filings.toolsItem 8. Consolidated Financial Statements and Supplementary Data
222K characters. Original on sec.gov · Markdown
Item 8. Consolidated Financial Statements and Supplementary Data
Index to Consolidated Financial Statements and Schedule
| Verisk Analytics, Inc. Consolidated Financial Statements as of December 31, 2022 and 2021 and for the Years Ended December 31, 2022, 2021, and 2020. | |
|---|---|
| Report of Independent Registered Public Accounting Firm (PCAOB ID No. 34) | 54 |
| Consolidated Balance Sheets | 56 |
| Consolidated Statements of Operations | 57 |
| Consolidated Statements of Comprehensive Income | 58 |
| Consolidated Statements of Changes in Stockholders' Equity | 59 |
| Consolidated Statements of Cash Flows | 60 |
| Notes to Consolidated Financial Statements | 62 |
| Financial Statements Schedule | |
| Schedule II, Valuation and Qualifying Accounts and Reserves | 99 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of Verisk Analytics, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Verisk Analytics, Inc. and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes and the schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 28, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill - Energy and Specialized Markets Reportable Segment - Refer to Notes 2 and 12 to the financial statements
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using the discounted cash flow model and the market approach. The determination of fair value using the discounted cash flow model requires management to make significant estimates and assumptions related to forecasts of future revenues, EBITDA margins, and the discount rate. The determination of fair value using the market approach requires management to make significant estimates and assumptions related to the selection of revenue and EBITDA multiples. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance was $3,812.3 million as of December 31, 2022 of which $2,136.3 million was classified as held for sale attributable to the Energy and Specialized Markets reportable segment.
Given the significant judgments made by management to estimate the fair value of the Energy and Specialized Markets reportable segment, including management’s judgments in selecting significant assumptions to forecast future revenues, EBITDA margins, and the discount rate, as well as the selection of revenue and EBITDA multiples, performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions for the Energy and Specialized Markets reportable segment required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists.
How the Critical Audit Matter was addressed in the Audit
Our audit procedures related to forecasts of future revenue and EBITDA margins, selection of the discount rate used within the income approach and selection of the revenue and EBITDA multiples used in the market approach for the Energy and Specialized Markets reportable segment included the following, among others:
| • | We tested the effectiveness of controls over management’s goodwill impairment evaluation, including those over the determination of the fair value of the Energy and Specialized Markets reportable segment such as controls related to management’s selection of the discount rate, forecasts of future revenue and revenue and EBITDA multiples. | |
|---|---|---|
| • | We evaluated management’s ability to accurately forecast future revenues and EBITDA margins by comparing actual results to management’s historical forecasts. | |
| • | We evaluated the reasonableness of management’s revenue and EBITDA margin forecasts by comparing the forecasts to: |
| ◦ | Historical revenues and EBITDA margins. | |
|---|---|---|
| ◦ | Internal communications to management and the Board of Directors. | |
| ◦ | Forecasted information included in Company press releases, as well as in analyst and industry reports for the Company and certain peer companies. |
| • | With the assistance of our fair value specialists, we evaluated the reasonableness of the (1) valuation methodologies (2) revenue and EBITDA multiples and (3) the discount rate by: |
|---|
| ◦ | Evaluating the market approach, including evaluating the reasonableness of the selected guideline public companies and the resulting multiples calculations, as well as benchmarking the selected multiples against these guideline public companies. | |
|---|---|---|
| ◦ | Assessing the acceptability of the weighting applied to value indications from different valuation techniques. |
| ◦ | Assessing the acceptability of the implied company-specific risk premium. With respect to the market value of equity, we tested the calculations used in developing the respective market value of equity. |
|---|
| ◦ | Testing the source information underlying the determination of the discount rate, the selection of the revenue and EBITDA multiples and the mathematical accuracy of the calculations. |
|---|
| ◦ | Developing a range of independent estimates and comparing those to the discount rate selected by management. |
|---|
/s/ Deloitte & Touche LLP
Morristown, New Jersey
February 28, 2023
We have served as the Company's auditor since 2001.
CONSOLIDATED BALANCE SHEETS
As of December 31, 2022 and 2021
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions, except par value and number of shares) | ||||||||
| ASSETS: | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 112.5 | $ | 111.9 | ||||
| Accounts receivable, net | 290.1 | 299.9 | ||||||
| Prepaid expenses | 83.7 | 87.8 | ||||||
| Income taxes receivable | 44.2 | 41.4 | ||||||
| Other current assets | 32.0 | 31.4 | ||||||
| Current assets held-for-sale | 362.6 | 335.0 | ||||||
| Total current assets | 925.1 | 907.4 | ||||||
| Noncurrent assets: | ||||||||
| Fixed assets, net | 541.5 | 531.4 | ||||||
| Operating lease right-of-use assets, net | 182.0 | 224.0 | ||||||
| Intangible assets, net | 504.8 | 482.3 | ||||||
| Goodwill | 1,676.0 | 2,047.6 | ||||||
| Deferred income tax assets | 31.7 | 1.8 | ||||||
| Other noncurrent assets | 371.4 | 409.4 | ||||||
| Noncurrent assets held for sale | 2,728.6 | 3,204.2 | ||||||
| Total assets | $ | 6,961.1 | $ | 7,808.1 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | 292.8 | $ | 262.1 | ||||
| Short-term debt and current portion of long-term debt | 1,392.9 | 971.3 | ||||||
| Deferred revenues | 321.7 | 347.8 | ||||||
| Operating lease liabilities | 29.5 | 31.7 | ||||||
| Income taxes payable | - | 3.0 | ||||||
| Current liabilities held-for-sale | 282.3 | 232.1 | ||||||
| Total current liabilities | 2,319.2 | 1,848.0 | ||||||
| Noncurrent liabilities: | ||||||||
| Long-term debt | 2,343.2 | 2,342.8 | ||||||
| Deferred income tax liabilities | 145.6 | 290.3 | ||||||
| Operating lease liabilities | 189.9 | 231.3 | ||||||
| Other noncurrent liabilities | 17.9 | 43.3 | ||||||
| Noncurrent liabilities held-for-sale | 177.6 | 209.9 | ||||||
| Total liabilities | 5,193.4 | 4,965.6 | ||||||
| Commitments and contingencies (Note 21) | ||||||||
| Stockholders’ equity: | ||||||||
| Common stock, $.001 par value; 2,000,000,000 shares authorized; 544,003,038 shares issued; 154,701,136 and 161,651,639 shares outstanding, respectively | 0.1 | 0.1 | ||||||
| Additional paid-in capital | 2,720.8 | 2,608.7 | ||||||
| Treasury stock, at cost, 389,301,902 and 382,351,399 shares, respectively | (6,239.5 | ) | (4,638.1 | ) | ||||
| Retained earnings | 5,999.1 | 5,240.4 | ||||||
| Accumulated other comprehensive losses | (731.2 | ) | (394.6 | ) | ||||
| Total Verisk stockholders' equity | 1,749.3 | 2,816.5 | ||||||
| Noncontrolling interests | 18.4 | 26.0 | ||||||
| Total stockholders’ equity | 1,767.7 | 2,842.5 | ||||||
| Total liabilities and stockholders’ equity | $ | 6,961.1 | $ | 7,808.1 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF OPERATIONS
For The Years Ended December 31, 2022, 2021, and 2020
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions, except per share amounts and number of shares) | ||||||||||||
| Revenues | $ | 2,497.0 | $ | 2,462.5 | $ | 2,269.4 | ||||||
| Operating expenses: | ||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 824.6 | 853.7 | 791.7 | |||||||||
| Selling, general and administrative | 381.5 | 313.2 | 308.2 | |||||||||
| Depreciation and amortization of fixed assets | 164.2 | 170.3 | 159.2 | |||||||||
| Amortization of intangible assets | 74.4 | 79.9 | 73.4 | |||||||||
| Other operating (income) loss | (354.2 | ) | 134.0 | (19.4 | ) | |||||||
| Total operating expenses | 1,090.5 | 1,551.1 | 1,313.1 | |||||||||
| Operating income | 1,406.5 | 911.4 | 956.3 | |||||||||
| Other income (expense): | ||||||||||||
| Investment (loss) income and others, net | (5.3 | ) | 2.1 | 0.4 | ||||||||
| Interest expense | (138.8 | ) | (127.0 | ) | (138.3 | ) | ||||||
| Total other expense, net | (144.1 | ) | (124.9 | ) | (137.9 | ) | ||||||
| Income from continuing operations before income taxes | 1,262.4 | 786.5 | 818.4 | |||||||||
| Provision for income taxes | (220.3 | ) | (179.4 | ) | (164.6 | ) | ||||||
| Income from continuing operations | 1,042.1 | 607.1 | 653.8 | |||||||||
| (Loss) income from discontinued operations, net of tax benefit (expense) of $131.5, $(29.7) and $(20.1), respectively (Note 11) | (87.8 | ) | 59.2 | 58.9 | ||||||||
| Net Income | 954.3 | 666.3 | 712.7 | |||||||||
| Less: Net income attributable to noncontrolling interests | (0.4 | ) | (0.1 | ) | - | |||||||
| Net income attributable to Verisk | $ | 953.9 | $ | 666.2 | $ | 712.7 | ||||||
| Basic net income per share attributable to Verisk: | ||||||||||||
| Income from continuing operations | $ | 6.60 | $ | 3.75 | $ | 4.02 | ||||||
| Income from discontinued operations | (0.56 | ) | 0.37 | 0.36 | ||||||||
| Basic net income per share attributable to Verisk: | $ | 6.04 | $ | 4.12 | $ | 4.38 | ||||||
| Diluted net income per share attributable to Verisk: | ||||||||||||
| Income from continuing operations | $ | 6.55 | $ | 3.72 | $ | 3.95 | ||||||
| Income from discontinued operations | (0.55 | ) | 0.36 | 0.36 | ||||||||
| Diluted net income per share attributable to Verisk: | $ | 6.00 | $ | 4.08 | $ | 4.31 | ||||||
| Weighted average shares outstanding: | ||||||||||||
| Basic | 157,905,718 | 161,841,441 | 162,610,586 | |||||||||
| Diluted | 158,928,942 | 163,338,909 | 165,320,709 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For The Years Ended December 31, 2022, 2021, and 2020
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | ||||||||||||
| Net income | $ | 954.3 | $ | 666.3 | $ | 712.7 | ||||||
| Other comprehensive (loss) income, net of tax: | ||||||||||||
| Foreign currency translation adjustment | (300.3 | ) | (46.3 | ) | 107.9 | |||||||
| Pension and postretirement liability adjustment | (37.7 | ) | 26.9 | 3.3 | ||||||||
| Total other comprehensive (loss) income | (338.0 | ) | (19.4 | ) | 111.2 | |||||||
| Comprehensive income | 616.3 | 646.9 | 823.9 | |||||||||
| Less: Comprehensive loss attributable to noncontrolling interests | 1.1 | 0.4 | - | |||||||||
| Comprehensive income attributable to Verisk | $ | 617.4 | $ | 647.3 | $ | 823.9 |
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
For The Years Ended December 31, 2022, 2021, and 2020
| Common Stock Issued | Par Value | Additional Paid-in Capital | Treasury Stock | Retained Earnings | Accumulated Other Comprehensive Losses | Total Verisk Stockholders' Equity | Noncontrolling Interests | Total Stockholders’ Equity | ||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions, except for share data) | ||||||||||||||||||||||||||||||||||||
| Balance as of January 1, 2020 | 544,003,038 | $ | 0.1 | $ | 2,369.1 | $ | (3,849.9 | ) | $ | 4,228.4 | $ | (486.9 | ) | $ | 2,260.8 | $ | — | $ | 2,260.8 | |||||||||||||||||
| Adjustment to opening retained earnings related to Topic 326 | - | - | - | - | (2.4 | ) | - | (2.4 | ) | - | (2.4 | ) | ||||||||||||||||||||||||
| Net income | - | - | - | - | 712.7 | - | 712.7 | - | 712.7 | |||||||||||||||||||||||||||
| Common stock dividend (1) | - | - | - | - | (176.5 | ) | - | (176.5 | ) | - | (176.5 | ) | ||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | 111.2 | 111.2 | - | 111.2 | |||||||||||||||||||||||||||
| Treasury stock acquired (2,155,084 shares) | - | - | - | (348.8 | ) | - | - | (348.8 | ) | - | (348.8 | ) | ||||||||||||||||||||||||
| Stock options exercised (1,623,740 shares transferred from treasury stock) | - | - | 74.9 | 17.3 | - | - | 92.2 | - | 92.2 | |||||||||||||||||||||||||||
| Restricted stock ("RSA") lapsed (142,362 shares transferred from treasury stock) | - | - | (1.5 | ) | 1.5 | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | 47.6 | - | - | - | 47.6 | - | 47.6 | |||||||||||||||||||||||||||
| Net share settlement from RSA (27,890 shares withheld for tax settlement) | - | - | (4.1 | ) | - | - | - | (4.1 | ) | - | (4.1 | ) | ||||||||||||||||||||||||
| Other stock issuances (44,944 shares transferred from treasury stock) | - | - | 4.9 | 0.6 | - | - | 5.5 | - | 5.5 | |||||||||||||||||||||||||||
| Balance as of December 31, 2020 | 544,003,038 | 0.1 | 2,490.9 | (4,179.3 | ) | 4,762.2 | (375.7 | ) | 2,698.2 | - | 2,698.2 | |||||||||||||||||||||||||
| Net income | - | - | - | - | 666.2 | - | 666.2 | 0.1 | 666.3 | |||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | (18.9 | ) | (18.9 | ) | (0.5 | ) | (19.4 | ) | |||||||||||||||||||||||
| Investment in noncontrolling interests | - | - | - | - | - | - | - | 26.4 | 26.4 | |||||||||||||||||||||||||||
| Common stock dividend (1) | - | - | - | - | (188.0 | ) | - | (188.0 | ) | - | (188.0 | ) | ||||||||||||||||||||||||
| Treasury stock acquired (2,545,191 shares) | - | - | - | (475.0 | ) | - | - | (475.0 | ) | - | (475.0 | ) | ||||||||||||||||||||||||
| Stock options exercised (1,146,368 shares transferred from treasury stock) | - | - | 70.4 | 13.6 | - | - | 84.0 | - | 84.0 | |||||||||||||||||||||||||||
| PSUs lapsed (50,898 shares issued from treasury stock) | - | - | (0.6 | ) | 0.6 | - | - | - | - | - | ||||||||||||||||||||||||||
| RSAs lapsed (135,664 shares transferred from treasury stock) | - | - | (1.5 | ) | 1.5 | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock-based compensation | - | - | 55.7 | - | - | - | 55.7 | - | 55.7 | |||||||||||||||||||||||||||
| Net share settlement from PSUs and RSAs (60,101 shares withheld for tax settlement) | - | - | (11.8 | ) | - | - | - | (11.8 | ) | - | (11.8 | ) | ||||||||||||||||||||||||
| Other stock issuances (45,374 shares transferred from treasury stock) | - | - | 5.6 | 0.5 | - | - | 6.1 | - | 6.1 | |||||||||||||||||||||||||||
| Balance as of December 31, 2021 | 544,003,038 | 0.1 | 2,608.7 | (4,638.1 | ) | 5,240.4 | (394.6 | ) | 2,816.5 | 26.0 | 2,842.5 | |||||||||||||||||||||||||
| Net income | - | - | - | - | 953.9 | - | 953.9 | 0.4 | 954.3 | |||||||||||||||||||||||||||
| Other comprehensive income | - | - | - | - | - | (335.5 | ) | (335.5 | ) | (1.4 | ) | (336.9 | ) | |||||||||||||||||||||||
| Investment in noncontrolling interests | - | - | (0.5 | ) | - | - | (1.1 | ) | (1.6 | ) | (6.6 | ) | (8.2 | ) | ||||||||||||||||||||||
| Common stock dividend (1) | - | - | - | - | (195.2 | ) | - | (195.2 | ) | - | (195.2 | ) | ||||||||||||||||||||||||
| Treasury stock acquired (8,600,963 shares) | - | - | - | (1,662.5 | ) | - | - | (1,662.5 | ) | - | (1,662.5 | ) | ||||||||||||||||||||||||
| Treasury stock share repurchased not yet settled | (37.5 | ) | 37.5 | - | - | - | - | |||||||||||||||||||||||||||||
| Stock options exercised (1,435,076 shares transferred from treasury stock) | - | - | 111.9 | 20.6 | - | - | 132.5 | - | 132.5 | |||||||||||||||||||||||||||
| PSUs lapsed (49,803 shares issued from treasury stock) | - | - | (0.6 | ) | 0.6 | - | - | - | - | - | ||||||||||||||||||||||||||
| RSAs lapsed (122,340 shares transferred from treasury stock) | - | - | (1.7 | ) | 1.7 | - | - | - | - | - | ||||||||||||||||||||||||||
| Stock-based compensation expense | - | - | 56.5 | - | - | - | 56.5 | - | 56.5 | |||||||||||||||||||||||||||
| Net share settlement from PSUs and RSAs (99,977 shares withheld for tax settlement) | - | - | (20.7 | ) | - | - | - | (20.7 | ) | - | (20.7 | ) | ||||||||||||||||||||||||
| Other stock issuances (43,241 shares transferred from treasury stock) | - | - | 4.7 | 0.7 | - | - | 5.4 | - | 5.4 | |||||||||||||||||||||||||||
| Balance as of December 31, 2022 | 544,003,038 | $ | 0.1 | $ | 2,720.8 | $ | (6,239.5 | ) | $ | 5,999.1 | $ | (731.2 | ) | $ | 1,749.3 | $ | 18.4 | $ | 1,767.7 |
(1) Refer to Note 16. Stockholders' Equity for discussion related to quarterly cash dividends declared per share
The accompanying notes are an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For The Years Ended December 31, 2022, 2021, and 2020
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions) | ||||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 954.3 | $ | 666.3 | $ | 712.7 | ||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
| Depreciation and amortization of fixed assets | 197.1 | 206.9 | 192.2 | |||||||||
| Amortization of intangible assets | 142.9 | 176.7 | 165.9 | |||||||||
| Amortization of debt issuance costs and original issue discount, net of original issue premium | 1.1 | 1.4 | 1.8 | |||||||||
| Provision for doubtful accounts | 7.0 | 17.7 | 13.1 | |||||||||
| Gain on sale of assets, net | (393.9 | ) | — | (19.4 | ) | |||||||
| Stock-based compensation expense | 56.5 | 55.7 | 47.6 | |||||||||
| Impairment of long lived assets | 377.4 | 134.0 | — | |||||||||
| Deferred income taxes | (261.0 | ) | 49.8 | 31.1 | ||||||||
| Loss on disposal of fixed assets, net | 1.1 | 0.4 | 0.6 | |||||||||
| Changes in assets and liabilities, net of effects from acquisitions: | ||||||||||||
| Accounts receivable | (57.7 | ) | (29.7 | ) | 1.8 | |||||||
| Prepaid expenses and other assets | (8.4 | ) | (33.6 | ) | (66.5 | ) | ||||||
| Operating lease right-of-use assets, net | 46.6 | 41.3 | 43.1 | |||||||||
| Income taxes | 25.6 | (5.7 | ) | (0.5 | ) | |||||||
| Acquisition-related liabilities | — | — | (77.0 | ) | ||||||||
| Accounts payable and accrued liabilities | (21.2 | ) | (80.8 | ) | 24.3 | |||||||
| Deferred revenues | 64.5 | 32.4 | 21.2 | |||||||||
| Operating lease liabilities | (43.9 | ) | (41.3 | ) | (29.6 | ) | ||||||
| Other liabilities | (29.0 | ) | (35.8 | ) | 5.8 | |||||||
| Net cash provided by operating activities | 1,059.0 | 1,155.7 | 1,068.2 | |||||||||
| Cash flows from investing activities: | ||||||||||||
| Acquisitions and purchases of controlling interests, net of cash acquired of $17.4, $9.3, and $11.1, respectively | (448.9 | ) | (289.8 | ) | (275.8 | ) | ||||||
| Proceeds from sale of businesses | 1,073.3 | — | 23.1 | |||||||||
| Investments in nonpublic companies | (46.0 | ) | (23.6 | ) | (94.8 | ) | ||||||
| Escrow funding associated with acquisitions | (2.3 | ) | (9.2 | ) | (9.3 | ) | ||||||
| Capital expenditures | (274.7 | ) | (268.4 | ) | (246.8 | ) | ||||||
| Payment of contingent liability related to acquisitions | — | (1.2 | ) | — | ||||||||
| Other investing activities, net | — | 0.2 | 7.8 | |||||||||
| Net cash provided by (used in) investing activities | 301.4 | (592.0 | ) | (595.8 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
VERISK ANALYTICS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
For The Years Ended December 31, 2022, 2021, and 2020
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (in millions) | ||||||||||||
| Cash flows from financing activities: | ||||||||||||
| Proceeds from (repayment of) short-term debt, net | 380.0 | 560.0 | (445.0 | ) | ||||||||
| Repayments of current portion of long-term debt | (350.0 | ) | (450.0 | ) | - | |||||||
| Proceeds from issuance of long-term debt, inclusive of original issue premium and net of original issue discount | - | - | 494.8 | |||||||||
| Proceeds from issuance of short-term debt with original maturities less than three month | 400.0 | - | - | |||||||||
| Proceeds from issuance of short-term debt with original maturities greater than three months | - | - | 20.0 | |||||||||
| Repayment of short-term debt with original maturities greater than three months | - | - | (20.0 | ) | ||||||||
| Payment of debt issuance costs | - | - | (5.7 | ) | ||||||||
| Repurchases of common stock | (1,662.5 | ) | (475.0 | ) | (348.8 | ) | ||||||
| Net share settlement of taxes from restricted stock and performance share awards | (20.7 | ) | (11.8 | ) | (4.1 | ) | ||||||
| Payment of contingent liability related to acquisitions | - | - | (34.2 | ) | ||||||||
| Proceeds from stock options exercised | 132.5 | 84.3 | 88.0 | |||||||||
| Dividends paid | (195.2 | ) | (188.2 | ) | (175.8 | ) | ||||||
| Other financing activities, net | (14.3 | ) | (18.2 | ) | (14.4 | ) | ||||||
| Net cash (used in) provided by financing activities | (1,330.2 | ) | (498.9 | ) | (445.2 | ) | ||||||
| Effect of exchange rate changes | (17.8 | ) | (3.3 | ) | 7.0 | |||||||
| Increase in cash and cash equivalents | 12.4 | 61.5 | 34.2 | |||||||||
| Cash and cash equivalents, beginning of period | 280.3 | 218.8 | 184.6 | |||||||||
| Cash and cash equivalents, end of period | $ | 292.7 | $ | 280.3 | $ | 218.8 | ||||||
| Supplemental disclosures: | ||||||||||||
| Income taxes paid | $ | 324.5 | $ | 175.0 | $ | 156.5 | ||||||
| Interest paid | $ | 134.3 | $ | 129.0 | $ | 134.3 | ||||||
| Noncash investing and financing activities: | ||||||||||||
| Deferred tax liability established on date of acquisitions | $ | 14.0 | $ | 21.0 | $ | 13.0 | ||||||
| Finance lease additions, net of disposals | $ | 5.2 | $ | 7.0 | $ | 30.9 | ||||||
| Operating lease additions, net of terminations | $ | 21.7 | $ | 22.4 | $ | 87.8 | ||||||
| Fixed assets included in accounts payable and accrued liabilities | $ | 0.2 | $ | 5.3 | $ | 0.8 | ||||||
| Noncash contribution of assets for a nonpublic company | $ | - | $ | - | $ | 65.9 |
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in millions, except for share and per share data, unless otherwise stated)
Verisk Analytics, Inc. is a data analytics provider serving customers in the insurance markets. Using various technologies to collect and analyze billions of records, we draw on numerous data assets and domain expertise to provide first-to-market innovations that are integrated into customer workflows. We offer predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, and many other fields. Around the world, we help customers protect people, property, and financial assets. We trade under the ticker symbol “VRSK” on the Nasdaq Global Select Market.
2. Basis of Presentation and Summary of Significant Accounting Policies:
Our accompanying consolidated financial statements have been prepared on the basis of accounting principles generally accepted in the United States of America (“U.S. GAAP”). The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, 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 equity awards granted, and assets and liabilities for pension and postretirement benefits. Actual results may ultimately differ from those estimates. Certain reclassifications, including combining acquisition-related liabilities into the "Accounts payable and accrued liabilities" line in 2021 (they used to be shown as a separate line item) and moving Atmospheric and Environmental Research ("AER"), an immaterial component, from the Energy and Specialized Markets segment to the underwriting and rating category within the Insurance segment, have been made within our consolidated balance sheets, consolidated statements of operations, consolidated statements of cash flows, and in our notes to conform to our respective 2021 presentation.
On October 28, 2022, we entered into an equity purchase agreement to sell our Energy business. We determined that the sale of our Energy business met the “held for sale” criteria and the “discontinued operations” criteria in accordance with Financial Accounting Standard Boards (“FASB”) Accounting Standards Codification (“ASC”) 205-20, Discontinued Operations (“ASC 205-20”) in the fourth quarter of 2022 due to its relative size and strategic rationale. The consolidated balance sheets and consolidated statements of operations, and the notes to the consolidated financial statements were recasted for all periods presented to reflect the discontinuation of the Energy business, in accordance with ASC 205-20. The discussion in the notes to these consolidated financial statements, unless otherwise noted, relate solely to our continuing operations.
Significant accounting policies include the following:
(a) Intercompany Accounts and Transactions
The consolidated financial statements include all of our accounts. All intercompany accounts and transactions have been eliminated.
(b) Revenue Recognition
The following describes our primary types of revenues and the applicable revenue recognition policies. We recognize revenues through recurring and non-recurring long-term agreements (generally one to five years) for hosted subscriptions, advisory/consulting services, and for transactional solutions. Our revenues are primarily derived from the sale of services where revenue is recognized when control of the promised services is transferred to customers in an amount that reflects the consideration that we expect to be entitled to in exchange for those services. Fees for services provided by us are non-refundable. Revenue is recognized net of applicable sales tax withholdings.
Hosted Subscriptions
We offer two forms of hosted subscriptions. The first and most prevalent form of hosted subscription is where customers access content only through our online portal (the "Hosted Subscription"). We grant a license to our customer to enter our online portal. The license is a contractual mechanism that allows our customer to access our online portal for a defined period of time. As the license alone does not provide utility to our customer, our customer has no contractual right to take possession of our online portal at any time, and our customer cannot engage another party to host our online portal and related content, it is not considered a functional license under Topic 606. Our promise to our customer is to provide continuous access to our online portal and to update the content throughout the subscription period. Hosted Subscription is a single performance obligation that represents a series of distinct services (daily access to our online portal and related content) that are substantially the same and that have the same pattern of transfer to our customer. We recognize revenue for Hosted Subscriptions ratably over the subscription period on a straight-line basis as services are performed and continuous access to information in our online portal is provided over the entire term of the agreements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The second form of hosted subscription is where customers have access to our online portals combined with software content that is delivered via disk drive/download to our customer (“Hosted Subscription with Disk Drive/Download”) and is offered only on a limited basis. For this form of hosted subscription, we also grant our customer a license to enter our online portal as well as access the software content as needed and act as the same contractual mechanism as described for Hosted Subscriptions. The Hosted Subscription with Disk Drive/Download works in such a manner that our customer gains significant benefit, functionality, and overall utility only when the online portal and the software content are used together. The disk drive/download contains the models while the online portal contains the latest data and research which is updated throughout the subscription period. The models within the disk drive/download depend on the data and research contained within our online portal. The data and research within our online portal is only useful when our customer can utilize it within the models (e.g., queries, projections, etc.) so that they may use the most current information and alerts to forecast potential future losses. The software content is only sold together with our online portal to provide a highly interdependent and interrelated promise and therefore represents a single performance obligation. As our customer has no contractual right to take possession of our online portal at any time, and our customer cannot engage another party to host our online portal and related software content, it is not considered a functional license under Topic 606. Our promise to our customer is to deliver the disk drive/download, to provide continuous access to our online portal, and to update the software content throughout the subscription period. We recognize revenue for Hosted Subscriptions with Disk Drive/Download ratably over the subscription period on a straight-line basis as services are performed and continuous access to information is provided over the entire term of the agreements.
Subscriptions are generally paid in advance of rendering services either quarterly or annually upon commencement of the subscription period, which is usually for one year and in most instances automatically renewed each year.
Advisory/Consulting Services
We provide certain discrete project based advisory/consulting services, which are recognized over time by measuring the progress toward complete satisfaction of the performance obligation, based on the input method of consulting hours worked; this aligns with the results achieved and value transferred to our customer. The hours consumed are most reflective of the measure of progress towards satisfying the performance obligation, as the resources hours worked directly tie to the progress of the services to be provided. In general, they are billed over the course of the project.
Transactional Solutions
Certain solutions are also paid for by customers on a transactional basis. We recognize these revenues as the solutions are delivered or services performed at a point in time. In general, our customers are billed monthly at the end of each month.
(c) Deferred Revenues
We invoice our customers in annual, quarterly, monthly, or milestone installments. Amounts billed and/or collected in advance of services being provided are recorded as “Deferred revenues” and “Other noncurrent liabilities” in our accompanying consolidated balance sheets and are recognized as the services are performed, control is transferred to customers, and the applicable revenue recognition criteria is met.
(d) Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are generally recorded at the invoiced amount. Unbilled receivables are short-term in nature and expected to be billed within one year. The allowance for doubtful accounts or expected credit losses is estimated based on an analysis of the aging of the accounts receivable, historical write-offs, customer payment patterns, individual customer credit worthiness, current economic trends, reasonable and supportable forecasts of future economic conditions, and/or establishment of specific reserves for customers in adverse financial condition. We assess the adequacy of the allowance for doubtful accounts on a quarterly basis.
(e) Deferred Commissions
We recognize an asset for the incremental costs of obtaining a contract with a customer if we expect the benefit of those costs to be longer than one year. We have determined that certain sales incentive programs meet the requirements to be capitalized. The incremental costs of obtaining a contract with a customer, which primarily consist of sales commissions, are deferred and amortized over a useful life of five years that is consistent with the transfer to our customer the services to which the asset relates. We classify deferred commissions as current or noncurrent based on the timing of expense recognition. The current and noncurrent portions of deferred commissions are included in "Prepaid expenses" and "Other noncurrent assets", respectively, in our consolidated balance sheets as of December 31, 2022. Amortization expense related to deferred commissions is computed on a straight-line basis over its estimated useful lives and included in "Selling, general and administrative" within our accompanying consolidated statements of operations.
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(f) Fixed Assets and Finite-lived Intangible Assets
Fixed assets and finite-lived intangibles are stated at cost less accumulated depreciation and amortization, which are computed on a straight-line basis over their estimated useful lives. Leasehold improvements are amortized over the shorter of the useful life of the asset or the lease term.
Our internal software development costs primarily relate to internal-use software. Such costs are capitalized in the application development stage in accordance with ASC 350-40, Internal-use Software ("ASC 350-40"). We also capitalize software development costs upon the establishment of technological feasibility for a product in accordance with ASC 985-20, Software to be Sold, Leased, or Marketed (“ASC 985-20”). Software development costs are amortized on a straight-line basis.
In accordance with ASC 360, Property, Plant & Equipment, whenever events or changes in circumstances indicate that the carrying amount of long-lived assets and finite-lived intangible assets may not be recoverable, we review our long-lived assets and finite-lived intangible assets for impairment by first comparing the carrying value of our assets to the sum of the undiscounted cash flows expected to result from the use and eventual disposition of our assets. If the carrying value exceeds the sum of our assets’ undiscounted cash flows, we estimate and recognize an impairment loss by taking the difference between the carrying value and fair value of our assets. In the first quarter of 2022, we reassessed the recoverability of long-lived assets for our Financial Services reporting unit and recorded a $73.7 million impairment. For the year ended 2021, we had a $134.0 million impairment to the long-lived assets for our Financial Services reporting unit including $88.2 million to intangible assets and $45.8 million to fixed assets. Please refer to Note 9. Fixed Assets and Note 12. Goodwill and Intangible Assets for more information.
(g) Leases
We have operating and finance leases for corporate offices, data centers, and certain equipment that are accounted for under ASC 842, Leases. The lease term for our corporate headquarters ends in 2033 and includes the options to extend for one 10-year renewal period and two 5-year renewal periods.
We determine if an arrangement is a lease at inception. We consider any contract where there is an identified asset and that it has the right to control the use of such asset in determining whether the contract contains a lease. A ROU asset represents our right to use an underlying asset for the lease term and the lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and lease liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our operating leases do not provide an implicit rate, we use an incremental borrowing rate based on the information available on the adoption date in determining the present value of lease payments. The incremental borrowing rate was calculated by using our credit rating on our publicly-traded U.S. unsecured bonds and estimating an appropriate credit rating for similar secured debt instruments. Our calculated credit rating on secured debt instruments determined the yield curve used. We calculated an implied spread and applied the spreads to the risk-free interest rates based on the yield of the U.S. Treasury zero coupon securities with a maturity equal to the remaining lease term in determining the borrowing rates for all operating leases. Our operating lease ROU assets include any lease payments made prior to the rent commencement date and exclude lease incentives. Lease expense for lease payments are recognized on a straight-line basis over the lease term. Operating lease transactions are included in "Operating lease right-of-use assets, net", and "Operating lease liabilities", current and noncurrent, within our accompanying consolidated balance sheets. Finance leases are included in property and equipment under "Fixed assets, net", "Short-term debt and current portion of long-term debt", and "Long-term debt" within our accompanying consolidated balance sheets.
(h) Fair Value of Financial and Non-financial Instruments
We follow the provisions of ASC 820-10, Fair Value Measurements (“ASC 820-10”), which defines fair value, establishes a framework for measuring fair value under U.S. GAAP and expands fair value measurement disclosures. We follow the provisions of ASC 820-10 for our financial assets and liabilities recognized or disclosed at fair value on a recurring basis. We follow the provisions of ASC 820-10 for our non-financial assets and liabilities recognized or disclosed at fair value.
(i) Foreign Currency
We have determined local currencies are the functional currencies of our foreign operations. The assets and liabilities of foreign subsidiaries are translated at the period-end rate of exchange and statement of operations items are translated at the average rates prevailing during the year. The resulting translation adjustment is recorded as a component of “Accumulated other comprehensive losses” in our accompanying consolidated statements of changes in stockholders’ equity.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(j) Stock-Based Compensation
We follow ASC 718, Stock Compensation (“ASC 718”). Under ASC 718, stock-based compensation cost is measured at the grant date, based on the fair value of the awards granted, and is recognized as expense over the requisite service period.
Our nonqualified stock options have an exercise price equal to the closing price of our common stock on the grant date, with a ten-year contractual term. The expected term for our stock options granted for a majority of the awards 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 our 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 our expected annual dividend rate on the date of grant.
The fair value of our restricted stock is determined using the closing price of our common stock on the grant date. Our restricted stock is not assignable or transferable until it becomes vested. Restricted stock generally has a service vesting period of four years and we recognize the expense ratably over this service vesting period.
Performance share units (“PSU”) 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 our common stock and the ultimate realization is based on our achievement of certain market performance criteria. We determined the grant date fair value of PSUs with the assistance of a third-party valuation specialist and based on estimates provided by us. The valuation of our PSUs employed the Monte Carlo simulation model, which includes certain key assumptions that were applied to us and our peer group. Those key assumptions included valuation date stock price, expected volatility, correlation coefficients, risk-free rate of return, and expected dividend yield. The valuation date stock price is based on the dividend-adjusted closing price on the grant date. Expected volatility is calculated using historical daily closing prices over a period that is commensurate with the length of the performance period. The correlation coefficients are based on the price data used to calculate the historical volatilities. The risk-free rate of return is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the length of the performance period. The expected dividend yield was based on our and our peer group’s expected dividend rate over the performance period. PSUs are tied to the achievement of certain market performance conditions, namely relative total shareholder return as compared to the S&P 500 index ("TSR-based PSUs").
We estimate expected forfeitures of equity awards at the date of grant and recognize compensation expense only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate. Estimated forfeiture is ultimately adjusted to actual forfeiture. Changes in the forfeiture assumptions may impact the total amount of expense ultimately recognized, as well as the timing of expense recognized over the requisite service period.
Excess tax benefit from exercised stock options, lapsing of restricted stock and PSUs is recorded as an income tax benefit in our accompanying consolidated statements of operations. This tax benefit is calculated as the excess of the intrinsic value of options exercised and of the market value of restricted stock lapsed over the compensation recognized for financial reporting purposes.
(k) Research and Development Costs
Research and development costs, which are primarily related to personnel and related overhead costs incurred in developing new services for customers, are expensed as incurred. Such costs were $43.1 million, $47.1 million, and $44.6 million for the years ended December 31, 2022, 2021, and 2020, respectively, and were included in our accompanying consolidated statements of operations.
(l) Advertising Costs
Advertising costs, which are primarily associated with promoting our brand, names and solutions provided, are expensed as incurred. Such costs were $14.7 million, $12.0 million, and $8.5 million for the years ended December 31, 2022, 2021, and 2020, respectively.
(m) Income Taxes
We account for income taxes under the asset and liability method under ASC 740, Income Taxes (“ASC 740”), which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The effect of a change in tax rates on deferred tax assets and liabilities is recognized in income in the period that includes the enactment date.
Deferred tax assets are recorded to the extent these assets are more likely than not to be realized. In making such determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and recent financial operations. Valuation allowances are recognized to reduce deferred tax assets if it is determined to be more likely than not that all or some of the potential deferred tax assets will not be realized.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We follow ASC 740-10, Income Taxes (“ASC 740-10”), which clarifies the accounting for uncertainty in income taxes recognized in the financial statements. ASC 740-10 provides that a tax benefit from an uncertain tax position may be recognized based on the technical merits when it is more likely than not that the position will be sustained upon examination, including resolutions of any related appeals or litigation processes. Income tax positions must meet a more likely than not recognition threshold in accordance with ASC 740-10. This standard also provides guidance on measurement, derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.
We recognize interest and penalties related to unrecognized tax benefits within the income tax expense line in our accompanying consolidated statements of operations. Accrued interest and penalties are included within “Other liabilities” on our accompanying consolidated balance sheets.
(n) Earnings Per Share
Basic and diluted earnings per share (“EPS”) are determined in accordance with ASC 260, Earnings per Share, which specifies the computation, presentation and disclosure requirements for EPS. Basic EPS excludes all dilutive common stock equivalents. It is based upon the weighted average number of common shares outstanding during the period. Diluted EPS, as calculated using the treasury stock method, reflects the potential dilution that would occur if our dilutive outstanding stock options and stock awards were issued.
(o) Pension and Postretirement Benefits
We account for our pension and postretirement benefits under ASC 715, Compensation — Retirement Benefits (“ASC 715”). ASC 715 requires the recognition of the funded status of a benefit plan in the balance sheet, the recognition in other comprehensive income (loss) of gains or losses and prior service costs arising during the period, but which are not included as components of periodic benefit cost or credit, and the measurement of defined benefit plan assets and obligations as of the balance sheet date. We utilize a valuation date of December 31.
(p) Product Warranty Obligations
We provide warranty coverage for certain of our solutions. We recognize a product warranty obligation when claims are probable and can be reasonably estimated. As of December 31, 2022 and 2021, product warranty obligations were not material.
In the ordinary course of business, we enter into numerous agreements that contain standard indemnities whereby we indemnify another party for breaches of confidentiality, infringement of intellectual property or gross negligence. Such indemnifications are primarily granted under licensing of computer software. Most agreements contain provisions to limit the maximum potential amount of future payments that we could be required to make under these indemnifications; however, we are not able to develop an estimate of the maximum potential amount of future payments to be made under these indemnifications as the triggering events are not subject to predictability.
(q) Loss Contingencies
We accrue for costs relating to litigation, claims, and other contingent matters when such liabilities become probable and reasonably estimable. Such estimates are based on management’s judgment. Actual amounts paid may differ from amounts estimated, and such differences will be charged to operations in the period in which the final determination of the liability is made.
(r) Goodwill and Indefinite-Lived Intangible Assets
Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of our businesses acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized. Intangible assets determined to have finite lives are amortized over their useful lives. Goodwill and intangible assets with indefinite lives are subject to impairment testing annually as of June 30 or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. This test 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 our 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. As part of our annual evaluation, we did not recognize any additional impairment charges related to our goodwill and indefinite-lived intangible assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
(s) Recent Accounting Pronouncements
| Accounting Standard | Description | Effective Date | Effect on Consolidated Financial Statements or Other Significant Matters |
|---|---|---|---|
| Business Combinations (Topic 805) In October 2021, the FASB issued Accounting Standards Update "ASU" No. 2021-08, "Accounting for Contract Assets and Contract Liabilities from Contracts with Customers" ("ASU No. 2021-08") | This amendment requires an acquirer to recognize and measure contract assets and contract liabilities acquired in a business combination in accordance with Accounting Standards Codification "ASC" 606. At the acquisition date, an acquirer should account for the related revenue contracts in accordance with ASC 606 as if it had originated the contracts. An acquirer should assess how the acquiree applied ASC 606 to determine what to record for the acquired revenue contracts. If the acquiree prepared financial statements in accordance with GAAP, this should result in an acquirer recognizing and measuring the acquired contract assets and contract liabilities consistent with how they were recognized and measured in the acquiree’s financial statements. In circumstances in which the acquirer is unable to assess or rely on how the acquiree applied ASC 606, the acquirer should consider the terms of the acquired contracts, such as timing of payment, identify each performance obligation in the contracts, and allocate the total transaction price to each identified performance obligation on a relative standalone selling price basis as of the date the acquiree entered into the contracts to determine what should be recorded at the acquisition date. | Fiscal years beginning after December 15, 2022 with early adoption permitted. | We elected to early adopt ASU No. 2021-08 on January 1, 2022 on a prospective basis to all business combinations that occurred on or after the date of adoption. The adoption of ASU No. 2021-08 did not have a material impact on our Consolidated Financial Statements. |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Cash and cash equivalents consist of cash in banks, commercial paper, money-market funds, and other liquid instruments with original maturities of 90 days or less at the time of purchase.
Accounts receivable, net consisted of the following at December 31:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Billed receivables | $ | 273.7 | $ | 268.0 | ||||
| Unbilled receivables | 30.7 | 47.3 | ||||||
| Total receivables | 304.4 | 315.3 | ||||||
| Less allowance for doubtful accounts | (14.3 | ) | (15.4 | ) | ||||
| Accounts receivable, net | $ | 290.1 | $ | 299.9 |
5. Concentration of Credit Risk:
Financial instruments that potentially expose us to credit risk consist primarily of cash and cash equivalents as well as accounts receivable, net, which are generally not collateralized. We maintain our cash and cash equivalents in higher credit quality financial institutions in order to limit the amount of credit exposure. The total domestic cash balances are insured by the Federal Deposit Insurance Corporation (“FDIC”) to a maximum amount of $250.0 thousand per bank as of December 31, 2022 and 2021. As of December 31, 2022 and 2021, we had cash balances on deposit with five banks that exceeded the balance insured by the FDIC limit by approximately$36.0 million and $29.4 million, respectively. As of December 31, 2022 and 2021, we also had cash on deposit with foreign banks of approximately $74.9 million and $80.8 million, respectively.
We consider the concentration of credit risk associated with our accounts receivable to be commercially reasonable and believe that such concentration does not result in the significant risk of near-term severe adverse impacts. Our top fifty customers represent approximately 41% of revenues for 2022, 38% for 2021 and 40% for 2020, respectively, with no individual customer accounting for more than approximately 3% of revenues for the years ended December 31, 2022, 2021, and 2020. No individual customer comprised more than approximately 6% and 3% of accounts receivable as of December 31, 2022 and 2021, respectively.
Disaggregated revenues by type of service and by country are provided below for the years ended December 31, 2022, 2021, and 2020. No individual country outside of the U.S. accounted for more than 10.0% of our consolidated revenues for the years ended December 31, 2022, 2021, or 2020.
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Insurance: | ||||||||||||
| Underwriting & Rating | $ | 1,734.5 | $ | 1,555.1 | $ | 1,413.0 | ||||||
| Claims | 702.5 | 651.8 | 595.7 | |||||||||
| Total Insurance | 2,437.0 | 2,206.9 | 2,008.7 | |||||||||
| Specialized Markets | 22.4 | 112.8 | 104.0 | |||||||||
| Financial Services | 37.6 | 142.8 | 156.7 | |||||||||
| Total revenues | $ | 2,497.0 | $ | 2,462.5 | $ | 2,269.4 |
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Revenues: | ||||||||||||
| United States | $ | 2,120.1 | $ | 2,057.7 | $ | 1,911.2 | ||||||
| United Kingdom | 169.5 | 169.0 | 141.2 | |||||||||
| Other countries | 207.4 | 235.8 | 217.0 | |||||||||
| Total revenues | $ | 2,497.0 | $ | 2,462.5 | $ | 2,269.4 |
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 December 31, 2022 and 2021, we had no contract assets.
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Contract liabilities are defined as an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (or an amount of consideration is due) from the customer. As of December 31, 2022 and 2021, we had contract liabilities that primarily related to unsatisfied performance obligations to provide customers with the right to use and update the online content over the remaining contract term of $321.7 million and $349.3 million, respectively. Contract liabilities, which are current and noncurrent, are included in "Deferred revenues" and "Other noncurrent liabilities" in our consolidated balance sheets, respectively, as of December 31, 2022 and 2021.
The following is a summary of the change in contract liabilities from December 31, 2020 through December 31, 2022:
| Contract Liabilities at December 31, 2020 | $ | 322.7 | ||
|---|---|---|---|---|
| Revenue | (2,462.5 | ) | ||
| Acquisitions | 1.8 | |||
| Billings | 2,487.3 | |||
| Contract Liabilities at December 31, 2021 | 349.3 | |||
| Revenue | (2,497.0 | ) | ||
| Acquisitions | 3.4 | |||
| Dispositions | (61.0 | ) | ||
| Billings | 2,527.0 | |||
| Contract Liabilities at December 31, 2022 | $ | 321.7 |
Our most significant remaining performance obligations relate to providing customers with the right to use and update the online content over the remaining contract term. Our 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 98% and 97% of the balance as of December 31, 2022 and 2021, respectively.
We recognize an asset for incremental costs of obtaining a contract with a customer if we expect the benefits of those costs to be longer than one year. As of December 31, 2022 and 2021, we had deferred commissions of $69.7 million and $68.2 million, respectively, which have been included in "Prepaid expenses" and "Other noncurrent assets" in our accompanying consolidated balance sheets.
Certain assets and liabilities are reported at fair value in our accompanying 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 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, we applied the following fair value hierarchy:
Level 1 — Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments.
Level 2 — Assets and liabilities valued based on observable market data for similar instruments.
Level 3 — Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which is internally-developed, and considers risk premiums that a market participant would require.
The fair value 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. Our investments in registered investment companies, which are Level 1 assets measured at fair value on a recurring basis using quoted prices in active markets multiplied by the number of shares owned, were $4.0 million and $5.0 million as of December 31, 2022 and 2021, respectively. Our investments in registered investment companies have been included in "Other current assets" in our consolidated balance sheets as of December 31, 2022 and 2021.
We elected not to carry our long-term debt at fair value. The carrying value of our long-term debt represents the amortized cost, inclusive of unamortized premium, and net of unamortized discount and debt issuance costs. We assess the fair value of these financial instruments based on an estimate of interest rates available to us for financial instruments with similar features, our current credit rating, and spreads applicable to us. The following table summarizes the carrying value and estimated fair value of these financial instruments as of December 31, 2022 and 2021, respectively:
| 2022 | 2021 | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fair Value | Carrying | Estimated | Carrying | Estimated | ||||||||||||||
| Hierarchy | Value | Fair Value | Value | Fair Value | ||||||||||||||
| Financial instrument not carried at fair value: | ||||||||||||||||||
| Senior Notes (Note 15) | Level 2 | $ | 2,342.6 | $ | 2,113.3 | $ | 2,692.0 | $ | 3,017.4 |
On March 23, 2022, we made an additional $37.0 million cash investment in Vexcel Group, Inc. ("Vexcel") for an additional 4.6% in ownership, bringing our interest to 43.3%. As of December 31, 2022 and 2021, we had an investment of $181.1 million and $144.1 million, respectively, related to such interest. The value of our investment is based on management's estimates with the assistance of valuations performed by third-party specialists. This investment was included in "Other noncurrent assets" in our accompanying consolidated balance sheets.
As of December 31, 2022 and 2021, we had securities without readily determinable market values, inclusive of Vexcel, of $201.5 million and $161.6 million, respectively, which were accounted for at cost. We do not have the ability to exercise significant influence over the investees’ operating and financial policies or do not hold investments in common stock or in-substance common stock in such entities. As of December 31, 2022 and 2021, we also had investments in private companies of $28.3 million and $54.6 million, respectively, accounted for in accordance with ASC 323-10-25, The Equity Method of Accounting for Investments in Common Stock ("ASC 323-10-25") as equity method investments. All such investments were included in "Other noncurrent assets" in our accompanying consolidated balance sheets. For the years ended December 31, 2022 and 2021, there was no provision for credit losses related to these investments.
69
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have operating and finance leases for corporate offices, data centers, and certain equipment that are accounted for under ASC 842. The lease term for our corporate headquarters ends in 2033 and includes the options to extend for one 10-year renewal period and two 5-year renewal periods. Extension and termination options are considered in the calculation of our right-of-use ("ROU") assets and lease liabilities when we determine it is reasonably certain that we will exercise those options.
The following table presents the consolidated lease cost and cash paid for amounts included in the measurement of lease liabilities for finance and operating leases for the years ended December 31, 2022 and 2021:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Lease cost: | ||||||||
| Operating lease cost (1) | $ | 47.7 | $ | 52.5 | ||||
| Sublease income | (2.0 | ) | (1.7 | ) | ||||
| Finance lease cost | ||||||||
| Depreciation of finance lease assets (2) | 12.8 | 13.9 | ||||||
| Interest on finance lease liabilities (3) | 0.5 | 0.8 | ||||||
| Total lease cost | $ | 59.0 | $ | 65.5 | ||||
| Other information: | ||||||||
| Cash paid for amounts included in the measurement of lease liabilities | ||||||||
| Operating cash outflows from operating leases | $ | (46.4 | ) | $ | (51.3 | ) | ||
| Operating cash outflows from finance leases | $ | (0.5 | ) | $ | (0.8 | ) | ||
| Financing cash outflows from finance leases | $ | (14.3 | ) | $ | (18.2 | ) |
(1) Included in "Cost of revenues" and "Selling, general and, administrative" expenses in our accompanying consolidated statements of operations
(2) Included in "Depreciation and amortization of fixed assets" in our accompanying consolidated statements of operations
(3) Included in "Interest expense" in our accompanying consolidated statements of operations
The following table presents weighted-average remaining lease terms and weighted-average discount rates for the consolidated finance and operating leases for the years ended December 31, 2022 and 2020:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Weighted-average remaining lease term - operating leases (in years) | 8.5 | 8.5 | ||||||
| Weighted-average remaining lease term - finance leases (in years) | 1.7 | 1.6 | ||||||
| Weighted-average discount rate - operating leases | 3.8 | % | 3.8 | % | ||||
| Weighted-average discount rate - finance leases | 2.6 | % | 3.8 | % |
Our ROU assets and lease liabilities for finance leases were $10.7 million and $4.2 million, respectively, as of December 31, 2022. Our ROU assets and lease liabilities for finance leases were $19.0 million and $13.5 million, respectively, as of December 31, 2021. Our ROU assets for finance leases were included in "Fixed assets, net" in our accompanying consolidated balance sheets. Our lease liabilities for finance leases were included in the "Short-term debt and current portion of long-term debt" and "Long-term debt" in our accompanying consolidated balance sheets (See Note 15. Debt).
Maturities of the continuing lease liabilities for the years through 2028 and thereafter are as follows:
| Years Ending | Operating Leases | Finance Leases | ||||||
|---|---|---|---|---|---|---|---|---|
| 2023 | $ | 34.6 | $ | 3.1 | ||||
| 2024 | 28.8 | 0.8 | ||||||
| 2025 | 28.2 | 0.3 | ||||||
| 2026 | 26.5 | 0.1 | ||||||
| 2027 | 26.3 | - | ||||||
| 2028 and thereafter | 119.0 | - | ||||||
| Total lease payments | 263.4 | 4.3 | ||||||
| Less: Amount representing interest | (44.0 | ) | (0.1 | ) | ||||
| Present value of total lease payments | $ | 219.4 | $ | 4.2 |
70
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following is a summary of fixed assets:
| Useful Life (in years) | Cost | Accumulated Depreciation and Amortization | Net | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, 2022 | ||||||||||||||
| Furniture and office equipment | 3 - 10 | $ | 199.2 | $ | (177.1 | ) | $ | 22.1 | ||||||
| Leasehold improvements | Lease term | 118.3 | (54.6 | ) | 63.7 | |||||||||
| Purchased software | 3 | 65.1 | (61.0 | ) | 4.1 | |||||||||
| Software development costs | 3 - 7 | 945.4 | (504.5 | ) | 440.9 | |||||||||
| Leased equipment | 3 - 4 | 64.4 | (53.7 | ) | 10.7 | |||||||||
| Total fixed assets | $ | 1,392.4 | $ | (850.9 | ) | $ | 541.5 | |||||||
| December 31, 2021 | ||||||||||||||
| Furniture and office equipment | 3 - 10 | $ | 234.1 | $ | (204.0 | ) | $ | 30.1 | ||||||
| Leasehold improvements | Lease term | 123.9 | (47.9 | ) | 76.0 | |||||||||
| Purchased software | 3 | 74.5 | (68.4 | ) | 6.1 | |||||||||
| Software development costs | 3 - 7 | 861.7 | (461.5 | ) | 400.2 | |||||||||
| Leased equipment | 3 - 4 | 60.5 | (41.5 | ) | 19.0 | |||||||||
| Total fixed assets | $ | 1,354.7 | $ | (823.3 | ) | $ | 531.4 |
Depreciation and amortization of fixed assets for the years ended December 31, 2022, 2021, and 2020 were $164.2 million, $170.3 million, and $159.2 million, of which $138.3 million, $137.5 million, and $120.6 million related to amortization of internal-use software development costs, respectively. Amortization expense related to development of software for sale in accordance with ASC 985-20 was $7.6 million, $11.7 million, and $11.3 million for the years ended December 31, 2022, 2021, and 2020, respectively. We had unamortized software development costs that had been capitalized in accordance with ASC 350-40 of $389.1 million and $341.0 million as of December 31, 2022 and 2021, respectively. We had unamortized software development costs that had been capitalized in accordance with ASC 985-20 of $51.7 million and $59.3 million as of December 31, 2022 and 2021, respectively. Leased assets include amounts held under finance leases for automobiles, computer software, and computer equipment.
Due to the deterioration in the performance of our former Financials Services reporting unit and the finalization of the sale price, we reassessed the recoverability of long-lived assets during the first quarter of 2022, resulting in a $73.7 million impairment. During the fourth quarter of 2021, we recognized a $134.0 million impairment to the long-lived assets for our Financial Services reporting unit including $88.2 million to intangible assets and $45.8 million to fixed assets. These impairments are included within "Other operating (income) loss" in our consolidated statements of operations.
71
2022 Acquisitions
On March 1, 2022, we acquired 100 percent of the stock of Opta Information Intelligence Corp. ("Opta") for a net cash purchase price of $217.5 million excluding working capital adjustments, of which $0.8 million represents indemnity escrows. Opta, a leading provider of property intelligence and innovative technology solutions in Canada, has become a part of the underwriting & rating category within our Insurance segment. We believe this acquisition further expands our footprint in the Canadian market and supports Verisk in reshaping risk management with valuable business intelligence.
On February 11, 2022, we acquired 100 percent of the membership interest of Infutor Data Solutions, LLC ("Infutor") for a net cash purchase price of $220.7 million excluding working capital adjustments, of which $1.5 million represents a working capital escrow, plus a contingent earn-out payment of up to $25.0 million subject to the achievement of certain revenue and other performance targets. Infutor, a leading provider of identity resolution and consumer intelligence data, has become a part of the underwriting & rating category within our Insurance segment. We believe this acquisition further enhances Verisk’s marketing solutions offerings to companies across several industries, including the insurance industry.
The "Other" column includes other immaterial acquisitions that have occurred during the period. The preliminary purchase price allocation of the 2022 acquisitions resulted in the following:
| Opta | Infutor | Others | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 0.4 | $ | 17.0 | $ | - | $ | 17.4 | ||||||||
| Accounts receivable | 5.2 | 10.7 | - | 15.9 | ||||||||||||
| Other current assets | 1.3 | 3.8 | 0.1 | 5.2 | ||||||||||||
| Fixed assets | 1.5 | 0.9 | 0.3 | 2.7 | ||||||||||||
| Operating lease right-of-use assets, net | 1.1 | 2.3 | - | 3.4 | ||||||||||||
| Intangible assets | 87.0 | 83.4 | 2.3 | 172.7 | ||||||||||||
| Goodwill | 141.1 | 140.3 | 3.0 | 284.4 | ||||||||||||
| Other assets | - | 0.1 | - | 0.1 | ||||||||||||
| Total assets acquired | 237.6 | 258.5 | 5.7 | 501.8 | ||||||||||||
| Current liabilities | 4.9 | 14.4 | 0.1 | 19.4 | ||||||||||||
| Deferred revenues | 0.2 | 3.1 | 0.1 | 3.4 | ||||||||||||
| Operating lease liabilities | 1.1 | 3.3 | - | 4.4 | ||||||||||||
| Deferred income tax, net | 13.5 | - | 0.5 | 14.0 | ||||||||||||
| Other liabilities | - | - | 0.2 | 0.2 | ||||||||||||
| Total liabilities assumed | 19.7 | 20.8 | 0.9 | 41.4 | ||||||||||||
| Net assets acquired | 217.9 | 237.7 | 4.8 | 460.4 | ||||||||||||
| Less: Cash acquired | 0.4 | 17.0 | - | 17.4 | ||||||||||||
| Net cash purchase price | $ | 217.5 | $ | 220.7 | $ | 4.8 | $ | 443.0 |
72
The preliminary amounts assigned to intangible assets by type for our 2022 acquisitions are summarized in the table below:
| Weighted Average Useful Life (in years) | Total | |||||
|---|---|---|---|---|---|---|
| Technology-based | 6 | $ | 48.5 | |||
| Marketing-related | 4 | 2.0 | ||||
| Customer-related | 13 | 122.2 | ||||
| Total intangible assets | $ | 172.7 |
The preliminary allocations of the purchase price for the 2022 acquisitions with less than a year of ownership are subject to revisions as additional information is obtained about the facts and circumstances that existed as of each acquisition date. The revisions may have a significant impact on our consolidated financial statements. The allocations of the purchase price will be finalized once all the information is obtained, but not to exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income taxes, deferred revenues, the valuation of intangible assets acquired, right-of-use assets and operating lease liabilities and residual goodwill. The goodwill associated with our acquisitions include the acquired assembled work force, the value associated with the opportunity to leverage the work force to continue to develop the technology and content assets, as well as our ability to grow through adding additional customer relationships or new solutions in the future. Of the $284.4 million in goodwill associated with our acquisitions, $144.5 million is not deductible for tax purposes. The preliminary amounts assigned to intangible assets by type for these acquisitions were based upon our valuation model and historical experiences with entities with similar business characteristics.
For the year ended December 31, 2022, we incurred transaction costs related to acquisitions of $1.8 million, which are included within "Selling, general and administrative expenses in the accompanying consolidated statements of operations. Refer to Note 12. Goodwill and Intangible Assets for further discussion.
Our 2022 acquisitions were not significant, both individually and in the aggregate, to our consolidated financial statements for the years ended December 31, 2022, 2021 and 2020, and therefore, supplemental information disclosure on an unaudited pro forma basis is not presented.
73
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2021 Acquisitions
On December 23, 2021, we acquired approximately 96.7 percent of the stock of ACTINEO GmbH ("ACTINEO") with an option to acquire the remaining shares at a future date, for a net cash purchase price of $148.9 million. ACTINEO offers a comprehensive portfolio of services, technology and data solutions to support the entire bodily injury settlement process. With this acquisition, we add ACTINEO's established claims management solutions to our leading data analytics and insurance ecosystem, providing customers with digitalization and medical expertise solutions throughout the entire claims process. ACTINEO is part of the claims vertical within our Insurance segment.
On November 2, 2021, we acquired 100 percent of the stock of Data Driven Safety, LLC ("Data Driven Safety") for a net cash purchase price of $93.5 million, of which $2.0 million represents indemnity escrows. Data Driven Safety, a leading public record data aggregation firm that specializes in driver risk assessment in the U.S., has become a part of the underwriting & rating category within our Insurance segment. We believe that Data Driven Safety will expand our robust auto insurance analytics, providing insurers with information to further refine underwriting, improve the customer experience and promote public safety.
On September 1, 2021, we acquired 100 percent of the stock of Ignite Software Systems Limited ("Ignite") for a net cash purchase price of $13.8 million. Ignite, a provider of insurance policy administration systems to brokers, managing general agents, and insurers, has become a part of the underwriting & rating category within our Insurance segment. We believe that Ignite's client focus and deep domain knowledge will fit into our business model providing new and existing clients with access to a broader expert advice and service.
On June 17, 2021, we acquired 100 percent of the stock of Roskill Holdings Limited ("Roskill") for a net cash purchase price of $22.1 million, of which $4.8 million represents indemnity escrows. Roskill, a provider of metals and materials supply chain intelligence, has become part of our Energy and Specialized Markets segment. Roskill’s capabilities reinforce our ability to provide comprehensive analysis across the energy, and metals and mining value chain while adding analysis, data, and insight on battery raw materials metals. This acquisition was excluded from the table below due to the announcement of the sale of our Energy business.
On March 2, 2021, we acquired a 51.0 percent ownership in Whitespace Software Limited ("Whitespace") for a net cash purchase price of $16.8 million. The remaining 49.0 percent ownership interest in Whitespace will be acquired by us, in three equal proportions over the next three years, at a purchase price determined based upon a fixed revenue multiple and adjusted for any free cash flow shortfall. Whitespace, a provider of digital placing technology to the (re)insurance market, has become part of the underwriting & rating category within our Insurance segment. We expect our investment in Whitespace to enable a seamless real-time quote-to-bind electronic placing and global distribution solution, with straight-through submissions for our customers.
The final purchase price allocations, inclusive of closing adjustments, of our 2021 acquisitions resulted in the following:
| ACTINEO | Data Driven Safety | Others | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 0.2 | $ | 2.5 | $ | 3.7 | $ | 6.4 | ||||||||
| Accounts receivable | 1.8 | 1.0 | 1.4 | 4.2 | ||||||||||||
| Other current assets | - | 2.0 | 1.0 | 3.0 | ||||||||||||
| Fixed assets | 1.4 | - | 0.1 | 1.5 | ||||||||||||
| Operating lease right-of-use assets, net | 4.2 | 0.4 | 1.3 | 5.9 | ||||||||||||
| Intangible assets | 48.3 | 42.1 | 19.0 | 109.4 | ||||||||||||
| Goodwill | 121.9 | 74.1 | 39.6 | 235.6 | ||||||||||||
| Other assets | - | — | 0.1 | 0.1 | ||||||||||||
| Total assets acquired | 177.8 | 122.1 | 66.2 | 366.1 | ||||||||||||
| Current liabilities (1) | 2.1 | 2.7 | 1.7 | 6.5 | ||||||||||||
| Deferred revenues | 0.0 | 0.4 | 1.4 | 1.8 | ||||||||||||
| Operating lease liabilities | 4.2 | 0.4 | 1.4 | 6.0 | ||||||||||||
| Deferred income tax, net | 15.8 | - | 3.7 | 19.5 | ||||||||||||
| Other liabilities | - | 21.7 | — | 21.7 | ||||||||||||
| Total liabilities assumed | 22.1 | 25.2 | 8.2 | 55.5 | ||||||||||||
| Net assets acquired | 155.7 | 96.9 | 58.0 | 310.6 | ||||||||||||
| Less: Noncontrolling interests | 6.6 | - | 19.8 | 26.4 | ||||||||||||
| Cash acquired | 0.2 | 3.4 | 3.7 | 7.3 | ||||||||||||
| Net cash purchase price | $ | 148.9 | $ | 93.5 | $ | 34.5 | $ | 276.9 |
The final amounts assigned to intangible assets by type for our 2021 acquisitions are summarized in the table below:
| Weighted Average Useful Life (in years) | Total | |||||
|---|---|---|---|---|---|---|
| Technology-based | 5 | $ | 21.1 | |||
| Marketing-related | 3 | 1.1 | ||||
| Customer-related | 13 | 81.2 | ||||
| Database-related | 6 | 6.0 | ||||
| Total intangible assets | $ | 109.4 |
For the year ended December 31, 2022, we finalized the purchase accounting for our 2021 acquisitions during the measurement periods in accordance with ASC 805, Business Combinations. The impact of finalization of the purchase accounting associated with these acquisitions was not material to our accompanying financial statements for the years ended December 31, 2022 and 2021.
Of the $235.6 million in goodwill associated with our acquisitions, $161.3 million is not deductible for tax purposes. The preliminary amounts assigned to intangible assets by type for these acquisitions were based upon our valuation model and historical experiences with entities with similar business characteristics. For the year ended December 31, 2021, we incurred transaction costs related to acquisitions of $2.8 million, which are included within "Selling, general and administrative" expenses in our accompanying consolidated statements of operations. Refer to Note 12. Goodwill and Intangible Assets for further discussion.
Our 2021 acquisitions were not significant, both individually and in the aggregate, to our consolidated financial statements for the years ended December 31, 2021 and 2020, and therefore, supplemental information disclosure on an unaudited pro forma basis is not presented.
74
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
2020 Acquisitions
On December 16, 2020, we acquired 100 percent of the stock of Lead Intelligence, Inc. ("Jornaya"), a provider of consumer behavioral data and intelligence, for a net cash purchase price of $124.9 million. The acquisition added Jornaya's proprietary view of consumer buying journeys to our growing set of marketing solutions for the insurance and financial services markets, as well as provide customers with the intelligence and agility to time and tailor interactions based on actual in-market behaviors. Jornaya has become part of the underwriting & rating category within our Insurance segment. The final purchase price allocation of the acquisition is presented in the table below.
On September 9, 2020, we acquired 100 percent of the stock of Franco Signor LLC ("Franco Signor") for a net cash purchase price of $159.7 million, of which $8.0 million represents indemnity escrows. Franco Signor is a Medicare Secondary Payer compliance solutions provider to large employers, insurers and third-party administrators in the U.S. Franco Signor has become part of the claims category within our Insurance segment and enhanced the solutions we currently offer, as well as added professional administrative services for Medicare Set Asides to our suite of solutions. The final purchase price allocation of the acquisition is presented in the table below.
The final purchase price allocations, inclusive of closing adjustments, of our 2020 acquisitions resulted in the following:
| Lead Intelligence | Franco Signor | Total | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Cash and cash equivalents (1) | $ | 5.9 | $ | 10.9 | $ | 16.8 | ||||||
| Accounts receivable | 2.8 | 2.2 | 5.0 | |||||||||
| Other current assets | 1.4 | 0.9 | 2.3 | |||||||||
| Fixed assets | 0.8 | 0.4 | 1.2 | |||||||||
| Operating lease right-of-use assets, net | 1.6 | 1.5 | 3.1 | |||||||||
| Intangible assets | 64.3 | 59.1 | 123.4 | |||||||||
| Goodwill | 69.9 | 101.5 | 171.4 | |||||||||
| Other assets | 0.1 | 8.0 | 8.1 | |||||||||
| Total assets acquired | 146.8 | 184.5 | 331.3 | |||||||||
| Current liabilities | 2.1 | 8.3 | 10.4 | |||||||||
| Deferred revenues | 2.6 | 0.3 | 2.9 | |||||||||
| Operating lease liabilities | 1.6 | 1.5 | 3.1 | |||||||||
| Deferred income tax, net | 9.7 | 1.5 | 11.2 | |||||||||
| Other liabilities | - | 8.0 | 8.0 | |||||||||
| Total liabilities assumed | 16.0 | 19.6 | 35.6 | |||||||||
| Net assets acquired | 130.8 | 164.9 | 295.7 | |||||||||
| Less: Cash and cash equivalents | 5.9 | 10.9 | 16.8 | |||||||||
| Restricted cash | - | (5.7 | ) | (5.7 | ) | |||||||
| Cash acquired | 5.9 | 5.2 | 11.1 | |||||||||
| Net cash purchase price | $ | 124.9 | $ | 159.7 | $ | 284.6 |
(1) Within cash and cash equivalents, there is $5.7 million of restricted cash related to Franco Signor's professional administrative services for Medicare Set Asides, with an offsetting liability of $5.7 million included within current liabilities.
75
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The final amounts assigned to intangible assets by type for our 2020 acquisitions are summarized in the table below:
| Weighted Average Useful Life (in years) | Total | |||||
|---|---|---|---|---|---|---|
| Technology-based | 11 | $ | 30.8 | |||
| Marketing-related | 5 | 2.1 | ||||
| Customer-related | 11 | 90.5 | ||||
| Total intangible assets | $ | 123.4 |
For the year ended December 31, 2021, we finalized the purchase accounting for our 2020 acquisitions during the measurement periods in accordance with ASC 805, Business Combinations. The impact of finalization of the purchase accounting associated with these acquisitions was not material to our accompanying financial statements for the years ended December 31, 2020.
The goodwill of $171.4 million associated with the purchases of Jornaya and Franco Signor $90.6 million is not deductible for tax purposes. For the year ended December 31, 2020, we incurred transaction costs related to acquisitions of $2.2 million, which are included within "Selling, general and administrative" expenses in our accompanying consolidated statements of operations. Refer to Note 12. Goodwill and Intangible Assets for further discussion.
Our 2020 acquisitions were not significant, both individually and in the aggregate, to our consolidated financial statements for the year ended December 31, 2020 and therefore, supplemental information disclosure on an unaudited pro forma basis is not presented.
Acquisition Escrows and Related Liabilities
Pursuant to the related acquisition agreements, we have funded various escrow accounts to satisfy pre-acquisition indemnity and tax claims arising subsequent to the acquisition dates, as well as a portion of the contingent payment. During the years ended December 31, 2022 and 2__021, we released $12.8 million and $12.1 million of indemnity escrows related to various acquisitions. At December 31, 2022 and 2021, the current portion of the escrows amounted to $0 million and $10.6 million, and the noncurrent portion of the escrows amounted to$0 million. The current and noncurrent portions of the escrows have been included in "Other current assets" and "Other noncurrent assets" in our accompanying consolidated balance sheets, respectively.
The acquisitions of Rebmark Legal Solutions, ACTINEO GmbH, Data Driven Safety, LLC, and Infutor Data Solutions, LLC, included acquisition-related contingent payments, for which the sellers of these acquisitions could receive additional payments by achieving the specific predetermined revenue, EBITDA, and EBITDA margin earn-out targets for exceptional performance. We believe that the liabilities recorded as of December 31, 2021 and 2020 reflect the best estimate of acquisition-related contingent payments. The associated current portion of contingent payments were $29.9 million and $0.5 million as of December 31, 2022 and 2021, respectively. The associated noncurrent portion of contingent payments were $0 million and $21.7 million as of December 31, 2022 and 2021, respectively.
76
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
11. Dispositions and Discontinued Operations:
Dispositions
On March 11, 2022 the sale of our environmental health and safety business ("3E Company Environmental, Ecological, and Engineering"), which made up our Supply Chain reporting unit, within the Energy and Specialized Markets segment, to New Mountain Capital, was completed for proceeds of $575.0 million, net of cash and excluding contingent consideration. In the first quarter of 2022, we recognized a gain of $450.8 million. This $450.8 million recognized gain is included within "Other operating (income) loss" in our consolidated statements of operations. The major classes of assets and liabilities disposed of, reflected in our consolidated balance sheets as of March 11, 2022, are presented below. We assessed the sale of our environmental health and safety business per the guidance in ASC 205-20, Discontinued Operations, and determined that this transaction did not qualify as a discontinued operation as its total revenues and assets did not meet the thresholds exemplified in the guidance to represent a strategic shift, quantitatively or qualitatively, that has or will have a major effect on our operations and financial results.
On April 8, 2022, the sale of Verisk Financial Services, our Financials Services reportable segment, to TransUnion, a global information and insights company, was completed for net cash proceeds of $498.3 million. An impairment loss of $73.7 million and a loss on the sale of $15.6 million were recognized in the first and second quarter of 2022, respectively. In the fourth quarter of 2021, we recognized a $134.0 million impairment to the long-lived assets for our Financial Services reporting unit including $88.2 million to intangible assets and $45.8 million to fixed assets. The impairments were included within "Other operating (income) loss" within our accompanying consolidated statements of operations. We assessed the sale of our Financial Services segment per the guidance in ASC 205-20, Discontinued Operations, and determined that this transaction did not qualify as a discontinued operation as it did not represent a strategic shift, quantitatively or qualitatively, that has or will have a major effect on our operations and financial results. Verisk Financial Services generated revenue of $37.6 million 2022.
The major classes of assets and liabilities disposed of, reflected in our consolidated balance sheets as of March 11, 2022 and April 8, 2022, respectively, are presented below:
| 3E Company Environmental, Ecological and Engineering | Verisk Financial Services | Total | ||||||
|---|---|---|---|---|---|---|---|---|
| Cash and cash equivalents | $ | 12.7 | $ | 9.3 | $ | 22.0 | ||
| Accounts receivable, net of allowance for doubtful accounts | 24.4 | 36.2 | 60.6 | |||||
| Prepaid expenses | 3.5 | 3.2 | 6.7 | |||||
| Other current assets | 0.4 | 1.0 | 1.4 | |||||
| Current assets | 41.0 | 49.7 | 90.7 | |||||
| Fixed assets, net | 16.4 | 3.5 | 19.9 | |||||
| Operating lease right-of-use assets, net | 6.4 | 1.4 | 7.8 | |||||
| Intangible assets, net | 24.2 | 5.3 | 29.5 | |||||
| Goodwill | 116.5 | 473.2 | 589.7 | |||||
| Other noncurrent assets | 4.8 | 7.0 | 11.8 | |||||
| Noncurrent assets | 168.3 | 490.4 | 658.7 | |||||
| Total assets | 209.3 | 540.1 | 749.4 | |||||
| Accounts payable and accrued liabilities | 9.6 | 12.9 | 22.5 | |||||
| Deferred revenues | 54.1 | 6.9 | 61.0 | |||||
| Operating lease liabilities | 1.7 | 3.4 | 5.1 | |||||
| Income taxes payable | 11.9 | (1.7) | 10.2 | |||||
| Current liabilities | 77.3 | 21.5 | 98.8 | |||||
| Deferred income tax liabilities | (0.8) | 8.3 | 7.5 | |||||
| Operating lease liabilities | 6.1 | 5.1 | 11.2 | |||||
| Other noncurrent liabilities | 2.5 | - | 2.5 | |||||
| Noncurrent liabilities | 7.8 | 13.4 | 21.2 | |||||
| Total liabilities | 85.1 | 34.9 | 120.0 | |||||
| Net assets sold as part of dispositions | 124.2 | 505.2 | 629.4 | |||||
| Less: Cash sold | 12.7 | 9.3 | 22.0 | |||||
| Net assets sold as part of dispositions, net of cash sold | $ | 111.5 | $ | 495.9 | $ | 607.4 |
77
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Discontinued Operations
On October 28, 2022, we entered into an equity purchase agreement to sell our Energy business to Planet Jersey Buyer Ltd, an entity that was formed on behalf of, and is controlled by, The Veritas Capital Fund VIII, L.P. and its affiliated funds and entities (“Veritas Capital”), for a purchase price of $3,100.0 million (subject to customary purchase price adjustments for, among other things, the cash, working capital and indebtedness of the Energy business as of the closing) and up to $200.0 million of additional contingent cash consideration based on Veritas Capital’s future return on its investment paid through a Class C Partnership interest.
The Energy business, which was part of the Energy and Specialized Markets segment, qualified as held for sale in the fourth quarter of 2022 and was classified as a discontinued operation per ASC 205-20, Discontinued Operations, as we determined, qualitatively and quantitatively, that this transaction represents a strategic shift that has or will have a major effect on our operations and financial results. Accordingly, all results of the Energy business have been removed from continuing operations and presented as discontinued operations in our consolidated statements of operations for all periods presented. Additionally, all assets and liabilities of the Energy business have been classified as assets and liabilities held for sale within our consolidated balance sheet as of December 31, 2022 and December 31, 2021. In connection with the held for sale classification, we recognized an impairment of $303.7 million, partially offset by a deferred tax benefit of $75.9 million on the remeasurement of the disposal group held for sale, which has been included in discontinued operations in our consolidated statement of operations for the year ended December 31, 2022. Upon classification of the Energy business as held for sale, its cumulative foreign currency translation adjustment within shareholders’ equity was included with its carry value, which primarily resulted in the impairment.
On February 1, 2023, we closed on and completed the sale of our Energy business. We do not expect to have any continuing involvement in the Energy business subsequent to closing.
The following table presents financial results from discontinued operations, net of income taxes in our consolidated statement of income for the periods indicated:
| For the Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | ||||||||||
| Revenues | $ | 537.3 | $ | 536.1 | $ | 515.2 | ||||||
| Operating expenses: | ||||||||||||
| Cost of revenues (exclusive of items shown separately below) | 207.4 | 204.1 | 202.2 | |||||||||
| Selling, general and administrative | 117.2 | 109.5 | 105.7 | |||||||||
| Depreciation and amortization of fixed assets | 32.9 | 36.6 | 33.0 | |||||||||
| Amortization of intangible assets | 68.5 | 96.8 | 92.5 | |||||||||
| Impairment loss | 303.7 | - | - | |||||||||
| Other operating loss | 33.9 | - | - | |||||||||
| Total operating expenses | 763.6 | 447.0 | 433.4 | |||||||||
| Operating (loss) income | (226.3 | ) | 89.1 | 81.8 | ||||||||
| Other income (expense): | ||||||||||||
| Investment income (loss) and others, net | 7.0 | (0.2 | ) | (2.8 | ) | |||||||
| Total other income (expense), net | 7.0 | (0.2 | ) | (2.8 | ) | |||||||
| (Loss) income from discontinued operations before income taxes | (219.3 | ) | 88.9 | 79.0 | ||||||||
| Income tax benefit (expense) | 131.5 | (29.7 | ) | (20.1 | ) | |||||||
| (Loss) income from discontinued operations, net of income taxes | $ | (87.8 | ) | $ | 59.2 | $ | 58.9 |
The consolidated statements of cash flows have not been adjusted to separately disclose cash flows related to discontinued operations. The following table presents selected cash flow information associated with our discontinued operations:
| For the Year Ended December 31, | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | ||||||||||
| Significant non-cash operating activities: | ||||||||||||
| Depreciation and amortization of fixed assets | $ | 32.9 | $ | 36.6 | $ | 33.0 | ||||||
| Amortization of intangible assets | 68.5 | 96.8 | 92.5 | |||||||||
| Impairment loss | 303.7 | - | - | |||||||||
| Operating lease right-of-use assets, net | 7.6 | 7.7 | 3.0 | |||||||||
| Investing activities: | ||||||||||||
| Capital expenditures | (72.6 | ) | (59.7 | ) | (43.4 | ) | ||||||
| Fixed assets included in accounts payable and accrued liabilities | 3.0 | 5.0 | - |
The following table presents the aggregate carrying amounts of the held for sale assets and liabilities of the Energy business in the consolidated balance sheet as of the date indicated:
| December 31, 2022 | December 31, 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Cash and Cash Equivalents | $ | 180.2 | $ | 168.4 | ||||
| Accounts receivable, net | 150.8 | 146.4 | ||||||
| Prepaid expenses | 17.8 | 14.9 | ||||||
| Other current assets | 13.8 | 5.3 | ||||||
| Total current assets: | 362.6 | 335.0 | ||||||
| Fixed assets, net | 157.1 | 126.8 | ||||||
| Operating lease right-of-use assets, net | 29.8 | 29.1 | ||||||
| Intangible assets, net | 616.9 | 743.6 | ||||||
| Goodwill | 2,136.3 | 2,283.6 | ||||||
| Other noncurrent assets | 16.3 | 21.1 | ||||||
| Total noncurrent assets | 2,956.4 | 3,204.2 | ||||||
| Total assets held for sale: | 3,319.0 | 3,539.20 | ||||||
| Net impairment of asset group(1) | (227.8 | ) | - | |||||
| Total assets held for sale, net | $ | 3,091.2 | $ | 3,539.2 | ||||
| Accounts payable and accrued liabilities | 68.6 | 58.6 | ||||||
| Operating lease liabilities | 6.9 | 9.5 | ||||||
| Deferred revenues | 176.6 | 153.2 | ||||||
| Income taxes payable | 30.2 | 10.8 | ||||||
| Current liabilities held-for-sale: | 282.3 | 232.1 | ||||||
| Deferred income tax liabilities | 144.1 | 175.5 | ||||||
| Noncurrent lease liabilities | 30.8 | 23.4 | ||||||
| Other noncurrent liabilities | 2.7 | 11.0 | ||||||
| Noncurrent liabilities held-for-sale | 177.6 | 209.9 | ||||||
| Total liabilities held for sale | $ | 459.9 | $ | 442.0 |
(1) In connection with the held for sale classification, we recognized a $303.7 million impairment, partially offset by a deferred tax benefit of $75.9 million on the remeasurement of the disposal group held for sale. This impairment was charged to a contra asset account within "Other noncurrent assets" per ASC 205-20, Discontinued Operations.
78
12. Goodwill and Intangible Assets:
We completed the required annual impairment test as of June 30, 2022, 2021 and 2020, which resulted in no impairment of goodwill. Subsequent to performing our annual impairment test, we continued to monitor these reporting units for events that would trigger an interim impairment test; other than the impairment of the Energy business that was triggered when the entity was classified as held for sale (Note 11), we did not identify any other triggering events.
Due to the continued deterioration in the performance of our Financial Services reporting unit and the finalization of the sale price, we reassessed the recoverability of these long-lived assets during the first quarter of 2022, resulting in an a $73.7 million impairment. This $73.7 million impairment is included within "Other operating income, net" in our consolidated statements of operations.
The following is a summary of the change in goodwill from December 31, 2020 through December 31, 2022, both in total and as allocated to our reportable segments:
| Insurance | Specialized Markets | Financial Services | Total | |||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Goodwill at December 31, 2020 | $ | 1,208.6 | $ | 136.5 | $ | 475.9 | $ | 1,821.0 | ||||||||
| Acquisitions | 235.9 | - | - | 235.9 | ||||||||||||
| Purchase accounting reclassifications | (0.3 | ) | - | - | (0.3 | ) | ||||||||||
| Current period adjustment (1) | 15.8 | (15.8 | ) | - | - | |||||||||||
| Foreign currency translation adjustment | (5.2 | ) | (3.3 | ) | (0.5 | ) | (9.0 | ) | ||||||||
| Goodwill at December 31, 2021 | 1,454.8 | 117.4 | 475.4 | 2,047.6 | ||||||||||||
| Acquisitions | 284.4 | - | - | 284.4 | ||||||||||||
| Purchase accounting reclassifications | (0.5 | ) | - | - | (0.5 | ) | ||||||||||
| Disposition of sold businesses | - | (116.5 | ) | (473.2 | ) | (589.7 | ) | |||||||||
| Impairment Charge | - | - | (1.7 | ) | (1.7 | ) | ||||||||||
| Foreign currency translation adjustment | (62.7 | ) | (0.9 | ) | (0.5 | ) | (64.1 | ) | ||||||||
| Goodwill at December 31, 2022 | $ | 1,676.0 | $ | — | $ | — | $ | 1,676.0 |
(1) This adjustment relates to a segment reclassification; refer to Note 19. Segment Reporting
Our intangible assets and related accumulated amortization consisted of the following:
| Weighted | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average | ||||||||||||||
| Useful Life | Accumulated | |||||||||||||
| (in years) | Cost | Amortization | Net | |||||||||||
| December 31, 2022 | ||||||||||||||
| Technology-based | 8 | $ | 355.1 | $ | (229.3 | ) | $ | 125.8 | ||||||
| Marketing-related | 6 | 41.3 | (35.5 | ) | 5.8 | |||||||||
| Contract-based | 6 | 5.0 | (5.0 | ) | - | |||||||||
| Customer-related | 13 | 510.7 | (146.7 | ) | 364.0 | |||||||||
| Database-based | 8 | 15.0 | (5.8 | ) | 9.2 | |||||||||
| Total intangible assets | $ | 927.1 | $ | (422.3 | ) | $ | 504.8 | |||||||
| December 31, 2021 | ||||||||||||||
| Technology-based | 8 | $ | 382.4 | $ | (263.0 | ) | $ | 119.4 | ||||||
| Marketing-related | 6 | 65.3 | (56.5 | ) | 8.8 | |||||||||
| Contract-based | 6 | 5.0 | (5.0 | ) | — | |||||||||
| Customer-related | 12 | 585.1 | (262.8 | ) | 322.3 | |||||||||
| Database-based | 8 | 53.8 | (22.0 | ) | 31.8 | |||||||||
| Total intangible assets | $ | 1,091.6 | $ | (609.3 | ) | $ | 482.3 |
Amortization expense related to intangible assets for the years ended December 31, 2022, 2021, and 2020, was $74.4 million, $80.0 million, and $73.4 million, respectively. Estimated amortization expense in future periods through 2028 and thereafter for intangible assets subject to amortization is as follows:
| Years Ending | Amount | |||
|---|---|---|---|---|
| 2023 | $ | 69.4 | ||
| 2024 | 66.8 | |||
| 2025 | 58.2 | |||
| 2026 | 56.3 | |||
| 2027 | 48.5 | |||
| 2028 and thereafter | 205.6 | |||
| Total | $ | 504.8 |
79
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Domestic and foreign income before income taxes was as follows:
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| U.S. | $ | 1,277.1 | $ | 784.1 | $ | 823.5 | ||||||
| Foreign | (14.7 | ) | 2.4 | (5.1 | ) | |||||||
| Total income before income taxes | $ | 1,262.4 | $ | 786.5 | $ | 818.4 |
The components of the provision for income taxes for the years ended December 31 were as follows:
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Current: | ||||||||||||
| Federal | $ | 247.8 | $ | 123.8 | $ | 113.0 | ||||||
| State and local | 64.7 | 19.5 | 22.8 | |||||||||
| Foreign | 1.1 | 3.0 | 3.3 | |||||||||
| Total current provision for income taxes | 313.6 | 146.3 | 139.1 | |||||||||
| Deferred: | ||||||||||||
| Federal | (43.3 | ) | 20.6 | 21.2 | ||||||||
| State and local | (11.2 | ) | 10.5 | 5.8 | ||||||||
| Foreign | (38.8 | ) | 2.0 | (1.5 | ) | |||||||
| Total deferred provision for income taxes | (93.3 | ) | 33.1 | 25.5 | ||||||||
| Provision for income taxes | $ | 220.3 | $ | 179.4 | $ | 164.6 |
The reconciliation between our effective tax rate and the statutory tax rate is as follows for the years ended December 31:
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Federal statutory rate | 21.0 | % | 21.0 | % | 21.0 | % | ||||||
| State and local taxes, net of federal tax benefit | 3.4 | 2.8 | 2.7 | |||||||||
| Impact of dispositions | (3.0 | ) | - | - | ||||||||
| UK valuation allowance release | (2.4 | ) | - | - | ||||||||
| Global Intangible Low-taxed Income | 0.4 | 2.6 | - | |||||||||
| Stock-based compensation | (1.7 | ) | (3.5 | ) | (3.7 | ) | ||||||
| Other | (0.2 | ) | (0.1 | ) | 0.1 | |||||||
| Effective tax rate | 17.5 | % | 22.8 | % | 20.1 | % |
The decrease in the effective tax rate in 2022 compared to 2021 was primarily due to a tax rate benefit in connection with the sale of our environmental health and safety business for which a benefit was recognized for the difference between book and tax basis of our investment. The 2022 rate was also lower than 2021 due to a release of a United Kingdom valuation allowance related to interest expense utilization and a reduced Global Intangible Low Taxed Income ("GILTI") inclusion in the current period versus the prior period, partially offset by reduced stock option exercises resulting in lower tax benefits from equity compensation in the current period versus the prior period.
The tax effects of significant items comprising our deferred tax assets as of December 31 are as follows:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Deferred tax assets: | ||||||||
| Employee wages and other benefits | $ | 54.9 | $ | 46.7 | ||||
| Deferred rent | 9.2 | 9.6 | ||||||
| Net operating loss carryover | 12.0 | 11.7 | ||||||
| Capital and other unrealized losses | 1.6 | 1.5 | ||||||
| Interest expense | 31.1 | 34.7 | ||||||
| Book/tax energy basis difference | 112.2 | — | ||||||
| Other | 15.2 | 5.2 | ||||||
| Total | 236.2 | 109.4 | ||||||
| Less valuation allowance | (45.3 | ) | (38.3 | ) | ||||
| Deferred tax assets | 190.9 | 71.1 | ||||||
| Deferred tax liabilities: | ||||||||
| Fixed assets and intangible assets | (223.9 | ) | (280.6 | ) | ||||
| Commissions | (16.8 | ) | (16.1 | ) | ||||
| Pensions | (56.5 | ) | (54.2 | ) | ||||
| Other | (7.6 | ) | (8.7 | ) | ||||
| Deferred tax liabilities | (304.8 | ) | (359.6 | ) | ||||
| Deferred tax liabilities, net | $ | (113.9 | ) | $ | (288.5 | ) |
The net deferred tax liabilities of $113.9 million consist primarily of timing differences involving amortization.
80
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The ultimate realization of the deferred tax assets depends on our ability to generate sufficient taxable income in the future. We have provided a valuation allowance against the deferred tax assets associated with the interest expense deduction limitation in the U.K. We have also provided for a valuation allowance against the deferred tax assets associated with the net operating losses of certain subsidiaries. Our net operating loss carryforwards expire as follows:
| Years Ending | Amount | |||
|---|---|---|---|---|
| 2023 - 2030 | $ | 20.8 | ||
| 2031 - 2035 | 11.7 | |||
| 2036 - 2042 | 52.8 | |||
| Total | $ | 85.3 |
A valuation allowance has been established based on our evaluation of the likelihood of utilizing these benefits before they expire. We have determined that the generation of future taxable income from certain subsidiaries to fully realize the deferred tax assets is uncertain. Other than these items, we have determined, based on our historical operating performance, that our taxable income will more likely than not be sufficient to fully realize the deferred tax assets.
As of December 31, 2022, we have not made a provision for U.S. or additional foreign withholdings taxes for any additional outside basis difference inherent in our foreign subsidiaries, as these amounts continue to be indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any additional outside basis difference in these entities is not practicable. We do not rely on these unremitted earnings as a source of funds for our domestic business as we expect to have sufficient cash flow in the U.S. to fund our U.S. operational and strategic needs.
We follow ASC 740-10 which prescribes a comprehensive model for the financial statement recognition, measurement, presentation, and disclosure of uncertain tax positions taken or expected to be taken in income tax returns. For each tax position, we must determine whether it is more likely than not that the position will be sustained upon examination based on the technical merits of the position, including resolution of any related appeals or litigation. A tax position that meets the more likely than not recognition threshold is then measured to determine the amount of benefit to recognize within the financial statements. No benefits may be recognized for tax positions that do not meet the more likely than not threshold. A reconciliation of the beginning and ending amount of unrecognized tax benefit is as follows:
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Unrecognized tax benefit as of January 1 | $ | 3.4 | $ | 9.9 | $ | 11.5 | ||||||
| Gross increase in tax positions in prior period | 1.0 | 1.3 | 0.5 | |||||||||
| Gross decrease in tax positions in prior period | - | (0.1 | ) | (0.2 | ) | |||||||
| Settlements | (0.6 | ) | — | — | ||||||||
| Lapse of statute of limitations | (0.6 | ) | (7.7 | ) | (1.9 | ) | ||||||
| Unrecognized tax benefit as of December 31 | $ | 3.2 | $ | 3.4 | $ | 9.9 |
Of the total unrecognized tax benefits as of December 31, 2022, 2021, and 2020, $3.2 million, $3.4 million, and $8.1 million, respectively, represent the amounts that, if recognized, would have a favorable effect on our effective tax rate in any future periods.
The total gross amount of accrued interest and penalties for the years ended December 31, 2022, 2021, and 2020 was $0.4 million, $0.5 million, and $3.9 million, respectively. Our practice is to recognize interest and penalties associated with income taxes as a component of “Provision for income taxes” in our accompanying consolidated statements of operations.
We do not expect a significant increase in unrecognized benefits related to federal, state, or foreign tax exposures within the coming year. In addition, we believe that it is reasonably possible that approximately $0.9 million of our currently remaining unrecognized tax positions, each of which is individually insignificant, may be recognized by the end of 2023 as a result of a combination of audit settlements and lapses of statute of limitations, net of additional uncertain tax positions.
We are subject to tax in the U.S., various state, and foreign jurisdictions. Joined by our domestic subsidiaries, we file a consolidated income tax return. With a few exceptions, none of which are material to our consolidated financial statements as of December 31, 2022, we are no longer subject to U.S. federal, state and local, or non-US income tax examinations by tax authorities for tax years before 2018. In City of Philadelphia, we are being audited for the years ended December 31, 2019 through 2021. We do not expect that the results of this examination will have a material effect on our financial position, results of operations, or cash flow.
81
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
14. Composition of Certain Financial Statement Caption:
The following table presents the components of “Accounts payable and accrued liabilities” as of December 31:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Accounts payable and accrued liabilities: | ||||||||
| Accrued salaries, benefits and other related costs | $ | 117.4 | $ | 142.5 | ||||
| Escrow liabilities | 0.4 | 10.6 | ||||||
| Accrued interest | 16.3 | 16.3 | ||||||
| Trade accounts payable and other accrued expenses | 128.7 | 92.2 | ||||||
| Acquisition-related liabilities | 30.0 | 0.5 | ||||||
| Total accounts payable and accrued liabilities | $ | 292.8 | $ | 262.1 |
The following table presents the components of "Other noncurrent assets" as of December 31:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Other noncurrent assets: | ||||||||
| Pension benefits | $ | 89.0 | $ | 130.5 | ||||
| Other assets - prepaid expenses | 50.7 | 59.9 | ||||||
| Investments in nonpublic companies | 229.8 | 216.2 | ||||||
| Deposits and other | 1.9 | 2.8 | ||||||
| Total other noncurrent assets | $ | 371.4 | $ | 409.4 |
82
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents short-term and long-term debt by issuance as of December 31:
| Issuance | Maturity | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Date | Date | 2022 | 2021 | |||||||||
| Short-term debt and current portion of long-term debt: | ||||||||||||
| Syndicated revolving credit facility | Various | Various | $ | 990.0 | $ | 610.0 | ||||||
| Bilateral revolving credit facility | Various | Various | 275.0 | - | ||||||||
| Bilateral term loan facility | Various | Various | 125.0 | - | ||||||||
| Senior notes: | ||||||||||||
| 4.125% senior notes, less unamortized discount and debt issuance costs of $(0.4) | 9/12/2012 | 9/12/2022 | - | 349.6 | ||||||||
| Finance lease liabilities (1) | Various | Various | 2.9 | 11.7 | ||||||||
| Short-term debt and current portion of long-term debt | 1,392.9 | 971.3 | ||||||||||
| Long-term debt: | ||||||||||||
| Senior notes: | ||||||||||||
| 3.625% senior notes, less unamortized discount and debt issuance costs of $(10.0) and $(10.3), respectively | 5/13/2020 | 5/15/2050 | 490.0 | 489.7 | ||||||||
| 4.125% senior notes, inclusive of unamortized premium, and net of unamortized discount and debt issuance costs of $9.4 and $10.9, respectively | 3/6/2019 | 3/15/2029 | 609.4 | 610.9 | ||||||||
| 4.000% senior notes, less unamortized discount and debt issuance costs of $(2.8) and $(4.1), respectively | 5/15/2015 | 6/15/2025 | 897.2 | 895.9 | ||||||||
| 5.500% senior notes, less unamortized discount and debt issuance costs of $(4.0) and $(4.1), respectively | 5/15/2015 | 6/15/2045 | 346.0 | 345.9 | ||||||||
| Finance lease liabilities (1) | Various | Various | 1.3 | 1.6 | ||||||||
| Syndicated revolving credit facility debt issuance costs | Various | Various | (0.7 | ) | (1.2 | ) | ||||||
| Long-term debt | 2,343.2 | 2,342.8 | ||||||||||
| Total debt | $ | 3,736.1 | $ | 3,314.1 |
(1) Refer to Note 8. Leases
Accrued interest associated with our outstanding debt obligations was $16.3 million as of December 31, 2022 and 2021, respectively, and included in “Accounts payable and accrued liabilities” within our accompanying consolidated balance sheets. Interest expense associated with our finance lease and outstanding debt obligations, including amortization of debt issuance costs and original discounts, was $135.5 million, $127.0 million, and $138.3 million for the years ended December 31, 2022, 2021, and 2020, respectively.
As of December 31, 2022 and December 31, 2021, we had senior notes with an aggregate principal amount of $2,350.0 million and $2,700.0 million outstanding, respectively, and were in compliance with our financial and other debt covenants. In the third quarter we repaid the 4.125% senior notes in full in the amount of $350.0 million utilizing a combination of borrowings from the credit facility and cash from operations.
83
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have a Syndicated Credit Facility with a borrowing capacity of $1,000.0 million 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., First Commercial Bank, Ltd., Los Angeles Branch, TD Bank, N.A., and the Northern Trust Company. The Syndicated Credit Facility also contains certain financial and other covenants that, among other things, impose certain restrictions on indebtedness, liens, investments, and capital expenditures. These covenants place restrictions on mergers, asset sales, sale/leaseback transactions, and certain transactions with affiliates. The financial covenants require that, at the end of any fiscal quarter, we have a consolidated funded debt leverage ratio of less than 3.5 to 1.0. At our election, the maximum consolidated funded debt leverage ratio could be permitted to increase one time each to 4.0 to 1.0 and 4.25 to 1.0. The Syndicated Credit Facility may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividends, and the share repurchase program ("Repurchase Program"). As of December 31, 2022, we were in compliance with all financial and other debt covenants under the Syndicated Credit Facility. As of December 31, 2022 and 2021, the available capacity under the Syndicated Credit Facility was $5.6 million and $384.9 million, net of the letters of credit of $4.4 million and $5.1 million, respectively. Subsequent to December 31, 2022 we have made repayments of 990.0 million under the Syndicated Credit Facility. As a result of this activity, we now have the ability to draw up to $995.6 million from our Syndicated Credit Facility.
On March 11, 2022, we entered into a $125.0 million Bilateral Term Loan Facility with Bank of America, N.A. At each roll over period, we can continue the loan for a period of one or three months until the agreed maturity date of September 12, 2022. On September 9, 2022, we amended the $125.0 million Bilateral Term Loan Facility to provide a one-year extension with an agreed maturity date of September 9, 2023. The Bilateral Term Loan Facility carries an interest rate of 135 basis points plus the one-month BSBY margin at the time. Subsequent to December 31, 2022 we repaid the full $125.0 million outstanding principal amount under our Bilateral Term Loan Facility agreement.
On September 9, 2022 we also added a 364-day $275.0 million Bilateral Revolving Credit Facility to be available starting October 3, 2022. The Bilateral Revolving Credit Facility carries an interest rate of 135 basis points plus the one-month BSBY margin at the time. Our Bilateral Credit Facilities may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividend payments, and the Repurchase Program. In December 2022, we borrowed an additional $275.0 million on the Bilateral Revolving Credit Facility, of which $250.0 million was utilized for share repurchases in the fourth quarter of 2022. Subsequent to December 31, 2022 we made a repayment of $275.0 million under our Bilateral Revolving Credit Facility, resulting in zero outstanding borrowings under our bilateral revolving credit facility as of February 28, 2023.
Debt Maturities
The following table reflects our debt maturities:
| Years Ending | Amount | |||
|---|---|---|---|---|
| 2023 | $ | 1,392.9 | ||
| 2024 | 0.8 | |||
| 2025 | 900.4 | |||
| 2026 | 0.1 | |||
| 2027 | - | |||
| 2028 and thereafter | 1,450.0 | |||
| Total | $ | 3,744.2 |
84
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We have 2,000,000,000 shares of authorized common stock as of December 31, 2022 and 2021. The common shares have rights to any dividend declared by our Board of Directors, subject to any preferential or other rights of any outstanding preferred stock, and voting rights to elect all eleven members of our Board of Directors. At December 31, 2022, 2021, and 2020, the adjusted closing price of our common stock was $176.42, $228.73, and $206.34 per share, respectively.
We have 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. We did not issue any preferred shares as of December 31, 2022 and 2021.
On February 16, 2022, April 27, 2022, July 27, 2022, and October 26, 2022, our board approved a cash dividend of $0.31 per share of common stock issued and outstanding to the holders of record as of March 15, 2022, June 15, 2022, September 15, 2022, and December 15, 2022, respectively. Cash dividends of $195.2 million and $188.2 million were paid during the years ended December 31, 2022 and 2021, and recorded as a reduction to retained earnings, respectively.
Share Repurchase Program
In December 2021, March 2022, June 2022, and September 2022, we entered into Accelerated Share Repurchase ("ASR") agreements to repurchase shares of our common stock for an aggregate purchase price of $100.0 million, $325.0 million, $300.0 million, and $100.0 million, respectively, with Citibank, N.A., Morgan Stanley, Citibank, N.A., and HSBC Bank USA. The ASR agreements are each accounted for as a treasury stock transaction and a forward stock purchase agreement indexed to our common stock. The forward stock purchase agreements are 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 payments of the aggregate purchase price on January 4, 2022, April 1, 2022, July 1, 2022, and October 3 2022, we received an aggregate delivery of 360,913, 1,211,387, 1,386,562, and 469,126 shares of our common stock, respectively. Upon the final settlement of the ASR agreements in February 2022, May 2022, September 2022, and December 2022, we received additional shares of 141,766, 349,762, 217,024, and 108,508 as determined by the volume weighted average share price of our common stock of $198.93, $208.18, $187.08, and $173.12 during the term of the ASR agreements, respectively. The aggregate purchase price was recorded as a reduction to stockholders' equity in our consolidated statements of changes in stockholders' equity for the year ended December 31, 2022. These repurchases resulted in a reduction of outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share ("EPS").
In December 2022, we entered into an additional ASR agreement to repurchase shares of our common stock for an aggregate purchase price of $250.0 million with Bank of America USA, NA. The ASR agreement is accounted for as a treasury stock transaction and a forward stock purchase agreement indexed to our common stock. Upon the payment of the aggregate purchase price of $250.0 million on December 14, 2022, we received 1,168,224 shares of our common stock at a price of $182.01 per share, representing an initial delivery of approximately 85 percent of the aggregate purchase price. Upon the final settlement of this ASR agreement in February 2023, we received additional shares of 247,487 as determined by the daily volume weighted average share price of our common stock of $176.68 during the term of this ASR agreement.
For the year ended December 31, 2022, we repurchased 8,600,963 shares of common stock as part of the Repurchase Program, inclusive of the ASRs and open market repurchases, at a weighted average price of $188.93 per share. We utilized cash from operations and borrowings from our Bilateral Revolving Credit Facility to fund these repurchases. As of December 31, 2022, we had $441.3 million available to repurchase shares through our Repurchase Program, inclusive of the $1,000.0 million and $500 million authorizations approved by our Board on February 16, 2022 and November 8, 2022, respectively. On November 8, 2022, our board also approved an additional $3.0 billion authorization to repurchase shares of our common stock conditioned upon and effective only after the closing of the sale of our Energy business.
Treasury Stock
As of December 31, 2022, our treasury stock consisted of 389,301,902 shares of common stock. During the years ended December 31, 2022, 2021, and 2020, we transferred 1,650,460, 1,379,304, and 1,811,046 shares of common stock, from the treasury shares at a weighted average price of $14.25, $11.78, and $10.67 per share, respectively.
85
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Earnings Per Share
The following is a reconciliation of the numerators and denominators of our basic and diluted EPS computations for the years ended December 31:
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In millions, except for share and per share data) | ||||||||||||
| Numerator used in basic and diluted EPS: | ||||||||||||
| Income from continuing operations | $ | 1,041.7 | $ | 607.0 | $ | 653.8 | ||||||
| Income from discontinued operations, net of tax | (87.8 | ) | 59.2 | 58.9 | ||||||||
| Net income attributable to Verisk | $ | 953.9 | $ | 666.2 | $ | 712.7 | ||||||
| Denominator: | ||||||||||||
| Weighted average number of common shares used in basic EPS | 157,905,718 | 161,841,441 | 162,610,586 | |||||||||
| Effect of dilutive shares: | ||||||||||||
| Potential common shares issuable from stock options and stock-based awards | 1,023,224 | 1,497,468 | 2,710,123 | |||||||||
| Weighted average number of common shares and dilutive potential common shares used in diluted EPS | 158,928,942 | 163,338,909 | 165,320,709 |
The potential shares of common stock that were excluded from diluted EPS were 1,350,159, 620,241, and 513,137 at December 31, 2022, 2021, and 2020, respectively, because the effect of including those potential shares was anti-dilutive.
Accumulated Other Comprehensive Losses
The following is a summary of accumulated other comprehensive losses as of December 31:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Foreign currency translation adjustment | $ | (636.9 | ) | $ | (338.0 | ) | ||
| Pension and postretirement adjustment, net of tax | (94.3 | ) | (56.6 | ) | ||||
| Accumulated other comprehensive losses | $ | (731.2 | ) | $ | (394.6 | ) |
The before tax and after tax amounts of other comprehensive (loss) income for the years ended December 31, 2022, 2021, and 2020 are summarized below:
| Tax Benefit | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Before Tax | (Expense) | After Tax | ||||||||||
| December 31, 2022 | ||||||||||||
| Foreign currency translation adjustment attributable to Verisk | $ | (298.9 | ) | $ | — | $ | (298.9 | ) | ||||
| Foreign currency translation adjustment attributable to noncontrolling interests | (1.4 | ) | — | (1.4 | ) | |||||||
| Foreign currency translation adjustment | (300.3 | ) | — | (300.3 | ) | |||||||
| Pension and postretirement adjustment before reclassifications | (45.7 | ) | 13.5 | (32.2 | ) | |||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (4.4 | ) | (1.1 | ) | (5.5 | ) | ||||||
| Pension and postretirement adjustment | (50.1 | ) | 12.4 | (37.7 | ) | |||||||
| Total other comprehensive loss | $ | (350.4 | ) | $ | 12.4 | $ | (338.0 | ) | ||||
| December 31, 2021 | ||||||||||||
| Foreign currency translation adjustment attributable to Verisk | $ | (45.8 | ) | $ | — | $ | (45.8 | ) | ||||
| Foreign currency translation adjustment attributable to noncontrolling interests | (0.5 | ) | — | (0.5 | ) | |||||||
| Foreign currency translation adjustment | (46.3 | ) | — | (46.3 | ) | |||||||
| Pension and postretirement adjustment before reclassifications | 39.8 | (9.8 | ) | 30.0 | ||||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (4.1 | ) | 1.0 | (3.1 | ) | |||||||
| Pension and postretirement adjustment | 35.7 | (8.8 | ) | 26.9 | ||||||||
| Total other comprehensive loss | $ | (10.6 | ) | $ | (8.8 | ) | $ | (19.4 | ) | |||
| December 31, 2020 | ||||||||||||
| Foreign currency translation adjustment | $ | 107.9 | $ | — | $ | 107.9 | ||||||
| Pension and postretirement adjustment before reclassifications | 11.1 | (2.9 | ) | 8.2 | ||||||||
| Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1) | (6.7 | ) | 1.8 | (4.9 | ) | |||||||
| Pension and postretirement adjustment | 4.4 | (1.1 | ) | 3.3 | ||||||||
| Total other comprehensive income | $ | 112.3 | $ | (1.1 | ) | $ | 111.2 |
| (1) | These accumulated other comprehensive loss components, before tax, are included under “Cost of revenues” and “Selling, general and administrative” in our accompanying consolidated statements of operations. These components are also included in the computation of net periodic (benefit) cost (See Note 18. Pension and Postretirement Benefits for additional details). |
86
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
KSOP
We have established the KSOP for the benefit of eligible employees in the U.S. and Puerto Rico. The KSOP includes both an employee savings component and an employee stock ownership component. The purpose of the combined plan is to enable our employees to participate in a tax-deferred savings arrangement under Internal Revenue Service Code Sections 401(a) and 401(k) (the “Code”), and to provide our employees equity participation through the employee stock ownership plan (“ESOP”) accounts.
Under the KSOP, eligible employees may make pre-tax and after-tax cash contributions as a percentage of their compensation, subject to certain limitations under the applicable provisions of the Code. The maximum pre-tax contribution that can be made to the 401(k) account as determined under the provisions of Code Section 401(g) is $20.5 thousand for 2022 and $19.5 thousand for 2021 and 2020. Certain eligible participants (age 50 and older) may contribute an additional $6.5 thousand on a pre-tax basis for 2022, 2021 and 2020. After-tax contributions are limited to 10.0% of a participant’s compensation. Effective January 1, 2019, we increased the matching contributions to 100.0% of the first 6.0% of the participant’s contribution. The 401(k) matching contributions under the KSOP for the years ended December 31, 2022, 2021, and 2020, were $40.0 million, $33.7 million, and $31.6 million, respectively; which, at our option, were funded in cash.
In 2005, we established the ISO Profit Sharing Plan (the “Profit Sharing Plan”), a defined contribution plan, to replace the qualified pension plan for all eligible employees hired on or after March 1, 2005. The Profit Sharing Plan is a component of the KSOP. Eligible employees participated in the Profit Sharing Plan if they completed 1,000 hours of service each plan year and were employed on December 31 of that year. We can make a discretionary contribution to the Profit Sharing Plan based on our annual performance. Participants vest once they have completed four years and 1,000 hours of service. For the years ended December 31, 2022, 2021, and 2020, there were no profit sharing contributions.
Equity Compensation Plans
All of our outstanding stock options, restricted stock awards, deferred stock units, and PSUs are covered under our 2021 Incentive Plan, our 2013 Incentive Plan, or our 2009 Incentive Plan. Awards under our 2021 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, non-employee directors, and consultants are eligible for awards under our 2021 Incentive Plan. We transferred common stock under these plans from our treasury shares. As of December 3__1, 2022, there were 13,899,609 shares of common stock reserved and available for future issuance under our 2021 Incentive Plan. Cash received from stock option exercises for December 31, 2022 and December 31, 2021 was $132.3 million and $84.3 million, respectively. We issued common stock under these plans from our treasury shares. We have granted equity awards to key employees and directors. The ultimate realization of the PSUs may range from 0% to 200% of the recipient’s target levels established on the grant date.
87
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the status of the stock options, restricted stock, and PSUs awarded under our 2021 Incentive Plan as of December 31, 2022, 2021, and 2020 and changes during the years is presented below.
| Stock Option | Restricted Stock | PSU | |||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted | Weighted | ||||||||||||||||||||||||||||
| Weighted | Average | Average | |||||||||||||||||||||||||||
| Average | Aggregate | Grant Date | Grant Date | ||||||||||||||||||||||||||
| Number | Exercise | Intrinsic | Number | Fair Value | Number | Fair Value | |||||||||||||||||||||||
| of Options | Price | Value | of Shares | Per Share | of Shares | Per Share | |||||||||||||||||||||||
| (in millions) | |||||||||||||||||||||||||||||
| Outstanding at January 1, 2020 | 6,432,814 | $ | 79.51 | $ | 449.2 | 428,729 | $ | 107.96 | 93,960 | $ | 158.50 | ||||||||||||||||||
| Granted | 936,843 | $ | 159.28 | 163,441 | $ | 159.96 | 50,736 | $ | 192.93 | ||||||||||||||||||||
| Dividend reinvestment | — | $ | — | — | $ | — | 913 | N/A | |||||||||||||||||||||
| Exercised or lapsed | (1,623,740 | ) | $ | 56.83 | $ | 189.8 | (178,317 | ) | $ | 102.00 | — | $ | — | ||||||||||||||||
| Canceled, expired or forfeited | (134,140 | ) | $ | 125.95 | (23,799 | ) | $ | 124.40 | — | $ | — | ||||||||||||||||||
| Outstanding at December 31, 2020 | 5,611,777 | $ | 98.28 | $ | 613.4 | 390,054 | $ | 131.63 | 145,609 | $ | 170.75 | ||||||||||||||||||
| Granted | 750,822 | $ | 189.29 | 162,378 | $ | 189.23 | 59,144 | $ | 210.07 | ||||||||||||||||||||
| Dividend reinvestment | — | $ | — | — | $ | — | 980 | N/A | |||||||||||||||||||||
| Exercised or lapsed | (1,146,422 | ) | $ | 73.30 | $ | 147.6 | (173,726 | ) | $ | 120.94 | (42,610 | ) | $ | 140.70 | |||||||||||||||
| Canceled, expired or forfeited | (149,079 | ) | $ | 155.40 | (27,202 | ) | $ | 157.79 | — | $ | — | ||||||||||||||||||
| Outstanding at December 31, 2021 | 5,067,098 | $ | 115.73 | $ | 572.6 | 351,504 | $ | 161.33 | 163,123 | $ | 192.99 | ||||||||||||||||||
| Granted | 653,802 | $ | 196.64 | 201,617 | $ | 193.33 | 111,333 | $ | 168.63 | ||||||||||||||||||||
| Dividend reinvestment | — | $ | — | — | $ | — | 1,371 | N/A | |||||||||||||||||||||
| Exercised or lapsed | (1,435,673 | ) | $ | 92.38 | $ | 129.1 | (205,407 | ) | $ | 157.22 | (54,927 | ) | $ | 174.42 | |||||||||||||||
| Canceled, expired or forfeited | (261,411 | ) | $ | 181.48 | (40,139 | ) | $ | 182.35 | (21,406 | ) | $ | 202.55 | |||||||||||||||||
| Outstanding at December 31, 2022 | 4,023,816 | $ | 132.90 | $ | 193.3 | 307,575 | $ | 182.07 | 199,494 | $ | 195.34 | ||||||||||||||||||
| Exercisable at December 31, 2022 | 2,702,075 | $ | 110.02 | $ | 182.6 | ||||||||||||||||||||||||
| Exercisable at December 31, 2021 | 3,173,592 | $ | 89.14 | $ | 443.0 | ||||||||||||||||||||||||
| Nonvested at December 31, 2022 | 1,321,741 | 307,575 | 199,494 | ||||||||||||||||||||||||||
| Expected to vest at December 31, 2022 | 1,107,594 | 273,646 | 73,775 | (1) |
| (1) | Includes estimated performance achievement |
|---|
The fair value of our stock options granted was estimated on the date of grant using a Black-Scholes option valuation model that uses the weighted-average assumptions noted in the following table during the years ended December 31:
| 2022 | 2021 | 2020 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Expected volatility | 25.33 | % | 23.66 | % | 18.48 | % | ||||||
| Risk-free interest rate | 1.55 | % | 0.39 | % | 1.51 | % | ||||||
| Expected term in years | 4.2 | 4.3 | 4.3 | |||||||||
| Dividend yield | 0.60 | % | 0.63 | % | 0.71 | % | ||||||
| Weighted average grant date fair value per stock option | $ | 42.25 | $ | 35.15 | $ | 25.87 |
88
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
A summary of the status of our nonvested options and changes are presented below:
| Number of Options | Weighted Average Grant-Date Fair Value Per Share | |||||||
|---|---|---|---|---|---|---|---|---|
| Nonvested balance at January 1, 2020 | 2,256,959 | $ | 20.17 | |||||
| Granted | 936,843 | $ | 25.87 | |||||
| Vested | (942,049 | ) | $ | 18.30 | ||||
| Cancelled or expired | (134,140 | ) | $ | 22.40 | ||||
| Nonvested balance at December 31, 2020 | 2,117,613 | $ | 23.39 | |||||
| Granted | 750,822 | $ | 35.15 | |||||
| Vested | (825,850 | ) | $ | 21.62 | ||||
| Cancelled or expired | (149,079 | ) | $ | 27.54 | ||||
| Nonvested balance at December 31, 2021 | 1,893,506 | $ | 28.49 | |||||
| Granted | 653,802 | $ | 42.25 | |||||
| Vested | (964,156 | ) | $ | 22.97 | ||||
| Cancelled or expired | (261,411 | ) | $ | 35.23 | ||||
| Nonvested balance at December 31, 2022 | 1,321,741 | $ | 34.65 |
Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the quoted price of our common stock as of the reporting date. Excess tax benefits of $26.5 million, $35.9 million, and $42.9 million from exercised stock options were recorded as income tax benefit in our accompanying consolidated statements of operations for the years ended December 31, 2022, 2021, and 2020, respectively. Stock-based compensation expense for the years ended December 31, 2022, 2021, and 2020 was $56.5 million, $55.7 million, and $47.6 million, respectively. As of December 31, 2022, the weighted average remaining contractual terms were 5.9 years and 4.9 years for outstanding and exercisable stock options, respectively. As of December 31, 2021, the weighted average remaining contractual terms were 6.0 years and 4.8 years for outstanding and exercisable stock options, respectively.
As of December 31, 2022, there was $93.9 million of total unrecognized compensation cost, exclusive of the impact of vesting upon retirement eligibility, related to nonvested share-based compensation arrangements granted under our 2021 and 2013 Incentive Plans. That cost is expected to be recognized over a weighted-average period of 2.15 years.
Our U.K. Sharesave Plan offers qualifying employees in the United Kingdom the opportunity to own shares of our common stock. Employees who elect to participate are granted stock options, of which the exercise price is equal to the average of the closing price on the five trading days immediately preceding the plan invitation 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 years ended December 31, 2022, 2021, and 2020, we granted 9,370, 11,254, and 8,174 stock options under the U.K. Sharesave Plan at a discounted exercise price of $178.26, $1_66.16,_ and $159.98, respectively. As of December 31, 2022, there were 453,155 shares of common stock reserved and available for future issuance under our U.K. Sharesave Plan.
We also offer eligible employees the opportunity to participate in an ESPP. Under our ESPP, participating employees may authorize payroll deductions of up to 20.0% of their regular base salary and up to 50.0% of their short-term incentive compensation, both of which in total may not exceed $25.0 thousand in any calendar year, to purchase shares of our common stock at a 5.0% discount of its fair market value at the time of purchase. In accordance with ASC 718, our ESPP is noncompensatory as the purchase discount is 5.0% or less from the fair market value, substantially all employees that meet limited employment qualifications may participate, and it incorporates no option features. During the years ended December 31, 2022, 2021, and 2020, we issued 30,398, 33,974, and 32,502 shares of common stock at a weighted average discounted price of $174.66, $181.77, and $164.44 respectively. As of December 31, 2022, there were 1,195,894 shares of common stock reserved and available for future issuance under our ESPP.
89
VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
18. Pension and Postretirement Benefits:
We have a frozen qualified defined benefit pension plan for certain of our employees through membership in the Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. Prior to the freeze, we applied a cash balance formula to determine future benefits. Under the cash balance formula, each participant has an account, which was credited annually based on salary rates determined by years of service, as well as the interest earned on the previous year-end cash balance. We also have a non-qualified frozen supplemental cash balance plan (“SERP”) for certain employees. Our SERP is funded from our general assets. We contributed $0.8 million to our SERP in 2022 and $0.7 million in 2021, respectively, and expect to contribute $0.8 million in 2023.
Our Pension Plan’s funding policy is to contribute annually at an amount between the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974 and the maximum amount that can be deducted for federal income tax purposes. No minimum contribution requirement was and is expected for 2022 and 2023, respectively.
We also provide certain healthcare and life insurance benefits for both 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. We do not expect to contribute to our Postretirement Plan in 2023.
The following table sets forth the changes in the benefit obligations and the plan assets, the funded status of the Pension Plan, SERP, and Postretirement Plan, and the amounts recognized in our consolidated balance sheets at December 31:
| Pension Plan and SERP | Postretirement Plan | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Change in benefit obligation: | ||||||||||||||||
| Benefit obligation at January 1 | $ | 431.7 | $ | 459.9 | $ | 6.0 | $ | 7.5 | ||||||||
| Interest cost | 14.7 | 11.0 | 0.1 | 0.1 | ||||||||||||
| Actuarial gain | (86.6 | ) | (9.0 | ) | (0.4 | ) | (0.9 | ) | ||||||||
| Plan participants’ contributions | — | — | 1.3 | 1.5 | ||||||||||||
| Benefits paid | (28.9 | ) | (30.2 | ) | (2.8 | ) | (2.2 | ) | ||||||||
| Benefit obligation at December 31 | $ | 330.9 | $ | 431.7 | $ | 4.2 | $ | 6.0 | ||||||||
| Accumulated benefit obligation at December 31 | $ | 330.9 | $ | 431.7 | ||||||||||||
| Change in plan assets: | ||||||||||||||||
| Fair value of plan assets at January 1 | $ | 546.2 | $ | 520.8 | $ | 9.5 | $ | 10.5 | ||||||||
| Actuarial (gain) loss | (111.8 | ) | 54.9 | (1.1 | ) | (0.2 | ) | |||||||||
| Employer contributions, net | 0.8 | 0.7 | 0.7 | (0.1 | ) | |||||||||||
| Plan participants’ contributions | — | — | 1.3 | 1.5 | ||||||||||||
| Benefits paid | (28.9 | ) | (30.2 | ) | (2.8 | ) | (2.2 | ) | ||||||||
| Fair value of plan assets at December 31 | $ | 406.3 | $ | 546.2 | $ | 7.6 | $ | 9.5 | ||||||||
| Funded status at December 31 | $ | (75.4 | ) | $ | (114.5 | ) | $ | (3.4 | ) | $ | (3.5 | ) | ||||
| Amounts recognized in the consolidated balance sheets consist of: | ||||||||||||||||
| Pension assets, noncurrent (1) | $ | (85.6 | ) | $ | (127.0 | ) | $ | (3.4 | ) | $ | (3.5 | ) | ||||
| Pension, SERP and postretirement benefits, current (2) | 0.8 | 1.4 | — | — | ||||||||||||
| Pension, SERP and postretirement benefits, noncurrent (3) | 9.4 | 11.1 | — | — | ||||||||||||
| Total Pension, SERP and Postretirement benefits | $ | (75.4 | ) | $ | (114.5 | ) | $ | (3.4 | ) | $ | (3.5 | ) |
(1) Included in "Other noncurrent assets" in our accompanying consolidated balance sheets
(2) Included in "Accounts payable and accrued liabilities" in our accompanying consolidated balance sheets
(3) Included in "Other noncurrent liabilities" in our accompanying consolidated balance sheets
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The pre-tax components included within accumulated other comprehensive losses as of December 31 are summarized below:
| Pension Plan and SERP | Postretirement Plan | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Prior service benefit cost (credit) | $ | 2.6 | $ | 2.8 | $ | — | $ | — | ||||||||
| Actuarial losses | 147.8 | 98.3 | 3.2 | 2.4 | ||||||||||||
| Accumulated other comprehensive losses, pretax | $ | 150.4 | $ | 101.1 | $ | 3.2 | $ | 2.4 |
The pre-tax components of net periodic benefit (credit) cost and the amounts recognized in other comprehensive loss are summarized below for the years ended December 31:
| Pension Plan and SERP | Postretirement Plan | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | |||||||||||||||||||
| Interest cost | $ | 14.7 | $ | 11.0 | $ | 12.6 | $ | 0.1 | $ | 0.1 | $ | 0.2 | ||||||||||||
| Expected return on plan assets | (28.2 | ) | (32.8 | ) | (29.9 | ) | (0.2 | ) | (0.2 | ) | (0.2 | ) | ||||||||||||
| Amortization of prior service cost (credit) reclassified from accumulated other comprehensive losses | 0.2 | 0.2 | 0.2 | — | (0.1 | ) | (0.1 | ) | ||||||||||||||||
| Amortization of net actuarial loss reclassified from accumulated other comprehensive losses | 4.0 | 3.8 | 6.3 | 0.2 | 0.2 | 0.3 | ||||||||||||||||||
| Net periodic benefit (credit) cost | (9.3 | ) | (17.8 | ) | (10.8 | ) | 0.1 | — | 0.2 | |||||||||||||||
| Amortization of prior service (cost) credit reclassified from accumulated other comprehensive losses | (0.2 | ) | (0.2 | ) | (0.2 | ) | — | 0.1 | 0.1 | |||||||||||||||
| Amortization of actuarial (loss) gain reclassified from accumulated other comprehensive losses | (0.2 | ) | (0.2 | ) | (0.2 | ) | — | — | — | |||||||||||||||
| Net loss recognized reclassified from accumulated other comprehensive losses | (3.8 | ) | (3.6 | ) | (6.1 | ) | (0.2 | ) | (0.2 | ) | (0.3 | ) | ||||||||||||
| Actuarial loss (gain) | 53.5 | (31.1 | ) | 2.4 | 1.0 | (0.5 | ) | (0.3 | ) | |||||||||||||||
| Total recognized in other comprehensive income | 49.3 | (35.1 | ) | (4.1 | ) | 0.8 | (0.6 | ) | (0.5 | ) | ||||||||||||||
| Total recognized in net periodic benefit credit and other comprehensive (income) loss | $ | 40.0 | $ | (52.9 | ) | $ | (14.9 | ) | $ | 0.9 | $ | (0.6 | ) | $ | (0.3 | ) |
The weighted-average assumptions used to determine benefit obligations as of December 31, 2022 and 2021 and net periodic benefit (credit) cost for the years 2022, 2021 and 2020 are provided below:
| Pension Plan and SERP | Postretirement Plan | |||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Weighted-average assumptions used to determine benefit obligations: | 2022 | 2021 | 2022 | 2021 | ||||||||||||||||||||
| Discount rate | 5.49 | % | 2.75 | % | 5.25 | % | 2.25 | % | ||||||||||||||||
| Expected return on plan assets | 6.25 | % | 6.25 | % | 1.75 | % | 1.75 | % | ||||||||||||||||
| Cash balance interest credit rate | 2.57 | % | 2.57 | % | N/A | |||||||||||||||||||
| Weighted-average assumptions used to determine net periodic benefit (credit) cost: | 2022 | 2021 | 2020 | 2022 | 2021 | 2020 | ||||||||||||||||||
| Discount rate | 2.75 | % | 2.49 | % | 2.83 | % | 2.25 | % | 1.50 | % | 2.50 | % | ||||||||||||
| Expected return on plan assets | 6.25 | % | 6.50 | % | 6.75 | % | 1.75 | % | 2.00 | % | 2.00 | % | ||||||||||||
| Cash balance interest credit rate | 2.57 | % | 2.57 | % | 2.57 | % | N/A |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table presents the estimated future benefit payments for the respective plans. The future benefit payments for the Postretirement Plan are net of the federal Medicare subsidy.
| Pension Plan | Postretirement | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| and SERP | Plan | |||||||||||||||
| Gross | Gross | Medicare | Net | |||||||||||||
| Benefit | Benefit | Subsidy | Benefit | |||||||||||||
| Amount | Amount | Payments | Amount | |||||||||||||
| 2023 | $ | 29.8 | $ | 0.9 | $ | (0.1 | ) | $ | 0.8 | |||||||
| 2024 | $ | 30.2 | $ | 0.8 | $ | (0.1 | ) | $ | 0.7 | |||||||
| 2025 | $ | 29.0 | $ | 0.7 | $ | (0.1 | ) | $ | 0.6 | |||||||
| 2026 | $ | 28.9 | $ | 0.6 | $ | (0.1 | ) | $ | 0.5 | |||||||
| 2027 | $ | 28.7 | $ | 0.5 | $ | — | $ | 0.5 | ||||||||
| 2027 and thereafter | $ | 128.2 | $ | 1.6 | $ | — | $ | 1.6 |
The healthcare cost trend rate for 2022 was 7.50% gradually decreasing to 4.50% in 2035. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plan.
The subsidy benefit from the Medicare Prescription Drug, Improvement and Modernization Act of 2003 reduced our accumulated postretirement benefit assets by approximately $0.8 million as of December 31, 2022 and 2021. The subsidy cost increased the net periodic benefit cost by approximately $80.7 thousand, $75.8 thousand, and $58.2 thousand in fiscal 2022, 2021 and 2020, respectively.
The expected return on our Pension Plan assets as of December 31, 2022 and 2021 was 6.25%, respectively, which was determined by taking into consideration our analysis of our actual historical investment returns to a broader long-term forecast after adjusting for the target investment allocation and reflecting the current economic environment. During the first quarter of 2022, we changed the investment guidelines on our Pension Plan assets to target investment allocation of 45% to equity securities and 55% to debt securities from our previous target allocation of 50% to equity securities and 50% to debt securities as of December 31, 2021. Our Pension Plan assets consist primarily of investments in various fixed income and equity funds. Investment guidelines are established with each investment manager. These guidelines provide the parameters within which the investment managers agree to operate, including criteria that determine eligible and ineligible securities, diversification requirements and credit quality standards, where applicable. Investment managers are prohibited from entering into any speculative hedging transactions. The investment objective is to achieve a maximum total return with strong emphasis on preservation of capital in real terms.
The asset allocation at December 31, 2022 and 2021, and target allocation by asset category are as follows:
| Target | Percentage of Plan Assets | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Asset Category | Allocation | 2022 | 2021 | |||||||||
| Equity securities | 45.0 | % | 41.4 | % | 45.8 | % | ||||||
| Debt securities | 55.0 | 52.9 | 47.8 | |||||||||
| Real Estate | — | 5.0 | 6.4 | |||||||||
| Other | — | 0.7 | — | |||||||||
| Total | 100.0 | % | 100.0 | % | 100.0 | % |
We have used the target investment allocation to derive the expected return as we believe this allocation will be retained on an ongoing basis that will be commensurate with the projected cash flows of the plan. The expected return for each investment category within the target investment allocation is developed using average historical rates of return for each targeted investment category, considering the projected cash flow of our Pension Plan. The difference between this expected return and the actual return on plan assets is generally deferred and recognized over subsequent periods through future net periodic benefit costs. We believe that the use of the average historical rates of returns is consistent with the timing and amounts of expected contributions to the plans and benefit payments to plan participants. These considerations provide the basis for reasonable assumptions with respect to the expected long-term rate of return on plan assets.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We also maintain a voluntary employees beneficiary association plan (the “VEBA Plan”) under Section 501(c)(9) of the Internal Revenue Code to fund the Postretirement Plan. The asset allocation for our VEBA Plan at December 31, 2022 and 2021 was 100% in debt securities.
There were no transfers among Levels 1, 2, or 3 for the years ended December 31, 2022 and 2021. Refer to Note 7. Fair Value Measurements for further discussion with respect to fair value hierarchy. The following table summarizes the fair value measurements by level of our Pension Plan and Postretirement Plan assets:
| Quoted Prices | Significant | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| in Active | Other | |||||||||||
| Markets for | Observable | |||||||||||
| Identical Assets | Inputs | |||||||||||
| Total | (Level 1) | (Level 2) | ||||||||||
| December 31, 2022 | ||||||||||||
| Equity | ||||||||||||
| Managed equity accounts (1) | $ | 128.8 | $ | 128.8 | $ | — | ||||||
| Equity — pooled separate account (2) | 39.7 | — | 39.7 | |||||||||
| Debt | ||||||||||||
| Fixed income manager — separately managed account (5) | 133.6 | — | 133.6 | |||||||||
| Fixed income manager — pooled separate account (2) | 81.5 | — | 81.5 | |||||||||
| Fixed income manager — government securities (3) | 7.7 | 7.7 | — | |||||||||
| Others | ||||||||||||
| Cash — pooled separate account (2) | 2.7 | — | 2.7 | |||||||||
| Global real estate account (4) | 20.2 | — | 20.2 | |||||||||
| Total | $ | 414.2 | $ | 136.5 | $ | 277.7 | ||||||
| December 31, 2021 | ||||||||||||
| Equity | ||||||||||||
| Managed equity accounts (1) | $ | 195.0 | $ | 195.0 | $ | — | ||||||
| Equity — pooled separate account (2) | 54.9 | — | 54.9 | |||||||||
| Debt | ||||||||||||
| Fixed income manager — separately managed account (5) | 163.7 | — | 163.7 | |||||||||
| Fixed income manager — pooled separate account (2) | 97.9 | — | 97.9 | |||||||||
| Fixed income manager — government securities (3) | 9.5 | 9.5 | — | |||||||||
| Others | ||||||||||||
| Cash — pooled separate account (2) | (0.1 | ) | — | (0.1 | ) | |||||||
| Global real estate account (4) | 34.8 | — | 34.8 | |||||||||
| Total | $ | 555.7 | $ | 204.5 | $ | 351.2 |
| (1) | Valued at the closing price of shares for domestic stocks within the managed equity accounts, and valued at the net asset value (“NAV”) of shares for mutual funds at either the closing price reported in the active market or based on yields currently available on comparable securities of issuers with similar credit ratings for corporate bonds held by the Pension Plan in these managed accounts. |
| (2) | The pooled separate accounts invest in domestic and foreign stocks, bonds and mutual funds. The fair values of these stocks, bonds and mutual funds are publicly quoted and are used in determining the NAV of the pooled separate account, which is not publicly quoted. |
| (3) | The fund invested in the U.S. government, its agencies or instrumentalities or securities that are rated AAA by S&P, AAA by Fitch, or Aaa by Moody’s, including but not limited to mortgage securities such as agency and non-agency collateralized mortgage obligations, and other obligations that are secured by mortgages or mortgage backed securities, and valued at the closing price reported in the active market. |
|---|
| (4) | The funds invested in common stocks and other equity securities issued by domestic and foreign real estate companies, including real estate investment trusts ("REIT") and similar REIT-like entities. The fair values of these stocks, bonds and mutual funds are publicly quoted and are used in determining the NAV of the funds, which is not publicly quoted. |
| (5) | The separately managed accounts invest in U.S. Treasury Bonds and U.S. Treasury Separate Trading of Registered Interest and Principal of Securities (“UST STRIPS”). The fair values of these bonds and UST STRIPS are publicly quoted and are used in determining the NAV of the separately managed account, which is not publicly quoted. |
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VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
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. Our President and CEO is identified as the CODM as defined by ASC 280-10.
Each of our 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 revenue recognition policy within Note 2. Basis of Presentation and Summary of Significant Accounting Policies. Below is the overview of the solutions offered within each reportable segment.
Insurance: We are the leading provider of statistical, actuarial, and underwriting data for the U.S. P&C insurance industry. Our databases include cleansed and standardized records describing premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants, and fire suppression capabilities of municipalities. We use 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. We also develop solutions that our customers use to analyze key processes in managing risk. Our combination of algorithms and analytic methods incorporates our proprietary data to generate solutions. We also help businesses and governments better anticipate and manage climate and weather-related risks. In most cases, our customers integrate the solutions into their models, formulas or underwriting criteria in order to predict potential loss events, ranging from hurricanes to earthquakes. We develop catastrophe and extreme event models and offer solutions covering natural and man-made risks, including acts of terrorism. We further develop solutions that allow customers to quantify costs after loss events occur. Our 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, we offer 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. Our underwriting & rating, insurance anti-fraud claims, catastrophe modeling, and loss quantification are included in this segment. During the first quarter of 2021, due to management restructuring, our CODM reorganized AER, an immaterial component of the Energy and Specialized Markets segment, to the Insurance segment. Consequently, AER became part of the underwriting and rating category within the Insurance segment. The inclusion of AER within our Insurance segment better aligns with how our CODM makes operating decisions, assesses the performance of the business, and allocates resources. Our prior year results have been recast to reflect this change. The related impact to our consolidated financial statements was not material for all periods presented.
Energy and Specialized Markets: In the first quarter of 2022_,_ the sale of our environmental health and safety business (which comprised of our Specialized Market) was completed. On February 1, 2023, we completed the sale of our Energy segment. We determined that the transaction met the criteria to be classified as discontinued operations and its assets and liabilities are classified as held for sale. As a result, the financial operations of Energy are excluded from the segment disclosure. See Note 11. Dispositions and Discontinued Operations for further discussion. Prior to the sale, we were a leading provider of data analytics via hosted platform for the global energy, chemicals, and metals and mining industries. Our research and consulting solutions focused 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. We gathered and managed proprietary information, insight, and analysis are 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. Our analytical tools measured and observed environmental properties and translated those measurements into actionable information based on customer needs. In addition, we provided market and cost intelligence to energy companies to optimize financial results. We further offered 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.
Financial Services: On April 8, 2022, the sale of this segment was completed. See Note 11. Dispositions and Discontinued Operations for further discussion. Prior to the sale, we maintained 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 applied our 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.
The three aforementioned reportable segments represent the segments for which discrete financial information is available and upon which operating results are regularly evaluated by our CODM in order to assess performance and allocate resources. We use 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. We do 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, our CODM does not evaluate the financial performance of each segment based on assets. See Note 6. Revenues for information on disaggregated revenues by type of service and by country.
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VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The following table provides our revenue and EBITDA by reportable segment for the years ended December 31, as well as a reconciliation of EBITDA to income before income taxes for all periods presented in our accompanying consolidated statements of operations:
| 2022 | 2021 | 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Insurance | Energy and Specialized Markets | Financial Services | Total | Insurance | Energy and Specialized Markets | Financial Services | Total | Insurance | Energy and Specialized Markets | Financial Services | Total | |||||||||||||||||||||||||||||||||||||
| Revenues | $ | 2,437.0 | $ | 22.4 | $ | 37.6 | $ | 2,497.0 | $ | 2,206.9 | $ | 112.8 | $ | 142.8 | $ | 2,462.5 | $ | 2,008.7 | $ | 104.0 | $ | 156.7 | $ | 2,269.4 | ||||||||||||||||||||||||
| Expenses: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Cost of revenues (exclusive of items shown separately below) | (781.9 | ) | (19.1 | ) | (23.6 | ) | (824.6 | ) | (704.4 | ) | (58.9 | ) | (90.4 | ) | (853.7 | ) | (644.3 | ) | (54.6 | ) | (92.8 | ) | (791.7 | ) | ||||||||||||||||||||||||
| Selling, general and administrative | (347.4 | ) | (26.7 | ) | (7.4 | ) | (381.5 | ) | (239.1 | ) | (44.9 | ) | (29.2 | ) | (313.2 | ) | (248.1 | ) | (40.5 | ) | (19.6 | ) | (308.2 | ) | ||||||||||||||||||||||||
| Other operating (loss) income | - | 450.0 | (95.8 | ) | 354.2 | - | - | (134.0 | ) | (134.0 | ) | 15.9 | - | 3.5 | 19.4 | |||||||||||||||||||||||||||||||||
| Investment (loss) income and others, net | (4.7 | ) | (0.4 | ) | (0.2 | ) | (5.3 | ) | 1.8 | 0.6 | (0.3 | ) | 2.1 | 0.3 | - | 0.1 | 0.4 | |||||||||||||||||||||||||||||||
| EBITDA from discontinued operations | - | (117.9 | ) | - | (117.9 | ) | - | 222.3 | - | 222.3 | - | 204.5 | - | 204.5 | ||||||||||||||||||||||||||||||||||
| EBITDA | $ | 1,303.0 | $ | 308.3 | $ | (89.4 | ) | $ | 1,521.9 | $ | 1,265.2 | $ | 231.9 | $ | (111.1 | ) | $ | 1,386.0 | $ | 1,132.5 | $ | 213.4 | $ | 47.9 | $ | 1,393.8 | ||||||||||||||||||||||
| EBITDA from discontinued operations | 117.9 | (222.3 | ) | (204.5 | ) | |||||||||||||||||||||||||||||||||||||||||||
| Depreciation and amortization of fixed assets | (164.2 | ) | (170.3 | ) | (159.2 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | (74.4 | ) | (79.9 | ) | (73.4 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Interest expense | (138.8 | ) | (127.0 | ) | (138.3 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Income before income taxes | $ | 1,262.4 | $ | 786.5 | $ | 818.4 |
Long-lived assets by country are provided below as of December 31:
| 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|
| Long-lived assets: | ||||||||
| U.S. | $ | 2,876.5 | $ | 3,527.6 | ||||
| U.K. | 2,428.9 | 2,754.0 | ||||||
| Other countries | 730.6 | 623.9 | ||||||
| Total long-lived assets | $ | 6,036.0 | $ | 6,905.5 |
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VERISK ANALYTICS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
We consider our stockholders that own more than 5% of the outstanding stock within the class to be related parties as defined within ASC 850, Related Party Disclosures. We had no material transactions with related parties owning more than 5% of the entire class of stock for the years ended December 31, 2022 and 2021.
In addition, we had no revenues from related parties for the years ended December 31, 2022, 2021, and 2020.
21. Commitments and Contingencies:
ERISA Litigation
On September 24, 2020, former employees Jillyn Peterson, Gabe Hare, Robert Heynen and Adam Krajewski ("Plaintiffs"), filed suit in the United States District Court, District of New Jersey (No. 2:20-cv-13223-CCC-MF) against Defendants Insurance Services Office Inc. ("ISO"), the Plan Administration Committee of Insurance Services Office Inc. and its members ("Committee Defendants"), and the Trust Investment Committee of Insurance Services Office Inc. and its members. The class action complaint alleges violations of the Employee Retirement Income Security Act, as amended ("ERISA"). The class is defined as all persons who were participants in or beneficiaries of the ISO 401(k) Savings and Employee Stock Ownership Plan ("Plan"), at any time between September 24, 2014 through the date of judgment. The complaint alleges that all defendants are fiduciaries with respect to the Plan. Plaintiffs challenge the amount of fees paid by Plan participants to maintain the investment funds in the plan portfolio and the amount of recordkeeper fees paid by participants. Plaintiffs allege that by permitting the payment of excessive fees, the Committee Defendants breached their ERISA duties of prudence and loyalty. Plaintiffs further allege that ISO breached its ERISA duty by failing to monitor the Committee Defendants who they allege committed known breaches of their fiduciary duties. The complaint does not specify damages but alleges the fiduciary breaches cost Plan participants millions of dollars. Defendants filed their motion to dismiss the complaint on January 12, 2021, which the Court partially denied on April 13, 2021. Fact discovery has been completed. The litigation is currently stayed through April 4, 2023 pending the outcome of the parties’ mediation. At this time, it is not possible to reasonably estimate the liability related to this matter, as the case is still in its early stages.
Financial Services Government Inquiry
We continue to cooperate with a civil inquiry by the Department of Justice related to government contracts within our former Financial Services segment, which was sold to TransUnion in April 2022. In addition, in March 2022, we were informed that the SEC is conducting an inquiry related to certain contracts of our former Financial Services segment. These inquiries are ongoing, we are producing documents, and we cannot anticipate the timing, outcome or possible impact of the inquiries, financial or otherwise. Under the stock purchase agreement, we entered into with TransUnion pursuant to which TransUnion acquired our former Financial Services segment, we agreed to indemnify TransUnion for certain losses with respect to the DOJ inquiries.
96
Data Privacy Litigation
On January 30, 2023, Plaintiffs Justin Ahringer and Michael Donner filed a putative class action lawsuit in the United States District Court, Central District of California, titled Ahringer et al. v. LoanDepot, Inc. and Verisk Analytics, Inc. d/b/a Jornaya, Case No.: 8:23-cv-00186. Plaintiffs assert violations of California’s Invasion of Privacy Act, Unfair Competition Law, and a violation of class members’ privacy rights under the California Constitution. Plaintiffs allege that the Defendants recorded visitors’ electronic communications without their consent. Plaintiffs seek to certify a nationwide class of individuals who visited LoanDepot.com and provided personal information on the website’s forms to receive a quote or apply for a loan. They allege that the aggregate claims of all members of the proposed class exceeds $5,000,000. Plaintiffs seek compensatory, statutory or punitive damages or restitution, as well as reasonable attorney’s fees and other costs. At this time, it is not possible to reasonably estimate the liability related to this matter, as the case is still in its early stages.
On June 27, 2022, Plaintiff Loretta Williams brought a putative class action against Lead Intelligence, Inc. d/b/a Jornaya (“we,” “our,” or “us”) in the United States District Court for the Northern District of California, titled Williams v. DDR Media, LLC and Lead Intelligence, Inc. d/b/a Jornaya, Civil Action No. 3:22-cv-03789. The Complaint alleges that the Defendants violated the California Invasion of Privacy Act, Cal. Penal Code 631 (“CIPA”) and invaded Plaintiff’s and class members’ privacy rights when Defendants purportedly recorded visitors’ visits to the scrappyrent2 own.com website without prior express consent. It is further alleged that this conduct constitutes a violation of the California Unfair Competition Law, Cal. Bus. Prof. Code Section 17200 et seq. and the California Constitution. The Complaint seeks class certification, injunctive relief, statutory damages in the amount of $5,000 for each violation, attorneys fees and other litigation costs. As of January 27, our responsive pleading was fully briefed but has not yet been heard or decided. At this time, it is not possible to reasonably estimate the liability related to this matter, as the case is still in its early stages.
On December 15, 2021, Plaintiff Jillian Cantinieri brought a putative class action against Verisk Analytics, Insurance Services Office and ISO Claims Services, Inc. (“we,” “our,” or “us”) in the United States District Court for the Eastern District of New York, titled Cantinieri v. Verisk Analytics Inc., et al., Civil Action No. 2:21-cv-6911. The Complaint alleges that we failed to safeguard the personally identifiable information (PII) of Plaintiff and the members of the proposed classes from a purported breach of our databases by unauthorized entities. Plaintiff and class members allege actual and imminent injuries, including theft of their PII, fraudulent activity on their financial accounts, lowered credit scores, and costs associated with detection and prevention of identity theft and fraud. They seek to recover compensatory, statutory and punitive damages, disgorgement of earnings and profits, and attorney’s fees and costs. We filed our motion to dismiss Plaintiff’s claims on April 22, 2022. As of June 15, 2022, the motion to dismiss was fully briefed but has neither been heard nor decided. Discovery is ongoing. At this time, it is not possible to reasonably estimate the liability related to this matter, as the case is still in its early stages.
On December 10, 2020, we were served with a putative class action lawsuit brought by Erica Jackson in the Court of Common Pleas of Lackawanna County, Pennsylvania against Lead Intelligence, Inc. d/b/a Jornaya ("we" or "us"), Case No. 2020 CV 03695. The class complaint alleges that we violated Pennsylvania’s Wiretap Act ("PWA"), 18 Pa. Const. Stat. § 5701 et seq. by "wiretapping" and "intercepting" the plaintiff’s communications on the website colleges.educationgrant.com. The plaintiff alleges a class of all persons whose electronic communications were intercepted through the use of our wiretapping on the website. The complaint claims damages pursuant to the PWA for actual damages, but not less than liquidated damages computed at the rate of $100 a day for each day of violation, or $1,000, whichever is higher, punitive damages, and reasonable attorney's fees and other litigation costs. On February 16, 2021, we filed preliminary objections to the plaintiff’s complaint, the plaintiff opposed, and the Court ultimately denied our preliminary objections. We subsequently filed a petition to compel arbitration and a motion to stay this action pending the completion of the parties’ arbitration proceedings. On September 30, 2021, the court denied our motions and directed the parties to proceed with discovery. On October 8, 2021, we filed a Notice of Appeal to seek review of the lower court’s decision with the Pennsylvania appellate court system. The appeal was fully briefed. The parties subsequently reached a settlement in November 2022 and the appellate court discontinued the appeal. This case has been closed.
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In February 2023, we made a repayment of $275.0 million under our Bilateral Revolving Credit Facility, resulting in zero outstanding borrowings under our bilateral revolving credit facility as of February 28, 2023.
In February 2023, we repaid the full $125.0 million outstanding principal amount under our Bilateral Term Loan Facility agreement.
On February 1, 2023, we entered into an agreement to acquire Mavera for a net cash purchase price of $29.3 million, of which $4.2 million represents indemnity escrows. Mavera is a Sweden-based InsurTech firm with a strong regional presence and established customer base for its personal injury claims management platform. This addition of the Nordics personal injury market leader will support our expansion in Continental Europe and its continued growth as a technology and analytics partner to the global insurance industry.
On February 1, 2023, we closed on and completed the sale of our Energy business, for a purchase price of $3,100.0 million (subject to customary purchase price adjustments for, among other things, the cash, working capital and indebtedness of the Energy business as of the closing) and up to $200.0 million of additional contingent cash consideration based on the purchaser's future return on its investment paid through a Class C Partnership interest. We do not expect to have any continuing involvement in the Energy business subsequent to closing.
In January and February 2023 we made repayments of $20.0 million and $970.0 million, respectively, under the Syndicated Credit Facility. As a result of this activity, we now have the ability to draw up to $995.6 million from our Syndicated Credit Facility.
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Supplementary Financial Information (Unaudited)
Valuation and Qualifying Accounts and Reserves
For the Years Ended December 31, 2022, 2021, and 2020
(In millions)
| Balance at | Charged to | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Beginning | Costs and | Deductions— | Balance at | |||||||||||||
| Description | of Year | Expenses (1) | Write-offs (2) | End of Year | ||||||||||||
| Year ended December 31, 2022 | ||||||||||||||||
| Allowance for doubtful accounts | $ | 15.4 | $ | 6.4 | $ | (7.5 | ) | $ | 14.3 | |||||||
| Valuation allowance for income taxes | $ | 38.3 | $ | 41.2 | $ | (34.2 | ) | $ | 45.3 | |||||||
| Year ended December 31, 2021 | ||||||||||||||||
| Allowance for doubtful accounts | $ | 14.1 | $ | 13.8 | $ | (12.5 | ) | $ | 15.4 | |||||||
| Valuation allowance for income taxes | $ | 30.6 | $ | 8.1 | $ | (0.4 | ) | $ | 38.3 | |||||||
| Year ended December 31, 2020 | ||||||||||||||||
| Allowance for doubtful accounts | $ | 9.5 | $ | 8.2 | $ | (3.6 | ) | $ | 14.1 | |||||||
| Valuation allowance for income taxes | $ | 46.5 | $ | 5.8 | $ | (21.7 | ) | $ | 30.6 |
| (1) | Primarily additional reserves for bad debts |
|---|
| (2) | Primarily accounts receivable balances written off, net of recoveries, the expiration of loss carryforwards, and businesses held for sale |
99
| Exhibit Number | Description |
|---|---|
| 3.1 | Restated Certificate of Incorporation of Verisk Analytics, Inc. effective May 25, 2022, incorporated herein by reference to Exhibit 3.1 to the Company’s Current Report on Form 8-K dated May 25, 2022. |
| 3.2 | Amended and Restated By-Laws of Verisk Analytics, Inc. effective May 25, 2022, incorporated herein by reference to Exhibit 3.2 to the Company’s Current Report on Form 8-K dated May 25, 2022. |
| 4.1 | Form of Common Stock Certificate, incorporated herein by reference to Exhibit 4.1 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 dated September 21, 2009. |
| 4.2 | Senior Notes Indenture, dated as of April 6, 2011, among Verisk Analytics, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as Trustee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated April 6, 2011. |
| 4.3 | First Supplemental Indenture, dated as of April 6, 2011, among Verisk Analytics, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as Trustee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated April 6, 2011. |
| 4.4 | Third Supplemental Indenture, dated as of September 12, 2012, among Verisk Analytics, Inc., the guarantors named therein and Wells Fargo Bank, National Association, as Trustee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated September 12, 2012. |
| 4.5 | Fifth Supplemental Indenture, dated as of May 15, 2015, between Verisk Analytics, Inc. and Wells Fargo Bank, National Association, as Trustee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated May 15, 2015. |
| 4.6 | Senior Notes Indenture, dated March 6, 2019, among Verisk Analytics, Inc. and Wells Fargo Bank, National Association, as Trustee, incorporated herein by reference to Exhibit 4.1 to the Company’s Current Report on Form 8-K dated March 6, 2019. |
| 4.7 | First Supplemental Indenture, dated March 6, 2019, between Verisk Analytics, Inc. and Wells Fargo Bank, National Association, as Trustee, incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated March 6, 2019. |
| 4.8 | Second Supplemental Indenture, dated May 13, 2020, between Verisk Analytics, Inc. and Wells Fargo Bank, National Association, as Trustee, incorporated herein by reference to Exhibit 4.1 to the Company's Current Report on Form 8-K dated May 13, 2020. |
| 4.9 | Description of Verisk Analytics, Inc.’s securities registered pursuant to Section 12 of the Securities Exchange Act, incorporated herein by reference to Exhibit 4.8 to the Company's Annual Report on Form 10-K dated February 18, 2020. |
| 10.1 | 401(k) Savings Plan and Employee Stock Ownership Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Registration Statement on Form S-1 dated August 12, 2008. |
| 10.2 | Verisk Analytics, Inc. 2009 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.2 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 dated September 21, 2009. |
| 10.3 | Form of Letter Agreement, incorporated herein by reference to Exhibit 10.3 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 dated October 7, 2008. |
| 10.4 | Form of Master License Agreement and Participation Supplement, incorporated herein by reference to Exhibit 10.4 to Amendment No. 1 to the Company’s Registration Statement on Form S-1 dated October 7, 2008. |
| Exhibit Number | Description |
|---|---|
| 10.5 | Schedule of Master License Agreements Substantially Identical in All Material Respects to the Form of Master License Agreement and Participation Supplement, incorporated herein by reference to Exhibit 10.5 to Amendment No. 2 to the Company’s Registration Statement on Form S-1 dated November 20, 2008. |
| 10.6 | Form of Change of Control Severance Agreement, incorporated herein by reference to Exhibit 10.8 to Amendment No. 6 to the Company’s Registration Statement on Form S-1 dated September 21, 2009. |
| 10.7 | Insurance Services Office, Inc. 1996 Incentive Plan and Form of Stock Option Agreement thereunder, incorporated herein by reference to Exhibit 10.9 to Amendment No. 7 to the Company’s Registration Statement on Form S-1 dated September 29, 2009. |
| 10.8 | Form of Stock Option Award Agreement under the Verisk Analytics, Inc. 2009 Equity Incentive Plan, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated November 16, 2009. |
| 10.9 | Insurance Services Office, Inc. Supplemental Cash Balance Plan dated January 1, 2009 as amended by the Amendment to the Insurance Services Office, Inc. Supplemental Cash Balance Plan dated February 10, 2012 incorporated by reference to Exhibit 10.12 to the Company's Annual Report on Form 10-K dated February 25, 2014. |
| 10.10 | Insurance Services Office, Inc. Supplemental Executive Retirement Savings Plan dated January 1, 2009 incorporated by reference to Exhibit 10.13 to the Company's Annual Report on Form 10-K dated February 25, 2014. |
| 10.11 | Verisk Analytics, Inc. 2013 Equity Incentive Plan, incorporated herein by reference to Appendix A to the Company's Proxy Statement on Schedule 14A dated April 1, 2013. |
| 10.12 | Form of Stock Option Award Agreement under Verisk Analytics, Inc. 2013 Equity Incentive Plan, incorporated herein by reference to Exhibit 99.2 to Company’s Registration Statement on Form S-8 dated May 15, 2013. |
| 10.13 | Form of Restricted Stock Award Agreement under Verisk Analytics, Inc. 2013 Equity Incentive Plan, incorporated herein by reference to Exhibit 99.3 to Company’s Registration Statement on Form S-8 dated May 15, 2013. |
| 10.14 | Second Amended and Restated Credit Agreement dated April 22, 2015 among Verisk Analytics, Inc., as borrower, and the lenders and agents party thereto, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 24, 2015. |
| 10.15 | First Amendment to Second Amended and Restated Credit Agreement dated July 24, 2015 among Verisk Analytics, Inc., as borrower, and the lenders and agents party thereto, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated July 28, 2015. |
| 10.16 | Second Amendment to the Second Amended and Restated Credit Agreement dated May 26, 2016 among Verisk Analytics, Inc., as borrower, and the lenders and agents party thereto, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated May 26, 2016. |
| 10.17 | Third Amendment to the Second Amended Restated Credit Agreement dated May 18, 2017 among Verisk Analytics, Inc., as borrower, and the lenders and agents party thereto, incorporated herein by reference to Exhibit 10.1 to the Company's Current Report on Form 8-K dated May 19, 2017. |
| 10.18 | Fourth Amendment dated August 15, 2019 to the Second Amended and Restated Credit Agreement dated April 22, 2015 among Verisk Analytics, Inc., as borrower, and the lenders and agents party thereto, incorporated herein by reference to Exhibit 10.18 to the Company’s Current Report on Form 8-K dated August 16, 2019. |
| Exhibit Number | Description |
|---|---|
| 10.19 | Verisk Analytics, Inc. 2021 Equity Incentive Plan incorporated herein by reference to Appendix B to the Company's Proxy Statement on Schedule 14A dated April 2, 2021. |
| 10.20 | Purchase Agreement, dated as of January 21, 2022, by and among Verisk Analytics, Inc., Tamarack Buyer, L.L.C. and, solely for the limited purpose set forth therein, 3E Company Environmental, Ecological and Engineering, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K dated January 24, 2022. |
| 10.21 | Verisk Analytics, Inc. Senior Executive Severance Benefits Plan, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated April 5, 2022. |
| 10.22 | Transition and Consulting Agreement dated May 10, 2022 by and between Verisk Analytics, Inc. and Scott G. Stephenson incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q dated August 2, 2022. |
| 10.23 | Amendment No. 3 to the Verisk Analytics, Inc. 2012 Employee Stock Purchase Plan, as amended, incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q dated August 2, 2022. |
| 10.24 | Amended and Restated Loan Agreement dated September 9, 2022 among Verisk Analytics, Inc., as borrower, and Bank of America, N.A. as the initial lender and administrative agent, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated September 15, 2022. |
| 10.25 | Equity Purchase Agreement dated October 28, 2022 by and between Verisk Analytics, Inc. and Planet Jersey Buyer Ltd, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated October 31, 2022. |
| 10.26 | Separation Agreement dated December 23, 2022 by and between Verisk Analytics, Inc. and Mark Anquillare, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K, dated December 30, 2022. |
| 21.1 | Subsidiaries of the Registrant.* |
| 23.1 | Consent of Deloitte & Touche LLP.* |
| 31.1 | Certification of the Chief Executive Officer of Verisk Analytics, Inc. pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.* |
| 31.2 | Certification of the Chief Financial Officer of Verisk Analytics, Inc. pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.* |
| 32.1 | Certification of the Chief Executive Officer and Chief Financial Officer of Verisk Analytics, Inc. pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* |
| 101.INS | Inline XBRL Instance Document.* |
| 101.SCH | Inline XBRL Taxonomy Extension Schema.* |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase.* |
| 101.DEF | Inline XBRL Taxonomy Definition Linkbase.* |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase.* |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase.* |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
| * | Filed herewith. |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 28, 2023.
| VERISK ANALYTICS, INC. (Registrant) | |
|---|---|
| /S/ Lee M. Shavel | |
| Lee M. Shavel | |
| Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 28, 2023.
| Signature | Capacity | |
|---|---|---|
| /S/ LEE M. SHAVEL | Chief Executive Officer (principal executive officer and director) | |
| Lee M. Shavel | ||
| /S/ ELIZABETH MANN | Chief Financial Officer | |
| Elizabeth Mann | (principal financial officer) | |
| /S/ DAVID J. GROVER | Controller and Chief Accounting Officer | |
| David J. Grover | (principal accounting officer) | |
| /S/ BRUCE HANSEN | Independent Chair | |
| Bruce Hansen | ||
| /S/ ANNELL BAY | Director | |
| Annell R. Bay | ||
| /S/ VINCENT BROOKS | Director | |
| Vincent K. Brooks | ||
| /S/ JEFFREY DAILEY | Director | |
| Jeffrey Dailey | ||
| /S/ CHRISTOPHER M. FOSKETT | Director | |
| Christopher M. Foskett | ||
| /S/ KATHLEEN HOGENSON | Director | |
| Kathleen A. Hogenson | ||
| /S/ CONSTANTINE P. IORDANOU | Director | |
| Constantine P. Iordanou | ||
| /S/ WENDY LANE | Director | |
| Wendy Lane | ||
| /S/ SAMUEL G. LISS | Director | |
| Samuel G. Liss | ||
| /S/ OLUMIDE SOROYE | Director | |
| Olumide Soroye | ||
| /S/ KIMBERLY S. STEVENSON | Director | |
| Kimberly S. Stevenson | ||
| /S/ THERESE M. VAUGHAN | Director | |
| Therese M. Vaughan | ||
| /S/ DAVID B. WRIGHT | Director | |
| David B. Wright |
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