Verisk Analytics, Inc. and its consolidated subsidiaries (“Verisk” or the “Company”) is a data analytics provider serving customers in insurance, energy and specialized markets, and financial services. Using various technologies to collect and analyze billions of records, Verisk draws on numerous data assets and domain expertise to provide first-to-market innovations that are integrated into customer workflows. Verisk offers predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, natural resources intelligence, economic forecasting, commercial banking and finance, and many other fields. Around the world, Verisk helps customers protect people, property, and financial assets.
Verisk was established to serve as the parent holding company of Insurance Services Office, Inc. (“ISO”) upon completion of the initial public offering (“IPO”), which occurred on October 9, 2009. ISO was formed in 1971 as an advisory and rating organization for the property and casualty ("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 broadened its data assets, entered new markets, placed a greater emphasis on analytics, and pursued strategic acquisitions. Verisk trades under the ticker symbol “VRSK” on the Nasdaq Global Select Market.
The accompanying unaudited condensed consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the U.S. (“U.S. GAAP”). The preparation of financial statements in conformity with these accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include acquisition purchase price allocations, the fair value of goodwill, the realization of deferred tax assets and liabilities, acquisition related liabilities, fair value of stock-based compensation for stock options granted, and assets and liabilities for pension and postretirement benefits. Actual results may ultimately differ from those estimates.
Recent Accounting Pronouncements
Accounting Standard
|
Description
|
Effective Date
|
Effect on Consolidated Financial Statements or Other Significant Matters
|
Financial Instruments—Credit Losses (Topic 326) In June 2016, Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, "Measurement of Credit Losses on Financial Instruments" ("Topic 326")
|
Topic 326 replaces the current “incurred loss” model for recognizing credit losses with an “expected loss” model referred to as the Current Expected Credit Loss ("CECL") model. Under the CECL model, an entity is required to present certain financial assets carried at amortized cost, such as trade receivables, at the net amount expected to be collected. The measurement of expected credit losses is to be based on information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amount. This measurement takes place at the time the financial asset is first added to the balance sheet and periodically thereafter. This differs significantly from the “incurred loss” model required under U.S. GAAP, which delays recognition until it is probable a loss has been incurred.
|
The Company adopted these amendments on January 1, 2020.
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Refer to the accompanying condensed consolidated statements of changes in stockholders' equity for the adjustment of the opening retained earnings and Note 4. Fair Value Measurements for further discussions.
|
Reference Rate Reform (Topic 848) In March 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2020-04, "Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU No. 2020-04").
|
The amendment in this update provides optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendment in this update applies only to contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform. The expedients and exceptions provided by the amendment does not apply to contract modifications made and hedging relationships entered into or evaluated after December 31, 2022, except for hedging relationships existing as December 31, 2022, that an entity has elected certain optional expedients for and that are retained through the end of the hedging relationship.
|
The amendment in this update is effective for all entities as of March 12, 2020 through December 31, 2022.
|
The Company adopted this amendment on March 12, 2020. There was no impact to the condensed consolidated financial statements as of and for the six months ended June 30, 2020. The Company continues to monitor the transition of LIBOR to alternative reference rate measures that will likely become effective post December 2021.
|
3. Revenues:
Disaggregated revenues by type of service and by country are provided below for the three and six months ended June 30, 2020 and 2019. No individual customer or country outside of the U.S. accounted for 10.0% or more of the Company's consolidated revenues for the three and six months ended June 30, 2020 or 2019.
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Underwriting & rating
|
|
$
|
343.5
|
|
|
$
|
314.8
|
|
|
$
|
687.6
|
|
|
$
|
620.6
|
|
Claims
|
|
|
142.9
|
|
|
|
156.2
|
|
|
|
288.2
|
|
|
|
303.9
|
|
Total Insurance
|
|
|
486.4
|
|
|
|
471.0
|
|
|
|
975.8
|
|
|
|
924.5
|
|
Energy and Specialized Markets
|
|
|
154.4
|
|
|
|
137.3
|
|
|
|
314.5
|
|
|
|
265.8
|
|
Financial Services
|
|
|
38.0
|
|
|
|
44.3
|
|
|
|
78.3
|
|
|
|
87.3
|
|
Total revenues
|
|
$
|
678.8
|
|
|
$
|
652.6
|
|
|
$
|
1,368.6
|
|
|
$
|
1,277.6
|
|
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
523.0
|
|
|
$
|
493.3
|
|
|
$
|
1,046.7
|
|
|
$
|
973.9
|
|
U.K.
|
|
|
44.0
|
|
|
|
44.3
|
|
|
|
89.8
|
|
|
|
88.5
|
|
Other countries
|
|
|
111.8
|
|
|
|
115.0
|
|
|
|
232.1
|
|
|
|
215.2
|
|
Total revenues
|
|
$
|
678.8
|
|
|
$
|
652.6
|
|
|
$
|
1,368.6
|
|
|
$
|
1,277.6
|
|
Contract assets are defined as an entity's right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time. As of June 30, 2020 and December 31, 2019, the Company had no contract assets. Contract liabilities are defined as an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (an amount of consideration is due) from the customer. As of June 30, 2020 and December 31, 2019, the Company had contract liabilities of $620.8 million and $443.2 million, respectively. The $177.6 million increase in contract liabilities from December 31, 2019 to June 30, 2020 was primarily due to billings of $406.6 million that were paid in advance, partially offset by $229.0 million of revenue recognized in the six months ended June 30, 2020. Contract liabilities, which are current and noncurrent, are included in "Deferred revenues" and "Other liabilities" in the condensed consolidated balance sheet, respectively, as of June 30, 2020 and December 31, 2019.
The Company’s most significant remaining performance obligations relate to providing customers with the right to use and update the online content over the remaining contract term. Revenues expected to be recognized in the future related to performance obligations, included within deferred revenues and other liabilities, that are unsatisfied were $620.8 million and $443.2 million as of June 30, 2020 and December 31, 2019, respectively. The disclosure of the timing for satisfying the performance obligation is based on the requirements of contracts with customers. However, from time to time, these contracts may be subject to modifications, impacting the timing of satisfying the performance obligations. These performance obligations, which are expected to be satisfied within one year, comprised approximately 99.0% of the balance at June 30, 2020 and December 31, 2019.
The Company recognizes an asset for incremental costs of obtaining a contract with a customer if it expects the benefits of those costs to be longer than one year. As of June 30, 2020 and December 31, 2019, the Company had deferred commissions of $69.2 million and $63.7 million, respectively, which have been included in "Prepaid expenses" and "Other noncurrent 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. To increase consistency and comparability of assets and liabilities recorded at fair value, Accounting Standards Codification ("ASC") 820-10, Fair Value Measurements (“ASC 820-10”), established 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 or 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 are internally-developed, and considers risk premiums that market participants would require.
|
The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term debt approximate their carrying amounts because of the short-term nature of these instruments. The investments in registered investment companies, which are Level 1 assets measured at fair value on a recurring basis, were $3.5 million and $3.6 million as of June 30, 2020 and December 31, 2019, respectively. The investments in registered investment companies are valued using quoted prices in active markets multiplied by the number of shares owned and were included in "Other current assets" in the accompanying condensed consolidated balance sheet. For the three and six months ended June 30, 2020, the Company determined the provision for credit losses related to accounts receivable and investments in registered investment companies was immaterial.
The Company elected not to carry its long-term debt at fair value. The carrying value of the long-term debt represents amortized cost, inclusive of unamortized premium, and net of unamortized discount and debt issuance costs. The Company assesses the fair value of these financial instruments based on an estimate of interest rates available to the Company for financial instruments with similar features, the Company’s current credit rating and spreads applicable to the Company. The following table summarizes the carrying value and estimated fair value of these financial instruments as of June 30, 2020 and December 31, 2019, respectively:
|
|
|
2020
|
|
|
2019
|
|
|
Fair Value
|
|
Carrying
|
|
|
Estimated
|
|
|
Carrying
|
|
|
Estimated
|
|
|
Hierarchy
|
|
Value
|
|
|
Fair Value
|
|
|
Value
|
|
|
Fair Value
|
|
Financial instruments not carried at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of long-term debt and long-term debt excluding finance lease liabilities and syndicated revolving credit facility debt issuance costs
|
Level 2
|
|
$
|
3,140.0
|
|
|
$
|
3,602.5
|
|
|
$
|
2,650.4
|
|
|
$
|
2,902.2
|
|
On February 1, 2020, the sale of the aerial imagery sourcing group was completed. The Company contributed the assets related to the disposed business and cash of $63.8 million in exchange for a non-controlling 35.0% ownership interest in a nonpublic company, Vexcel Group, Inc ("Vexcel"). As of June 30, 2020, the Company had an investment of $129.7 million related to such interest accounted for in accordance with ASC 820-10. The value of the investment is based on management estimates with the assistance of valuations performed by third party specialists. This investment was included in "Other noncurrent assets" in the accompanying condensed consolidated balance sheet. For the three and six months ended June 30, 2020, there was no provision for credit losses related to this equity investment. Refer to Note 6. Dispositions for further discussion.
As of June 30, 2020 and December 31, 2019, the Company had securities of $14.0 million, which were accounted for under ASC 323-10-25, The Equity Method of Accounting for Investments in Common Stock ("ASC 323-10-25"). The Company does not have the ability to exercise significant influence over the investees’ operating and financial policies. As of June 30, 2020 and December 31, 2019, the Company also had an investment in a limited partnership of $16.2 million and $13.1 million, respectively, accounted for in accordance with ASC 323-10-25 as an equity method investment. These investments were included in "Other noncurrent assets" in the accompanying condensed consolidated balance sheet. For the three and six months ended June 30, 2020, there was no provision for credit losses related to these investments.
5. Leases:
The Company has operating and finance leases for corporate offices, data centers, and certain equipment that are accounted for under ASC 842. The leases have remaining lease terms ranging from one year to fourteen years, some of which include the options to extend the leases for up to twenty years, and some of which include the options to terminate the leases within one year. Extension and termination options are considered in the calculation of the right-of-use (“ROU”) assets and lease liabilities when the Company determines it is reasonably certain that it will exercise those options.
The following table presents lease cost, cash paid for amounts included in the measurement of lease liabilities, ROU assets obtained, weighted-average remaining lease terms, and weighted-average discount rates for finance and operating leases for the three and six months ended June 30, 2020 and 2019, respectively:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Lease cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating lease cost (1)
|
|
$
|
12.9
|
|
|
$
|
12.0
|
|
|
$
|
25.2
|
|
|
$
|
24.1
|
|
Finance lease costs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of finance lease assets (2)
|
|
|
1.4
|
|
|
|
3.3
|
|
|
|
3.1
|
|
|
|
6.1
|
|
Interest on finance lease liabilities (3)
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
0.3
|
|
|
|
0.8
|
|
Total lease cost
|
|
$
|
14.4
|
|
|
$
|
15.7
|
|
|
$
|
28.6
|
|
|
$
|
31.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating cash outflows from operating leases
|
|
$
|
(12.0
|
)
|
|
$
|
(11.1
|
)
|
|
$
|
(25.6
|
)
|
|
$
|
(23.6
|
)
|
Operating cash outflows from finance leases
|
|
$
|
(0.1
|
)
|
|
$
|
(0.4
|
)
|
|
$
|
(0.3
|
)
|
|
$
|
(0.8
|
)
|
Financing cash outflows from finance leases
|
|
$
|
(2.5
|
)
|
|
$
|
(2.5
|
)
|
|
$
|
(4.4
|
)
|
|
$
|
(4.5
|
)
|
Weighted-average remaining lease term in years - operating leases
|
|
|
9.5
|
|
|
|
9.6
|
|
|
|
9.5
|
|
|
|
9.6
|
|
Weighted-average remaining lease term in years - finance leases
|
|
|
2.2
|
|
|
|
2.8
|
|
|
|
2.2
|
|
|
|
2.8
|
|
Weighted-average discount rate - operating leases
|
|
|
4.1
|
%
|
|
|
4.0
|
%
|
|
|
4.1
|
%
|
|
|
4.0
|
%
|
Weighted-average discount rate - finance leases
|
|
|
3.4
|
%
|
|
|
4.5
|
%
|
|
|
3.4
|
%
|
|
|
4.5
|
%
|
_______________
(1) Included in "Cost of revenues" and "Selling, general and administrative" expenses in the accompanying condensed consolidated statements of operations
(2) Included in "Depreciation and amortization of fixed assets" in the accompanying condensed consolidated statements of operations
(3) Included in "Interest expense" in the accompanying condensed consolidated statements of operations
The ROU assets and lease liabilities for finance leases were $8.4 million and $5.5 million, respectively, as of June 30, 2020. The ROU assets and lease liabilities for finance leases were $9.9 million and $7.7 million, respectively, as of December 31, 2019. The ROU assets for finance leases were included in "Fixed assets, net" in the accompanying condensed consolidated balance sheets. The lease liabilities for finance leases were included in the "Short-term debt and current portion of long-term debt" and "Long-term debt" in the accompanying condensed consolidated balance sheets (see Note 9. Debt).
Maturities of lease liabilities for the remainder of 2020 and the years through 2025 and thereafter are as follows:
|
|
June 30, 2020
|
|
Years Ending
|
|
Operating Leases
|
|
|
Finance Leases
|
|
2020
|
|
$
|
24.8
|
|
|
$
|
1.7
|
|
2021
|
|
|
46.1
|
|
|
|
3.1
|
|
2022
|
|
|
42.2
|
|
|
|
0.8
|
|
2023
|
|
|
37.4
|
|
|
|
0.2
|
|
2024
|
|
|
28.4
|
|
|
|
—
|
|
2025 and thereafter
|
|
|
169.5
|
|
|
|
—
|
|
Total lease payments
|
|
|
348.4
|
|
|
|
5.8
|
|
Less: Amount representing interest
|
|
|
(64.9
|
)
|
|
|
(0.3
|
)
|
Present value of total lease payments
|
|
$
|
283.5
|
|
|
$
|
5.5
|
|
6. Dispositions:
In the fourth quarter of 2019, the Company’s compliance background screening business and the aerial imagery sourcing group within the remote imagery business qualified as assets held for sale. These assets held for sale were part of the claims category within the Company’s Insurance segment as of December 31, 2019.
On February 1, 2020, the sale of the aerial imagery sourcing group was completed. The Company contributed assets related to the disposed business, including cash of $63.8 million, in exchange for a non-controlling 35.0% ownership interest in a nonpublic company, Vexcel. The Company determined the fair value of the securities associated with the non-controlling ownership interest in Vexcel with the assistance of valuations performed by third party specialists, including the discounted cash flow analysis and estimates made by management. The securities were concluded not to have a readily determinable fair value and did not qualify for the practical expedient to estimate fair value in accordance with ASC 820-10. At each subsequent reporting period, the Company is required perform a qualitative assessment considering impairment indicators to evaluate whether the investment is impaired. The contributed assets approximated the fair value of the equity securities related to the non-controlling ownership interest; therefore, there was no gain or loss recorded in conjunction with this disposition for the six months ended June 30, 2020.
On February 14, 2020, the sale of the compliance background screening business was completed for net cash proceeds of $23.1 million. A gain of $15.9 million was included in "Other operating income" within the accompanying condensed consolidated statements of operations for the six months ended June 30, 2020.
In the first quarter of 2020, the Company's data warehouse business within the Financial Services segment qualified as assets held for sale and was sold on March 1, 2020. The Company recorded a gain of $3.5 million in "Other operating income" within the accompanying condensed consolidated statements of operations for the six months ended June 30, 2020.
7. Goodwill and Intangible Assets:
The following is a summary of the change in goodwill from December 31, 2019 through June 30, 2020, both in total and as allocated to the Company’s operating segments:
|
|
Insurance
|
|
|
Energy and Specialized Markets
|
|
|
Financial Services
|
|
|
Total
|
|
Goodwill at December 31, 2019
|
|
$
|
998.8
|
|
|
$
|
2,389.5
|
|
|
$
|
476.0
|
|
|
$
|
3,864.3
|
|
Purchase accounting reclassifications
|
|
|
2.9
|
|
|
|
(1.3
|
)
|
|
|
(0.2
|
)
|
|
|
1.4
|
|
Current period adjustment (1)
|
|
|
21.4
|
|
|
|
(19.5
|
)
|
|
|
—
|
|
|
|
1.9
|
|
Foreign currency translation
|
|
|
(26.5
|
)
|
|
|
(96.2
|
)
|
|
|
(0.8
|
)
|
|
|
(123.5
|
)
|
Goodwill at June 30, 2020
|
|
$
|
996.6
|
|
|
$
|
2,272.5
|
|
|
$
|
475.0
|
|
|
$
|
3,744.1
|
|
_____________
(1) Of which $19.5 million relates to a segment reclassification, refer to Note 13. Segment Reporting
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 an impairment loss is recorded for the difference between the carrying amount and the fair value of the reporting unit. The Company completed the required annual impairment test as of June 30, 2020, and concluded that there was no impairment of goodwill.
The Company’s intangible assets and related accumulated amortization consisted of the following:
|
Weighted Average Useful Life in Years
|
|
Cost
|
|
|
Accumulated Amortization
|
|
|
Net
|
|
June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
7
|
|
$
|
510.0
|
|
|
$
|
(311.4
|
)
|
|
$
|
198.6
|
|
Marketing
|
16
|
|
|
251.5
|
|
|
|
(100.3
|
)
|
|
|
151.2
|
|
Contract
|
6
|
|
|
5.0
|
|
|
|
(5.0
|
)
|
|
|
—
|
|
Customer
|
13
|
|
|
876.5
|
|
|
|
(305.9
|
)
|
|
|
570.6
|
|
Database
|
19
|
|
|
457.3
|
|
|
|
(113.4
|
)
|
|
|
343.9
|
|
Total intangible assets
|
|
$
|
2,100.3
|
|
|
$
|
(836.0
|
)
|
|
$
|
1,264.3
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Technology
|
7
|
|
$
|
519.2
|
|
|
$
|
(291.9
|
)
|
|
$
|
227.3
|
|
Marketing
|
16
|
|
|
265.3
|
|
|
|
(94.3
|
)
|
|
|
171.0
|
|
Contract
|
6
|
|
|
5.0
|
|
|
|
(5.0
|
)
|
|
|
—
|
|
Customer
|
13
|
|
|
901.2
|
|
|
|
(278.0
|
)
|
|
|
623.2
|
|
Database
|
19
|
|
|
484.6
|
|
|
|
(107.2
|
)
|
|
|
377.4
|
|
Total intangible assets
|
|
$
|
2,175.3
|
|
|
$
|
(776.4
|
)
|
|
$
|
1,398.9
|
|
Amortization expense related to intangible assets for the three months ended June 30, 2020 and 2019 was $41.0 million and $33.6 million, respectively. Amortization expense related to intangible assets for the six months ended June 30, 2020 and 2019 was $82.0 million and $66.9 million, respectively. Estimated amortization expense for the remainder of 2020 and the years through 2025 and thereafter for intangible assets subject to amortization is as follows:
Year
|
|
Amount
|
|
2020
|
|
$
|
80.2
|
|
2021
|
|
|
149.1
|
|
2022
|
|
|
138.0
|
|
2023
|
|
|
126.2
|
|
2024
|
|
|
121.4
|
|
2025 and thereafter
|
|
|
649.4
|
|
|
|
$
|
1,264.3
|
|
8. Income Taxes:
The Company’s effective tax rate for the three and six months ended June 30, 2020 was 20.4% and 20.6% compared to the effective tax rate for the three and six months ended June 30, 2019 of 19.7% and 20.3%. The effective tax rate for the three months ended June 30, 2020 was higher than the June 30, 2019 effective tax rate primarily due to higher tax benefits from equity compensation in the prior period, which were partially offset by lower nondeductible earn-out expenses in the current period versus the prior period. The effective tax rate for the six months ended June 30, 2020 was higher than the June 30, 2019 effective tax rate primarily due to tax expense recorded in the current period in connection with the Company’s disposition of its aerial imagery sourcing business resulting from differences in the book and tax basis of the assets and entities disposed of. These expenses were partially offset by higher tax benefits from equity compensation and lower nondeductible earn-out expenses in the current period versus the prior period. The difference between statutory tax rates and the Company’s effective tax rate is primarily due to tax benefits attributable to equity compensation, offset by additional state and local taxes.
9. Debt:
The following table presents short-term and long-term debt by issuance as of June 30, 2020 and December 31, 2019:
|
Issuance Date
|
|
Maturity Date
|
|
2020
|
|
|
2019
|
|
Short-term debt and current portion of long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
Syndicated revolving credit facility
|
Various
|
|
Various
|
|
$
|
—
|
|
|
$
|
495.0
|
|
Senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
5.800% senior notes, less unamortized discount and debt issuance costs of $(0.4)
|
4/6/2011
|
|
5/1/2021
|
|
|
449.6
|
|
|
|
—
|
|
Finance lease liabilities (1)
|
Various
|
|
Various
|
|
|
3.4
|
|
|
|
4.4
|
|
Short-term debt and current portion of long-term debt
|
|
|
453.0
|
|
|
|
499.4
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
Senior notes:
|
|
|
|
|
|
|
|
|
|
|
|
3.625% senior notes, less unamortized discount and debt issuance costs of $(10.9) million
|
5/13/2020
|
|
5/15/2050
|
|
|
489.1
|
|
|
|
—
|
|
4.125% senior notes, inclusive of unamortized premium, and net of unamortized discount and debt issuance costs of $13.1 and $13.9, respectively
|
3/6/2019
|
|
3/15/2029
|
|
|
613.1
|
|
|
|
613.9
|
|
4.000% senior notes, less unamortized discount and debt issuance costs of $(6.0) and $(6.7), respectively
|
5/15/2015
|
|
6/15/2025
|
|
|
894.0
|
|
|
|
893.3
|
|
5.500% senior notes, less unamortized discount and debt issuance costs of $(4.4) and $(4.5), respectively
|
5/15/2015
|
|
6/15/2045
|
|
|
345.6
|
|
|
|
345.5
|
|
4.125% senior notes, less unamortized discount and debt issuance costs of $(1.4) and $(1.6), respectively
|
9/12/2012
|
|
9/12/2022
|
|
|
348.6
|
|
|
|
348.4
|
|
5.800% senior notes, less unamortized discount and debt issuance costs of $(0.7)
|
4/6/2011
|
|
5/1/2021
|
|
|
—
|
|
|
|
449.3
|
|
Finance lease liabilities (1)
|
Various
|
|
Various
|
|
|
2.1
|
|
|
|
3.3
|
|
Syndicated revolving credit facility debt issuance costs
|
Various
|
|
Various
|
|
|
(1.8
|
)
|
|
|
(2.1
|
)
|
Long-term debt
|
|
|
2,690.7
|
|
|
|
2,651.6
|
|
Total debt
|
|
$
|
3,143.7
|
|
|
$
|
3,151.0
|
|
_______________
(1) Refer to Note 5. Leases
On May 8, 2020, the Company completed an issuance of $500.0 million aggregate principal amount of 3.625% senior notes due 2050 (the "2050 notes"). The 2050 notes mature on May 15, 2050 and accrue interest at a fixed rate of 3.625% per annum. Interest is payable semiannually on the 2050 notes on May 15th and November 15th of each year, beginning on November 15, 2020. The 2050 notes were issued at a discount of $5.2 million and the Company incurred debt issuance costs of $5.7 million. The original issue discount and debt issuance costs were recorded in "Long-term debt" in the accompanying condensed consolidated balance sheets and these costs will be amortized to "Interest expense" in the accompanying consolidated statements of operations over the life of the 2050 notes. The net proceeds from the issuance of the 2050 notes were utilized to partially repay the Credit Facility and for general corporate purposes. The indenture governing the 2050 notes restricts the Company's ability to, among other things, create certain liens, enter into sale/leaseback transactions and consolidate with, sell, lease, convey or otherwise transfer all or substantially all of the Company's assets, or merge with or into, any other person or entity. As of June 30, 2020 and December 31, 2019, the Company had senior notes with an aggregate principal amount of $3,150.0 million and $2,650.0 million outstanding, respectively, and was in compliance with their financial and other debt covenants.
As of June 30, 2020, the Company had a $1,000.0 million committed senior unsecured Credit Facility with Bank of America N.A., HSBC Bank USA, N.A., JP Morgan Chase Bank, N.A., Wells Fargo Bank, National Association, Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, Morgan Stanley Bank, N.A., TD Bank, N.A., and the Northern Trust Company. The Credit Facility may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividends and the share repurchase program (the "Repurchase Program"). As of June 30, 2020, the Company was in compliance with all financial and other debt covenants under the Credit Facility. As of June 30, 2020 and December 31, 2019, the available capacity under the Credit Facility was $994.8 million and $500.2 million, net of the letters of credit of $5.2 million and $4.8 million, respectively.
10. Stockholders’ Equity:
The Company has 2,000,000,000 shares of authorized common stock as of June 30, 2020 and December 31, 2019. The Company's common shares have rights to any dividend declared by the board of directors (the "Board"), subject to any preferential or other rights of any outstanding preferred stock, and voting rights to elect all current members of the Board.
The Company has 80,000,000 shares of authorized preferred stock, par value $0.001 per share. The preferred shares have preferential rights over the common shares with respect to dividends and net distribution upon liquidation. The Company did not issue any preferred shares as of June 30, 2020.
At June 30, 2020 and December 31, 2019, the adjusted closing price of Verisk's common stock was $170.20 and $148.83 per share, respectively.
On February 12, 2020 and April 29, 2020, the Company’s Board approved a cash dividend of $0.27 per share of common stock issued and outstanding to the holders of record as of March 13, 2020 and June 15, 2020, respectively. A cash dividend of $43.9 million and $44.0 million was paid on March, 31, 2020 and June 30, 2020 and recorded as a reduction to retained earnings, respectively. The Company paid a cash dividend of $40.9 million and $41.0 million on March 29, 2019 and June 28, 2019 at $0.25 per share of common stock issued and outstanding to the holders of record as of March 15, 2019 and June 14, 2019, respectively.
Share Repurchase Program
Since May 2010, the Company has authorized repurchases of up to $3,800.0 million of its common stock through its Repurchase Program, inclusive of the $500.0 million authorization approved by the Board on February 12, 2020. Since the introduction of share repurchase as a feature of the Company's capital management strategies in 2010, the Company has repurchased shares with an aggregate value of $3,421.2 million. As of June 30, 2020, the Company had $378.8 million available to repurchase shares through its Repurchase Program. 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 Verisk 2013 Equity Incentive Plan (the "2013 Incentive Plan"), the Verisk 2009 Equity Incentive Plan (the “2009 Incentive Plan”), the Company's sharesave plan (“UK Sharesave Plan”), and the employee stock purchase plan ("ESPP") while providing flexibility to repurchase additional shares if warranted. This authorization has no expiration date and may be increased, reduced, suspended, or terminated at any time. Shares that are repurchased under the Repurchase Program will be recorded as treasury stock and will be available for future issuance.
In December 2019 and March 2020, the Company entered into Accelerated Share Repurchase ("ASR") agreements to repurchase shares of its common stock for an aggregate purchase price of $50.0 million and $75.0 million with HSBC Bank USA, N.A and Bank of America N.A.. The ASR agreements are each accounted as a treasury stock transaction and forward stock purchase agreement indexed to the Company's common stock. The forward stock purchase agreement is each classified as an equity instrument under ASC 815-40, Contracts in Entity's Own Equity ("ASC 815-40") and were deemed to have a fair value of zero at the respective effective date. Upon payment of the aggregate purchase price on January 2, 2020 and April 1, 2020, the Company received an aggregate delivery of 267,845 and 430,477 shares of its common stock at a price of $149.34 and $139.38, respectively. Upon the final settlement of the ASR agreements in February 2020 and June 2020, the Company received additional 40,901 and 61,052 shares, respectively, as determined by the volume weighted average share price of Verisk's common stock during the term of the ASR agreements. The aggregate purchase price was recorded as a reduction to stockholders' equity in the Company's condensed consolidated statements of changes in stockholders' equity for the six months ended June 30, 2020. These repurchases of 800,275 shares for the six months ended June 30, 2020 resulted in a reduction of outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share ("EPS").
During the six months ended June 30, 2020, the Company repurchased 1,615,897 shares of common stock with an aggregate value of $248.8 million as part of the Repurchase Program, inclusive of the ASR, at a weighted average price of $153.96 per share. The Company utilized cash from operations and borrowings from its Credit Facility to fund these repurchases.
Treasury Stock
As of June 30, 2020, the Company’s treasury stock consisted of 381,482,792 shares of common stock, carried at cost. During the six months ended June 30, 2020, the Company transferred 974,579 shares of common stock from the treasury shares at a weighted average treasury stock price of $10.51 per share.
Earnings Per Share
Basic EPS is computed by dividing net income 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 vested and nonvested stock options, nonvested restricted stock awards, nonvested restricted stock units, nonvested performance awards consisting of performance share units (“PSU”), and nonvested deferred stock units, had been issued.
The following is a presentation of the numerators and denominators of the basic and diluted EPS computations for the three and six months ended June 30, 2020 and 2019:
|
|
Three Months Ended June 30,
|
|
|
Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Numerator used in basic and diluted EPS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
179.0
|
|
|
$
|
150.4
|
|
|
$
|
350.7
|
|
|
$
|
284.8
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares used in basic EPS
|
|
|
162,371,920
|
|
|
|
163,743,835
|
|
|
|
162,633,113
|
|
|
|
163,636,089
|
|
Effect of dilutive shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Potential common shares issuable from stock options and stock awards
|
|
|
2,731,168
|
|
|
|
2,953,441
|
|
|
|
2,780,491
|
|
|
|
2,985,022
|
|
Weighted average number of common shares and dilutive potential common shares used in diluted EPS
|
|
|
165,103,088
|
|
|
|
166,697,276
|
|
|
|
165,413,604
|
|
|
|
166,621,111
|
|
The potential shares of common stock that were excluded from diluted EPS were 975,710 and 897,875 for the three months ended June 30, 2020 and 2019, and 992,615 and 473,848 for the six months ended June 30, 2020 and 2019, 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 as of June 30, 2020 and December 31, 2019:
|
|
2020
|
|
|
2019
|
|
Foreign currency translation adjustment
|
|
$
|
(572.8
|
)
|
|
$
|
(400.1
|
)
|
Pension and postretirement adjustment, net of tax
|
|
|
(84.4
|
)
|
|
|
(86.8
|
)
|
Accumulated other comprehensive losses
|
|
$
|
(657.2
|
)
|
|
$
|
(486.9
|
)
|
The before tax and after tax amounts of other comprehensive (loss) income for the three and six months ended June 30, 2020 and 2019 are summarized below:
|
|
Before Tax
|
|
|
Tax (Expense) Benefit
|
|
|
After Tax
|
|
For the Three Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(0.1
|
)
|
|
$
|
—
|
|
|
$
|
(0.1
|
)
|
Pension and postretirement adjustment before reclassifications
|
|
|
5.0
|
|
|
|
(1.1
|
)
|
|
|
3.9
|
|
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1)
|
|
|
(3.0
|
)
|
|
|
0.7
|
|
|
|
(2.3
|
)
|
Pension and postretirement adjustment
|
|
|
2.0
|
|
|
|
(0.4
|
)
|
|
|
1.6
|
|
Total other comprehensive income
|
|
$
|
1.9
|
|
|
$
|
(0.4
|
)
|
|
$
|
1.5
|
|
For the Three Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(60.9
|
)
|
|
$
|
—
|
|
|
$
|
(60.9
|
)
|
Pension and postretirement adjustment before reclassifications
|
|
|
2.9
|
|
|
|
(0.6
|
)
|
|
|
2.3
|
|
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1)
|
|
|
(1.7
|
)
|
|
|
0.4
|
|
|
|
(1.3
|
)
|
Pension and postretirement adjustment
|
|
|
1.2
|
|
|
|
(0.2
|
)
|
|
|
1.0
|
|
Total other comprehensive loss
|
|
$
|
(59.7
|
)
|
|
$
|
(0.2
|
)
|
|
$
|
(59.9
|
)
|
|
|
Before Tax
|
|
|
Tax (Expense) Benefit
|
|
|
After Tax
|
|
For the Six Months Ended June 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(172.7
|
)
|
|
$
|
—
|
|
|
$
|
(172.7
|
)
|
Pension and postretirement adjustment before reclassifications
|
|
|
7.1
|
|
|
|
(1.7
|
)
|
|
|
5.4
|
|
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1)
|
|
|
(4.0
|
)
|
|
|
1.0
|
|
|
|
(3.0
|
)
|
Pension and postretirement adjustment
|
|
|
3.1
|
|
|
|
(0.7
|
)
|
|
|
2.4
|
|
Total other comprehensive loss
|
|
$
|
(169.6
|
)
|
|
$
|
(0.7
|
)
|
|
$
|
(170.3
|
)
|
For the Six Months Ended June 30, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
$
|
(2.4
|
)
|
|
$
|
—
|
|
|
$
|
(2.4
|
)
|
Pension and postretirement adjustment before reclassifications
|
|
|
5.7
|
|
|
|
(1.3
|
)
|
|
|
4.4
|
|
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1)
|
|
|
(3.0
|
)
|
|
|
0.7
|
|
|
|
(2.3
|
)
|
Pension and postretirement adjustment
|
|
|
2.7
|
|
|
|
(0.6
|
)
|
|
|
2.1
|
|
Total other comprehensive income (loss)
|
|
$
|
0.3
|
|
|
$
|
(0.6
|
)
|
|
$
|
(0.3
|
)
|
_______________
(1)
|
These accumulated other comprehensive loss components, before tax, are included under “Cost of revenues” and “Selling, general and administrative” in the accompanying condensed consolidated statements of operations. These components are also included in the computation of net periodic (benefit) cost (see Note 12. Pension and Postretirement Benefits for additional details).
|
11. Equity Compensation Plans:
All of the Company’s outstanding stock options, restricted stock awards, deferred stock units, and PSUs are covered under the 2013 Incentive Plan or 2009 Incentive Plan. Awards under the 2013 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 2013 Incentive Plan. The Company transferred common stock under these plans from the Company’s treasury shares. As of June 30, 2020, there were 3,142,881 shares of common stock reserved and available for future issuance under the 2013 Incentive Plan. Cash received from stock option exercises for the six months ended June 30, 2020 and 2019 was $42.1 million and $32.3 million, respectively.
The Company granted equity awards to key employees of the Company. The nonqualified stock options have an exercise price equal to the adjusted closing price of the Company’s common stock on the grant date, with a ten-year contractual term. The fair value of the restricted stock is determined using the closing price of the Company’s common stock on the grant date. The restricted stock is not assignable or transferable until it becomes vested. PSUs vest at the end of a three-year performance period, subject to the recipient’s continued service. Each PSU represents the right to receive one share of Verisk common stock and the ultimate realization is based on the Company’s achievement of certain market performance criteria and may range from 0% to 200% of the recipient’s target levels of 100% established on the grant date. The fair value of PSUs is determined on the grant date using the Monte Carlo Simulation model. The Company recognizes the expense of the equity awards ratably over the vesting period, which could be up to four years.
On January 15, 2020, the Company granted 882,749 stock options, 148,658 shares of restricted stock, and 50,736 performance share units to key employees. The 882,749 stock options and 141,725 shares of restricted stock have a graded service vesting period of four years, while 6,933 shares of restricted stock have a four-year cliff vesting period, and 50,736 performance share units have a three-year performance period, subject to recipients' continued service.
A summary of the status of the stock options, restricted stock, and PSUs awarded under the 2013 Incentive Plan as of December 31, 2019 and June 30, 2020 and changes during the interim period are presented below:
|
|
Stock Option
|
|
|
Restricted Stock
|
|
|
PSU
|
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
|
|
|
Aggregate Intrinsic Value
|
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
|
Number of Shares
|
|
|
Weighted Average Grant Date Fair Value Per Share
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2019
|
|
|
6,432,814
|
|
|
$
|
79.51
|
|
|
$
|
449.2
|
|
|
|
428,729
|
|
|
$
|
107.96
|
|
|
|
93,960
|
|
|
|
$
|
158.50
|
|
Granted
|
|
|
889,295
|
|
|
$
|
158.51
|
|
|
|
|
|
|
|
150,088
|
|
|
$
|
158.49
|
|
|
|
50,736
|
|
|
|
$
|
192.93
|
|
Dividend reinvestment
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
—
|
|
|
$
|
—
|
|
|
|
505
|
|
|
|
|
N/A
|
|
Exercised or lapsed
|
|
|
(816,334
|
)
|
|
$
|
56.14
|
|
|
$
|
82.8
|
|
|
|
(165,585
|
)
|
|
$
|
98.94
|
|
|
|
—
|
|
|
|
|
|
|
Canceled, expired or forfeited
|
|
|
(98,451
|
)
|
|
$
|
121.14
|
|
|
|
|
|
|
|
(17,726
|
)
|
|
$
|
119.62
|
|
|
|
—
|
|
|
|
|
|
|
Outstanding at June 30, 2020
|
|
|
6,407,324
|
|
|
$
|
92.77
|
|
|
$
|
496.1
|
|
|
|
395,506
|
|
|
$
|
129.96
|
|
|
|
145,201
|
|
|
|
$
|
170.40
|
|
Exercisable at June 30, 2020
|
|
|
4,269,767
|
|
|
$
|
72.83
|
|
|
$
|
415.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at December 31, 2019
|
|
|
4,175,855
|
|
|
$
|
65.05
|
|
|
$
|
352.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested at June 30, 2020
|
|
|
2,137,557
|
|
|
|
|
|
|
|
|
|
|
|
395,506
|
|
|
|
|
|
|
|
145,201
|
|
|
|
|
|
|
Expected to vest at June 30, 2020
|
|
|
1,875,994
|
|
|
|
|
|
|
|
|
|
|
|
344,094
|
|
|
|
|
|
|
|
280,622
|
(1
|
)
|
|
|
|
|
(1)
|
Includes estimated performance achievement
|
The fair value of the stock options granted was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table for the six months ended June 30, 2020 and 2019:
|
|
2020
|
|
|
2019
|
|
Option pricing model
|
|
Black-Scholes
|
|
|
Black-Scholes
|
|
Expected volatility
|
|
|
18.21
|
%
|
|
|
18.83
|
%
|
Risk-free interest rate
|
|
|
1.58
|
%
|
|
|
2.29
|
%
|
Expected term in years
|
|
|
4.3
|
|
|
|
4.4
|
|
Dividend yield
|
|
|
0.71
|
%
|
|
|
0.81
|
%
|
Weighted average grant date fair value per stock option
|
|
$
|
25.48
|
|
|
$
|
24.02
|
|
The expected term for the stock options granted was estimated based on studies of historical experience and projected exercise behavior. However, for certain awards granted, for which no historical exercise pattern exists, the expected term was estimated using the simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. The volatility factor is calculated using historical daily closing prices over the most recent period that is commensurate with the expected term of the stock option awards. The expected dividend yield was based on the Company’s expected annual dividend rate on the date of grant.
Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the adjusted closing price of Verisk common stock as of the reporting date. Excess tax benefits from exercised stock options were recorded as income tax benefit in the condensed consolidated statements of operations. This tax benefit is calculated as the excess of the intrinsic value of options exercised and restricted stock lapsed in excess of compensation recognized for financial reporting purposes. The weighted average remaining contractual terms were 6.1 years and 4.8 years for the outstanding and exercisable stock options, respectively, as of June 30, 2020.
For the six months ended June 30, 2020, there was $103.9 million of total unrecognized compensation costs, exclusive of the impact of vesting upon retirement eligibility, related to nonvested stock-based compensation arrangements granted under the 2013 Incentive Plans. That cost is expected to be recognized over a weighted average period of 2.7 years. The total grant date fair value of options vested was $10.1 million and $8.1 million during the six months ended June 30, 2020 and 2019, respectively. The total grant date fair value of restricted stock vested during the six months ended June 30, 2020 and 2019 was $11.0 million and $9.3 million, respectively. The total grant date fair value of PSUs vested during the six months ended June 30, 2020 and 2019 was $4.1 million and $1.7 million, respectively.
The Company’s UK Sharesave Plan offers qualifying employees in the United Kingdom the opportunity to own shares of the Company’s common stock. Employees who elect to participate are granted stock options, of which the exercise price is equal to the adjusted closing price of the Company’s common stock on the grant date discounted by 5%, and enter into a savings contract, the proceeds of which are then used to exercise the options upon the three-year maturity of the savings contract. During the six months ended June 30, 2020 and 2019, the Company granted no stock options under the UK Sharesave Plan. As of June 30, 2020, there were 462,040 shares of common stock reserved and available for future issuance under the UK Sharesave Plan.
The Company’s ESPP offers eligible employees the opportunity to purchase shares of the Company’s common stock at a discount of its fair market value at the time of purchase. During the six months ended June 30, 2020 and 2019, the Company issued 17,549 and 15,965 shares of common stock at a weighted discounted price of $145.90 and $132.48 for the ESPP, respectively. As of June 30, 2020, there were 1,275,219, shares of common stock reserved and available for future issuance under the ESPP.
12. Pension and Postretirement Benefits:
The Company maintains a frozen qualified defined benefit pension plan for certain of its employees through membership in the Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. The Company also applies a cash balance formula to determine future benefits. Under the cash balance formula, each participant has an account, which is credited annually based on the interest earned on the previous year-end cash balance. The Company also has a frozen non-qualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from the general assets of the Company. During the first quarter of 2020, the Company changed its investment guidelines on the Pension Plan assets to target investment allocation of 55% to equity securities and 45% to debt securities from its previous target allocation of 60% to equity securities and 40% to debt securities as of December 31, 2019.
The Company also provides certain healthcare and life insurance benefits to certain qualifying active and retired employees. The Postretirement Health and Life Insurance Plan (the “Postretirement Plan”), which has been frozen, is contributory, requiring participants to pay a stated percentage of the premium for coverage. The components of net periodic (benefit) cost for the three and six months ended June 30, are summarized below:
|
|
Pension Plan and SERP
|
|
|
Postretirement Plan
|
|
|
|
For the Three Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest cost
|
|
$
|
3.6
|
|
|
$
|
4.7
|
|
|
$
|
1.0
|
|
|
$
|
0.2
|
|
Expected return on plan assets
|
|
|
(6.8
|
)
|
|
|
(9.1
|
)
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
Amortization of prior service cost (credit)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
Amortization of net actuarial loss
|
|
|
1.9
|
|
|
|
1.6
|
|
|
|
2.0
|
|
|
|
0.1
|
|
Net periodic (benefit) cost
|
|
$
|
(1.2
|
)
|
|
$
|
(2.7
|
)
|
|
$
|
1.0
|
|
|
$
|
0.1
|
|
Employer contributions, net
|
|
$
|
0.2
|
|
|
$
|
0.2
|
|
|
$
|
1.2
|
|
|
$
|
—
|
|
|
|
Pension Plan and SERP
|
|
|
Postretirement Plan
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Interest cost
|
|
$
|
6.9
|
|
|
$
|
8.4
|
|
|
$
|
1.0
|
|
|
$
|
0.2
|
|
Expected return on plan assets
|
|
|
(14.4
|
)
|
|
|
(15.5
|
)
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
Amortization of prior service cost (credit)
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
(1.0
|
)
|
|
|
(0.1
|
)
|
Amortization of net actuarial loss
|
|
|
2.9
|
|
|
|
2.8
|
|
|
|
2.0
|
|
|
|
0.2
|
|
Net periodic (benefit) cost
|
|
$
|
(4.5
|
)
|
|
$
|
(4.2
|
)
|
|
$
|
1.0
|
|
|
$
|
0.2
|
|
Employer contributions, net
|
|
$
|
0.4
|
|
|
$
|
0.4
|
|
|
$
|
0.8
|
|
|
$
|
(0.3
|
)
|
The expected contributions to the Pension Plan, SERP and Postretirement Plan for the year ending December 31, 2020 are consistent with the amounts previously disclosed as of December 31, 2019.
13. Segment Reporting:
ASC 280-10, Disclosures About Segments of an Enterprise and Related Information (“ASC 280-10”), establishes standards for reporting information about operating segments. ASC 280-10 requires that a public business enterprise reports financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company’s President and Chief Executive Officer is identified as the CODM as defined by ASC 280-10. The operating segments of the Company are the following: Insurance, Energy and Specialized Markets, and Financial Services. These three operating segments are also the Company's reportable segments.
Each of the reportable segments, Insurance, Energy and Specialized Markets, and Financial Services has a portion of its revenue from more than one of the three revenue types described within the Company's revenue recognition policy. Below is the overview of the solutions offered within each reportable segment.
Insurance: The Company is the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. The Company’s databases include cleansed and standardized records describing premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants and fire suppression capabilities of municipalities. The Company uses this data to create policy language and proprietary risk classifications that are industry standards and to generate prospective loss cost estimates used to price insurance policies, which are accessed via a hosted platform. The Company also develops solutions that its customers use to analyze key processes in managing risk. The Company’s combination of algorithms and analytic methods incorporates its proprietary data to generate solutions. In most cases, the Company’s customers integrate the solutions into their models, formulas or underwriting criteria in order to predict potential loss events, ranging from hurricanes to earthquakes. The Company develops catastrophe and extreme event models and offers solutions covering natural and man-made risks, including acts of terrorism. The Company further develops solutions that allow customers to quantify costs after loss events occur. The Company's multitier, multispectral terrestrial imagery and data acquisition, processing, analytics, and distribution system using the remote sensing and machine learning technologies help gather, store, process, and deliver geographic and spatially referenced information that supports uses in many markets. Additionally, the Company offers fraud-detection solutions including review of data on claim histories, analysis of claims to find emerging patterns of fraud, and identification of suspicious claims in the insurance sector. The Company’s underwriting & rating, insurance anti-fraud claims, catastrophe modeling, loss quantification and aerial imagery solutions are included in this segment. During the first quarter of 2020, the CODM transferred Maplecroft, an immaterial component of the Energy and Specialized Markets segment, to the Insurance segment. Consequently, effective as of the first quarter 2020, Maplecroft became part of the underwriting and rating category within the Insurance segment. The Company previously reported results from Maplecroft under the Energy and Specialized Markets segment. The Company's prior year results have been recast to reflect this change. The related impact to the Company's condensed consolidated financial statements was not material for all periods presented.
Energy and Specialized Markets: The Company is a leading provider of data analytics via hosted platform for the global energy, chemicals, and metals and mining industries. Its research and consulting solutions focus on exploration strategies and screening, asset development and acquisition, commodity markets, and corporate analysis in the areas of business environment, business improvement, business strategies, commercial advisory, and transaction support. The Company gathers and manages proprietary information, insight, and analysis on oil and gas fields, mines, refineries and other assets across the interconnected global energy sectors to advise customers in making asset investment and portfolio allocation decisions. The Company also helps businesses and governments better anticipate and manage climate and weather-related risks. The Company's analytical tools measure and observe environmental properties and translate those measurements into actionable information based on customer needs. In addition, the Company provides market and cost intelligence to energy companies to optimize financial results. The Company further offers a suite of data and information services that enable improved compliance with global Environmental Health and Safety requirements related to the safe manufacturing, distribution, transportation, usage, and disposal of chemicals and products. The Company’s energy business, environmental health and safety services and, weather risk solutions are included in this segment.
Financial Services: The Company maintains a bank account consortia to provide competitive benchmarking, decisioning algorithms, business intelligence, and customized analytic services that help financial institutions, payment networks and processors, alternative lenders, regulators and merchants make better strategy, marketing, and risk decisions. Customers apply the Company's solutions in the areas of tailored data management and media effectiveness that include business intelligence platforms, profile views, mobile data solutions, enterprise database services, and fraud risk scoring algorithms for marketing, fraud, and risk mitigation. In addition, the Company's bankruptcy management solutions assist creditors, debt servicing businesses and credit services to enhance regulatory compliance by eliminating stay violation and portfolio valuation risk.
The three aforementioned operating segments represent the segments for which discrete financial information is available and upon which operating results are regularly evaluated by the CODM in order to assess performance and allocate resources. The Company uses EBITDA as the profitability measure for making decisions regarding ongoing operations. EBITDA is net income before interest expense, provision for income taxes, depreciation and amortization of fixed and intangible assets. EBITDA is the measure of operating results used to assess corporate performance and optimal utilization of debt and acquisitions. Operating expenses consist of direct and indirect costs principally related to personnel, facilities, software license fees, consulting, travel, and third-party information services. Indirect costs are generally allocated to the segments using fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. The Company does not allocate interest expense and provision for income taxes, since these items are not considered in evaluating the segment’s overall operating performance. In addition, the CODM does not evaluate the financial performance of each segment based on assets. See Note 3. Revenues for information on disaggregated revenues by type of service and by country.
The following tables provide the Company’s revenue and EBITDA by reportable segment for the three and six months ended June 30, 2020 and 2019, and the reconciliation of EBITDA to income before income taxes as shown in the accompanying condensed consolidated statements of operations:
|
|
For the Three Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
Insurance
|
|
|
Energy and Specialized Markets
|
|
|
Financial Services
|
|
|
Total
|
|
|
Insurance
|
|
|
Energy and Specialized Markets
|
|
|
Financial Services
|
|
|
Total
|
|
Revenues
|
|
$
|
486.4
|
|
|
$
|
154.4
|
|
|
$
|
38.0
|
|
|
$
|
678.8
|
|
|
$
|
471.0
|
|
|
$
|
137.3
|
|
|
$
|
44.3
|
|
|
$
|
652.6
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below)
|
|
|
(147.3
|
)
|
|
|
(66.0
|
)
|
|
|
(22.5
|
)
|
|
|
(235.8
|
)
|
|
|
(160.6
|
)
|
|
|
(57.4
|
)
|
|
|
(24.7
|
)
|
|
|
(242.7
|
)
|
Selling, general and administrative
|
|
|
(56.6
|
)
|
|
|
(35.5
|
)
|
|
|
(4.3
|
)
|
|
|
(96.4
|
)
|
|
|
(67.5
|
)
|
|
|
(39.4
|
)
|
|
|
(5.4
|
)
|
|
|
(112.3
|
)
|
Investment loss and others, net
|
|
|
(0.2
|
)
|
|
|
(0.6
|
)
|
|
|
0.1
|
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
(0.2
|
)
|
|
|
(0.1
|
)
|
|
|
(0.5
|
)
|
EBITDA
|
|
$
|
282.3
|
|
|
$
|
52.3
|
|
|
$
|
11.3
|
|
|
|
345.9
|
|
|
$
|
242.7
|
|
|
$
|
40.3
|
|
|
$
|
14.1
|
|
|
|
297.1
|
|
Depreciation and amortization of fixed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45.9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(45.7
|
)
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(41.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33.6
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(34.2
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(30.5
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
224.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
187.3
|
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2020
|
|
|
June 30, 2019
|
|
|
|
Insurance
|
|
|
Energy and Specialized Markets
|
|
|
Financial Services
|
|
|
Total
|
|
|
Insurance
|
|
|
Energy and Specialized Markets
|
|
|
Financial Services
|
|
|
Total
|
|
Revenues
|
|
$
|
975.8
|
|
|
$
|
314.5
|
|
|
$
|
78.3
|
|
|
$
|
1,368.6
|
|
|
$
|
924.5
|
|
|
$
|
265.8
|
|
|
$
|
87.3
|
|
|
$
|
1,277.6
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues (exclusive of items shown separately below)
|
|
|
(310.6
|
)
|
|
|
(136.5
|
)
|
|
|
(46.4
|
)
|
|
|
(493.5
|
)
|
|
|
(313.3
|
)
|
|
|
(111.9
|
)
|
|
|
(48.9
|
)
|
|
|
(474.1
|
)
|
Selling, general and administrative
|
|
|
(125.0
|
)
|
|
|
(74.4
|
)
|
|
|
(9.1
|
)
|
|
|
(208.5
|
)
|
|
|
(137.2
|
)
|
|
|
(75.7
|
)
|
|
|
(10.8
|
)
|
|
|
(223.7
|
)
|
Other operating income
|
|
|
15.9
|
|
|
|
—
|
|
|
|
3.5
|
|
|
|
19.4
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Investment loss and others, net
|
|
|
(1.4
|
)
|
|
|
(1.1
|
)
|
|
|
(0.4
|
)
|
|
|
(2.9
|
)
|
|
|
—
|
|
|
|
(0.7
|
)
|
|
|
(0.2
|
)
|
|
|
(0.9
|
)
|
EBITDA
|
|
$
|
554.7
|
|
|
$
|
102.5
|
|
|
$
|
25.9
|
|
|
|
683.1
|
|
|
$
|
474.0
|
|
|
$
|
77.5
|
|
|
$
|
27.4
|
|
|
|
578.9
|
|
Depreciation and amortization of fixed assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(92.2
|
)
|
Amortization of intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(82.0
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(66.9
|
)
|
Interest expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(67.6
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(62.4
|
)
|
Income before income taxes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
441.5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
357.4
|
|
Long-lived assets by country are provided below:
|
|
June 30, 2020
|
|
|
December 31, 2019
|
|
Long-lived assets:
|
|
|
|
|
|
|
|
|
U.S.
|
|
$
|
3,206.6
|
|
|
$
|
3,162.5
|
|
U.K.
|
|
|
2,483.2
|
|
|
|
2,685.3
|
|
Other countries
|
|
|
439.4
|
|
|
|
462.5
|
|
Total long-lived assets
|
|
$
|
6,129.2
|
|
|
$
|
6,310.3
|
|
14. Related Parties:
The Company considers its stockholders that own more than 5.0% of the outstanding stock within the class to be related parties as defined within ASC 850, Related Party Disclosures. As of June 30, 2020 and December 31, 2019, the Company had no material transactions with related parties owning more than 5.0% of the entire class of stock.
15. Commitments and Contingencies:
The Company is a party to legal proceedings with respect to a variety of matters in the ordinary course of business, including the matter described below. With respect to this ongoing matter, the Company is unable, at the present time, to determine the ultimate resolution of or provide a reasonable estimate of the range of possible loss attributable to this matter or the impact it may have on the Company’s results of operations, financial position or cash flows. Although the Company believes it has strong defenses and intends to appeal, the Company could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations, financial position or cash flows.
Xactware Solutions, Inc. Patent Litigation
On October 8, 2015, the Company was served with a summons and complaint in an action titled Eagle View Technologies, Inc. and Pictometry International Group, Inc. v. Xactware Solutions, Inc. and Verisk Analytics, Inc. filed in the United States District Court for the District of New Jersey. The complaint alleged that the Company’s Roof InSight (now known as Geomni Roof), Property InSight product (now known as Geomni Property) and Aerial Sketch product in combination with the Company's Xactimate product infringe seven patents owned by Eagle View and Pictometry namely, Patent Nos. 8,078,436 (the "436 patent"), 8,170,840 (the "840 patent"), 8,209,152 (the "152 patent"), 8,542,880 (the "880 patent"), 8,818,770 (the "770 patent"), 8,823,732 (the "732 patent"), and 8,825,454 (the "454 patent"). On November 30, 2015, plaintiffs filed a First Amended Complaint adding Patent Nos. 9,129,376 (the "376 patent") and 9,135,737 (the "737 patent") to the lawsuit. The First Amended Complaint sought an entry of judgment by the Court that defendants have and continue to directly infringe and/or indirectly infringe, including by way of inducement, the Patents-in-Suit, permanent injunctive relief, damages, costs and attorney’s fees. On May 19, 2017, the District Court entered a Joint Stipulated Order of Partial Dismissal with Prejudice dismissing all claims or assertions pertaining to the 880 and 732 patents, and certain asserted claims of the 436, 840, 152, 770, 454, 376 and 737 patents (collectively the “Patents in Suit”). Subsequently, Eagle View dropped the 152 patent and the 737 patent and reduced the number of asserted claims from the five remaining Patents in Suit to six asserted claims. On September 25, 2019, following a trial, the jury determined that the Company had willfully infringed the six asserted claims, and assessed damages in the amount of $125.0 million. After trial, Eagle View moved for a temporary restraining order (“TRO”) and a permanent injunction preventing the Company's sales of the Geomni Roof, Geomni Property and Aerial Sketch products in combination with Xactimate. The Court granted the motion for a TRO on September 26, 2019 and on October 18, 2019, issued an Order permanently enjoining the Company's sales of the Geomni Roof, Geomni Property and Aerial Sketch products in combination with Xactimate. In addition, Eagle View has asked the Court to award enhanced damages by trebling the jury's damages award, together with attorneys' fees, costs, and pre- and post-judgment interest. The Company opposed all of Eagle View's requests and also asked the Court for judgment as a matter of law and for a new trial. Eagle View opposed the Company's requests. The Court's decision is expected in the second half of 2020. If the Court does not grant the Company's motion for judgment as a matter of law and for a new trial, the Company plans to appeal the result of the trial as well as the subsequent order granting the permanent injunction. Following the outcome of the trial, the Company established a $125.0 million reserve in connection with this litigation, which was included in Selling, general and administrative expenses in the consolidated statements of operations for the year ended December 31, 2019. It is not reasonably possible to determine the ultimate resolution of this matter at this time. While the ultimate resolution of this matter remains uncertain at this time, should the Court grant Eagle View's request for enhanced damages, the Company could incur additional expenses up to the amount by which any enhanced damages award exceeds the existing $125.0 million reserve.
16. Subsequent Events:
In June 2020, the Company entered into an additional ASR agreement with Bank of America N.A. to repurchase shares of its common stock for an aggregate purchase price of $50.0 million. Upon payment of the aggregate purchase price on July 1, 2020, the Company received an initial delivery of 235,018 shares of its common stock at a price of $170.20 per share, representing approximately $40.0 million of the aggregate purchase price. Upon the final settlement of the ASR agreement in September 2020, the Company may be entitled to receive additional shares of its common stock or, under certain limited circumstances, be required to deliver shares to the counter-party. See Note 10. Stockholders' Equity for further discussion.
On July 1, 2020, the Company granted 4,080 shares of common stock, 3,570 non-qualified stock options that were immediately vested, 12,090 non-qualified stock options with a one-year service period that vest ratably over twelve months, and 7,180 deferred stock units to the Directors of the Company. The Company also granted 8,174 stock options to participants under the UK Sharesave Plan.
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