UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

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

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

Commission File Number: 001-34480

VERISK ANALYTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware		26-2994223
(State or other jurisdiction of incorporation		(I.R.S. Employer
or organization)		Identification No.)
545 Washington Boulevard
Jersey City, NJ		07310-1686
(Address of principal executive offices)		(Zip Code)

(201) 469-2000
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No 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 12b-2 of the Exchange Act.

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

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

As of July 29, 2011 there was the following number of shares outstanding of each of the issuer’s classes of common stock:

Class		Shares Outstanding
Class A common stock $.001 par value		150,042,965
Class B (Series 2) common stock $.001 par value		14,771,340

 

 

Verisk Analytics, Inc.
Index to Form 10-Q

Table of Contents

		Page Number
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited)
Condensed Consolidated Balance Sheets			3
Condensed Consolidated Statements of Operations			4
Condensed Consolidated Statements of Changes in Stockholders’ Deficit			5
Condensed Consolidated Statements of Cash Flows			6
Notes to Condensed Consolidated Financial Statements			7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			30
Item 3. Quantitative and Qualitative Disclosures About Market Risk			41
Item 4. Controls and Procedures			41
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			42
Item 1A. Risk Factors			42
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			42
Item 3. Defaults Upon Senior Securities			42
Item 4. (Removed and Reserved)			42
Item 5. Other Information			42
Item 6. Exhibits			42
SIGNATURES			43
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

Item 1.		Financial Statements

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
As of June 30, 2011 and December 31, 2010

		2011
		unaudited				2010
		(In thousands, except for
		share and per share data)
ASSETS
Current assets:
Cash and cash equivalents		$	51,970			$	54,974
Available-for-sale securities			5,351				5,653
Accounts receivable, net of allowance for doubtful accounts of $3,829 and $4,028 (including amounts from related parties of $727 and $515, respectively) (1)			145,632				126,564
Prepaid expenses			26,015				17,791
Deferred income taxes, net			3,681				3,681
Federal and foreign income taxes receivable			24,610				15,783
State and local income taxes receivable			9,063				8,923
Other current assets			29,155				7,066
Total current assets			295,477				240,435
Noncurrent assets:
Fixed assets, net			107,645				93,409
Intangible assets, net			241,330				200,229
Goodwill			712,561				632,668
Deferred income taxes, net			20,977				21,879
State income taxes receivable			1,773				1,773
Other assets			28,326				26,697
Total assets		$	1,408,089			$	1,217,090
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	121,285			$	111,995
Acquisition related liabilities			—				3,500
Short-term debt and current portion of long-term debt			170,663				437,717
Pension and postretirement benefits, current			4,663				4,663
Fees received in advance (including amounts from related parties of $1,626 and $1,231, respectively) (1)			214,989				163,007
Total current liabilities			511,600				720,882
Noncurrent liabilities:
Long-term debt			854,499				401,826
Pension benefits			83,995				95,528
Postretirement benefits			22,203				23,083
Other liabilities			80,232				90,213
Total liabilities			1,552,529				1,331,532
Commitments and contingencies
Stockholders’ equity/(deficit):
Verisk Class A common stock, $.001 par value; 1,200,000,000 shares authorized; 350,338,030 and 150,179,126 shares issued and 150,625,134 and 143,067,924 outstanding as of June 30, 2011 and December 31, 2010, respectively			88				39
Verisk Class B (Series 1) common stock, $.001 par value; 400,000,000 shares authorized; 0 and 198,327,962 shares issued and 0 and 12,225,480 outstanding as of June 30, 2011 and December 31, 2010, respectively			—				47
Verisk Class B (Series 2) common stock, $.001 par value; 400,000,000 shares authorized; 193,665,008 shares issued and 14,771,340 outstanding as of June 30, 2011 and December 31, 2010, respectively			49				49
Unearned KSOP contributions			(836	)			(988	)
Additional paid-in capital			807,855				754,708
Treasury stock, at cost, 378,606,564 and 372,107,352 shares as of June 30, 2011 and December 31, 2010, respectively			(1,323,368	)			(1,106,321	)
Retained earnings			425,280				293,827
Accumulated other comprehensive losses			(53,508	)			(55,803	)
Total stockholders’ deficit			(144,440	)			(114,442	)
Total liabilities and stockholders’ deficit		$	1,408,089			$	1,217,090

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

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
For The Three and Six Month Periods Ended June 30, 2011 and 2010

		Three Months Ended June 30,								Six Months Ended June 30,
		2011				2010				2011				2010
		(In thousands, except for share and per share data)
Revenues (including amounts from related parties of $4,787 and $15,280 for the three months ended June 30, 2011 and 2010 and $9,183 and $30,413 for the six months ended June 30, 2011 and 2010, respectively) (1)		$	327,280			$	281,677			$	640,149			$	557,831
Expenses:
Cost of revenues (exclusive of items shown separately below)			131,185				115,000				255,741				229,993
Selling, general and administrative			55,909				42,638				105,165				80,152
Depreciation and amortization of fixed assets			10,855				9,944				22,160				19,873
Amortization of intangible assets			8,877				7,020				17,332				14,324
Acquisition related liabilities adjustment			(3,364	)			—				(3,364	)			—
Total expenses			203,462				174,602				397,034				344,342
Operating income			123,818				107,075				243,115				213,489
Other income/(expense):
Investment (loss)/income			(10	)			92				—				124
Realized gain on securities, net			125				29				487				61
Interest expense			(14,885	)			(8,445	)			(24,500	)			(16,911	)
Total other expense, net			(14,770	)			(8,324	)			(24,013	)			(16,726	)
Income before income taxes			109,048				98,751				219,102				196,763
Provision for income taxes			(43,471	)			(40,347	)			(87,649	)			(82,984	)
Net income		$	65,577			$	58,404			$	131,453			$	113,779
Basic net income per share of Class A and Class B:		$	0.39			$	0.32			$	0.78			$	0.63
Diluted net income per share of Class A and Class B:		$	0.38			$	0.31			$	0.75			$	0.60
Weighted average shares outstanding:
Basic			166,960,806				180,492,106				167,995,517				180,272,828
Diluted			174,634,046				189,541,893				175,799,120				189,498,324

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

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED)
For The Year Ended December 31, 2010 and The Six Months Ended June 30, 2011

																																		Accumulated				Total
		Common Stock Issued																Unearned				Additional												Other				Stockholders’
						Verisk				Verisk								KSOP				Paid-in				Treasury				Retained				Comprehensive				(Deficit)/
		Verisk Class A				Class B (Series 1)				Class B (Series 2)				Par Value				Contributions				Capital				Stock				Earnings				Income/(Loss)				Equity
		(In thousands, except for share data)
Balance, January 1, 2010			125,815,600				205,637,925				205,637,925			$	130			$	(1,305	)		$	652,573			$	(683,994	)		$	51,275			$	(53,628	)		$	(34,949	)
Comprehensive income:
Net income			—				—				—				—				—				—				—				242,552				—				242,552
Other comprehensive loss			—				—				—				—				—				—				—				—				(2,175	)			(2,175	)
Comprehensive income																																							240,377
Conversion of Class B-1 common stock upon follow-on public offering (Note 1)			7,309,963				(7,309,963	)			—				—				—				—				—				—				—				—
Conversion of Class B-2 common stock upon follow-on public offering (Note 1)			11,972,917				—				(11,972,917	)			—				—				—				—				—				—				—
Treasury stock acquired — Class A (7,111,202 shares)			—				—				—				—				—				—				(212,512	)			—				—				(212,512	)
Treasury stock acquired — Class B-1 (7,583,532 shares)			—				—				—				—				—				—				(199,936	)			—				—				(199,936	)
Treasury stock acquired — Class B-2 (374,718 shares)			—				—				—				—				—				—				(9,879	)			—				—				(9,879	)
KSOP shares earned			—				—				—				—				317				11,256				—				—				—				11,573
Stock options exercised (including tax benefit of $49,015)			5,579,135				—				—				5				—				84,492				—				—				—				84,497
Net share settlement of taxes upon exercise of stock options			(503,043	)			—				—				—				—				(15,051	)			—				—				—				(15,051	)
Stock based compensation			—				—				—				—				—				21,298				—				—				—				21,298
Other stock issuances			4,554				—				—				—				—				140				—				—				—				140
Balance, December 31, 2010			150,179,126				198,327,962				193,665,008			$	135			$	(988	)		$	754,708			$	(1,106,321	)		$	293,827			$	(55,803	)		$	(114,442	)
Comprehensive income:
Net income			—				—				—				—				—				—				—				131,453				—				131,453
Other comprehensive income			—				—				—				—				—				—				—				—				2,295				2,295
Comprehensive income																																							133,748
Conversion of Class B-1 common stock (Note 1)			198,327,962				(198,327,962	)			—				—				—				—				—				—				—				—
Treasury stock acquired — Class A (6,499,212 shares)			—				—				—				—				—				—				(217,047	)			—				—				(217,047	)
KSOP shares earned			—				—				—				—				152				6,256				—				—				—				6,408
Stock options exercised (including tax benefit of $16,530)			1,830,942				—				—				2				—				34,560				—				—				—				34,562
Stock-based compensation			—				—				—				—				—				12,331				—				—				—				12,331
Balance, June 30, 2011			350,338,030				—				193,665,008			$	137			$	(836	)		$	807,855			$	(1,323,368	)		$	425,280			$	(53,508	)		$	(144,440	)

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

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For The Six Months Ended June 30, 2011 and 2010

		2011				2010
		(In thousands)
Cash flows from operating activities:
Net income		$	131,453			$	113,779
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets			22,160				19,873
Amortization of intangible assets			17,332				14,324
Amortization of debt issuance costs			729				789
Amortization of debt original issue discount			25				—
Allowance for doubtful accounts			557				526
KSOP compensation expense			6,408				5,729
Stock-based compensation			12,331				10,284
Non-cash charges associated with performance based appreciation awards			583				792
Acquisition related liabilities adjustment			(3,364	)			—
Realized gain on securities, net			(487	)			(61	)
Deferred income taxes			1,660				507
Other operating			30				30
Loss on disposal of assets			221				38
Excess tax benefits from exercised stock options			(5,470	)			(10,036	)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable			(16,979	)			(28,694	)
Prepaid expenses and other assets			(8,082	)			(5,504	)
Federal and foreign income taxes			7,703				17,729
State and local income taxes			(140	)			(1,387	)
Accounts payable and accrued liabilities			(15,190	)			(18,327	)
Fees received in advance			50,520				55,959
Other liabilities			(14,913	)			(3,316	)
Net cash provided by operating activities			187,087				173,034
Cash flows from investing activities:
Acquisitions, net of cash acquired of $590 and $1,556, respectively			(121,721	)			(6,386	)
Earnout payments			(3,500	)			—
Proceeds from release of acquisition related escrows			—				283
Escrow funding associated with acquisitions			(19,560	)			(1,500	)
Purchases of available-for-sale securities			(1,338	)			(262	)
Proceeds from sales and maturities of available-for-sale securities			1,704				511
Purchases of fixed assets			(28,171	)			(15,570	)
Net cash used in investing activities			(172,586	)			(22,924	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of original issue discount			448,956				—
Repayment of short-term debt refinanced on a long-term basis			(295,000	)			—
Proceeds/(repayments) of short-term debt, net			72,919				(64,069	)
Repurchase of Verisk Class A common stock			(214,021	)			(62,266	)
Repayment of current portion of long-term debt			(50,000	)			—
Payment of debt issuance cost			(4,434	)			—
Net share settlement of taxes upon exercise of stock options			—				(15,051	)
Excess tax benefits from exercised stock options			5,470				10,036
Proceeds from stock options exercised			18,032				16,733
Net cash used in financing activities			(18,078	)			(114,617	)
Effect of exchange rate changes			573				(193	)
(Decrease)/increase in cash and cash equivalents			(3,004	)			35,300
Cash and cash equivalents, beginning of period			54,974				71,527
Cash and cash equivalents, end of period		$	51,970			$	106,827
Supplemental disclosures:
Taxes paid		$	80,924			$	63,545
Interest paid		$	17,997			$	16,299
Non-cash investing and financing activities:
Repurchase of Verisk Class A common stock included in accounts payable and accrued liabilities		$	5,292			$	2,635
Deferred tax asset/(liability) established on date of acquisition		$	1,280			$	(732	)
Capital lease obligations		$	8,013			$	602
Capital expenditures included in accounts payable and accrued liabilities		$	307			$	668
Increase in goodwill due to acquisition related escrow distributions		$	—			$	6,996

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

VERISK ANALYTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except for share and per share data, unless otherwise stated)

1. Organization:

Verisk Analytics, Inc. and its consolidated subsidiaries (“Verisk” or the “Company”) enable risk-bearing businesses to better understand and manage their risks. The Company provides its customers proprietary data that, combined with analytic methods, create embedded decision support solutions. The Company is one of the largest aggregators and providers of data pertaining to property and casualty (“P&C”) insurance risks in the United States of America (“U.S.”). The Company offers solutions for detecting fraud in the U.S. P&C insurance, mortgage and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to supply chain to health insurance. The Company provides solutions, including data, statistical models or tailored analytics, all designed to allow clients to make more logical decisions.

Verisk was established on May 23, 2008 to serve as the parent holding company of Insurance Services Office, Inc. (“ISO”) upon completion of the initial public offering (“IPO”). ISO was formed in 1971 as an advisory and rating organization for the P&C insurance industry to provide statistical and actuarial services, to develop insurance programs and to assist insurance companies in meeting state regulatory requirements. Over the past decade, the Company has broadened its data assets, entered new markets, placed a greater emphasis on analytics, and pursued strategic acquisitions. On October 6, 2009, ISO effected a corporate reorganization whereby the Class A and Class B common stock of ISO were exchanged by the current stockholders for the common stock of Verisk on a one-for-one basis. Verisk immediately thereafter effected a fifty-for-one stock split of its Class A and Class B common stock and equally sub-divided the Class B common stock into two new series of stock, Verisk Class B (Series 1) (“Class B-1”) and Verisk Class B (Series 2) (“Class B-2”).

On October 9, 2009, the Company completed its IPO. Upon completion of the IPO, the selling stockholders sold 97,995,750 shares of Class A common stock of Verisk, which included the 12,745,750 over-allotment option, at the IPO price of $22.00 per share. The Company did not receive any proceeds from the sales of common stock in the offering. Verisk trades under the ticker symbol “VRSK” on the NASDAQ Global Select Market.

On October 1, 2010, the Company completed a follow-on public offering. Upon completion of this offering, the selling stockholders sold 2,602,212 and 19,282,880 shares of Class A and Class B common stock of Verisk, respectively, which included the underwriters’ 2,854,577 over-allotment option, at the public offering price of $27.25 per share. Class B common stock sold into this offering was automatically converted into Class A common stock. The Company did not receive any proceeds from the sale of common stock in the offering. Concurrently with the closing of this offering, the Company also repurchased 7,300,000 shares of Class B common stock at $26.3644 per share, which represents the net proceeds per share the selling stockholders received in the public offering. The Company funded a portion of this repurchase with proceeds from borrowings of $160,000 under its syndicated revolving credit facility. Upon consummation of the offering and the repurchase, the Company’s Class B-1 and Class B-2 common stock outstanding was 12,554,605 and 15,100,465 shares, respectively. The Class B-1 shares converted to Class A common stock on April 6, 2011 and the Class B-2 shares will automatically convert to Class A common stock on October 6, 2011.

2. Basis of Presentation and Summary of Significant Accounting Policies:

The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the U.S. (“U.S. GAAP”). The preparation of financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include acquisition purchase price allocations, the fair value of goodwill, the realization of deferred tax assets, acquisition related liabilities, fair value of stock-based compensation, liabilities for pension and postretirement benefits, and the estimate for the allowance for doubtful accounts. Actual results may ultimately differ from those estimates.

The condensed consolidated financial statements as of June 30, 2011 and for the three- and six-month periods ended June 30, 2011 and 2010, in the opinion of management, include all adjustments, consisting of normal recurring accruals, to present fairly the Company’s financial position, results of operations and cash flows. The operating results for the three- and six-month periods ended June 30, 2011 are not necessarily indicative of the results to be expected for the full year. The condensed consolidated financial statements and related notes for the three- and six-month periods ended June 30, 2011 have been prepared on the same basis as and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2010. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules of the Securities and Exchange Commission (“SEC”). The Company believes the disclosures made are adequate to keep the information presented from being misleading. Within this filing on Form 10-Q, the Company has corrected a typographical error, which reduced the change in “Federal and foreign income taxes” by $200 in the condensed consolidated statement of cash flows (unaudited), but did not affect the totals for the six months ended June 30, 2010.

Recent Accounting Pronouncements

In June 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2011-05, Presentation of Comprehensive Income (“ASU No. 2011-05”). Under ASU No. 2011-05, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. ASU No. 2011-05 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The Company has elected not to early adopt. ASU No. 2011-05 is not expected to have a material impact on the Company’s consolidated financial statements as this guidance does not result in a change in the items that are required to be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income.

In May 2011, the FASB issued ASU No. 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU No. 2011-04”). ASU No. 2011-04 clarifies certain FASB’s intent about the application of existing fair value measurement and develops common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. GAAP and International Financial Reporting Standards (“IFRS”). ASU No. 2011-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is not permitted. ASU No. 2011-04 is not expected to have a material impact on the Company’s consolidated financial statements as this guidance does not result in a change in the application of the requirements in ASC 820, Fair Value Measurements.

3. Investments:

The following is a summary of available-for-sale securities:

						Gross				Gross
		Adjusted				Unrealized				Unrealized
		Cost				Gain				Loss				Fair Value
June 30, 2011
Registered investment companies		$	4,519			$	823			$	—			$	5,342
Equity securities			14				—				(5	)			9
Total available-for-sale securities		$	4,533			$	823			$	(5	)		$	5,351
December 31, 2010
Registered investment companies		$	4,398			$	1,248			$	—			$	5,646
Equity securities			14				—				(7	)			7
Total available-for-sale securities		$	4,412			$	1,248			$	(7	)		$	5,653

In addition to the available-for-sale securities above, the Company has equity investments in non-public companies in which the Company acquired non-controlling interests and for which no readily determinable market value exists. These securities were accounted for under the cost method in accordance with ASC 323-10-25, The Equity Method of Accounting for Investments in Common Stock (“ASC 323-10-25”). At June 30, 2011 and December 31, 2010, the carrying value of such securities was $3,443 and $3,642 for each period and has been included in “Other assets” in the accompanying condensed consolidated balance sheets.

4. Fair Value Measurements:

Certain assets and liabilities of the Company are reported at fair value in the accompanying condensed consolidated balance sheets. Such assets and liabilities include amounts for both financial and non-financial instruments. To increase consistency and comparability of assets and liabilities recorded at fair value, ASC 820-10, Fair Value Measurements (“ASC 820-10”) establishes a three-level fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. ASC 820-10 requires disclosures detailing the extent to which companies measure assets and liabilities at fair value, the methods and assumptions used to measure fair value and the effect of fair value measurements on earnings. In accordance with ASC 820-10, the Company applied the following fair value hierarchy:

		Level 1 —		Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments.
		Level 2 —		Assets and liabilities valued based on observable market data for similar instruments.
		Level 3 —		Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require.

The following tables provide information for such assets and liabilities as of June 30, 2011 and December 31, 2010. The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, acquisitions related liabilities prior to the adoption of ASC 805, Business Combinations (“ASC 805”), and short-term debt approximate their carrying amounts because of the short-term maturity of these instruments. The fair value of the Company’s long-term debt was estimated at $1,006,810 and $584,361 as of June 30, 2011 and December 31, 2010, respectively, and is based on quoted market prices if available and if not, an estimate of interest rates available to the Company for debt with similar features, the Company’s current credit rating and spreads applicable to the Company. These assets and liabilities are not presented in the following table.

						Quoted Prices
						in Active Markets				Significant Other				Significant
						for Identical				Observable				Unobservable
		Total				Assets (Level 1)				Inputs (Level 2)				Inputs (Level 3)
June 30, 2011
Cash equivalents — money-market funds		$	349			$	—			$	349			$	—
Registered investment companies (1)		$	5,342			$	5,342			$	—			$	—
Equity securities (1)		$	9			$	9			$	—			$	—
December 31, 2010
Cash equivalents — money-market funds		$	2,273			$	—			$	2,273			$	—
Registered investment companies (1)		$	5,646			$	5,646			$	—			$	—
Equity securities (1)		$	7			$	7			$	—			$	—
Contingent consideration under ASC 805 (2)		$	(3,337	)		$	—			$	—			$	(3,337	)

The table below includes a rollforward of the Company’s contingent consideration liability under ASC 805 for the three- and six-month periods ended June 30, 2011 and 2010:

		For the Three Months Ended								For the Six Months Ended
		June 30, 2011				June 30, 2010				June 30, 2011				June 30, 2010
Beginning balance		$	3,351			$	3,840			$	3,337			$	3,344
Acquisitions (1)			—				—				—				491
Acquisition related liabilities adjustment (1)			(3,364	)			—				(3,364	)			—
Accretion on acquisition related liabilities			13				13				27				18
Ending balance		$	—			$	3,853			$	—			$	3,853

5. Goodwill and Intangible Assets:

The following is a summary of the change in goodwill from December 31, 2010 through June 30, 2011, both in total and as allocated to the Company’s operating segments:

		Risk				Decision
		Assessment				Analytics				Total
Goodwill at December 31, 2010 (1)		$	27,908			$	604,760			$	632,668
Current year acquisitions			—				79,893				79,893
Goodwill at June 30, 2011 (1)		$	27,908			$	684,653			$	712,561

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. 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, then an impairment loss is recorded for the difference between the carrying amount and the implied fair value of goodwill. The Company completed the required annual impairment test as of June 30, 2011, which resulted in no impairment of goodwill. Based on the results of the impairment assessment as of June 30, 2011, the Company confirmed that the fair value of its reporting units exceeded their respective carrying value. Given the limited amount of time between the acquisition date and the timing of the Company’s annual impairment test, the fair value of certain reporting units exceeded their carrying value by a moderate amount.

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

		Weighted
		Average						Accumulated
		Useful Life		Cost				Amortization				Net
June 30, 2011
Technology-based		7 years		$	234,755			$	(146,291	)		$	88,464
Marketing-related		5 years			48,103				(30,900	)			17,203
Contract-based		6 years			6,555				(6,385	)			170
Customer-related		13 years			172,236				(36,743	)			135,493
Total intangible assets				$	461,649			$	(220,319	)		$	241,330

		Weighted
		Average						Accumulated
		Useful Life		Cost				Amortization				Net
December 31, 2010
Technology-based		7 years		$	210,212			$	(136,616	)		$	73,596
Marketing-related		5 years			40,882				(28,870	)			12,012
Contract-based		6 years			6,555				(6,287	)			268
Customer-related		13 years			145,567				(31,214	)			114,353
Total intangible assets				$	403,216			$	(202,987	)		$	200,229

Consolidated amortization expense related to intangible assets for the three months ended June 30, 2011 and 2010, was $8,877 and $7,020, respectively. Consolidated amortization expense related to intangible assets for the six months ended June 30, 2011 and 2010, was $17,332 and $14,324, respectively. Estimated amortization expense in future periods through 2016 and thereafter for intangible assets subject to amortization is as follows:

Year		Amount
2011		$	17,448
2012			33,927
2013			28,414
2014			21,288
2015			21,063
2016-Thereafter			119,190
		$	241,330

6. Acquisitions:

2011 Acquisitions

On June 17, 2011, the Company acquired the net assets of Health Risk Partners, LLC (“HRP”), a provider of solutions to optimize revenue, ensure compliance and improve quality of care for Medicare Advantage and Medicaid health plans, for a net cash purchase price of approximately $46,400 and funded $3,000 of indemnity escrows and $10,000 of contingency escrows. Within the Company’s Decision Analytics segment, this acquisition will further advance the Company’s position as a major provider of data, analytics, and decision-support solutions to the healthcare industry.

On April 27, 2011, the Company acquired 100% of the stock of Bloodhound Technologies, Inc (“Bloodhound”), a provider of real-time pre-adjudication medical claims editing, for a net cash purchase price of approximately $75,321 and funded $6,560 of indemnity escrows. Within the Company’s Decision Analytics segment, Bloodhound addresses the need of healthcare payers to control fraud and waste in a real-time claims-processing environment, and these capabilities align with the Company’s existing fraud identification tools.

The preliminary purchase price allocations of the acquisitions resulted in the following:

		Bloodhound				HRP				Total
Accounts receivable		$	2,278			$	378			$	2,656
Current assets			6,646				297				6,943
Fixed assets			1,091				1,147				2,238
Intangible assets			34,433				24,000				58,433
Goodwill			44,870				35,023				79,893
Other assets			16				13,000				13,016
Deferred income taxes			1,280				—				1,280
Total assets acquired			90,614				73,845				164,459
Current liabilities			6,869				1,445				8,314
Other liabilities			1,864				13,000				14,864
Total liabilities assumed			8,733				14,445				23,178
Net assets acquired		$	81,881			$	59,400			$	141,281

The amounts assigned to intangible assets by type for current year acquisitions are summarized in the table below:

		Weighted
		Average Useful
		Life				Bloodhound				HRP				Total
Technology-based		10 years				$	16,043			$	8,500			$	24,543
Marketing-related		6 years					2,221				5,000				7,221
Customer-related		10 years					16,169				10,500				26,669
Total intangible assets						$	34,433			$	24,000			$	58,433

Due to the timing of the acquisitions, the allocations of the purchase price are subject to revisions as additional information is obtained about the facts and circumstances that existed as of the acquisition dates. The revisions may have a material impact on the consolidated financial statements. The allocations of the purchase price will be finalized once all information is obtained, but not to exceed one year from the acquisition dates.

2010 Acquisitions

On December 16, 2010, the Company acquired 100% of the stock of 3E Company (“3E”), a global source for a comprehensive suite of environmental health and safety compliance solutions, for a net cash purchase price of approximately $99,603 and funded $7,730 of indemnity escrows. Within the Company’s Decision Analytics segment, 3E overlaps the customer sets served by the other supply chain risk management solutions and helps the Company’s customers across a variety of vertical markets address their environmental health and safety issues.

On December 14, 2010, the Company acquired 100% of the stock of Crowe Paradis Services Corporation (“CP”), a provider of claims analysis and compliance solutions to the P&C insurance industry, for a net cash purchase price of approximately $83,589 and funded $6,750 of indemnity escrows. Within the Company’s Decision Analytics segment, CP offers solutions for complying with the Medicare Secondary Payer Act, provides services to P&C insurance companies, third-party administrators and self-insured companies, which the Company believes further enhances the solution it currently offers.

On February 26, 2010, the Company acquired 100% of the stock of Strategic Analytics (“SA”), a provider of credit risk and capital management solutions to consumer and mortgage lenders, for a net cash purchase price of approximately $6,386 and the Company funded $1,500 of indemnity escrows. Within the Decision Analytics segment, the Company believes SA solutions and application set will allow customers to take advantage of state-of-the-art loss forecasting, stress testing, and economic capital requirement tools to better understand and forecast the risk associated within their credit portfolios.

Acquisition Escrows

Pursuant to the related acquisition agreements, the Company has funded various escrow accounts to satisfy pre-acquisition indemnity and tax claims arising subsequent to the acquisition date, as well as a portion of the contingent payments. At June 30, 2011 and December 31, 2010, the current portion of the escrows amounted to $27,056 and $6,167, respectively, and has been included in “Other current assets” in the accompanying condensed consolidated balance sheets. At June 30, 2011 and December 31, 2010, the noncurrent portion of the escrow amounted to $14,505 and $15,953, respectively.

Acquisition Related Liabilities

Based on the results of operations of Atmospheric and Environmental Research, Inc. (“AER”), which was acquired in 2008, the Company recorded an increase of $3,500 to acquisition related liabilities and goodwill during the year ended December 31, 2010. AER was acquired in 2008 and therefore, accounted for under the transition provisions of FASB No. 141 (Revised), Business Combinations (“FAS No. 141(R)”). In April 2011, the Company finalized the AER acquisition contingent liability and made a payment of $3,500.

As of June 30, 2011, the Company reevaluated the probability of D2 Hawkeye, Inc. (“D2”) and SA achieving the specific predetermined EBITDA and revenue earnout targets for exceptional performance in fiscal year 2011 and reversed its contingent consideration related to these acquisitions. These reversals resulted in a reduction of $3,364 to contingent consideration and a decrease of $3,364 to “Acquisition related liabilities adjustment” in the accompanying condensed consolidated statements of operations during the three- and six-month periods ended June 30, 2011. Thus, based on current estimates, the sellers of D2 and SA will not receive any acquisition contingent payments.

7. Income Taxes:

The Company’s effective tax rate for the three months ended June 30, 2011 was 39.9% compared to the effective tax rate for the three months ended June 30, 2010 of 40.9%. The June 30, 2011 effective tax rate is lower than the June 30, 2010 effective tax rate primarily due to favorable audit settlements, the continued execution of tax planning strategies and the benefits associated with enacted research and development legislation.

The Company’s effective tax rate for the six months ended June 30, 2011 was 40.0% compared to the effective tax rate for the six months ended June 30, 2010 of 42.2%. The effective rate for the six months ended June 30, 2011 was lower primarily due to a change in deferred tax assets of $2,362 resulting from reduced tax benefits of Medicare subsidies associated with legislative changes in the period ended March 31, 2010. Without this charge, the effective rate for the prior period would have been 41.0%. The Company’s June 30, 2011 effective tax rate is also lower than the June 30, 2010 effective tax rate due to favorable audit settlements, the continued execution of tax planning strategies and the benefits associated with enacted research and development legislation. The difference between statutory tax rates and the company’s effective tax rate are primarily attributable to state taxes and non-deductible share appreciation from the KSOP.

As a result of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, the tax treatment of federal subsidies paid to sponsors of retiree health benefit plans that provide prescription drug benefits that are at least actuarially equivalent to the corresponding benefits provided under Medicare Part D was effectively changed. The legislative change reduces the future tax benefits of the coverage provided by the Company to participants in the postretirement plan. The Company is required to account for this change in the period for which the law is enacted. As a result, the Company recorded a non-cash tax charge of $2,362 for the three months ended March 31, 2010.

8. Debt:

The following table presents short-term and long-term debt by issuance:

		Issuance		Maturity		June 30,				December 31,
		Date		Date		2011				2010
Short-term debt and current portion of long-term debt:
Syndicated revolving credit facility		Various		Various		$	90,000			$	310,000
Prudential senior notes:
4.60% Series E senior notes		6/14/2005		6/13/2011			—				50,000
6.00% Series F senior notes		8/8/2006		8/8/2011			25,000				25,000
Principal senior notes:
6.03% Series A senior notes		8/8/2006		8/8/2011			50,000				50,000
Capital lease obligations and other		Various		Various			5,663				2,717
Short-term debt and current portion of long-term debt						$	170,663			$	437,717
Long-term debt:
Verisk senior notes:
5.80% senior notes, less unamortized discount of $1,019 as of June 30, 2011		4/6/2011		5/1/2021		$	448,981			$	—
Prudential senior notes:
6.13% Series G senior notes		8/8/2006		8/8/2013			75,000				75,000
5.84% Series H senior notes		10/26/2007		10/26/2013			17,500				17,500
5.84% Series H senior notes		10/26/2007		10/26/2015			17,500				17,500
6.28% Series I senior notes		4/29/2008		4/29/2013			15,000				15,000
6.28% Series I senior notes		4/29/2008		4/29/2015			85,000				85,000
6.85% Series J senior notes		6/15/2009		6/15/2016			50,000				50,000
Principal senior notes:
6.16% Series B senior notes		8/8/2006		8/8/2013			25,000				25,000
New York Life senior notes:
5.87% Series A senior notes		10/26/2007		10/26/2013			17,500				17,500
5.87% Series A senior notes		10/26/2007		10/26/2015			17,500				17,500
6.35% Series B senior notes		4/29/2008		4/29/2015			50,000				50,000
Aviva Investors North America:
6.46% Series A senior notes		4/27/2009		4/27/2013			30,000				30,000
Capital lease obligations and other		Various		Various			5,518				1,826
Long-term debt						$	854,499			$	401,826
Total debt						$	1,025,162			$	839,543

On March 16, 2011, The Northern Trust Company joined the syndicated revolving credit facility to increase the capacity by $25,000, for a $600,000 total commitment. On March 28, 2011, the Company entered into amendments to its revolving credit facility and its master shelf agreements to, among other things, permit the issuance of the senior notes and guarantees noted below.

On April 6, 2011, the Company completed an issuance of senior notes in the aggregate principal amount of $450,000. These senior notes are due on May 1, 2021 and accrue interest at a rate of 5.80%. The Company received net proceeds of $446,031 after deducting original issue discount, underwriting discount, and commissions of $3,969. The senior notes are fully and unconditionally guaranteed, jointly and severally, on an unsecured and unsubordinated basis by ISO and certain subsidiaries that guarantee our syndicated revolving credit facility or any amendment, refinancing or replacement thereof (See Note 15. Condensed Consolidated Financial Information for Guarantor Subsidiaries and Non-Guarantor Subsidiaries for further information). Interest will be payable semi-annually on May 1st and November 1st of each year, beginning on November 1, 2011. Interest accrues from April 6, 2011. The debt issuance costs will be amortized from the date of issuance to the maturity date. The senior notes rank equally with all of the Company’s existing and future senior unsecured and unsubordinated indebtedness. However, the senior notes are structurally subordinated to the indebtedness of any of the subsidiaries that do not guarantee the notes and are effectively subordinated to any future secured indebtedness to the extent of the value of the assets securing such indebtedness. The guarantees of the senior notes rank equally and ratably in right of payment with all other existing and future unsecured and unsubordinated indebtedness of the guarantors, and senior in right of payment to all future subordinated indebtedness of the guarantors. Because the guarantees of the notes are not secured, such guarantees will be effectively subordinated to any existing and future secured indebtedness of the applicable guarantor to the extent of the value of the collateral securing that indebtedness. Upon a change of control event, the holders of the notes have the right to require the Company to repurchase all or any part of such holder’s notes at a purchase price in cash equal to 101% of the principal amount of the notes plus accrued and unpaid interest, if any, to the date of repurchase.

9. Stockholders’ Deficit:

On November 18, 1996, the Company authorized 335,000,000 shares of ISO Class A redeemable common stock. Effective with the corporate reorganization on October 6, 2009, the ISO Class A redeemable common stock and all Verisk Class B shares sold into the IPO were converted to Verisk Class A common stock on a one-for-one basis. In addition, the Verisk Class A common stock authorized was increased to 1,200,000,000 shares. The Verisk Class A common shares have rights to any dividend declared by the board of directors, subject to any preferential or other rights of any outstanding preferred stock, and voting rights to elect eight of the eleven members of the board of directors. The eleventh seat on the board of directors is held by the CEO of the Company.

On November 18, 1996, the Company authorized 1,000,000,000 ISO Class B shares and issued 500,225,000 shares. On October 6, 2009, the Company completed a corporate reorganization whereby the ISO Class B common stock and ISO Class B treasury stock were converted to Verisk Class B common stock and Verisk Class B treasury stock on a one-for-one basis. All Verisk Class B shares sold into the IPO were converted to Verisk Class A common stock on a one-for-one basis. In addition, the Verisk Class B common stock authorized was reduced to 800,000,000 shares, sub-divided into 400,000,000 shares of Class B-1 and 400,000,000 shares of Class B-2. Each share of Class B-1 common stock converted automatically, without any action by the stockholder, into one share of Verisk Class A common stock on April 6, 2011. Each share of Class B-2 common stock shall convert automatically, without any action by the stockholder, into one share of Verisk Class A common stock on October 6, 2011. The Class B shares have the same rights as Verisk Class A shares with respect to dividends and economic ownership, but have voting rights to elect three of the eleven directors. The Company did not repurchase any Class B shares during the six months ended June 30, 2011 and 2010.

On October 6, 2009, the Company authorized 80,000,000 shares of preferred stock, par value $0.001 per share, in connection with the reorganization. The preferred shares have preferential rights over the Verisk Class A and Class B common shares with respect to dividends and net distribution upon liquidation. The Company did not issue any preferred shares from the reorganization date through June 30, 2011.

Share Repurchase Program

On April 29, 2010, the Company’s board of directors authorized a share repurchase program of the Company’s common stock (the “Repurchase Program”). Under the Repurchase Program, the Company may repurchase up to $450,000 of stock in the open market or as otherwise determined by the Company. On July 8, 2011, the Company’s board of directors authorized an additional $150,000 of share repurchases under the Repurchase Program, thereby increasing the capacity to $600,000. The Company has no obligation to repurchase stock under this program and intends to use this authorization as a means of offsetting dilution from the issuance of shares under the KSOP, the Verisk Analytics, Inc. 2009 Equity Incentive Plan (the “Incentive Plan”) and the Insurance Services Office, Inc. 1996 Incentive Plan (the “Option Plan”). This authorization has no expiration date and may be suspended or terminated at any time. Repurchased shares will be recorded as treasury stock and will be available for future issuance as part of the Repurchase Program.

During the six months ended June 30, 2011, 6,499,212 shares of Verisk Class A common stock were repurchased by the Company as part of this program at a weighted average price of $33.40 per share. The Company utilized cash from operations and the proceeds from its senior notes to fund these repurchases. As treasury stock purchases are recorded based on trade date, the Company has included $5,292 in “Accounts payable and accrued liabilities” in the accompanying condensed consolidated balance sheets for those purchases that have not settled as of June 30, 2011. The Company had $20,441 available to repurchase shares under the Repurchase Program as of June 30, 2011.

Treasury Stock

As of June 30, 2011, the Company’s treasury stock consisted of 199,712,896 Class A common stock and 178,893,668 Class B-2 common stock. Consistent with the Class B-1 and Class B-2 common stock, the Company’s Class B-1 treasury stock converted to Class A treasury stock on April 6, 2011 and the Class B-2 treasury stock will convert to Class A treasury stock on October 6, 2011.

Earnings Per Share (“EPS”)

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. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding, using the treasury stock method, if the dilutive potential common shares, including stock options and nonvested restricted stock, had been issued.

The following is a reconciliation of the numerators and denominators of the basic and diluted EPS computations for the three-and six-month periods ended June 30, 2011 and 2010:

		For the Three Months Ended								For the Six Months Ended
		June 30, 2011				June 30, 2010				June 30, 2011				June 30, 2010
Numerator used in basic and diluted EPS:
Net income		$	65,577			$	58,404			$	131,453			$	113,779
Denominator:
Weighted average number of common shares used in basic EPS			166,960,806				180,492,106				167,995,517				180,272,828
Effect of dilutive shares:
Potential Class A common stock issuable upon the exercise of stock options			7,673,240				9,049,787				7,803,603				9,225,496
Weighted average number of common shares and dilutive potential common shares used in diluted EPS			174,634,046				189,541,893				175,799,120				189,498,324
Basic EPS of Class A and Class B		$	0.39			$	0.32			$	0.78			$	0.63
Diluted EPS of Class A and Class B		$	0.38			$	0.31			$	0.75			$	0.60

The potential shares of common stock that were excluded from diluted EPS were 1,402,980 and 2,004,390 for the six months ended June 30, 2011 and 2010, respectively, because the effect of including these potential shares was anti-dilutive.

Accumulated Other Comprehensive Losses

The following is a summary of accumulated other comprehensive losses:

		June 30,				December 31,
		2011				2010
Unrealized gain on investments, net of tax		$	473			$	725
Unrealized foreign currency loss			(219	)			(792	)
Pension and postretirement unfunded liability adjustment, net of tax			(53,762	)			(55,736	)
Accumulated other comprehensive losses		$	(53,508	)		$	(55,803	)

The before tax and after tax amounts of other comprehensive income for the six months ended June 30, 2011 and 2010 are summarized below:

						Tax Benefit/
		Before Tax				(Expense)				After Tax
For the Six Months Ended June 30, 2011
Unrealized holding loss on investments arising during the year		$	(423	)		$	171			$	(252	)
Unrealized foreign currency gain			573				—				573
Pension and postretirement unfunded liability adjustment			2,668				(694	)			1,974
Total other comprehensive income		$	2,818			$	(523	)		$	2,295
For the Six Months Ended June 30, 2010
Unrealized holding loss on investments arising during the year		$	(190	)		$	80			$	(110	)
Unrealized foreign currency loss			(193	)			—				(193	)
Pension and postretirement unfunded liability adjustment			2,926				(1,179	)			1,747
Total other comprehensive income		$	2,543			$	(1,099	)		$	1,444

10. Equity Compensation Plans:

All of the Company’s granted equity awards, including outstanding stock options and restricted stock, are covered under the Incentive Plan or the Option Plan. Awards under the Incentive Plan may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards, and (vii) cash. Employees, directors and consultants are eligible for awards under the Incentive Plan. Cash received from stock option exercises for the six months ended June 30, 2011 and 2010 was $18,032 and $16,733, respectively. On July 1, 2011, the Company granted 2,506 shares of Class A common stock, 34,011 nonqualified stock options that were immediately vested and 125,500 nonqualified stock options with a one year service vesting period, to the directors of the Company. These options have an exercise price equal to the closing price of the Company’s Class A common stock on the grant date and a ten year contractual term.

On April 1, 2011, the Company granted 1,401,308 nonqualified stock options and 146,664 shares of restricted stock to key employees. The nonqualified stock options have an exercise price equal to the closing price of the Company’s Class A common stock on the grant date, with a ten-year contractual term and a service vesting period of four years. The restricted stock is valued at the closing price of the Company’s Class A common stock on the date of grant and has a service vesting period of four years. The Company recognizes the expense of the restricted stock ratably over the periods in which the restrictions lapse. The restricted stock is not assignable or transferrable until it becomes vested. As of June 30, 2011, there were 7,135,187 shares of Class A common stock reserved and available for future issuance.

The fair value of the stock options granted during the six months ended June 30, 2011 and 2010 were estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table:

		June 30, 2011				June 30, 2010
Option pricing model		Black-Scholes				Black-Scholes
Expected volatility			30.04	%			30.99	%
Risk-free interest rate			2.32	%			2.47	%
Expected term in years			5.3				4.8
Dividend yield			0.00	%			0.00	%
Weighted average grant date fair value per stock option		$	10.48			$	8.70