual, 500,225,000 shares issued actual and
143,187,100 shares outstanding actual; 800,000,000 shares
authorized as adjusted, 424,021,600 shares issued as adjusted
and 66,983,700 shares outstanding as adjusted(2)
|
|
|
100
|
|
|
|
85
|
|
Additional paid-in capital(4)
|
|
|
—
|
|
|
|
579,631
|
|
Class A unearned common stock ESOP shares(4)
|
|
|
—
|
|
|
|
(3,009
|
)
|
Accumulated other comprehensive loss
|
|
|
(79,130
|
)
|
|
|
(79,130
|
)
|
(Accumulated deficit)/retained earnings
|
|
|
(265,465
|
)
|
|
|
—
|
|
Class B (Series 1 and 2) common stock, treasury stock,
357,037,900 shares actual and as adjusted
|
|
|
(683,994
|
)
|
|
|
(683,994
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(1,028,489
|
)
|
|
|
(186,372
|
)
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
502,694
|
|
|
$
|
502,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. Refer to note 11 of the unaudited condensed
consolidated interim financial statements for further
information. |
|
|
|
(2) |
|
Giving effect to the fifty-for-one stock split that will have
occurred prior to the completion of this offering. Class B
common stock sold in this offering will be automatically
converted into Class A common stock. |
|
|
|
(3) |
|
The number of shares of Class A common stock outstanding as
adjusted includes 2,084,900 shares issued upon the exercise
of options and sold in this offering. |
|
|
|
(4) |
|
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 $50.0 million, based on the
mid-point of the range set forth on the cover page of this
prospectus. |
24
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 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 statement of operations data for the years ended
December 31, 2004 and 2005 and the consolidated balance
sheet data as of December 31, 2004, 2005 and 2006 are
derived from unaudited consolidated financial statements that
are not included in this prospectus. The condensed consolidated
statement of operations data for the six-month periods ended
June 30, 2008 and 2009 and the condensed consolidated
balance sheet data as of June 30, 2009 are derived from
unaudited condensed financial statements that are included in
this prospectus. The condensed consolidated balance sheet data
as of June 30, 2008 is derived from unaudited condensed
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 six-month period ended June 30,
2009 are not necessarily indicative of results that may be
expected for the fiscal year ended December 31, 2009 or any
other future period.
From January 1, 2004 to June 30, 2009 we have acquired
15 businesses, which may affect the comparability of our
financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30, 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
|
|
|
$
|
253,356
|
|
|
$
|
262,873
|
|
Decision Analytics revenues
|
|
|
144,711
|
|
|
|
196,785
|
|
|
|
257,499
|
|
|
|
317,035
|
|
|
|
389,159
|
|
|
|
184,334
|
|
|
|
240,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
548,327
|
|
|
|
645,660
|
|
|
|
730,133
|
|
|
|
802,195
|
|
|
|
893,550
|
|
|
|
437,690
|
|
|
|
503,667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
263,332
|
|
|
|
294,911
|
|
|
|
331,804
|
|
|
|
357,191
|
|
|
|
386,897
|
|
|
|
190,678
|
|
|
|
220,501
|
|
Selling, general and administrative
|
|
|
81,020
|
|
|
|
88,723
|
|
|
|
100,124
|
|
|
|
107,576
|
|
|
|
131,239
|
|
|
|
59,028
|
|
|
|
72,225
|
|
Depreciation and amortization of fixed assets
|
|
|
19,569
|
|
|
|
22,024
|
|
|
|
28,007
|
|
|
|
31,745
|
|
|
|
35,317
|
|
|
|
16,424
|
|
|
|
18,913
|
|
Amortization of intangible assets
|
|
|
11,412
|
|
|
|
19,800
|
|
|
|
26,854
|
|
|
|
33,916
|
|
|
|
29,555
|
|
|
|
14,937
|
|
|
|
16,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
375,333
|
|
|
|
425,458
|
|
|
|
486,789
|
|
|
|
530,428
|
|
|
|
583,008
|
|
|
|
281,067
|
|
|
|
328,613
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
172,994
|
|
|
|
220,202
|
|
|
|
243,344
|
|
|
|
271,767
|
|
|
|
310,542
|
|
|
|
156,623
|
|
|
|
175,054
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and realized gains/(losses) on securities, net
|
|
|
950
|
|
|
|
2,932
|
|
|
|
6,101
|
|
|
|
9,308
|
|
|
|
(327
|
)
|
|
|
317
|
|
|
|
(273
|
)
|
Interest expense
|
|
|
(5,241
|
)
|
|
|
(10,465
|
)
|
|
|
(16,668
|
)
|
|
|
(22,928
|
)
|
|
|
(31,316
|
)
|
|
|
(14,173
|
)
|
|
|
(16,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(4,291
|
)
|
|
|
(7,533
|
)
|
|
|
(10,567
|
)
|
|
|
(13,620
|
)
|
|
|
(31,643
|
)
|
|
|
(13,856
|
)
|
|
|
(16,950
|
)
|
Income from continuing operations before income taxes
|
|
|
168,703
|
|
|
|
212,669
|
|
|
|
232,777
|
|
|
|
258,147
|
|
|
|
278,899
|
|
|
|
142,767
|
|
|
|
158,104
|
|
Provision for income taxes
|
|
|
(68,925
|
)
|
|
|
(85,722
|
)
|
|
|
(91,992
|
)
|
|
|
(103,184
|
)
|
|
|
(120,671
|
)
|
|
|
(61,818
|
)
|
|
|
(67,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
99,778
|
|
|
|
126,947
|
|
|
|
140,785
|
|
|
|
154,963
|
|
|
|
158,228
|
|
|
|
80,949
|
|
|
|
90,854
|
|
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
|
|
|
$
|
80,949
|
|
|
$
|
90,854
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income/(loss) per share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
20.12
|
|
|
$
|
29.81
|
|
|
$
|
34.08
|
|
|
$
|
38.58
|
|
|
$
|
43.26
|
|
|
$
|
21.73
|
|
|
$
|
26.20
|
|
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
|
|
|
$
|
21.73
|
|
|
$
|
26.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income/(loss) per share(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
19.28
|
|
|
$
|
28.45
|
|
|
$
|
32.72
|
|
|
$
|
37.03
|
|
|
$
|
41.59
|
|
|
$
|
20.87
|
|
|
$
|
25.21
|
|
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
|
|
|
$
|
20.87
|
|
|
$
|
25.21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30, 2009
|
|
|
|
2004
|
|
|
2005
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except for share and per share data)
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,958,161
|
|
|
|
4,258,989
|
|
|
|
4,130,962
|
|
|
|
4,016,928
|
|
|
|
3,657,714
|
|
|
|
3,724,876
|
|
|
|
3,468,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
5,174,281
|
|
|
|
4,462,109
|
|
|
|
4,302,867
|
|
|
|
4,185,151
|
|
|
|
3,804,634
|
|
|
|
3,877,906
|
|
|
|
3,604,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of fixed assets
|
|
$
|
(17,516
|
)
|
|
$
|
(24,019
|
)
|
|
$
|
(25,742
|
)
|
|
$
|
(32,941
|
)
|
|
$
|
(30,652
|
)
|
|
$
|
(17,810
|
)
|
|
$
|
(16,195
|
)
|
Net cash provided by operating activities
|
|
|
174,780
|
|
|
|
174,071
|
|
|
|
223,499
|
|
|
|
248,521
|
|
|
|
247,906
|
|
|
|
141,929
|
|
|
|
184,529
|
|
Net cash used in investing activities
|
|
|
(41,851
|
)
|
|
|
(107,444
|
)
|
|
|
(243,452
|
)
|
|
|
(110,831
|
)
|
|
|
(130,466
|
)
|
|
|
(98,402
|
)
|
|
|
(152,683
|
)
|
Net cash (used in)/provided by financing activities
|
|
|
(114,280
|
)
|
|
|
(90,954
|
)
|
|
|
75,907
|
|
|
|
(212,591
|
)
|
|
|
(107,376
|
)
|
|
|
(16,759
|
)
|
|
|
(19,157
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
As of June 30,
|
|
|
|
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
|
|
|
$
|
50,835
|
|
|
$
|
45,962
|
|
Total assets
|
|
|
386,496
|
|
|
|
466,244
|
|
|
|
739,282
|
|
|
|
830,041
|
|
|
|
928,877
|
|
|
|
867,128
|
|
|
|
1,009,335
|
|
Total debt(3)
|
|
|
206,152
|
|
|
|
276,964
|
|
|
|
448,698
|
|
|
|
438,330
|
|
|
|
669,754
|
|
|
|
642,182
|
|
|
|
689,066
|
|
Redeemable common stock(4)
|
|
|
722,532
|
|
|
|
901,089
|
|
|
|
1,125,933
|
|
|
|
1,171,188
|
|
|
|
749,539
|
|
|
|
1,006,287
|
|
|
|
842,117
|
|
Stockholders’ deficit
|
|
|
(740,478
|
)
|
|
|
(940,843
|
)
|
|
|
(1,123,977
|
)
|
|
|
(1,203,348
|
)
|
|
|
(1,009,823
|
)
|
|
|
(1,186,569
|
)
|
|
|
(1,028,489
|
)
|
|
|
|
(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. The numbers in the above table do not reflect this
stock split. Giving effect to the fifty-for-one stock split that
will have occurred prior to the completion of this offering, pro
forma basic and diluted
income/(loss)
per share from continuing operations and discontinued operations
would have been as follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
Year Ended December 31,
|
|
June 30,
|
Basic
|
|
2004
|
|
2005
|
|
2006
|
|
2007
|
|
2008
|
|
2008
|
|
2009
|
|
Income from continuing operations
|
|
$
|
0.40
|
|
|
$
|
0.60
|
|
|
$
|
0.68
|
|
|
$
|
0.77
|
|
|
$
|
0.87
|
|
|
$
|
0.43
|
|
|
$
|
0.52
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per share
|
|
$
|
0.40
|
|
|
$
|
0.58
|
|
|
$
|
0.67
|
|
|
$
|
0.75
|
|
|
$
|
0.87
|
|
|
$
|
0.43
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
247,908,050
|
|
|
|
212,949,450
|
|
|
|
206,548,100
|
|
|
|
200,846,400
|
|
|
|
182,885,700
|
|
|
|
186,243,800
|
|
|
|
173,409,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.39
|
|
|
$
|
0.57
|
|
|
$
|
0.65
|
|
|
$
|
0.74
|
|
|
$
|
0.83
|
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income per share
|
|
$
|
0.39
|
|
|
$
|
0.56
|
|
|
$
|
0.64
|
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
258,714,050
|
|
|
|
223,105,450
|
|
|
|
215,143,350
|
|
|
|
209,257,550
|
|
|
|
190,231,700
|
|
|
|
193,895,300
|
|
|
|
180,204,300
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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. |
26
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 56% and 52% of our
revenues for the year ended December 31, 2008 and the six
months ended June 30, 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 44% and 48% of our revenues for the year ended
December 31, 2008 and the six months ended June 30,
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, 2008 and the six months ended June 30,
2009, 76% and 72% of our revenues, respectively, were derived
from subscriptions and long-term agreements for our solutions.
Approximately 97% of our top 100 customers in 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 37.2% in 2004 to 42.0% in 2008.
Low Capital Intensity. We have low capital
needs that allow us to generate strong cash flow. In 2008, our
operating income and capital expenditures, including non-cash
purchases of fixed assets, as a percentage of revenue were 34.8%
and 3.7%, respectively.
27
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, 2008 and the six
months ended June 30, 2009, 24% and 28% 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 82% and 84% of the revenues in our Risk Assessment
segment for the year ended December 31, 2008 and the six
months ended June 30, 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, 2008 and the six months ended June 30,
2009, were $15.8 million and $9.7 million,
respectively, and have increased as a percentage of revenue from
3.3% to 3.7% of our Risk Assessment segment revenues from
December 31, 2006 to June 30, 2009. More than 68% and
59% of the revenues in our Decision Analytics segment, for the
years ended December 31, 2008 and the six months ended
June 30, 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 65% of our
total expenses for the year ended December 31, 2008 and the
six months ended June 30, 2009, respectively.
We allocate personnel expenses between two categories, cost of
revenues and selling, general and administrative costs based on
the actual costs associated with each employee. We categorize
employees who maintain our solutions as cost of revenues, and
all other personnel, including executive managers, sales people,
28
marketing, business development, finance, legal, human resources
and administrative services as selling, general and
administrative expenses. A significant portion of our other
operating costs, such as facilities and communications, are also
either captured within cost of revenues or selling, general and
administrative expense, based on the nature of the work being
performed.
While we expect to grow our headcount over time to take
advantage of our market opportunities, we believe that the
economies of scale in our operating model will allow us to grow
our personnel expenses at a lower rate than revenues.
Historically, our EBITDA margin has improved because we have
been able to increase revenues without a proportionate
corresponding increase in expenses.
Cost of Revenues. Our cost of revenues
consists primarily of personnel expenses. Cost of revenues also
includes the expenses associated with the acquisition and
verification of data, the maintenance of our existing solutions
and the development and enhancement of our next-generation
solutions. Our cost of revenues excludes depreciation and
amortization.
Selling, General and Administrative
Expense. Our selling, general and administrative
expense also consists primarily of personnel costs. A portion of
the other operating costs such as facilities, insurance and
communications are also allocated to selling, general and
administrative costs based on the nature of the work being
performed by the employee.
EBITDA
Margin
Our EBITDA margins for the years ended December 31, 2007
and December 31, 2008, were 42.1% and 42.0%, respectively.
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. Our EBITDA margins for the six
months ended June 30, 2008 and June 30, 2009 were
42.9% and 41.9%, respectively. Included within the decrease of
our EBITDA margin for the six months ended June 30, 2009
are increased pension costs of $9.1 million, representing a
1.8% negative impact on our EBITDA margin, due to the effect of
the global economic downturn on our pension investments in 2008,
as further discussed within “Critical Accounting Policies
and Estimates, Pension and Postretirement” section.
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 10 businesses from January
2006 to June 2009, nine of which are included in our Decision
Analytics segment. Specifically, these companies provide fraud
identification and detection, loss prediction and selection
solutions to the healthcare market. Included 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 $50.1 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
was paid in May 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. Xactware
achieved certain financial results, whereby additional
contingent payments of $98.1 million and $62.9 million
were paid in April 2008 and May 2009, respectively.
On January 14, 2009, we acquired D2Hawkeye or D2, a
privately-owned provider of information and analytic solutions
for the healthcare industry, for a net cash purchase price of
$58.6 million of which
29
$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
potentially payable in 2012. We have recorded $2.8 million
of 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. As of June 30, 2009, no change in the estimated
contingent consideration was required. Subsequent changes in the
estimated fair value of contingent consideration is recorded in
the statement of operations.
As of June 30, 2009, our indemnity escrows totaled
$21.2 million and are classified as current assets. A
portion of the escrows and other potential acquisition
contingent payments are linked to performance 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, 2006, 2007 and 2008 were $9.0 million,
$3.6 million and $0.3 million respectively, and for
the six months ended June 30, 2008 and 2009 were
$0.3 million and $0, respectively.
On July 24, 2009, we acquired the net assets of TierMed
Systems, LLC, or TierMed, a privately owned provider of
Healthcare Effectiveness Data and Information Set, or HEDIS,
software solutions to healthcare organizations that have HEDIS
or quality-reporting needs, for a net cash purchase price of
$7.6 million of which $0.4 million was used to fund
the indemnity escrows. The preliminary allocation of the
purchase price resulted in tangible assets of $0.4 million,
and we are still evaluating the allocation of the purchase price
related to intangible assets and goodwill. TierMed, located in
Chanhassen, Minnesota, complements and is integrated within our
Decision Analytics segment.
Equity
Compensation Costs
We have a leveraged employee stock ownership plan, or ESOP,
funded with intercompany debt that includes 401(k), ESOP and
profit sharing components to provide employees with equity
participation. We make quarterly cash contributions to the plan
equal to the debt service requirements. 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 participants’ eligible
compensation.
30
We accrue compensation expense over the reporting period equal
to the fair value of the shares to be released to the ESOP.
Depending on the number of shares released to the plan during
the quarter and the fluctuation in the fair value of the shares,
a corresponding increase or decrease in compensation expense
will occur. The amount of our equity compensation costs
recognized for the years ended December 31, 2006, 2007 and
2008 and the six months ended June 30, 2008 and 2009 are as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
401(k) matching contribution expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment
|
|
$
|
4,703
|
|
|
$
|
4,914
|
|
|
$
|
5,408
|
|
|
$
|
2,660
|
|
|
$
|
2,459
|
|
Decision Analytics
|
|
|
2,105
|
|
|
|
2,788
|
|
|
|
3,162
|
|
|
|
1,542
|
|
|
|
1,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 401(k) matching contribution expense
|
|
|
6,808
|
|
|
|
7,702
|
|
|
|
8,570
|
|
|
|
4,202
|
|
|
|
4,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Profit sharing contribution expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment
|
|
|
—
|
|
|
|
473
|
|
|
|
720
|
|
|
|
370
|
|
|
|
588
|
|
Decision Analytics
|
|
|
—
|
|
|
|
268
|
|
|
|
421
|
|
|
|
215
|
|
|
|
117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total profit sharing contribution expense
|
|
|
—
|
|
|
|
741
|
|
|
|
1,141
|
|
|
|
585
|
|
|
|
705
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ESOP allocation expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment
|
|
|
8,105
|
|
|
|
8,807
|
|
|
|
7,927
|
|
|
|
4,289
|
|
|
|
3,161
|
|
Decision Analytics
|
|
|
3,627
|
|
|
|
4,997
|
|
|
|
4,636
|
|
|
|
2,488
|
|
|
|
2,619
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP allocation expense
|
|
|
11,732
|
|
|
|
13,804
|
|
|
|
12,563
|
|
|
|
6,777
|
|
|
|
5,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ESOP cost
|
|
$
|
18,540
|
|
|
$
|
22,247
|
|
|
$
|
22,274
|
|
|
$
|
11,564
|
|
|
$
|
10,738
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $50.0 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 $9.7 million for
the years ended December 31, 2006, 2007 and 2008,
respectively, and were $4.8 million and $5.0 million
for the six months ended June 30, 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 1.2% to
our effective tax rate in years subsequent to 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 that vested in 2005, but for the year ended
December 31, 2006, we expensed the portion of the 2005 and
2006 option grants that vested in 2006. Since our options
generally have a four year vesting term, our expense for the
year ending 2009 and subsequent periods will consist of the
vested components of the prior four years of option grants. 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. These
costs were $6.5 million, $2.3 million and
$0.8 million for the year ended December 31, 2008 and
the six months ended June 30, 2008 and June 30, 2009,
respectively. Following the offering, we will
31
incur additional selling, general and administrative expenses
related to operating as a public company, such as increased
legal 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.
Upon the completion of this offering, we expect to grant up to
3,177,650 shares (on a post-split basis) 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
$1.5 million, $6.2 million, $6.2 million,
$5.6 million, and $2.9 million for 2009, 2010, 2011,
2012, and 2013, respectively. See “Management —
Executive Compensation — Verisk Analytics, Inc. 2009
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. 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. 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. We have been able to adequately secure credit
arrangements for the financing of our business and have recently
entered into a $420.0 million committed syndicated
revolving credit facility with Bank of America, N.A., as
administrative agent, which matures on July 2, 2012.
Interest is payable on borrowings under this credit facility at
variable rates of interest based on LIBOR plus 2.50%. We will
continue to explore financing alternatives in order to fund
future growth opportunities.
32
Results
of Operations
Set forth below is our results of operations expressed as a
percentage of revenues.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months
|
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
Statement of income data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues
|
|
|
45.4
|
%
|
|
|
44.5
|
%
|
|
|
43.3
|
%
|
|
|
43.6
|
%
|
|
|
43.8
|
%
|
Selling, general and administrative
|
|
|
13.7
|
%
|
|
|
13.4
|
%
|
|
|
14.7
|
%
|
|
|
13.5
|
%
|
|
|
14.3
|
%
|
Depreciation and amortization of fixed assets
|
|
|
3.8
|
%
|
|
|
4.0
|
%
|
|
|
4.0
|
%
|
|
|
3.8
|
%
|
|
|
3.8
|
%
|
Amortization of intangible assets
|
|
|
3.7
|
%
|
|
|
4.2
|
%
|
|
|
3.3
|
%
|
|
|
3.4
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
66.7
|
%
|
|
|
66.1
|
%
|
|
|
65.2
|
%
|
|
|
64.2
|
%
|
|
|
65.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
33.3
|
%
|
|
|
33.9
|
%
|
|
|
34.8
|
%
|
|
|
35.8
|
%
|
|
|
34.8
|
%
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and investment income/(loss)
|
|
|
0.8
|
%
|
|
|
1.2
|
%
|
|
|
(0.0
|
)%
|
|
|
0.1
|
%
|
|
|
(0.1
|
)%
|
Interest expense
|
|
|
(2.3
|
)%
|
|
|
(2.9
|
)%
|
|
|
(3.5
|
)%
|
|
|
(3.2
|
)%
|
|
|
(3.3
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income/(expense)
|
|
|
(1.4
|
)%
|
|
|
(1.7
|
)%
|
|
|
(3.5
|
)%
|
|
|
(3.2
|
)%
|
|
|
(3.4
|
)%
|
Income from continuing operations before income taxes
|
|
|
31.9
|
%
|
|
|
32.2
|
%
|
|
|
31.2
|
%
|
|
|
32.6
|
%
|
|
|
31.4
|
%
|
Provision for income taxes
|
|
|
(12.6
|
)%
|
|
|
(12.9
|
)%
|
|
|
(13.5
|
)%
|
|
|
(14.1
|
)%
|
|
|
(13.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
19.3
|
%
|
|
|
19.3
|
%
|
|
|
17.7
|
%
|
|
|
18.5
|
%
|
|
|
18.0
|
%
|
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
|
%
|
|
|
18.5
|
%
|
|
|
18.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
40.8
|
%
|
|
|
42.1
|
%
|
|
|
42.0
|
%
|
|
|
42.9
|
%
|
|
|
41.9
|
%
|
Six
Months Ended June 30, 2009 Compared to Six Months Ended
June 30, 2008
Consolidated
Results of Operations
Revenues
Revenues were $503.7 million for the six months ended
June 30, 2009 compared to $437.7 million for the six
months ended June 30, 2008, an increase of
$66.0 million or 15.1%. An acquisition in the fourth
quarter of 2008 and an acquisition in the first quarter of 2009
accounted for an increase of $16.0 million in revenues for
the six months ended June 30, 2009. Excluding these
acquisitions, revenues increased $50.0 million, which
included an increase in our Risk Assessment segment of
$9.5 million and an increase in our Decision Analytics
segment of $40.5 million.
Cost of
Revenues
Cost of revenues was $220.5 million for the six months
ended June 30, 2009 compared to $190.7 million for the
six months ended June 30, 2008, an increase of
$29.8 million or 15.6%. The increase was primarily due to
costs related to the newly acquired companies of
$9.3 million and an increase in salaries and employee
benefits costs of $14.9 million, which include annual
salary increases, medical costs and pension cost. Pension cost
represents $7.3 million of the benefits increase due to the
effect of the global economic downturn on our pension
investments in 2008. See “Critical Accounting Policies and
Estimates, Pension and Postretirement.” Other increases
include data and consultant costs of $6.2 million primarily
in our Decision Analytics segment, and office maintenance fees
of $0.9 million. These increases were partially offset by a
decrease in other expenses of $1.5 million, which included
travel and insurance costs. As a percentage of
33
revenue, cost of revenues increased to 43.8% for the six months
ended June 30, 2009 from 43.6% for the six months ended
June 30, 2008.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses were
$72.2 million for the six months ended June 30, 2009
compared to $59.0 million for the six months ended
June 30, 2008, an increase of $13.2 million or 22.4%.
The increase was primarily due to an increased salaries and
employee benefits costs of $7.2 million, which include
annual salary increases, medical costs, commission costs of
$1.5 million, and pension cost of $1.8 million across
a relatively constant employee headcount. Other increases were
costs attributable to the newly acquired companies of
$5.2 million and other general expenses of
$1.7 million. This increase was partially offset by a
decrease in legal costs of $0.9 million. As a percentage of
revenue, selling, general and administrative expenses increased
to 14.3% for the six months ended June 30, 2009 from 13.5%
for the six months ended June 30, 2008.
Depreciation
and Amortization of Fixed Assets
Depreciation and amortization of fixed assets were
$18.9 million for the six months ended June 30, 2009
compared to $16.4 million for the six months ended
June 30, 2008, an increase of $2.5 million or 15.2%.
Excluding the impact of an acquisition in the fourth quarter
2008 and an acquisition in the first quarter of 2009,
depreciation increased $1.8 million or 11.0%. Depreciation
and amortization of fixed assets includes depreciation of
furniture and equipment, software, computer hardware, and
related equipment. The majority of the increase relates to
software and hardware costs to support data capacity expansion
and revenue growth. As a percentage of revenue, depreciation and
amortization of fixed assets was 3.8% for both six-month periods
ended June 30, 2008 and 2009.
Amortization
of Intangible Assets
Amortization of intangible assets was $17.0 million for the
six months ended June 30, 2009 compared to
$14.9 million for the six months ended June 30, 2008,
an increase of $2.1 million or 13.6%. The increase was
primarily related to the amortization of the intangible assets
associated with two new acquisitions in fourth quarter 2008 and
first quarter 2009. As a percentage of revenue, amortization of
intangible assets was 3.4% for both six-month periods ended
June 30, 2008 and 2009.
Investment
Income and Realized Gains/(Losses) on Securities, Net
Investment income and realized losses on securities, net was a
loss of $(0.3) million for the six months ended
June 30, 2009 compared to a gain of $0.3 million for
the six months ended June 30, 2008, a decrease of
($0.6) million. Investment income for the first six months
ended June 30, 2009 includes $0.1 million of
investment income, offset by $0.4 million of other than
temporary impairment of securities. Investment income for the
six months ended June 30, 2008, consisted of
$1.6 million of investment income, offset by a $1.3
realized loss on sale of securities. The decrease in investment
income was primarily the result of the termination of the
shareholder loan program in 2008. As a percentage of revenue,
investment income and realized losses on securities, net, was
(0.1%) and 0.1% for the six months ended June 30, 2009 and
2008, respectively.
Interest
Expense
Interest expense was $16.7 million for the six months ended
June 30, 2009 compared to $14.2 million for the six
months ended June 30, 2008, an increase of
$2.5 million or 17.7%. This increase is primarily due to
greater debt outstanding of $689.1 million at June 30,
2009 as compared to $642.2 million at June 30, 2008.
As a percentage of revenue interest expense increased to 3.3%
for the six months ended June 30, 2009 from 3.2% for the
six months ended June 30, 2008.
34
Provision
for Income Taxes
The provision for income taxes was $67.3 million for the
six months ended June 30, 2009 compared to
$61.8 million for the six months ended June 30, 2008,
an increase of $5.5 million or 8.8%. The effective tax rate
was 42.5% for the six months ended June 30, 2009 compared
to 43.3% for the six months ended June 30, 2008. The 2009
rate is lower due to benefits associated with favorable state
audit settlements in 2009 compared to 2008, as well as certain
nondeductible losses incurred in the prior period for which tax
benefits were not recognized. As a percentage of revenue,
provision for income taxes decreased to 13.4% for the six months
ended June 30, 2009 from 14.1% for the six months ended
June 30, 2008.
EBITDA
Margin
The EBITDA margin for our consolidated results was 41.9% for the
six months ended June 30, 2009 compared to 42.9% for the
six months ended June 30, 2008. Included within the
decrease of our EBITDA margin for the six months ended
June 30, 2009 are increased pension costs of
$9.1 million, representing a 1.8% negative impact on our
EBITDA margin.
Risk
Assessment Results of Operations
Revenues
Revenues for our Risk Assessment segment were
$262.9 million for the six months ended June 30, 2009
compared to $253.4 million for the six months ended
June 30, 2008, an increase of $9.5 million or 3.8%.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Industry standard insurance programs
|
|
$
|
165,719
|
|
|
$
|
172,193
|
|
|
|
3.9
|
%
|
Property-specific rating and underwriting information
|
|
|
63,344
|
|
|
|
65,869
|
|
|
|
4.0
|
%
|
Statistical agency and data services
|
|
|
13,820
|
|
|
|
14,135
|
|
|
|
2.3
|
%
|
Actuarial services
|
|
|
10,473
|
|
|
|
10,676
|
|
|
|
1.9
|
%
|
Cost of
Revenues
Cost of revenues for our Risk Assessment segment was
$104.5 million for the six months ended June 30, 2009
compared to $103.1 million for the six months ended
June 30, 2008, an increase of $1.4 million or 1.3%.
The increase was primarily due to an increase in salaries and
employee benefits costs of $4.3 million, primarily related
to pension cost of $6.2 million, resulting from the global
economic downturn experienced in 2008 offset by a decrease in
salaries due to a slight reduction in headcount. There was also
an increase in office maintenance fees of $0.3 million.
This increase was partially offset by a decrease in data and
consultant costs of $1.2 million and in other operating
expenses of $2.1 million, which include decreases in travel
and insurance cost. As a percentage of Risk Assessment revenue,
cost of revenues decreased to 39.7% for the six months ended
June 30, 2009 from 40.7% for the six months ended
June 30, 2008.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses for our Risk
Assessment segment were $37.2 million for the six months
ended June 30, 2009 compared to $36.7 million for the
six months ended June 30, 2008, an increase of
$0.5 million or 1.3%. The increase was primarily due to an
increase in salaries and employee benefit costs of
$2.7 million, which include annual salary increases,
medical costs, commissions of $0.4 million, and pension
cost of $1.4 million, across a relatively constant employee
headcount. There was also an increase in other operating
expenses of $0.2 million. These increases were partially
offset by lower legal costs of $2.4 million primarily due
to higher initial public offering related costs incurred in the
six
35
months ended June 30, 2008. As a percentage of Risk
Assessment revenue, selling, general and administrative expenses
decreased to 14.2% for the six months ended June 30, 2009
from 14.5% for the six months ended June 30, 2008.
EBITDA
Margin
The EBITDA margin for our Risk Assessment segment was 46.1% for
the six months ended June 30, 2009 compared to 44.8% for
the six months ended June 30, 2008. Included within our
EBITDA margin for the six months ended June 30, 2009 are
increased pension costs of $7.6 million, representing a
2.9% negative impact on our EBITDA margin.
Decision
Analytics Results of Operations
Revenues
Revenues for our Decision Analytics segment were
$240.8 million for the six months ended June 30, 2009
compared to $184.3 million for the six months ended
June 30, 2008, an increase of $56.5 million or 30.6%.
Late in 2008 and in the first quarter 2009, we acquired two
companies. These acquisitions accounted for $16.0 million
of additional revenues for the six months ended June 30,
2009, all of which relates to our loss prediction category.
Excluding the impact of these acquisitions, revenue increased
$40.5 million for the six months ended June 30, 2009.
Our fraud identification and detection solutions revenue
increased $27.6 million primarily in our fraud detection
and forensic audit services for the home mortgage and mortgage
insurance industries as well as in response to the increased
scrutiny and refinancing within the mortgage industry. Our loss
quantification solution revenues increased $8.2 million as
a result of new customer contracts and volume increases
associated with natural disasters 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
|
|
|
June 30,
|
|
|
Percentage
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Fraud identification and detection solutions
|
|
$
|
102,858
|
|
|
$
|
130,475
|
|
|
|
26.8
|
%
|
Loss prediction solutions
|
|
|
46,260
|
|
|
|
66,896
|
|
|
|
44.6
|
%
|
Loss quantification solutions
|
|
|
35,216
|
|
|
|
43,423
|
|
|
|
23.3
|
%
|
Cost of
Revenues
Cost of revenues for our Decision Analytics segment was
$116.0 million for the six months ended June 30, 2009
compared to $87.5 million for the six months ended
June 30, 2008, an increase of $28.5 million or 32.6%.
The increase included $9.3 million in costs attributable to
the newly acquired companies. Excluding the impact of these
acquisitions, the cost of revenues increased $19.2 million,
primarily due to an increase in salaries and employee benefits
of $10.6 million, which includes annual salary increases,
medical costs, equity compensation costs, and pension cost. This
increase in salaries and benefits is related to a modest
increase in employee headcount relative to the 26.8% revenue
growth in our fraud identification and detection solutions and
to an increase in pension cost of $1.1 million. Other
increases include data and consultant costs of
$7.4 million, office maintenance fees of $0.6 million,
and an increase in other operating expenses of
$0.6 million. As a percentage of Decision Analytics
revenue, cost of revenues increased to 48.2% for the six months
ended June 30, 2009 from 47.5% for the six months ended
June 30, 2008.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses were
$35.0 million for the six months ended June 30, 2009
compared to $22.3 million for the six months ended
June 30, 2008, an increase of $12.7 million or 56.9%.
The increase was due to costs attributable to the newly acquired
companies of $5.2 million, an increase in salaries and
employee benefits costs across a relatively constant employee
headcount of
36
$4.5 million, which include annual salary increases,
medical claims costs, commission of $1.1 million, and
pension cost of $0.4 million. Other increases include an
increase in legal costs of $1.5 million and other general
expenses of $1.5 million. As a percentage of Decision
Analytics revenue, selling, general and administrative expenses
increased to 14.5% for the six months ended June 30, 2009
from 12.1% for the six months ended June 30, 2008.
EBITDA
Margin
The EBITDA margin for our Decision Analytics segment was 37.3%
for the six months ended June 30, 2009 compared to 40.4%
for the six months ended June 30, 2008. Included within the
decrease of our EBITDA margin for the six months ended
June 30, 2009 were the increased pension costs of
$1.5 million, representing a 0.6% negative impact on our
EBITDA margin.
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.
37
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 $29.6 million for the
year ended December 31, 2008 compared to $33.9 million
for the year ended December 31, 2007, a decrease of
$4.3 million or 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
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/(Losses) on Securities, Net
Investment income and realized gains/(losses) on securities, net
was $(0.3) million for the year ended December 31,
2008 compared to $9.3 million for the year ended
December 31, 2007, a decrease of $9.6 million.
Investment income and realized 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 $4.6 million
coupled with the loss on sales of securities of
$1.3 million and other than temporary impairment of
securities of $1.2 million for the year ended
December 31, 2008 as compared to a gain on our investment
portfolio of $2.3 million for the period ended
December 31, 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 $31.3 million for the year ended
December 31, 2008 compared to $22.9 million for the
year ended December 31, 2007, an increase of
$8.4 million or 36.6%. This increase is primarily due to
greater debt outstanding of $669.8 million at
December 31, 2008 as compared to $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.
Provision
for Income Taxes
The provision for income taxes was $120.7 million for the
year ended December 31, 2008 compared to
$103.2 million for the year ended December 31, 2007,
an increase of $17.5 million or 16.9%. The effective tax
rate was 43.3% for the year ended December 31, 2008
compared to 40.0% for the year ended December 31, 2007. The
2008 rate is higher due 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 year ended
December 31, 2008 from 12.9% for the year ended
December 31, 2007.
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,
resulting from costs of $2.9 million to support customer
contracts in our claim consulting business that were 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
38
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.
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.
Risk
Assessment Results of Operations
Revenues
Revenues for our Risk Assessment segment were
$504.4 million for the year ended December 31, 2008
compared to $485.2 million for the year ended
December 31, 2007, an increase of $19.2 million or
4.0%. The increase was primarily due to an increase in the sales
of our industry-standard insurance 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
$199.9 million for the year ended December 31, 2008
compared to $204.2 million for the year ended
December 31, 2007, a decrease of $4.3 million or 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 million. 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 year ended
December 31, 2007. The decrease was partially offset by an
increase in office maintenance fees of $1.1 million and an
increase in software and data costs of $0.4 million. As a
percentage of Risk Assessment revenues, cost of revenues
decreased to 39.6% for the year ended December 31, 2008
from 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 $81.8 million for the year ended
December 31, 2008 compared to $68.2 million for the
year ended December 31, 2007, an increase of
$13.6 million or 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, 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
39
Assessment revenues, selling, general and administrative
expenses increased to 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 44.2% for
the year ended December 31, 2008 compared to 43.9% for the
year ended December 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.
Decision
Analytics Results of Operations
Revenues
Revenues for our Decision Analytics segment were
$389.2 million for the year ended December 31, 2008
compared to $317.0 million for the year ended
December 31, 2007, an increase of $72.2 million or
22.7%. In 2007 and 2008, we acquired three companies and two
companies, respectively. These acquisitions accounted for
$3.9 million and $42.5 million of additional revenues
for the years ended December 31, 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
$33.6 million 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 of our existing customers. Excluding acquisitions,
our fraud and detection solutions revenue increased $9.0 million
due 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 analytic solutions due to adverse market conditions in
that industry. Our revenue by category for the periods presented
is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
Percentage
|
|
|
|
2007
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Fraud identification and detection solutions
|
|
$
|
172,726
|
|
|
$
|
213,994
|
|
|
|
23.9
|
%
|
Loss prediction solutions
|
|
|
81,110
|
|
|
|
95,128
|
|
|
|
17.3
|
%
|
Loss quantification solutions
|
|
|
63,199
|
|
|
|
80,037
|
|
|
|
26.6
|
%
|
Cost of
Revenues
Cost of revenues for our Decision Analytics segment was
$187.0 million for the year ended December 31, 2008
compared to $153.0 million for the year ended
December 31, 2007, an increase of $34.0 million or
22.2%. The increase included $25.4 million in costs
attributable to the newly acquired companies. Excluding the
impact of these acquisitions, the cost of revenues increased
$8.6 million, primarily due to an increase in salaries and
employee benefits of $4.3 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 $3.0 million, an
increase in other operating expenses of $2.9 million and an
increase in office maintenance costs of $1.7 million. These
increases were partially offset by lower acquisition contingent
payments of $3.3 million associated with acquisitions
recorded in the comparable prior period. As a percentage of
Decision Analytics revenues, cost of revenues decreased to 48.1%
for the year ended December 31, 2008 from 48.3% for the
year ended December 31, 2007.
Selling,
General and Administrative Expenses
Selling, general and administrative expenses were
$49.4 million for the year ended December 31, 2008
compared to $39.4 million for the year ended
December 31, 2007, an increase of $10.0 million or
40
25.5%. The increase was due to an 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 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 increased to 12.7% for the year ended
December 31, 2008 from 12.4% for the year ended
December 31, 2007.
EBITDA
Margin
The EBITDA margin for our Decision Analytics segment was 39.2%
for the year ended December 31, 2008 compared to 39.3% for
the year ended December 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.
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 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
7.4%. 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%.
41
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%.
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.
Provision
for Income Taxes
Provision for income taxes was $103.2 million for the year
ended December 31, 2007 compared to $92.0 million for
the year ended December 31, 2006, an increase of
$11.2 million or 12.2%. The effective tax rate was 40.0%
for the year ended December 31, 2007 compared to 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
42
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 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
43
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
|
|
|
|
|
|
|
December 31,
|
|
|
Percentage
|
|
|
|
2006
|
|
|
2007
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
|
|
|
Fraud identification and detection solutions
|
|
$
|
168,189
|
|
|
$
|
172,726
|
|
|
|
2.7
|
%
|
Loss prediction solutions
|
|
|
67,129
|
|
|
|
81,110
|
|
|
|
20.8
|
%
|
Loss quantification solutions
|
|
|
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.
44
Quarterly
Results of Operations
The following table sets forth our quarterly unaudited
consolidated statement of operations data for each of the eight
quarters in the period ended June 30, 2009. In
management’s opinion, the data has been prepared on the
same basis as the audited consolidated financial statements
included in this prospectus, and reflects all necessary
adjustments for a fair presentation of this data. The results of
historical periods are not necessarily indicative of the results
of operations for a full year or any future period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Quarter Ended
|
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
March 31,
|
|
|
June 30,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Statement of income data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment revenues
|
|
$
|
120,997
|
|
|
$
|
119,607
|
|
|
$
|
127,039
|
|
|
$
|
126,317
|
|
|
$
|
125,186
|
|
|
$
|
125,849
|
|
|
$
|
129,566
|
|
|
$
|
133,307
|
|
Decision Analytics revenues
|
|
|
78,726
|
|
|
|
82,877
|
|
|
|
88,579
|
|
|
|
95,755
|
|
|
|
99,205
|
|
|
|
105,620
|
|
|
|
116,185
|
|
|
$
|
124,609
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
199,723
|
|
|
|
202,484
|
|
|
|
215,618
|
|
|
|
222,072
|
|
|
|
224,391
|
|
|
|
231,469
|
|
|
|
245,751
|
|
|
|
257,916
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenues
|
|
|
85,343
|
|
|
|
95,346
|
|
|
|
93,310
|
|
|
|
97,368
|
|
|
|
98,307
|
|
|
|
97,912
|
|
|
|
107,523
|
|
|
|
112,978
|
|
Selling, general and administrative
|
|
|
26,989
|
|
|
|
24,987
|
|
|
|
28,674
|
|
|
|
30,354
|
|
|
|
32,265
|
|
|
|
39,946
|
|
|
|
33,320
|
|
|
|
38,905
|
|
Depreciation and amortization of fixed assets
|
|
|
7,799
|
|
|
|
8,448
|
|
|
|
7,907
|
|
|
|
8,517
|
|
|
|
9,054
|
|
|
|
9,839
|
|
|
|
9,195
|
|
|
|
9,718
|
|
Amortization of intangible assets
|
|
|
7,724
|
|
|
|
8,952
|
|
|
|
8,041
|
|
|
|
6,896
|
|
|
|
7,041
|
|
|
|
7,577
|
|
|
|
8,510
|
|
|
|
8,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
127,855
|
|
|
|
137,733
|
|
|
|
137,932
|
|
|
|
143,135
|
|
|
|
146,667
|
|
|
|
155,274
|
|
|
|
158,548
|
|
|
|
170,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
71,868
|
|
|
|
64,751
|
|
|
|
77,686
|
|
|
|
78,937
|
|
|
|
77,724
|
|
|
|
76,195
|
|
|
|
87,203
|
|
|
|
87,851
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income and realized gains/(losses) on securities, net
|
|
|
1,725
|
|
|
|
2,620
|
|
|
|
(458
|
)
|
|
|
775
|
|
|
|
2
|
|
|
|
(646
|
)
|
|
|
(355
|
)
|
|
|
82
|
|
Interest expense
|
|
|
(5,578
|
)
|
|
|
(5,876
|
)
|
|
|
(6,326
|
)
|
|
|
(7,847
|
)
|
|
|
(8,393
|
)
|
|
|
(8,750
|
)
|
|
|
(8,154
|
)
|
|
|
(8,523
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(3,853
|
)
|
|
|
(3,256
|
)
|
|
|
(6,784
|
)
|
|
|
(7,072
|
)
|
|
|
(8,391
|
)
|
|
|
(9,396
|
)
|
|
|
(8,509
|
)
|
|
|
(8,441
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
68,015
|
|
|
|
61,495
|
|
|
|
70,902
|
|
|
|
71,865
|
|
|
|
69,333
|
|
|
|
66,799
|
|
|
|
78,694
|
|
|
|
79,410
|
|
Provision for income taxes
|
|
|
(28,841
|
)
|
|
|
(21,911
|
)
|
|
|
(29,876
|
)
|
|
|
(31,942
|
)
|
|
|
(28,493
|
)
|
|
|
(30,360
|
)
|
|
|
(33,779
|
)
|
|
|
(33,471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
39,174
|
|
|
|
39,584
|
|
|
|
41,026
|
|
|
|
39,923
|
|
|
|
40,840
|
|
|
|
36,439
|
|
|
|
44,915
|
|
|
|
45,939
|
|
Loss from discontinued operations, net of tax
|
|
|
(2,020
|
)
|
|
|
(1,267
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
37,154
|
|
|
$
|
38,317
|
|
|
$
|
41,026
|
|
|
$
|
39,923
|
|
|
$
|
40,840
|
|
|
$
|
36,439
|
|
|
$
|
44,915
|
|
|
$
|
45,939
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk Assessment EBITDA
|
|
$
|
55,199
|
|
|
$
|
52,762
|
|
|
$
|
58,122
|
|
|
$
|
55,378
|
|
|
$
|
53,813
|
|
|
$
|
55,393
|
|
|
$
|
60,599
|
|
|
$
|
60,598
|
|
Decision Analytics EBITDA
|
|
|
32,192
|
|
|
|
29,389
|
|
|
|
35,512
|
|
|
|
38,972
|
|
|
|
40,006
|
|
|
|
38,218
|
|
|
|
44,309
|
|
|
|
45,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
$
|
87,391
|
|
|
$
|
82,151
|
|
|
$
|
93,634
|
|
|
$
|
94,350
|
|
|
$
|
93,819
|
|
|
$
|
93,611
|
|
|
$
|
104,908
|
|
|
$
|
106,033
|
|
Liquidity
and Capital Resources
As of December 31, 2008 and June 30, 2009, we had cash
and cash equivalents and available-for sale securities of
$38.3 million and $51.0 million, respectively.
Subscriptions for our solutions are billed and generally paid in
advance of rendering services either quarterly or in full upon
commencement of the subscription period, which is usually for
one year, and they are automatically renewed at the beginning of
each calendar year. We have historically generated significant
cash flows from operations. As a result of this factor, as well
as the availability of funds under our committed credit
facilities, we believe we will have sufficient cash to meet our
working capital and capital expenditure needs, including
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
direct cash outflow since our customers have prepaid and are
obligated to purchase the services. In most businesses, growth
in revenue typically leads to an increase in the accounts
receivable balance
45
causing a use of cash as a company grows. Unlike these
businesses, our cash position is favorably affected by revenue
growth, which results in a source of cash due to our customers
prepaying for most of our services.
Our capital expenditures, which includes non-cash purchases of
fixed assets, as a percentage of revenues for the years ended
December 31, 2006, 2007 and 2008 were 3.5%, 4.1% and 3.7%,
respectively, and for the six months ended June 30, 2008
and 2009 were 4.4% and 3.7%, respectively. We estimate our
capital expenditures for the remainder of 2009 to be
approximately $22 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,
2006, 2007 and 2008 we repurchased or redeemed
$128.0 million, $204.8 million and $392.6 million,
respectively, of our common stock and for the six months ended
June 30, 2008 and 2009 we repurchased or redeemed
$237.1 million and $38.3 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
$659.0 million at December 31, 2006, 2007 and 2008,
respectively, and $679.0 million at June 30, 2009.
Approximately $525.0 million of this debt at June 30,
2009 was held under long-term loan facilities drawn to finance
our stock repurchases and acquisitions and the remaining
$154.0 million was held pursuant to our revolving credit
facilities.
As of June 30, 2009, all of our long-term loan facilities
are uncommitted facilities and our short-term loan facilities
are primarily committed facilities. As noted below, effective
July 2, 2009, our revolving credit facility is committed.
We have long-term loan facilities under uncommitted master shelf
agreements with Prudential Capital Group
(“Prudential”), New York Life and Aviva Investors
North America (“Aviva”) with available capacity at
June 30, 2009 in the amount of $115.0 million,
$15.0 million and $20.0 million, respectively. We can
borrow under the Prudential facility until February 28,
2010, under the 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 weighted average rate of interest with
respect to our outstanding long-term borrowings was 5.50% and
5.80% for the six months ended June 30, 2008 and 2009,
respectively, and 4.75%, 5.23% and 5.64% for the years
ended December 31, 2006, 2007 and 2008, respectively.
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 committed facilities, which
are made at variable rates of interest based on LIBOR plus 0.80%
to 0.95%. We had $114.0 million and $154.0 million in
short-term borrowings outstanding as of December 31, 2008
and June 30, 2009, respectively. We had additional capacity
of $106.0 million in short-term committed credit facilities
at June 30, 2009.
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
46
outstanding into a one-year term loan. We did not have any
amount outstanding under this facility as of June 30, 2009.
On April 27, 2009, we issued a senior promissory note 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%.
On June 15, 2009, we repaid our $100.0 million
Prudential Series D senior notes. In order to pay the Prudential
Series D senior notes, we issued senior promissory notes under
the uncommitted master shelf agreement with Prudential Capital
Group in the aggregate principal amount of $50.0 million
due June 15, 2016 and borrowed $50.0 million from our
revolving credit facility with Bank of America. Interest is
payable quarterly at a fixed rate of 6.85% on the senior
promissory notes.
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 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 July 2, 2009, we entered into a $300.0 million
syndicated revolving credit facility with Bank of America, N.A.,
JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A. and Wells
Fargo Bank, N.A. that matures on July 2, 2012. Bank of
America, N.A., Morgan Stanley Bank, N.A., JPMorgan Chase Bank,
N.A. and Wells Fargo Bank, N.A. are affiliates of underwriters
of this offering. On August 21, 2009, PNC Bank, N.A.,
Sovereign Bank, RBS Citizens, N.A. and SunTrust Bank joined the
syndicated revolving credit facility increasing the availability
to $420.0 million. This facility is committed with a one
time fee of approximately $4.5 million and ongoing unused
facility fee of 0.375%. Interest is payable at maturity at a
rate to be determined at the time of borrowing. The syndicated
revolving credit facility replaces our previous revolving credit
facilities with Bank of America, N.A., JPMorganChase Bank, N.A.,
Morgan Stanley Bank, N.A., and Wachovia Bank, N.A. The credit
facility contains certain customary financial and other
covenants that, among other things, impose certain restrictions
on indebtedness, liens, investments, and capital expenditures.
These covenants also place restrictions on mergers, asset sales,
sale and leaseback transactions, dividends, payments between us
and our subsidiaries and certain transactions with affiliates.
The financial covenants require that at the end of any fiscal
quarter, we have a consolidated interest coverage ratio of at
least 3.0 to 1.0 and that during any period of four fiscal
quarters we maintain a consolidated funded debt leverage ratio
of below 3.0 to 1.0.
On July 2, 2009, we borrowed $154.0 million through
the syndicated revolving credit facility to repay
$115.0 million and $39.0 million owed to Bank of
America, N.A. and JPMorganChase Bank, N.A., respectively, as of
June 30, 2009. Interest is payable on this borrowing at a
weighted average interest rate of 2.91%. Interest is payable on
borrowings under this credit facility at variable rates of
interest based on LIBOR plus 2.50%.
47
Cash
Flow
The following table summarizes our cash flow data for the years
ended December 31, 2006, 2007 and 2008 and for the six
months ended June 30, 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months
|
|
|
|
For the Years Ended December 31,
|
|
|
Ended June 30,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
$
|
223,499
|
|
|
$
|
248,521
|
|
|
$
|
247,906
|
|
|
$
|
141,929
|
|
|
$
|
184,529
|
|
Net cash used in investing activities
|
|
$
|
(243,452
|
)
|
|
$
|
(110,831
|
)
|
|
$
|
(130,466
|
)
|
|
$
|
(98,402
|
)
|
|
$
|
(152,683
|
)
|
Net cash provided by/(used in) financing activities
|
|
$
|
75,907
|
|
|
$
|
(212,591
|
)
|
|
$
|
(107,376
|
)
|
|
$
|
(16,759
|
)
|
|
$
|
(19,157
|
)
|
Operating
Activities
Net cash provided by operating activities increased to
$184.5 million for the six months ended June 30, 2009
from $141.9 million for the six months ended June 30,
2008. The increase in net cash provided by operating activities
was principally due to an increase in cash receipts of
approximately $62.0 million and a decrease in salary and
employee related payments of $10.2 million due to an
additional pay-cycle that occurred during the six months ended
June 30, 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
operating expense payments of $14.8 million, an increase in
tax payments of $5.3 million and an increase in interest
payments of $3.9 million during the six months ended
June 30, 2009 compared to the six months ended
June 30, 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 preparation for our
initial public offering. This decrease was mitigated by growth
in net income of $7.9 million and decreased payments
associated with acquisition related liabilities of
$11.5 million. Net cash provided by operating activities
increased to $248.5 million for the year ended
December 31, 2007 from $223.5 million for the year
ended December 31, 2006. The increase in net cash provided
by operating activities from 2006 to 2007 of $25.0 million
was principally due to growth in net income and improved
accounts receivable collections, partially offset by reduced
growth in our cash received in advance from our customers.
Investing
Activities
Net cash used in investing activities was $152.7 million
for the six months ended June 30, 2009 compared to
$98.4 million for the six months ended June 30, 2008.
The increase in net cash used in investing activities was
principally due to the acquisition of D2Hawkeye for
$51.6 million, and increased escrow funding associated with
acquisitions of $3.7 million. In addition, net proceeds
from sales and maturities of available-for-sale securities
declined by $20.8 million during the six months ended
June 30, 2009 compared to the six months ended
June 30, 2008. These increases in net cash used in
investing activities were offset by a $20.0 million
decrease in payment of acquisition related liabilities during
the six months ended June 30, 2009 compared to the six
months ended June 30, 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 used in investing activities was
principally due to the payment of acquisition related
liabilities of $98.1 million, resulting from achievement of
post-acquisition performance targets, and the purchase of
cost-method investments of $5.8 million. These increases
are partially offset by decreases in purchases of
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,
48
2006. The decrease in net cash used by investing activities from
2007 to 2006 was principally due to the acquisition of Xactware
during August 2006.
Financing
Activities
Net cash used in financing activities was $19.2 million for
the six months ended June 30, 2009 and $16.8 million
for the six months ended June 30, 2008. Net cash used in
financing activities for the six months ended June 30, 2009
included $38.3 million for redemptions of common stock, an
increase in total debt of $17.3 million and excess tax
benefits from exercised stock options of $0.7 million. Net
cash used in financing activities for the six months ended
June 30, 2008 included $237.1 million for redemptions
of common stock, an increase in total debt of
$202.4 million and excess tax benefits from exercised stock
options of $17.0 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 decrease in net cash used in financing activities was
principally due to an increase in proceeds from the issuance of
long-term 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 in 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. The change in net cash provided by
financing activities from 2007 to 2006 was principally due to
the repurchases of common stock and the repayment of our short
term debt.
Contractual
Obligations
The following table summarizes our contractual obligations and
commercial commitments at December 31, 2008, and the future
periods in which such obligations are expected to be settled in
cash:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period
|
|
|
|
|
|
|
Less than
|
|
|
|
|
|
|
|
|
More than
|
|
|
|
Total
|
|
|
1 Year
|
|
|
1-3 Years
|
|
|
3-5 Years
|
|
|
5 Years
|
|
|
|
(In thousands)
|
|
|
Contractual obligations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt(1)
|
|
$
|
675,637
|
|
|
$
|
128,890
|
|
|
$
|
175,279
|
|
|
$
|
186,189
|
|
|
$
|
185,279
|
|
Capital lease obligations
|
|
|
10,162
|
|
|
|
5,315
|
|
|
|
4,800
|
|
|
|
47
|
|
|
|
—
|
|
Operating leases
|
|
|
199,662
|
|
|
|
20,554
|
|
|
|
39,714
|
|
|
|
36,174
|
|
|
|
103,220
|
|
Earnout and contingent payment(2)
|
|
|
82,700
|
|
|
|
82,700
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Pension and postretirement(3)
|
|
|
215,221
|
|
|
|
11,059
|
|
|
|
79,773
|
|
|
|
70,206
|
|
|
|
54,183
|
|
Other long-term liabilities(4)
|
|
|
12,914
|
|
|
|
377
|
|
|
|
1,106
|
|
|
|
433
|
|
|
|
10,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total(5)
|
|
$
|
1,196,296
|
|
|
$
|
248,895
|
|
|
$
|
300,672
|
|
|
$
|
293,049
|
|
|
$
|
353,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of June 30, 2009, our long-term debt due in less than
1 year has decreased approximately $100 million
primarily due to the repayment of $100.0 million Prudential
Series D senior notes. Our debt due in
3-5 years
and more than 5 years periods increased by approximately
$39.0 million and $58.0 million, respectively, due to
the issuance of $30.0 million Aviva Series A senior notes,
and $50.0 million Prudential Series J senior notes,
respectively. |
|
(2) |
|
As of June 30, 2009, we have settled all acquisition
contingent payments. |
|
(3) |
|
Our funding policy is to contribute an amount at least equal to
the minimum legal funding requirement. |
|
(4) |
|
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 |
49
|
|
|
|
|
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. |
|
(5) |
|
Unrecognized tax benefits of approximately $31.7 million
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, we have
also recorded a liability for potential penalties and interest
of $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 are
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.
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
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
50
prospective approach for the years ended December 31, 2006,
2007, 2008 and the six months ended June 30, 2008 and 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
|
|
|
|
For the Year Ended
|
|
|
Months Ended
|
|
|
|
December 31
|
|
|
June 30
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
2005 grants
|
|
$
|
2,661
|
|
|
$
|
2,424
|
|
|
$
|
2,209
|
|
|
$
|
1,158
|
|
|
$
|
724
|
|
2006 grants
|
|
|
3,487
|
|
|
|
2,512
|
|
|
|
1,870
|
|
|
|
1,171
|
|
|
|
780
|
|
2007 grants
|
|
|
—
|
|
|
|
3,308
|
|
|
|
2,561
|
|
|
|
1,313
|
|
|
|
757
|
|
2008 grants
|
|
|
—
|
|
|
|
—
|
|
|
|
3,241
|
|
|
|
979
|
|
|
|
1,647
|
|
2009 grants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,607
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation
|
|
$
|
6,148
|
|
|
$
|
8,244
|
|
|
$
|
9,881
|
|
|
$
|
4,621
|
|
|
$
|
5,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
According to FAS No. 123(R) we only use the
prospective approach for the prior four years of grants, each of
which has a four year vesting term, therefore our 2009 financial
statements will reflect compensation expenses relating to grants
primarily 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.
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 over time, 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.
51
As of December 31, 2008, our share price declined as
compared to the prior year. This decline was 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. As of June 30, 2009, our share price increased
primarily due to our strong overall financial performance and
the improvement in the equity markets. The midpoint of the price
range on the cover page of this preliminary prospectus reflects
a 12.5% increase from the exercise price used for the most
recent stock options granted on July 1, 2009, based on our
June 30, 2009 share price. During the period from
June 30, 2009 to September 16, 2009 (the date our
board of directors approved the price range), the Dow Jones
Industrial Average was up 15.9%, the S&P 500 was up 16.3%
and the Russell 2000 was up 21.5%.
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 year ended December 31,
2007, we recorded an impairment charge of $1.7 million
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 June 30, 2009, we had goodwill and net intangible
assets of $606.8 million, which represents 60.1% of our
total assets. We completed the required annual impairment test
as of June 30, 2009, which resulted in no impairment of
goodwill. 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 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.
Certain assumptions are used in the determination of our annual
net period benefit cost and the disclosure of the funded status
of these plans. The principal assumptions concern the discount
rate used to measure the projected benefit obligation, the
expected 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.
52
In determining the discount rate, we utilize quoted rates from
long-term bond indices, and changes in long-term bond rates over
the past year, cash flow models and other data sources we
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 return on plan assets is determined by taking into
consideration our analysis of our actual historical investment
returns to a broader long-term forecast adjusted based on our
target investment allocation, 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 six months ended June 30, 2009 is $10.0 million as
compared to $0.9 million for the six months ended
June 30, 2008, an increase of $9.1 million. We 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 with 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.
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
|
|
|
|
|
|
|
Projected Benefit
|
|
|
|
|
|
Projected Benefit
|
|
|
|
Benefit Cost
|
|
|
Obligation
|
|
|
Benefit Cost
|
|
|
Obligation
|
|
|
|
(In thousands)
|
|
|
Discount rate
|
|
$
|
256
|
|
|
$
|
41,123
|
|
|
$
|
375
|
|
|
$
|
(34,712
|
)
|
Expected return on asset
|
|
|
3,326
|
|
|
|
—
|
|
|
|
(3,326
|
)
|
|
|
—
|
|
Rate of compensation
|
|
|
(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
|
|
$
|
(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
53
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 FASB Interpretation
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 an 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, 2008 we have federal and state income
tax net operating loss carryforwards of $88.2 million, which
will expire at various dates from 2009 through 2028. Such net
operating loss carryforwards expire as follows:
|
|
|
|
|
2009 - 2016
|
|
$
|
56.8 million
|
|
2017 - 2021
|
|
|
0.6 million
|
|
2022 - 2028
|
|
|
30.8 million
|
|
|
|
|
|
|
|
|
$
|
88.2 million
|
|
|
|
|
|
|
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 options for the years ended
December 31, 2005, 2006 and 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 estimate unrecognized tax positions of $2.8 million that may
be recognized by June 30, 2010, due to expiration of
statutes of limitations and resolution of audits with taxing
authorities, net of additional uncertain tax positions.
Recent
Accounting Pronouncements
For a discussion of additional recent accounting pronouncements,
refer to note 2(p) to the audited consolidated financial
statements and note 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 June 30, 2009 we had borrowings outstanding under
our revolving credit facilities of $154.0 million, which
bear interest at variable rates based on LIBOR plus 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 June 30, 2009, a one percent change in
interest rates would result in a change in annual pretax
interest expense of approximately $1.5 million based on our
current level of borrowings.
54
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 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 six leading mortgage
insurers, 14 of the top 20 mortgage lenders and the 10 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 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 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
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 76% of our revenue in
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, 2008 and the six months
ended June 30, 2009, we had revenue of $894 million
and $504 million, respectively, and net income of
$158 million and $91 million, respectively. For the
five year
55
period ended December 31, 2008, our revenues and net income
have grown at a CAGR of 13.0% and 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 over 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, 2008 and the six months
ended June 30, 2009, our Risk Assessment segment produced
revenue of $504 million and $263 million, representing
56% and 52% of our total revenue, respectively, and EBITDA of
$223 million and $121 million, representing 59% and
57% of our total EBITDA, respectively. This segment’s
revenue and EBITDA have a CAGR of 5.7% and 7.6%, respectively,
for the five-year period ended December 31, 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 over 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 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. For example, in 2008 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, 2008 and the six months
ended June 30, 2009, our Decision Analytics segment
produced revenue of $389 million and $241 million,
representing 44% and 48% of our total revenue, respectively, and
EBITDA of $153 million and $90 million, representing
41% and 43% of our total EBITDA, respectively. This
segment’s revenue and EBITDA had a CAGR of 28.1% and 41.6%,
respectively, for the five-year period ended December 31,
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 2009 report from Veronis Suhler Stevenson, an
industry consultant, spending on professional and business
information services in the U.S. reached $49 billion
in 2008 and is projected to grow at a CAGR of 5% through 2013.
Another research firm, International Data Corporation, or IDC,
in a report dated June 2009, estimates that the business
analytics services market, which totaled $35 billion in
2008, will grow at a CAGR of 7% through 2013.
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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:
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the total value of exposures in risk transactions is increasing;
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the number of participants in risk transactions is often large
and the asymmetry of information among participants is often
substantial; and
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the failure to understand risk can lead to large and rapid
declines in financial performance.
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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:
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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
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U.S. health expenditures have grown at a CAGR of 7% between
1997 and 2007 and are expected to grow over 6% annually through
2018, according to data compiled by the U.S. Department of
Health and Human Services; and
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The total value of outstanding U.S. mortgage debt grew from
$10.7 trillion at the end of 2004 to $14.6 trillion at
December 31, 2008, a CAGR of over 8%.
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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 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 $71 billion and $238 billion in 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 199 and 111 of the top originators into failure in 2007
and 2008, 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 578 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. As of December 31, 2008 and June 30, 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.
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 76% of our revenues in 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 37.2% in 2004 to 42.0% in 2008.
Low Capital Intensity. We have low capital
needs that allow us to generate strong cash flow. In 2008, our
operating income and capital expenditures as a percentage of
revenue were 34.8% and 3.7%, respectively.
Our
Growth Strategy
Over the past five fiscal 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. 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-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 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.
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.
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, 2008 and the six months
ended June 30, 2009, our Risk Assessment segment produced
revenues of $504 million and $263 million,
representing 56% and 52% of our total revenues, respectively,
and EBITDA of $223 million and $121 million,
representing 59% and 57% of our total EBITDA, respectively. This
segment’s revenues and EBITDA have a CAGR of 5.7% and 7.6%,
respectively, for the five-year period ended December 31,
2008.
Statistical
Agent and Data Services
The P&C insurance industry is heavily regulated in the
United States. P&C insurers are 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 over 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 41 Fellows and 24 Associates of the Casualty
Actuarial Society, as well as 154 Chartered Property
Casualty Underwriters, 12 Certified and 23 Associate
Insurance Data Managers, 178 members of the Insurance Data
Management Association and 145 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 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 policy 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 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.
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, 2008 and the six months
ended June 30, 2009, our Decision Analytics segment
produced revenues of $389 million and $241 million,
representing 44% and 48% of our total revenues, respectively,
and EBITDA of $153 million and $90 million,
representing 41% and 43% of our total EBITDA, respectively. This
segment’s revenues and EBITDA have a CAGR of 28.1% and
41.6%, respectively, for the five-year period ended
December 31, 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
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 600 million
claims and is the world’s largest database of claims
information. Insurers and other participants submit new claim
reports, more than 238,000 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, physicians’ 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 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:
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estimating replacement costs during the insurance underwriting
process;
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quantifying the ultimate cost of repair or reconstruction of
damaged or destroyed buildings;
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aiding in the settlement of insurance claims; and
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tracking the process of repair or reconstruction and
facilitating communication among insurers, adjusters,
contractors and policyholders.
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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 monthly 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 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, legal
and/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 2008 our largest Risk Assessment
customer accounted for 4.9% of segment revenues, and our top ten
customers accounted for 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, 583 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 approximately 70% of the
dollar value of catastrophe bond securitizations through 2008.
Also, P&C insurance companies using our building and repair
solutions handle over 60% of the property claims in the United
States. We 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 2008, our largest customer in the
Decision Analytics segment
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accounted for 3.8% of segment revenues and our top ten Decision
Analytics customers accounted for 20.5% of segment revenues.
In the U.S. mortgage industry, we have more than 950
customers, including Wells Fargo, Citigroup and Bank of America.
We provide our solutions to 14 of the top 20 mortgage lenders
and four of the top six mortgage insurers, United Guaranty,
RMIC, PMI and 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
documenting
business-unit
and corporate data assets and data issues; sharing 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 67 solutions development
initiatives for new and enhanced offerings, including:
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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;
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360Value, an innovative web-based system for estimating
replacement values of residential, commercial and agricultural
properties; and
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Predictive models to help insurers classify, segment and price
risks for a variety of lines of insurance.
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We also add to our offerings through an active acquisition
program. Since 2004, we have acquired 15 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 June 30, 2009, we had a sales force of
156 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:
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 1.9% of revenues for the
year ended December 31, 2008 and the six months ended
June 30, 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
given 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 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 June 30, 2009, we employed 3,572 full-time and
159 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
June 30, 2009, our principal offices consisted of the
following properties:
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Location
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Lease Expiration Date
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Jersey City, New Jersey
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390,991
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May 21, 2021
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Orem, Utah
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68,343
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January 1, 2017
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Boston, Massachusetts
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47,000
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March 31, 2015
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Agoura Hills, California
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28,666
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October 30, 2011
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South Jordan, Utah
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23,505
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May 31, 2014
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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 Nepal.
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 information
and/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 review
and/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 general
and/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, including those
matters described below. We are 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 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 we
have strong defenses for the litigations proceedings described
below, we could in the future incur judgments or enter into
settlements of claims that could have a material adverse effect
on its results of operations, financial position or cash flows.
Claims
Outcome Advisor Litigation
Hensley, et al. v. Computer Sciences Corporation et al.
was a putative nationwide class action complaint, filed in
February 2005, in Miller County, Arkansas state court.
Defendants include numerous insurance companies and providers of
software products used by insurers in paying claims. We are
among the 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.
We entered into settlement agreements with plaintiffs asserting
claims relating to the use of Claims Outcome Advisor by
defendants Hanover Insurance Group, Progressive Car Insurance,
and Liberty Mutual Insurance Group. Each of these settlements
was granted final approval by the court and together the
settlements resolve the claims asserted in this case against us
with respect to the above insurance companies, who settled the
claims against them as well. A provision was made in 2006 for
this proceeding and the total amount the Company paid in 2008
with respect to these settlements was less than
$2.0 million. A fourth defendant, The Automobile Club of
California, which is alleged to have used Claims Outcome Advisor
was dismissed from the action. On August 18, 2008, pursuant
to the agreement of the parties, the Court ordered that the
claims against us be dismissed with prejudice.
Hanover Insurance Group made a demand for reimbursement,
pursuant to an indemnification provision contained in a
December 30, 2004 License Agreement between Hanover and the
Company, of its settlement and defense costs in the Hensley
class action. Specifically, Hanover has demanded
$2.5 million including $0.6 million in attorneys’
fees and expenses. We dispute that Hanover is entitled to 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
The 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 (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.
74
Schafer v. State Farm Fire & Cas. Co., et
al. was 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. Judge Duval denied
plaintiffs’ motion to certify a class with respect to the
fraud and breach of contract claims on August 3, 2009 and
the time to appeal that decision has expired. The matter, now a
single action, has been re-assigned to Judge Africk.
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. Judge Duval
stayed all proceedings in the case pending an appraisal of the
lead plaintiff’s insurance claim. The matter has been
re-assigned to Judge Barbier, who on September 11, 2009
issued an order administratively closing the matter pending
completion of the appraisal process.
At this time it is not possible to determine the ultimate
resolution of, or estimate the liability related to, 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, 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, entitled Sharon Taylor,
et al. v. Acxiom Corporation, et al.
Plaintiffs brought the action on their own behalf and on behalf
of all similarly situated individuals whose personal information
is contained in any motor vehicle record maintained by the State
of 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 class complaint alleges that the defendants
knowingly obtained personal information for a purpose not
authorized by the DPPA and seeks liquidated damages in the
amount of $2,500 for each instance of a violation of the DPPA,
punitive damages and the 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 for
lack of standing and plaintiffs have appealed the dismissal with
oral argument to be heard sometime in November 2009.
Interthinx
Litigation
In September 2009, our subsidiary, Interthinx, Inc., was served
with a putative class action entitled Renata Gluzman v.
Interthinx, Inc. The plaintiff, a former Interthinx
employee, filed the class action on August 13, 2009 in the
Superior Court of the State of California, County of Los Angeles
on behalf of all Interthinx information technology employees for
unpaid overtime and missed meals and rest breaks, as well as
various related claims claiming that the information technology
employees were misclassified as exempt employees and, as a
result, were denied certain wages and benefits that would have
been received if they were properly classified as non-exempt
employees. The pleadings include, among other things, a
violation of Business and Professions Code 17200 for unfair
business practices which allows plaintiffs to include as class
members all information technology employees employed at
Interthinx for four years prior to the date of filing the
complaint. The complaint seeks compensatory damages, penalties
that are associated with the various statutes, restitution,
interest, costs and attorney fees. Although no assurance can be
given concerning the outcome of this matter, in the opinion of
management the lawsuit is not expected to have a material
adverse effect on our financial condition or results of
operations.
75
MANAGEMENT
Executive
Officers and Directors
The following table sets forth information regarding the
executive officers and directors of the Company, as of
June 30, 2009:
|
|
|
|
|
|
|
Name
|
|
Age
|
|
Position
|
|
Frank J. Coyne
|
|
|
60
|
|
|
Chairman of the Board of Directors, President and Chief
Executive Officer
|
Scott G. Stephenson
|
|
|
52
|
|
|
Executive Vice President and Chief Operating Officer
|
Mark V. Anquillare
|
|
|
43
|
|
|
Senior Vice President and Chief Financial Officer
|
Kenneth E. Thompson
|
|
|
49
|
|
|
Senior Vice President, General Counsel and Corporate Secretary
|
Carole J. Banfield
|
|
|
69
|
|
|
Executive Vice President — Information Services and
Government Relations
|
Vincent Cialdella
|
|
|
58
|
|
|
Senior Vice President — AISG
|
Kevin B. Thompson
|
|
|
56
|
|
|
Senior Vice President — Insurance Services
|
J. Hyatt Brown
|
|
|
71
|
|
|
Director
|
Glen A. Dell
|
|
|
73
|
|
|
Director
|
Christopher M. Foskett
|
|
|
51
|
|
|
Director
|
Constantine P. Iordanou
|
|
|
59
|
|
|
Director
|
John F. Lehman, Jr.
|
|
|
66
|
|
|
Director
|
Thomas F. Motamed
|
|
|
60
|
|
|
Director
|
Samuel G. Liss
|
|
|
52
|
|
|
Director
|
Andrew G. Mills
|
|
|
57
|
|
|
Director
|
Arthur J. Rothkopf
|
|
|
74
|
|
|
Director
|
David B. Wright
|
|
|
60
|
|
|
Director
|
A brief biography of each executive officer and director follows.
Executive
Officers
Frank J. Coyne has 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. Stephenson has 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 an advisor
from 2000 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. Anquillare has 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
76
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. Thompson has 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. Banfield has 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 Cialdella has 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. Thompson has 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 Member of the American Academy of
Actuaries and Fellow of the Casualty Actuarial Society. From
1996 to 1999 he served as Vice President - Admissions of
the Casualty Actuarial Society and as a Member of the Board of
Directors from 1994 to 1996.
Class A
Directors
Christopher M. Foskett has served as one of our
directors since 1999. Mr. Foskett was a Managing Director
and Global Head of the Financial Institutions Group in
Citigroup’s Corporate Bank 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. Wright has 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 ActiveIdentity and SourceForge.
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. Mills has served as one of our directors
since 2002. Mr. Mills was President of The King’s
College in New York, NY from 2007 to 2009. 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
77
1984, he led the
start-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,
is a member of the Massachusetts State Board of the Salvation
Army and is co-chairman of the Theology of Work Project.
Arthur J. Rothkopf has 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. and a trustee of the Educational Testing Service
in Princeton, New Jersey.
J. Hyatt Brown has served as one of our
directors since 2003. Mr. Brown has been Chairman of
Brown & Brown, Inc. since 1993 and served as
Brown & Brown’s Chief Executive Officer from 1993
until July 1, 2009. 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. Dell has 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.
Class B
Directors
Constantine P. Iordanou has 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 of
Zurich-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 Inc. and served as Senior Vice
President with the American Home Insurance Company, a member of
the American International Group.
Samuel G. Liss has 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.
Thomas F. Motamed has served as one of our
directors since 2009. Mr. Motamed has been the Chairman of the
Board and Chief Executive Officer of CNA Financial Corporation
since January 1, 2009.
78
From December 2002 to June 2008, he served as Vice Chairman
and Chief Operating Officer of The Chubb Corporation and
President and Chief Operating Officer of Chubb & Son.
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) the
24-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 consists of 12 directors, 10 of
which are “independent” as defined under applicable
listing rules. One Class A 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, Christopher M. Foskett, Constantine P.
Iordanou, John F. Lehman, Jr., Samuel G. Liss, Thomas F.
Motamed, Andrew G. Mills, Arthur J. Rothkopf, 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 Glen A. Dell (Chair),
Christopher M. Foskett, Samuel G. Liss, Andrew G. Mills, Thomas
F. Motamed and David B. Wright, 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.
In addition, Glen A. Dell meets the qualifications of an
“audit committee financial expert” in accordance with
SEC rules, as determined by our board of directors. 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.
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.
79
The Finance and Investment Committee currently consists of
Samuel G. Liss (Chair), J. Hyatt Brown, Christopher M.
Foskett, Andrew G. Mills, and Thomas F. Motamed. 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), J. Hyatt Brown,
John F. Lehman, Jr., and Arthur J. Rothkopf. Constantine P.
Iordanou, J. Hyatt Brown, John F. Lehman, Jr., and
Arthur J. Rothkopf 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 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.
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
$125,000. The initial awarding of such options is being phased
in over a period of three years, so that, from 2007 through
2009, each non-
80
employee director receives (or received) the initial grant in
the year he or she is (or was) re-elected. Such options are
exercisable for a period of ten years from the date of
grant (subject to earlier termination if the individual ceases
to be a director of the Company), vest on the first anniversary
of the date of grant, and have an exercise price equal to the
fair market value of the Class A common stock on the date
of grant. Prior to the 2007 Annual Meeting of Stockholders, each
non-employee director was granted an option to purchase
1,500 shares of Class A common stock (on a pre-split
basis) every three years upon his or her re-election to the
Board.
Employee-directors
receive no additional compensation for service on the board of
directors. Mr. Frank J. Coyne is the only
employee-director.
The table below shows compensation paid to or earned by the
directors during 2008. As noted above, directors may elect to
receive compensation in various forms other than cash. Also,
prior to 2007, directors received stock option grants every
three years upon their re-election to the board. We are required
to report equity awards based on accounting expense. The amounts
shown for each director are not uniform because accounting
expense will differ in part depending on how each director
elected to receive his or her compensation and the years in
which they were re-elected to the board. The numbers shown in
the following table do not take into account the
fifty-for-one
stock split that will occur prior to the consummation of this
offering.
2008
DIRECTOR COMPENSATION
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or
|
|
|
Stock Awards
|
|
|
Option Awards
|
|
|
Total
|
|
Name
|
|
Paid in Cash ($)
|
|
|
($)(1)
|
|
|
($)(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 was a director until June 27, 2008. |
|
(3) |
|
Mr. Brown received stock awards during 2008 with a fair
value of $25,000. As of December 31, 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 2008 relating to
option grants made in 2006. |
|
(4) |
|
Mr. Dell received options during 2008 with a fair value of
$55,000. As of December 31, 2008, Mr. Dell owned
options covering 746 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. |
|
(5) |
|
Mr. Feinberg received options during 2008 with a fair value
of $50,000. As of December 31, 2008, Mr. Feinberg
owned options covering 2,963 shares. The amount shown in
the option column above |
81
|
|
|
|
|
includes expense amounts recognized, under FAS 123R, in
2008 relating to option grants made in 2006. Mr. Feinberg was a
director until June 17, 2009. |
|
(6) |
|
Mr. Foskett received stock awards and options during 2008
with a fair value of $12,500 and $87,500, respectively. As of
December 31, 2008, Mr. Foskett owned 90 stock awards
and options covering 1,112 shares. |
|
(7) |
|
Mr. Iordanou received options during 2008 with a fair value
of $117,500. As of December 31, 2008, Mr. Iordanou
owned options covering 9,042 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. |
|
(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. |
|
(11) |
|
Mr. Mills received options during 2008 with a fair value of
$112,500. As of December 31, 2008, Mr. Mills owned
options covering 5,832 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. |
|
(12) |
|
Mr. Rothkopf received stock awards and options during 2008
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 $50,000. As of December 31, 2008, Ms. Stewart
owned 1,524 stock awards and options covering 1,500 shares.
The amount shown in the option column above includes expense
amounts recognized, under FAS 123R, in 2008 relating to
option grants made in 2006. Ms. Stewart was a director
until June 17, 2009. |
|
(14) |
|
Mr. Wright received stock awards and options during 2008
with a fair value of $50,000 and $62,500, respectively. As of
December 31, 2008, Mr. Wright owned 116 stock awards
and options covering 3,142 shares. |
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. The numbers shown in the foregoing
footnotes do not take into account the
fifty-for-one
stock split that will occur prior to the consummation of this
offering.
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.
82
Compensation
Program Objectives
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 an NEO’s
compensation is variable rather than fixed. This percentage
increases with seniority, because the decisions of more senior
managers have a greater impact on our performance.
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 adjust 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
83
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 potential of variable compensation to
incent employees to create long-term value for 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. In addition, 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. At the conclusion of the performance year,
funding of the aggregate STI pool for all eligible employees is
determined by the Compensation Committee, taking into account
the recommendation of the CEO, based on the degree to which
goals are achieved during the year. 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. In general, option
awards under the LTI plan are made in March or 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. Coyne option grants
under the LTI plan at irregular intervals. Certain of
Mr. Coyne’s options were 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 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.
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.
84
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 of 11.4% between the
specified Target and Superior performance goals, and EBITDA
Margin of 42.0% which exceeded 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
determining the aggregate LTI and STI pools. The Compensation
Committee established an STI pool of up to $27.5 million
for distribution to approximately 1,900 eligible employees
including NEOs and an aggregate LTI pool of up to 3,177,650
options (on a post-split basis) with an aggregate Black-Scholes
value of $22.4 million for distribution to approximately
188 eligible employees, including NEOs.
See “Analysis of 2008 Variable Compensation”
for a discussion of how we determined 2008 LTI and STI awards
for NEOs.
Analysis
of 2008 Variable Compensation
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 (in the case 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 awards 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 basis for the
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 strong performance in
positioning the company for successful performance after the IPO.
85
Mr. Anquillare: the strong performance rendered in all
aspects of the IPO process; enhancement of our financing
facilities during a difficult credit market; and strengthening
of our finance staff and financial reporting and oversight.
Mr. Kenneth Thompson: the strong execution in support of
the 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 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 or LTI
award 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 2008 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 the
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.
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
86
plans, which has allowed employees to monitor directly, and
profit from, the increasing value of our stock since our
conversion in 1997.
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 awards for our executive team. Cook most recently evaluated
our executive compensation levels in the fall of 2008.
Employment
Agreements
We do not currently have employment agreements with any of our
NEOs except Mr. Coyne. The Company has entered into an
employment agreement with Mr. Coyne, pursuant to which
Mr. Coyne is entitled to receive an annual base salary of
one million dollars ($1,000,000). Mr. Coyne is eligible for
an annual bonus of from 100% to 300% of his base salary,
depending on the achievement of performance criteria to be
established by the Compensation Committee. In addition, the
employment contract entitles Mr. Coyne to receive annual
option grants to purchase shares of Verisk’s Class A
common stock. Each annual option grant would have a value (based
upon a Black Scholes valuation) of between 150% and 450% of his
base compensation.
Upon the completion of this offering, we expect to grant up to
3,177,650 shares (on a post-split basis) 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. The employment agreement provides for Mr. Coyne to
receive options to purchase 1,000,000 shares from the grant
upon completion of this offering.
The employment agreement provides that if Mr. Coyne’s
employment is terminated by the Company without cause, or by him
for good reason, he will be entitled to a severance payment
equal to the lesser of (i) 400% of his current base
compensation, paid in 24 monthly installments or
(ii) monthly payments of 1/6th of his current base
compensation for each month remaining from the date of
termination to the end of the original term of his employment
agreement (December 31, 2012).
For information with respect to Mr. Coyne’s change of
control provisions in his employment agreement, please see
“— Potential Payments upon Termination or Change
in Control.”
87
Pursuant to the employment agreement, the Company would be
obligated to indemnify Mr. Coyne to the fullest extent
permitted by or authorized under the Company’s Certificate
of Incorporation or Bylaws, or under applicable law.
We expect to enter into 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 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.
Stock
Ownership Requirements for Executives
Senior executives are subject to minimum stock ownership
requirements. The CEO is required to hold stock and
in-the-money
options with a value equal to 200% of his annual salary plus an
STI target. The other NEOs are required to hold stock and
in-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 June 30, 2009, Messrs. Coyne,
Stephenson, Kevin Thompson and Anquillare each held common stock
and
in-the-money
options in excess of the requirements. Mr. Kenneth Thompson
joined the Company in 2006 and is required to satisfy the
requirement in October 2009.
Executive
Compensation and Benefits
The following table sets forth information concerning the
compensation paid to and earned by the Company’s NEOs for
the years ended December 31, 2007 and 2008.
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
|
|
|
|
898,654
|
|
|
|
1,062,800
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
88
|
|
|
(1) |
|
The amounts in this column reflect the expense incurred for
accounting purposes in accordance with FAS 123R for options
granted in 2008 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 years ended
December 31, 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 of $44,439, and
automobile allowance. |
|
(5) |
|
Amount includes a 401(k) matching contribution of $10,350. |
|
(6) |
|
Amount includes a 401(k) matching contribution of $11,625. |
|
(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. Costs of commercial air travel were determined
using average rates incurred for such travel. |
|
(9) |
|
Amount includes a 401(k) matching contribution of $10,350. |
|
(10) |
|
Amount includes a 401(k) matching contribution of $10,125. |
|
(11) |
|
Amount includes a 401(k) matching contribution of $10,263. |
Grants
of Plan-Based Awards
The following table sets forth information concerning grants of
plan-based awards made to the NEOs during the Company’s
fiscal year ended 2008. We generally grant options in March or
April, based on performance for the prior year. However, due to
SEC regulations, the options shown in this table as granted in
2008 related to 2007 performance, and we consider them to be
part of the NEOs’ 2007 compensation. The numbers shown in
the following table do not take into account the
fifty-for-one
split that will occur prior to the consummation of this offering.
2008
GRANTS OF PLAN BASED AWARDS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Option
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
|
Future Payouts
|
|
Awards:
|
|
|
|
|
|
Fair Value of
|
|
|
|
|
|
|
Under Non-Equity
|
|
Number of
|
|
Exercise or
|
|
|
|
Stock and
|
|
|
|
|
|
|
Incentive Plan
|
|
Securities
|
|
Base Price
|
|
Stock
|
|
Option
|
|
|
|
|
|
|
Awards
|
|
Underlying
|
|
of Option
|
|
Value on
|
|
Awards
|
Name
|
|
Grant Date
|
|
Approval Date
|
|
Target ($)
|
|
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
|
|
89
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 2008. The numbers shown in the
following table do not take into account the
fifty-for-one
split that will occur prior to the consummation of this offering.
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. |
90
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 2008. No stock, restricted stock or restricted stock
unit awards held by any NEO vested during 2008. The numbers
shown in the following table do not take into account the
fifty-for-one
split that will occur prior to the consummation of this offering.
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, or 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.
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
|
|
|
|
—
|
|
91
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.
2008
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. |
Potential
Payments upon Termination or Change in Control
There are no agreements or arrangements in place applicable to
the NEOs (other than Mr. Coyne) relating to payments upon
termination or change of control, other than severance payments
upon termination (other than for cause) available to all
salaried employees.
Mr. Coyne’s employment agreement provides that in the
event Mr. Coyne’s employment agreement is
involuntarily terminated by the Company without cause or is
voluntarily terminated by Mr. Coyne for “good
reason,” he will be entitled to (i) any unpaid salary
(ii) any unpaid bonus earned prior to the termination
(iii) a pro-rata portion of his incentive award and
(iv) a separation payment equal to the lesser of
(a) 400% of his current base compensation, paid in
24 monthly installments or (b) monthly payments of
1/6th of his current base compensation for each month
remaining from the termination date to the end of the original
term of the agreement (December 31, 2012). If
Mr. Coyne’s employment terminates as a result of his
death or disability, the agreement provides for similar
payments, except for clause (iv), which would not be paid. In
the event of his disability, he would be paid a lump sum payment
of 200% of his then current base compensation, plus his minimum
target incentive award for the year of termination.
The employment agreement with Mr. Coyne provides that if
Mr. Coyne’s employment is terminated by the Company
without cause or by him for good reason within two years
following a change of control, as defined in section 409A
of the Code, the payment described in clause (iv) would be
paid in lump sum and the payment referred to in
clause (iii) would be equal the minimum target incentive
award.
Receipt of these benefits would be conditioned upon
Mr. Coyne executing a general release of claims against the
Company, and complying with confidentiality, non-compete and
nonsolicitation agreements.
If Mr. Coyne’s employment is terminated for cause, the
Company will have no other obligations under his employment
agreement except to pay any unpaid salary and unpaid bonus.
In addition, the Company has entered into Severance Agreements
with the other NEOs currently employed by the Company. These
agreements 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
are defined in the agreements, within a two-year period
following a “change of control.”
These agreements provide that, upon a qualifying termination
event, an NEO (other than Mr. Coyne) will be entitled to:
|
|
|
|
(i)
|
a pro rata STI award;
|
92
|
|
|
|
(ii)
|
a severance payment equal to the executive’s base salary
plus a target bonus amount times two;
|
|
|
|
|
(iii)
|
continuation of health benefits (at the executives expense) for
18 months; and
|
|
|
|
|
(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, 2008, in
the event of a qualifying termination Mr. Stephenson would
be entitled to cash payments totaling $1,540,000,
Mr. Anquillare would be entitled to cash payments totaling
$1,050,000, Mr. Kenneth E. Thompson would be entitled to
cash payments totaling $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. 2009 Equity Incentive Plan
We have adopted the Verisk Analytics, Inc. 2009 Equity Incentive
Plan, or the Incentive Plan. 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 are to assist us in attracting
and retaining selected individuals to serve as employees,
directors, consultants
and/or
advisors who are expected to contribute to our success and to
achieve long-term objectives that will benefit our stockholders.
Shares
Available. 13,750,000 shares of our
common stock may be subject to awards under the Incentive Plan.
The shares may be subject to adjustment in the event of any
merger, reorganization, consolidation, recapitalization,
dividend or distribution, stock split, reverse stock split,
spin-off or similar transaction or other change in corporate
structure affecting the shares. If any shares subject to an
award are forfeited, an award expires or otherwise terminates
without issuance of shares, or an award is settled for cash or
does not result in the issuance of shares, the shares will again
be available for issuance under the Incentive Plan.
Subject to adjustment as described above, a total of
13,750,000 shares may be granted as Incentive Stock Options
under the Incentive Plan, and no more than 4,125,000 shares
may be subject to Options or SARs granted to any Participant
during any
36-month
period. No Participant may earn more than 4,125,000 shares
under Restricted Stock Awards, Restricted Stock Unit Awards,
Performance Awards or Other Share Based Awards in any
36-month
period if such Awards are intended to comply with
Section 162(m) of the Code and are denominated in Shares.
Eligibility. Employees, directors and
consultants are eligible for awards under the Incentive Plan.
The compensation committee may also grant substitute awards in
connection with acquisitions and business combinations.
Administration. The compensation
committee of our board will oversee the administration of the
Incentive Plan. 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.
93
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) SARs, (iii) restricted stock,
(iv) restricted stock units or RSUs (v) performance
awards (vi) other share-based awards and (vii) cash.
Options. Options are rights to purchase shares
of our common stock at a price and during a period determined by
the compensation committee. The exercise price of an option will
not be less than the fair market value of our common stock on
the date of the option grant. Options generally expire no later
than 10 years after the date of grant except in the event
of death or disability (other than with respect to an incentive
stock option).
SARs. A SAR entitles the participant to
receive, upon exercise, an amount equal to the excess of
(i) the fair market value of one share of our common stock
on the date of exercise (or such amount less than such fair
market value as the compensation committee will determine at any
time during a specified period before the date of exercise) over
(ii) the grant price of the SAR on the date of grant. The
compensation committee may provide SARs in tandem with options,
in tandem with any award (other than an option) or without
regard to any option or other award. The Compensation committee
determines whether payment of a SAR will be made in cash, in
whole shares or other property.
Restricted Stock/RSUs. Restricted stock is any
share issued with the restriction that the participant may not
sell, transfer, pledge or assign such share and with such other
restrictions as the compensation committee, in its sole
discretion, may impose. A RSU is an award that is valued by
reference to a share, which value may be paid to the participant
by delivery of shares, cash or other property as determined by
the compensation committee. Restrictions on restricted shares
and RSUs may lapse separately or in combination at such times,
in installments or otherwise, as the compensation committee
deems appropriate.
Performance Awards. Performance awards are the
award of cash or units (valued by reference to shares or other
property) which will be earned by the participant upon the
achievement of performance goals established by the compensation
committee. The compensation committee will determine the
performance criteria to be achieved during any performance
period and the length of the performance period. Performance
awards may be paid in cash, shares or other property as will be
determined by the compensation committee.
Other Share-Based Awards. The Incentive Plan
authorizes the grant of awards that are options, restricted
shares, RSUs or other performance awards that are valued in
whole or in part by reference to, or are otherwise based on
shares or other share-based awards. Other share-based awards
will also be available as a form of payment of other awards
granted under the Incentive Plan and other earned cash-based
compensation.
Code Section 162(m) Provisions. If
the compensation committee determines that a restricted stock
award, a RSU, a performance award or an other share-based award
is intended to be subject to the Code Section 162(m) provisions
of the Incentive Plan, the lapsing of restrictions thereon and
the distribution of cash, shares or other property, as
applicable, will be subject to the achievement of one or more
objective performance goals established by the compensation
committee, which will be based on the attainment of specified
levels of one or any combination of the following performance
goals: (i) net sales; (ii) revenue; (iii) revenue
growth or product revenue growth; (iv) operating income;
(v) pre- or after-tax income, earnings per share, net
income; (vi) return on equity; (vii) total shareholder
return; (viii) return on assets or net assets;
(ix) appreciation in
and/or
maintenance of the price of the shares or any other
publicly-traded securities of ours; (x) market share; gross
profits; (xi) earnings; (xii) economic value-added
models or equivalent metrics; (xiii) comparisons with
various stock market indices; (xiv) reductions in costs;
(xv) cash flow or cash flow per share; (xvi) return on
capital; (xvii) cash flow return on investment;
(xviii) improvement in or attainment of expense levels or
working capital levels; (xiv) operating margins, gross
margins or cash margin; (xx) year-end cash; (xxi) debt
reduction; (xxii) stockholder equity; (xxiii) research
and development achievements; (xxiv) manufacturing
achievements; (xxv) regulatory achievements;
(xxvi) passing pre-approval inspections;
(xxvii) clinical achievements; (xxviii) strategic
partnerships or transactions; (xxix) supply chain
achievements; (xxx) co-development, co-marketing, profit
sharing, joint venture or other similar arrangements);
(xxxi) financing and other capital raising transactions;
(xxxii) factoring transactions; sales or licenses of our
assets, including its intellectual property, whether in a
particular jurisdiction or territory or globally; or through
partnering transactions; and (xxxiii) measurable objectives
with respect to research, development,
94
manufacturing, commercialization, products or projects,
production volume levels, acquisitions and divestitures and
recruiting and maintaining personnel.
The performance goals also may be based solely by reference to
our or a subsidiary’s performance, or the performance of a
division, business segment or business unit of ours. The
performance goals may also be based upon the relative
performance of other companies or upon comparisons of any of the
indicators of performance relative to other companies. The
compensation committee may also exclude charges related to an
event or occurrence which the compensation committee determines
should appropriately be excluded, including the following:
(i) restructurings, discontinued operations, extraordinary
items, and other unusual or non-recurring charges, (ii) an
event either not directly related to our operations or not
within the reasonable control of our management, or
(iii) the cumulative effects of tax or accounting changes
in accordance with U.S. generally accepted accounting
principles.
The performance goals will be set by the compensation committee
and will comply with the requirements of Section 162(m) of
the Code. With respect to a restricted stock award, RSU award,
performance award or other share-based award that is subject to
the 162(m) provisions of the Incentive Plan the compensation
committee may adjust downwards, but not upwards, the amount
payable pursuant to such award. The compensation committee may
not waive the achievement of the applicable performance goals,
except in the case of the death or disability or as otherwise
determined by the compensation committee. The compensation
committee can impose such other restrictions on awards as it may
deem necessary or appropriate to ensure that such awards satisfy
all requirements for “performance-based compensation”
within the meaning of Section 162(m) of the Code.
Change in control. The compensation
committee will determine and provide in the award agreement the
effect, if any, of an award in the event of a change in control.
Termination of Employment. The
compensation committee will determine and set forth in each
award agreement whether any awards granted in such award
agreement will continue to be exercisable, continue to vest or
be earned and the terms of such exercise, vesting or earning, on
and after the date that a participant ceases to be employed by
or to provide services to us (including as a director), whether
by reason of death, disability, voluntary or involuntary
termination of employment or services, or otherwise. The date of
termination of a Participant’s employment or services will
be determined by the compensation committee, which determination
will be final.
Transferability of Awards. No award and
no shares that have not been issued or as to which any
applicable restriction, performance or deferral period has not
lapsed, can be sold, assigned, transferred, pledged or otherwise
encumbered, other than by will or the laws of descent and
distribution. Awards may be exercised during the life of the
participant only by the participant or the participant’s
guardian or legal representative. A participant may assign or
transfer an award to a permitted assignee provided that such
permitted assignee will be bound by and subject to all of the
terms and conditions of the Incentive Plan and the award
agreement. A permitted assignee includes (i) the
participant’s spouse, children or grandchildren (including
any adopted and step children or grandchildren), parents,
grandparents or siblings, (ii) to a trust for the benefit
of one or more of the participant or the persons referred to in
clause (i), or (iii) to a partnership, limited liability
company or corporation in which the participant or the persons
referred to in clause (i) are the only partners, members or
shareholders. The permitted assignee will execute an agreement
satisfactory to us evidencing such obligations and provided
further that such participant will remain bound by the terms and
conditions of the Incentive Plan. We will cooperate with any
permitted assignee and our transfer agent in effectuating any
permitted transfers.
Compliance with Section 409A. To
the extent that the terms of any award held by a participant who
is subject to United States Federal income tax requires or
permits installment or deferred payment of such award resulting
in a “deferral of compensation” within the meaning of
Section 409A (a “Section 409A Award”), the
award will be subject to additional terms and conditions as
provided under the Incentive Plan. These additional terms and
conditions of the Incentive Plan are designed to make
Section 409A Awards comply with Section 409A and avoid
its adverse tax consequences. Generally the Incentive Plan
requires that deferral elections and subsequent distributions of
deferred compensation must comply with Section 409A.
95
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 on
Form S-8
covering the shares of our common stock issuable under the
Incentive Plan.
Federal income tax consequences of
Awards. There will be no federal income tax
consequences to the participant or us upon the grant of an
Option under the Incentive Plan. Upon exercise of an Option that
is not an Incentive Stock Option, a participant generally will
recognize ordinary income in an amount equal to (i) the
fair market value, on the date of exercise, of the acquired
Shares; less (ii) the exercise price of the Option. We will
generally be entitled to a tax deduction in the same amount.
Upon the exercise of an Incentive Stock Option, a participant
recognizes no immediate taxable income. Income recognition is
deferred until the participant sells the Shares. If the Option
is exercised no later than three months after the termination of
the participant’s employment, and the participant does not
dispose of the shares acquired pursuant to the exercise of the
Option within two years from the date the Option was granted and
within one year after the exercise of the Option, the gain on
the sale will be treated as long-term capital gain. We are not
entitled to any tax deduction with respect to the grant or
exercise of Incentive Stock Options, except that if the Shares
are not held for the full term of the holding period outlined
above, the gain on the sale of such Shares, being the lesser of:
(i) the fair market value of the Shares on the date of
exercise minus the option price or (ii) the amount realized
on disposition minus the exercise price, will be taxed to the
participant as ordinary income and, we will generally be
entitled to a deduction in the same amount. The excess of the
fair market value of the Shares acquired upon exercise of an
Incentive Stock Option over the exercise price therefor
constitutes a tax preference item for purposes of computing the
“alternative minimum tax” under the Code.
There will be no federal income tax consequences to either the
participant or us upon the grant of a SAR. However, the
participant generally will recognize ordinary income upon the
exercise of a SAR in an amount equal to the aggregate amount of
cash and the fair market value of the Shares received upon
exercise. We will generally be entitled to a deduction equal to
the amount includible in the participant’s income.
There will be no federal income tax consequences to either the
participant or us upon the grant of Restricted Shares until
expiration of the restricted period and the satisfaction of any
other conditions applicable to the Restricted Shares. At that
time, the participant generally will recognize taxable income
equal to the then fair market value for the Shares. We will
generally be entitled to a corresponding deduction.
There will be no federal income tax consequences to the
participant or us upon the grant of Performance Awards,
Restricted Share Units or other Share Based Awards. Participants
generally will recognize taxable income at the time when such
Awards are paid or settled in an amount equal to the aggregate
amount of cash and the fair market value of Shares acquired. We
will generally be entitled to a deduction equal to the amount
includible in the participant’s income.
96
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 December 31, 2008 and June 30, 2009
represent the amount outstanding on that date.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
Year Ended
|
|
As of
|
|
As of
|
|
|
December 31, 2006
|
|
December 31, 2007
|
|
December 31, 2008
|
|
June 30, 2009
|
|
|
(In thousands)
|
|
Frank J. Coyne
|
|
$
|
6,449
|
|
|
$
|
6,449
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Scott G. Stephenson
|
|
|
5,160
|
|
|
|
5,323
|
|
|
|
—
|
|
|
|
—
|
|
Mark V. Anquillare
|
|
|
503
|
|
|
|
519
|
|
|
|
—
|
|
|
|
—
|
|
Carole J. Banfield
|
|
|
4,193
|
|
|
|
5,039
|
|
|
|
—
|
|
|
|
—
|
|
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. |
All of our loans outstanding with our directors and executive
officers have been repaid. On January 2, 2007 and
April 2, 2007, Frank J. Coyne repaid loans in the amounts
of $3.8 million and $2.5 million, plus interest of
$0.2 million and $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 August 7, 2008, John F. Lehman
repaid loans in the amount of $1.8 million, plus interest
of $0.3 million. On August 7, 2008, Arthur J. Rothkopf
repaid loans in the
97
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.
Share
Repurchases
Pursuant 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 on the date of repurchase. This right
terminates upon completion of this offering. Since
January 1, 2006, we have repurchased 279,151 shares of
Class A common stock (on a pre-split basis) from our ESOP
for an aggregate amount of $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, 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:
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Six Months Ended
|
|
|
|
December 31, 2006
|
|
|
December 31, 2007
|
|
|
December 31, 2008
|
|
|
June 30, 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 than 5% of our Class A
common stock. |
We have also, from time to time, repurchased shares of our
Class B common stock. Since January 1, 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 purchase solutions from both our Risk
Assessment and Decision Analytics segments. They purchase our
solutions in the ordinary course of 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.
98
We received fees from the Hartford Financial Services Group,
Inc. of $16.0 million, $16.4 million, and
$14.0 million for the years ended December 31, 2006,
2007 and 2008, respectively, and $6.9 million and
$7.5 million for the six months ended June 30, 2008
and 2009, respectively. We received fees from The Travelers
Companies, Inc. of $29.3 million, $31.0 million, and
$31.8 million for the years ended December 31, 2006,
2007 and 2008, respectively and $15.4 million and
$17.2 million for the six months ended June 30, 2008
and 2009, respectively. Samuel G. Liss, one of our Class B
directors, is Executive Vice President of The Travelers
Companies. We received fees from CNA Financial Corporation of
$9.7 million, $9.3 million, and $10.6 million for
the years ended December 31, 2006, 2007 and 2008,
respectively and $5.2 million and $5.2 million for the
six months ended June 30, 2008 and 2009, respectively.
Thomas F. Motamed, one of our Class B directors, is
the Chairman of the Board and Chief Executive Officer of CNA
Financial Corporation. We received fees from American Financial
Group, Inc. of $4.3 million, $4.5 million, and
$5.6 million for the years ended December 31, 2006,
2007 and 2008, respectively and $2.8 million and
$2.9 million for the six months ended June 30, 2008
and 2009, respectively. We received fees from American
International Group, Inc. of $18.9 million,
$16.7 million, and $18.6 million for the years ended
December 31, 2006, 2007 and 2008, respectively and $9.1
million and $10.3 million for the six months ended
June 30, 2008 and 2009, respectively. We received fees from
ACE Group Holdings, Inc. of $5.6 million,
$6.4 million, and $7.4 million for the years ended
December 31, 2006, 2007 and 2008, respectively and
$3.7 million and $3.9 million for the six months ended
June 30, 2008 and 2009, respectively. We received fees from
Berkshire Hathaway Inc. of $1.8 million, $2.0 million
and $2.3 million for the years ended December 31,
2006, 2007 and 2008, respectively, and $1.0 and
$1.1 million for six months ended June 30, 2008 and
2009, 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, 2006, 2007, and 2008
respectively and $0.1 million and $0.1 million for the
six months ended June 30, 2008 and 2009, respectively. We
paid insurance coverage premiums to American International
Group, Inc. of $1.5 million, $0.5 million, and
$0.6 million for the years ended December 31, 2006,
2007, and 2008, respectively and $0.3 million and
$0.0 million for the six months ended June 30, 2008
and 2009, respectively. We also paid insurance coverage premiums
to Brown & Brown, Inc. of $2.6 million,
$2.5 million, and $2.5 million for the years ended
December 31, 2006, 2007, and 2008, respectively, and
$2.2 million and $2.2 million for the six months ended
June 30, 2008 and 2009, respectively. J. Hyatt Brown, a
Class A director, is the Chairman of the Board and former
Chief Executive Officer of Brown & Brown, Inc.
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 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 24 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
Verisk Healthcare subsidiary. From March 27, 2006 to
March 9, 2008 Mr. Coyne was the chief operating
officer of DXCG, Inc., a predecessor to Verisk Healthcare.
Mr. Coyne received salary and bonus of $172,877, $226,615
and $269,808 in the aggregate for each of the years ended
December 31, 2006, 2007 and 2008, respectively, and
received options to purchase 760 shares and 400 shares of
our Class A common stock (on a pre-split basis) in 2007 and
2008, respectively.
99
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 $148,138 for the five months ended December 31, 2006
and the years 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.
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, 2006, 2007 and 2008 were $18.5 million,
$22.2 million and $22.3 million, respectively and
$11.6 million and $10.7 million for the six months
ended June 30, 2008 and 2009, 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 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
Our board of directors has adopted 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 of
Regulation 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) of
Regulation 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.
100
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 September 15, 2009 (on a post-split
basis), 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 September 15, 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.
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
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
Owned After the
|
|
|
|
|
|
Owned Before
|
|
|
|
|
|
Offering(2)
|
|
|
|
Class of Our
|
|
the Offering
|
|
|
Number
|
|
|
Common Stock
|
|
|
|
|
Name and Address of
|
|
Common
|
|
|
|
|
Percent
|
|
|
of Shares
|
|
|
Beneficially
|
|
|
Percent
|
|
Beneficial Owner
|
|
Stock
|
|
Number
|
|
|
of Class
|
|
|
Being Offered(1)
|
|
|
Owned
|
|
|
of Class
|
|
|
Principal Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee Stock Ownership Plan
|
|
Class A
|
|
|
28,081,150
|
|
|
|
80.7
|
%
|
|
|
5,000,000
|
|
|
|
23,081,150
|
|
|
|
20.4
|
%
|
ACE Group Holdings, Inc.(3)
|
|
Class B
|
|
|
9,136,100
|
|
|
|
6.4
|
%
|
|
|
7,826,950
|
|
|
|
1,309,150
|
|
|
|
2.0
|
%
|
436 Walnut Street
Philadelphia, PA 19106
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American Financial Group, Inc.(4)
|
|
Class B
|
|
|
10,339,400
|
|
|
|
7.2
|
%
|
|
|
3,100,200
|
|
|
|
7,239,200
|
|
|
|
10.8
|
%
|
One East Fourth Street
Cincinnati, OH 45202
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
American International Group, Inc.
|
|
Class B
|
|
|
8,862,550
|
|
|
|
6.2
|
%
|
|
|
7,592,600
|
|
|
|
1,269,950
|
|
|
|
1.9
|
%
|
70 Pine Street
New York, NY 10270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Berkshire Hathaway Inc.(5)
|
|
Class B
|
|
|
7,156,300
|
|
|
|
5.0
|
%
|
|
|
—
|
|
|
|
7,156,300
|
|
|
|
10.7
|
%
|
3555 Farnam Street
Omaha, NE 68131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CNA Financial Corporation(6)
|
|
Class B
|
|
|
17,500,000
|
|
|
|
12.2
|
%
|
|
|
14,992,400
|
|
|
|
2,507,600
|
|
|
|
3.7
|
%
|
333 South Wabash Avenue
Chicago, IL 60604
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hartford Financial Services Group, Inc.(7)
|
|
Class B
|
|
|
17,040,600
|
|
|
|
11.9
|
%
|
|
|
14,598,800
|
|
|
|
2,441,800
|
|
|
|
3.6
|
%
|
One Hartford Plaza
Hartford, CT 06115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Travelers Companies, Inc.(8)
|
|
Class B
|
|
|
17,424,100
|
|
|
|
12.2
|
%
|
|
|
7,463,700
|
|
|
|
9,960,400
|
|
|
|
14.9
|
%
|
485 Lexington Avenue
New York, NY 10017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive Officers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Frank J. Coyne
|
|
Class A
|
|
|
9,455,900
|
|
|
|
21.5
|
%
|
|
|
2,034,450
|
|
|
|
7,421,450
|
|
|
|
6.2
|
%
|
Scott G. Stephenson
|
|
Class A
|
|
|
3,581,250
|
|
|
|
9.6
|
%
|
|
|
703,000
|
|
|
|
2,878,250
|
|
|
|
2.5
|
%
|
Mark V. Anquillare
|
|
Class A
|
|
|
1,113,750
|
|
|
|
3.1
|
%
|
|
|
150,000
|
|
|
|
963,750
|
|
|
|
|
*
|
Kenneth E. Thompson
|
|
Class A
|
|
|
237,500
|
|
|
|
|
*
|
|
|
—
|
|
|
|
237,500
|
|
|
|
|
*
|
Carole J. Banfield
|
|
Class A
|
|
|
809,300
|
|
|
|
2.3
|
%
|
|
|
155,000
|
|
|
|
654,300
|
|
|
|
|
*
|
Vincent Cialdella
|
|
Class A
|
|
|
614,750
|
|
|
|
1.7
|
%
|
|
|
78,750
|
|
|
|
536,000
|
|
|
|
|
*
|
Kevin B. Thompson
|
|
Class A
|
|
|
656,200
|
|
|
|
1.9
|
%
|
|
|
118,700
|
|
|
|
537,500
|
|
|
|
|
*
|
J. Hyatt Brown
|
|
Class A
|
|
|
196,850
|
|
|
|
|
*
|
|
|
—
|
|
|
|
196,850
|
|
|
|
|
*
|
Glen A. Dell(9)
|
|
Class A
|
|
|
564,500
|
|
|
|
1.6
|
%
|
|
|
130,400
|
|
|
|
434,100
|
|
|
|
|
*
|
Christopher M. Foskett(10)
|
|
Class A
|
|
|
93,800
|
|
|
|
|
*
|
|
|
—
|
|
|
|
93,800
|
|
|
|
|
*
|
Constantine P. Iordanou
|
|
Class A
|
|
|
540,600
|
|
|
|
1.5
|
%
|
|
|
95,000
|
|
|
|
445,600
|
|
|
|
|
*
|
101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
Owned After the
|
|
|
|
|
|
Owned Before
|
|
|
|
|
|
Offering(2)
|
|
|
|
Class of Our
|
|
the Offering
|
|
|
Number
|
|
|
Common Stock
|
|
|
|
|
Name and Address of
|
|
Common
|
|
|
|
|
Percent
|
|
|
of Shares
|
|
|
Beneficially
|
|
|
Percent
|
|
Beneficial Owner
|
|
Stock
|
|
Number
|
|
|
of Class
|
|
|
Being Offered(1)
|
|
|
Owned
|
|
|
of Class
|
|
|
John F. Lehman, Jr.(11)
|
|
Class A
|
|
|
772,300
|
|
|
|
2.2
|
%
|
|
|
50,000
|
|
|
|
722,300
|
|
|
|
|
*
|
Samuel G. Liss
|
|
Class A
|
|
|
115,100
|
|
|
|
|
*
|
|
|
—
|
|
|
|
115,100
|
|
|
|
|
*
|
Andrew G. Mills
|
|
Class A
|
|
|
328,250
|
|
|
|
|
*
|
|
|
—
|
|
|
|
328,250
|
|
|
|
|
*
|
Thomas F. Motamed
|
|
Class A
|
|
|
5,750
|
|
|
|
|
*
|
|
|
—
|
|
|
|
5,750
|
|
|
|
|
*
|
Arthur J. Rothkopf(12)
|
|
Class A
|
|
|
499,750
|
|
|
|
1.4
|
%
|
|
|
—
|
|
|
|
499,750
|
|
|
|
|
*
|
David B. Wright
|
|
Class A
|
|
|
294,150
|
|
|
|
|
*
|
|
|
58,500
|
|
|
|
235,650
|
|
|
|
|
*
|
All 17 directors and executive officers as a group
|
|
Class A
|
|
|
19,879,700
|
|
|
|
50.6
|
%
|
|
|
3,573,800
|
|
|
|
16,305,900
|
|
|
|
13.9
|
%
|
Other Selling Stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AequiCap Insurance Company
|
|
Class B
|
|
|
51,900
|
|
|
|
|
*
|
|
|
44,450
|
|
|
|
7,450
|
|
|
|
|
*
|
3000 West Cypress Creek Road
Fort Lauderdale, FL 33309
|
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Ameriprise Financial, Inc.(13)
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Class B
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588,350
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*
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504,050
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84,300
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*
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3500 Packerland Drive
DePere, WI 54115
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Amica Mutual Insurance Company(14)
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Class B
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2,299,950
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1.6
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%
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1,970,400
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329,550
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*
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P.O. Box 6008
Providence, RI 02940
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Arrowood Indemnity Company(15)
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Class B
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1,560,000
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1.1
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%
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1,336,450
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223,550
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*
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3600 Arco Corporate Drive
Charlotte, NC 28273
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Cincinnati Financial Corporation(16)
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Class B
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6,107,250
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4.3
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%
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1,046,400
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5,060,850
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7.6
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%
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6200 South Gilmore Road
Fairfield, OH 45014
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Country Financial(17)
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Class B
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1,332,350
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*
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1,141,450
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190,900
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*
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1701 Towanda Ave.
Bloomington, IL 61701
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Donegal Group Inc.(18)
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Class B
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792,400
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*
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52,450
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739,950
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1.1
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%
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1195 River Road, P.O. Box 302
Marietta, PA 17547
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EMC Insurance Group Inc.(19)
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Class B
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4,836,750
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3.4
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%
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2,071,800
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2,764,950
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4.1
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%
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717 Mulberry Street
Des Moines, IA 50309
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Federated Mutual Insurance Company(20)
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Class B
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3,933,550
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2.7
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%
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1,684,950
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2,248,600
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3.4
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%
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121 East Park Square
Owatonna, MN 55060
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GMAC Inc.(21)
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Class B
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4,725,650
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3.3
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%
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2,023,950
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2,701,700
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4.0
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%
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300 Galleria Officentre
Southfield, MI 48034
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Grinnell Mutual Reinsurance Company
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Class B
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691,350
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*
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592,300
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99,050
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*
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4215 Highway 146, P.O. Box 790
Grinnell, IA 50112
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Hastings Mutual Insurance Company
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Class B
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429,400
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*
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183,950
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245,450
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*
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404 E. Woodlawn Ave.
Hastings, MI 49058
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Indiana Lumbermens Mutual Insurance Company
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Class B
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797,900
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*
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546,850
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251,050
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*
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3600 Woodview Trace
Indianapolis, IN 46268
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International Financial Group, Inc.(22)
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Class B
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718,000
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*
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615,100
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102,900
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*
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238 International Road
Burlington, NC 27215
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Liberty Mutual Holding Company Inc.(23)
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Class B
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2,472,450
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1.7
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%
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423,600
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|
2,048,850
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3.1
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%
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175 Berkeley Street
Boston, MA, 02116
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Lyndon Property Insurance Company
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Class B
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5,200
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*
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4,450
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750
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*
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14755 North Outer Forty Rd. Suite 400
Chesterfield, MO 63017
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102
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Shares Beneficially
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Shares Beneficially
|
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Owned After the
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Owned Before
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|
Offering(2)
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Class of Our
|
|
the Offering
|
|
|
Number
|
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Common Stock
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|
|
Name and Address of
|
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Common
|
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|
|
Percent
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of Shares
|
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Beneficially
|
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|
Percent
|
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Beneficial Owner
|
|
Stock
|
|
Number
|
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of Class
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Being Offered(1)
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|
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Owned
|
|
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of Class
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|
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National Auto & Casualty Insurance Co.
|
|
Class B
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|
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79,300
|
|
|
|
|
*
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67,950
|
|
|
|
11,350
|
|
|
|
|
*
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Conservation & Liquidation Office
P.O. Box 26894
San Francisco, CA 94126
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Norfolk & Dedham Group(24)
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|
Class B
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|
|
1,635,550
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|
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|
1.1
|
%
|
|
|
1,401,200
|
|
|
|
234,350
|
|
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|
*
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222 Ames Street
Dedham, MA 02026
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|
Providence Mutual Group
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Class B
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|
333,250
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|
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|
*
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57,100
|
|
|
|
276,150
|
|
|
|
|
*
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340 East Avenue
Warwick, RI 02886
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Public Service Mutual Insurance Company(25)
|
|
Class B
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|
|
2,020,250
|
|
|
|
1.4
|
%
|
|
|
1,730,750
|
|
|
|
289,500
|
|
|
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|
*
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One Park Avenue
New York, NY 10016
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Service Lloyds Insurance Company
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|
Class B
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3,150
|
|
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|
|
*
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|
2,700
|
|
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|
450
|
|
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*
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P.O. Box 26800
Austin, TX 78755
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Southwest General Insurance Company
|
|
Class B
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|
46,500
|
|
|
|
|
*
|
|
|
7,950
|
|
|
|
38,550
|
|
|
|
|
*
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701 W. Coal Ave.
Gallup, NM 87301
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Swiss Re America Holding Corporation(26)
|
|
Class B
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|
|
2,298,400
|
|
|
|
1.6
|
%
|
|
|
1,969,050
|
|
|
|
329,350
|
|
|
|
|
*
|
175 King Street
Armonk, NY 10504
|
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The Harford Mutual Insurance Companies(27)
|
|
Class B
|
|
|
349,250
|
|
|
|
|
*
|
|
|
149,600
|
|
|
|
199,650
|
|
|
|
|
*
|
200 North Main Street
Bel Air, MD 21014
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The Reciprocal Alliance, RRG
|
|
Class B
|
|
|
6,800
|
|
|
|
|
*
|
|
|
5,850
|
|
|
|
950
|
|
|
|
|
*
|
333 Union Street, Suite 300
Nashville, TN 37201
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Triple-S Propiedad, Inc.
|
|
Class B
|
|
|
103,500
|
|
|
|
|
*
|
|
|
17,750
|
|
|
|
85,750
|
|
|
|
|
*
|
P.O. Box 70313
San Juan, PR 00936
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Tuscarora Wayne Insurance
Company
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Class B
|
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96,300
|
|
|
|
|
*
|
|
|
82,500
|
|
|
|
13,800
|
|
|
|
|
*
|
601 State Street, P.O. Box 7
Wyalusing, PA 18853
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Unitrin, Inc.(28)
|
|
Class B
|
|
|
190,400
|
|
|
|
|
*
|
|
|
81,550
|
|
|
|
108,850
|
|
|
|
|
*
|
One East Wacker Drive, 9th Floor
Chicago, IL 60601
|
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Vermont Mutual Insurance Company
|
|
Class B
|
|
|
503,250
|
|
|
|
|
*
|
|
|
86,250
|
|
|
|
417,000
|
|
|
|
|
*
|
89 State Street, P.O. Box 188
Montpelier, VT 05601
|
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W.R. Berkley Corporation
|
|
Class B
|
|
|
4,237,200
|
|
|
|
3.0
|
%
|
|
|
725,950
|
|
|
|
3,511,250
|
|
|
|
5.2
|
%
|
475 Steamboat Road
Greenwich, CT 06830
|
|
|
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|
|
|
|
|
|
Robert L. Andrews
|
|
Class A
|
|
|
11,000
|
|
|
|
|
*
|
|
|
1,100
|
|
|
|
9,900
|
|
|
|
|
*
|
J. Michael Bonzek
|
|
Class A
|
|
|
26,250
|
|
|
|
|
*
|
|
|
5,500
|
|
|
|
20,750
|
|
|
|
|
*
|
Glen J. Brooks
|
|
Class A
|
|
|
5,500
|
|
|
|
|
*
|
|
|
500
|
|
|
|
5,000
|
|
|
|
|
*
|
Sanders B. Cathcart
|
|
Class A
|
|
|
141,200
|
|
|
|
|
*
|
|
|
26,200
|
|
|
|
115,000
|
|
|
|
|
*
|
Stephen Clarke
|
|
Class A
|
|
|
14,550
|
|
|
|
|
*
|
|
|
2,450
|
|
|
|
12,100
|
|
|
|
|
*
|
Steven C. Craig
|
|
Class A
|
|
|
16,250
|
|
|
|
|
*
|
|
|
2,200
|
|
|
|
14,050
|
|
|
|
|
*
|
Justus S. Cruz
|
|
Class A
|
|
|
55,500
|
|
|
|
|
*
|
|
|
7,500
|
|
|
|
48,000
|
|
|
|
|
*
|
Ferdinando Degregoria
|
|
Class A
|
|
|
28,850
|
|
|
|
|
*
|
|
|
5,900
|
|
|
|
22,950
|
|
|
|
|
*
|
Linda Ekert
|
|
Class A
|
|
|
6,400
|
|
|
|
|
*
|
|
|
1,250
|
|
|
|
5,150
|
|
|
|
|
*
|
Beth Fitzgerald
|
|
Class A
|
|
|
154,900
|
|
|
|
|
*
|
|
|
27,150
|
|
|
|
127,750
|
|
|
|
|
*
|
John A. Giknis
|
|
Class A
|
|
|
25,750
|
|
|
|
|
*
|
|
|
4,750
|
|
|
|
21,000
|
|
|
|
|
*
|
William A. Heisler
|
|
Class A
|
|
|
19,750
|
|
|
|
|
*
|
|
|
4,700
|
|
|
|
15,050
|
|
|
|
|
*
|
Nancy A. Huff
|
|
Class A
|
|
|
153,750
|
|
|
|
|
*
|
|
|
28,250
|
|
|
|
125,500
|
|
|
|
|
*
|
103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
Shares Beneficially
|
|
|
|
|
|
Owned After the
|
|
|
|
|
|
Owned Before
|
|
|
|
|
|
Offering(2)
|
|
|
|
Class of Our
|
|
the Offering
|
|
|
Number
|
|
|
Common Stock
|
|
|
|
|
Name and Address of
|
|
Common
|
|
|
|
|
Percent
|
|
|
of Shares
|
|
|
Beneficially
|
|
|
Percent
|
|
Beneficial Owner
|
|
Stock
|
|
Number
|
|
|
of Class
|
|
|
Being Offered(1)
|
|
|
Owned
|
|
|
of Class
|
|
|
Gary Kerney
|
|
Class A
|
|
|
92,500
|
|
|
|
|
*
|
|
|
21,250
|
|
|
|
71,250
|
|
|
|
|
*
|
John J. Kollar
|
|
Class A
|
|
|
55,000
|
|
|
|
|
*
|
|
|
11,100
|
|
|
|
43,900
|
|
|
|
|
*
|
Wayne Lattuca(29)
|
|
Class A
|
|
|
478,000
|
|
|
|
1.4
|
%
|
|
|
25,600
|
|
|
|
452,400
|
|
|
|
|
*
|
Mark Magath
|
|
Class A
|
|
|
18,500
|
|
|
|
|
*
|
|
|
5,000
|
|
|
|
13,500
|
|
|
|
|
*
|
Glenn McConnell
|
|
Class A
|
|
|
118,100
|
|
|
|
|
*
|
|
|
7,500
|
|
|
|
110,600
|
|
|
|
|
*
|
Paul E. Mossberg
|
|
Class A
|
|
|
79,900
|
|
|
|
|
*
|
|
|
21,000
|
|
|
|
58,900
|
|
|
|
|
*
|
Michael R. Murray
|
|
Class A
|
|
|
139,850
|
|
|
|
|
*
|
|
|
37,200
|
|
|
|
102,650
|
|
|
|
|
*
|
Stephen A. Noceti
|
|
Class A
|
|
|
295,650
|
|
|
|
|
*
|
|
|
66,900
|
|
|
|
228,750
|
|
|
|
|
*
|
Lucille Y. Ojeda
|
|
Class A
|
|
|
46,000
|
|
|
|
|
*
|
|
|
10,300
|
|
|
|
35,700
|
|
|
|
|
*
|
Sophie Papanikolaou
|
|
Class A
|
|
|
6,400
|
|
|
|
|
*
|
|
|
1,000
|
|
|
|
5,400
|
|
|
|
|
*
|
Darlene Pogrebinsky
|
|
Class A
|
|
|
35,850
|
|
|
|
|
*
|
|
|
6,100
|
|
|
|
29,750
|
|
|
|
|
*
|
Virginia Prevosto
|
|
Class A
|
|
|
54,950
|
|
|
|
|
*
|
|
|
10,000
|
|
|
|
44,950
|
|
|
|
|
*
|
John Reynolds
|
|
Class A
|
|
|
17,700
|
|
|
|
|
*
|
|
|
4,500
|
|
|
|
13,200
|
|
|
|
|
*
|
Lisa Sayegh
|
|
Class A
|
|
|
6,400
|
|
|
|
|
*
|
|
|
1,100
|
|
|
|
5,300
|
|
|
|
|
*
|
Mark Smith
|
|
Class A
|
|
|
12,500
|
|
|
|
|
*
|
|
|
1,750
|
|
|
|
10,750
|
|
|
|
|
*
|
Barbara D. Stewart
|
|
Class A
|
|
|
266,000
|
|
|
|
|
*
|
|
|
66,500
|
|
|
|
199,500
|
|
|
|
|
*
|
Howard L. Walker, Jr.
|
|
Class A
|
|
|
26,500
|
|
|
|
|
*
|
|
|
6,200
|
|
|
|
20,300
|
|
|
|
|
*
|
Larry G. Whitlow
|
|
Class A
|
|
|
45,250
|
|
|
|
|
*
|
|
|
8,150
|
|
|
|
37,100
|
|
|
|
|
*
|
Mark Whitman
|
|
Class A
|
|
|
78,500
|
|
|
|
|
*
|
|
|
11,450
|
|
|
|
67,050
|
|
|
|
|
*
|
Jared H. Wolovnick
|
|
Class A
|
|
|
146,500
|
|
|
|
|
*
|
|
|
10,000
|
|
|
|
136,500
|
|
|
|
|
*
|
Patrick B. Woods
|
|
Class A
|
|
|
137,500
|
|
|
|
|
*
|
|
|
22,750
|
|
|
|
114,750
|
|
|
|
|
*
|
|
|
|
* |
|
Less than 1%. |
|
(1) |
|
Class B common stock sold in this offering will be
automatically converted into Class A common stock. |
|
(2) |
|
Assumes no exercise of the underwriters’ over-allotment
option. The underwriters have an option to purchase up to
12,745,750 additional shares of our common stock from our
Class B stockholders on a pro rata basis to cover
over-allotments. See “Underwriting.” |
|
(3) |
|
Includes shares owned and being offered by Ace American
Insurance Company, Indemnity Insurance Company of North America
and Insurance Company of North America. |
|
(4) |
|
Includes shares owned and being offered by Great American
Insurance Company. |
|
(5) |
|
Includes shares owned by General Reinsurance Corporation and
Government Employees Insurance Company. |
|
|
|
(6) |
|
Includes shares owned and being offered by Continental Casualty
Company and The Continental Insurance Company. Thomas F.
Motamed, one of our Class B directors, is the Chairman of
the Board and Chief Executive Officer of CNA Financial
Corporation. Mr. Motamed disclaims beneficial ownership of
any shares beneficially owned by CNA Financial Corporation. |
|
|
|
(7) |
|
Includes shares owned and being offered by Hartford Fire
Insurance Company. |
|
|
|
(8) |
|
Includes shares owned and being offered by The Travelers
Companies, Inc. and United States Fidelity and Guaranty Company.
Samuel G. Liss, one of our Class B directors, is the
Executive Vice President of The Travelers Companies, Inc.
Mr. Liss disclaims beneficial ownership of any shares
beneficially owned by The Travelers Companies, Inc. and United
States Fidelity and Guaranty Company except to the extent of his
pecuniary interest therein. |
|
|
|
(9) |
|
Includes shares owned and being offered by the Barbara M. Dell
GST Family Trust, of which Mr. Dell is the trustee.
Mr. Dell disclaims beneficial ownership of any shares
beneficially owned by the trust except to the extent of his
pecuniary interest therein. |
|
|
|
(10) |
|
Includes 4,450 deferred stock awards that entitle
Mr. Foskett to 4,450 shares of Class A common
stock at the end of his service to the board. |
104
|
|
|
(11) |
|
Includes shares owned by the Lehman Business Trust, of which
John F. Lehman, Jr. is the trustee. Mr. Lehman disclaims
beneficial ownership of any shares beneficially owned by the
trust except to the extent of his pecuniary interest therein.
Includes 3,500 deferred stock awards that entitle
Mr. Lehman to 3,500 shares of Class A common
stock at the end of his service to the board. |
|
|
|
(12) |
|
Includes shares owned by the Arthur J. Rothkopf Revocable Trust,
of which Mr. Rothkopf is one of the trustees.
Mr. Rothkopf disclaims beneficial ownership of any shares
beneficially owned by the trust except to the extent of his
pecuniary interest therein. |
|
|
|
(13) |
|
Includes shares owned and being offered by IDS
Property Casualty Insurance Company. |
|
|
|
(14) |
|
Each of Jeffrey P. Aiken, Michael D. Jeans, Donald J. Reaves,
Patricia W. Chadwick, Andrew M. Erickson, Ronald K. Machtley,
Cheryl W. Snead, Edward F. DeGraan, Barry G. Hittner, Richard A.
Plotkin, and Thomas A. Taylor, who are members of the board of
directors of Amica Mutual Insurance Company, and Robert A.
DiMuccio, the Chief Executive Officer of Amica Mutual Insurance
Company, has voting
and/or
dispositive power of all of the shares held by Amica Mutual
Insurance Company and may be deemed to be the beneficial owner
for purposes of reporting requirements of the Exchange Act. Such
individuals, however, expressly disclaim that they are, in fact,
the beneficial owners of such securities. |
|
|
|
(15) |
|
Each of John Tighe, Sean A. Beatty, Dennis W. Cahill, Catherine
A. Carlino, Michael J Crall, Robert J. Dixon, Julia A. Fortune,
Daniel R. Keddie, Andre Lefebvre, James F. Meehan, Edward J.
Muhl, David D. Shumway, and Larry G. Simmons, who are members of
the board of directors of Arrowood Indemnity Company, has voting
and/or
dispositive power of all of the shares held by Arrowood
Indemnity Company and may be deemed to be the beneficial owner
for purposes of reporting requirements of the Exchange Act. John
Tighe is also the Chief Executive Officer of Arrowood Indemnity
Company. Such individuals, however, expressly disclaim that they
are, in fact, the beneficial owners of such securities. |
|
|
|
(16) |
|
Includes shares owned and being offered by Cincinnati Insurance
Company. |
|
|
|
(17) |
|
Each of James A. Anderson, Wayne R. Anderson, Darryl R.
Brinkmann, Charles M. Cawley, Richard L. Guebert, Jr., Dale B.
Hadden, Scott F. Halpin, Christopher B. Hausman, Steven G.
Hosselton, Henry J. Kallal, Michael J. Kenyon, Philip T. Nelson,
Richard D. Ochs, William H. Olthoff, J.C. Pool, Terry A. Pope,
James D. Schielein, Randal K. Schleich, Gerald D. Thompson, and
Troy A. Uphoff, who are members of the board of directors of
COUNTRY Mutual Insurance Company, and Johnnie D. Blackburn, the
Chief Executive Officer of COUNTRY Mutual Insurance Company, has
voting and/or dispositive power of all of the shares held by
Country Financial and may be deemed to be the beneficial owner
for purposes of reporting requirements of the Exchange Act. Such
individuals, however, expressly disclaim that they are, in fact,
the beneficial owners of such securities. |
|
|
|
(18) |
|
Includes shares owned and being offered by Southern Insurance
Company of Virginia and shares owned by Donegal Mutual Insurance
Company. |
|
|
|
(19) |
|
Includes shares owned and being offered by Dakota Fire Insurance
Company, EMC National Life Company, EMC Property &
Casualty Company, EMCASCO Insurance Company, Employers Mutual
Casualty Company, Illinois EMCASCO Insurance Company, and Union
Insurance Company of Providence. |
|
|
|
(20) |
|
Each of Albert T. Annexstad, Sarah L. Buxton, Jeffrey E.
Fetters, Jay Gress II, A. Daniel Lewis, James H. Lipscomb III,
Jairus E. Meilahn, Roger W. Peugeot, Donald E. Reichert, and
Stuart J. Seiler, who are members of the board of directors of
Federated Mutual Insurance Company, has voting
and/or
dispositive power of all of the shares held by Federated Mutual
Insurance Company and may be deemed to be the beneficial owner
for purposes of reporting requirements of the Exchange Act.
Jeffrey E. Fetters is also the Chief Executive Officer of
Federated Mutual Insurance Company. Such individuals, however,
expressly disclaim that they are, in fact, the beneficial owners
of such securities. |
|
|
|
(21) |
|
Includes shares owned and being offered by Motors Insurance
Corporation. |
|
|
|
(22) |
|
Includes shares owned and being offered by First Financial
Insurance Company and The Burlington Insurance Company. |
|
|
|
(23) |
|
Includes shares owned and being offered by The Ohio Casualty
Insurance Company. |
105
|
|
|
(24) |
|
Includes shares owned and being offered by Norfolk &
Dedham Mutual Fire Insurance Company, Fitchburg Mutual Insurance
Company, and Dorchester Mutual Insurance Company. |
|
|
|
|
|
Each of Stephen A. Fine, Kristen F. Giarrusso, F. Timothy
Hegarty, Jr., and Joseph A. Giovino, who are members of the
finance committee of Norfolk & Dedham Mutual Fire
Insurance Company, has voting
and/or
dispositive power of all of the shares held by
Norfolk & Dedham Mutual Fire Insurance Company and may
be deemed to be the beneficial owner for purposes of reporting
requirements of the Exchange Act. F. Timothy Hegarty, Jr. is
also the Chief Executive Officer of Norfolk & Dedham
Mutual Fire Insurance Company. Such individuals, however,
expressly disclaim that they are, in fact, the beneficial owners
of such securities. |
|
|
|
|
|
Each of Joseph A. Giovino, F. Timothy Hegarty, Jr., and Michael
J. Shea, who are members of the finance committee of Fitchburg
Mutual Insurance Company, has voting
and/or
dispositive power of all of the shares held by Fitchburg Mutual
Insurance Company and may be deemed to be the beneficial owner
for purposes of reporting requirements of the Exchange Act. F.
Timothy Hegarty, Jr. is also the Chief Executive Officer of
Fitchburg Mutual Insurance Company. Such individuals, however,
expressly disclaim that they are, in fact, the beneficial owners
of such securities. |
|
|
|
|
|
Each of Stephen A. Fine, Kristen F. Giarrusso, Gerard T.
McDermott, and F. Timothy Hegarty, Jr., who are members of the
finance committee of Dorchester Mutual Insurance Company, has
voting
and/or
dispositive power of all of the shares held by Dorchester Mutual
Insurance Company and may be deemed to be the beneficial owner
for purposes of reporting requirements of the Exchange Act. F.
Timothy Hegarty, Jr. is also the Chief Executive Officer of
Dorchester Mutual Insurance Company. Such individuals, however,
expressly disclaim that they are, in fact, the beneficial owners
of such securities. |
|
|
|
(25) |
|
Each of Andrew L. Furgatch, Charles L. Crouch, III, Anita
Goodman, John D. Hatch, Donald Henderson, John T. Hill, II, Sue
Kelly, David A. Lawless, Fredric G. Marziano, Stanley J.
Mastrogiacomo, Milton Peckman, Paul S. Schweitzer, Leslie W.
Seldin, Lewis J. Spellman, and Irwin W. Young, who are members
of the board of directors of Public Service Mutual Insurance
Company, has voting
and/or
dispositive power of all of the shares held by Public Service
Mutual Insurance Company and may be deemed to be the beneficial
owner for purposes of reporting requirements of the Exchange
Act. Andrew L. Furgatch is also the Chief Executive Officer of
Public Service Mutual Insurance Company. Such individuals,
however, expressly disclaim that they are, in fact, the
beneficial owners of such securities. |
|
|
|
(26) |
|
Includes shares owned and being offered by Swiss Re America
Holding Corporation, Swiss Reinsurance America Corporation and
Westport Insurance Corporation. |
|
|
|
(27) |
|
Includes shares owned and being offered by Firstline National
Insurance Company and Harford Mutual Insurance Company. |
|
|
|
(28) |
|
Includes shares owned and being offered by Unitrin Preferred
Insurance Company. |
|
|
|
(29) |
|
Includes shares owned by the Wayne Lattuca 2009 GRAT Trust, of
which Mr. Lattuca is the trustee. Mr. Lattuca
disclaims beneficial ownership of any shares beneficially owned
by the trust except to the extent of his pecuniary interest
therein. |
106
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 1) common stock and
(2) 400,000,000 shares of Class B
(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) the
24-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
24 months after the date of this prospectus. Prior to our
2009 meeting of stockholders, including at the time of our audit
for the year ended December 31, 2008, shares of our
Class B (Series 2) common stock were not expected
to be transferable until
107
30 months after the date of this prospectus. However, upon
further consideration of the size and structure of this
offering, at our 2009 meeting of stockholders, our stockholders
approved changes to the Company’s amended and restated
certificate of incorporation that allow Class B
(Series 2) common stock to automatically convert to
Class A common stock and be transferable 24 months
after the 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 24 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.
108
The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of 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) the
24-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.
|
109
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 NASDAQ
Global Select Market under the symbol “VRSK.”
Transfer
Agent and Registrar
The Transfer Agent and Registrar for the Class A common
stock is American Stock Transfer & Trust Company, LLC.
110
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 a
non-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:
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a non-resident alien individual, other than certain former
citizens and residents of the United States subject to tax as
expatriates,
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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
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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.
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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 to
non-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 of
non-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 a
non-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, a
non-U.S. holder
will be required to provide an Internal Revenue Service
Form W-8BEN
certifying its entitlement to benefits under a treaty.
The withholding tax does not apply to dividends paid to a
non-U.S. holder
who provides a
Form W-8ECI,
certifying that the dividends are effectively connected with the
non-U.S. holder’s
conduct of a 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
the
non-U.S. holder
were a U.S. person, unless an applicable income tax treaty
provides otherwise. A
non-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).
111
Gain on
Disposition of Common Stock
A
non-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:
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the gain is effectively connected with a trade or business of
the
non-U.S. holder
in the United States, subject to an applicable income treaty
providing otherwise, or
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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 the
non-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.
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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
the
non-U.S. holder
were a U.S. person, subject to an applicable income tax
treaty providing otherwise. A
non-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
the
non-U.S. holder’s
country of residence. A
non-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 a
non-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
Individual
non-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.
112
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
113,076,100 shares of Class A common stock
outstanding, assuming no exercise of any options and warrants
outstanding as of September 15, 2009 other than the options
exercised for shares of Class A common stock sold in this
offering, and 66,983,700 shares of Class B common
stock outstanding, assuming the over-allotment option is not
exercised. Of these shares, 85,250,000 shares of
Class A common stock, (or 97,995,750 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
27,826,100 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.
As a result of the conversion process described below, the
contractual
180-day
lock-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:
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Number of Shares of Class A Common Stock
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Date
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85,250,000
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On the date of this prospectus.
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25,060,450
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After 180 days from the date of this prospectus (subject,
in some cases, to volume limitations).
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2,765,650
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At various times after 18 months from the date of this
prospectus (subject, in some cases, to volume limitations).
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In addition, immediately following this offering, our existing
stockholders will hold 33,491,850 shares of our
Class B (series 1) common stock (or
27,118,975 shares if the underwriters exercise their
over-allotment option in full), each of which will, on the
18-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 33,491,850 shares of
our Class B (series 2) common stock (or
27,118,975 shares if the underwriters exercise their
over-allotment option in full), each of which will, on the
24-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.
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
113
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:
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one percent of the number of shares of our Class A common
stock then outstanding, which will equal approximately
1,130,761 shares immediately after this offering; and
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the average weekly trading volume of our Class A common
stock on The NASDAQ Global Select Market during the four
calendar weeks preceding the filing of a notice on Form 144
with respect to the sale.
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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 September 15, 2009, options to purchase a total of
25,983,050 shares of Class A common stock (on a
post-split basis) were outstanding, which includes 2,084,900
options which will be exercised in connection with this
offering. An additional 13,750,000 shares of Class A
common stock are available for future option grants under our
stock plans, including up to 3,177,650 shares of
Class A common stock that will be available for issuance to
our directors, executive officers and employees in connection
with grants of options upon the closing of this offering. All of
the shares subject to options are subject to
lock-up
agreements.
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 2009 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
27,826,100 shares of our Class A common stock
(excluding shares issuable upon exercise of options) and
47,344,900 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
114
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. The remaining
19,638,800 shares of our Class B common stock are
subject to the transfer restrictions described in
“Description of Capital Stock — Transfer
Restrictions.” 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, 25,060,450 shares of our
Class A common stock 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 the
180-day
period.
Although the trustee of our ESOP has entered into the
lock-up
described above with respect to the approximately
28.1 million shares of our Class A common stock held
on behalf of the ESOP participants, the
lock-up
agreement permits the trustee to sell shares held by the ESOP
during the
180-day
lock-up
period to satisfy participants’ statutory rights to
diversify a portion of their allocated shares under the ESOP. In
the period from January 1, 2008 through June 30, 2009,
ESOP redemption requests have averaged approximately
1.4 million shares per quarter and have ranged from
approximately 0.7 million shares to
2.9 million shares in any given quarter. To satisfy
redemption requests during the
180-day
lock-up
period, the ESOP is selling 5.0 million shares of our
Class A common stock in this offering, the proceeds of
which will be available to fund diversification requests during
the 180-day
lock-up
period. If redemption requests exceed the offering proceeds to
the ESOP, the trustee would seek to sell shares to satisfy
diversification requests in a manner that does not materially
impact the trading of our Class A common stock.
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 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 24 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.
115
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.
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Number of
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Underwriter
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Shares
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Merrill Lynch, Pierce, Fenner & Smith
Incorporated
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Morgan Stanley & Co. Incorporated
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J.P. Morgan Securities Inc.
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Wells Fargo Securities, LLC
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William Blair & Company, L.L.C.
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Fox-Pitt Kelton Cochran Caronia Waller (USA) LLC
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Keefe, Bruyette & Woods, Inc.
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Total
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85,250,000
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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.
We expect to deliver the shares against payment therefor on or
about the date specified in the last paragraph of the cover page
of this prospectus, which will be the third business day
following the date of the pricing of the shares.
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
The selling stockholders holding shares of our Class B
common stock have granted the underwriters options to purchase
up to 12,745,750 additional shares of our Class A common
stock, at the public offering price less the underwriting
discount. The shares of Class B common stock will be
automatically converted into Class A common stock to the extent
the underwriters exercise these options. 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.
116
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.
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.
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Per Share
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Without Option
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With Option
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Public offering price
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$
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$
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$
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Underwriting discount
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$
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$
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$
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Proceeds, before expenses, to the selling stockholders
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$
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$
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$
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Our expenses related to the offering, not including the
underwriting discount, are estimated to be $8.3 million.
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, the
180-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
NASDAQ Global Select Market under the symbol “VRSK.”
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:
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the valuation multiples of publicly traded companies that the
representatives believe to be comparable with us;
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our financial information;
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the history of, and the prospects for, our company and the
industry in which we compete;
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an assessment of our management, our past and present
operations, and the prospects for, and timing of, our future
revenues;
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the present state of our business; and
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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.
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 approved
and/or
endorsed by us or any underwriter in its capacity as
underwriter. Investors should not rely on such information.
118
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. Certain
affiliates of Merrill Lynch, Pierce, Fenner & Smith
Incorporated, Morgan Stanley & Co. Incorporated,
J.P. Morgan Securities Inc. and Wells Fargo Securities, LLC
are lenders under our $420.0 million revolving credit facility.
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 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” means
Directive 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
|
119
|
|
|
|
|
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 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.
|
Notice to
Prospective Investors in Switzerland
This document, as well as any other material relating to the
shares which are the subject of the offering contemplated by
this prospectus, do not constitute an issue prospectus pursuant
to Article 652a of the Swiss Code of Obligations. The
shares will not be listed on the SWX Swiss Exchange and,
therefore, the documents relating to the shares, including, but
not limited to, this document, do not claim to comply with the
disclosure standards of the listing rules of SWX Swiss Exchange
and corresponding prospectus schemes annexed to the listing
rules of the SWX Swiss Exchange. The shares are being offered in
Switzerland by way of a private placement, i.e. to a
small number of selected investors only, without any public
offer and only to investors who do not purchase the shares with
the intention to distribute them to the public. The investors
will be individually approached by us from time to time. This
document, as well as any other material relating to the shares,
is personal and confidential and do not constitute an offer to
any other person. This document may only be used by those
investors to whom it has been handed out in connection with the
offering described herein and may neither directly nor
indirectly be distributed or made available to other persons
without our express consent. It may not be used in connection
with any other offer and shall in particular not be copied
and/or
distributed to the public in (or from) Switzerland.
Notice to
Prospective Investors in the Dubai International Financial
Centre
This document relates to an exempt offer in accordance with the
Offered Securities Rules of the Dubai Financial Services
Authority. This document is intended for distribution only to
persons of a type specified in those rules. It must not be
delivered to, or relied on by, any other person. The Dubai
Financial Services Authority has no responsibility for reviewing
or verifying any documents in connection with exempt offers. The
Dubai Financial Services Authority has not approved this
document nor taken steps to verify the information set out in
it, and has no responsibility for it. The shares which are the
subject of the offering contemplated by this prospectus may be
illiquid
and/or
subject to restrictions on their resale. Prospective purchasers
of the shares offered should conduct their own due diligence on
the shares. If you do not understand the contents of this
document you should consult an authorised financial adviser.
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 LLP, 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, 2008 and 2007, and for each
of the three years in the period ended December 31, 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
120
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,
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.
WHERE YOU
CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a
registration statement on
Form 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 at
1-800-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.
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.
121
VERISK
ANALYTICS, INC.
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Page
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Insurance Services Office, Inc. Condensed Consolidated
Financial Statements as of June 30, 2009 and for the Six
Months Ended June 30, 2008 and 2009 (unaudited)
|
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|
|
|
|
|
|
F-2
|
|
|
|
|
F-3
|
|
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|
|
F-4
|
|
|
|
|
F-5
|
|
|
|
|
F-7
|
|
Verisk Analytics, Inc. Financial Statement as of
June 30, 2009
|
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|
|
|
|
|
|
F-31
|
|
|
|
|
F-32
|
|
|
|
|
F-33
|
|
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-34
|
|
|
|
|
F-35
|
|
|
|
|
F-36
|
|
|
|
|
F-37
|
|
|
|
|
F-38
|
|
|
|
|
F-40
|
|
F-1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
2008
|
|
|
unaudited
|
|
|
|
(In thousands, except for share and per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
33,185
|
|
|
$
|
45,962
|
|
Available-for-sale
securities
|
|
|
5,114
|
|
|
|
5,023
|
|
Accounts receivable, net (including amounts from related parties
of $3,421 and $3,974 respectively)
|
|
|
83,941
|
|
|
|
107,151
|
|
Prepaid expenses
|
|
|
13,010
|
|
|
|
17,379
|
|
Deferred income taxes
|
|
|
4,490
|
|
|
|
4,490
|
|
Federal and foreign income taxes receivable
|
|
|
12,311
|
|
|
|
3,730
|
|
State and local income taxes receivable
|
|
|
689
|
|
|
|
4,736
|
|
Other current assets
|
|
|
16,187
|
|
|
|
24,024
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
168,927
|
|
|
|
212,495
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
82,587
|
|
|
|
84,278
|
|
Intangible assets, net
|
|
|
112,713
|
|
|
|
119,547
|
|
Goodwill
|
|
|
447,372
|
|
|
|
487,219
|
|
Deferred income taxes
|
|
|
100,256
|
|
|
|
89,893
|
|
State income taxes receivable
|
|
|
8,112
|
|
|
|
8,031
|
|
Other assets
|
|
|
8,910
|
|
|
|
7,872
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
928,877
|
|
|
$
|
1,009,335
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
83,381
|
|
|
$
|
84,668
|
|
Acquisition related liabilities
|
|
|
82,700
|
|
|
|
—
|
|
Short-term debt and current portion of long-term debt
|
|
|
219,398
|
|
|
|
160,372
|
|
Pension and postretirement benefits, current
|
|
|
5,397
|
|
|
|
5,397
|
|
Fees received in advance (including amounts from related parties
of $3,699 and $9,252, respectively)
|
|
|
114,023
|
|
|
|
175,453
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
504,899
|
|
|
|
425,890
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
450,356
|
|
|
|
528,694
|
|
Pension benefits
|
|
|
133,914
|
|
|
|
136,355
|
|
Postretirement benefits
|
|
|
23,798
|
|
|
|
22,803
|
|
Other liabilities
|
|
|
76,194
|
|
|
|
81,965
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,189,161
|
|
|
|
1,195,707
|
|
Redeemable common stock:
|
|
|
|
|
|
|
|
|
Class A redeemable common stock, stated at redemption
value, $.01 par value; 6,700,000 shares authorized;
3,007,761 and 3,010,843 shares issued and 746,139 and
700,188 outstanding as of December 31, 2008 and
June 30, 2009, respectively, and vested options at
intrinsic value
|
|
|
752,912
|
|
|
|
845,126
|
|
Class A unearned common stock KSOP shares
|
|
|
(3,373
|
)
|
|
|
(3,009
|
)
|
|
|
|
|
|
|
|
|
|
Total redeemable common stock
|
|
|
749,539
|
|
|
|
842,117
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
Stockholders’ deficit:
|
|
|
|
|
|
|
|
|
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
June 30, 2009
|
|
|
100
|
|
|
|
100
|
|
Accumulated other comprehensive loss
|
|
|
(82,434
|
)
|
|
|
(79,130
|
)
|
Accumulated deficit
|
|
|
(243,495
|
)
|
|
|
(265,465
|
)
|
Class B common stock, treasury stock, 7,140,758 shares
as of December 31, 2008 and June 30, 2009
|
|
|
(683,994
|
)
|
|
|
(683,994
|
)
|
|
|
|
|
|
|
|
|
|
Total stockholders’ deficit
|
|
|
(1,009,823
|
)
|
|
|
(1,028,489
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities, redeemable common stock and
stockholders’ deficit
|
|
$
|
928,877
|
|
|
$
|
1,009,335
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-2
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands, except for
|
|
|
|
share and per share data)
|
|
|
Revenues (include revenues from related parties of $43,189 and
$48,143 for 2008 and 2009, respectively)
|
|
$
|
437,690
|
|
|
$
|
503,667
|
|
Expenses:
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below)
|
|
|
190,678
|
|
|
|
220,501
|
|
Selling, general and administrative
|
|
|
59,028
|
|
|
|
72,225
|
|
Depreciation and amortization of fixed assets
|
|
|
16,424
|
|
|
|
18,913
|
|
Amortization of intangible assets
|
|
|
14,937
|
|
|
|
16,974
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
281,067
|
|
|
|
328,613
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
156,623
|
|
|
|
175,054
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
1,603
|
|
|
|
92
|
|
Realized losses on securities, net
|
|
|
(1,286
|
)
|
|
|
(365
|
)
|
Interest expense
|
|
|
(14,173
|
)
|
|
|
(16,677
|
)
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(13,856
|
)
|
|
|
(16,950
|
)
|
|
|
|
|
|
|
|
|
|
Income before income taxes
|
|
|
142,767
|
|
|
|
158,104
|
|
Provision for income taxes
|
|
|
(61,818
|
)
|
|
|
(67,250
|
)
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
80,949
|
|
|
|
90,854
|
|
|
|
|
|
|
|
|
|
|
Basic net income per share of Class A and Class B
|
|
$
|
21.73
|
|
|
$
|
26.20
|
|
|
|
|
|
|
|
|
|
|
Diluted net income per share of Class A and Class B
|
|
$
|
20.87
|
|
|
$
|
25.21
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
3,724,876
|
|
|
|
3,468,196
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
3,877,906
|
|
|
|
3,604,086
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic net income per share of Class A and
Class B:
|
|
$
|
0.43
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted net income per share of Class A and Class
B:
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in pro forma per share amounts:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
186,243,800
|
|
|
|
173,409,800
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
193,895,300
|
|
|
|
180,204,300
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
Class B Common Stock
|
|
|
Total
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
|
|
|
|
|
|
Treasury
|
|
|
Stockholders’
|
|
|
|
Deficit
|
|
|
Loss
|
|
|
Shares
|
|
|
Par Value
|
|
|
Stock
|
|
|
Deficit
|
|
|
|
|
|
|
(In thousands, except for share data)
|
|
|
|
|
|
Balance, January 1, 2008
|
|
$
|
(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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
90,854
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
90,854
|
|
Other comprehensive income
|
|
|
—
|
|
|
|
3,304
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
3,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
94,158
|
|
Increase in redemption value of Class A common stock
|
|
|
(112,824
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(112,824
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$
|
(265,465
|
)
|
|
$
|
(79,130
|
)
|
|
|
10,004,500
|
|
|
$
|
100
|
|
|
$
|
(683,994
|
)
|
|
$
|
(1,028,489
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-4
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80,949
|
|
|
$
|
90,854
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets
|
|
|
16,424
|
|
|
|
18,913
|
|
Amortization of intangible assets
|
|
|
14,937
|
|
|
|
16,974
|
|
Allowance for doubtful accounts
|
|
|
1,093
|
|
|
|
509
|
|
KSOP compensation expense
|
|
|
11,564
|
|
|
|
10,738
|
|
Acquisition related compensation expense
|
|
|
550
|
|
|
|
—
|
|
Stock-based compensation
|
|
|
4,621
|
|
|
|
5,515
|
|
Non-cash charges associated with performance based appreciation
awards
|
|
|
2,327
|
|
|
|
1,385
|
|
Interest income on notes receivable from stockholders
|
|
|
(980
|
)
|
|
|
—
|
|
Realized losses on securities
|
|
|
1,286
|
|
|
|
365
|
|
Deferred income taxes
|
|
|
—
|
|
|
|
(199
|
)
|
Other operating
|
|
|
30
|
|
|
|
30
|
|
Loss on disposal of assets
|
|
|
—
|
|
|
|
308
|
|
Non-cash charges associated with lease termination
|
|
|
—
|
|
|
|
196
|
|
Excess tax benefits from exercised stock options
|
|
|
(17,032
|
)
|
|
|
(658
|
)
|
Changes in assets and liabilities, net of effects from
acquisitions:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(4,937
|
)
|
|
|
(20,256
|
)
|
Prepaid expenses and other assets
|
|
|
(4,426
|
)
|
|
|
(3,964
|
)
|
Federal and foreign income taxes
|
|
|
6,622
|
|
|
|
9,538
|
|
State and local income taxes
|
|
|
(1,270
|
)
|
|
|
(3,901
|
)
|
Accounts payable and accrued liabilities
|
|
|
(16,088
|
)
|
|
|
(11,196
|
)
|
Acquisition related liabilities
|
|
|
(2,200
|
)
|
|
|
(300
|
)
|
Fees received in advance
|
|
|
49,151
|
|
|
|
60,452
|
|
Other liabilities
|
|
|
(692
|
)
|
|
|
9,226
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
141,929
|
|
|
|
184,529
|
|
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 The Six Months Ended June 30, 2008
and 2009
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
|
(In thousands)
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
Acquisitions, net of cash acquired of $9,477 in 2009
|
|
|
(41
|
)
|
|
|
(51,618
|
)
|
Earnout payments
|
|
|
(98,100
|
)
|
|
|
(78,100
|
)
|
Proceeds from release of contingent escrows
|
|
|
549
|
|
|
|
—
|
|
Escrow funding associated with acquisitions
|
|
|
(3,320
|
)
|
|
|
(7,000
|
)
|
Purchases of
available-for-sale
securities
|
|
|
(78
|
)
|
|
|
(398
|
)
|
Proceeds from sales and maturities of
available-for-sale
securities
|
|
|
21,457
|
|
|
|
628
|
|
Purchases of fixed assets
|
|
|
(17,810
|
)
|
|
|
(16,195
|
)
|
Proceeds from repayment of notes receivable from stockholders
|
|
|
184
|
|
|
|
—
|
|
Issuance of notes receivable from stockholders
|
|
|
(1,243
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(98,402
|
)
|
|
|
(152,683
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt
|
|
|
150,000
|
|
|
|
80,000
|
|
Proceeds from issuance of short-term debt, net
|
|
|
70,000
|
|
|
|
40,000
|
|
Redemption of Class A common stock
|
|
|
(232,144
|
)
|
|
|
(38,282
|
)
|
Repurchase of Class B common stock
|
|
|
(5,001
|
)
|
|
|
—
|
|
Repayment of current portion of long-term debt
|
|
|
—
|
|
|
|
(100,000
|
)
|
Repayment of short-term debt, net
|
|
|
(17,587
|
)
|
|
|
(2,659
|
)
|
Excess tax benefits from exercised stock options
|
|
|
17,032
|
|
|
|
658
|
|
Proceeds from stock options exercised
|
|
|
941
|
|
|
|
1,126
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(16,759
|
)
|
|
|
(19,157
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes
|
|
|
18
|
|
|
|
88
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
26,786
|
|
|
|
12,777
|
|
Cash and cash equivalents, beginning of period
|
|
|
24,049
|
|
|
|
33,185
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
50,835
|
|
|
$
|
45,962
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$
|
55,127
|
|
|
$
|
60,464
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
12,609
|
|
|
$
|
16,527
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
|
|
Loans made to directors and officers in connection with the
exercise of stock options
|
|
$
|
20,148
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Redemption of Class A common stock used to repay maturities
of notes receivable from stockholders
|
|
$
|
18,663
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Redemption of Class A common stock used to fund the
exercise of stock options
|
|
$
|
2,827
|
|
|
$
|
456
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability established on date of acquisition
|
|
$
|
—
|
|
|
$
|
(8,744
|
)
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
1,368
|
|
|
$
|
1,972
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable and accrued
liabilities
|
|
$
|
—
|
|
|
$
|
619
|
|
|
|
|
|
|
|
|
|
|
Decrease in goodwill due to finalization of acquisition related
liabilities
|
|
$
|
—
|
|
|
$
|
(4,300
|
)
|
|
|
|
|
|
|
|
|
|
Increase in goodwill due to acquisition related escrow
distributions
|
|
$
|
3,320
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Accrual of acquisition related liabilities
|
|
$
|
11,300
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
F-6
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 property and casualty
(“P&C”) or P&C insurance risks in the United
States of America (“U.S.”). The Company offers
solutions for detecting fraud in the U.S. P&C
insurance, mortgage and healthcare industries and sophisticated
methods to predict and quantify loss in diverse contexts ranging
from natural catastrophes to health insurance. The Company
provides solutions, including data, statistical models or
tailored analytics, all designed to allow clients to make more
logical decisions.
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 pursued 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 new
Class 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 new
Class B-2
common stock. Each share of
Class 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 of
Class B-2
common stock shall convert automatically, without any action by
the stockholder, into one share of Class A common stock
24 months after the date of the IPO. In conjunction with
the IPO, Verisk plans to effect a
fifty-to-one
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 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. Certain reclassifications within the consolidated
statement of cash flows have been made in 2008 to conform to the
2009 presentation in order to provide additional information
regarding the changes in acquisition related liabilities, state
and local income taxes and federal and foreign income taxes.
The condensed consolidated financial statements as of
June 30, 2009 and for the six months ended June 30,
2008 and 2009, 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 six
months ended June 30, 2009 are not necessarily indicative
of the results to be expected for the full year. The condensed
consolidated financial statements and related notes for the six
months ended June 30, 2009 have been prepared on the same
basis as and should be read in conjunction with the consolidated
financial statements as of December 31, 2007 and 2008 and
for each of the three years ended December 31, 2006, 2007
and 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 December 2007, the Financial Accounting Standards Board
(“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, except for tax provisions which apply to business
combinations regardless of acquisition date. As the Company had
expensed all in-process acquisition related costs incurred
during the year ended December 31, 2008, the adoption of
FAS No. 141(R) on January 1, 2009 had no impact
on the Company’s consolidated financial statements. The
Company made one acquisition during the six months ended
June 30, 2009 and accounted for the acquisition under
FAS No. 141(R).
In February 2008, the FASB issued FASB Staff Position
(“FSP”)
FAS No. 157-2,
Effective Date of FASB Statement No. 157 (“FSP
FAS 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. Effective January 1, 2009, the
Company has adopted the disclosure provisions of FSP
FAS No. 157-2
for its non-recurring non-financial assets and liabilities.
In April 2008, the FASB issued FSP
FAS No. 142-3,
Determination of the Useful Life of Intangible Assets
(“FSP
FAS No. 142-3”).
FSP
FAS No. 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. FSP
FAS No. 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 FSP
FAS No. 142-3,
effective January 1, 2009, had no impact on the
Company’s consolidated financial statements.
F-8
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
In October 2008, the FASB issued FSP
FAS No. 157-3,
Determining the Fair Value of a Financial Asset When the
Market for That Asset is Not Active (“FSP
FAS No. 157-3”).
FSP
FAS No. 157-3
clarifies the 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.
FSP
FAS No. 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 FSP
FAS No. 157-3
for its non-recurring non-financial assets and liabilities,
except those recognized or disclosed at fair value on a
recurring basis.
In December 2008, the FASB released FSP
FAS No. 132(R)-1, Employer’s Disclosure about
Postretirement Benefit Plan Assets (“FSP
FAS No. 132R-1”).
FSP
FAS No. 132R-1
amends FAS 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. FSP
FAS No. 132R-1
is effective for financial statements issued for fiscal years
ending after December 15, 2009. The Company is currently
evaluating the impact of FSP
FAS No. 132R-1
on its consolidated financial statements.
In April 2009, the FASB issued FSP
FAS No. 115-2
and
FAS No. 124-2,
Recognition and Presentation of
Other-Than-Temporary
Impairments (“FSP
FAS No. 115-2/124-2”).
FSP
FAS No. 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. FSP
FAS No. 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 adoption of FSP
FAS No. 115-2/124-2,
effective June 30, 2009, had no impact on the
Company’s consolidated financial statements.
In April 2009, the FASB issued FSP FAS No. 141(R)-1,
Accounting for Assets Acquired and Liabilities Assumed in a
Business Combination That Arise from Contingencies
(“FSP
FAS No. 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 No. 141(R). FSP
FAS No. 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
adoption of FSP
FAS No. 141R-1
did not have any impact on our D2 Hawkeye, Inc. acquisition. The
majority of the impact of adopting FSP
FAS No. 141R-1
will be dependent on the business combinations that the Company
may pursue and complete after its effective date.
In April 2009, the FASB issued FSP
FAS No. 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 (“FSP
FAS No. 157-4”).
Under FSP
FAS No. 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. FSP
FAS No. 157-4
is effective for periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15,
2009. The adoption of FSP
FAS No. 157-4,
effective June 30, 2009, had no impact on the
Company’s consolidated financial statements.
F-9
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
In April 2009, the FASB issued FSP
FAS No. 107-1
and Accounting Principles Board (“APB”)
28-1,
Interim Disclosures about Fair Value of Financial Instruments
(“FSP
FAS No. 107-1
and APB
28-1”).
FSP
FAS No. 107-1
and APB 28-1
require disclosures about fair value of financial instruments in
interim and annual financial statements. FSP
FAS No. 107-1
and APB 28-1
are effective for periods ending after June 15, 2009, with
early adoption permitted for periods ending after March 15,
2009. The Company has included the disclosures required by the
adoption of FSP
FAS No. 107-1
and APB
28-1,
effective June 30, 2009. The adoption of FSP
FAS No. 107 and APB
28-1 had no
other impact on the Company’s consolidated financial
statements.
In May 2009, the FASB issued FAS No. 165,
Subsequent Events (“FAS No. 165”).
FAS No. 165 establishes principles and requirements
for subsequent events in the period after the balance sheet date
during which management of a reporting entity shall evaluate
events or transactions that may occur for potential recognition
or disclosure in the financial statements. FAS No. 165
is effective for interim and annual reporting periods ending
after June 15, 2009. In accordance with the adoption of
FAS No. 165, effective June 30, 2009, the Company
disclosed in Note 19 the date through which the subsequent
events have been evaluated. The adoption of
FAS No. 165 did not have any other impact on the
Company’s consolidated financial statements.
In June 2009, the FASB issued FAS No. 166,
Accounting for Transfers of Financial Assets — an
amendment of FASB Statement No. 140
(“FAS No. 166”). FAS No. 166
was issued to improve the relevance, representational
faithfulness, and comparability of the information that a
reporting entity provides in its financial statements about a
transfer of financial assets; the effects of a transfer on its
financial position, financial performance, and cash flows; and a
transferor’s continuing involvement, if any, in the
transferred financial assets. FAS No. 166 is effective
for an entity’s first annual reporting period that begins
after November 15, 2009, for interim periods within that
first annual reporting period and for interim and annual
reporting periods thereafter. Earlier application is prohibited.
The Company is currently evaluating the impact of
FAS No. 166 on its consolidated financial statements.
In June 2009, the FASB issued FAS No. 167,
Amendments to FASB Interpretation No. 46(R)
(“FAS No. 167”). FAS No. 167
was issued to address the effects on certain provisions of FASB
Interpretation No. 46 (revised December 2003),
Consolidation of Variable Interest Entities
(“FIN No. 46(R)”), as a result of the
elimination of the qualifying special-purpose entity concept in
FAS No. 166 and constituent concerns about the
application of certain key provisions of
FIN No. 46(R), including those in which the accounting
and disclosures under the Interpretation do not always provide
timely and useful information about an enterprise’s
involvement in a variable interest entity. FAS No. 167
is effective for an entity’s first annual reporting period
that begins after November 15, 2009. The Company is
currently evaluating the impact of FAS No. 167 on its
consolidated financial statements.
In June 2009, the FASB issued FAS No. 168, The FASB
Accounting Standards Codification and the Hierarchy of Generally
Accepted Accounting Principles — a replacement of FASB
Statement No. 162 (“FAS No. 168”).
FAS No. 168 will become the source of authoritative
U.S. GAAP recognized by the FASB to be applied by
non-governmental entities. Rules and interpretive releases of
the Securities and Exchange Commission, (“SEC”), under
the authority of federal securities laws, are also sources of
authoritative U.S. GAAP for SEC registrants. On the
effective date of this statement, the codification will
supersede all then-existing non-SEC accounting and reporting
standards. All other non-grandfathered non-SEC accounting
literature not included in the Codification will become
non-authoritative. This Statement is effective for financial
statements issued for interim and annual reporting periods
ending after September 15, 2009.
|
|
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
F-10
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
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 $250 per bank at
December 31, 2008 and June 30, 2009. At
December 31, 2008, the Company had cash balances on deposit
with six banks, that exceeded the balance insured by the FDIC
limit by approximately $20,917. At June 30, 2009, the
Company had cash balances on deposit with three banks, that
exceeded the balance insured by the FDIC limit by approximately
$31,602. At December 31, 2008 and June 30, 2009, the
Company also had cash on deposit with foreign banks of
approximately $11,311 and $13,398, 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 significant risk of near-term severe adverse impacts. The
Company’s top fifty customers for the six months ended
June 30, 2008 and 2009, represent approximately 43% and 40%
of revenue, respectively, with no individual customer accounting
for more than 4% of revenue during the six months ended
June 30, 2008 and 2009. No individual customer comprised
more than 10% of accounts receivable at December 31, 2008
and June 30, 2009.
Accounts receivables consist of the following:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Billed receivables
|
|
$
|
81,302
|
|
|
$
|
107,809
|
|
Unbilled receivables
|
|
|
9,036
|
|
|
|
4,317
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
|
90,338
|
|
|
|
112,126
|
|
Less allowance for doubtful accounts
|
|
|
(6,397
|
)
|
|
|
(4,975
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
83,941
|
|
|
$
|
107,151
|
|
|
|
|
|
|
|
|
|
|
The following is a summary of
available-for-sale
securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
|
|
|
|
Adjusted
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
|
|
|
|
Cost
|
|
|
Gains
|
|
|
Losses
|
|
|
Fair Value
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
|
$
|
5,162
|
|
|
$
|
—
|
|
|
$
|
(48
|
)
|
|
$
|
5,114
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies
|
|
$
|
4,566
|
|
|
$
|
441
|
|
|
$
|
—
|
|
|
$
|
5,007
|
|
Equity securities
|
|
|
15
|
|
|
|
1
|
|
|
|
—
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
available-for-sale
securities
|
|
$
|
4,581
|
|
|
$
|
442
|
|
|
$
|
—
|
|
|
$
|
5,023
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains/(losses), including write downs related to
other-than-temporary
impairments or
available-for-sale
securities and other assets were as follows for the six months
ended June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Gross realized gains/(losses) on sale of registered investment
securities
|
|
$
|
(1,286
|
)
|
|
$
|
21
|
|
Other than temporary impairment of registered investment
securities
|
|
|
—
|
|
|
|
(386
|
)
|
|
|
|
|
|
|
|
|
|
Realized (losses)/gains on investments, net
|
|
$
|
(1,286
|
)
|
|
$
|
(365
|
)
|
|
|
|
|
|
|
|
|
|
F-11
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
Investment income during the six months ended June 30, 2008
includes interest and other income, interest income from notes
receivable from stockholders and dividend income from
investments of $480, $980 and $143, respectively. Investment
income during the six months ended June 30, 2009 includes
interest and other income and dividend income from investments
of $78 and $14, 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 June 30,
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.
|
|
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 non-financial assets and
non-financial liabilities, except those that are recognized or
disclosed at least annually. Effective January 1, 2008, the
Company has adopted the provisions of FAS No. 157 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.
|
|
|
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-12
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 June 30, 2009 for assets and
other balances measured at fair value on a recurring basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
|
|
in Active Markets
|
|
|
Significant Other
|
|
|
Significant
|
|
|
|
|
|
|
for Identical
|
|
|
Observable
|
|
|
Unobservable
|
|
|
|
Total
|
|
|
Assets (Level 1)
|
|
|
Inputs (Level 2)
|
|
|
Inputs (Level 3)
|
|
|
December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies(1)
|
|
$
|
5,114
|
|
|
$
|
5,114
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Class A redeemable common stock(2)
|
|
$
|
752,912
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
752,912
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered investment companies(1)
|
|
$
|
5,007
|
|
|
$
|
5,007
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity securities(1)
|
|
$
|
16
|
|
|
$
|
16
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Class A redeemable common stock(2)
|
|
$
|
845,126
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
845,126
|
|
Contingent consideration under FAS No. 141(R)(3)
|
|
$
|
2,800
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,800
|
|
|
|
|
(1)
|
|
Registered investment companies and
equity securities are classified as
available-for-sale
securities and are valued using quoted prices in active markets
multiplied by the number of shares owned.
|
|
(2)
|
|
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 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 six-months ended June 30,
2009, no adjustments to the initial assessment were required.
|
The table below includes a roll-forward of the Company’s
Class A redeemable common stock from December 31, 2008
to June 30, 2009:
|
|
|
|
|
|
|
Significant
|
|
|
|
Unobservable
|
|
|
|
Inputs (Level 3)
|
|
|
Balance, December 31, 2008
|
|
$
|
752,912
|
|
Redemptions and exercise of stock, net
|
|
|
(37,157
|
)
|
Increase in fair value(1)
|
|
|
129,371
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
$
|
845,126
|
|
|
|
|
|
|
|
|
|
(1)
|
|
See Note 11 for a description of
the valuation process.
|
The fair values of cash and cash equivalents, accounts
receivable, accounts payable and accrued liabilities,
acquisition related liabilities, and short-term debt are
approximately equal to their carrying amounts because of the
short-term maturity of these instruments. The fair value of the
long-term debt was estimated at $569,699 and $552,976 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, 2008 and June 30, 2009, respectively.
F-13
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
|
|
7.
|
Goodwill
and Intangible Assets:
|
The following is a summary of the change in goodwill from
December 31, 2008 through June 30, 2009, both in total
and as allocated to the Company’s operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
|
|
|
Decision
|
|
|
|
|
|
|
Assessment
|
|
|
Analytics
|
|
|
Total
|
|
|
Goodwill at December 31, 2008
|
|
$
|
27,908
|
|
|
$
|
419,464
|
|
|
$
|
447,372
|
|
Current year acquisitions
|
|
|
—
|
|
|
|
44,494
|
|
|
|
44,494
|
|
Finalization of acquisition related liabilities
|
|
|
—
|
|
|
|
(4,300
|
)
|
|
|
(4,300
|
)
|
Purchase accounting reclassifications
|
|
|
—
|
|
|
|
(347
|
)
|
|
|
(347
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at June 30, 2009
|
|
$
|
27,908
|
|
|
$
|
459,311
|
|
|
$
|
487,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2009, which
resulted in no impairment of goodwill. This testing compares the
carrying value of each reporting unit to its fair value. If the
fair value of the reporting unit exceeds the carrying value of
the net assets including goodwill assigned to that reporting
unit, goodwill is not impaired. If the carrying value of the
reporting unit’s net assets including goodwill exceeds the
fair value of the reporting unit, then the Company will
determine the implied fair value of the reporting unit’s
goodwill. If the carrying value of a reporting unit’s
goodwill exceeds its implied fair value, than an impairment loss
is recorded for the difference between the carrying amount and
the implied fair value of goodwill.
The Company recorded an acquisition related liability of $67,200
for the Xactware acquisition as of December 31, 2008. The
Company correspondingly recorded a reduction of $4,300 to
goodwill and acquisition related liabilities as of
March 31, 2009. In May 2009, the Company finalized the
Xactware acquisition contingent liability and made a payment of
$62,900. In May 2009, the Company also paid the NIA acquisition
contingent liability of $15,200, which was also included in
acquisition related liabilities as of December 31, 2008.
The Company’s intangible assets and related accumulated
amortization consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Useful Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
December 31, 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-14
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Useful Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology-based
|
|
|
6 years
|
|
|
$
|
176,274
|
|
|
$
|
(108,530
|
)
|
|
$
|
67,744
|
|
Marketing-related
|
|
|
4 years
|
|
|
|
38,614
|
|
|
|
(22,003
|
)
|
|
|
16,611
|
|
Contract-based
|
|
|
6 years
|
|
|
|
6,555
|
|
|
|
(5,995
|
)
|
|
|
560
|
|
Customer-related
|
|
|
12 years
|
|
|
|
58,097
|
|
|
|
(23,465
|
)
|
|
|
34,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
279,540
|
|
|
$
|
(159,993
|
)
|
|
$
|
119,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated amortization expense related to intangible assets
for the six months ended June 30, 2008 and 2009, was
approximately $14,937 and $16,974, respectively. Estimated
amortization expense through 2013 and thereafter for intangible
assets subject to amortization is as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2009
|
|
$
|
16,203
|
|
2010
|
|
$
|
27,957
|
|
2011
|
|
$
|
21,421
|
|
2012
|
|
$
|
17,506
|
|
2013
|
|
$
|
11,933
|
|
Thereafter
|
|
$
|
24,527
|
|
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 June 30, 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 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. The purchase
allocation related to this acquisition was finalized as of
December 31, 2008.
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. 48 Accounting
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.
F-15
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
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 currently included
in “Other current assets” in the accompanying
condensed consolidated balance sheet. The preliminary allocation
of purchase price, including working capital adjustments,
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 $44,494, current
liabilities of $4,118, 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 averaging the
probability of achieving each of 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.
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. For the year ended
December 31, 2008 and for the six months ended
June 30, 2009, the Company incurred legal expenses related
to this acquisition of $366 and $312, respectively, included
within “Selling, general, and administrative” expenses
in the accompanying condensed consolidated statements of
operations.
The amounts assigned to intangible assets by type are summarized
in the table below:
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
$
|
23,808
|
|
|
|
|
|
|
|
|
|
|
The preliminary allocation of the purchase price to intangible
assets, goodwill, accrued liabilities, and the determination of
a FIN No. 48 liability is subject to revisions, which
may have a material impact on the consolidated financial
statements. As the values of such assets and liabilities are
preliminary in nature, they are subject to adjustment as
additional information is obtained about the facts and
circumstances that existed as of the acquisition date. In
accordance with FAS No. 141(R), the allocation of the
purchase price will be finalized within one year from the
acquisition date. The value of goodwill associated with this
acquisition is currently included within the Decision Analytics
segment. The goodwill for this acquisition is not deductible for
tax purposes. Included within the condensed consolidated
statements of operations for the six months ending June 30,
2009 are revenues of $8,971 and $392 of operating income
associated with D2.
The Company’s cumulative effective tax rate for the six
months ended June 30, 2008 was 43.3% compared to the
cumulative effective tax rate for the six months ended
June 30, 2009 of 42.5%.
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
F-16
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
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 $32,640 at
June 30, 2009 was $17,616 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 $2,791 of unrecognized tax
positions that may be recognized by June 30, 2010, due to
expiration of statutes of limitations and resolution of audits
with taxing authorities, net of additional uncertain tax
positions.
The Company’s policy is to recognize interest and penalties
associated with income taxes as a component of income tax
expense. At December 31, 2008 and June 30, 2009,
approximately $8,116 and $8,483, respectively, was accrued in
the Company’s condensed consolidated balance sheet for the
payment of interest and penalties associated with 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.
The following table presents short-term and long-term debt by
issuance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
|
|
Maturity
|
|
December 31,
|
|
|
June 30,
|
|
|
|
Date
|
|
Date
|
|
2008
|
|
|
2009
|
|
|
Short-term debt 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
|
|
6/18/2009
|
|
7/2/2009
|
|
|
—
|
|
|
|
30,000
|
|
Bank of America
|
|
6/18/2009
|
|
7/2/2009
|
|
|
—
|
|
|
|
5,000
|
|
Bank of America
|
|
6/29/2009
|
|
7/2/2009
|
|
|
—
|
|
|
|
15,000
|
|
Bank of America
|
|
6/26/2009
|
|
7/2/2009
|
|
|
—
|
|
|
|
15,000
|
|
Bank of America
|
|
6/29/2009
|
|
7/2/2009
|
|
|
—
|
|
|
|
50,000
|
|
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
|
|
6/29/2009
|
|
7/2/2009
|
|
|
—
|
|
|
|
19,000
|
|
JPMorganChase
|
|
6/8/2009
|
|
7/8/2009
|
|
|
—
|
|
|
|
20,000
|
|
Prudential senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
|
4.46% Series D senior notes
|
|
6/14/2005
|
|
6/13/2009
|
|
|
100,000
|
|
|
|
—
|
|
Capital lease obligations
|
|
Various
|
|
Various
|
|
|
5,058
|
|
|
|
5,208
|
|
Other
|
|
Various
|
|
Various
|
|
|
340
|
|
|
|
1,164
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt and current portion of long-term debt
|
|
|
|
|
|
$
|
219,398
|
|
|
$
|
160,372
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
|
|
Maturity
|
|
December 31,
|
|
|
June 30,
|
|
|
|
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
|
|
6.85% Series J senior notes
|
|
6/15/2009
|
|
6/15/2016
|
|
|
—
|
|
|
|
50,000
|
|
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
|
|
Aviva Investors North America:
|
|
|
|
|
|
|
|
|
|
|
|
|
6.46% Series A senior notes
|
|
4/27/2009
|
|
4/27/2013
|
|
|
—
|
|
|
|
30,000
|
|
Other obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
Various
|
|
Various
|
|
|
4,723
|
|
|
|
3,319
|
|
Other
|
|
Various
|
|
Various
|
|
|
633
|
|
|
|
375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
$
|
450,356
|
|
|
$
|
528,694
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest associated with the Company’s outstanding
debt obligations was $4,092 and $4,242 as of December 31,
2008 and June 30, 2009, respectively. Consolidated interest
expense associated with the Company’s outstanding debt
obligations was $13,928 and $16,538 for the six months ended
June 30, 2008 and 2009, respectively. As of June 30,
2009, the interest on the outstanding borrowings under the
revolving credit facilities with Bank of America and
JPMorganChase is payable at a weighted average interest rate of
1.25%.
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
June 30, 2009.
On April 27, 2009, the Company issued Series A 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 fixed rate of 6.46%.
On June 15, 2009, the Company settled its $100,000
Prudential Series D senior notes by issuing Series J
senior notes under the uncommitted master shelf agreement with
Prudential Capital Group in the aggregate principal amount of
$50,000, due June 15, 2016 and borrowing $50,000 from its
revolving credit facility with Bank of America. Interest on the
Series J senior notes is payable quarterly at a fixed rate
of 6.85%.
F-18
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
|
|
11.
|
Redeemable
Common Stock:
|
On November 18, 1996, the Company authorized
6,700,000 shares of Class A redeemable common stock.
The Class A stock 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 stock
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 stock 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 stock 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 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 stock. Since the Class A stock distributed under the
Option Plan and KSOP is subject to the restrictions above, the
participant currently has the right to require the Company to
repurchase stock based on the then current fair value of the
Class A 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 stock 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 stock is
determined quarterly on or about the final day of the quarter
for purposes of the KSOP. The fourth quarter 2008 valuation was
finalized on December 31, 2008, which resulted in a fair
value per share of $778. The fair value calculated for the
second quarter 2009 was $889 per share, and will be used for all
Class A stock transactions from July 1, 2009 through
the earlier of the consumation of the proposed IPO or the
calculation of the fair value for the third quarter 2009. The
redemption value of the Class A redeemable common stock and
vested options at intrinsic value at December 31, 2008 and
June 30, 2009 totaled $752,912 and $845,126, respectively,
which includes $172,408, and $222,659, respectively, of
aggregate intrinsic value of outstanding unexercised vested
stock options.
F-19
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
During the six months ended June 30, 2008 and 2009, 294,234
and 49,047 Class A shares were redeemed by the Company at a
weighted average price of $862.01 and $789.81 per share,
respectively. Included in Class A repurchased shares were
$20,157 and $124 for shares primarily utilized to satisfy
minimum tax withholdings on options exercised during the six
months ended June 30, 2008 and 2009, respectively.
Subsequent changes to the redemption value of the securities is
charged first to retained earnings; once retained earnings is
depleted, then to additional
paid-in-capital,
if additional
paid-in-capital
is also depleted, then to accumulated deficit. During the six
months ended June 30, 2009, the redemption value of the
Class A redeemable common stock increased by $92,214.
Additional information regarding the changes in redeemable
common stock for the six months ended June 30, 2009 is
provided in the table below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Class A Common Stock
|
|
|
Redeemable
|
|
|
|
|
|
|
Redemption
|
|
|
Unearned
|
|
|
Additional
|
|
|
Common
|
|
|
|
Shares
|
|
|
Value
|
|
|
KS OP
|
|
|
Paid-in-Capital
|
|
|
Stock
|
|
|
Balance, December 31, 2008
|
|
|
746,139
|
|
|
$
|
752,912
|
|
|
$
|
(3,373
|
)
|
|
$
|
—
|
|
|
$
|
749,539
|
|
Redemption of Class A common stock
|
|
|
(49,047
|
)
|
|
|
(38,738
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(38,738
|
)
|
KSOP shares earned
|
|
|
—
|
|
|
|
—
|
|
|
|
364
|
|
|
|
10,374
|
|
|
|
10,738
|
|
Stock based compensation
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,515
|
|
|
|
5,515
|
|
Stock options exercised (including tax benefit of $658)
|
|
|
3,096
|
|
|
|
1,581
|
|
|
|
—
|
|
|
|
658
|
|
|
|
2,239
|
|
Increase in redemption value of Class A common stock
|
|
|
—
|
|
|
|
129,371
|
|
|
|
—
|
|
|
|
(16,547
|
)
|
|
|
112,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2009
|
|
|
700,188
|
|
|
$
|
845,126
|
|
|
$
|
(3,009
|
)
|
|
$
|
—
|
|
|
$
|
842,117
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subsequent to the consummation of the proposed IPO, the Company
will no longer be obligated to redeem Class A shares and
therefore will not be required to record any redeemable common
stock. The redeemable common stock balance will be reversed
against accumulated deficit; once accumulated deficit is
depleted, then to additional
paid-in-capital
up to the amount equal to the additional
paid-in-capital
of the Company as if ASR No. 268 was not required to be
adopted by the Company. Any remaining balance would be credited
to retained earnings.
|
|
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
twelve directors. The twelfth seat on the board of directors is
held by the chief executive officer of the Company. The Company
repurchased 9,670 Class B shares during the six months
ended June 30, 2008 at an average price of $517.20 per
share. The Company did not repurchase any Class B shares
during the six months ended June 30, 2009.
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 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-20
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 six months ended
June 30, 2008 and 2009:
|
|
|
|
|
|
|
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Numerator used in basic and diluted EPS:
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
80,949
|
|
|
$
|
90,854
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS
|
|
|
3,724,876
|
|
|
|
3,468,196
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
Potential Class A redeemable common stock issuable upon the
exercise of stock options
|
|
|
153,030
|
|
|
|
135,890
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares and dilutive potential
common shares used in diluted EPS
|
|
|
3,877,906
|
|
|
|
3,604,086
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
21.73
|
|
|
$
|
26.20
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS
|
|
$
|
20.87
|
|
|
$
|
25.21
|
|
|
|
|
|
|
|
|
|
|
Pro forma basic income per share of Class A and
Class B:
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.43
|
|
|
$
|
0.52
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted income per share of Class A and
Class B :
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.42
|
|
|
$
|
0.50
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in pro forma per share amounts:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
186,243,800
|
|
|
|
173,409,800
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
193,895,300
|
|
|
|
180,204,300
|
|
|
|
|
|
|
|
|
|
|
The potential shares of common stock that were excluded from
diluted earnings per share were 102,511 and 168,747 for the six
months ended June 30, 2008 and 2009, respectively, because
the effect of including these potential shares was antidilutive.
Unaudited pro forma net income per share is presented for
additional information only. As disclosed in
Note 1 — Organization, Verisk will become the new
holding company for Insurance Services Office, Inc. In
connection with the initial public offering, the stock of
Insurance Services Office, Inc. will be exchanged for the stock
of Verisk and Verisk plans to effect a
fifty-to-one
stock split of its common stock. Pro forma net income per share
is computed as if the stock split occurred at the beginning of
2009.
Accumulated
Other Comprehensive Loss
The following is a summary of accumulated other comprehensive
loss:
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Unrealized (losses)/gains on investments
|
|
$
|
(31
|
)
|
|
$
|
262
|
|
Unrealized foreign currency losses
|
|
|
(773
|
)
|
|
|
(685
|
)
|
Pension and postretirement unfunded liability adjustment
|
|
|
(81,630
|
)
|
|
|
(78,707
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(82,434
|
)
|
|
$
|
(79,130
|
)
|
|
|
|
|
|
|
|
|
|
F-21
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/(expense) included in other
comprehensive (loss)/gain are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Benefit/
|
|
|
|
|
|
|
Before Tax
|
|
|
(Expense)
|
|
|
After Tax
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on investments arising during the year
|
|
$
|
(370
|
)
|
|
$
|
146
|
|
|
$
|
(224
|
)
|
Reclassification adjustment for amounts included in net income
|
|
|
1,120
|
|
|
|
(448
|
)
|
|
|
672
|
|
Unrealized foreign currency gains
|
|
|
18
|
|
|
|
—
|
|
|
|
18
|
|
Pension and postretirement unfunded liability adjustment
|
|
|
(35,589
|
)
|
|
|
13,907
|
|
|
|
(21,682
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive loss
|
|
$
|
(34,821
|
)
|
|
$
|
13,605
|
|
|
$
|
(21,216
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on investments arising during the year
|
|
$
|
104
|
|
|
$
|
(41
|
)
|
|
$
|
63
|
|
Reclassification adjustment for amounts included in net income
|
|
|
386
|
|
|
|
(156
|
)
|
|
|
230
|
|
Unrealized foreign currency gains
|
|
|
88
|
|
|
|
—
|
|
|
|
88
|
|
Pension and postretirement unfunded liability adjustment
|
|
|
4,900
|
|
|
|
(1,977
|
)
|
|
|
2,923
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive gain
|
|
$
|
5,478
|
|
|
$
|
(2,174
|
)
|
|
$
|
3,304
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 vesting dates within four years after grant date and
expire after ten years. Stock obtained through the exercise of
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 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 six months ended June 30, 2009 and
the year ended December 31, 2008, stock options granted had
an exercise price equal to fair value of the Class A common
stock on date of grant. There are 2,055,742 shares of
Class A common stock approved for issuance under the plan,
of which up to 8,755 options to purchase shares were authorized
for future grants at June 30, 2009. Cash received from
stock option exercises for the six months ended June 30,
2008 and 2009 was $941 and $1,126.
A summary of options outstanding under the Option Plan as of
June 30, 2009, and changes during the six 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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
66,245
|
|
|
$
|
805.00
|
|
|
|
|
|
Exercised
|
|
|
(3,096
|
)
|
|
$
|
510.57
|
|
|
$
|
891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(4,110
|
)
|
|
$
|
780.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009
|
|
|
522,184
|
|
|
$
|
438.32
|
|
|
$
|
235,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercisable at June 30, 2009
|
|
|
381,417
|
|
|
$
|
305.23
|
|
|
$
|
222,659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
Exercise prices for options outstanding and exercisable at
June 30, 2009 ranged from $92 to $892 as outlined in the
following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
|
Average
|
|
|
Stock
|
|
|
Average
|
|
|
Average
|
|
|
Stock
|
|
|
Average
|
|
Range of
|
|
Remaining
|
|
|
Options
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Options
|
|
|
Exercise
|
|
Exercise Prices
|
|
Contractual Life
|
|
|
Outstanding
|
|
|
Price
|
|
|
Contractual Life
|
|
|
Exercisable
|
|
|
Price
|
|
|
$92 to $110
|
|
|
1.2
|
|
|
|
72,329
|
|
|
$
|
107.24
|
|
|
|
1.2
|
|
|
|
72,329
|
|
|
$
|
107.24
|
|
$111 to $148
|
|
|
3.6
|
|
|
|
45,102
|
|
|
$
|
141.89
|
|
|
|
3.6
|
|
|
|
45,102
|
|
|
$
|
141.89
|
|
$149 to $231
|
|
|
3.9
|
|
|
|
112,475
|
|
|
$
|
179.64
|
|
|
|
3.9
|
|
|
|
112,475
|
|
|
$
|
179.64
|
|
$232 to $445
|
|
|
5.8
|
|
|
|
87,360
|
|
|
$
|
415.51
|
|
|
|
5.8
|
|
|
|
87,360
|
|
|
$
|
415.51
|
|
$446 to $681
|
|
|
6.8
|
|
|
|
40,171
|
|
|
$
|
594.86
|
|
|
|
6.8
|
|
|
|
29,163
|
|
|
$
|
598.53
|
|
$682 to $755
|
|
|
7.6
|
|
|
|
37,284
|
|
|
$
|
755.00
|
|
|
|
7.6
|
|
|
|
16,921
|
|
|
$
|
755.00
|
|
$756 to $836
|
|
|
9.7
|
|
|
|
69,520
|
|
|
$
|
806.55
|
|
|
|
8.0
|
|
|
|
3,325
|
|
|
$
|
836.00
|
|
$837 to $892
|
|
|
8.6
|
|
|
|
57,943
|
|
|
$
|
864.79
|
|
|
|
8.6
|
|
|
|
14,742
|
|
|
$
|
864.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
522,184
|
|
|
|
|
|
|
|
|
|
|
|
381,417
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the twelve months ended June 30, 2009, 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
|
|
|
July 1, 2008
|
|
|
5,357
|
|
|
$
|
892.00
|
|
|
$
|
892.00
|
|
|
$
|
223.56
|
|
July 1, 2008
|
|
|
600
|
|
|
$
|
892.00
|
|
|
$
|
892.00
|
|
|
$
|
241.85
|
|
April 1, 2009
|
|
|
66,245
|
|
|
$
|
805.00
|
|
|
$
|
805.00
|
|
|
$
|
234.63
|
|
|
|
|
(1) |
|
The fair value for 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 fair value of the stock options granted during the year
ended December 31, 2008 and the six months ended
June 30, 2009 were estimated on the date of grant using a
Black-Scholes option valuation model that uses the assumptions
noted in the following table.
|
|
|
|
|
|
|
December 31, 2008
|
|
June 30, 2009
|
|
Option pricing model
|
|
Black-Scholes
|
|
Black-Scholes
|
Expected volatility
|
|
28.02%
|
|
30.95%
|
Risk-free interest rate
|
|
2.58%
|
|
1.98%
|
Expected term in years
|
|
5.0
|
|
5.72
|
Dividend yield
|
|
1.81%
|
|
1.00%
|
Weighted average grant date fair value per stock option
|
|
$206.68
|
|
$234.63
|
The expected term (estimated period of time outstanding) for
awards granted was estimated based on studies of historical
experience and projected exercise behavior. The risk-free
interest rate is based on the yield of U.S. Treasury zero
coupon securities with a maturity equal to the expected term of
the equity award. The volatility factor was based on the average
volatility of the Company’s peers, calculated using
historical daily closing prices over 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.
F-23
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
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 June 30, 2009, there was $28,771 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 2.94 years. The total grant date fair value of shares
vested during the six months ended June 30, 2008 and 2009
was $5,526 and $6,316, respectively.
|
|
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-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 Plan”) is contributory, requiring
participants to pay a stated percentage of the premium for
coverage. As of October 1, 2001, the Postretirement Plan
was amended to freeze benefits for current retirees and certain
other employees at the January 1, 2002 level. Also, as of
October 1, 2001, the Postretirement Plan had a curtailment,
which eliminated retiree life insurance for all active employees
and healthcare benefits for almost all future retirees,
effective January 1, 2002.
The components of net periodic benefit cost for the Pension Plan
and Postretirement Plan are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
2008
|
|
|
2009
|
|
|
2008
|
|
|
2009
|
|
|
Service cost
|
|
$
|
3,876
|
|
|
$
|
3,830
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
|
10,844
|
|
|
|
10,658
|
|
|
|
850
|
|
|
|
800
|
|
Amortization of transition obligation
|
|
|
—
|
|
|
|
—
|
|
|
|
100
|
|
|
|
100
|
|
Expected return on plan assets
|
|
|
(13,720
|
)
|
|
|
(9,216
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization of prior service cost
|
|
|
(400
|
)
|
|
|
(400
|
)
|
|
|
—
|
|
|
|
—
|
|
Amortization of net actuarial loss
|
|
|
250
|
|
|
|
5,100
|
|
|
|
—
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic benefit cost
|
|
$
|
850
|
|
|
$
|
9,972
|
|
|
$
|
950
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employer contributions
|
|
$
|
2,405
|
|
|
$
|
2,885
|
|
|
$
|
1,816
|
|
|
$
|
1,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-24
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
The expected contributions to the Pension Plan and the
Postretirement Plan for the year ending December 31, 2009
are consistent with the amounts previously disclosed as of
December 31, 2008.
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
is organized into the following two operating 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, 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 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 six months ended June 30, 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 June 30, 2009.
F-25
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
The following table provides the Company’s revenue and
operating income performance by reportable segment for the six
months ended June 30, 2008 and 2009, as well as a
reconciliation to income before income taxes for all periods
presented in the accompanying condensed consolidated statements
of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
|
Risk
|
|
|
Decision
|
|
|
|
|
|
|
Assessment
|
|
|
Analytics
|
|
|
Total
|
|
|
Revenues
|
|
$
|
253,356
|
|
|
$
|
184,334
|
|
|
$
|
437,690
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below)
|
|
|
103,140
|
|
|
|
87,538
|
|
|
|
190,678
|
|
Selling, general and administrative
|
|
|
36,716
|
|
|
|
22,312
|
|
|
|
59,028
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
|
113,500
|
|
|
|
74,484
|
|
|
|
187,984
|
|
Depreciation and amortization of fixed assets
|
|
|
9,278
|
|
|
|
7,146
|
|
|
|
16,424
|
|
Amortization of intangible assets
|
|
|
427
|
|
|
|
14,510
|
|
|
|
14,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
103,795
|
|
|
|
52,828
|
|
|
|
156,623
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
1,603
|
|
Realized losses on securities, net
|
|
|
|
|
|
|
|
|
|
|
(1,286
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(14,173
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
142,767
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, including non-cash purchases of fixed
assets
|
|
$
|
7,849
|
|
|
$
|
11,329
|
|
|
$
|
19,178
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2009
|
|
|
|
Risk
|
|
|
Decision
|
|
|
|
|
|
|
Assessment
|
|
|
Analytics
|
|
|
Total
|
|
|
Revenues
|
|
$
|
262,873
|
|
|
$
|
240,794
|
|
|
$
|
503,667
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below)
|
|
|
104,467
|
|
|
|
116,034
|
|
|
|
220,501
|
|
Selling, general and administrative
|
|
|
37,209
|
|
|
|
35,016
|
|
|
|
72,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment EBITDA
|
|
|
121,197
|
|
|
|
89,744
|
|
|
|
210,941
|
|
Depreciation and amortization of fixed assets
|
|
|
9,549
|
|
|
|
9,364
|
|
|
|
18,913
|
|
Amortization of intangible assets
|
|
|
306
|
|
|
|
16,668
|
|
|
|
16,974
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
111,342
|
|
|
|
63,712
|
|
|
|
175,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unallocated expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
|
|
|
|
|
|
|
|
92
|
|
Realized losses on securities, net
|
|
|
|
|
|
|
|
|
|
|
(365
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
(16,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income before income taxes
|
|
|
|
|
|
|
|
|
|
$
|
158,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures, including non-cash purchases of fixed
assets
|
|
$
|
4,045
|
|
|
$
|
14,741
|
|
|
$
|
18,786
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-26
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
Operating segment revenue by type of service is provided below:
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
|
|
2008
|
|
|
2009
|
|
|
Risk Assessment:
|
|
|
|
|
|
|
|
|
Industry standard insurance programs
|
|
$
|
165,719
|
|
|
$
|
172,193
|
|
Property-specific rating and underwriting information
|
|
|
63,344
|
|
|
|
65,869
|
|
Statistical agency and data services
|
|
|
13,820
|
|
|
|
14,135
|
|
Actuarial services
|
|
|
10,473
|
|
|
|
10,676
|
|
|
|
|
|
|
|
|
|
|
Total Risk Assessment
|
|
|
253,356
|
|
|
|
262,873
|
|
|
|
|
|
|
|
|
|
|
Decision Analytics:
|
|
|
|
|
|
|
|
|
Fraud identification and detection solutions
|
|
|
102,858
|
|
|
|
130,475
|
|
Loss prediction solutions
|
|
|
46,260
|
|
|
|
66,896
|
|
Loss quantification solutions
|
|
|
35,216
|
|
|
|
43,423
|
|
|
|
|
|
|
|
|
|
|
Total Decision Analytics
|
|
|
184,334
|
|
|
|
240,794
|
|
|
|
|
|
|
|
|
|
|
Total consolidated revenues
|
|
$
|
437,690
|
|
|
$
|
503,667
|
|
|
|
|
|
|
|
|
|
|
|
|
16.
|
Research
and Development Costs:
|
Research and development costs, which primarily related to the
personnel and related overhead costs incurred in developing new
products and services, are expensed as incurred. Such costs were
$4,535 and $6,500 for the six months ended June 30, 2008
and 2009, respectively, and were included in “Selling,
general and administrative” expenses in the accompanying
condensed consolidated statement of operations.
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.
At June 30, 2009, there were seven Class B
stockholders each owning more than 5% of the outstanding
Class B shares. Two of these seven 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 $408 and $226 for the six months ended
June 30, 2008 and 2009, respectively. These expenses are
included in cost of revenues and selling, general and
administrative in the condensed consolidated statements of
operations.
|
|
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, 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 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.
F-27
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.
was 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 Company entered into settlement agreements with plaintiffs
asserting claims relating to the use of Claims Outcome Advisor
by defendants Hanover Insurance Group, Progressive Car
Insurance, and Liberty Mutual Insurance Group. Each of these
settlements was granted final approval by the court and together
the settlements resolve the claims asserted in this case against
the Company with respect to the above insurance companies, who
settled the claims against them as well. A provision was made in
2006 for this proceeding and the total amount the Company paid
in 2008 with respect to these settlements was less than $2,000.
A fourth defendant, The Automobile Club of California, which is
alleged to have used Claims Outcome Advisor was dismissed from
the action. On August 18, 2008, pursuant to the agreement
of the parties, the Court ordered that the claims against the
Company be dismissed with prejudice.
Hanover Insurance Group made a demand for reimbursement,
pursuant to an indemnification provision contained in a
December 30, 2004 License Agreement between Hanover and the
Company, of its settlement and defense costs in the Hensley
class action. Specifically, Hanover 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 tolling agreement in order to allow the parties time to
resolve the dispute without litigation.
Xactware
Litigation
The 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. was a putative class action pending against the
Company and State Farm Fire & Casualty Company filed
in March 2007 in the Eastern District of Louisiana. The
complaint alleged antitrust violations, breach of contract,
negligence, bad faith, and fraud. The court dismissed the
antitrust claim as to both defendants and dismissed all claims
against the Company other than fraud, which will proceed to the
discovery phase along with the remaining claims against State
Farm. Judge Duval denied plaintiffs’ motion to certify a
class with respect to the fraud and breach of contract claims on
August 3, 2009 and the time to appeal that decision has
expired. The matter, now a single action, has been re-assigned
to Judge Africk.
Mornay v. Travelers Ins. Co., et al. is a
putative class action pending against the Company and Travelers
Insurance Company filed in November 2007 in the Eastern District
of Louisiana. The complaint alleged antitrust violations, breach
of contract, negligence, bad faith, and fraud. As in Schafer,
the court dismissed the antitrust claim as to both defendants
and dismissed all claims against the Company other than fraud.
Judge Duval stayed all proceedings in the case pending an
appraisal of the lead plaintiff’s insurance claim. The
matter has been re-assigned to Judge Barbier, who on
September 11, 2009 issued an order administratively closing
the matter pending completion of the appraisal process.
F-28
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
At this time, it is not possible to determine the ultimate
resolution of or estimate the liability related to the
Schafer and Mornay matters.
iiX
Litigation
In March 2007, the Company’s subsidiary, Insurance
Information Exchange, or iiX, 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,
entitled Sharon Taylor, et al. v. Acxiom
Corporation, et al. Plaintiffs brought the action on
their own behalf and on behalf of all similarly situated
individuals whose personal information is contained in any motor
vehicle record maintained by the State of 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 class
complaint alleges that the defendants knowingly obtained
personal information for a purpose not authorized by the DPPA
and seeks liquidated damages in the amount of $3 for each
instance of a violation of the DPPA, punitive damages and the
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 for lack of standing and
plaintiffs have appealed the dismissal with oral argument to be
heard sometime in November 2009.
On July 2, 2009, the Company entered into a $300,000
syndicated revolving credit facility with Bank of America, N.A.,
JPMorgan Chase, N.A., Morgan Stanley Bank, N.A. and Wells Fargo
Bank, N.A., which matures on July 2, 2012. Interest is
payable at maturity at a rate to be determined at the time of
borrowing. The syndicated revolving credit facility replaces the
Company’s previous revolving credit facilities with Bank of
America, JPMorganChase, Morgan Stanley Bank, and Wachovia Bank,
N.A. On July 2, 2009, the Company borrowed $154,000 through
the syndicated revolving credit facility to pay $115,000 and
$39,000 owed to Bank of America and JPMorganChase, respectively,
which will be classified within current liabilities. Interest is
payable on this borrowing at a weighted average interest rate of
2.91%. On August 21, 2009, PNC Bank, N.A., Sovereign Bank,
RBS Citizens, N.A. and SunTrust Bank joined the syndicated
revolving credit facility increasing the availability to
$420,000. This facility is committed with a one-time fee of
$4,504, which will be amortized over a three year period, and
ongoing unused facility fees of 0.375%.
On July 24, 2009, the Company acquired the net assets of
TierMed Systems, LLC (“TierMed”), a privately owned
provider of Healthcare Effectiveness Data and Information Set
(“HEDIS”) software solutions to healthcare
organizations that have HEDIS or quality-reporting needs, for a
net cash purchase price of $7,613 of which $400 was used to fund
the indemnity escrows. The preliminary allocation of the
purchase price resulted in tangible assets of $398, and the
Company is still evaluating the allocation of the purchase price
related to intangible assets and goodwill. TierMed, located in
Chanhassen, Minnesota, complements and is integrated within the
Company’s Decision Analytics segment.
In September 2009, the Company’s subsidiary, Interthinx,
Inc., was served with a putative class action entitled Renata
Gluzman v. Interthinx, Inc. The plaintiff, a former
Interthinx employee, filed the class action on August 13,
2009 in the Superior Court of the State of California, County of
Los Angeles on behalf of all Interthinx information technology
employees for unpaid overtime and missed meals and rest breaks,
as well as various related claims claiming that the information
technology employees were misclassified as exempt employees and,
as a result, were denied certain wages and benefits that would
have been received if they were properly classified as
non-exempt employees. The pleadings include, among other things,
a violation of
F-29
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) — (Continued)
Business and Professions Code 17200 for unfair business
practices which allows plaintiffs to include as class members
all information technology employees employed at Interthinx for
four years prior to the date of filing the complaint. The
complaint seeks compensatory damages, penalties that are
associated with the various statutes, restitution, interest,
costs and attorney fees. Although no assurance can be given
concerning the outcome of this matter, in the opinion of
management the lawsuit is not expected to have a material
adverse effect on our financial condition or results of
operations.
The Company has evaluated subsequent events through
September 29, 2009, which is the date the financial
statements were reissued.
**************
F-30
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,
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, 2009, in conformity with accounting
principles generally accepted in the United States of America.
/s/ Deloitte & Touche LLP
Parsippany, New Jersey
September 29, 2009
F-31
VERISK
ANALYTICS, INC.
As of
June 30, 2009
|
|
|
|
|
ASSETS
|
Cash
|
|
$
|
1,000
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,000
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
Total liabilities
|
|
$
|
—
|
|
Commitments and contingencies
|
|
|
|
|
Stockholder’s equity:
|
|
|
|
|
Common stock, $.01 par value; 1,000 shares authorized;
100 shares issued
|
|
$
|
1
|
|
Additional paid-in capital
|
|
|
999
|
|
|
|
|
|
|
Total stockholder’s equity
|
|
$
|
1,000
|
|
|
|
|
|
|
Total liabilities and stockholder’s equity
|
|
$
|
1,000
|
|
|
|
|
|
|
The accompanying notes are an integral part of this financial
statement.
F-32
VERISK
ANALYTICS, INC.
Verisk Analytics, Inc (the “Company”), formed on
May 23, 2008, was established to serve as the parent
holding company of Insurance Services Office, Inc
(“ISO”). The Company is currently a wholly owned
subsidiary of ISO. Immediately prior to the completion of the
proposed initial public offering, (“IPO”), the Company
will undergo a corporate reorganization whereby the Class A
and Class B common stock of ISO will be exchanged by the
current stockholders for the common stock of the Company on a
one-for-one basis.
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 ISO Class B
stockholders’ existing Class B common stock will be
converted into shares of the Company’s new
Class B-1
common stock and the remaining 50 percent of each ISO
Class B stockholders’ existing Class B common
stock will be converted into shares of the Company’s new
Class B-2
common stock. Each share of the Company’s
Class 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 of the
Company’s
Class B-2
common stock shall convert automatically, without any action by
the stockholder, into one share of Class A common stock
24 months after the date of the IPO. In conjunction with
the IPO, the Company plans to effect an approximately
fifty-to-one stock split of both 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.
Recent
Accounting Pronouncements
In May 2009, the FASB issued FAS No. 165, Subsequent
Events (“FAS No. 165”). FAS No. 165
establishes principles and requirements for subsequent events in
the period after the balance sheet date during which management
of a reporting entity shall evaluate events or transactions that
may occur for potential recognition or disclosure in the
financial statements. FAS No. 165 is effective for interim
and annual reporting periods ending after June 15, 2009. In
accordance with the adoption of FAS No. 165, effective
June 30, 2009, the Company disclosed in Note 4 the
date through which the subsequent events have been evaluated.
The adoption of FAS No. 165 did not have any other impact
on the Company’s consolidated financial statements.
|
|
3.
|
Commitments
and Contingencies:
|
The Company does not have any commitments and contingencies.
The Company has evaluated subsequent events through
September 29, 2009, which is the date the financial
statements were reissued.
F-33
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, 2008 and 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, 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
Insurance Services Office, Inc. and subsidiaries as of
December 31, 2008 and 2007, and the results of its
operations and its cash flows for each of the three years in the
period ended December 31, 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
April 10, 2009
F-34
INSURANCE
SERVICES OFFICE, INC.
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands, except for share and per share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
24,049
|
|
|
$
|
33,185
|
|
Available-for-sale securities
|
|
|
28,350
|
|
|
|
5,114
|
|
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
|
|
|
7,609
|
|
|
|
13,010
|
|
Deferred income taxes
|
|
|
22,654
|
|
|
|
4,490
|
|
Federal and foreign income taxes receivable
|
|
|
4,561
|
|
|
|
12,311
|
|
State and local income taxes receivable
|
|
|
—
|
|
|
|
689
|
|
Other current assets
|
|
|
8,525
|
|
|
|
16,187
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
182,583
|
|
|
|
168,927
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
85,436
|
|
|
|
82,587
|
|
Intangible assets, net
|
|
|
141,160
|
|
|
|
112,713
|
|
Goodwill
|
|
|
339,891
|
|
|
|
447,372
|
|
Notes receivable from stockholders
|
|
|
12,356
|
|
|
|
—
|
|
Deferred income taxes
|
|
|
55,679
|
|
|
|
100,256
|
|
State income taxes receivable
|
|
|
—
|
|
|
|
8,112
|
|
Other assets
|
|
|
12,936
|
|
|
|
8,910
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
830,041
|
|
|
$
|
928,877
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
78,234
|
|
|
$
|
83,381
|
|
Acquisition related liabilities
|
|
|
100,300
|
|
|
|
82,700
|
|
Short-term debt and current portion of long term debt
|
|
|
35,171
|
|
|
|
219,398
|
|
Pension and postretirement benefits, current
|
|
|
4,636
|
|
|
|
5,397
|
|
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
|
|
|
355,426
|
|
|
|
504,899
|
|
Noncurrent liabilities:
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
403,159
|
|
|
|
450,356
|
|
Pension benefits
|
|
|
17,637
|
|
|
|
133,914
|
|
Postretirement benefits
|
|
|
23,894
|
|
|
|
23,798
|
|
Other liabilities
|
|
|
62,085
|
|
|
|
76,194
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
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;
2,922,253 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
|
|
|
1,171,188
|
|
|
|
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 2,873,412 and 2,863,742 outstanding in 2007 and 2008,
respectively
|
|
|
100
|
|
|
|
100
|
|
Accumulated other comprehensive loss
|
|
|
(8,699
|
)
|
|
|
(82,434
|
)
|
Accumulated deficit
|
|
|
(515,756
|
)
|
|
|
(243,495
|
)
|
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
|
|
|
(1,203,348
|
)
|
|
|
(1,009,823
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ deficit
|
|
$
|
830,041
|
|
|
$
|
928,877
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-35
INSURANCE
SERVICES OFFICE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands, except for share and per share data)
|
|
|
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)
|
|
|
331,804
|
|
|
|
357,191
|
|
|
|
386,897
|
|
Selling, general and administrative
|
|
|
100,124
|
|
|
|
107,576
|
|
|
|
131,239
|
|
Depreciation and amortization of fixed assets
|
|
|
28,007
|
|
|
|
31,745
|
|
|
|
35,317
|
|
Amortization of intangible assets
|
|
|
26,854
|
|
|
|
33,916
|
|
|
|
29,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
486,789
|
|
|
|
530,428
|
|
|
|
583,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
243,344
|
|
|
|
271,767
|
|
|
|
310,542
|
|
Other income/(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
6,585
|
|
|
|
8,442
|
|
|
|
2,233
|
|
Realized (losses)/gains on securities, net
|
|
|
(375
|
)
|
|
|
857
|
|
|
|
(2,511
|
)
|
Interest expense
|
|
|
(16,668
|
)
|
|
|
(22,928
|
)
|
|
|
(31,316
|
)
|
Other (expense)/income
|
|
|
(109
|
)
|
|
|
9
|
|
|
|
(49
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense, net
|
|
|
(10,567
|
)
|
|
|
(13,620
|
)
|
|
|
(31,643
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before income taxes
|
|
|
232,777
|
|
|
|
258,147
|
|
|
|
278,899
|
|
Provision for income taxes
|
|
|
(91,992
|
)
|
|
|
(103,184
|
)
|
|
|
(120,671
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
140,785
|
|
|
|
154,963
|
|
|
|
158,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
138,980
|
|
|
$
|
150,374
|
|
|
$
|
158,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income/(loss) per share of Class A and Class B:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
34.08
|
|
|
$
|
38.58
|
|
|
$
|
43.26
|
|
Loss from discontinued operations
|
|
|
(0.44
|
)
|
|
|
(1.14
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
33.64
|
|
|
$
|
37.44
|
|
|
$
|
43.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted income/(loss) per share of Class A and Class B:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
32.72
|
|
|
$
|
37.03
|
|
|
$
|
41.59
|
|
Loss from discontinued operations
|
|
|
(0.42
|
)
|
|
|
(1.10
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share
|
|
$
|
32.30
|
|
|
$
|
35.93
|
|
|
$
|
41.59
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
4,130,962
|
|
|
|
4,016,928
|
|
|
|
3,657,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
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
|
|
$
|
0.68
|
|
|
$
|
0.77
|
|
|
$
|
0.87
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.67
|
|
|
$
|
0.75
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted income/(loss) per share of Class A and
Class B (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.65
|
|
|
$
|
0.74
|
|
|
$
|
0.83
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.64
|
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in pro forma per share amounts
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
206,548,100
|
|
|
|
200,846,400
|
|
|
|
182,885,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
215,143,350
|
|
|
|
209,257,550
|
|
|
|
190,231,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-36
INSURANCE
SERVICES OFFICE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
Accumulated
|
|
|
Comprehensive
|
|
|
Class B Common Stock
|
|
|
Treasury
|
|
|
Stockholders’
|
|
|
|
Deficit
|
|
|
Loss
|
|
|
Shares
|
|
|
Par Value
|
|
|
Stock
|
|
|
Deficit
|
|
|
|
|
|
|
(In thousands, except for share data)
|
|
|
|
|
|
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
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2006 (as corrected)
|
|
|
(296,441
|
)
|
|
|
(2,734
|
)
|
|
|
10,004,500
|
|
|
|
100
|
|
|
|
(641,768
|
)
|
|
|
(940,843
|
)
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
138,980
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
138,980
|
|
Other comprehensive gains
|
|
|
—
|
|
|
|
2,352
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
2,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
141,332
|
|
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
|
)
|
Stock options exercised for 179,967 shares (including tax
benefit of $31,964)
|
|
|
(81,516
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(81,516
|
)
|
Increase in redemption value of Class A common stock
|
|
|
(226,200
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(226,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
$
|
(465,177
|
)
|
|
$
|
(16,017
|
)
|
|
|
10,004,500
|
|
|
$
|
100
|
|
|
$
|
(642,883
|
)
|
|
$
|
(1,123,977
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
150,374
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
150,374
|
|
Other comprehensive gains
|
|
|
—
|
|
|
|
7,318
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,318
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
157,692
|
|
Treasury stock acquired — Class B common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(36,110
|
)
|
|
|
(36,110
|
)
|
Stock options exercised for 72,083 shares (including tax
benefit of $12,798)
|
|
|
(36,655
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(36,655
|
)
|
Cumulative effect adjustment to adopt FIN No. 48
|
|
|
(10,338
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,338
|
)
|
Increase in redemption value of Class A common stock
|
|
|
(153,960
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(153,960
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
$
|
(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-37
INSURANCE
SERVICES OFFICE, INC.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
138,980
|
|
|
$
|
150,374
|
|
|
$
|
158,228
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization of fixed assets
|
|
|
28,119
|
|
|
|
31,843
|
|
|
|
35,317
|
|
Amortization of intangible assets
|
|
|
26,854
|
|
|
|
33,916
|
|
|
|
29,555
|
|
Allowance for doubtful accounts
|
|
|
2,148
|
|
|
|
3,286
|
|
|
|
1,536
|
|
KSOP compensation expense
|
|
|
18,779
|
|
|
|
22,247
|
|
|
|
22,274
|
|
Acquisition related compensation expense
|
|
|
9,027
|
|
|
|
3,605
|
|
|
|
300
|
|
Stock-based compensation
|
|
|
6,148
|
|
|
|
8,244
|
|
|
|
9,881
|
|
Non-cash charges/(credits) associated with performance based
appreciation awards
|
|
|
1,909
|
|
|
|
2,182
|
|
|
|
(91
|
)
|
Goodwill impairment
|
|
|
—
|
|
|
|
1,744
|
|
|
|
—
|
|
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
|
|
|
(11,848
|
)
|
|
|
(5,698
|
)
|
|
|
19,895
|
|
Other operating
|
|
|
216
|
|
|
|
298
|
|
|
|
284
|
|
Loss on disposal of assets
|
|
|
2,374
|
|
|
|
1,791
|
|
|
|
1,082
|
|
Excess tax benefits from exercised stock options
|
|
|
(31,964
|
)
|
|
|
(12,798
|
)
|
|
|
(26,099
|
)
|
Changes in assets and liabilities, net of effects from
acquisitions and dispositions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(6,135
|
)
|
|
|
3,908
|
|
|
|
3,609
|
|
Prepaid expenses and other assets
|
|
|
(1,751
|
)
|
|
|
2,213
|
|
|
|
(6,486
|
)
|
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
|
|
|
1,452
|
|
|
|
1,759
|
|
|
|
3,075
|
|
Acquisition related liabilities
|
|
|
(17,493
|
)
|
|
|
(13,658
|
)
|
|
|
(2,200
|
)
|
Fees received in advance
|
|
|
27,219
|
|
|
|
3,751
|
|
|
|
(1,042
|
)
|
Other liabilities
|
|
|
6,947
|
|
|
|
(237
|
)
|
|
|
(4,983
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
223,499
|
|
|
|
248,521
|
|
|
|
247,906
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-38
INSURANCE
SERVICES OFFICE, INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)
For the
Years Ended December 31, 2006, 2007 and 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
|
(In thousands)
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
—
|
|
|
|
(3,191
|
)
|
|
|
(98,100
|
)
|
Proceeds from release of contingent escrows
|
|
|
297
|
|
|
|
3,039
|
|
|
|
558
|
|
Escrow funding associated with acquisitions
|
|
|
(14,600
|
)
|
|
|
(4,375
|
)
|
|
|
(1,500
|
)
|
Purchases of available-for-sale securities
|
|
|
(35,081
|
)
|
|
|
(44,101
|
)
|
|
|
(361
|
)
|
Proceeds from sales and maturities of available-for-sale
securities
|
|
|
34,893
|
|
|
|
22,872
|
|
|
|
21,724
|
|
Purchases of fixed assets
|
|
|
(25,742
|
)
|
|
|
(32,941
|
)
|
|
|
(30,652
|
)
|
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
|
|
|
(243,452
|
)
|
|
|
(110,831
|
)
|
|
|
(130,466
|
)
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of short-term debt, net
|
|
|
15,000
|
|
|
|
30,000
|
|
|
|
114,000
|
|
Proceeds from issuance of long-term debt
|
|
|
175,000
|
|
|
|
85,000
|
|
|
|
150,000
|
|
Redemption of Class A common stock
|
|
|
(126,857
|
)
|
|
|
(168,660
|
)
|
|
|
(387,561
|
)
|
Repurchase of Class B common stock
|
|
|
(1,115
|
)
|
|
|
(36,110
|
)
|
|
|
(5,001
|
)
|
Repayment of short-term debt
|
|
|
(18,356
|
)
|
|
|
(136,008
|
)
|
|
|
(35,287
|
)
|
Excess tax benefits from exercised stock options
|
|
|
31,964
|
|
|
|
12,798
|
|
|
|
26,099
|
|
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 provided by/(used in) financing activities
|
|
|
75,907
|
|
|
|
(212,591
|
)
|
|
|
(107,376
|
)
|
Effect of exchange rate changes
|
|
|
376
|
|
|
|
(202
|
)
|
|
|
(928
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase/(decrease) in cash and cash equivalents
|
|
|
56,330
|
|
|
|
(75,103
|
)
|
|
|
9,136
|
|
Cash and cash equivalents, beginning of year
|
|
|
42,822
|
|
|
|
99,152
|
|
|
|
24,049
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
99,152
|
|
|
$
|
24,049
|
|
|
$
|
33,185
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
$
|
78,800
|
|
|
$
|
94,258
|
|
|
$
|
99,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
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
|
|
$
|
(24,438
|
)
|
|
$
|
(15,130
|
)
|
|
$
|
(20,148
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset/(liability) established on date of acquisition
|
|
$
|
7,542
|
|
|
$
|
24
|
|
|
$
|
(2,963
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
$
|
—
|
|
|
$
|
9,554
|
|
|
$
|
2,610
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures included in accounts payable and accrued
liabilities
|
|
$
|
—
|
|
|
$
|
4,688
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in goodwill due to acquisition related liabilities
|
|
$
|
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-39
INSURANCE
SERVICES OFFICE, INC.
(Amounts
in thousands, except for share and per share data, unless
otherwise stated)
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 property and casualty
(“P&C”) or P&C insurance risks in the United
States of America (“U.S.”). The Company offers
solutions for detecting fraud in the U.S. P&C
insurance, mortgage and healthcare industries and sophisticated
methods to predict and quantify loss in diverse contexts ranging
from natural catastrophes to health insurance. The Company
provides solutions, including data, statistical models or
tailored analytics, all designed to allow clients to make more
logical decisions.
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 pursued 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 new
Class 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 new
Class B-2
common stock. Each share of
Class 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 of
Class 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-40
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
for the allowance for doubtful accounts. Actual results may
ultimately differ from those estimates. Certain
reclassifications within the consolidated statement of cash
flows have been made in 2006 and 2007 to conform to the 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.
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. 104 Revenue 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 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 by
SOP No. 98-9,
Modification of
SOP 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
SOP No. 97-2.
F-41
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 with
SOP 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 SOP
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 EITF
No. 00-03,
Application of AICPA Statement of Position
97-2 to
Arrangements that Include the Right to Use Software Stored on
Another Entity’s Hardware (“EITF
No. 00-03”).
As these arrangements include PCS throughout the hosting term,
revenues from these multiple element arrangements are recognized
in accordance with EITF
No. 00-21,
Revenue Arrangements with Multiple Deliverables
(“EITF
No. 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.
With respect to an insignificant percentage of revenues, the
Company uses contract accounting, as required by
SOP 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 with
SOP 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-42
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 AICPA
SOP 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. 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, 2007 and
2008 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 at
December 31, 2007 or 2008. All investments with readily
determinable market values are classified as 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-43
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
and
FAS 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.” 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 $55,328 and $0 and is based on the
Applicable Federal Rates as published by the Internal Revenue
Service as of December 31, 2007 and 2008, respectively. The
fair value of the long-term debt was estimated at $407,784 and
$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, 2007 and 2008, respectively.
(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 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-44
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 for purposes of the KSOP.
For awards granted after January 1, 2008, the volatility
factor was based on the average volatility of the Company’s
peers, calculated using historical daily closing prices over the
most recent period commensurate with the expected term of the
stock option award. Prior to 2008, the expected dividend yield
was not included in the fair value calculation as the Company
did not 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.
(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-45
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
costs were $7,007, $8,944 and $11,054 in 2006, 2007 and 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 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
|
|
Decrease in federal and state taxes payable
|
|
$
|
7,620
|
|
Increase in other liabilities
|
|
$
|
31,891
|
|
Increase in accumulated deficit
|
|
$
|
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.
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-46
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
|
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 18 — Pension and
Postretirement Benefits” for additional disclosures
required by FAS No. 158 and the effects of adoption.
|
|
|
|
(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, 2007 and 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 potential amount of future payments to
be made under these indemnifications as the triggering events
are not subject to predictability.
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 June 2007, the Emerging Issues Task Force (“EITF”)
reached a consensus on EITF
No. 06-11,
Accounting for Income Tax Benefits of Dividends on
Share-Based Payment Awards, (“EITF
No. 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. EITF
No. 06-11
applies prospectively to the income tax benefits of dividends
declared on affected securities. The adoption of EITF
No. 06-11,
effective January 1, 2008, did not have an impact on the
Company’s consolidated financial statements as historically
the Company has not paid dividends on its common stock.
F-47
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) 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, 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 February 2008, the FASB issued FSP
FAS No. 157-2,
Effective Date of FASB Statement No. 157 (“FSP
FAS No. 157-2”),
which delays the effective date of FAS No. 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 assessing the impact the adoption of FSP
FAS No. 157-2
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.
Since the Company currently does not anticipate entering into
any derivative transactions, the adoption of
FAS No. 161 will not have an impact on its
consolidated financial statements.
In April 2008, the FASB issued FSP
No. 142-3,
Determination of the Useful Life of Intangible Assets
(“FSP
No. 142-3”).
FSP
No. 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. FSP
No. 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;
however, the Company does not believe the adoption of FSP
No. 142-3
will have a material impact on its consolidated financial
statements.
In June 2008, the FASB issued FSP
EITF 03-6-1,
Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities (“FSP
EITF 03-6-1”),
which addresses whether instruments granted in share-based
payment transactions are participating securities
F-48
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.
FSP
EITF 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
FSP
EITF 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 (“FSP
No. 132R-1”).
FSP
No. 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. FSP
No. 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
(“FSP
No. 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). FSP
No. 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 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 approximately $11,567 and $20,917, respectively. At
December 31, 2007 and 2008, the Company also had cash on
deposit with foreign banks of approximately $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 years 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 during the years
ending December 31, 2007 and 2008. No individual customer
comprised more than 10% of accounts receivable at
December 31, 2007 and 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-49
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Accounts receivables consist of the following at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Billed receivables
|
|
$
|
88,370
|
|
|
$
|
81,302
|
|
Unbilled receivables
|
|
|
6,365
|
|
|
|
9,036
|
|
|
|
|
|
|
|
|
|
|
Total receivables
|
|
|
94,735
|
|
|
|
90,338
|
|
Less allowance for doubtful accounts
|
|
|
(8,247
|
)
|
|
|
(6,397
|
)
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net
|
|
$
|
86,488
|
|
|
$
|
83,941
|
|
|
|
|
|
|
|
|
|
|
|
|
6.
|
Notes
Receivable from Stockholders:
|
The Company provided full recourse loans, callable at the
Company’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 also included 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 2008
approximately $55,328 and $0, respectively, of notes receivable
from stockholders were outstanding. 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 $2,190, $2,454 and $1,050 during the years
ended December 31, 2006, 2007 and 2008, respectively. At
December 31, 2007 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.
The following is a summary of available-for-sale securities at
December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2007 and
December 31, 2008, the carrying values of such securities
were approximately $53 and $5,853, respectively, and has been
included in “Other current assets” in the accompanying
consolidated financial statements.
Proceeds from sales and maturities of available-for-sale
securities were $34,893, $22,872 and $21,724 for 2006, 2007 and
2008, respectively.
F-50
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Realized gains/(losses), including write downs related to
other-than-temporary impairments of available-for-sale
securities and other assets were as follows at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
—
|
|
Impairment of U.S. common stock
|
|
|
(205
|
)
|
|
|
—
|
|
|
|
—
|
|
Impairment of private equity securities
|
|
|
(284
|
)
|
|
|
(200
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized (losses)/gains on investments, net
|
|
$
|
(375
|
)
|
|
$
|
857
|
|
|
$
|
(2,511
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $4,098, $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-51
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-52
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following is a summary of fixed assets at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and
|
|
|
|
|
|
|
Useful Life
|
|
|
Cost
|
|
|
Amortization
|
|
|
Net
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Furniture and office equipment
|
|
|
3-10 years
|
|
|
$
|
102,745
|
|
|
$
|
(67,687
|
)
|
|
$
|
35,058
|
|
Leasehold improvements
|
|
|
Lease term
|
|
|
|
24,049
|
|
|
|
(7,876
|
)
|
|
|
16,173
|
|
Purchased software
|
|
|
3 years
|
|
|
|
30,918
|
|
|
|
(25,431
|
)
|
|
|
5,487
|
|
Software development costs
|
|
|
3 years
|
|
|
|
69,758
|
|
|
|
(45,632
|
)
|
|
|
24,126
|
|
Leased equipment
|
|
|
3-4 years
|
|
|
|
17,080
|
|
|
|
(12,488
|
)
|
|
|
4,592
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed assets
|
|
|
|
|
|
$
|
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, 2006, 2007 and
2008, was approximately $28,007, $31,745 and $35,317, of which
$6,403, $7,584 and $10,091 related to amortization of software
development costs, respectively. Leased equipment includes
amounts held under capital leases for automobiles, computer
software, and computer equipment.
|
|
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 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. If the fair value of the reporting unit
exceeds the carrying value of the net assets including goodwill
assigned to that reporting unit, goodwill is not impaired. If
the carrying value of the reporting unit’s net assets
including goodwill exceeds the fair value of the reporting unit,
then the Company will determine the implied fair value of the
reporting unit’s goodwill. If the carrying value of a
reporting unit’s goodwill exceeds its implied fair value,
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, 2006, 2007, and 2008, the
Company recorded an impairment charge of $0, $1,744, and $0,
respectively, included in “Loss from discontinued
operations, net of tax” in the consolidated statements of
operations.
F-53
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, 2007 and 2008, both in total and
as allocated to the Company’s operating segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk
|
|
|
Decision
|
|
|
|
|
|
|
Assessment
|
|
|
Analytics
|
|
|
Total
|
|
|
Goodwill at December 31, 2006
|
|
$
|
27,665
|
|
|
$
|
197,015
|
|
|
$
|
224,680
|
|
Accrual of acquisition related liabilities
|
|
|
243
|
|
|
|
98,100
|
|
|
|
98,343
|
|
Current year acquisitions
|
|
|
—
|
|
|
|
14,157
|
|
|
|
14,157
|
|
Escrow distribution
|
|
|
—
|
|
|
|
4,455
|
|
|
|
4,455
|
|
Impairment charge
|
|
|
—
|
|
|
|
(1,744
|
)
|
|
|
(1,744
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill at December 31, 2007
|
|
|
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, 2008, based on actual achievement
of Xactware and 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 at December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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-54
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, 2006, 2007 and 2008, was
approximately $26,854, $33,916 and $29,555, respectively.
Estimated amortization expense through 2013 and thereafter for
intangible assets subject to amortization is as follows:
|
|
|
|
|
Year
|
|
Amount
|
|
|
2009
|
|
$
|
29,698
|
|
2010
|
|
$
|
24,502
|
|
2011
|
|
$
|
17,932
|
|
2012
|
|
$
|
14,034
|
|
2013
|
|
$
|
8,461
|
|
Thereafter
|
|
$
|
18,086
|
|
|
|
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 trailing
15-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-55
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-56
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 $50,824 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, 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 financial 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-57
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.
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 $28,349 with no
residual value, goodwill of $22,005, and fair value of tangible
assets acquired of $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.
In 2008, the Company finalized the Rex Depot, HCI, NIA and
Predicted Solutions purchase allocations.
The amounts assigned to intangible assets by type for the 2007
acquisitions are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Useful Life
|
|
|
Total
|
|
|
Technology-based
|
|
|
4 years
|
|
|
$
|
6,181
|
|
Marketing-related
|
|
|
4 years
|
|
|
|
8,856
|
|
Customer-related
|
|
|
23 years
|
|
|
|
13,312
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
28,349
|
|
|
|
|
|
|
|
|
|
|
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 December 31, 2008, these
escrows have been included in “Other assets” in the
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 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
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 FIN 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.
F-58
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The preliminary allocation of purchase price for the 2008
acquisitions resulted in finite lived intangible assets of
$8,117 with no residual value, goodwill of $12,845, and fair
value of net tangible assets acquired of $(1,692). The goodwill
associated with the 2008 acquisitions is included within the
Decision Analytics segment. The Company did not assume
significant liabilities related to these acquisitions. The
goodwill for this acquisition is not deductible for tax purposes.
The amounts assigned to intangible assets by type for the 2008
acquisitions are summarized in the table below:
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
Useful Life
|
|
|
Total
|
|
|
Marketing-related
|
|
|
3 years
|
|
|
$
|
5,887
|
|
Customer-related
|
|
|
5 years
|
|
|
|
2,230
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
|
|
|
|
|
$
|
8,117
|
|
|
|
|
|
|
|
|
|
|
Acquisition
Contingent Payments
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 2006, 2007 and 2008 was $9,027, $3,605 and
$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 $2,200
and $300, in 2007 and 2008, respectively. These amounts, which
are included in “Acquisition related liabilities” in
the 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, 2007 and 2008, the current portion of the
escrow amounted to $5,767 and $12,724, respectively, of which
$10,000 relates to Xactware, and has been included in
“Other current assets” in the accompanying
consolidated financial statements at December 31, 2008. The
indemnification portion of these current escrows were $4,083 and
$11,918 at December 31, 2007 and 2008, respectively. At
December 31, 2007 and 2008, the noncurrent portion of the
escrow, all of which are indemnification escrows, amounted to
$11,596 and $1,501, respectively.
Discontinued
Operations
As of December 31, 2007, the Company discontinued
operations of its claims consulting business located in New
Hope, Pennsylvania 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 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-59
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 are as follows:
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
Revenues
|
|
$
|
4,456
|
|
|
$
|
2,352
|
|
|
|
|
|
|
|
|
|
|
Pre-tax loss
|
|
$
|
(2,517
|
)
|
|
$
|
(6,085
|
)
|
Tax benefit
|
|
|
712
|
|
|
|
1,496
|
|
|
|
|
|
|
|
|
|
|
Loss from discontinued operations, net of tax
|
|
$
|
(1,805
|
)
|
|
$
|
(4,589
|
)
|
|
|
|
|
|
|
|
|
|
Depreciation expenses related to the discontinued operations for
years ending 2006 and 2007 were $112 and $98, respectively.
There was no impact of discontinued operations on the results of
operations for the year ended December 31, 2008.
The tax effects of significant items comprising the
Company’s deferred tax assets as of December 31 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Employee wages, pensions and other benefits
|
|
$
|
18,118
|
|
|
$
|
14,970
|
|
Postretirement benefits
|
|
|
11,231
|
|
|
|
10,163
|
|
Fixed assets
|
|
|
(3,281
|
)
|
|
|
(6,645
|
)
|
Deferred revenue adjustment
|
|
|
7,391
|
|
|
|
8,979
|
|
Deferred rent adjustment
|
|
|
3,598
|
|
|
|
4,508
|
|
Net operating loss carryover
|
|
|
6,383
|
|
|
|
1,772
|
|
Pension and postretirement unfunded liability adjustment
|
|
|
5,621
|
|
|
|
55,146
|
|
Adjustment for unrealized losses
|
|
|
274
|
|
|
|
17
|
|
State tax adjustments
|
|
|
15,686
|
|
|
|
8,283
|
|
Goodwill amortization
|
|
|
8,586
|
|
|
|
3,774
|
|
Other
|
|
|
11,655
|
|
|
|
10,689
|
|
Valuation allowance
|
|
|
(1,534
|
)
|
|
|
(2,098
|
)
|
Internally developed software
|
|
|
(5,395
|
)
|
|
|
(4,812
|
)
|
|
|
|
|
|
|
|
|
|
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, 2008 that arose directly from tax
deductions related to equity compensation in excess of
compensation recognized for financial reporting. Equity will be
increased by $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. 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-60
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:
|
|
|
|
|
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.
The income tax provision for the years ended December 31 is as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and foreign
|
|
$
|
91,368
|
|
|
$
|
96,277
|
|
|
$
|
93,522
|
|
State and local
|
|
|
12,663
|
|
|
|
17,843
|
|
|
|
12,358
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
104,031
|
|
|
$
|
114,120
|
|
|
$
|
105,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal and foreign
|
|
$
|
(9,800
|
)
|
|
$
|
(7,041
|
)
|
|
$
|
9,789
|
|
State and local
|
|
|
(2,239
|
)
|
|
|
(3,895
|
)
|
|
|
5,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(12,039
|
)
|
|
$
|
(10,936
|
)
|
|
$
|
14,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
$
|
91,992
|
|
|
$
|
103,184
|
|
|
$
|
120,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company’s income tax benefit for discontinued
operations for fiscal 2006, 2007 and 2008 was $712, $1,496 and
$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-61
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Federal statutory rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State and local taxes, net of federal tax benefit
|
|
|
2.9
|
%
|
|
|
3.2
|
%
|
|
|
5.0
|
%
|
Non-deductible KSOP expenses
|
|
|
2.7
|
%
|
|
|
2.9
|
%
|
|
|
2.7
|
%
|
State tax adjustments
|
|
|
(0.9
|
)%
|
|
|
(0.3
|
)%
|
|
|
0.0
|
%
|
Other
|
|
|
(0.2
|
)%
|
|
|
(0.8
|
)%
|
|
|
0.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate for continuing operations
|
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
4,454
|
|
Settlements
|
|
|
—
|
|
|
|
(3,240
|
)
|
Lapse of statute of limitations
|
|
|
(2,684
|
)
|
|
|
(3,995
|
)
|
|
|
|
|
|
|
|
|
|
Unrecognized tax benefit at December 31
|
|
$
|
32,030
|
|
|
$
|
31,659
|
|
|
|
|
|
|
|
|
|
|
Included in the total unrecognized tax benefits of $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 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 December 31, 2007 and
December 31, 2008, approximately $7,033 and $8,116,
respectively, is 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 a 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 $5,275 of its currently
remaining unrecognized tax positions, each of which is
individually insignificant, may be recognized
F-62
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
by the end of 2009 as a result of a combination of audit
settlements and lapses of statute of limitations, net of
additional uncertain tax positions.
The Company is subject to tax in the U.S. and in various
state and foreign jurisdictions. The Company joined by its
domestic subsidiaries, files a consolidated income tax return
for Federal income tax purposes. With few exceptions, the
Company is no longer subject to U.S. federal, state and
local or
non-U.S. income
tax examinations by tax authorities for tax years before 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.
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Other current assets
|
|
|
|
|
|
|
|
|
Acquisition related escrows
|
|
$
|
5,767
|
|
|
$
|
12,724
|
|
Other current assets
|
|
|
2,758
|
|
|
|
3,463
|
|
|
|
|
|
|
|
|
|
|
Total other current assets
|
|
$
|
8,525
|
|
|
$
|
16,187
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities:
|
|
|
|
|
|
|
|
|
Accrued salaries, benefits and other related costs
|
|
$
|
48,417
|
|
|
$
|
44,913
|
|
Other current liabilities
|
|
|
29,817
|
|
|
|
38,468
|
|
|
|
|
|
|
|
|
|
|
Total accounts payable and accrued liabilities
|
|
$
|
78,234
|
|
|
$
|
83,381
|
|
|
|
|
|
|
|
|
|
|
Other liabilities:
|
|
|
|
|
|
|
|
|
Unrecognized tax benefits
|
|
$
|
39,023
|
|
|
$
|
39,735
|
|
Deferred rent
|
|
|
11,028
|
|
|
|
11,883
|
|
Other liabilities
|
|
|
12,034
|
|
|
|
24,576
|
|
|
|
|
|
|
|
|
|
|
Total other liabilities
|
|
$
|
62,085
|
|
|
$
|
76,194
|
|
|
|
|
|
|
|
|
|
|
F-63
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following table presents short-term and long-term debt by
issuance as of December 31:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
|
|
|
Maturity
|
|
|
|
|
|
|
|
|
|
Date
|
|
|
Date
|
|
|
2007
|
|
|
2008
|
|
|
Short-term and current portion of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank of America
|
|
|
10/25/2007
|
|
|
|
4/25/2008
|
|
|
$
|
15,000
|
|
|
$
|
—
|
|
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
|
|
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
|
|
|
|
4,408
|
|
|
|
5,058
|
|
Other
|
|
|
Various
|
|
|
|
Various
|
|
|
|
763
|
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
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
|
|
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
|
|
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
|
|
Other obligations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations
|
|
|
Various
|
|
|
|
Various
|
|
|
|
7,299
|
|
|
|
4,723
|
|
Other
|
|
|
Various
|
|
|
|
Various
|
|
|
|
860
|
|
|
|
633
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
|
$
|
403,159
|
|
|
$
|
450,356
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-64
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Accrued interest associated with the Company’s outstanding
debt obligations was $2,548 and $4,092 as of December 2007 and
2008, respectively. Consolidated interest expense associated
with the Company’s outstanding debt obligations was
$16,184, $22,590 and $30,863 for the years ended
December 31, 2006, 2007 and 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 $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, 2007 and 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-65
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.
Aviva
Master Shelf Agreement
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
|
|
|
2009
|
|
$
|
219,398
|
|
2010
|
|
$
|
4,617
|
|
2011
|
|
$
|
125,693
|
|
2012
|
|
$
|
46
|
|
2013
|
|
$
|
150,000
|
|
2014 and thereafter
|
|
$
|
170,000
|
|
F-66
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective
|
|
|
Expiration
|
|
|
Maximum Available
|
|
|
Interest
|
|
Borrowings
|
|
Description
|
|
Date
|
|
|
Date
|
|
|
Committed
|
|
|
Uncommitted
|
|
|
Rate
|
|
Outstanding
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorganChase
|
|
|
10/1/2007
|
|
|
|
9/30/2008
|
|
|
$
|
25,000
|
|
|
$
|
50,000
|
|
|
LIBOR + .65%
|
|
$
|
15,000
|
|
Bank of America
|
|
|
9/30/2007
|
|
|
|
9/30/2008
|
|
|
|
10,000
|
|
|
|
50,000
|
|
|
LIBOR + .65%
|
|
|
15,000
|
|
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
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
55,000
|
|
|
$
|
180,000
|
|
|
|
|
$
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorganChase
|
|
|
10/31/2008
|
|
|
|
9/30/2009
|
|
|
$
|
25,000
|
|
|
$
|
50,000
|
|
|
LIBOR + .80%
|
|
$
|
59,000
|
|
Bank of America
|
|
|
9/30/2008
|
|
|
|
9/30/2009
|
|
|
|
110,000
|
|
|
|
—
|
|
|
LIBOR + .95%
|
|
|
55,000
|
|
Morgan Stanley
|
|
|
12/9/2008
|
|
|
|
12/8/2009
|
|
|
|
30,000
|
|
|
|
—
|
|
|
Determined at the
time of borrowing
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
$
|
165,000
|
|
|
$
|
50,000
|
|
|
|
|
$
|
114,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Company amended its uncommitted master shelf agreements and
revolving credit facilities to have five of its 100% owned
subsidiaries, 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. As of December 31, 2008,
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 amended 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 its obligations under the master
shelf agreements and revolving credit 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 at
maturity, at a rate of 1.73% at December 31, 2008. The
committed line has a facility fee of 0.10% of the unused portion
and interest on outstanding borrowings is payable monthly. On
October 31, 2008, the Company renegotiated the facility to
extend the maturity through September 30, 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 were
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. As of December 31,
2007 and 2008 $15,000 and $55,000, respectively, of borrowings
were outstanding under this credit facility.
F-67
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
On January 23, 2006, the Company entered into a $50,000
revolving credit agreement with Citibank, of which $20,000 was
committed. This revolving credit agreement with Citibank expired
on October 29, 2008. The Company did not renegotiate to
extend the agreement.
In August 2006, the Company entered into a $50,000 revolving
credit facility with Morgan Stanley. Interest is payable monthly
at a rate to be determined at the time of borrowing. On
December 9, 2008, the Company entered 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 unused portion and interest is payable at maturity
at a rate to be determined at the time of borrowing.
|
|
15.
|
Redeemable
Common Stock:
|
On November 18, 1996, the Company authorized
6,700,000 shares of Class A redeemable common stock.
The Class A stock 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 stock
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 stock 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 stock 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 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 stock. Since the Class A stock distributed under the
Option Plan and KSOP is subject to the restrictions above, the
participant currently has the right to require the Company to
repurchase stock based on the then current fair value of the
Class A 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 stock and vested stock options at full
redemption value at each balance sheet date as the redemption
F-68
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
of these securities is not solely within the control of the
Company. Redemption value for the Class A stock is
determined quarterly on or about the final day of the quarter
for purposes of the KSOP. The fourth quarter valuation was
finalized on December 31, 2007 and 2008 at $862 and $778
per share, respectively. The redemption value of the
Class A stock and vested options at intrinsic value at
December 31, 2007 and 2008 totaled $1,217,942 and $752,912,
respectively, which includes $215,380, and $172,408,
respectively, of aggregate intrinsic value of outstanding
unexercised vested stock options.
During the years ended December 31, 2006, 2007 and 2008,
253,000, 256,842 and 502,435 Class A shares were redeemed
by the Company at a weighted average price of $595.70, $803.73
and $863.88 per share, respectively. Included in Class A
repurchased shares were $45,052, $16,096 and $19,734 for shares
primarily utilized to satisfy minimum tax withholdings on
options exercised during the years ended December 31, 2006,
2007 and 2008, respectively.
F-69
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 additional
paid-in-capital,
if additional
paid-in-capital
is also depleted, then to accumulated deficit. During the year
ended December 31, 2008 the balance of redeemable common
stock decreased by $465,030. Additional information regarding
the changes in redeemable common stock for the years ended
December 31, 2006, 2007 and 2008 is provided in the table
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes
|
|
|
Total
|
|
|
|
Class A Common Stock
|
|
|
Receivable
|
|
|
Redeemable
|
|
|
|
|
|
|
Redemption
|
|
|
Unearned
|
|
|
Additional
|
|
|
from
|
|
|
Common
|
|
|
|
Shares
|
|
|
Value
|
|
|
KSOP
|
|
|
Paid-in-Capital
|
|
|
Stockholders’
|
|
|
Stock
|
|
|
Balance, January 1, 2006
|
|
|
1,420,341
|
|
|
$
|
943,854
|
|
|
$
|
(5,723
|
)
|
|
$
|
—
|
|
|
$
|
(37,042
|
)
|
|
$
|
901,089
|
|
Redemption of Class A common stock
|
|
|
(253,000
|
)
|
|
|
(105,670
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
9,277
|
|
|
|
(96,393
|
)
|
KSOP shares earned
|
|
|
—
|
|
|
|
—
|
|
|
|
810
|
|
|
|
17,969
|
|
|
|
—
|
|
|
|
18,779
|
|
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
|
|
|
232
|
|
|
|
149
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
149
|
|
Increase in redemption value of Class A common stock
|
|
|
—
|
|
|
|
282,281
|
|
|
|
—
|
|
|
|
(56,081
|
)
|
|
|
—
|
|
|
|
226,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006
|
|
|
1,347,540
|
|
|
$
|
1,183,049
|
|
|
$
|
(4,913
|
)
|
|
$
|
—
|
|
|
$
|
(52,203
|
)
|
|
$
|
1,125,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption of Class A common stock
|
|
|
(256,842
|
)
|
|
|
(190,336
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
24,708
|
|
|
|
(165,628
|
)
|
KSOP shares earned
|
|
|
—
|
|
|
|
—
|
|
|
|
784
|
|
|
|
21,463
|
|
|
|
—
|
|
|
|
22,247
|
|
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
|
|
Increase in redemption value of Class A common stock
|
|
|
—
|
|
|
|
196,465
|
|
|
|
—
|
|
|
|
(42,505
|
)
|
|
|
—
|
|
|
|
153,960
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 2,895, 72,488 and 9,670 Class B
shares in 2006, 2007 and 2008 at an average price of $385.20,
$498.15 and $517.20 per share, respectively.
F-70
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 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
0.68
|
|
|
$
|
0.77
|
|
|
$
|
0.87
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.67
|
|
|
$
|
0.75
|
|
|
$
|
0.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma diluted income/(loss) per share of Class A and
Class B (unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
$
|
0.65
|
|
|
$
|
0.74
|
|
|
$
|
0.83
|
|
Loss from discontinued operations
|
|
|
(0.01
|
)
|
|
|
(0.02
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net income per share
|
|
$
|
0.64
|
|
|
$
|
0.72
|
|
|
$
|
0.83
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares used in pro forma per share amounts
(unaudited):
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
206,548,100
|
|
|
|
200,846,400
|
|
|
|
182,885,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
215,143,350
|
|
|
|
209,257,550
|
|
|
|
190,231,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-71
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 66,570, 60,661 and 101,827 for
2006, 2007 and 2008, 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 1 — Organization”, Verisk
Analytics, Inc. (“Verisk”) will become the new holding
company for Insurance Services Office, Inc. In connection with
the initial public offering, the stock of Insurance Services
Office, Inc. will be exchanged for the stock of Verisk and
Verisk plans to effect an approximately
fifty-to-one
stock split of its common stock. Pro forma net income/(loss) per
share is computed as if the stock split occurred at the
beginning of 2008.
Accumulated
Other Comprehensive Loss
The following is a summary of accumulated other comprehensive
loss at December 31:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Unrealized losses on investments
|
|
$
|
(412
|
)
|
|
$
|
(31
|
)
|
Unrealized foreign currency gains/(losses)
|
|
|
154
|
|
|
|
(773
|
)
|
Pension and postretirement unfunded liability adjustment
|
|
|
(8,441
|
)
|
|
|
(81,630
|
)
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss
|
|
$
|
(8,699
|
)
|
|
$
|
(82,434
|
)
|
|
|
|
|
|
|
|
|
|
The before tax and after tax amounts for these categories, and
the related tax benefit/(expense) included in other
comprehensive loss are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax Benefit/
|
|
|
|
|
2006
|
|
Before Tax
|
|
|
(Expense)
|
|
|
After Tax
|
|
|
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 gains
|
|
|
376
|
|
|
|
—
|
|
|
|
376
|
|
Minimum pension liability adjustment
|
|
|
2,814
|
|
|
|
(1,186
|
)
|
|
|
1,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive gain
|
|
$
|
3,748
|
|
|
$
|
(1,396
|
)
|
|
$
|
2,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding losses on investments arising during the year
|
|
$
|
(2,250
|
)
|
|
$
|
885
|
|
|
$
|
(1,365
|
)
|
Reclassification adjustment for amounts included in net income
|
|
|
1,057
|
|
|
|
(422
|
)
|
|
|
635
|
|
Unrealized foreign currency losses
|
|
|
(203
|
)
|
|
|
—
|
|
|
|
(203
|
)
|
Minimum pension liability adjustment
|
|
|
12,577
|
|
|
|
(4,326
|
)
|
|
|
8,251
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other comprehensive gain
|
|
$
|
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-72
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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
$15, $16 and $16 for 2006, 2007 and 2008, respectively. Certain
eligible participants (age 50 and older) may contribute an
additional $5, $5 and $5 on a pre-tax basis for 2006, 2007 and
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 AICPA
SOP No. 93-6,
Accounting Practices for Certain Employee Stock Ownership
Plans
(“SOP No. 93-6”)
and EITF
No. 89-11,
Sponsor’s Balance Sheet Classification of Capital Stock
with a Put Option Held by an Employee Stock Ownership Plan
(“EITF
No. 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 2006, compensation expense related to the Profit Sharing Plan
amounted to $393 and was contributed to the KSOP in the form of
cash.
F-73
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The KSOP shares as of December 31, were as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Shares released for ESOP allocation
|
|
|
865,166
|
|
|
|
879,948
|
|
Shares released for 401(k) match
|
|
|
135,382
|
|
|
|
145,205
|
|
Shares released for the Profit Sharing Plan
|
|
|
860
|
|
|
|
2,327
|
|
Unreleased shares
|
|
|
142,392
|
|
|
|
116,320
|
|
|
|
|
|
|
|
|
|
|
Total KSOP shares
|
|
|
1,143,800
|
|
|
|
1,143,800
|
|
|
|
|
|
|
|
|
|
|
Fair value of unreleased shares
|
|
$
|
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, 2007 and 2008, the
appraised fair value was $862 and $778 per share, respectively.
KSOP compensation expense for 2006, 2007 and 2008 was
approximately $18,779, $22,247 and $22,274, respectively.
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 vesting dates within four years after grant date and
expire after ten years. Stock obtained through the exercise of
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 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 years ended December 31, 2007 and
2008, stock options granted had an exercise price equal to fair
value of the Class A common stock on date of grant. There
are 1,992,795 shares of Class A common stock approved
for issuance under the plan, of which up to 12,053 options to
purchase shares were authorized for future grants at
December 31, 2008. Cash received from stock option
exercises for the years ended December 31, 2006, 2007 and
2008 was $271, $389 and $892.
F-74
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
A summary of options outstanding under the Option Plan as of
December 31, 2008, and changes during the three years then
ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Average
|
|
|
Intrinsic
|
|
|
|
of Options
|
|
|
Exercise Price
|
|
|
Value
|
|
|
Outstanding at January 1, 2006
|
|
|
647,028
|
|
|
$
|
200.89
|
|
|
$
|
235,589
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
69,441
|
|
|
$
|
586.53
|
|
|
|
|
|
Exercised
|
|
|
(179,967
|
)
|
|
$
|
144.16
|
|
|
$
|
81,516
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(12,734
|
)
|
|
$
|
360.11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006
|
|
|
523,768
|
|
|
$
|
267.64
|
|
|
$
|
255,264
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
55,979
|
|
|
$
|
760.35
|
|
|
|
|
|
Exercised
|
|
|
(72,083
|
)
|
|
$
|
257.46
|
|
|
$
|
36,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(10,911
|
)
|
|
$
|
458.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the Company’s nonvested options
as of December 31, 2007 and 2008, and changes during the
three years ended December 31, 2006, 2007 and 2008, is
presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Grant-Date
|
|
|
|
of Options
|
|
|
Fair Value
|
|
|
Nonvested balance at January 1, 2006
|
|
|
315,512
|
|
|
$
|
60.63
|
|
Granted
|
|
|
69,441
|
|
|
$
|
166.25
|
|
Vested
|
|
|
(136,068
|
)
|
|
$
|
54.86
|
|
Cancelled or expired
|
|
|
(12,734
|
)
|
|
$
|
89.34
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at December 31, 2006
|
|
|
236,151
|
|
|
$
|
93.83
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
55,979
|
|
|
$
|
210.69
|
|
Vested
|
|
|
(113,969
|
)
|
|
$
|
76.89
|
|
Cancelled or expired
|
|
|
(10,911
|
)
|
|
$
|
117.45
|
|
|
|
|
|
|
|
|
|
|
Nonvested balance at December 31, 2007
|
|
|
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-75
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
As of December 31, 2008, there was $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 2.09 years. As of December 31, 2008, there are
134,151 nonvested stock options of which 123,038 are expected to
vest. The total grant date fair value of shares vested during
the years ended December 31, 2006, 2007 and 2008 was
$7,465, $8,763 and $11,803, respectively.
Exercise prices for options outstanding and exercisable at
December 31, 2008 ranged from $92 to $892 as outlined in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
|
Options Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
Weighted-
|
|
|
|
Average
|
|
|
Stock
|
|
|
Average
|
|
|
Remaining
|
|
|
Stock
|
|
|
Average
|
|
Range of
|
|
Remaining
|
|
|
Options
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Options
|
|
|
Exercise
|
|
Exercise Prices
|
|
Contractual Life
|
|
|
Outstanding
|
|
|
Price
|
|
|
Life
|
|
|
Exercisable
|
|
|
Price
|
|
|
$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
|
|
|
6.3
|
|
|
|
88,150
|
|
|
$
|
415.70
|
|
|
|
6.3
|
|
|
|
66,260
|
|
|
$
|
411.23
|
|
$446 to $681
|
|
|
7.3
|
|
|
|
41,396
|
|
|
$
|
593.97
|
|
|
|
7.3
|
|
|
|
20,411
|
|
|
$
|
612.91
|
|
$682 to $892
|
|
|
8.8
|
|
|
|
102,918
|
|
|
$
|
821.75
|
|
|
|
8.4
|
|
|
|
11,642
|
|
|
$
|
794.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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 2006, 2007 and 2008, compensation expense related
to these units amounted to $1,360, $2,296 and $(117),
respectively. There were two redemptions in 2006 totaling $59,
four redemptions in 2007 totaling $342 and three redemptions in
2008 totaling $858. The liability for these performance based
awards of $4,137 and $3,162 at December 31, 2007 and 2008,
respectively, is included in accounts payable and accrued
liabilities.
F-76
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 2006, 2007 and 2008, compensation expense related to
the phantom ESOP amounted to $608, $228 and $26, respectively. A
phantom ESOP liability of $1,785 and $1,732 at December 31,
2007 and 2008, respectively, is included in accounts payable and
accrued liabilities.
|
|
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-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 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 $224, $178 and $542 to the
SERP in 2006, 2007 and 2008, respectively, and expects to
contribute $572 in 2009. The minimum required funding for the
Pension Plan for the years ended December 31, 2006, 2007
and 2008 were $0, $0 and $5,029, respectively. The Company
expects to contribute $5,471 to the Pension Plan in 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 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,
2007 and 2008, and target allocation for 2009 by asset category
are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Target
|
|
|
Percentage of Plan Assets
|
|
Asset Category
|
|
Allocation
|
|
|
2007
|
|
|
2008
|
|
|
Equity securities
|
|
|
60
|
%
|
|
|
62
|
%
|
|
|
51
|
%
|
Debt securities
|
|
|
40
|
%
|
|
|
36
|
%
|
|
|
46
|
%
|
Other
|
|
|
0
|
%
|
|
|
2
|
%
|
|
|
3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
F-77
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The expected rate of return on plan assets for 2007 and 2008 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. The Company expects to
contribute $4,987 to the Postretirement Plan in 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
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Change in benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
373,674
|
|
|
$
|
363,840
|
|
|
$
|
30,595
|
|
|
$
|
28,340
|
|
Service cost
|
|
|
8,152
|
|
|
|
7,789
|
|
|
|
—
|
|
|
|
—
|
|
Interest cost
|
|
|
20,952
|
|
|
|
21,698
|
|
|
|
1,669
|
|
|
|
1,689
|
|
Actuarial (gain)/loss
|
|
|
(15,934
|
)
|
|
|
(4,869
|
)
|
|
|
441
|
|
|
|
2,650
|
|
Plan participants’ contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
2,227
|
|
|
|
2,738
|
|
Benefits paid
|
|
|
(23,004
|
)
|
|
|
(21,537
|
)
|
|
|
(6,936
|
)
|
|
|
(6,777
|
)
|
Federal subsidy on benefits paid
|
|
|
—
|
|
|
|
—
|
|
|
|
344
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
$
|
363,840
|
|
|
$
|
366,921
|
|
|
$
|
28,340
|
|
|
$
|
28,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated benefit obligation at end of year
|
|
$
|
341,829
|
|
|
$
|
356,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average assumptions as of December 31, used to
determine benefit obligation:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
6.25
|
%
|
|
|
6.00
|
%
|
|
|
5.75
|
%
|
|
|
6.00
|
%
|
Rate of compensation increase
|
|
|
4.25
|
%
|
|
|
4.00
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
Change in plan assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
344,235
|
|
|
$
|
346,013
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Actual return on plan assets, net of expenses
|
|
|
24,604
|
|
|
|
(97,595
|
)
|
|
|
—
|
|
|
|
—
|
|
Employer contributions
|
|
|
178
|
|
|
|
5,571
|
|
|
|
4,365
|
|
|
|
4,039
|
|
Plan participants’ contributions
|
|
|
—
|
|
|
|
—
|
|
|
|
2,227
|
|
|
|
2,738
|
|
Benefits paid
|
|
|
(23,004
|
)
|
|
|
(21,537
|
)
|
|
|
(6,936
|
)
|
|
|
(6,777
|
)
|
Subsidies received/receivable
|
|
|
—
|
|
|
|
—
|
|
|
|
344
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
346,013
|
|
|
$
|
232,452
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded status at end of year
|
|
$
|
17,827
|
|
|
$
|
134,469
|
|
|
$
|
28,340
|
|
|
$
|
28,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-78
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The pre-tax components affecting accumulated other comprehensive
loss as of December 31, 2007 and 2008 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
Transition obligation
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
831
|
|
|
$
|
665
|
|
Prior service benefit
|
|
|
(4,117
|
)
|
|
|
(3,316
|
)
|
|
|
—
|
|
|
|
|
|
Actuarial losses
|
|
|
14,515
|
|
|
|
134,183
|
|
|
|
2,833
|
|
|
|
5,244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive loss, pretax
|
|
$
|
10,398
|
|
|
$
|
130,867
|
|
|
$
|
3,664
|
|
|
$
|
5,909
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2006, 2007 and 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 during 2009 are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
Postretirement
|
|
|
|
|
|
|
Plan
|
|
|
Plan
|
|
|
Total
|
|
|
Transition obligation
|
|
$
|
—
|
|
|
$
|
166
|
|
|
$
|
166
|
|
Prior service benefit
|
|
|
(801
|
)
|
|
|
—
|
|
|
|
(801
|
)
|
Actuarial losses
|
|
|
10,506
|
|
|
|
180
|
|
|
|
10,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,705
|
|
|
$
|
346
|
|
|
$
|
10,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-79
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The weighted-average assumptions as of January 1, 2006,
2007 and 2008 used to determine net periodic benefit cost and
the amount recognized in the accompanying consolidated balance
sheets are provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Plan
|
|
|
Postretirement Plan
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Weighted-average assumptions as of January 1, used to
determine net benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
|
6.25
|
%
|
|
|
5.50
|
%
|
|
|
5.75
|
%
|
|
|
5.75
|
%
|
Expected return on plan assets
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
8.25
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Rate of compensation increase
|
|
|
3.75
|
%
|
|
|
3.75
|
%
|
|
|
4.25
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
Amounts recognized in the consolidated balance sheets consist of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 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
|
|
|
|
Plan
|
|
|
Plan
|
|
|
2009
|
|
$
|
23,634
|
|
|
$
|
4,987
|
|
2010
|
|
$
|
24,352
|
|
|
$
|
4,709
|
|
2011
|
|
$
|
25,410
|
|
|
$
|
4,382
|
|
2012
|
|
$
|
26,458
|
|
|
$
|
3,943
|
|
2013
|
|
$
|
28,114
|
|
|
$
|
3,487
|
|
2014-2018
|
|
$
|
159,723
|
|
|
$
|
11,186
|
|
The healthcare cost trend rate for 2008 was 10% gradually
decreasing to 5% in 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
|
|
|
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
|
|
$
|
(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 $9,500 and $11,050 as of December 31, 2007
and 2008, and the net periodic benefit cost by approximately
$1,315, $946 and $1,028 in fiscal 2006, 2007 and 2008,
respectively.
F-80
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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
is organized into the following two operating 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, 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, 2006, 2007 or
2008. No individual country outside of the United States
accounted for 1% or more of total consolidated long-term assets
as of December 31, 2007 or 2008.
F-81
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, 2006, 2007 and 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 expense
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated income from continuing operations before income
taxes
|
|
|
|
|
|
|
|
|
|
$
|
258,147
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
$
|
33,059
|
|
|
$
|
14,124
|
|
|
$
|
47,183
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-82
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating segment revenue by type of service is provided below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
Risk Assessment
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
472,634
|
|
|
|
485,160
|
|
|
|
504,391
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Decision Analytics
|
|
|
|
|
|
|
|
|
|
|
|
|
Fraud identification and detection solutions
|
|
|
168,189
|
|
|
|
172,726
|
|
|
|
213,994
|
|
Loss prediction solutions
|
|
|
67,129
|
|
|
|
81,110
|
|
|
|
95,128
|
|
Loss quantification solutions
|
|
|
22,181
|
|
|
|
63,199
|
|
|
|
80,037
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Decision Analytics
|
|
|
257,499
|
|
|
|
317,035
|
|
|
|
389,159
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total consolidated revenues
|
|
$
|
730,133
|
|
|
$
|
802,195
|
|
|
$
|
893,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
At December 31, 2008, there were seven Class B
stockholders each owning more than 5% of the
F-83
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
outstanding Class B shares. Two of these seven 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 $487, $827 and $992 in 2006, 2007, and
2008, respectively. These expenses are included in cost of
revenues and selling, general and administrative in the
consolidated statements of operations.
At December 31, 2008, the ESOP owns more than 5% of the
outstanding Class A shares. As discussed in Note 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.
|
|
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
|
|
Years Ending
|
|
Leases
|
|
|
Leases
|
|
|
2009
|
|
$
|
20,554
|
|
|
$
|
5,315
|
|
2010
|
|
|
20,127
|
|
|
|
4,418
|
|
2011
|
|
|
19,587
|
|
|
|
382
|
|
2012
|
|
|
18,470
|
|
|
|
47
|
|
2013
|
|
|
17,704
|
|
|
|
—
|
|
2014-2018
|
|
|
71,987
|
|
|
|
—
|
|
2019-2023
|
|
|
31,233
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net minimum lease payments
|
|
$
|
199,662
|
|
|
$
|
10,162
|
|
|
|
|
|
|
|
|
|
|
Less amount representing interest
|
|
|
|
|
|
|
381
|
|
|
|
|
|
|
|
|
|
|
Present value of net minimum lease capital payments
|
|
|
|
|
|
$
|
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 $19,258, $19,833
and $21,261 in 2006, 2007 and 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 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.
F-84
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (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 Company entered into settlement agreements with plaintiffs
asserting claims relating to the use of Claims Outcome Advisor
by defendants Hanover Insurance Group, Progressive Car
Insurance, and Liberty Mutual Insurance Group. Each of these
settlements was granted final approval by the court and together
the settlements resolve the claims asserted in this case against
the Company with respect to the above insurance companies, who
settled the claims against them as well. A provision was made in
2006 for this proceeding and the total amount the Company paid
in 2008 with respect to these settlements was less than $2,000.
A fourth defendant, The Automobile Club of California, which is
alleged to have used Claims Outcome Advisor was dismissed from
the action. On August 18, 2008, pursuant to the agreement
of the parties the Court ordered that the claims against the
Company be dismissed with prejudice.
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
Company, 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 pursuant
to the License Agreement. The Company and Hanover have entered
into a tolling agreement in order to allow the parties time to
resolve the dispute without litigation.
Xactware
Litigation
The 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 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 an
appraisal of the lead plaintiff’s insurance 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-85
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 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. 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.
At this time it is not possible to determine the ultimate
resolution of, or estimate the liability related to the
Schafer and Mornay matters.
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.
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 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 the 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 the plaintiff’s are appealing the dismissal.
On 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 Decision
Analytics segment.
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.
As a result of a review of the Company’s current taxes
receivable as of December 31, 2008 conducted subsequent to
the issuance of the 2007 consolidated financial statements, it
was determined that the federal and state 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 also corrected certain classifications on the
consolidated 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 changes are not material to the consolidated financial
statements.
F-86
INSURANCE
SERVICES OFFICE, INC.
NOTES TO
CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The following financial statement line items were impacted by
the adjustment in the respective periods presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2007
|
|
|
|
As Previously
|
|
|
Correction of
|
|
|
|
|
Caption of Consolidated Balance Sheet
|
|
Reported
|
|
|
Error
|
|
|
As Corrected
|
|
|
Federal and state taxes receivable
|
|
$
|
3,003
|
|
|
$
|
(3,003
|
)
|
|
$
|
—
|
|
Federal and foreign income taxes receivable
|
|
|
—
|
|
|
|
4,561
|
|
|
|
4,561
|
|
Total current assets
|
|
|
181,025
|
|
|
|
1,558
|
|
|
|
182,583
|
|
Total assets
|
|
|
828,483
|
|
|
|
1,558
|
|
|
|
830,041
|
|
State and local income taxes payable
|
|
|
—
|
|
|
|
9,178
|
|
|
|
9,178
|
|
Total current liabilities
|
|
|
346,248
|
|
|
|
9,178
|
|
|
|
355,426
|
|
Total liabilities
|
|
|
853,023
|
|
|
|
9,178
|
|
|
|
862,201
|
|
Accumulated deficit
|
|
|
(508,136
|
)
|
|
|
(7,620
|
)
|
|
|
(515,756
|
)
|
Total stockholders’ deficit
|
|
|
(1,195,728
|
)
|
|
|
(7,620
|
)
|
|
|
(1,203,348
|
)
|
Total liabilities and stockholders’ deficit
|
|
|
828,483
|
|
|
|
1,558
|
|
|
|
830,041
|
|
|
|
|
(1) |
|
Reclassifications have been made to conform to the 2008
presentation within the consolidated statement of cash flows. |
F-87
PART II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other
Expenses of Issuance and Distribution.
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
|
|
|
|
to be Paid
|
|
|
|
|
|
Registration fee
|
|
$
|
114,832
|
|
|
|
|
|
FINRA filing fee
|
|
|
75,500
|
|
|
|
|
|
Listing fees
|
|
|
150,000
|
|
|
|
|
|
Transfer agent’s fees
|
|
|
20,000
|
|
|
|
|
|
Printing and engraving expenses
|
|
|
300,000
|
|
|
|
|
|
Legal fees and expenses
|
|
|
2,948,109
|
|
|
|
|
|
Accounting fees and expenses
|
|
|
4,468,146
|
|
|
|
|
|
Miscellaneous
|
|
|
173,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
8,250,217
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 September 1, 2006, Insurance Services Office, Inc.
has issued to directors, officers and employees options to
purchase 194,562 shares of Class A common stock (on a
pre-split basis) with per share exercise prices ranging from
$642 to $892, and has issued 215,129 shares of Class A
common stock (on a pre-split basis) 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
|
|
|
Number
|
|
Description
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement**
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation**
|
|
3
|
.2
|
|
Amended and Restated By-Laws**
|
|
4
|
.1
|
|
Form of Common Stock Certificate**
|
|
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.**
|
|
4
|
.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**
|
|
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**
|
|
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**
|
|
4
|
.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**
|
|
4
|
.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**
|
|
5
|
.1
|
|
Opinion of Davis Polk & Wardwell
|
|
10
|
.1
|
|
401(k) Savings Plan and Employee Stock Ownership Plan**
|
|
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**
|
II-2
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
10
|
.6
|
|
Credit Agreement, dated as of July 2, 2009, between
Insurance Services Office, Inc. and Bank of America, N.A., as
Administrative Agent, and the lenders party thereto**
|
|
10
|
.7
|
|
Employment Agreement with Frank J. Coyne**
|
|
10
|
.8
|
|
Form of Change of Control Severance Agreement**
|
|
10
|
.9
|
|
Insurance Services Office, Inc. 1996 Incentive Plan and Form of
Stock Option Agreement thereunder
|
|
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**
|
(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, 2006, 2007 and 2008
|
II-3
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-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 29th day of September, 2009.
Verisk Analytics, Inc.
Name: Frank J. Coyne
|
|
|
|
Title:
|
Chief Executive Officer, President and
Chairman of the Board of Directors
|
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)
|
|
September 29, 2009
|
|
|
|
|
|
/s/ Mark
V. Anquillare
Mark
V. Anquillare
|
|
Chief Financial Officer
(principal financial officer and principal accounting officer)
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
J.
Hyatt Brown
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
Glen
A. Dell
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
Christopher
M. Foskett
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
Constantine
P. Iordanou
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
John
F. Lehman, Jr.
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
Samuel
G. Liss
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
Andrew
G. Mills
|
|
Director
|
|
September 29, 2009
|
II-5
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
/s/ *
Thomas
F. Motamed
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
Arthur
J. Rothkopf
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
/s/ *
David
B. Wright
|
|
Director
|
|
September 29, 2009
|
|
|
|
|
|
|
|
*By:
|
|
/s/ Mark
V. Anquillare
Attorney-in-Fact
|
|
|
|
September 29, 2009
|
II-6
Schedule II
Valuation and Qualifying Accounts and Reserves
Years Ended December 31, 2006, 2007 and 2008
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged to
|
|
|
|
|
|
|
|
|
|
Beginning
|
|
|
Costs and
|
|
|
Deductions —
|
|
|
Balance at
|
|
Description
|
|
of Year
|
|
|
Expenses(1)
|
|
|
Write-offs(2)
|
|
|
End of Year
|
|
|
Year ended December 31, 2006:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
3,623
|
|
|
$
|
2,148
|
|
|
$
|
(498
|
)
|
|
$
|
5,273
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for income taxes
|
|
$
|
2,144
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
5,273
|
|
|
$
|
3,286
|
|
|
$
|
(312
|
)
|
|
$
|
8,247
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valuation allowance for income taxes
|
|
$
|
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
|
|
|
Number
|
|
Description
|
|
|
1
|
.1
|
|
Form of Underwriting Agreement**
|
|
3
|
.1
|
|
Amended and Restated Certificate of Incorporation**
|
|
3
|
.2
|
|
Amended and Restated By-Laws**
|
|
4
|
.1
|
|
Form of Common Stock Certificate**
|
|
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.**
|
|
4
|
.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**
|
|
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**
|
|
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**
|
|
4
|
.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**
|
|
4
|
.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**
|
|
5
|
.1
|
|
Opinion of Davis Polk & Wardwell
|
|
10
|
.1
|
|
401(k) Savings Plan and Employee Stock Ownership Plan**
|
|
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**
|
|
10
|
.6
|
|
Credit Agreement, dated as of July 2, 2009, between
Insurance Services Office, Inc. and Bank of America, N.A., as
Administrative Agent, and the lenders party thereto**
|
|
10
|
.7
|
|
Employment Agreement with Frank J. Coyne**
|
|
10
|
.8
|
|
Form of Change of Control Severance Agreement**
|
|
10
|
.9
|
|
Insurance Services Office, Inc. 1996 Incentive Plan and Form of
Stock Option Agreement thereunder
|
|
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**
|