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

For the quarterly period ended September 30, 2011

OR

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

For the transition period from                      to                     

Commission File Number: 001-34480

VERISK ANALYTICS, INC.

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		26-2994223 (I.R.S. Employer Identification No.)
545 Washington Boulevard Jersey City, NJ (Address of principal executive offices)		07310-1686 (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 October 28, 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		163,540,097

 

 

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			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			46
Item 4. Controls and Procedures			46
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			46
Item 1A. Risk Factors			46
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			47
Item 3. Defaults Upon Senior Securities			47
Item 4. (Removed and Reserved)			47
Item 5. Other Information			47
Item 6. Exhibits			47
SIGNATURES			48
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

		2011
		unaudited				2010
		(In thousands, except for share and per share data)
ASSETS
Current assets:
Cash and cash equivalents		$	52,846			$	54,974
Available-for-sale securities			4,828				5,653
Accounts receivable, net of allowance for doubtful accounts of $4,432 and $4,028 (including amounts from related parties of $471 and $515, respectively) (1)			152,803				126,564
Prepaid expenses			23,591				17,791
Deferred income taxes, net			3,681				3,681
Federal and foreign income taxes receivable			2,141				15,783
State and local income taxes receivable			3,606				8,923
Other current assets			28,268				7,066
Total current assets			271,764				240,435
Noncurrent assets:
Fixed assets, net			110,328				93,409
Intangible assets, net			232,533				200,229
Goodwill			712,561				632,668
Deferred income taxes, net			23,340				21,879
State income taxes receivable			1,708				1,773
Other assets			27,699				26,697
Total assets		$	1,379,933			$	1,217,090
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	146,358			$	111,995
Acquisition related liabilities			—				3,500
Short-term debt and current portion of long-term debt			165,670				437,717
Pension and postretirement benefits, current			4,663				4,663
Fees received in advance (including amounts from related parties of $1,329 and $1,231, respectively) (1)			189,310				163,007
Total current liabilities			506,001				720,882
Noncurrent liabilities:
Long-term debt			853,580				401,826
Pension benefits			78,090				95,528
Postretirement benefits			21,329				23,083
Other liabilities			79,806				90,213
Total liabilities			1,538,806				1,331,532
Commitments and contingencies
Stockholders’ equity/(deficit):
Verisk Class A common stock, $.001 par value; 1,200,000,000 shares authorized; 350,338,030 and 150,179,126 shares issued and 148,621,259 and 143,067,924 outstanding as of September 30, 2011 and December 31, 2010, respectively			88				39
Verisk Class B (Series 1) common stock, $.001 par value; 0 and 400,000,000 shares authorized; 0 and 198,327,962 shares issued and 0 and 12,225,480 outstanding as of September 30, 2011 and December 31, 2010, respectively			—				47
Verisk Class B (Series 2) common stock, $.001 par value; 400,000,000 shares authorized; 193,665,008 shares issued and 14,771,340 outstanding as of September 30, 2011 and December 31, 2010, respectively			49				49
Unearned KSOP contributions			(779	)			(988	)
Additional paid-in capital			837,473				754,708
Treasury stock, at cost, 380,610,439 and 372,107,352 shares as of September 30, 2011 and December 31, 2010, respectively			(1,438,315	)			(1,106,321	)
Retained earnings			496,267				293,827
Accumulated other comprehensive losses			(53,656	)			(55,803	)
Total stockholders’ deficit			(158,873	)			(114,442	)
Total liabilities and stockholders’ deficit		$	1,379,933			$	1,217,090

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

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2011				2010				2011				2010
		(In thousands, except for share and per share data)
Revenues (including amounts from related parties of $4,699 and $14,789 for the three months ended September 30, 2011 and 2010 and $13,882 and $45,202 for the nine months ended September 30, 2011 and 2010, respectively) (1)		$	340,098			$	287,354			$	980,247			$	845,185
Expenses:
Cost of revenues (exclusive of items shown separately below)			137,619				117,005				393,360				346,998
Selling, general and administrative			51,475				40,982				156,640				121,134
Depreciation and amortization of fixed assets			10,798				10,035				32,958				29,908
Amortization of intangible assets			8,797				6,158				26,129				20,482
Acquisition related liabilities adjustment			—				(544	)			(3,364	)			(544	)
Total expenses			208,689				173,636				605,723				517,978
Operating income			131,409				113,718				374,524				327,207
Other income/(expense):
Investment income			99				59				99				183
Realized (loss)/gain on securities, net			(86	)			9				401				70
Interest expense			(14,593	)			(8,484	)			(39,093	)			(25,395	)
Total other expense, net			(14,580	)			(8,416	)			(38,593	)			(25,142	)
Income before income taxes			116,829				105,302				335,931				302,065
Provision for income taxes			(45,842	)			(42,422	)			(133,491	)			(125,406	)
Net income		$	70,987			$	62,880			$	202,440			$	176,659
Basic net income per share of Class A and Class B:		$	0.43			$	0.35			$	1.21			$	0.98
Diluted net income per share of Class A and Class B:		$	0.41			$	0.34			$	1.16			$	0.94
Weighted average shares outstanding:
Basic			164,195,325				178,687,236				166,728,786				179,744,297
Diluted			171,169,658				187,188,667				174,255,965				188,728,438

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)

																																		Accumulated				Total
		Common Stock Issued																Unearned				Additional												Other				Stockholders’
						Verisk				Verisk								KSOP				Paid-in				Treasury				Retained				Comprehensive				(Deficit)/
		Verisk Class A				Class B (Series 1)				Class B (Series 2)				Par Value				Contributions				Capital				Stock				Earnings				Losses				Equity
		(In thousands, except for share data)
Balance, January 1, 2010			125,815,600				205,637,925				205,637,925			$	130			$	(1,305	)		$	652,573			$	(683,994	)		$	51,275			$	(53,628	)		$	(34,949	)
Comprehensive income:
Net income			—				—				—				—				—				—				—				242,552				—				242,552
Other comprehensive loss			—				—				—				—				—				—				—				—				(2,175	)			(2,175	)
Comprehensive income																																							240,377
Conversion of Class B-1 common stock upon follow-on public offering (Note 1)			7,309,963				(7,309,963	)			—				—				—				—				—				—				—				—
Conversion of Class B-2 common stock upon follow-on public offering (Note 1)			11,972,917				—				(11,972,917	)			—				—				—				—				—				—				—
Treasury stock acquired - Class A (7,111,202 shares)			—				—				—				—				—				—				(212,512	)			—				—				(212,512	)
Treasury stock acquired - Class B-1 (7,583,532 shares)			—				—				—				—				—				—				(199,936	)			—				—				(199,936	)
Treasury stock acquired - Class B-2 (374,718 shares)			—				—				—				—				—				—				(9,879	)			—				—				(9,879	)
KSOP shares earned			—				—				—				—				317				11,256				—				—				—				11,573
Stock options exercised (including tax benefit of $49,015)			5,579,135				—				—				5				—				84,492				—				—				—				84,497
Net share settlement of taxes upon exercise of stock options			(503,043	)			—				—				—				—				(15,051	)			—				—				—				(15,051	)
Stock based compensation			—				—				—				—				—				21,298				—				—				—				21,298
Other stock issuances			4,554				—				—				—				—				140				—				—				—				140
Balance, December 31, 2010			150,179,126				198,327,962				193,665,008			$	135			$	(988	)		$	754,708			$	(1,106,321	)		$	293,827			$	(55,803	)		$	(114,442	)
Comprehensive income:
Net income			—				—				—				—				—				—				—				202,440				—				202,440
Other comprehensive income			—				—				—				—				—				—				—				—				2,147				2,147
Comprehensive income																																							204,587
Conversion of Class B-1 common stock (Note 1)			198,327,962				(198,327,962	)			—				—				—				—				—				—				—				—
Treasury stock acquired - Class A (10,215,240 shares)			—				—				—				—				—				—				(340,101	)			—				—				(340,101	)
KSOP shares earned			—				—				—				—				209				9,421				—				—				—				9,630
Stock options exercised (including tax benefit of $35,643)			1,830,942				—				—				2				—				55,980				8,096				—				—				64,078
Stock-based compensation			—				—				—				—				—				17,288				—				—				—				17,288
Other stock issuances			—				—				—				—				—				76				11				—				—				87
Balance, September 30, 2011			350,338,030				—				193,665,008			$	137			$	(779	)		$	837,473			$	(1,438,315	)		$	496,267			$	(53,656	)		$	(158,873	)

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

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

		2011				2010
		(In thousands)
Cash flows from operating activities:
Net income		$	202,440			$	176,659
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of fixed assets			32,958				29,908
Amortization of intangible assets			26,129				20,482
Amortization of debt issuance costs			1,155				1,156
Amortization of debt original issue discount			51				—
Allowance for doubtful accounts			852				562
KSOP compensation expense			9,630				8,651
Stock-based compensation			17,288				15,990
Non-cash charges associated with performance based appreciation awards			627				515
Acquisition related liabilities adjustment			(3,364	)			(544	)
Realized gain on securities, net			(401	)			(70	)
Deferred income taxes			(2,083	)			(1,893	)
Other operating			133				183
Loss on disposal of assets			635				81
Excess tax benefits from exercised stock options			(5,470	)			(15,083	)
Changes in assets and liabilities, net of effects from acquisitions:
Accounts receivable			(24,445	)			(40,654	)
Prepaid expenses and other assets			(3,229	)			(1,331	)
Federal and foreign income taxes			48,925				27,005
State and local income taxes			5,382				2,768
Accounts payable and accrued liabilities			12,509				(3,255	)
Fees received in advance			24,841				29,551
Other liabilities			(20,809	)			(8,874	)
Net cash provided by operating activities			323,754				241,807
Cash flows from investing activities:
Acquisitions, net of cash acquired of $590 and $1,556, respectively			(121,721	)			(6,386	)
Earnout payments			(3,500	)			—
Proceeds from release of acquisition related escrows			—				283
Escrow funding associated with acquisitions			(19,560	)			(1,500	)
Purchases of available-for-sale securities			(1,422	)			(324	)
Proceeds from sales and maturities of available-for-sale securities			1,722				645
Purchases of fixed assets			(41,925	)			(22,206	)
Net cash used in investing activities			(186,406	)			(29,488	)
Cash flows from financing activities:
Proceeds from issuance of long-term debt, net of original issue discount			448,956				—
Repayment of short-term debt refinanced on a long-term basis			(295,000	)			—
Repurchase of Verisk Class A common stock			(340,122	)			(129,762	)
Repayment of current portion of long-term debt			(125,000	)			—
Proceeds from issuance of short-term debt with original maturities of three months or greater			120,000				—
Proceeds/(repayments) of short-term debt, net			22,311				(65,230	)
Payment of debt issuance cost			(4,542	)			(1,781	)
Net share settlement of taxes upon exercise of stock options			—				(15,051	)
Excess tax benefits from exercised stock options			5,470				15,083
Proceeds from stock options exercised			28,433				20,161
Net cash used in financing activities			(139,494	)			(176,580	)
Effect of exchange rate changes			18				(11	)
(Decrease)/Increase in cash and cash equivalents			(2,128	)			35,728
Cash and cash equivalents, beginning of period			54,974				71,527
Cash and cash equivalents, end of period		$	52,846			$	107,255
Supplemental disclosures:
Taxes paid		$	82,526			$	96,745
Interest paid		$	25,876			$	24,351
Non-cash investing and financing activities:
Repurchase of Verisk Class A common stock included in accounts payable and accrued liabilities		$	2,244			$	5,808
Deferred tax asset/(liability) established on date of acquisition		$	1,280			$	(349	)
Capital lease obligations		$	7,683			$	1,265
Capital expenditures included in accounts payable and accrued liabilities		$	778			$	743
Increase in goodwill due to acquisition related escrow distributions		$	—			$	6,996
Accrual of acquisition related liabilities		$	—			$	2,000

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

VERISK ANALYTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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 remaining Class B-2 shares converted to Class A common stock on October 6, 2011. The conversion of Class B-2 shares is not reflected in the accompanying unaudited condensed consolidated financial statements.

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 September 30, 2011 and for the three- and nine-month periods ended September 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 nine-month periods ended September 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 nine-month periods ended September 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.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2011-08, Testing Goodwill for Impairment (“ASU 2011-08”). Under ASU 2011-08, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 is effective for fiscal years beginning after December 15, 2011. Early adoption is permitted. As the Company has already performed its annual impairment testing as of June 30, 2011, the Company has elected not to early adopt. The Company is currently evaluating the impact of ASU 2011-08 on its consolidated financial statements.

In June 2011, the FASB issued ASU 2011-05, Presentation of Comprehensive Income (“ASU 2011-05”). Under ASU 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 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 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 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (“ASU 2011-04”). ASU 2011-04 clarifies 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 2011-04 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011. Early adoption is not permitted. ASU 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 Accounting Standards Codification (“ASC”) 820-10, Fair Value Measurements.

3. Investments:

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

						Gross				Gross
		Adjusted				Unrealized				Unrealized
		Cost				Gains				Losses				Fair Value
September 30, 2011
Registered investment companies		$	4,499			$	323			$	—			$	4,822
Equity securities			14				—				(8	)			6
Total available-for-sale securities		$	4,513			$	323			$	(8	)		$	4,828
December 31, 2010
Registered investment companies		$	4,398			$	1,248			$	—			$	5,646
Equity securities			14				—				(7	)			7
Total available-for-sale securities		$	4,412			$	1,248			$	(7	)		$	5,653

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 September 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 establishes a three-level fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. ASC 820-10 requires disclosures detailing the extent to which companies measure assets and liabilities at fair value, the methods and assumptions used to measure fair value and the effect of fair value measurements on earnings. In accordance with ASC 820-10, the Company applied the following fair value hierarchy:

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

The following tables provide information for such assets and liabilities as of September 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 $939,769 and $584,361 as of September 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)
September 30, 2011
Cash equivalents — money-market funds		$	289			$	—			$	289			$	—
Registered investment companies (1)		$	4,822			$	4,822			$	—			$	—
Equity securities (1)		$	6			$	6			$	—			$	—
December 31, 2010
Cash equivalents — money-market funds		$	2,273			$	—			$	2,273			$	—
Registered investment companies (1)		$	5,646			$	5,646			$	—			$	—
Equity securities (1)		$	7			$	7			$	—			$	—
Contingent consideration under ASC 805 (2)		$	(3,337	)		$	—			$	—			$	(3,337	)

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

		For the Three Months Ended								For the Nine Months Ended
		September 30, 2011				September 30, 2010				September 30, 2011				September 30, 2010
Beginning balance		$	—			$	3,853			$	3,337			$	3,344
Acquisitions (1)			—				—				—				491
Acquisition related liabilities adjustment (1)			—				(544	)			(3,364	)			(544	)
Accretion on acquisition related liabilities			—				14				27				32
Ending balance		$	—			$	3,323			$	—			$	3,323

5. Goodwill and Intangible Assets:

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

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

Goodwill and intangible assets with indefinite lives are subject to impairment testing annually as of June 30, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Goodwill impairment testing compares the carrying value of each reporting unit to its fair value. If the fair value of the reporting unit exceeds the carrying value of the net assets, including goodwill assigned to that reporting unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets including goodwill exceeds the fair value of the reporting unit, then the Company will determine the implied fair value of the reporting unit’s goodwill. If the carrying value of a reporting unit’s goodwill exceeds its implied fair value, then an impairment loss is recorded for the difference between the carrying amount and the implied fair value of goodwill. The Company completed the required annual impairment test as of June 30, 2011, which resulted in no impairment of goodwill. Based on the results of the impairment assessment as of June 30, 2011, the Company determined that the fair value of its reporting units exceeded their respective carrying value. Given the limited amount of time between the acquisition date and the timing of the Company’s annual impairment test, the fair value of certain reporting units exceeded their carrying value by a moderate amount. There were no goodwill impairment indicators after the date of the last annual impairment test.

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

		Weighted
		Average								Accumulated
		Useful Life				Cost				Amortization				Net
September 30, 2011
Technology-based		7 years				$	234,755			$	(150,718	)		$	84,037
Marketing-related		5 years					48,103				(32,167	)			15,936
Contract-based		6 years					6,555				(6,433	)			122
Customer-related		13 years					172,236				(39,798	)			132,438
Total intangible assets						$	461,649			$	(229,116	)		$	232,533
December 31, 2010
Technology-based		7 years				$	210,212			$	(136,616	)		$	73,596
Marketing-related		5 years					40,882				(28,870	)			12,012
Contract-based		6 years					6,555				(6,287	)			268
Customer-related		13 years					145,567				(31,214	)			114,353
Total intangible assets						$	403,216			$	(202,987	)		$	200,229

Consolidated amortization expense related to intangible assets for the three months ended September 30, 2011 and 2010, was $8,797 and $6,158, respectively. Consolidated amortization expense related to intangible assets for the nine months ended September 30, 2011 and 2010, was $26,129 and $20,482, respectively. Estimated amortization expense in future periods through 2016 and thereafter for intangible assets subject to amortization is as follows:

Year		Amount
2011		$	8,652
2012			33,927
2013			28,414
2014			21,288
2015			21,063
2016-Thereafter			119,189
		$	232,533

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 further advances 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 for HRP, Bloodhound, 3E Company, and Crowe Paradis Services Corporation 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 an impact on the consolidated financial statements. The allocations of the purchase price will be finalized once all information is obtained, but not to exceed one year from the acquisition 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. The allocation of the purchase price will be finalized in fourth quarter 2011. 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. The allocation of the purchase price will be finalized in fourth quarter 2011. Within the Company’s Decision Analytics segment, CP offers solutions for complying with the Medicare Secondary Payer Act, and 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 that SA solutions and application set allows 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 September 30, 2011 and December 31, 2010, the current portion of the escrows amounted to $26,959 and $6,167, and the noncurrent portion of the escrow amounted to $14,506 and $15,953, respectively. The current and noncurrent portion of the escrows have been included in “Other current assets” and “Other assets” in the accompanying condensed consolidated balance sheets, 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 for the year ending December 31, 2010 and made a payment of $3,500.

As of June 30, 2011, the Company reevaluated the probability of D2 Hawkeye, Inc. and SA achieving the specific predetermined EBITDA and revenue earn out 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 nine-month period ended September 30, 2011. Thus, based on current estimates, the sellers of D2 Hawkeye, Inc. and SA will not receive any acquisition contingent payments.

7. Income Taxes:

The Company’s effective tax rate for the three months ended September 30, 2011 was 39.2% compared to the effective tax rate for the three months ended September 30, 2010 of 40.3%. The September 30, 2011 effective tax rate is lower than the September 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. Under IR-2011-87, the Internal Revenue Service is providing tax relief to businesses impacted by Hurricane Irene. The relief postponed certain tax filings and payment deadlines to October 31, 2011. As such, the Company deferred its third quarter estimated payment of $22,800 until such date.

The Company’s effective tax rate for the nine months ended September 30, 2011 was 39.7% compared to the effective tax rate for the nine months ended September 30, 2010 of 41.5%. The effective rate for the nine months ended September 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 three-month period ended March 31, 2010. Without this charge, the effective rate for the prior period would have been 40.7%. The Company’s September 30, 2011 effective tax rate is also lower than the September 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 was 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				September 30,				December 31,
		Date		Date				2011				2010
Short-term debt and current portion of long-term debt:
Syndicated revolving credit facility		Various		Various				$	160,000			$	310,000
Prudential senior notes:
4.60% Series E senior notes		6/14/2005		6/13/2011					—				50,000
6.00% Series F senior notes		8/8/2006		8/8/2011					—				25,000
Principal senior notes:
6.03% Series A senior notes		8/8/2006		8/8/2011					—				50,000
Capital lease obligations and other		Various		Various					5,670				2,717
Short-term debt and current portion of long-term debt								$	165,670			$	437,717
Long-term debt:
Verisk senior notes:
5.80% senior notes, less unamortized discount of $993		4/6/2011		5/1/2021				$	449,007			$	—
Prudential senior notes:
6.13% Series G senior notes		8/8/2006		8/8/2013					75,000				75,000
5.84% Series H senior notes		10/26/2007		10/26/2013					17,500				17,500
5.84% Series H senior notes		10/26/2007		10/26/2015					17,500				17,500
6.28% Series I senior notes		4/29/2008		4/29/2013					15,000				15,000
6.28% Series I senior notes		4/29/2008		4/29/2015					85,000				85,000
6.85% Series J senior notes		6/15/2009		6/15/2016					50,000				50,000
Principal senior notes:
6.16% Series B senior notes		8/8/2006		8/8/2013					25,000				25,000
New York Life senior notes:
5.87% Series A senior notes		10/26/2007		10/26/2013					17,500				17,500
5.87% Series A senior notes		10/26/2007		10/26/2015					17,500				17,500
6.35% Series B senior notes		4/29/2008		4/29/2015					50,000				50,000
Aviva Investors North America:
6.46% Series A senior notes		4/27/2009		4/27/2013					30,000				30,000
Capital lease obligations and other		Various		Various					4,573				1,826
Long-term debt								$	853,580			$	401,826
Total debt								$	1,019,250			$	839,543

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 accrued from April 6, 2011. The debt issuance costs are 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.

On October 25, 2011, the Company amended and restated its credit agreement to increase the total revolving credit facility from $600,000 to $700,000, extended the maturity date from September 2014 to October 2016 and modified certain conditions to borrowing, covenants, and events of default. Verisk Analytics, Inc. and ISO are co-borrowers under the amended credit agreement. The amended credit agreement also resulted in a decrease to applicable interest rates. The interest rates for borrowing under the amended credit agreement will now be the LIBOR plus 1.25% to 1.875%, depending upon the result of certain ratios defined in the amended credit agreement. All borrowings under the amended credit agreement continue to be unsecured.

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 converted automatically, without any action by the stockholder, into one share of Verisk Class A common stock on October 6, 2011. The Class B shares had the same rights as Verisk Class A shares with respect to dividends and economic ownership, but had voting rights to elect three of the eleven directors. The Company did not repurchase any Class B shares during the nine months ended September 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 September 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 $600,000 of stock, in the open market or as otherwise determined by the Company. 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 increased, reduced, suspended or terminated at any time. Repurchased shares will be recorded as treasury stock and will be available for future issuance as part of the Repurchase Program.

During the nine months ended September 30, 2011, 10,215,240 shares of Verisk Class A common stock were repurchased by the Company as part of this program at a weighted average price of $33.29 per share. The Company utilized cash from operations and the proceeds from its senior notes and syndicated revolving credit facility to fund these repurchases. As treasury stock purchases are recorded based on trade date, the Company has included $2,244 in “Accounts payable and accrued liabilities” in the accompanying condensed consolidated balance sheets for those purchases that have not settled as of September 30, 2011. The Company had $47,387 available to repurchase shares under the Repurchase Program as of September 30, 2011.

Treasury Stock

As of September 30, 2011, the Company’s treasury stock consisted of 201,716,771 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 converted 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 nine-month periods ended September 30, 2011 and 2010:

		For the Three Months Ended								For the Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2011				2010				2011				2010
Numerator used in basic and diluted EPS:
Net income		$	70,987			$	62,880			$	202,440			$	176,659
Denominator:
Weighted average number of common shares used in basic EPS			164,195,325				178,687,236				166,728,786				179,744,297
Effect of dilutive shares:
Potential Class A common stock issuable from stock options and stock awards			6,974,333				8,501,431				7,527,179				8,984,141
Weighted average number of common shares and dilutive potential common shares used in diluted EPS			171,169,658				187,188,667				174,255,965				188,728,438
Basic EPS of Class A and Class B		$	0.43			$	0.35			$	1.21			$	0.98
Diluted EPS of Class A and Class B		$	0.41			$	0.34			$	1.16			$	0.94

The potential shares of common stock that were excluded from diluted EPS were 1,555,507 and 2,151,646 for the nine months ended September 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:

		September 30,				December 31,
		2011				2010
Unrealized gains on investments, net of tax		$	183			$	725
Unrealized foreign currency losses			(774	)			(792	)
Pension and postretirement unfunded liability adjustment, net of tax			(53,065	)			(55,736	)
Accumulated other comprehensive losses		$	(53,656	)		$	(55,803	)

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

						Tax Benefit/
		Before Tax				(Expense)				After Tax
For the Nine Months Ended September 30, 2011
Unrealized holding loss on investments arising during the year		$	(926	)		$	384			$	(542	)
Unrealized foreign currency gain			18				—				18
Pension and postretirement unfunded liability adjustment			3,978				(1,307	)			2,671
Total other comprehensive income		$	3,070			$	(923	)		$	2,147
For the Nine Months Ended September 30, 2010
Unrealized holding gain on investments arising during the year		$	156			$	(65	)		$	91
Unrealized foreign currency loss			(11	)			—				(11	)
Pension and postretirement unfunded liability adjustment			4,278				(1,682	)			2,596
Total other comprehensive income		$	4,423			$	(1,747	)		$	2,676