S-1/A 1 y78574a5sv1za.htm AMENDMENT #5 TO FORM S-1 sv1za
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As filed with the Securities and Exchange Commission on August 21, 2009
Registration No. 333-152973
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
Amendment No. 5
to
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
 
 
VERISK ANALYTICS, INC.
(Exact Name of Registrant as Specified in Its Charter)
         
Delaware   7374   26-2994223
(State or Other Jurisdiction of
Incorporation or Organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer
Identification Number)
 
545 Washington Boulevard
Jersey City, NJ 07310-1686
(201) 469-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive Offices)
 
 
 
 
Kenneth E. Thompson
Senior Vice President, General Counsel and Corporate Secretary
Verisk Analytics, Inc.
545 Washington Boulevard
Jersey City, NJ 07310-1686
(201) 469-2000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent For Service)
 
 
 
 
Copies to:
     
Richard J. Sandler
Ethan T. James
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
  Eric J. Friedman
Richard B. Aftanas
Skadden, Arps, Slate, Meagher & Flom LLP
Four Times Square
New York, New York 10036
(212) 735-3000
 
Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.
 
If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  o
 
If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o                
 
If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o                
 
If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  o                
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act.
 
Large accelerated filer o Accelerated filer o Non-accelerated filer þ Smaller reporting company o
                                       (Do not check if a smaller reporting company)
 
 
 
 
             
Title of Each Class
    Proposed Maximum Aggregate
    Amount of
of Securities to be Registered     Offering Price(1)(2)     Registration Fee
Class A common stock, par value $0.001 per share
    $750,000,000     $29,475(3)
             
(1)  Includes shares of Class A common stock which the underwriters have the right to purchase to cover over-allotments.
 
(2)  Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.
 
(3)  Previously paid.
 
     The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.
 


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
Subject to Completion Dated August 21, 2009
 
PRELIMINARY PROSPECTUS
 
          Shares
 
(VERISK ANALYTICS, INC. LOGO)
 
Verisk Analytics, Inc.
 
Class A Common Stock
 
 
 
 
This is our initial public offering of common stock. Our stockholders are selling all of the shares of our Class A common stock, par value $0.001 per share, offered by this prospectus. We are not selling any shares in this offering.
 
We expect the public offering price to be between $      and $      per share. Currently, no public market exists for the shares. After pricing of the offering, we expect that the shares will be listed on the New York Stock Exchange under the symbol “VA.”
 
Investing in our common stock involves risks that are described in the “Risk Factors” section beginning on page 11 of this prospectus.
 
 
 
 
         
   
Per Share
  Total
 
Public offering price
  $          $       
Underwriting discount
  $          $       
Proceeds, before expenses, to the selling stockholders
  $          $       
 
The underwriters may also purchase up to an additional           shares of Class A common stock from the selling stockholders at the initial public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments, if any.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The shares will be ready for delivery on or about          , 2009, which will be the third business day following the pricing date.
 
 
 
 
BofA Merrill Lynch Morgan Stanley
 
 
 
 
          , 2009


 

 
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 EX-10.6
 EX-23.1
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You should rely only on the information contained in this prospectus. We and the selling stockholders have not authorized anyone to provide you with information different from that contained in this prospectus. We and the selling stockholders are offering to sell, and seeking offers to buy, shares of Class A common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock.
 
Prior to the completion of this offering, we will have effected an internal reorganization whereby our predecessor, Insurance Services Office, Inc., or ISO, will become a wholly-owned subsidiary of the Company and all outstanding shares of ISO common stock will be replaced with common stock of the Company. We will immediately thereafter effect an approximately fifty-for-one split of our common stock.
 
Except as the context otherwise requires, all share and per share information in this prospectus gives effect to the approximately fifty-for-one stock split that will occur immediately after the reorganization.
 
Unless otherwise stated herein or the context otherwise requires, the terms “Verisk,” the “Company,” “we,” “us,” and “our” refer to Verisk Analytics, Inc. and its consolidated subsidiaries after giving effect to the reorganization described above, and prior to such reorganization these terms refer to ISO and its consolidated subsidiaries through which we are currently conducting our operations.
 
Until          , 2009, 25 days after the commencement of this offering, all dealers that buy, sell, or trade shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers’ obligations to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 
We expect to deliver the shares against payment therefor on or about the date specified in the last paragraph of the cover page of this prospectus, which will be the third business day following the date of the pricing of the shares.


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PROSPECTUS SUMMARY
 
This summary highlights information contained elsewhere in this prospectus. This summary may not contain all of the information that you should consider before deciding to invest in our Class A common stock. You should read this entire prospectus carefully, including the “Risk Factors” section and the consolidated financial statements and the notes to those statements.
 
Company Overview
 
We enable risk-bearing businesses to better understand and manage their risks. We provide value to our customers by supplying proprietary data that, combined with our analytic methods, creates embedded decision support solutions. We are the largest aggregator and provider of detailed actuarial and underwriting data pertaining to U.S. property and casualty, or P&C, insurance risks. We offer solutions for detecting fraud in the U.S. P&C insurance, healthcare and mortgage industries, and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance.
 
Our customers use our solutions, in the form of our data, statistical models or tailored analytics, to make more logical decisions. We develop solutions which our customers use to analyze the four key processes in managing risk, in what we define as the Verisk Risk Analysis Framework: Prediction of Loss, Selection and Pricing of Risk, Detection and Prevention of Fraud, and Quantification of Loss.
 
We organize our business in two segments: Risk Assessment and Decision Analytics.
 
Risk Assessment:  We are the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our proprietary and unique databases describe premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants and fire suppression capabilities of municipalities in addition to other properties and attributes. Our largest P&C insurance database includes over 14 billion records, and, in each of the past three years, we updated the database with over 2 billion validated new records. We use our data, for example, to create policy language and proprietary risk classifications that are industry standard and to generate prospective loss cost estimates used to price insurance policies.
 
Decision Analytics:  We provide solutions in each of the four processes of the Verisk Risk Analysis Framework by combining algorithms and analytic methods, which incorporate our proprietary data. Our unique data sets include over 600 million P&C insurance claims, historic natural catastrophe data covering more than 50 countries, data from more than 13 million applications for mortgage loans and over 312 million U.S. criminal records. Customers integrate our solutions into their models, formulas or underwriting criteria to predict potential loss events, ranging from hurricanes and earthquakes to unanticipated healthcare claims. We are a leading developer of catastrophe and extreme event models and offer solutions covering natural and man-made risks, including acts of terrorism. We also develop solutions that allow customers to quantify costs after loss events occur. Our fraud solutions include data on claim histories, analysis of mortgage applications to identify misinformation, analysis of claims to find emerging patterns of fraud and identification of suspicious claims in the insurance, healthcare and mortgage sectors.
 
We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs. The embedded nature of our solutions serves to strengthen and extend our relationships. In 2008, our U.S. customers included all of the top 100 P&C insurance providers, four of the 10 largest Blue Cross Blue Shield plans, four of the six leading mortgage insurers, 14 of the top 20 mortgage lenders, and the 10 largest global reinsurers. Approximately 97% of our top 100 customers in 2008, as ranked by revenue, have been our customers for each of the last five years. Further, from 2004 to 2008, revenues generated from these top 100 customers grew at a compound annual growth rate, or CAGR, of 12%.
 
We offer our solutions and services primarily through annual subscriptions or long-term agreements, which are typically pre-paid and represented approximately 76% of our revenues in 2008. For the year ended December 31, 2008, and the six months ended June 30, 2009, we had revenues of $894 million and $504 million, respectively, and net income of $158 million and $91 million, respectively. For the five year


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period ended December 31, 2008, our revenues and net income have grown at a CAGR of 13.0% and 12.4%, respectively.
 
Our Market Opportunity
 
We believe there is a long-term trend for companies to set strategy and direct operations using data and analytics to guide their decisions, which has resulted in a large and rapidly growing market for professional and business information. According to a 2008 report from Veronis Suhler Stevenson, an industry consultant, spending on professional and business information services in the U.S. reached $46 billion in 2007 and is projected to grow at a CAGR of 9% through 2012. Another research firm, International Data Corporation, or IDC, in a report dated March 2008, estimates that the business analytics services market, which totaled $32 billion in 2007, will grow at a CAGR of 9% through 2012.
 
We believe that the consistent decline in the cost of computing power contributes to the trend towards greater use of data and analytics. As a result, larger data sets are assembled faster and at a lower cost per record while the complexity and accuracy of analytical applications and solutions have expanded. This trend has led to an increase in the use of analytic output, which can be generated and applied more quickly, resulting in more informed decision making. As computing power increases, cost decreases and accuracy improves, we believe customers will continue to apply and integrate data and analytic solutions more broadly.
 
Companies that engage in risk transactions, including P&C insurers, healthcare payors and mortgage lenders and insurers, are particularly motivated to use enhanced analytics because of several factors affecting risk markets, including:
 
  •      the total value of exposures in risk transactions is increasing;
 
  •      the number of participants in risk transactions is often large and the asymmetry of information among participants is often substantial; and
 
  •      the failure to understand risk can lead to large and rapid declines in financial performance.
 
Our Competitive Strengths
 
We believe our competitive strengths include the following:
 
  •      Our Solutions are Embedded In Our Customers’ Critical Decision Processes.  Our customers use our solutions to make better risk decisions and to price risk appropriately. In the U.S. P&C insurance industry, our solutions for prospective loss costs, policy language, rating/underwriting rules and regulatory filing services are the industry standard. In the U.S. healthcare and mortgage industries, our predictive models, loss estimation tools and fraud identification applications are the primary solutions that allow customers to understand their risk exposures and proactively manage them. Over the last three years, we have retained 98% of our customers across all of our businesses, which we believe reflects our customers’ recognition of the value they derive from our solutions.
 
  •      Extensive and Differentiated Data Assets and Analytic Methods.  We maintain what we believe are some of the largest, most accurate, and most complete databases in the markets we serve. Much of the information we provide is not available from any other source and would be difficult and costly for another party to replicate. As a result, our accumulated experience and years of significant investment have given us a competitive advantage in serving our customers.
 
  •      Culture of Continuous Improvement.  Our intellectual capital and focus on continuous improvement have allowed us to develop proprietary algorithms and solutions that assist our customers in making informed risk decisions. Our team includes approximately 578 individuals with advanced degrees, certifications and professional designations in such fields as actuarial science, data management, mathematics, statistics, economics, soil mechanics, meteorology and various engineering disciplines. Our compensation and benefit plans are pay-for-performance-


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oriented, including incentive compensation plans and substantial equity participation by employees. As of June 30, 2009, our employees owned approximately 25% of the company.
 
  •      Attractive Operating Model.  We believe we have an attractive operating model due to the recurring nature of our revenues, the scalability of our solutions and the low capital intensity of our business.
 
Our Growth Strategy
 
Over the past five years, we have grown our revenues at a CAGR of 13.0% through the successful execution of our business plan. These results reflect strong organic revenue growth, new product development and selected acquisitions. We have made, and continue to make, investments in people, data sets, analytic solutions, technology, and complementary businesses. The key components of our strategy include:
 
  •      Increase Sales to Insurance Customers.  We expect to expand the application of our solutions in insurance customers’ internal risk and underwriting processes. Building on our deep knowledge of, and embedded position in, the insurance industry, we expect to sell more solutions to existing customers tailored to individual insurance segments. By increasing the breadth and relevance of our offerings, we believe we can strengthen our relationships with customers and increase our value to their decision making in critical ways.
 
  •      Develop New, Proprietary Data Sets and Predictive Analytics.  We work with our customers to understand their evolving needs. We plan to create new solutions by enriching our mix of proprietary data sets, analytic solutions and effective decision support across the markets we serve. We constantly seek to add new data sets that can further leverage our analytic methods, technology platforms and intellectual capital.
 
  •      Leverage Our Intellectual Capital to Expand into Adjacent Markets and New Customer Sectors.  Our organization is built on nearly four decades of intellectual property in risk management. We believe we can continue to profitably expand the use of our intellectual capital and apply our analytic methods in new markets, where significant opportunities for long-term growth exist. We also continue to pursue growth through targeted international expansion. We have already demonstrated the effectiveness of this strategy with our expansion into healthcare and non-insurance financial services.
 
  •      Pursue Strategic Acquisitions that Complement Our Leadership Positions.  We will continue to expand our data and analytics capabilities across industries. While we expect this will occur primarily through organic growth, we have and will continue to acquire assets and businesses that strengthen our value proposition to customers. We have developed an internal capability to source, evaluate and integrate acquisitions that have created value for shareholders. As of June 30, 2009, we have acquired 15 businesses in the past five years, which in the aggregate have increased their revenue with a weighted average CAGR of 31% over the same period.
 
Risk Factors
 
Investing in our common stock involves substantial risk. Please read “Risk Factors” beginning on page 11 for a discussion of certain factors you should consider in evaluating an investment in our common stock.


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Corporate History and Information
 
We were formed in 1971 as an advisory and rating organization for the P&C insurance industry to provide statistical and actuarial services, to develop insurance programs and to assist insurance companies in meeting state regulatory requirements. Over the past decade, we have transformed our business by deepening and broadening our data assets, entering new markets, placing a greater emphasis on analytics and pursuing strategic acquisitions to enhance these efforts. Members of our senior management operating team have been with us for an average of almost twenty years. This team has led our transformation to a successful for-profit entity and our expansion from P&C insurance into a variety of new markets.
 
Our principal executive offices are located at 545 Washington Boulevard, Jersey City, New Jersey, 07310-1686 and our telephone number is (201) 469-2000.


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THE OFFERING
 
Class A common stock offered by the selling stockholders            shares
 
Class A common stock outstanding after the offering            shares
 
Over-allotment option            shares of Class A common stock from the selling stockholders
 
Class B common stock outstanding after the offering            shares
 
Sale and transfer restrictions on Class B common stock The Class B (Series 1) common stock is not transferable until 18 months after the date of this prospectus and the Class B (Series 2) common stock is not transferable until 24 months after the date of this prospectus.
 
These transfer restrictions are subject to limited exceptions, including transfers to another holder of Class B common stock. See “Description of Capital Stock — Common Stock — Transfer Restrictions.”
 
Conversion of Class B common stock After termination of the restrictions on transfer described above for each series of Class B common stock, such series of Class B common stock will be automatically converted into Class A common stock. No later than 24 months after the date of this prospectus, there will be no outstanding shares of Class B common stock.
 
In the event that Class B common stock is transferred and converts into Class A common stock, it will have the effect of diluting the voting power of our existing holders of Class A common stock. See “Description of Capital Stock — Common Stock — Conversion.”
 
Use of proceeds The Company will not receive any proceeds from the sale of common stock in the offering.
 
Dividend policy Following this offering and subject to legally available funds, we currently intend to pay a quarterly dividend, in cash, at an annual rate initially equal to $      per share of Class A common stock (representing a quarterly rate initially equal to $      per share) commencing with the quarter ended           , 2009. Our Class B common stock will share ratably on an as-converted basis in such dividends. The declaration and payment of any dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments and other factors that our board of directors deems relevant.
 
Stock symbol “VA”


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Unless the context requires otherwise, the number of shares of our Class A common stock to be outstanding after this offering is based on the number of shares outstanding as of June 30, 2009, giving effect to the stock split of approximately fifty-for-one that will have occurred prior to the completion of this offering. The number of shares of our Class A common stock to be outstanding after this offering does not take into account, unless the context otherwise requires:
 
  •                 shares of Class A common stock issuable upon the exercise of outstanding stock options at a weighted average exercise price of $      per share; and
 
  •      an aggregate of           shares of Class A common stock that will be reserved for future issuances under our 2009 Equity Incentive Plan as of the closing of this offering.


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SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
 
The following summary historical financial data should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007 and 2008 are derived from the audited consolidated financial statements included elsewhere in this prospectus. The consolidated balance sheet data as of December 31, 2006 is derived from unaudited consolidated financial statements that are not included in this prospectus. The condensed consolidated statement of operations data for the six-month periods ended June 30, 2008 and 2009 and the condensed consolidated balance sheet data as of June 30, 2009 are derived from unaudited condensed financial statements that are included in this prospectus. The condensed consolidated balance sheet data as of June 30, 2008 is derived from unaudited condensed financial statements that are not included in this prospectus. The unaudited condensed consolidated financial statements, in our opinion, have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results for the six-month period ended June 30, 2009 are not necessarily indicative of results that may be expected for the fiscal year ended December 31, 2009 or any other future period.
 
From January 1, 2006 to June 30, 2009 we have acquired 10 businesses, which may affect the comparability of our financial statements.
 
                                         
          Six Months
 
    Year Ended December 31,     Ended June 30,  
    2006     2007     2008     2008     2009  
    (In thousands, except for share and per share data)  
 
Statement of income data:
                                       
Revenues:
                                       
Risk Assessment revenues
  $ 472,634     $ 485,160     $ 504,391     $ 253,356     $ 262,873  
Decision Analytics revenues
    257,499       317,035       389,159       184,334       240,794  
                                         
Revenues
    730,133       802,195       893,550       437,690       503,667  
                                         
Expenses:
                                       
Cost of revenues
    331,804       357,191       386,897       190,678       220,501  
Selling, general and administrative
    100,124       107,576       131,239       59,028       72,225  
Depreciation and amortization of fixed assets
    28,007       31,745       35,317       16,424       18,913  
Amortization of intangible assets
    26,854       33,916       29,555       14,937       16,974  
                                         
Total expenses
    486,789       530,428       583,008       281,067       328,613  
                                         
Operating income
    243,344       271,767       310,542       156,623       175,054  
Other income/(expense):
                                       
Investment income and realized gains (losses) on securities, net
    6,101       9,308       (327 )     317       (273 )
Interest expense
    (16,668 )     (22,928 )     (31,316 )     (14,173 )     (16,677 )
                                         
Total other expense, net
    (10,567 )     (13,620 )     (31,643 )     (13,856 )     (16,950 )
Income from continuing operations before income taxes
    232,777       258,147       278,899       142,767       158,104  
Provision for income taxes
    (91,992 )     (103,184 )     (120,671 )     (61,818 )     (67,250 )
                                         
Income from continuing operations
    140,785       154,963       158,228       80,949       90,854  


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          Six Months
 
    Year Ended December 31,     Ended June 30,  
    2006     2007     2008     2008     2009  
    (In thousands, except for share and per share data)  
 
Loss from discontinued operations, net of tax(1)
    (1,805 )     (4,589 )                  
                                         
Net income
  $ 138,980     $ 150,374     $ 158,228     $ 80,949     $ 90,854  
                                         
Basic income/(loss) per share(2):
                                       
Income from continuing operations
  $ 34.08     $ 38.58     $ 43.26     $ 21.73     $ 26.20  
Loss from discontinued operations
    (0.44 )     (1.14 )                  
                                         
Net income per share
  $ 33.64     $ 37.44     $ 43.26     $ 21.73     $ 26.20  
                                         
Diluted income/(loss) per share(2):
                                       
Income from continuing operations
  $ 32.72     $ 37.03     $ 41.59     $ 20.87     $ 25.21  
Loss from discontinued operations
    (0.42 )     (1.10 )                  
                                         
Net income per share
  $ 32.30     $ 35.93     $ 41.59     $ 20.87     $ 25.21  
                                         
Weighted average shares outstanding:
                                       
Basic
    4,130,962       4,016,928       3,657,714       3,724,876       3,468,196  
                                         
Diluted
    4,302,867       4,185,151       3,804,634       3,877,906       3,604,086  
                                         
Other data:
                                       
EBITDA(3):
                                       
Risk Assessment EBITDA
  $ 202,872     $ 212,780     $ 222,706     $ 113,500     $ 121,197  
Decision Analytics EBITDA
    95,333       124,648       152,708       74,484       89,744  
                                         
EBITDA
  $ 298,205     $ 337,428     $ 375,414     $ 187,984     $ 210,941  
                                         
Purchases of fixed assets
  $ (25,742 )   $ (32,941 )   $ (30,652 )   $ (17,810 )   $ (16,195 )
Net cash provided by operating activities
    223,499       248,521       247,906       141,929       184,529  
Net cash used in investing activities
    (243,452 )     (110,831 )     (130,466 )     (98,402 )     (152,683 )
Net cash provided by/(used in) financing activities
    75,907       (212,591 )     (107,376 )     (16,759 )     (19,157 )
 
                                         
    As of December 31,     As of June 30,  
    2006     2007     2008     2008     2009  
    (In thousands)  
 
Balance Sheet Data:
                                       
Cash and cash equivalents
  $ 99,152     $ 24,049     $ 33,185     $ 50,835     $ 45,962  
Total assets
    739,282       830,041       928,877       867,128       1,009,335  
Total debt(4)
    448,698       438,330       669,754       642,182       689,066  
Redeemable common stock(5)
    1,125,933       1,171,188       749,539       1,006,287       842,117  
Stockholders’ deficit
    (1,123,977 )     (1,203,348 )     (1,009,823 )     (1,186,569 )     (1,028,489 )
 
(1) As of December 31, 2007, we discontinued operations of our claim consulting business located in New Hope, Pennsylvania and the United Kingdom. There was no impact of discontinued operations on the results of operations for the periods subsequent to December 31, 2007.

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(2) In conjunction with the initial public offering, the stock of Insurance Services Office, Inc. will convert to stock of Verisk Analytics, Inc., which plans to effect a stock split of its common stock. The numbers in the above table do not reflect this stock split. Giving effect to the approximately fifty-for-one stock split that will have occurred prior to the completion of this offering, pro forma basic and diluted income/(loss) per share from continuing operations and discontinued operations would have been as follows:
 
                                         
    Year Ended December 31,     Six Months Ended June 30,  
    2006     2007     2008     2008     2009  
 
Basic
                                       
Income from continuing operations
  $ 0.68     $ 0.77     $ 0.87     $ 0.43     $ 0.52  
Loss from discontinued operations
    (0.01 )     (0.02 )                  
                                         
Net Income per share
  $ 0.67     $ 0.75     $ 0.87     $ 0.43     $ 0.52  
                                         
Weighted average shares
    206,548,100       200,846,400       182,885,700       186,243,800       173,409,800  
                                         
Diluted
                                       
Income from continuing operations
  $ 0.65     $ 0.74     $ 0.83     $ 0.42     $ 0.50  
Loss from discontinued operations
    (0.01 )     (0.02 )                  
                                         
Net Income per share
  $ 0.64     $ 0.72     $ 0.83     $ 0.42     $ 0.50  
                                         
Weighted average shares
    215,143,350       209,257,550       190,231,700       193,895,300       180,204,300  
                                         
 
(3) EBITDA is the financial measure which management uses to evaluate the performance of our segments. “EBITDA” is defined as income from continuing operations before investment income and interest expense, income taxes, depreciation and amortization. See note 19 to our audited consolidated financial statements and note 15 to our unaudited condensed consolidated financial statements included elsewhere in this prospectus.
 
Although EBITDA is frequently used by securities analysts, lenders and others in their evaluation of companies, EBITDA has limitations as an analytical tool, and should not be considered in isolation, or as a substitute for an analysis of our results of operations or cash flow from operating activities reported under U.S. GAAP. Management uses EBITDA in conjunction with traditional GAAP operating performance measures as part of its overall assessment of company performance. Some of these limitations are:
 
•     EBITDA does not reflect our cash expenditures, or future requirements for capital expenditures or contractual commitments;
 
•     EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
 
•     Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized often will have to be replaced in the future and EBITDA does not reflect any cash requirements for such replacements; and
 
•     Other companies in our industry may calculate EBITDA differently than we do, limiting its usefulness as a comparative measure.


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The following is a reconciliation of income from continuing operations to EBITDA:
 
                                         
          Six Months
 
    Year Ended December 31,     Ended June 30,  
    2006     2007     2008     2008     2009  
    (In thousands)  
 
Income from continuing operations
  $ 140,785     $ 154,963     $ 158,228     $ 80,949     $ 90,854  
Depreciation and amortization of fixed and intangible assets
    54,861       65,661       64,872       31,361       35,887  
Investment income and realized (gains)/losses on securities, net
    (6,101 )     (9,308 )     327       (317 )     273  
Interest expense
    16,668       22,928       31,316       14,173       16,677  
Provision for income taxes
    91,992       103,184       120,671       61,818       67,250  
                                         
EBITDA
  $ 298,205     $ 337,428     $ 375,414     $ 187,984     $ 210,941  
 
(4) Includes capital lease obligations.
 
(5) Prior to this offering, we are required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of these securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock.


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RISK FACTORS
 
You should carefully consider the following risks and all of the other information set forth in this prospectus before deciding to invest in shares of our Class A common stock. If any of the following risks actually occurs, our business, financial condition or results of operations would likely suffer. In such case, the trading price of our Class A common stock could decline due to any of these risks, and you may lose all or part of your investment.
 
Risks Related to Our Business
 
We could lose our access to data from external sources which could prevent us from providing our solutions.
 
We depend upon data from external sources, including data received from customers and various government and public record services, for information used in our databases. In general, we do not own the information in these databases, and the participating organizations could discontinue contributing information to the databases. Our data sources could withdraw or increase the price for their data for a variety of reasons, and we could also become subject to legislative or judicial restrictions on the use of such data, in particular if such data is not collected by the third parties in a way which allows us to legally use and/or process the data. In addition, many of our customers are significant stockholders of our company. Specifically, all of our Class B common stock is owned by insurers who are also our customers and provide us with a significant percentage of our data. If our customers’ percentage of ownership of our common stock decreases in the future, including as a result of this offering, there can be no assurance that our customers will continue to provide data to the same extent or on the same terms. If a substantial number of data sources, or certain key sources, were to withdraw or be unable to provide their data, or if we were to lose access to data due to government regulation or if the collection of data became uneconomical, our ability to provide solutions to our customers could be impacted, which could materially adversely affect our business, reputation, financial condition, operating results and cash flows.
 
Agreements with our data suppliers are short-term agreements. Some suppliers are also competitors, which may make us vulnerable to unpredictable price increases and may cause some suppliers not to renew certain agreements. Our competitors could also enter into exclusive contracts with our data sources. If our competitors enter into such exclusive contracts, we may be precluded from receiving certain data from these suppliers or restricted in our use of such data, which would give our competitors an advantage. Such a termination or exclusive contracts could have a material adverse effect on our business, financial position, and operating results if we were unable to arrange for substitute sources.
 
We derive a substantial portion of our revenues from the U.S. P&C insurance industry. If the downturn in the U.S. insurance industry continues or that industry does not continue to accept our solutions, our revenues will decline.
 
Revenues derived from solutions we provide to the U.S. P&C insurance industry account for a substantial portion of our total revenues. During the year ended December 31, 2008 and the six months ended June 30, 2009, approximately 65% and 60%, respectively, of our revenue was derived from solutions provided to the U.S. P&C insurance industry. Also, sales of certain of our solutions are tied to premiums in the U.S. P&C insurance market, which may rise or fall in any given year due to loss experience and capital capacity and other factors in the insurance industry beyond our control. In addition, our revenues will decline if the insurance industry does not continue to accept these solutions. Factors that might affect the acceptance of these solutions by P&C insurers include the following:
 
  •      changes in the business analytics industry;
 
  •      changes in technology;
 
  •      our inability to obtain or use state fee schedule or claims data in our insurance solutions;
 
  •      saturation of market demand;


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  •      loss of key customers;
 
  •      industry consolidation; and
 
  •      failure to execute our customer-focused selling approach.
 
A continued downturn in the insurance industry or lower acceptance of our solutions by the insurance industry could result in a decline in revenues from that industry and have a material adverse effect on our financial condition, results of operations and cash flows.
 
There may be consolidation in our end customer market, which would reduce the use of our services.
 
Mergers or consolidations among our customers could reduce the number of our customers and potential customers. This could adversely affect our revenues even if these events do not reduce the aggregate number of customers or the activities of the consolidated entities. If our customers merge with or are acquired by other entities that are not our customers, or that use fewer of our services, they may discontinue or reduce their use of our services. The adverse effects of consolidation will be greater in sectors that we are particularly dependent upon, for example, in the P&C insurance services sector. Any of these developments could materially and adversely affect our business, financial condition, operating results and cash flows.
 
If we are unable to develop successful new solutions or if we experience defects, failures and delays associated with the introduction of new solutions, our business could suffer serious harm.
 
Our growth and success depends upon our ability to develop and sell new solutions. If we are unable to develop new solutions, or if we are not successful in introducing and/or obtaining regulatory approval or acceptance for new solutions, we may not be able to grow our business, or growth may occur more slowly than we anticipate. In addition, significant undetected errors or delays in new solutions may affect market acceptance of our solutions and could harm our business, financial condition or results of operations. In the past, we have experienced delays while developing and introducing new solutions, primarily due to difficulties developing models, acquiring data and adapting to particular operating environments. Errors or defects in our solutions that are significant, or are perceived to be significant, could result in rejection of our solutions, damage to our reputation, loss of revenues, diversion of development resources, an increase in product liability claims, and increases in service and support costs and warranty claims.
 
We will continue to rely upon proprietary technology rights, and if we are unable to protect them, our business could be harmed.
 
Our success depends, in part, upon our intellectual property rights. To date, we have relied primarily on a combination of copyright, patent, trade secret, and trademark laws and nondisclosure and other contractual restrictions on copying and distribution to protect our proprietary technology. This protection of our proprietary technology is limited, and our proprietary technology could be used by others without our consent. In addition, patents may not be issued with respect to our pending or future patent applications, and our patents may not be upheld as valid or may not prevent the development of competitive products. Any disclosure, loss, invalidity of, or failure to protect our intellectual property could negatively impact our competitive position, and ultimately, our business. Our protection of our intellectual property rights in the United States or abroad may not be adequate and others, including our competitors, may use our proprietary technology without our consent. Furthermore, litigation may be necessary to enforce our intellectual property rights, to protect our trade secrets, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and could harm our business, financial condition, results of operations and cash flows.
 
We could face claims for intellectual property infringement, which if successful could restrict us from using and providing our technologies and solutions to our customers.
 
There has been substantial litigation and other proceedings, particularly in the United States, regarding patent and other intellectual property rights in the information technology industry. There is a risk


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that we are infringing, or may in the future infringe, the intellectual property rights of third parties. We monitor third-party patents and patent applications that may be relevant to our technologies and solutions and we carry out freedom to operate analyses where we deem appropriate. However, such monitoring and analysis has not been, and is unlikely in the future to be, comprehensive, and it may not be possible to detect all potentially relevant patents and patent applications. Since the patent application process can take several years to complete, there may be currently pending applications, unknown to us, that may later result in issued patents that cover our products and technologies. As a result, we may infringe existing and future third-party patents of which we are not aware. As we expand our operations there is a higher risk that such activity could infringe the intellectual property rights of third parties.
 
Third-party intellectual property infringement claims and any resultant litigation against us or our technology partners or providers, could subject us to liability for damages, restrict us from using and providing our technologies and solutions or operating our business generally, or require changes to be made to our technologies and solutions. Even if we prevail, litigation is time consuming and expensive to defend and would result in the diversion of management’s time and attention.
 
If a successful claim of infringement is brought against us and we fail to develop non-infringing technologies and solutions or to obtain licenses on a timely and cost effective basis this could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
 
Regulatory developments could negatively impact our business.
 
Because personal, public and non-public information is stored in some of our databases, we are vulnerable to government regulation and adverse publicity concerning the use of our data. We provide many types of data and services that already are subject to regulation under the Fair Credit Reporting Act, Gramm-Leach-Bliley Act, Driver’s Privacy Protection Act, Health Insurance Portability and Accountability Act, the European Union’s Data Protection Directive and to a lesser extent, various other federal, state, and local laws and regulations. These laws and regulations are designed to protect the privacy of the public and to prevent the misuse of personal information in the marketplace. However, many consumer advocates, privacy advocates, and government regulators believe that the existing laws and regulations do not adequately protect privacy. They have become increasingly concerned with the use of personal information, particularly social security numbers, department of motor vehicle data and dates of birth. As a result, they are lobbying for further restrictions on the dissemination or commercial use of personal information to the public and private sectors. Similar initiatives are under way in other countries in which we do business or from which we source data. The following legal and regulatory developments also could have a material adverse affect on our business, financial position, results of operations or cash flows:
 
  •      amendment, enactment, or interpretation of laws and regulations which restrict the access and use of personal information and reduce the supply of data available to customers;
 
  •      changes in cultural and consumer attitudes to favor further restrictions on information collection and sharing, which may lead to regulations that prevent full utilization of our solutions;
 
  •      failure of our solutions to comply with current laws and regulations; and
 
  •      failure of our solutions to adapt to changes in the regulatory environment in an efficient, cost-effective manner.
 
Fraudulent data access and other security breaches may negatively impact our business and harm our reputation.
 
Security breaches in our facilities, computer networks, and databases may cause harm to our business and reputation and result in a loss of customers. Our systems may be vulnerable to physical break-ins, computer viruses, attacks by hackers and similar disruptive problems. Third-party contractors also may experience security breaches involving the storage and transmission of proprietary information. If users gain improper access to our databases, they may be able to steal, publish, delete or modify confidential third-party information that is stored or transmitted on our networks.


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In addition, customers’ misuse of our information services could cause harm to our business and reputation and result in loss of customers. Any such misappropriation and/or misuse of our information could result in us, among other things, being in breach of certain data protection and related legislation.
 
A security or privacy breach may affect us in the following ways:
 
  •      deterring customers from using our solutions;
 
  •      deterring data suppliers from supplying data to us;
 
  •      harming our reputation;
 
  •      exposing us to liability;
 
  •      increasing operating expenses to correct problems caused by the breach;
 
  •      affecting our ability to meet customers’ expectations; or
 
  •      causing inquiry from governmental authorities.
 
We may detect incidents in which consumer data has been fraudulently or improperly acquired. The number of potentially affected consumers identified by any future incidents is obviously unknown. Any such incident could materially and adversely affect our business, reputation, financial condition, operating results and cash flows.
 
We typically face a long selling cycle to secure new contracts that requires significant resource commitments, which result in a long lead time before we receive revenues from new relationships.
 
We typically face a long selling cycle to secure a new contract and there is generally a long preparation period in order to commence providing the services. We typically incur significant business development expenses during the selling cycle and we may not succeed in winning a new customer’s business, in which case we receive no revenues and may receive no reimbursement for such expenses. Even if we succeed in developing a relationship with a potential new customer, we may not be successful in obtaining contractual commitments after the selling cycle or in maintaining contractual commitments after the implementation cycle, which may have a material adverse effect on our business, results of operations and financial condition.
 
We may lose key business assets, including loss of data center capacity or the interruption of telecommunications links, the internet, or power sources, which could significantly impede our ability to do business.
 
Our operations depend on our ability, as well as that of third-party service providers to whom we have outsourced several critical functions, to protect data centers and related technology against damage from hardware failure, fire, power loss, telecommunications failure, impacts of terrorism, breaches in security (such as the actions of computer hackers), natural disasters, or other disasters. The on-line services we provide are dependent on links to telecommunications providers. In addition, we generate a significant amount of our revenues through telesales centers and websites that we utilize in the acquisition of new customers, fulfillment of solutions and services and responding to customer inquiries. We may not have sufficient redundant operations to cover a loss or failure in all of these areas in a timely manner. Certain of our customer contracts provide that our on-line servers may not be unavailable for specified periods of time. Any damage to our data centers, failure of our telecommunications links or inability to access these telesales centers or websites could cause interruptions in operations that materially adversely affect our ability to meet customers’ requirements, resulting in decreased revenue, operating income and earnings per share.
 
We are subject to competition in many of the markets in which we operate and we may not be able to compete effectively.
 
Some markets in which we operate or which we believe may provide growth opportunities for us are highly competitive, and are expected to remain highly competitive. We compete on the basis of quality,


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customer service, product and service selection and price. Our competitive position in various market segments depends upon the relative strength of competitors in the segment and the resources devoted to competing in that segment. Due to their size, certain competitors may be able to allocate greater resources to a particular market segment than we can. As a result, these competitors may be in a better position to anticipate and respond to changing customer preferences, emerging technologies and market trends. In addition, new competitors and alliances may emerge to take market share away. We may be unable to maintain our competitive position in our market segments, especially against larger competitors. We may also invest further to upgrade our systems in order to compete. If we fail to successfully compete, our business, financial position and results of operations may be adversely affected.
 
Acquisitions could result in operating difficulties, dilution and other harmful consequences.
 
Our long-term business strategy includes growth through acquisitions. Future acquisitions may not be completed on acceptable terms and acquired assets, data or businesses may not be successfully integrated into our operations. Any acquisitions or investments will be accompanied by the risks commonly encountered in acquisitions of businesses. Such risks include, among other things:
 
  •      failing to implement or remediate controls, procedures and policies appropriate for a larger public company at acquired companies that prior to the acquisition lacked such controls, procedures and policies;
 
  •      paying more than fair market value for an acquired company or assets;
 
  •      failing to integrate the operations and personnel of the acquired businesses in an efficient, timely manner;
 
  •      assuming potential liabilities of an acquired company;
 
  •      managing the potential disruption to our ongoing business;
 
  •      distracting management focus from our core businesses;
 
  •      difficulty in acquiring suitable businesses;
 
  •      impairing relationships with employees, customers, and strategic partners;
 
  •      incurring expenses associated with the amortization of intangible assets;
 
  •      incurring expenses associated with an impairment of all or a portion of goodwill and other intangible assets due to changes in market conditions, weak economies in certain competitive markets, or the failure of certain acquisitions to realize expected benefits; and
 
  •      diluting the share value and voting power of existing stockholders.
 
The anticipated benefits of many of our acquisitions may not materialize. Future acquisitions or dispositions could result in the incurrence of debt, contingent liabilities or amortization expenses, or write-offs of goodwill and other intangible assets, any of which could harm our financial condition.
 
We typically fund our acquisitions through facilities that are uncommitted. Although we have capacity under our uncommitted facilities, lenders are not required to loan us any funds under such facilities. The current disruptions in the capital markets have caused banks and other credit providers to restrict availability of borrowing and new credit facilities. Therefore, future acquisitions may require us to obtain additional financing, which may not be available on favorable terms or at all.
 
To the extent the availability of free or relatively inexpensive information increases, the demand for some of our solutions may decrease.
 
Public sources of free or relatively inexpensive information have become increasingly available recently, particularly through the internet, and this trend is expected to continue. Governmental agencies in particular have increased the amount of information to which they provide free public access. Public sources


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of free or relatively inexpensive information may reduce demand for our solutions. To the extent that customers choose not to obtain solutions from us and instead rely on information obtained at little or no cost from these public sources, our business and results of operations may be adversely affected.
 
Our senior leadership team is critical to our continued success and the loss of such personnel could harm our business.
 
Our future success substantially depends on the continued service and performance of the members of our senior leadership team. These personnel possess business and technical capabilities that are difficult to replace. Members of our senior management operating team have been with us for an average of almost twenty years. However, with the exception of Frank J. Coyne, our Chairman and Chief Executive Officer, we do not expect to have employee contracts with the members of our senior management operating team following this offering. If we lose key members of our senior management operating team, we may not be able to effectively manage our current operations or meet ongoing and future business challenges, and this may have a material adverse effect on our business, results of operations and financial condition.
 
We may fail to attract and retain enough qualified employees to support our operations, which could have an adverse effect on our ability to expand our business and service our customers.
 
Our business relies on large numbers of skilled employees and our success depends on our ability to attract, train and retain a sufficient number of qualified employees. If our attrition rate increases, our operating efficiency and productivity may decrease. We compete for employees not only with other companies in our industry but also with companies in other industries, such as software services, engineering services and financial services companies, and there is a limited pool of employees who have the skills and training needed to do our work. If our business continues to grow, the number of people we will need to hire will increase. We will also need to increase our hiring if we are not able to maintain our attrition rate through our current recruiting and retention policies. Increased competition for employees could have an adverse effect on our ability to expand our business and service our customers, as well as cause us to incur greater personnel expenses and training costs.
 
We are subject to antitrust and other litigation, and may in the future become subject to further such litigation; an adverse outcome in such litigation could have a material adverse effect on our financial condition, revenues and profitability.
 
We participate in businesses (particularly insurance-related businesses and services) that are subject to substantial litigation, including antitrust litigation. We are subject to the provisions of a 1995 settlement agreement in an antitrust lawsuit brought by various state Attorneys General and private plaintiffs which imposes certain constraints with respect to insurer involvement in our governance and business. We currently are defending against several putative class action lawsuits in which it is alleged that certain of our subsidiaries unlawfully have conspired with insurers with respect to their payment of insurance claims. See “Business — Legal Proceedings.” Our failure to successfully defend or settle such litigation could result in liability that, to the extent not covered by our insurance, could have a material adverse effect on our financial condition, revenues and profitability. Given the nature of our business, we may be subject to similar litigation in the future. Even if the direct financial impact of such litigation is not material, settlements or judgments arising out of such litigation could include further restrictions on our ability to conduct business, including potentially the elimination of entire lines of business, which could increase our cost of doing business and limit our prospects for future growth.
 
Our liquidity, financial position and profitability could be adversely affected by further deterioration in U.S. and international credit markets and economic conditions.
 
Deterioration in the global capital markets has caused financial institutions to seek additional capital, merge with larger financial institutions and, in some cases, fail. These conditions have led to concerns by market participants about the stability of financial markets generally and the strength of counterparties, resulting in a contraction of available credit, even for the most credit-worthy borrowers. Due to recent market


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events, our liquidity and our ability to obtain financing may be negatively impacted if one of our lenders under our revolving credit facilities or existing shelf arrangements fails to meet its funding obligations. In such an event, we may not be able to draw on all, or a substantial portion, of our uncommitted credit facilities, which would adversely affect our liquidity. Also, if we attempt to obtain future financing in addition to, or replacement of, our existing credit facilities to finance our continued growth through acquisitions or otherwise, the credit market turmoil could negatively impact our ability to obtain such financing.
 
General economic, political and market forces and dislocations beyond our control could reduce demand for our solutions and harm our business.
 
The demand for our solutions may be impacted by domestic and international factors that are beyond our control, including macroeconomic, political and market conditions, the availability of short-term and long-term funding and capital, the level and volatility of interest rates, currency exchange rates and inflation. The United States economy is currently in a recession and both the future domestic and global economic environments may continue to be less favorable than those of recent years. Any one or more of these factors may contribute to reduced activity and prices in the securities markets generally and could result in a reduction in demand for our solutions, which could have an adverse effect on our results of operations and financial condition. The current volatility in of the credit markets, and its effect on the economy, may continue to negatively impact financial institutions. A significant additional decline in the value of assets for which risk is transferred in market transactions could have an adverse impact on the demand for our solutions. In addition, the decline of the credit markets has reduced the number of mortgage originators, and therefore, the immediate demand for our related mortgage solutions. Specifically, certain of our fraud detection and prevention solutions are directed at the mortgage market. This decline in asset value and originations and an increase in foreclosure levels has also created greater regulatory scrutiny of mortgage originations and securitizations. Any new regulatory regime may change the utility of our solutions for mortgage lenders and other participants in the mortgage lending industry and related derivative markets or increase our costs as we adapt our solutions to new regulation.
 
Risks Related to the Offering
 
There is no prior public market for our common stock and therefore an active trading market or any specific price for our common stock may not be established.
 
Currently, there is no public trading market for our common stock. We expect that our Class A common stock will be listed on the New York Stock Exchange under the symbol “VA.” The initial public offering price per share was determined by agreement among us, the selling stockholders and the representatives of the underwriters and may not be indicative of the market price of our common stock after our initial public offering. An active trading market for our common stock may not develop and continue upon the completion of this offering and the market price of our common stock may decline below the initial public offering price.
 
The market price for our common stock may be volatile.
 
The market price for our common stock is likely to be highly volatile and subject to wide fluctuations in response to factors including the following:
 
  •      actual or anticipated fluctuations in our quarterly operating results;
 
  •      changes in financial estimates by securities research analysts;
 
  •      changes in the economic performance or market valuations of other companies engaged in our industry;
 
  •      regulatory developments in our industry affecting us, our customers or our competitors;
 
  •      announcements of technological developments;
 
  •      sales or expected sales of additional common stock;


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  •      continued dislocations and downward pressure in the capital markets; and
 
  •      terrorist attacks or natural disasters or other such events impacting countries where we or our customers have operations.
 
In addition, securities markets generally and from time to time experience significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may have a material adverse effect on the market price of our common stock.
 
We plan to issue a number of options to purchase Class A common stock to our directors and employees that could dilute your interest in us.
 
Upon the closing of this offering we will have up to 3,750,000 shares of Class A common stock available for issuance to our directors, executive officers and employees in connection with grants of options to purchase Class A common stock under our employee benefits arrangements. Issuances of Class A common stock to our directors, executive officers and employees pursuant to the exercise of stock options under our employee benefits arrangements will dilute your interest in us.
 
If there are substantial sales of our common stock, our stock price could decline.
 
The market price of our common stock could decline as a result of sales of a large number of shares of common stock in the market after this offering or the perception that these sales could occur. These sales, or the possibility that these sales may occur, also might make it more difficult for us to sell equity securities in the future at a time and at a price that we deem attractive. Upon consummation of this offering, we will have           shares of common stock outstanding. Of these shares, the           shares of common stock offered hereby will be freely tradable without restriction in the public market, unless purchased by our affiliates.
 
Following this offering, our existing stockholders will beneficially own in the aggregate approximately           shares of our Class A common stock and           shares of our Class B common stock, representing in aggregate approximately     % of our outstanding common stock. Such stockholders will be able to sell their common stock in the public market from time to time without registering them, subject to the lock-up periods described below, and subject to limitations on the timing, amount and method of those sales imposed by securities laws. If any of these stockholders were to sell a large number of their common stock, the market price of our common stock could decline significantly. In addition, the perception in the public markets that sales by them might occur could also adversely affect the market price of our common stock.
 
In connection with this offering, we, our selling stockholders, our directors and certain members of our management have each agreed to enter into a lock-up agreement and thereby be subject to a lock-up period, meaning that they and their permitted transferees will not be permitted to sell any of their common stock without the prior consent of the underwriters for 180 days after the date of this prospectus. Although we have been advised that there is no present intention to do so, the underwriters may, in their sole discretion and without notice, release all or any portion of the common stock from the restrictions in any of the lock-up agreements described above. In addition, certain members of our management will be subject to lock-up agreements with us whereby they will not be permitted to sell any of their common stock, subject to certain conditions, for a longer period of time after the pricing of this initial public offering. See “Certain Relationships and Related Transactions — Letter Agreements.”
 
Also, pursuant to our amended and restated certificate of incorporation, our Class B stockholders will not be able to sell any of their common stock, subject to certain conditions, to the public for a period of time after the pricing of this initial public offering. Each share of Class B (Series 1) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 18 months after the date of this prospectus. Each share of Class B (Series 2) common stock shall convert automatically, without any action by the holder, into one share of Class A common stock 24 months after the date of this prospectus. Our board of directors may approve exceptions to the limitation on transfers of our Class B common stock in


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their sole discretion, in connection with the sale of such Class B common stock in a public offering registered with the Securities and Exchange Commission or in such other limited circumstances as our board of directors may determine. Any Class B common stock sold to the public will first be converted to Class A common stock. Such further resale of our common stock could cause the price of our common stock to decline. See “Description of Capital Stock — Common Stock — Conversion.”
 
Pursuant to our equity incentive plans, options to purchase approximately           shares of Class A common stock will be outstanding upon consummation of this offering. Following this offering, we intend to file a registration statement under the Securities Act registering           shares of Class A common stock which will cover the shares available for issuance under our equity incentive plans (including for such outstanding options) as well as shares held for resale by our existing stockholders that were previously issued under our equity incentive plans. Such further issuance and resale of our common stock could cause the price of our common stock to decline.
 
Also, in the future, we may issue our securities in connection with investments and acquisitions. The amount of our common stock issued in connection with an investment or acquisition could constitute a material portion of our then outstanding common stock.
 
The holders of our Class B common stock have the right to elect up to three of our directors and their interests in our business may be different than yours.
 
Until no Class B common stock remains outstanding, the holders of our Class B common stock will have the right to elect up to three of our directors. Stockholders of the Class B common stock may not have the same incentive to approve a corporate action that may be favorable for the holders of Class A common stock, or their interests may otherwise conflict with yours. For example, holders of our Class B common stock may seek to cause us to take courses of action that, in their judgment, could enhance their investment in us or the use of our solutions, but which might involve risks to holders of our Class A common stock, including a potential decrease in the price of our Class A common stock. See “Description of Capital Stock — Common Stock — Voting Rights.”
 
Following this offering, changes in our capital structure and level of indebtedness and the terms of anti-takeover provisions under Delaware law and in our amended and restated certificate of incorporation and bylaws could diminish the value of our common stock and could make a merger, tender offer or proxy contest difficult or could impede an attempt to replace or remove our directors.
 
We are a Delaware corporation and the anti-takeover provisions of the Delaware General Corporation Law may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the person becomes an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our certificate of incorporation and bylaws may discourage, delay or prevent a change in our management or control over us that stockholders may consider favorable or make it more difficult for stockholders to replace directors even if stockholders consider it beneficial to do so. Our certificate of incorporation and bylaws:
 
  •      authorize the issuance of “blank check” preferred stock that could be issued by our board of directors to increase the number of outstanding shares to thwart a takeover attempt;
 
  •      prohibit cumulative voting in the election of directors, which would otherwise allow holders of less than a majority of the stock to elect some directors;
 
  •      require that vacancies on the board of directors, including newly-created directorships, be filled only by a majority vote of directors then in office;
 
  •      limit who may call special meetings of stockholders;
 
  •      authorize the issuance of authorized but unissued shares of common stock and preferred stock without stockholder approval, subject to the rules and regulations of the          ;


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  •      prohibit stockholder action by written consent, requiring all stockholder actions to be taken at a meeting of the stockholders; and
 
  •      establish advance notice requirements for nominating candidates for election to the board of directors or for proposing matters that can be acted upon by stockholders at stockholder meetings.
 
In addition, Section 203 of the Delaware General Corporation Law may inhibit potential acquisition bids for us. Upon completion of this offering, we will be subject to Section 203, which regulates corporate acquisitions and limits the ability of a holder of 15% or more of our stock from acquiring the rest of our stock. Under Delaware law a corporation may opt out of the anti-takeover provisions, but we do not intend to do so.
 
These provisions may prevent a stockholder from receiving the benefit from any premium over the market price of our common stock offered by a bidder in a potential takeover. Even in the absence of an attempt to effect a change in management or a takeover attempt, these provisions may adversely affect the prevailing market price of our common stock if they are viewed as discouraging takeover attempts in the future.
 
We will incur increased costs as a result of being a public company.
 
As a privately held company, we have not been responsible for the corporate governance and financial reporting practices and policies required of a public company. Following the completion of this offering, we will be a publicly traded company. Once we become a public company, we will incur significant legal, accounting, investor relations and other expenses that we do not currently incur. In addition, the Sarbanes-Oxley Act of 2002, as well as new rules implemented by the Securities and Exchange Commission, the applicable listing rules and rules implemented by the applicable foreign regulatory agencies, may require changes in corporate governance practices of public companies. We expect such rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.


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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
We have made statements under the captions “Prospectus Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business” and in other sections of this prospectus that are forward-looking statements. In some cases, you can identify these statements by forward-looking words such as “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are subject to risks, uncertainties and assumptions about us, may include projections of our future financial performance, our anticipated growth strategies and anticipated trends in our business. These statements are only predictions based on our current expectations and projections about future events. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements, including those factors discussed under the caption entitled “Risk Factors.” You should specifically consider the numerous risks outlined under “Risk Factors.”
 
Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. Moreover, neither we nor any other person assumes responsibility for the accuracy and completeness of any of these forward-looking statements. We are under no duty to update any of these forward-looking statements after the date of this prospectus to conform our prior statements to actual results or revised expectations.
 
MARKET AND INDUSTRY DATA AND FORECASTS
 
Market data and certain industry data and forecasts used throughout this prospectus were obtained from internal company surveys, market research, consultant surveys, publicly available information, reports of governmental agencies and industry publications and surveys. We believe the data from third-party sources to be reliable based upon our management’s knowledge of the industry, but have not independently verified such data. Certain data and forecasts used in this prospectus predate the current economic downturn. Our estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” in this prospectus.


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THE REORGANIZATION
 
On May 23, 2008, in contemplation of our initial public offering, we formed Verisk Analytics, Inc., a Delaware corporation, to be the new holding company for our business. It was initially formed as a wholly-owned subsidiary of Insurance Services Office, Inc. Prior to the completion of this offering, we will have effected an internal reorganization whereby ISO will become a wholly-owned subsidiary of Verisk and all outstanding shares of ISO common stock will be replaced with common stock of Verisk.
 
This transaction will occur by the stockholders of ISO exchanging their Class A common stock and Class B common stock in ISO for Class A common stock and Class B common stock in Verisk, respectively, on a one-for-one basis. The Class B common stock of Verisk is sub-divided equally into two series of Class B common stock, Class B (Series 1) common stock and Class B (Series 2) common stock, as described in this prospectus. As part of this reorganization, our existing equity based compensation plans will be assigned to Verisk. As a result, all outstanding options issued under our existing equity based compensation plans will become options to acquire common stock of Verisk.
 
Immediately after the reorganization we will effect an approximately fifty-for-one split of our common stock in order to have a price per share equal to the mid-point of the range set forth on the cover page of this prospectus.


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USE OF PROCEEDS
 
The selling stockholders are selling all of the shares of common stock in this offering and we will not receive any proceeds from the sale of the shares.
 
DIVIDEND POLICY
 
Following this offering and subject to legally available funds, we currently intend to pay a quarterly dividend, in cash, at an annual rate initially equal to $      per share of Class A common stock (representing a quarterly rate initially equal to $      per share) commencing with the quarter ended          , 2009. Our Class B common stock will share ratably on an as-converted basis in such dividends. The declaration and payment of any dividends will be at the sole discretion of our board of directors after taking into account various factors, including our financial condition, operating results, capital requirements, covenants in our debt instruments, and other factors that our board of directors deems relevant.


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CAPITALIZATION
 
The following table sets forth our capitalization as of June 30, 2009:
 
  •      on an actual basis; and
 
  •      on an as adjusted basis to give effect to changes in the terms of our capital stock in connection with this initial public offering and the consequent expiration of our obligations to redeem our Class A common stock.
 
This table should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the unaudited condensed consolidated interim financial statements, and the consolidated financial statements and notes thereto appearing elsewhere in this prospectus.
 
                 
    As of June 30, 2009  
    Actual     As Adjusted  
    (In thousands,
 
    except share numbers)  
 
Long-term debt (including short-term debt and current portion of long-term debt)
  $ 689,066     $ 689,066  
                 
Redeemable common stock:(1)
               
Class A redeemable common stock, stated at redemption value, $0.01 par value; 6,700,000 shares authorized 3,010,843 shares issued and 700,188 outstanding (on a pre-split basis) and vested options at intrinsic value
    845,126        
Class A unearned common stock ESOP shares
    (3,009 )      
                 
Total redeemable common stock
    842,117        
                 
Stockholders’ deficit:
               
Class A common stock, $0.001 par value per share, 335,000,000 shares authorized;      shares issued and      shares outstanding(2)
          30  
Class B (Series 1 and 2) common stock, $0.001 par value per share, 1,000,000,000 shares authorized, 500,225,000 shares issued and 143,192,100 shares outstanding(2)
    100       100  
Additional paid-in capital(3)
          579,631  
Class A unearned common stock ESOP shares(2)
          (3,009 )
Accumulated other comprehensive loss
    (79,130 )     (79,130 )
(Accumulated deficit)/retained earnings
    (265,465 )      
Class B (Series 1 and 2) common stock, treasury stock, 357,037,900 shares
    (683,994 )     (683,994 )
                 
Total stockholders’ deficit
    (1,028,489 )     (186,372 )
                 
Total capitalization
  $ 502,694     $ 502,694  
                 
(1) Prior to this offering, we were required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of these securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock. Refer to note 11 of the unaudited condensed consolidated interim financial statements for further information.
 
(2) Giving effect to the approximately fifty-for-one stock split that will have occurred prior to the completion of this offering.
 
(3) Prior to the completion of this offering, we intend to accelerate the allocation of a portion of the shares to the ESOP, which will result in a non-recurring non-cash charge of approximately $50.0 million, based on the mid-point of the range set forth on the cover page of this prospectus.


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SELECTED CONSOLIDATED FINANCIAL DATA
 
The following selected historical financial data should be read in conjunction with, and are qualified by reference to, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and notes thereto included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2006, 2007 and 2008 and the consolidated balance sheet data as of December 31, 2007 and 2008 are derived from the audited consolidated financial statements included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 2004 and 2005 and the consolidated balance sheet data as of December 31, 2004, 2005 and 2006 are derived from unaudited consolidated financial statements that are not included in this prospectus. The condensed consolidated statement of operations data for the six-month periods ended June 30, 2008 and 2009 and the condensed consolidated balance sheet data as of June 30, 2009 are derived from unaudited condensed financial statements that are included in this prospectus. The condensed consolidated balance sheet data as of June 30, 2008 is derived from unaudited condensed financial statements that are not included in this prospectus. The unaudited condensed consolidated financial statements, in our opinion, have been prepared on the same basis as the audited consolidated financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position. Results for the six-month period ended June 30, 2009 are not necessarily indicative of results that may be expected for the fiscal year ended December 31, 2009 or any other future period.
 
From January 1, 2004 to June 30, 2009 we have acquired 15 businesses, which may affect the comparability of our financial statements.
 
                                                         
          Six Months Ended
 
    Year Ended December 31,     June 30, 2009  
    2004     2005     2006     2007     2008     2008     2009  
    (In thousands, except for share and per share data)  
 
Statement of income data:
                                                       
Revenues:
                                                       
Risk Assessment revenues
  $ 403,616     $ 448,875     $ 472,634     $ 485,160     $ 504,391     $ 253,356     $ 262,873  
Decision Analytics revenues
    144,711       196,785       257,499       317,035       389,159       184,334       240,794  
                                                         
Revenues
    548,327       645,660       730,133       802,195       893,550       437,690       503,667  
                                                         
Expenses:
                                                       
Cost of revenues
    263,332       294,911       331,804       357,191       386,897       190,678       220,501  
Selling, general and administrative
    81,020       88,723       100,124       107,576       131,239       59,028       72,225  
Depreciation and amortization of fixed assets
    19,569       22,024       28,007       31,745       35,317       16,424       18,913  
Amortization of intangible assets
    11,412       19,800       26,854       33,916       29,555       14,937       16,974  
                                                         
Total expenses
    375,333       425,458       486,789       530,428       583,008       281,067       328,613  
                                                         
Operating income
    172,994       220,202       243,344       271,767       310,542       156,623       175,054  
Other income/(expense):
                                                       
Investment income and realized gains/(losses) on securities, net
    950       2,932       6,101       9,308       (327 )     317       (273 )
Interest expense
    (5,241 )     (10,465 )     (16,668 )     (22,928 )     (31,316 )     (14,173 )     (16,677 )
                                                         
Total other expense, net
    (4,291 )     (7,533 )     (10,567 )     (13,620 )     (31,643 )     (13,856 )     (16,950 )
Income from continuing operations before income taxes
    168,703       212,669       232,777       258,147       278,899       142,767       158,104  
Provision for income taxes
    (68,925 )     (85,722 )     (91,992 )     (103,184 )     (120,671 )     (61,818 )     (67,250 )
                                                         
Income from continuing operations
    99,778       126,947       140,785       154,963       158,228       80,949       90,854  
Loss from discontinued operations, net of tax(1)
    (508 )     (2,574 )     (1,805 )     (4,589 )                  
                                                         
Net income
  $ 99,270     $ 124,373     $ 138,980     $ 150,374     $ 158,228     $ 80,949     $ 90,854  
                                                         
Basic income/(loss) per share(2):
                                                       
Income from continuing operations
  $ 20.12     $ 29.81     $ 34.08     $ 38.58     $ 43.26     $ 21.73     $ 26.20  
Loss from discontinued operations
    (0.10 )     (0.61 )     (0.44 )     (1.14 )                  
                                                         
Net income per share
  $ 20.02     $ 29.20     $ 33.64     $ 37.44     $ 43.26     $ 21.73     $ 26.20  
                                                         
Diluted income/(loss) per share(2):
                                                       
Income from continuing operations
  $ 19.28     $ 28.45     $ 32.72     $ 37.03     $ 41.59     $ 20.87     $ 25.21  
Loss from discontinued operations
    (0.10 )     (0.58 )     (0.42 )     (1.10 )                  
                                                         
Net income per share
  $ 19.18     $ 27.87     $ 32.30     $ 35.93     $ 41.59     $ 20.87     $ 25.21  
                                                         


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          Six Months Ended
 
    Year Ended December 31,     June 30, 2009  
    2004     2005     2006     2007     2008     2008     2009  
    (In thousands, except for share and per share data)  
 
Weighted average shares outstanding:
                                                       
Basic
    4,958,161       4,258,989       4,130,962       4,016,928       3,657,714       3,724,876       3,468,196  
                                                         
Diluted
    5,174,281       4,462,109       4,302,867       4,185,151       3,804,634       3,877,906       3,604,086  
                                                         
Other data:
                                                       
Purchases of fixed assets
  $ (17,516 )   $ (24,019 )   $ (25,742 )   $ (32,941 )   $ (30,652 )   $ (17,810 )   $ (16,195 )
Net cash provided by operating activities
    174,780       174,071       223,499       248,521       247,906       141,929       184,529  
Net cash used in investing activities
    (41,851 )     (107,444 )     (243,452 )     (110,831 )     (130,466 )     (98,402 )     (152,683 )
Net cash (used in)/provided by financing activities
    (114,280 )     (90,954 )     75,907       (212,591 )     (107,376 )     (16,759 )     (19,157 )
 
                                                         
    As of December 31,     As of June 30,  
    2004     2005     2006     2007     2008     2008     2009  
    (In thousands)  
 
Balance Sheet Data:
                                                       
Cash and cash equivalents
  $ 67,700     $ 42,822     $ 99,152     $ 24,049     $ 33,185     $ 50,835     $ 45,962  
Total assets
    386,496       466,244       739,282       830,041       928,877       867,128       1,009,335  
Total debt(3)
    206,152       276,964       448,698       438,330       669,754       642,182       689,066  
Redeemable common stock(4)
    722,532       901,089       1,125,933       1,171,188       749,539       1,006,287       842,117  
Stockholders’ deficit
    (740,478 )     (940,843 )     (1,123,977 )     (1,203,348 )     (1,009,823 )     (1,186,569 )     (1,028,489 )
 
(1) As of December 31, 2007, we discontinued operations of our claim consulting business located in New Hope, Pennsylvania and the United Kingdom. There was no impact of discontinued operations on the results of operations for the periods subsequent to December 31, 2007.
 
(2) In conjunction with the initial public offering, the stock of Insurance Services Office, Inc. will convert to stock of Verisk Analytics, Inc., which plans to effect a stock split of its common stock. The numbers in the above table do not reflect this stock split. Giving effect to the approximately fifty-for-one stock split that will have occurred prior to the completion of this offering, pro forma basic and diluted income/(loss) per share from continuing operations and discontinued operations would have been as follows:
 
                                                         
        Six Months Ended
    Year Ended December 31,   June 30,
Basic
  2004   2005   2006   2007   2008   2008   2009
 
Income from continuing operations
  $ 0.40     $ 0.60     $ 0.68     $ 0.77     $ 0.87     $ 0.43     $ 0.52  
Loss from discontinued operations
          (0.02 )     (0.01 )     (0.02 )                  
                                                         
Net Income per share
  $ 0.40     $ 0.58     $ 0.67     $ 0.75     $ 0.87     $ 0.43     $ 0.52  
                                                         
Weighted average shares
    247,908,050       212,949,450       206,548,100       200,846,400       182,885,700       186,243,800       173,409,800  
                                                         
Diluted
                                                       
Income from continuing operations
  $ 0.39     $ 0.57     $ 0.65     $ 0.74     $ 0.83     $ 0.42     $ 0.50  
Loss from discontinued operations
          (0.01 )     (0.01 )     (0.02 )                  
                                                         
Net Income per share
  $ 0.39     $ 0.56     $ 0.64     $ 0.72     $ 0.83     $ 0.42     $ 0.50  
                                                         
Weighted average shares
    258,714,050       223,105,450       215,143,350       209,257,550       190,231,700       193,895,300       180,204,300  
                                                         
 
(3) Includes capital lease obligations.
 
(4) Prior to this offering, we are required to record our Class A common stock and vested options at redemption value at each balance sheet date as the redemption of these securities is not solely within our control, due to our contractual obligations to redeem these shares. We classify this redemption value as redeemable common stock. Subsequent to this offering, we will no longer be obligated to redeem these shares and therefore we will not be required to record any redeemable common stock.

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MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
The following discussion should be read in conjunction with our historical financial statements and the related notes included elsewhere in this prospectus, as well as the discussion under “Selected Consolidated Financial Data.” This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those discussed in or implied by any of the forward-looking statements as a result of various factors, including but not limited to those listed under “Risk Factors” and “Special Note Regarding Forward-Looking Statements.”
 
We enable risk-bearing businesses to better understand and manage their risks. We provide value to our customers by supplying proprietary data that, combined with our analytic methods, creates embedded decision support solutions. We are the largest aggregator and provider of data pertaining to U.S. property and casualty, or P&C, insurance risks. We offer solutions for detecting fraud in the U.S. P&C insurance, mortgage and healthcare industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance.
 
Our customers use our solutions to make better risk decisions with greater efficiency and discipline. We refer to these products and services as ‘solutions’ due to the integration among our products and the flexibility that enables our customers to purchase components or the comprehensive package of products. These solutions take various forms, including data, statistical models or tailored analytics, all designed to allow our clients to make more logical decisions. We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs.
 
We organize our business in two segments: Risk Assessment and Decision Analytics. Our Risk Assessment segment provides statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our Risk Assessment segment revenues represented approximately 56% and 52% of our revenues for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively. Our Decision Analytics segment provides solutions our customers use to analyze the four processes of the Verisk Risk Analysis Framework: Prediction of Loss, Selection and Pricing of Risk, Detection and Prevention of Fraud, and Quantification of Loss. Our Decision Analytics segment revenues represented approximately 44% and 48% of our revenues for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively.
 
Executive Summary
 
Key Business Characteristics
 
We believe we have an attractive operating model due to the recurring nature of our revenues, the scalability of our solutions and the low capital intensity of our business.
 
Recurring Nature of Revenues.  We offer our solutions primarily through annual subscriptions or long-term agreements, which are generally pre-paid. For the year ended December 31, 2008 and the six months ended June 30, 2009, 76% and 72% of our revenues, respectively, were derived from subscriptions and long-term agreements for our solutions. Approximately 97% of our top 100 customers in 2008, as ranked by revenues, have been our customers for each of the last five years. The combination of our historically high renewal rates, which we believe are due to the embedded nature of our solutions and our subscription-based revenue model, results in predictable cash flows.
 
Scalable Solutions.  Our technology infrastructure and scalable solution platforms allow us to accommodate significant additional transaction volumes with limited incremental costs. This operating leverage enabled us to increase our EBITDA margins from 37.2% in 2004 to 42.0% in 2008.
 
Low Capital Intensity.  We have low capital needs that allow us to generate strong cash flow. In 2008, our operating income and capital expenditures, including non-cash purchases of fixed assets, as a percentage of revenue were 34.8% and 3.7%, respectively.


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Key Performance Metrics
 
We believe our business’s ability to generate recurring revenue and positive cash flow is the key indicator of the successful execution of our business strategy. We use revenue growth and EBITDA margin as metrics to measure our performance.
 
Revenue growth.  We use year over year revenue growth as a key performance metric. We assess revenue growth based on our ability to generate increased revenue through increased sales to existing customers, sales of new or expanded solutions to existing customers, sales to new customers and strategic acquisitions of new businesses.
 
EBITDA margin.  We use EBITDA margin as a metric to assess segment performance and scalability of our business. We assess EBITDA margin based on our ability to increase revenues while controlling expense growth.
 
Revenues
 
We earn revenues through subscriptions, long-term agreements and on a transactional basis. Subscriptions for our solutions are generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year and are automatically renewed each year. As a result, the timing of our cash flows generally precedes our recognition of revenues and income and our cash flow from operations tends to be higher in the first quarter as we receive subscription payments. Examples of these arrangements include subscriptions that allow our customers to access our standardized coverage language or our actuarial services throughout the subscription period. In general, we experience minimal seasonality within the business. Our long-term agreements are generally for periods of three to seven years. We recognize revenue from subscriptions ratably over the term of the subscription and most long-term agreements are recognized ratably over the term of the agreement.
 
Certain of our solutions are also paid for by our customers on a transactional basis. For example, we have solutions that allow our customers to access fraud detection tools in the context of an individual mortgage application, obtain property-specific rating and underwriting information to price a policy on a commercial building, or compare a P&C insurance, medical or workers’ compensation claim with information in our databases. For the year ended December 31, 2008 and the six months ended June 30, 2009, 24% and 28% of our revenues, respectively, were derived from providing transactional solutions. We earn transactional revenues as our solutions are delivered or services performed. In general, transactions are billed monthly at the end of each month.
 
More than 82% and 84% of the revenues in our Risk Assessment segment for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively, were derived from subscriptions and long-term agreements for our solutions. Our customers in this segment include most of the P&C insurance providers in the United States, and we have retained approximately 99% of our P&C insurance customer base in each of the last five years. Within our Risk Assessment segment, much of our revenues are based on the data we receive from our customers. The costs for such revenue for the year ended December 31, 2008 and the six months ended June 30, 2009, were $15.8 million and $9.7 million, respectively, and have increased as a percentage of revenue from 3.3% to 3.7% of our Risk Assessment segment revenues from December 31, 2006 to June 30, 2009. More than 68% and 59% of the revenues in our Decision Analytics segment, for the years ended December 31, 2008 and the six months ended June 30, 2009, respectively, were derived from subscriptions and long-term agreements for our solutions.
 
Principal Operating Costs and Expenses
 
Personnel expenses are the major component of both our cost of revenues and selling, general and administrative expenses. Personnel expenses include salaries, benefits, incentive compensation, equity compensation costs (described under “— Equity Compensation Costs” below), sales commissions, employment taxes, recruiting costs and outsourced temporary agency costs, which represented 63% and 65% of our total expenses for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively.
 
We allocate personnel expenses between two categories, cost of revenues and selling, general and administrative costs based on the actual costs associated with each employee. We categorize employees who maintain our solutions as cost of revenues, and all other personnel, including executive managers, sales people,


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marketing, business development, finance, legal, human resources and administrative services as selling, general and administrative expenses. A significant portion of our other operating costs, such as facilities and communications, are also either captured within cost of revenues or selling, general and administrative expense, based on the nature of the work being performed.
 
While we expect to grow our headcount over time to take advantage of our market opportunities, we believe that the economies of scale in our operating model will allow us to grow our personnel expenses at a lower rate than revenues. Historically, our EBITDA margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses.
 
Cost of Revenues.  Our cost of revenues consists primarily of personnel expenses. Cost of revenues also includes the expenses associated with the acquisition and verification of data, the maintenance of our existing solutions and the development and enhancement of our next-generation solutions. Our cost of revenues excludes depreciation and amortization.
 
Selling, General and Administrative Expense.  Our selling, general and administrative expense also consists primarily of personnel costs. A portion of the other operating costs such as facilities, insurance and communications are also allocated to selling, general and administrative costs based on the nature of the work being performed by the employee.
 
EBITDA Margin
 
Our EBITDA margins for the years ended December 31, 2007 and December 31, 2008, were 42.1% and 42.0%, respectively. Historically, our EBITDA margin has improved because we have been able to increase revenues without a proportionate corresponding increase in expenses. Included within the decrease in our EBITDA margin for the year ended December 31, 2008 are costs of $6.5 million associated with the preparation of our initial public offering, representing a 0.7% negative impact on our EBITDA margin. Our EBITDA margins for the six months ended June 30, 2008 and June 30, 2009 were 42.9% and 41.9%, respectively. Included within the decrease of our EBITDA margin for the six months ended June 30, 2009 are increased pension costs of $9.1 million, representing a 1.8% negative impact on our EBITDA margin, due to the effect of the global economic downturn on our pension investments in 2008, as further discussed within “Critical Accounting Policies and Estimates, Pension and Postretirement” section.
 
Description of Acquisitions
 
As part of our growth strategy, we intend to continue to selectively acquire companies primarily to augment our Decision Analytics offerings. We have acquired 10 businesses from January 2006 to June 2009, nine of which are included in our Decision Analytics segment. Specifically, these companies provide fraud identification and detection, loss prediction and selection solutions to the healthcare market. Included in the above was Xactware, Inc., or Xactware, acquired in 2006, which provides loss quantification solutions for all phases of building repair and reconstruction. As a result of these acquisitions, our consolidated results of operations may not be comparable between periods.
 
In 2008, we acquired two entities for an aggregate cash purchase price of approximately $19.3 million and funded indemnity escrows totaling $1.5 million. One entity is subject to additional contingent payments ranging from $0 to a maximum of $4.5 million potentially payable in 2011 and 2012, based on achievement of certain predetermined financial results. In 2007, we acquired three companies for an aggregate cash purchase price of approximately $50.1 million and funded indemnity and contingent payment escrows of $3.3 million and $1.0 million, respectively. As of December 31, 2008, an entity acquired in 2007 achieved certain financial results, whereby an additional contingent payment of $15.2 million was paid in May 2009. In 2006, we acquired four companies for an aggregate cash purchase price of approximately $202.1 million, of which $188.0 million relates to Xactware, and funded indemnity and contingent payment escrows of $11.1 million and $3.5 million, respectively. Xactware achieved certain financial results, whereby additional contingent payments of $98.1 million and $62.9 million were paid in April 2008 and May 2009, respectively.
 
On January 14, 2009, we acquired D2Hawkeye or D2, a privately-owned provider of information and analytic solutions for the healthcare industry, for a net cash purchase price of $58.6 million of which


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$7.0 million was used to fund the indemnity escrow. D2 is entitled to receive additional contingent consideration ranging from $0 to $65.7 million based on achievement of certain predetermined EBITDA targets for the fiscal year 2011 and potentially payable in 2012. We have recorded $2.8 million of contingent consideration from this range, which was estimated as of the acquisition date by using a weighted average probability of achieving the specific predetermined EBITDA targets. As of June 30, 2009, no change in the estimated contingent consideration was required. Subsequent changes in the estimated fair value of contingent consideration is recorded in the statement of operations.
 
As of June 30, 2009, our indemnity escrows totaled $21.2 million and are classified as current assets. A portion of the escrows and other potential acquisition contingent payments are linked to performance targets. When tied to continued employment, these contingent payments must be expensed as compensation. Compensation expense related to these acquisition contingent payments for the years ended December 31, 2006, 2007 and 2008 were $9.0 million, $3.6 million and $0.3 million respectively, and for the six months ended June 30, 2008 and 2009 were $0.3 million and $0, respectively.
 
On July 24, 2009, we acquired the net assets of TierMed Systems, LLC, or TierMed, a privately owned provider of Healthcare Effectiveness Data and Information Set, or HEDIS, software solutions to healthcare organizations that have HEDIS or quality-reporting needs, for a net cash purchase price of $7.6 million of which $0.4 million was used to fund the indemnity escrows. The preliminary allocation of the purchase price resulted in tangible assets of $0.4 million, and we are still evaluating the allocation of the purchase price related to intangible assets and goodwill. TierMed, located in Chanhassen, Minnesota, complements and is integrated within our Decision Analytics segment.
 
Equity Compensation Costs
 
We have a leveraged employee stock ownership plan, or ESOP, funded with intercompany debt that includes 401(k), ESOP and profit sharing components to provide employees with equity participation. We make quarterly cash contributions to the plan equal to the debt service requirements. As the debt is repaid, shares are released to the ESOP to fund 401(k) matching and profit sharing contributions and the remainder is allocated annually to active employees in proportion to their eligible compensation in relation to total participants’ eligible compensation.


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We accrue compensation expense over the reporting period equal to the fair value of the shares to be released to the ESOP. Depending on the number of shares released to the plan during the quarter and the fluctuation in the fair value of the shares, a corresponding increase or decrease in compensation expense will occur. The amount of our equity compensation costs recognized for the years ended December 31, 2006, 2007 and 2008 and the six months ended June 30, 2008 and 2009 are as follows:
 
                                         
          Six Months
 
          Ended
 
    Year Ended December 31,     June 30,  
    2006     2007     2008     2008     2009  
    (In thousands)  
 
401(k) matching contribution expense:
                                       
Risk Assessment
  $ 4,703     $ 4,914     $ 5,408     $ 2,660     $ 2,459  
Decision Analytics
    2,105       2,788       3,162       1,542       1,794  
                                         
Total 401(k) matching contribution expense
    6,808       7,702       8,570       4,202       4,253  
                                         
Profit sharing contribution expense:
                                       
Risk Assessment
          473       720       370       588  
Decision Analytics
          268       421       215       117  
                                         
Total profit sharing contribution expense
          741       1,141       585       705  
                                         
ESOP allocation expense:
                                       
Risk Assessment
    8,105       8,807       7,927       4,289       3,161  
Decision Analytics
    3,627       4,997       4,636       2,488       2,619  
                                         
Total ESOP allocation expense
    11,732       13,804       12,563       6,777       5,780  
                                         
Total ESOP cost
  $ 18,540     $ 22,247     $ 22,274     $ 11,564     $ 10,738  
                                         
 
Prior to the completion of this offering, we intend to accelerate the allocation of a portion of the shares to the ESOP, which will result in a non-recurring non-cash charge of approximately $50.0 million, based on the mid-point of the range set forth on the cover page of this prospectus. As a result, subsequent to the offering, the non-cash ESOP allocation expense will be substantially reduced. Non-cash charges relating specifically to our 401(k) and profit sharing were $6.8 million, $8.4 million and $9.7 million for the years ended December 31, 2006, 2007 and 2008, respectively, and were $4.8 million and $5.0 million for the six months ended June 30, 2008 and 2009, respectively.
 
In addition, the portion of the ESOP allocation expense related to the appreciation of the value of the shares in the ESOP above the value of those shares when the ESOP was first established is not tax deductible. Therefore, we believe the accelerated allocation will result in a reduction of approximately 1.2% to our effective tax rate in years subsequent to the completion of our initial public offering.
 
On January 1, 2005, we adopted FAS No. 123(R), Share-Based Payment, or FAS No. 123(R), using a prospective approach, which required us to record compensation expense for all awards granted after the date of adoption. Therefore, since January 1, 2005 the expense associated with the number of options granted has increased every year. For example, for the year ended December 31, 2005, we expensed the option grants that vested in 2005, but for the year ended December 31, 2006, we expensed the portion of the 2005 and 2006 option grants that vested in 2006. Since our options generally have a four year vesting term, our expense for the year ending 2009 and subsequent periods will consist of the vested components of the prior four years of option grants. See “— Critical Accounting Policies and Estimates — Stock Based Compensation.”
 
Public Company Expenses
 
Beginning in 2008, our selling, general and administrative costs increased as we prepared for this initial public offering. These costs were $6.5 million and $0.8 million for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively. Following the offering, we will incur additional selling,


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general and administrative expenses related to operating as a public company, such as increased legal and accounting expenses, the cost of an investor relations function, costs related to Section 404 of the Sarbanes-Oxley Act of 2002 and increased director and officer insurance premiums.
 
Upon the completion of this offering, we expect to grant up to 3,750,000 shares (on a post-split basis) of our Class A common stock to our directors, officers and employees in the form of stock options, performance shares, performance unit awards, restricted shares or restricted stock awards. Assuming that all of the performance measures are met, we expect the related expense to be approximately $1.6 million, $6.2 million, $6.2 million, $5.8 million, and $3.4 million for 2009, 2010, 2011, 2012, and 2013, respectively. See “Management — Executive Compensation — Verisk Analytics, Inc. 2009 Equity Incentive Plan.”
 
Trends Affecting Our Business
 
A portion of our revenues is related to changes in historical insurance premiums, therefore, our revenues could be positively or negatively affected by growth or declines in premiums for the lines of insurance for which we perform services. The pricing of these solutions is based on an individual customer’s premiums in a prior period, so the pricing is fixed at the inception of each calendar year. The impact of insurance premiums has a more significant impact on the Risk Assessment segment than the Decision Analytics segment. Since 2005, premium growth in the P&C insurance industry has slowed and we expect little or no growth for most insurance lines during 2009. A significant portion of our revenues are from insurance companies. Although business and new sales from these companies have generally remained strong, the current economic environment could negatively impact buying demand for our solutions. In addition, since 2007, the softening of the automobile insurance market negatively impacted our auto premium leakage identification solutions. We do not expect this trend to have a material impact on our liquidity or capital resources.
 
A portion of our revenues in the Decision Analytics segment are tied to the volume of applications for new mortgages or refinancing of existing mortgages. Turmoil in the mortgage market since 2007 has adversely affected revenue in this segment of our business. This trend began to reverse in late 2008 spurred by lower mortgage interest rates. As a result of the rise in foreclosures and early pay defaults, we have seen and expect to see in the future an increase in revenues from our solutions that help our customers focus on improved underwriting quality of mortgage loans. These solutions help to ensure the application data is accurate and identify and rapidly settle bad loans, which may have been originated based upon fraudulent information.
 
Recent events within the United States economy have resulted in further tightening in credit availability, which has resulted in higher interest rates for corporate borrowers. Due to recent market events, our liquidity and our ability to obtain financing may be negatively impacted if one of our lenders under our revolving credit facilities or another financial institution fails to meet its funding obligations. Borrowings under our long-term debt facilities are at fixed interest rates. While we expect future borrowings will be at higher interest rates which will translate into higher interest expense in the future, we do not expect this to have a material impact on our business in the near-term. We have been able to adequately secure credit arrangements for the financing of our business and have recently entered into a $300 million committed syndicated revolving credit facility with Bank of America, N.A., as administrative agent, on July 2, 2009, which matures on July 2, 2012. Interest is payable on borrowings under this credit facility at variable rates of interest based on LIBOR plus 2.50%. We will continue to explore financing alternatives in order to fund future growth opportunities.


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Results of Operations
 
Set forth below is our results of operations expressed as a percentage of revenues.
 
                                         
          Six Months
 
          Ended
 
    Year Ended December 31,     June 30,  
    2006     2007     2008     2008     2009  
Statement of income data:
                                       
Expenses:
                                       
Cost of revenues
    45.4 %     44.5 %     43.3 %     43.6 %     43.8 %
Selling, general and administrative
    13.7 %     13.4 %     14.7 %     13.5 %     14.3 %
Depreciation and amortization of fixed assets
    3.8 %     4.0 %     4.0 %     3.8 %     3.8 %
Amortization of intangible assets
    3.7 %     4.2 %     3.3 %     3.4 %     3.4 %
                                         
Total expenses
    66.7 %     66.1 %     65.2 %     64.2 %     65.2 %
                                         
Operating income
    33.3 %     33.9 %     34.8 %     35.8 %     34.8 %
Other income/(expense):
                                       
Interest and investment income/(loss)
    0.8 %     1.2 %     (0.0 )%     0.1 %     (0.1 )%
Interest expense
    (2.3 )%     (2.9 )%     (3.5 )%     (3.2 )%     (3.3 )%
                                         
Total other income/(expense)
    (1.4 )%     (1.7 )%     (3.5 )%     (3.2 )%     (3.4 )%
Income from continuing operations before income taxes
    31.9 %     32.2 %     31.2 %     32.6 %     31.4 %
Provision for income taxes
    (12.6 )%     (12.9 )%     (13.5 )%     (14.1 )%     (13.4 )%
                                         
Income from continuing operations
    19.3 %     19.3 %     17.7 %     18.5 %     18.0 %
Loss from discontinued operations, net of tax
    (0.3 )%     (0.6 )%     0.0 %     0.0 %     0.0 %
                                         
Net Income
    19.0 %     18.7 %     17.7 %     18.5 %     18.0 %
                                         
EBITDA
    40.8 %     42.1 %     42.0 %     42.9 %     41.9 %
 
Six Months Ended June 30, 2009 Compared to Six Months Ended June 30, 2008
 
Consolidated Results of Operations
 
Revenues
 
Revenues were $503.7 million for the six months ended June 30, 2009 compared to $437.7 million for the six months ended June 30, 2008, an increase of $66.0 million or 15.1%. An acquisition in the fourth quarter of 2008 and an acquisition in the first quarter of 2009 accounted for an increase of $16.0 million in revenues for the six months ended June 30, 2009. Excluding these acquisitions, revenues increased $50.0 million, which included an increase in our Risk Assessment segment of $9.5 million and an increase in our Decision Analytics segment of $40.5 million.
 
Cost of Revenues
 
Cost of revenues was $220.5 million for the six months ended June 30, 2009 compared to $190.7 million for the six months ended June 30, 2008, an increase of $29.8 million or 15.6%. The increase was primarily due to costs related to the newly acquired companies of $9.3 million and an increase in salaries and employee benefits costs of $14.9 million, which include annual salary increases, medical costs and pension cost. Pension cost represents $7.3 million of the benefits increase due to the effect of the global economic downturn on our pension investments in 2008. See “Critical Accounting Policies and Estimates, Pension and Postretirement.” Other increases include data and consultant costs of $6.2 million primarily in our Decision Analytics segment, and office maintenance fees of $0.9 million. These increases were partially offset by a decrease in other expenses of $1.5 million, which included travel and insurance costs. As a percentage of


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revenue, cost of revenues increased to 43.8% for the six months ended June 30, 2009 from 43.6% for the six months ended June 30, 2008.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $72.2 million for the six months ended June 30, 2009 compared to $59.0 million for the six months ended June 30, 2008, an increase of $13.2 million or 22.4%. The increase was primarily due to an increased salaries and employee benefits costs of $7.2 million, which include annual salary increases, medical costs, commission costs of $1.5 million, and pension cost of $1.8 million across a relatively constant employee headcount. Other increases were costs attributable to the newly acquired companies of $5.2 million and other general expenses of $1.7 million. This increase was partially offset by a decrease in legal costs of $0.9 million. As a percentage of revenue, selling, general and administrative expenses increased to 14.3% for the six months ended June 30, 2009 from 13.5% for the six months ended June 30, 2008.
 
Depreciation and Amortization of Fixed Assets
 
Depreciation and amortization of fixed assets were $18.9 million for the six months ended June 30, 2009 compared to $16.4 million for the six months ended June 30, 2008, an increase of $2.5 million or 15.2%. Excluding the impact of an acquisition in the fourth quarter 2008 and an acquisition in the first quarter of 2009, depreciation increased $1.8 million or 11.0%. Depreciation and amortization of fixed assets includes depreciation of furniture and equipment, software, computer hardware, and related equipment. The majority of the increase relates to software and hardware costs to support data capacity expansion and revenue growth. As a percentage of revenue, depreciation and amortization of fixed assets was 3.8% for both six-month periods ended June 30, 2008 and 2009.
 
Amortization of Intangible Assets
 
Amortization of intangible assets was $17.0 million for the six months ended June 30, 2009 compared to $14.9 million for the six months ended June 30, 2008, an increase of $2.1 million or 13.6%. The increase was primarily related to the amortization of the intangible assets associated with two new acquisitions in fourth quarter 2008 and first quarter 2009. As a percentage of revenue, amortization of intangible assets was 3.4% for both six-month periods ended June 30, 2008 and 2009.
 
Investment Income and Realized Gains/(Losses) on Securities, Net
 
Investment income and realized losses on securities, net was a loss of $(0.3) million for the six months ended June 30, 2009 compared to a gain of $0.3 million for the six months ended June 30, 2008, a decrease of ($0.6) million. Investment income for the first six months ended June 30, 2009 includes $0.1 million of investment income, offset by $0.4 million of other than temporary impairment of securities. Investment income for the six months ended June 30, 2008, consisted of $1.6 million of investment income, offset by a $1.3 realized loss on sale of securities. The decrease in investment income was primarily the result of the termination of the shareholder loan program in 2008. As a percentage of revenue, investment income and realized losses on securities, net, was (0.1%) and 0.1% for the six months ended June 30, 2009 and 2008, respectively.
 
Interest Expense
 
Interest expense was $16.7 million for the six months ended June 30, 2009 compared to $14.2 million for the six months ended June 30, 2008, an increase of $2.5 million or 17.7%. This increase is primarily due to greater debt outstanding of $689.1 million at June 30, 2009 as compared to $642.2 million at June 30, 2008. As a percentage of revenue interest expense increased to 3.3% for the six months ended June 30, 2009 from 3.2% for the six months ended June 30, 2008.


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Provision for Income Taxes
 
The provision for income taxes was $67.3 million for the six months ended June 30, 2009 compared to $61.8 million for the six months ended June 30, 2008, an increase of $5.5 million or 8.8%. The effective tax rate was 42.5% for the six months ended June 30, 2009 compared to 43.3% for the six months ended June 30, 2008. The 2009 rate is lower due to benefits associated with favorable state audit settlements in 2009 compared to 2008, as well as certain nondeductible losses incurred in the prior period for which tax benefits were not recognized. As a percentage of revenue, provision for income taxes decreased to 13.4% for the six months ended June 30, 2009 from 14.1% for the six months ended June 30, 2008.
 
EBITDA Margin
 
The EBITDA margin for our consolidated results was 41.9% for the six months ended June 30, 2009 compared to 42.9% for the six months ended June 30, 2008. Included within the decrease of our EBITDA margin for the six months ended June 30, 2009 are increased pension costs of $9.1 million, representing a 1.8% negative impact on our EBITDA margin.
 
Risk Assessment Results of Operations
 
Revenues
 
Revenues for our Risk Assessment segment were $262.9 million for the six months ended June 30, 2009 compared to $253.4 million for the six months ended June 30, 2008, an increase of $9.5 million or 3.8%. The increase in our industry-standard insurance programs primarily resulted from an increase in prices derived from continued enhancements to the content of our solutions and the addition of new customers. Our revenue by category for the periods presented is set forth below:
 
                         
    Six Months Ended
       
    June 30,     Percentage
 
    2008     2009     Change  
    (In thousands)        
 
Industry standard insurance programs
  $ 165,719     $ 172,193       3.9 %
Property-specific rating and underwriting information
    63,344       65,869       4.0 %
Statistical agency and data services
    13,820       14,135       2.3 %
Actuarial services
    10,473       10,676       1.9 %
 
Cost of Revenues
 
Cost of revenues for our Risk Assessment segment was $104.5 million for the six months ended June 30, 2009 compared to $103.1 million for the six months ended June 30, 2008, an increase of $1.4 million or 1.3%. The increase was primarily due to an increase in salaries and employee benefits costs of $4.3 million, primarily related to pension cost of $6.2 million, resulting from the global economic downturn experienced in 2008 offset by a decrease in salaries due to a slight reduction in headcount. There was also an increase in office maintenance fees of $0.3 million. This increase was partially offset by a decrease in data and consultant costs of $1.2 million and in other operating expenses of $2.1 million, which include decreases in travel and insurance cost. As a percentage of Risk Assessment revenue, cost of revenues decreased to 39.7% for the six months ended June 30, 2009 from 40.7% for the six months ended June 30, 2008.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for our Risk Assessment segment were $37.2 million for the six months ended June 30, 2009 compared to $36.7 million for the six months ended June 30, 2008, an increase of $0.5 million or 1.3%. The increase was primarily due to an increase in salaries and employee benefit costs of $2.7 million, which include annual salary increases, medical costs, commissions of $0.4 million, and pension cost of $1.4 million, across a relatively constant employee headcount. There was also an increase in other operating expenses of $0.2 million. These increases were partially offset by lower legal costs of $2.4 million primarily due to higher initial public offering related costs incurred in the six


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months ended June 30, 2008. As a percentage of Risk Assessment revenue, selling, general and administrative expenses decreased to 14.2% for the six months ended June 30, 2009 from 14.5% for the six months ended June 30, 2008.
 
EBITDA Margin
 
The EBITDA margin for our Risk Assessment segment was 46.1% for the six months ended June 30, 2009 compared to 44.8% for the six months ended June 30, 2008. Included within our EBITDA margin for the six months ended June 30, 2009 are increased pension costs of $7.6 million, representing a 2.9% negative impact on our EBITDA margin.
 
Decision Analytics Results of Operations
 
Revenues
 
Revenues for our Decision Analytics segment were $240.8 million for the six months ended June 30, 2009 compared to $184.3 million for the six months ended June 30, 2008, an increase of $56.5 million or 30.6%. Late in 2008 and in the first quarter 2009, we acquired two companies. These acquisitions accounted for $16.0 million of additional revenues for the six months ended June 30, 2009, all of which relates to our loss prediction category. Excluding the impact of these acquisitions, revenue increased $40.5 million for the six months ended June 30, 2009. Our fraud identification and detection solutions revenue increased $27.6 million primarily in our fraud detection and forensic audit services for the home mortgage and mortgage insurance industries as well as in response to the increased scrutiny and refinancing within the mortgage industry. Our loss quantification solution revenues increased $8.2 million as a result of new customer contracts and volume increases associated with natural disasters experienced in the United States. Increased revenue in our loss prediction solutions primarily resulted from our acquisitions and increased penetration of our existing customers. Our revenue by category for the periods presented is set forth below:
 
                         
    Six Months Ended
       
    June 30,     Percentage
 
    2008     2009     Change  
    (In thousands)        
 
Fraud identification and detection solutions
  $ 102,858     $ 130,475       26.8 %
Loss prediction solutions
    46,260       66,896       44.6 %
Loss quantification solutions
    35,216       43,423       23.3 %
 
Cost of Revenues
 
Cost of revenues for our Decision Analytics segment was $116.0 million for the six months ended June 30, 2009 compared to $87.5 million for the six months ended June 30, 2008, an increase of $28.5 million or 32.6%. The increase included $9.3 million in costs attributable to the newly acquired companies. Excluding the impact of these acquisitions, the cost of revenues increased $19.2 million, primarily due to an increase in salaries and employee benefits of $10.6 million, which includes annual salary increases, medical costs, equity compensation costs, and pension cost. This increase in salaries and benefits is related to a modest increase in employee headcount relative to the 26.8% revenue growth in our fraud identification and detection solutions and to an increase in pension cost of $1.1 million. Other increases include data and consultant costs of $7.4 million, office maintenance fees of $0.6 million, and an increase in other operating expenses of $0.6 million. As a percentage of Decision Analytics revenue, cost of revenues increased to 48.2% for the six months ended June 30, 2009 from 47.5% for the six months ended June 30, 2008.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $35.0 million for the six months ended June 30, 2009 compared to $22.3 million for the six months ended June 30, 2008, an increase of $12.7 million or 56.9%. The increase was due to costs attributable to the newly acquired companies of $5.2 million, an increase in salaries and employee benefits costs across a relatively constant employee headcount of


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$4.5 million, which include annual salary increases, medical claims costs, commission of $1.1 million, and pension cost of $0.4 million. Other increases include an increase in legal costs of $1.5 million and other general expenses of $1.5 million. As a percentage of Decision Analytics revenue, selling, general and administrative expenses increased to 14.5% for the six months ended June 30, 2009 from 12.1% for the six months ended June 30, 2008.
 
EBITDA Margin
 
The EBITDA margin for our Decision Analytics segment was 37.3% for the six months ended June 30, 2009 compared to 40.4% for the six months ended June 30, 2008. Included within the decrease of our EBITDA margin for the six months ended June 30, 2009 were the increased pension costs of $1.5 million, representing a 0.6% negative impact on our EBITDA margin.
 
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
 
Consolidated Results of Operations
 
Revenues
 
Revenues were $893.6 million for the year ended December 31, 2008 compared to $802.2 million for the year ended December 31, 2007, an increase of $91.4 million or 11.4%. The acquisitions in the latter part of 2007 and the two acquisitions in 2008 accounted for an increase of $38.6 million in revenues for the year ended December 31, 2008. Excluding these acquisitions, revenues increased $52.8 million, which included an increase in our Risk Assessment segment of $19.2 million and an increase in our Decision Analytics segment of $33.6 million.
 
Cost of Revenues
 
Cost of revenues was $386.9 million for the year ended December 31, 2008 compared to $357.2 million for the year ended December 31, 2007, an increase of $29.7 million or 8.3%. The increase was primarily due to costs attributable to the newly acquired companies of $25.4 million and an increase in salaries and employee benefits costs of $1.1 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount. Other increases include office maintenance fees of $2.8 million, software and data costs of $3.4 million and other operating expenses of $0.8 million. These increases were partially offset by losses on disposal of assets that were $0.5 million less in the current period as compared to the year ended December 31, 2007. In addition, acquisition contingent payments, which are treated as compensation when tied to continuing employment, were $3.3 million less in the current period as compared to the year ended December 31, 2007 due to a decrease in the amount of potential acquisition contingent payments in 2008 compared to 2007. As a percentage of revenue, cost of revenues decreased to 43.3% for the year ended December 31, 2008 from 44.5% for the year ended December 31, 2007.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $131.2 million for the year ended December 31, 2008 compared to $107.6 million for the year ended December 31, 2007, an increase of $23.6 million or 22.0%. The increase was primarily due to increased salaries and employee benefits costs of $13.5 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, an increase in legal costs of $7.8 million, primarily resulting from the preparation for our initial public offering, costs attributable to the newly acquired companies of $0.9 million, and other general expenses of $2.5 million. This increase was partially offset by lower advertising and marketing costs of $1.1 million. As a percentage of revenues, selling, general and administrative expenses increased to 14.7% for the year ended December 31, 2008 from 13.4% for the year ended December 31, 2007.


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Depreciation and Amortization of Fixed Assets
 
Depreciation and amortization of fixed assets were $35.3 million for the year ended December 31, 2008 compared to $31.7 million for the year ended December 31, 2007, an increase of $3.6 million or 11.3%. Depreciation and amortization of fixed assets includes depreciation of furniture and equipment, software, computer hardware, and related equipment. As a percentage of revenues, depreciation and amortization of fixed assets was 4.0% for both the years ended December 31, 2007 and 2008.
 
Amortization of Intangible Assets
 
Amortization of intangible assets was $29.6 million for the year ended December 31, 2008 compared to $33.9 million for the year ended December 31, 2007, a decrease of $4.3 million or 12.9%. The decrease is the result of certain intangible assets having been fully amortized in 2007, partially offset by the increased amortization of intangibles that resulted from our new acquisitions. We amortize intangible assets obtained through acquisitions over the periods that we expect to derive benefit from such assets. As a percentage of revenues, amortization of intangible assets decreased to 3.3% for the year ended December 31, 2008 from 4.2% for the year ended December 31, 2007.
 
Investment Income and Realized Gains/(Losses) on Securities, Net
 
Investment income and realized gains/(losses) on securities, net was $(0.3) million for the year ended December 31, 2008 compared to $9.3 million for the year ended December 31, 2007, a decrease of $9.6 million. Investment income and realized gains/(losses) on securities, net consists of interest income we receive from our cash and cash equivalents and stockholder loans, dividend income from our available-for-sale securities held with certain financial institutions as well as realized amounts associated with the sale of available-for-sale securities. The decrease primarily resulted from reduced interest income of $4.6 million coupled with the loss on sales of securities of $1.3 million and other than temporary impairment of securities of $1.2 million for the year ended December 31, 2008 as compared to a gain on our investment portfolio of $2.3 million for the period ended December 31, 2007. As a percentage of revenues, investment income and realized gains/(losses) on securities, net decreased to 0.0% for the year ended December 31, 2008 from 1.2% for the year ended December 31, 2007.
 
Interest Expense
 
Interest expense was $31.3 million for the year ended December 31, 2008 compared to $22.9 million for the year ended December 31, 2007, an increase of $8.4 million or 36.6%. This increase is primarily due to greater debt outstanding of $669.8 million at December 31, 2008 as compared to $438.3 million at December 31, 2007. As a percentage of revenue interest expense increased to 3.5% for the year ended December 31, 2008 from 2.9% for the year ended December 31, 2007.
 
Provision for Income Taxes
 
The provision for income taxes was $120.7 million for the year ended December 31, 2008 compared to $103.2 million for the year ended December 31, 2007, an increase of $17.5 million or 16.9%. The effective tax rate was 43.3% for the year ended December 31, 2008 compared to 40.0% for the year ended December 31, 2007. The 2008 rate is higher due to an increase in FIN 48 uncertain tax positions and certain initial public offering related costs that are not tax deductible. As a percentage of revenues, provision for income taxes increased to 13.5% for the year ended December 31, 2008 from 12.9% for the year ended December 31, 2007.
 
Loss from Discontinued Operations, Net of Tax
 
Loss from discontinued operations, net of tax was $4.6 million for the year ended December 31, 2007, resulting from costs of $2.9 million to support customer contracts in our claim consulting business that were terminated in 2007, and a goodwill impairment charge of $1.7 million. These costs were partially offset by a net tax benefit of $1.5 million. There was no loss from discontinued operations, net of tax in the year


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ended December 31, 2008. As a percentage of revenues, loss from discontinued operations, net of tax was 0.6% for the year ended December 31, 2007.
 
EBITDA Margin
 
The EBITDA margin for our consolidated results was 42.0% for the year ended December 31, 2008 compared to 42.1% for the year ended December 31, 2007. Included within the decrease in our EBITDA margin are costs of $6.5 million associated with the preparation for our initial public offering, representing a 0.7% negative impact in EBITDA margin.
 
Risk Assessment Results of Operations
 
Revenues
 
Revenues for our Risk Assessment segment were $504.4 million for the year ended December 31, 2008 compared to $485.2 million for the year ended December 31, 2007, an increase of $19.2 million or 4.0%. The increase was primarily due to an increase in the sales of our industry-standard insurance programs and actuarial services. The increase in our industry-standard insurance programs primarily resulted from an increase in prices derived from continued enhancements to the content of our solutions and the addition of new customers. These increases were partially offset by decreases within property-specific rating and underwriting information, particularly in rate making and policy administration solutions and sales of our auto premium leakage identification solutions, due to a softening in the auto insurance market. Our revenue by category for the periods presented is set forth below:
 
                         
    Year Ended
       
    December 31,     Percentage
 
    2007     2008     Change  
    (In thousands)        
 
Industry standard insurance programs
  $ 311,087     $ 329,858       6.0 %
Property-specific rating and underwriting information
    126,291       125,835       (0.4 )%
Statistical agency and data services
    27,282       27,451       0.6 %
Actuarial services
    20,500       21,247       3.6 %
 
Cost of Revenues
 
Cost of revenues for our Risk Assessment segment was $199.9 million for the year ended December 31, 2008 compared to $204.2 million for the year ended December 31, 2007, a decrease of $4.3 million or 2.1%. The decrease was primarily due to a decrease in salaries and employee benefits costs of $3.2 million, due to a temporary reallocation of resources to selling, general and administrative projects, and a decrease in other operating expenses of $1.3 million. This reallocation of resources is temporary and does not impact the headcount. In addition, there was a loss on disposal of assets of $1.3 million in the year ended December 31, 2007. The decrease was partially offset by an increase in office maintenance fees of $1.1 million and an increase in software and data costs of $0.4 million. As a percentage of Risk Assessment revenues, cost of revenues decreased to 39.6% for the year ended December 31, 2008 from 42.1% for the year ended December 31, 2007.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for our Risk Assessment segment were $81.8 million for the year ended December 31, 2008 compared to $68.2 million for the year ended December 31, 2007, an increase of $13.6 million or 20.0%. The increase was primarily due to an increase in salaries and employee benefit costs of $7.0 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, an increase in legal fees of $4.9 million partially associated with the preparation for our initial public offering, and other general expenses of $2.0 million. The increase was partially offset by lower advertising and marketing costs of $0.3 million. As a percentage of Risk


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Assessment revenues, selling, general and administrative expenses increased to 16.2% for the year ended December 31, 2008 from 14.1% for the year ended December 31, 2007.
 
EBITDA Margin
 
The EBITDA margin for our Risk Assessment segment was 44.2% for the year ended December 31, 2008 compared to 43.9% for the year ended December 31, 2007. The increase in EBITDA margin occurred despite the inclusion of costs totaling $5.8 million associated with the preparation for our initial public offering, representing a 1.1% negative impact in EBITDA margin.
 
Decision Analytics Results of Operations
 
Revenues
 
Revenues for our Decision Analytics segment were $389.2 million for the year ended December 31, 2008 compared to $317.0 million for the year ended December 31, 2007, an increase of $72.2 million or 22.7%. In 2007 and 2008, we acquired three companies and two companies, respectively. These acquisitions accounted for $3.9 million and $42.5 million of additional revenues for the years ended December 31, 2007 and 2008, respectively. The increase in revenue relating to the acquisitions was $38.6 million, of which $37.0 million relates to the fraud and detection solutions category and $1.6 million relates to the loss prediction category. Excluding the impact of these acquisitions, revenues increased $33.6 million for the year ended December 31, 2008. Our loss quantification revenues increased as a result of new customer contracts and volume increases associated with recent floods, hurricanes and wildfires experienced in the United States. Increased revenue in our loss prediction solutions resulted from sales to new customers as well as increased penetration of our existing customers. Excluding acquisitions, our fraud and detection solutions revenue increased $9.0 million due to an increase in subscription revenues resulting from enhancements to the content of our claim solutions, partially offset by a decrease of $4.8 million in revenues in our mortgage analytic solutions due to adverse market conditions in that industry. Our revenue by category for the periods presented is set forth below:
 
                         
    Year Ended
       
    December 31,     Percentage
 
    2007     2008     Change  
    (In thousands)        
 
Fraud identification and detection solutions
  $ 172,726     $ 213,994       23.9 %
Loss prediction solutions
    81,110       95,128       17.3 %
Loss quantification solutions
    63,199       80,037       26.6 %
 
Cost of Revenues
 
Cost of revenues for our Decision Analytics segment was $187.0 million for the year ended December 31, 2008 compared to $153.0 million for the year ended December 31, 2007, an increase of $34.0 million or 22.2%. The increase included $25.4 million in costs attributable to the newly acquired companies. Excluding the impact of these acquisitions, the cost of revenues increased $8.6 million, primarily due to an increase in salaries and employee benefits of $4.3 million across a relatively constant employee headcount, which includes annual salary increases, medical costs and equity compensation costs, an increase in software and data costs of $3.0 million, an increase in other operating expenses of $2.9 million and an increase in office maintenance costs of $1.7 million. These increases were partially offset by lower acquisition contingent payments of $3.3 million associated with acquisitions recorded in the comparable prior period. As a percentage of Decision Analytics revenues, cost of revenues decreased to 48.1% for the year ended December 31, 2008 from 48.3% for the year ended December 31, 2007.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $49.4 million for the year ended December 31, 2008 compared to $39.4 million for the year ended December 31, 2007, an increase of $10.0 million or


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25.5%. The increase was due to an increase in salaries and employee benefits costs of $6.5 million, which include annual salary increases, medical costs and long-term incentive plans across a relatively constant employee headcount, an increase in legal costs of $2.9 million of which $0.8 million relates to initial public offering costs, costs attributable to the newly acquired companies of $0.9 million, and other general expenses of $0.5 million. This increase was partially offset by lower advertising and marketing costs of $0.8 million. As a percentage of Decision Analytics revenues, selling, general and administrative expenses increased to 12.7% for the year ended December 31, 2008 from 12.4% for the year ended December 31, 2007.
 
EBITDA Margin
 
The EBITDA margin for our Decision Analytics segment was 39.2% for the year ended December 31, 2008 compared to 39.3% for the year ended December 31, 2007. Included within the decrease in our EBITDA margin are costs of $0.7 million associated with the preparation for our initial public offering, representing a 0.2% negative impact in EBITDA margin.
 
Year Ended December 31, 2007 Compared to Year Ended December 31, 2006
 
Consolidated Results of Operations
 
Revenues
 
Revenues were $802.2 million for the year ended December 31, 2007 compared to $730.1 million for the year ended December 31, 2006, an increase of $72.1 million or 9.9%. This increase was primarily due to the inclusion of Xactware, which was acquired in August 2006, for the full year, as well as several other acquisitions made during the latter part of 2006 and during 2007. Xactware contributed $63.2 million in revenues for the year ended December 31, 2007 compared to $22.2 million for the year ended December 31, 2006 and revenues from other acquisitions increased $6.5 million for the year ended December 31, 2007 compared to the year ended December 31, 2006. Excluding the impact of these acquisitions, revenues increased $24.6 million which was comprised of an increase of $12.5 million in our Risk Assessment segment and an increase of $12.0 million in our Decision Analytics segment.
 
Cost of Revenues
 
Cost of revenues was $357.2 million for the year ended December 31, 2007 compared to $331.8 million for the year ended December 31, 2006, an increase of $25.4 million or 7.7%. The increase was primarily due to $22.7 million in costs attributable to the inclusion of the full year results of our acquisitions in 2006 and the acquisitions in 2007. Excluding these acquisitions, our cost of revenues increased by $2.6 million partially due to an increase in salaries and benefits of $12.5 million resulting from growth in headcount and other operating expenses of $1.0 million. These increases were partially offset by a decrease in acquisition contingent payments tied to continuing employment of $8.7 million. As a percentage of revenues, cost of revenues decreased to 44.5% for the year ended December 31, 2007 from 45.4% for the year ended December 31, 2006.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $107.6 million for the year ended December 31, 2007 compared to $100.1 million for the year ended December 31, 2006, an increase of $7.5 million or 7.4%. The increase was due to $4.2 million in costs attributable to the inclusion of the results of our acquisitions in 2006 and 2007. Excluding these acquisitions, our selling, general and administrative costs increased by $3.3 million primarily as a result of an increase in salaries and benefits of $2.4 million, an increase in equity compensation costs of $1.1 million and an increase in financial system upgrade costs of $0.7 million and $0.6 million of advertising costs. These increases were partially offset by a $1.8 million decrease in sales commission expense resulting from a change in commission rates in 2007. As a percentage of revenue, selling, general and administrative expenses decreased to 13.4% from 13.7%.


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Depreciation and Amortization of Fixed Assets
 
Depreciation and amortization of fixed assets were $31.7 million for the year ended December 31, 2007 compared to $28.0 million for the year ended December 31, 2006, an increase of $3.7 million or 13.3%. This increase is primarily due to our continuing investment in developing new products and enhancements to existing products as well as the continued investment in our technology infrastructure to support and grow our revenues. As a percentage of revenue, depreciation and amortization of fixed assets increased to 4.0% from 3.8%.
 
Amortization of Intangible Assets
 
Amortization of intangibles assets was $33.9 million for the year ended December 31, 2007 compared to $26.9 million for the year ended December 31, 2006, an increase of $7.0 million or 26.3%. This increase is the result of having a full year of amortization in 2007 on the intangible assets related to the acquisition of Xactware in 2006, partially offset by the final amortization during 2007 of intangible assets related to other acquisitions.
 
Investment Income and Realized Gains (Losses) on Securities, Net
 
Investment income and realized gains (losses) on securities, net was $9.3 million for the year ended December 31, 2007 compared to $6.1 million for the year ended December 31, 2006, an increase of $3.2 million or 52.6%. This increase is primarily due to a $2.0 million gain on our investment portfolio as well as an increase of $1.0 million in interest income primarily earned on acquisition escrow deposits.
 
Interest Expense
 
Interest expense was $22.9 million for the year ended December 31, 2007 compared to $16.7 million for the year ended December 31, 2006, an increase of $6.2 million or 37.6%. This increase is primarily the result of an increase in the weighted average balance of debt outstanding as well as higher rates of interest on long-term borrowings.
 
Provision for Income Taxes
 
Provision for income taxes was $103.2 million for the year ended December 31, 2007 compared to $92.0 million for the year ended December 31, 2006, an increase of $11.2 million or 12.2%. The effective tax rate was 40.0% for the year ended December 31, 2007 compared to 39.5% for the year ended December 31, 2006, which included the favorable settlement of certain tax contingencies.
 
Loss from Discontinued Operations, Net of Tax
 
Loss from discontinued operations, net of tax was $4.6 million for the year ended December 31, 2007 compared to $1.8 million for the year ended December 31, 2006, an increase of $2.8 million or 154.2%, reflecting exit costs, net of tax, including $1.7 million in the impairment of goodwill, associated with the discontinuation of our claim consulting business.
 
Risk Assessment Results of Operations
 
Revenues
 
Revenues for our Risk Assessment segment were $485.2 million for the year ended December 31, 2007 compared to $472.6 million for the year ended December 31, 2006, an increase of $12.5 million or 2.7%. The increase was primarily due to an increase in the sales of our industry-standard insurance programs, which was partially offset by a decrease in the sales of our auto premium leakage identification solutions due to a softening in the auto insurance market. The increase in our industry-standard insurance programs primarily results from an increase in prices derived from continued enhancements to the content of our solutions and to a lesser extent, changes in our customer’s premium volumes. Increases from sales of additional lines of our services to existing customers are offset by lost revenue resulting from consolidation


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within the property and casualty insurance industry. Our revenue by category for the periods presented is set forth below:
 
                         
    Year Ended
   
    December 31,   Percentage
    2006   2007   Change
    (In thousands)    
 
Industry standard insurance programs
  $ 303,957     $ 311,087       2.3 %
Property-specific rating and underwriting information
    123,627       126,291       2.2 %
Statistical agency and data services
    25,793       27,282       5.8 %
Actuarial services
    19,257       20,500       6.5 %
 
Cost of Revenues
 
Cost of revenues for our Risk Assessment segment was $204.2 million for the year ended December 31, 2007 compared to $203.9 million for the year ended December 31, 2006, an increase of $0.3 million or 0.1%. The increase was primarily due to salary and benefit increases of $2.0 million and an increase in equity compensation costs of $2.3 million. These increases were offset by a decrease in outsourced temporary agency costs of $1.9 million, a decrease in software maintenance expenses of $1.2 million, and a decrease in acquisition contingent payments associated with acquisitions of $1.1 million. As a percentage of Risk Assessment revenues, cost of revenues decreased to 42.1% from 43.1%.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses for our Risk Assessment segment were $68.2 million for the year ended December 31, 2007 compared to $65.9 million for the year ended December 31, 2006, an increase of $2.3 million or 3.5%. The increase was primarily due to an increase in salary and benefits of $2.0 million, $0.6 million in costs to upgrade our financial systems and an increase in equity compensation costs of $0.9 million, partially offset by a decrease in commission expense of $1.4 million, resulting from a change in the commission plan in 2007. As a percentage of Risk Assessment revenues, selling, general and administrative expenses increased to 14.1% from 13.9%.
 
EBITDA Margin
 
The EBITDA margin for our Risk Assessment segment was 43.9% for the year ended December 31, 2007 compared to 42.9% for the year ended December 31, 2006.
 
Decision Analytics Results of Operations
 
Revenues
 
Revenues for our Decision Analytics segment were $317.0 million for the year ended December 31, 2007 compared to $257.5 million for the year ended December 31, 2006, an increase of $59.5 million or 23.1%. This increase reflects the inclusion of Xactware, our loss quantification solution, which was acquired in August 2006, for the full year, as well as several other acquisitions made during the latter part of 2006 and during 2007. Xactware contributed $63.2 million in revenues for the year ended December 31, 2007 compared to $22.2 million for the year ended December 31, 2006 and the other acquisitions contributed $6.5 million of additional 2007 revenue compared to the year ended December 31, 2006. Excluding the impact of these acquisitions, revenues increased $12.0 million primarily due to an increase in sales of our loss prediction solutions resulting from revenue from new customers as well as increased usage by our existing customers. Within our fraud identification and detection solutions, growth in our claims solutions and criminal record


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products were offset by decreased revenue of $10.6 million in our mortgage solutions due to adverse market conditions in that industry. Our revenue by category for the periods presented is set forth below:
 
                         
    Year Ended
       
    December 31,     Percentage
 
    2006     2007     Change  
    (In thousands)        
 
Fraud identification and detection solutions
  $ 168,189     $ 172,726       2.7 %
Loss prediction solutions
    67,129       81,110       20.8 %
Loss quantification solutions
    22,181       63,199       184.9 %
 
Cost of Revenues
 
Cost of revenues for our Decision Analytics segment was $153.0 million for the year ended December 31, 2007 compared to $127.9 million for the year ended December 31, 2006, an increase of $25.1 million or 19.6%. The increase was primarily due to $22.7 million in costs attributable to the inclusion of the full year results of our acquisitions in 2006 and the acquisitions completed in 2007. Excluding these acquisitions, our cost of revenues increased by $2.4 million, partially due to salary and benefit increases of $5.9 million, an increase in equity compensation costs of $1.8 million, an increase in outsourced temporary agency fees of $2.8 million and an increase of $0.7 million in leased software, partially offset by a decrease in acquisition contingent payments tied to continuing employment of $7.6 million and $1.4 million on disposal of assets. As a percentage of Decision Analytics revenues, cost of revenues decreased to 48.3% from 49.7%.
 
Selling, General and Administrative Expenses
 
Selling, general and administrative expenses were $39.4 million for our Decision Analytics segment for the year ended December 31, 2007 compared to $34.2 million for the year ended December 31, 2006, an increase of $5.2 million or 15.0%. The increase was primarily due to $4.2 million in costs attributable to the acquired businesses. Excluding these acquisitions, the increase in selling, general and administrative expenses was $1.0 million, primarily due to an increase of $0.4 million of salaries and benefits and $0.4 million in advertising costs. As a percentage of Decision Analytics revenues, selling, general and administrative expenses decreased to 12.4% from 13.3%.
 
EBITDA Margin
 
The EBITDA margin for our Decision Analytics segment was 39.3% for the year ended December 31, 2007 compared to 37.0% for the year ended December 31, 2006.


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Quarterly Results of Operations
 
The following table sets forth our quarterly unaudited consolidated statement of operations data for each of the eight quarters in the period ended June 30, 2009. In management’s opinion, the data has been prepared on the same basis as the audited consolidated financial statements included in this prospectus, and reflects all necessary adjustments for a fair presentation of this data. The results of historical periods are not necessarily indicative of the results of operations for a full year or any future period.
 
                                                                 
    For the Quarter Ended  
    September 30,     December 31,     March 31,     June 30,     September 30,     December 31,     March 31,     June 30,  
    2007     2008     2009  
    (In thousands)  
 
Statement of income data:
                                                               
Revenues:
                                                               
Risk Assessment revenues
  $ 120,997     $ 119,607     $ 127,039     $ 126,317     $ 125,186     $ 125,849     $ 129,566     $ 133,307  
Decision Analytics revenues
    78,726       82,877       88,579       95,755       99,205       105,620       116,185     $ 124,609  
                                                                 
Revenues
    199,723       202,484       215,618       222,072       224,391       231,469       245,751       257,916  
Expenses:
                                                               
Cost of Revenues
    85,343       95,346       93,310       97,368       98,307       97,912       107,523       112,978  
Selling, general and administrative
    26,989       24,987       28,674       30,354       32,265       39,946       33,320       38,905  
Depreciation and amortization of fixed assets
    7,799       8,448       7,907       8,517       9,054       9,839       9,195       9,718  
Amortization of intangible assets
    7,724       8,952       8,041       6,896       7,041       7,577       8,510       8,464  
                                                                 
Total expenses
    127,855       137,733       137,932       143,135       146,667       155,274       158,548       170,065  
                                                                 
Operating income
    71,868       64,751       77,686       78,937       77,724       76,195       87,203       87,851  
Other income/(expense):
                                                               
Investment income and realized gains/(losses) on securities, net
    1,725       2,620       (458 )     775       2       (646 )     (355 )     82  
Interest expense
    (5,578 )     (5,876 )     (6,326 )     (7,847 )     (8,393 )     (8,750 )     (8,154 )     (8,523 )
                                                                 
Total other expense, net
    (3,853 )     (3,256 )     (6,784 )     (7,072 )     (8,391 )     (9,396 )     (8,509 )     (8,441 )
                                                                 
Income from continuing operations before income taxes
    68,015       61,495       70,902       71,865       69,333       66,799       78,694       79,410  
Provision for income taxes
    (28,841 )     (21,911 )     (29,876 )     (31,942 )     (28,493 )     (30,360 )     (33,779 )     (33,471 )
                                                                 
Income from continuing operations
    39,174       39,584       41,026       39,923       40,840       36,439       44,915       45,939  
Loss from discontinued operations, net of tax
    (2,020 )     (1,267 )                                    
                                                                 
Net income
  $ 37,154     $ 38,317     $ 41,026     $ 39,923     $ 40,840     $ 36,439     $ 44,915     $ 45,939  
                                                                 
Other data:
                                                               
EBITDA:
                                                               
Risk Assessment EBITDA
  $ 55,199     $ 52,762     $ 58,122     $ 55,378     $ 53,813     $ 55,393     $ 60,599     $ 60,598  
Decision Analytics EBITDA
    32,192       29,389       35,512       38,972       40,006       38,218       44,309       45,435  
                                                                 
EBITDA
  $ 87,391     $ 82,151     $ 93,634     $ 94,350     $ 93,819     $ 93,611     $ 104,908     $ 106,033  
 
Liquidity and Capital Resources
 
As of December 31, 2008 and June 30, 2009, we had cash and cash equivalents and available-for sale securities of $38.3 million and $51.0 million, respectively. Subscriptions for our solutions are billed and generally paid in advance of rendering services either quarterly or in full upon commencement of the subscription period, which is usually for one year, and they are automatically renewed at the beginning of each calendar year. We have historically generated significant cash flows from operations. As a result of this factor, as well as the availability of funds under our committed credit facilities, we believe we will have sufficient cash to meet our working capital and capital expenditure needs, including acquisition contingent payments.
 
We have historically managed the business with a working capital deficit due to the fact that, as described above, we offer our solutions and services primarily through annual subscriptions or long-term contracts, which are generally prepaid quarterly or annually in advance of the services being rendered. When cash is received for prepayment of invoices, we record an asset (cash and cash equivalents) on our balance sheet with the offset recorded as a current liability (fees received in advance). This current liability is deferred revenue that does not require a direct cash outflow since our customers have prepaid and are obligated to purchase the services. In most businesses, growth in revenue typically leads to an increase in the accounts receivable balance


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causing a use of cash as a company grows. Unlike these businesses, our cash position is favorably affected by revenue growth, which results in a source of cash due to our customers prepaying for most of our services.
 
Our capital expenditures, which includes non-cash purchases of fixed assets, as a percentage of revenues for the years ended December 31, 2006, 2007 and 2008 were 3.5%, 4.1% and 3.7%, respectively, and for the six months ended June 30, 2008 and 2009 were 4.4% and 3.7%, respectively. We estimate our capital expenditures for the remainder of 2009 to be approximately $22 million, which primarily includes expenditures on our technology infrastructure and our continuing investments in developing and enhancing our solutions. Expenditures related to developing and enhancing our solutions are predominately related to internal use software and are capitalized in accordance with AICPA SOP No. 98-1, “Accounting for Costs of Computer Software Developed or Obtained for Internal Use.” The amounts capitalized in accordance with FAS No. 86 “Software to be Sold, Leased or Otherwise Marketed,” are not significant to the financial statements.
 
To provide liquidity to our stockholders, we have also historically used our cash for repurchases of our common stock from our stockholders. For the years ended December 31, 2006, 2007 and 2008 we repurchased or redeemed $128.0 million, $204.8 million and $392.6 million, respectively, of our common stock and for the six months ended June 30, 2008 and 2009 we repurchased or redeemed $237.1 million and $38.3 million, respectively, of our common stock. A substantial portion of the share redemption included in the totals above were completed pursuant to the terms of the Insurance Service Office, Inc. 1996 Incentive Plan, which will automatically terminate upon consummation of this offering. Therefore, we do not expect to continue our historical practice of using cash for common stock repurchases to provide liquidity to our stockholders.
 
Financing and Financing Capacity
 
We had total debt, excluding capital lease and other obligations, of $440.0 million, $425.0 million and $659.0 million at December 31, 2006, 2007 and 2008, respectively, and $679.0 million at June 30, 2009. Approximately $525.0 million of this debt at June 30, 2009 was held under long-term loan facilities drawn to finance our stock repurchases and acquisitions and the remaining $154.0 million was held pursuant to our revolving credit facilities.
 
As of June 30, 2009, all of our long-term loan facilities are uncommitted facilities and our short-term loan facilities are primarily committed facilities. As noted below, effective July 2, 2009, our revolving credit facility is committed.
 
We have long-term loan facilities under uncommitted master shelf agreements with Prudential Capital Group (“Prudential”), New York Life and Aviva Investors North America (“Aviva”) with available capacity at June 30, 2009 in the amount of $115.0 million, $15.0 million and $20.0 million, respectively. We can borrow under the Prudential facility until February 28, 2010, under the New York Life facility until March 16, 2010, and under the Aviva facility until December 10, 2011. Our notes mature over the next seven years. Individual borrowings are made at a fixed rate of interest and interest is payable quarterly. The weighted average rate of interest with respect to our outstanding long-term borrowings was 5.50% and 5.80% for the six months ended June 30, 2008 and 2009, respectively, and 4.75%, 5.23% and 5.64% for the years ended December 31, 2006, 2007 and 2008, respectively.
 
We have financed and expect to finance our short-term working capital needs and acquisition contingent payments through cash from operations and borrowings from a combination of our long term shelf facilities and short-term committed facilities, which are made at variable rates of interest based on LIBOR plus 0.80% to 0.95%. We had $114.0 million and $154.0 million in short-term borrowings outstanding as of December 31, 2008 and June 30, 2009, respectively. We had additional capacity of $106.0 million in short-term committed credit facilities at June 30, 2009.
 
On January 30, 2009, we entered into a $30.0 million revolving credit facility with Wachovia Bank, N.A. that matures on September 30, 2009. This facility is committed and interest is payable at maturity at a rate to be determined at the time of borrowing. Upon maturity of this facility we may convert all of or a principal portion not less than $1.0 million of the aggregate principal balance of revolving credit loans then


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outstanding into a one-year term loan. We did not have any amount outstanding under this facility as of June 30, 2009.
 
On April 27, 2009, we issued a senior promissory note under an uncommitted master shelf agreement with Aviva Investors North America, Inc. in the aggregate principal amount of $30.0 million due April 27, 2013. Interest is payable quarterly at a fixed rate of 6.46%.
 
On June 15, 2009, we repaid our $100.0 million Prudential Series D senior notes. In order to pay the Prudential Series D senior notes, we issued senior promissory notes under the uncommitted master shelf agreement with Prudential Capital Group in the aggregate principal amount of $50.0 million due June 15, 2016 and borrowed $50.0 million from our revolving credit facility with Bank of America. Interest is payable quarterly at a fixed rate of 6.85% on the senior promissory notes.
 
The uncommitted master shelf agreements and short-term loan facilities contain certain covenants that limit our ability to create liens, enter into sale and leaseback transactions and consolidate, merge or sell assets to another company. The uncommitted master shelf agreements also contain financial covenants that require us to maintain a fixed charge coverage of no less than 275% and a leverage ratio of no more than 300%. As of December 31, 2008, the Company was in violation of an affirmative covenant that requires the Company to notify each lender within 30 days of the time an entity meets the criteria of a material subsidiary. In February 2009, the Company obtained a waiver from each of the lenders and amended its uncommitted master shelf agreements and revolving credit facilities to have two of its 100% owned subsidiaries, Verisk Health, Inc. and Interthinx, Inc., fully and unconditionally and jointly and severally guarantee all of its obligations under the master shelf agreements and revolving credit facilities.
 
On July 2, 2009, we entered into a $300.0 million syndicated revolving credit facility with Bank of America, N.A., JPMorgan Chase Bank, N.A., Morgan Stanley Bank, N.A. and Wells Fargo Bank, N.A. that matures on July 2, 2012. Bank of America, N.A. and Morgan Stanley Bank, N.A. are affiliates of the respective underwriters of this offering. On August 21, 2009, PNC Bank, N.A., Sovereign Bank, RBS Citizens, N.A. and SunTrust Bank joined the syndicated revolving credit facility increasing the availability to $420.0 million. This facility is committed with a one time fee of approximately $4.5 million and ongoing unused facility fee of 0.375%. Interest is payable at maturity at a rate to be determined at the time of borrowing. The syndicated revolving credit facility replaces our previous revolving credit facilities with Bank of America, JPMorganChase, Morgan Stanley Bank, and Wachovia Bank, N.A. The credit facility contains certain customary financial and other covenants that, among other things, impose certain restrictions on indebtedness, liens, investments, and capital expenditures. These covenants also place restrictions on mergers, asset sales, sale and leaseback transactions, dividends, payments between us and our subsidiaries and certain transactions with affiliates. The financial covenants require that at the end of any fiscal quarter, we have a consolidated interest coverage ratio of at least 3.0 to 1.0 and that during any period of four fiscal quarters we maintain a consolidated funded debt leverage ratio of below 3.0 to 1.0.
 
On July 2, 2009, we borrowed $154.0 million through the syndicated revolving credit facility to repay $115.0 million and $39.0 million owed to Bank of America and JPMorganChase, respectively, as of June 30, 2009. Interest is payable on this borrowing at a weighted average interest rate of 2.91%. Interest is payable on borrowings under this credit facility at variable rates of interest based on LIBOR plus 2.50%.


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Cash Flow
 
The following table summarizes our cash flow data for the years ended December 31, 2006, 2007 and 2008 and for the six months ended June 30, 2008 and 2009.
 
                                         
          For the Six Months
 
    For the Years Ended December 31,     Ended June 30,  
    2006     2007     2008     2008     2009  
    (In thousands)              
 
Net cash provided by operating activities
  $ 223,499     $ 248,521     $ 247,906     $ 141,929     $ 184,529  
Net cash used in investing activities
  $ (243,452 )   $ (110,831 )   $ (130,466 )   $ (98,402 )   $ (152,683 )
Net cash provided by/(used in) financing activities
  $ 75,907     $ (212,591 )   $ (107,376 )   $ (16,759 )   $ (19,157 )
 
Operating Activities
 
Net cash provided by operating activities increased to $184.5 million for the six months ended June 30, 2009 from $141.9 million for the six months ended June 30, 2008. The increase in net cash provided by operating activities was principally due to an increase in cash receipts of approximately $62.0 million and a decrease in salary and employee related payments of $10.2 million due to an additional pay-cycle that occurred during the six months ended June 30, 2008. Our payroll is processed on a bi-weekly basis thereby requiring an additional pay-cycle once every ten years. This increase was partially offset by an increase in operating expense payments of $14.8 million, an increase in tax payments of $5.3 million and an increase in interest payments of $3.9 million during the six months ended June 30, 2009 compared to the six months ended June 30, 2008.
 
Net cash provided by operating activities decreased to $247.9 million for the year ended December 31, 2008 from $248.5 million for the year ended December 31, 2007. The decrease in net cash provided by operating activities was principally due to an additional pay-cycle of $10.2 million that occurred in 2008. In addition, we had a $5.0 million minimum required funding to our pension plan and one-time payments associated with the preparation for our initial public offering. This decrease was mitigated by growth in net income of $7.9 million and decreased payments associated with acquisition related liabilities of $11.5 million. Net cash provided by operating activities increased to $248.5 million for the year ended December 31, 2007 from $223.5 million for the year ended December 31, 2006. The increase in net cash provided by operating activities from 2006 to 2007 of $25.0 million was principally due to growth in net income and improved accounts receivable collections, partially offset by reduced growth in our cash received in advance from our customers.
 
Investing Activities
 
Net cash used in investing activities was $152.7 million for the six months ended June 30, 2009 compared to $98.4 million for the six months ended June 30, 2008. The increase in net cash used in investing activities was principally due to the acquisition of D2Hawkeye for $51.6 million, and increased escrow funding associated with acquisitions of $3.7 million. In addition, net proceeds from sales and maturities of available-for-sale securities declined by $20.8 million during the six months ended June 30, 2009 compared to the six months ended June 30, 2008. These increases in net cash used in investing activities were offset by a $20.0 million decrease in payment of acquisition related liabilities during the six months ended June 30, 2009 compared to the six months ended June 30, 2008.
 
Net cash used in investing activities was $130.5 million for the year ended December 31, 2008 and $110.8 million for the year ended December 31, 2007. The increase in net cash used in investing activities was principally due to the payment of acquisition related liabilities of $98.1 million, resulting from achievement of post-acquisition performance targets, and the purchase of cost-method investments of $5.8 million. These increases are partially offset by decreases in purchases of available-for-sale securities of approximately $43.7 million, cash paid for acquisitions of $31.7 million and cash inflows related to the termination of the stockholder loan program of $3.9 million. Net cash used by investing activities was $110.8 million for the year ended December 31, 2007 and $243.5 million for the year ended December 31,


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2006. The decrease in net cash used by investing activities from 2007 to 2006 was principally due to the acquisition of Xactware during August 2006.
 
Financing Activities
 
Net cash used in financing activities was $19.2 million for the six months ended June 30, 2009 and $16.8 million for the six months ended June 30, 2008. Net cash used in financing activities for the six months ended June 30, 2009 included $38.3 million for redemptions of common stock, an increase in total debt of $17.3 million and excess tax benefits from exercised stock options of $0.7 million. Net cash used in financing activities for the six months ended June 30, 2008 included $237.1 million for redemptions of common stock, an increase in total debt of $202.4 million and excess tax benefits from exercised stock options of $17.0 million.
 
Net cash used in financing activities was $107.4 million for the year ended December 31, 2008 and $212.6 million for the year ended December 31, 2007. The decrease in net cash used in financing activities was principally due to an increase in proceeds from the issuance of long-term debt and short-term debt of $65.0 million and $84.0 million, respectively, proceeds from the repayment of exercise price loans of $29.5 million and a decrease in the repayment of short-term debt of $100.7 million. These increases were partially offset by additional repurchases of common stock of $187.8 million compared to 2007. Net cash used in financing activities was $212.6 million for the year ended December 31, 2007 and net cash provided by financing activities was $75.9 million for the year ended December 31, 2006. The change in net cash provided by financing activities from 2007 to 2006 was principally due to the repurchases of common stock and the repayment of our short term debt.
 
Contractual Obligations
 
The following table summarizes our contractual obligations and commercial commitments at December 31, 2008, and the future periods in which such obligations are expected to be settled in cash:
 
                                         
    Payments Due by Period  
          Less than
                More than
 
    Total     1 Year     1-3 Years     3-5 Years     5 Years  
    (In thousands)  
 
Contractual obligations
                                       
Long-term debt(1)
  $ 675,637     $ 128,890     $ 175,279     $ 186,189     $ 185,279  
Capital lease obligations
    10,162       5,315       4,800       47        
Operating leases
    199,662       20,554       39,714       36,174       103,220  
Earnout and contingent payment(2)
    82,700       82,700                    
Pension and postretirement(3)
    215,221       11,059       79,773       70,206       54,183  
Other long-term liabilities(4)
    12,914       377       1,106       433       10,998  
                                         
Total(5)
  $ 1,196,296     $ 248,895     $ 300,672     $ 293,049     $ 353,680  
                                         
 
 
(1) As of June 30, 2009, our long-term debt due in less than 1 year has decreased approximately $100 million primarily due to the repayment of $100.0 million Prudential Series D senior notes. Our debt due in 3-5 years and more than 5 years periods increased by approximately $39.0 million and $58.0 million, respectively, due to the issuance of $30.0 million Aviva Series A senior notes, and $50.0 million Prudential Series J senior notes, respectively.
 
(2) As of June 30, 2009, we have settled all acquisition contingent payments.
 
(3) Our funding policy is to contribute an amount at least equal to the minimum legal funding requirement.
 
(4) Other long-term liabilities shown in the table above consists of our ESOP contributions and our employee-related deferred compensation plan. We also have a deferred compensation plan for our Board of


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Directors; however, based on past performance and the uncertainty of the dollar amounts to be paid, if any, we have excluded such amounts from the above table.
 
(5) Unrecognized tax benefits of approximately $31.7 million have been recorded as liabilities in accordance with FIN 48, which have been omitted from the table above, and we are uncertain as to if or when such amounts may be settled, with the exception of those amounts subject to a statute of limitation. Related to the unrecognized tax benefits, we have also recorded a liability for potential penalties and interest of $8.1 million.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.
 
Critical Accounting Policies and Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and judgments that affect reported amounts of assets, liabilities, revenue and expenses, and disclosure of contingent assets and liabilities. Management considers the policies discussed below to be critical to understanding our financial statements because their application places the most significant demands on management’s judgment, and requires management to make estimates about the effect of matters that are inherently uncertain. Actual results may differ from those estimates.
 
Revenue Recognition
 
The Company’s revenues are primarily derived from sales of services and revenue is recognized as services are preformed and information is delivered to our customers. Revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, fees and/or price are fixed or determinable and collectability is reasonably assured. Revenues for subscription services are recognized ratably over the subscription term, usually one year. Revenues from transaction-based fees are recognized as information is delivered to customers, assuming all other revenue recognition criteria are met.
 
The Company also has term based software licenses where the only remaining undelivered element is post-contract customer support or PCS, including unspecified upgrade rights on a when and if available basis. The Company recognizes revenue for these licenses ratably over the duration of the license term. The Company also provides hosting or software solutions that provide continuous access to information and include PCS and recognizes revenue ratably over the duration of the license term. In addition, the determination of certain of our services revenues requires the use of estimates, principally related to transaction volumes in instances where these volumes are reported to us by our clients on a monthly basis in arrears. In these instances, we estimate transaction volumes based on average actual volumes reported by our customers in the past. Differences between our estimates and actual final volumes reported are recorded in the period in which actual volumes are reported. We have not experienced significant variances between our estimates of these services revenues reported to us by our customers and actual reported volumes in the past.
 
We invoice our customers in annual, quarterly, or monthly installments. Amounts billed and collected in advance are recorded as fees received in advance on the balance sheet and are recognized as the services are performed and revenue recognition criteria are met.
 
Stock-Based Compensation
 
On January 1, 2005, we adopted FAS No.  123(R) using a prospective approach, which required us to record compensation expense for all awards granted after the date of adoption. The following table illustrates the amount of compensation expense resulting from the implementation of FAS No.  123(R) using the


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prospective approach for the years ended December 31, 2006, 2007, 2008 and the six months ended June 30, 2008 and 2009.
 
                                         
          For the Six
 
    For the Year Ended
    Months Ended
 
    December 31     June 30  
    2006     2007     2008     2008     2009  
    (In thousands)              
 
2005 grants
  $ 2,661     $ 2,424     $ 2,209     $ 1,158     $ 724  
2006 grants
    3,487       2,512       1,870       1,171       780  
2007 grants
          3,308       2,561       1,313       757  
2008 grants
                3,241       979       1,647  
2009 grants
                            1,607  
                                         
Total stock-based compensation
  $ 6,148     $ 8,244     $ 9,881     $ 4,621     $ 5,515  
                                         
 
According to FAS No. 123(R) we only use the prospective approach for the prior four years of grants, each of which has a four year vesting term, therefore our 2009 financial statements will reflect compensation expenses relating to grants primarily from 2006 to 2009.
 
The fair value of equity awards is measured on the date of grant using a Black-Scholes option-pricing model, which requires the use of several estimates, including expected term, expected risk-free interest rate, expected volatility and expected dividend yield.
 
Under FAS No. 123(R), stock-based compensation cost is measured at the grant date, based on the fair value of the awards granted, and is recognized as expense over the requisite service period. Option grants are expensed ratably over the four-year vesting period. We follow the substantive vesting period approach for awards granted after the adoption of FAS No. 123(R), which requires that stock-based compensation expense be recognized over the period from the date of grant to the date when the award is no longer contingent on the employee providing additional service.
 
We estimate expected forfeitures of equity awards at the date of grant and recognize compensation expense only for those awards expected to vest. The forfeiture assumption is ultimately adjusted to the actual forfeiture rate.
 
The fair value of the common stock underlying the stock-based compensation is determined quarterly on or about the final day of the quarter. The valuation methodology is based on a variety of qualitative and quantitative factors including the nature of the business and history of the enterprise, the economic outlook in general, the condition of the specific industries in which we operate, the financial condition of the business, our ability to generate free cash flow, and goodwill or other intangible asset value.
 
The fair value of our common stock is determined using generally accepted valuation methodologies, including the use of the guideline company method. This determination of fair market value employs both a comparable company analysis, which examines the valuation multiples of public companies deemed comparable, in whole or in part, to us and a discounted cash flow analysis that determines a present value of the projected future cash flows of the business. The comparable companies are comprised of a combination of public companies in the financial services information and technology businesses. These methodologies have been consistently applied since 1997. We regularly assess the underlying assumptions used in the valuation methodologies, including the comparable companies to be used in the analysis, the future forecasts of revenue and earnings, and the impact of market conditions on factors such as the weighted average cost of capital. These assumptions are reviewed quarterly, with a more comprehensive evaluation performed annually. For the comparable company analysis, the share price and financial performance of these comparables are updated quarterly based on the most recent public information. Our stock price is also impacted by the number of shares outstanding. As the number of shares outstanding has declined over time, our share price has increased. The determination of the fair value of our common stock requires us to make judgments that are complex and inherently subjective. If different assumptions are used in future periods, stock-based compensation expense could be materially impacted in the future.


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As of December 31, 2008, our share price declined as compared to the prior year. This decline was primarily due to the extreme downturn in equity markets adversely impacting the valuation multiples of our comparable companies. The effect of the market downturn was partially offset by our solid revenue growth and productivity improvements that resulted in enhanced earnings. As of June 30, 2009, our share price increased primarily due to our strong overall financial performance and the improvement in the equity markets.
 
Goodwill and Intangibles
 
Goodwill represents the excess of acquisition costs over the fair value of tangible net assets and identifiable intangible assets of the businesses acquired. Goodwill and intangible assets deemed to have indefinite lives are not amortized. Intangible assets determined to have definite lives are amortized over their useful lives. Goodwill and intangible assets with indefinite lives are subject to impairment testing annually as of June 30, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable, using the guidance and criteria described in FAS No. 142, “Goodwill and Other Intangible Assets.” This testing compares carrying values to fair values and, when appropriate, the carrying value of these assets is reduced to fair value. For the year ended December 31, 2007, we recorded an impairment charge of $1.7 million included in loss from discontinued operations, net of tax in the consolidated statements of operations. During fiscal year 2008, we performed an impairment test as of June 30, 2008 and confirmed that no impairment charge was necessary. Due to several factors, including the current downturn in the equity markets and the resulting decline of our share price at December 31, 2008, and the anticipation of our public offering, we performed an additional impairment test as of December 31, 2008 and confirmed that goodwill was not impaired.
 
As of June 30, 2009, we had goodwill and net intangible assets of $606.8 million, which represents 60.1% of our total assets. We completed the required annual impairment test as of June 30, 2009, which resulted in no impairment of goodwill. There are many assumptions and estimates used that directly impact the results of impairment testing, including an estimate of future expected revenues, earnings and cash flows, useful lives and discount rates applied to such expected cash flows in order to estimate fair value. We have the ability to influence the outcome and ultimate results based on the assumptions and estimates we choose for determining the fair value of our reporting units. To mitigate undue influence, we set criteria and benchmarks that are reviewed and approved by various levels of management and reviewed by other independent parties. The determination of whether or not goodwill or indefinite-lived acquired intangible assets have become impaired involves a significant level of judgment in the assumptions and estimates underlying the approach used to determine the value of our reporting units. Changes in our strategy or market conditions could significantly impact these judgments and require adjustments to recorded amounts of intangible assets and goodwill.
 
Pension and Postretirement
 
In September 2006, the FASB issued FAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans.” FAS No. 158 requires that employers recognize on a prospective basis the funded status of their defined benefit pension and other postretirement benefit plans on their consolidated balance sheets and recognize as a component of other comprehensive income (loss), net of tax, the gains or losses and prior service costs or credits that arise during the period but are not recognized as components of net periodic benefit cost. Additional minimum pension liabilities and related intangible assets are also derecognized upon adoption of the new standard. We adopted FAS No. 158 as of December 31, 2006.
 
Certain assumptions are used in the determination of our annual net period benefit cost and the disclosure of the funded status of these plans. The principal assumptions concern the discount rate used to measure the projected benefit obligation, the expected return on plan assets and the expected rate of future compensation increases. We revise these assumptions based on an annual evaluation of long-term trends and market conditions that may have an impact on the cost of providing retirement benefits.
 
In determining the discount rate, we utilize quoted rates from long-term bond indices, and changes in long-term bond rates over the past year, cash flow models and other data sources we consider reasonable based upon the profile of the remaining service life of eligible employees. As part of our evaluation, we calculate the approximate average yields on securities that were selected to match our separate projected cash flows for both the pension and postretirement plans. Our separate benefit plan cash flows are input into


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actuarial models that include data for corporate bonds rated AA or better at the measurement date. The output from the actuarial models are assessed against the prior year’s discount rate and quoted rates for long-term bond indices. For our pension plan at December 31, 2008, we determined this rate to be 6.0%, a decrease of 0.25% from the 6.25% rate used at December 31, 2007. Our postretirement rate is consistent with our pension plan rate at December 31, 2008.
 
The expected return on plan assets is determined by taking into consideration our analysis of our actual historical investment returns to a broader long-term forecast adjusted based on our target investment allocation, and the current economic environment. Our investment guidelines target an investment portfolio allocation of 40% debt securities and 60% equity securities. As of December 31, 2008, the plan assets were allocated 46% debt, 51% equity securities, and 3% to other investments. We have used our target investment allocation to derive the expected return as we believe this allocation will be retained on an ongoing basis that will commensurate with the projected cash flows of the plan. The expected return for each investment category within our target investment allocation is developed using average historical rates of return for each targeted investment category, considering the projected cash flow of the pension plan. The difference between this expected return and the actual return on plan assets is generally deferred and recognized over subsequent periods through future net periodic benefit costs. During 2008, the market values of these investments declined in conjunction with the global economic downturn. Although the global economic downturn had a significant effect on the fair value of the plan assets at December 31, 2008, we believe that the use of the average historical rates of returns is consistent with the timing and amounts of expected contributions to the plans and benefit payments to plan participants. This decline in market value is the principal reason that net periodic benefit pension cost for the six months ended June 30, 2009 is $10.0 million as compared to $0.9 million for the six months ended June 30, 2008, an increase of $9.1 million. We expect this increase in net periodic benefit pension cost to continue in the remaining quarters of 2009 and also that we will have significantly greater funding obligations in 2010 and thereafter until the market recovers. We believe these considerations provide the basis for reasonable assumptions with respect to the expected long-term rate of return on plan assets.
 
The rate of compensation increase is based on our long-term plans for such increases. The measurement date used to determine the benefit obligation and plan assets is December 31. The future benefit payments for the postretirement plan are net of the federal Medical subsidy.
 
A one percent change in discount rate, future rate of return on plan assets and the rate of future compensation would have the following effects:
 
                                 
    1% Decrease     1% Increase  
          Projected Benefit
          Projected Benefit
 
    Benefit Cost     Obligation     Benefit Cost     Obligation  
    (In thousands)  
 
Discount rate
  $ 256     $ 41,123     $ 375     $ (34,712 )
Expected return on asset
    3,326             (3,326 )      
Rate of compensation
    (321 )     (2,217 )     340       2,306  
 
A one percent change in assumed healthcare cost trend rates would have the following effects:
 
                 
    1% Decrease     1% Increase  
    (In thousands)  
 
Effect on total of service and interest cost components
  $ (63 )   $ 59  
Effect on the healthcare component of the accumulated postretirement benefit obligation
  $ (86 )   $ 24  
 
Income Taxes
 
In projecting future taxable income, we develop assumptions including the amount of future state, federal and foreign pretax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates we use to manage the


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underlying businesses. The calculation of our tax liabilities also involves dealing with uncertainties in the application and evolution of complex tax laws and regulations in other jurisdictions.
 
On January 1, 2007, we adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109, or FIN 48. FIN 48 addresses the determination of whether tax benefits claimed or expected to be claimed on a tax return should be recorded in the financial statements. Under FIN 48, we may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained upon examination by the taxing authorities, based on the technical merits of the position. As a result of the implementation of FIN 48, we recognized an increase in the liability for unrecognized tax benefits of approximately $10.3 million, which was accounted for as an increase to the January 1, 2007 balance of accumulated deficit.
 
We recognize tax liabilities in accordance with FIN 48 and we adjust these liabilities when our judgment changes as a result of the evaluation of new information not previously available. Due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which they are determined. If the tax liabilities relate to tax uncertainties existing at the date of the acquisition of a business, the adjustment of such tax liabilities will result in an adjustment to the goodwill recorded at the date of acquisition. For any in-process acquisitions subject to FAS No. 141(R), we will expense all tax liabilities related to tax uncertainties.
 
As of December 31, 2008 we have federal and state income tax net operating loss carryforwards of $88.2 million, which will expire at various dates from 2009 through 2028. Such net operating loss carryforwards expire as follows:
 
         
2009 - 2016
  $ 56.8 million  
2017 - 2021
    0.6 million  
2022 - 2028
    30.8 million  
         
    $ 88.2 million  
         
 
The significant majority of the state net operating loss carryforwards were generated by a subsidiary that employs our internal staff as a result of favorable tax deductions from the exercise of employee stock options for the years ended December 31, 2005, 2006 and 2007. This subsidiary’s state net operating loss carryforwards will not be utilized unless the subsidiary is profitable prior to their respective expiration dates.
 
We estimate unrecognized tax positions of $2.8 million that may be recognized by June 30, 2010, due to expiration of statutes of limitations and resolution of audits with taxing authorities, net of additional uncertain tax positions.
 
Recent Accounting Pronouncements
 
For a discussion of additional recent accounting pronouncements, refer to note 2(p) to the audited consolidated financial statements and note 2 to the unaudited condensed consolidated financial statements included elsewhere in this prospectus.
 
Qualitative and Quantitative Disclosures about Market Risk
 
Interest Rate Risk
 
We are exposed to market risk from fluctuations in interest rates. At June 30, 2009 we had borrowings outstanding under our revolving credit facilities of $154.0 million, which bear interest at variable rates based on LIBOR plus 0.80% to 0.95%. A change in interest rates on this variable rate debt impacts our pre-tax income and cash flows, but does not impact the fair value of the instruments. Based on our overall interest rate exposure at June 30, 2009, a one percent change in interest rates would result in a change in annual pretax interest expense of approximately $1.5 million based on our current level of borrowings.


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BUSINESS
 
Company Overview
 
We enable risk-bearing businesses to better understand and manage their risks. We provide value to our customers by supplying proprietary data that, combined with our analytic methods, creates embedded decision support solutions. We are the largest aggregator and provider of detailed actuarial and underwriting data pertaining to U.S. property and casualty, or P&C, insurance risks. We offer solutions for detecting fraud in the U.S. P&C insurance, healthcare and mortgage industries and sophisticated methods to predict and quantify loss in diverse contexts ranging from natural catastrophes to health insurance.
 
Our customers use our solutions to make better risk decisions with greater efficiency and discipline. We refer to these products and services as ‘solutions’ due to the integration among our services and the flexibility that enables our customers to purchase components or the comprehensive package. These ‘solutions’ take various forms, including data, statistical models or tailored analytics, all designed to allow our clients to make more logical decisions. We believe our solutions for analyzing risk positively impact our customers’ revenues and help them better manage their costs. In 2008, our U.S. customers included all of the top 100 P&C insurance providers, four of the 10 largest Blue Cross and Blue Shield plans, four of the six leading mortgage insurers, 14 of the top 20 mortgage lenders and the 10 largest global reinsurers. We believe that our commitment to our customers and the embedded nature of our solutions serve to strengthen and extend our relationships. For example, approximately 97% of our top 100 customers in 2008, as ranked by revenue, have been our customers for each of the last five years. Further, from 2004 to 2008, revenues generated from these top 100 customers grew at a compound annual growth rate, or CAGR, of 12%.
 
We help those businesses address what we believe are the four primary decision making processes essential for managing risk as set forth below in the Verisk Risk Analysis Framework:
 
The Verisk Risk Analysis Framework
 
RISK ANALYSIS FRAMEWORK
 
These four processes correspond to various functional areas inside our customers’ operations:
 
  •      our loss predictions are typically used by P&C insurance and healthcare actuaries, advanced analytics groups and loss control groups to help drive their own assessments of future losses;
 
  •      our risk selection and pricing solutions are typically used by underwriters as they manage their books of business;
 
  •      our fraud detection and prevention tools are used by P&C insurance, healthcare and mortgage underwriters to root out fraud prospectively and by claims departments to speed claims and find fraud retroactively; and
 
  •      our tools to quantify loss are primarily used by claims departments, independent adjustors and contractors.
 
We add value by linking our solutions across these four key processes; for example, we use the same modeling methods to support the pricing of homeowner’s insurance policies and to quantify the actual losses when damage occurs to insured homes.
 
We offer our solutions and services primarily through annual subscriptions or long-term agreements, which are typically pre-paid and represented approximately 76% of our revenue in 2008. Our subscription-based revenue model, in combination with high renewal rates, results in large and predictable cash flows. For the year ended December 31, 2008 and the six months ended June 30, 2009, we had revenue of $894 million and $504 million, respectively, and net income of $158 million and $91 million, respectively. For the five year


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period ended December 31, 2008, our revenues and net income have grown at a CAGR of 13.0% and 12.4%, respectively.
 
We organize our business in two segments: Risk Assessment and Decision Analytics.
 
Risk Assessment:  We are the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our databases include cleansed and standardized records describing premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants and fire suppression capabilities of municipalities. Our largest P&C insurance database, containing information on every transaction associated with a policy, from inception to information on losses, includes over 14 billion records, and, in each of the past three years, we updated the database with over 2 billion validated new records to improve the timeliness, quality and accuracy of our data and actuarial analysis. We use our data for example to create policy language and proprietary risk classifications that are industry-standard and to generate prospective loss cost estimates used to price insurance policies.
 
As an example of how customers use our Risk Assessment services, P&C insurers use our Specific Property Information suite, or SPI Plus, to underwrite and price commercial property risks. SPI Plus is built on a proprietary database of approximately 2.7 million buildings and more than 5.4 million individual businesses occupying those buildings. We maintain information about each building’s construction, occupancy, protective features (e.g., sprinkler systems) and exposure to hazards — collectively known as COPE data — all of which is critical to our customers’ decision making processes. SPI Plus provides detailed narratives regarding hazards of construction and occupancy and unique building-specific analytics that assess the adequacy of sprinkler systems, probable maximum loss due to fire and the overall hazard level in relation to similar buildings. SPI Plus also includes our assessments of municipal fire suppression capability and building code enforcement, and a building’s exposure to additional perils such as wind, crime and flood damage. In addition to underwriting and pricing decisions, our customers use this product for loss cost estimates and to encourage property owners to reduce hazards and employ protection features, such as automatic fire-detection, fire-suppression systems, portable fire extinguishers, standpipe systems and watchman services. Customers receive our data and analytics via the internet. Typically, our loss cost estimates will be automatically entered into an insurer’s policy administration system for rating of the insurance policy, while the COPE data and narrative about the building will be accessed as the underwriter determines whether or not to offer coverage for the building.
 
For the year ended December 31, 2008 and the six months ended June 30, 2009, our Risk Assessment segment produced revenue of $504 million and $263 million, representing 56% and 52% of our total revenue, respectively, and EBITDA of $223 million and $121 million, representing 59% and 57% of our total EBITDA, respectively. This segment’s revenue and EBITDA have a CAGR of 5.7% and 7.6%, respectively, for the five-year period ended December 31, 2008.
 
Decision Analytics:  We provide solutions in each of the four processes of the Verisk Risk Analysis Framework by combining algorithms and analytic methods, which incorporate our proprietary data. Other unique data sets include over 600 million P&C insurance claims, historical natural catastrophe data covering more than 50 countries, data from more than 13 million applications for mortgage loans and over 312 million U.S. criminal records. Customers integrate our solutions into their models, formulas or underwriting criteria to predict potential loss events, ranging from hurricanes and earthquakes to unanticipated healthcare claims. We are a leading developer of catastrophe and extreme event models and offer solutions covering natural and man-made risks, including acts of terrorism. We also develop solutions that allow customers to quantify costs after loss events occur. For example, in 2008 we provided repair cost estimates for more than 60% of the personal property claims paid in the United States based on total amount of claims paid according to A.M. Best. Our fraud solutions include data on claim histories, analysis of mortgage applications to identify misinformation, analysis of claims to find emerging patterns of fraud and identification of suspicious claims in the insurance, healthcare and mortgage sectors.
 
As an example of how customers use our Decision Analytics products, our CLASIC/2 enterprise software system is used by insurance companies to determine potential losses, and the probability of such losses, for the insurance or reinsurance they provide in regions prone to natural catastrophes such as


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hurricanes, earthquakes, hailstorms and tornadoes. The catastrophe models underlying our software are based on the physical principles of meteorology, geology and other sciences, as well as the statistical analysis of historical time series of data on prior natural catastrophes. Our software consists of sophisticated stochastic simulation procedures for projecting the location and severity of future catastrophes and powerful computer models of how natural catastrophes behave and impact buildings and the man-made environment. Our software includes algorithms that translate estimated losses and insurance terms, such as coverages and deductibles, into output that guide underwriters as they select and price risks. Customers receive our software and host the application on their own servers, and link their own databases in order to run their risks through our models. An underwriter can enter the address and characteristics of a single prospective property in manual mode, or the underwriter can work in batch mode where the software reads a file with the addresses and characteristics of many prospective properties. The software returns a series of estimates of the total amount of loss likely in the next year including the amount and cost of damage due to each peril (e.g., earthquake, hurricane, hailstorms and tornadoes), the total expected loss from all perils combined, and the estimated average annual loss. Underwriters use our software to translate damage and loss estimates into a series of recommendations for structuring insurance policies including recommended levels of coverage, deductibles, policy limits and a host of other insurance terms. All of these terms are then fed into the insurers’ policy administration software to determine the premiums to be charged for insurance.
 
In addition to analyzing individual risks, insurance companies can use CLASIC/2’s reporting and visualization tools at the corporate level to assess the aggregate risk and geographic concentration of entire portfolios of risk to determine capital adequacy, to decide how much reinsurance to buy, and to assess the mix of business in their portfolio.
 
For the year ended December 31, 2008 and the six months ended June 30, 2009, our Decision Analytics segment produced revenue of $389 million and $241 million, representing 44% and 48% of our total revenue, respectively, and EBITDA of $153 million and $90 million, representing 41% and 43% of our total EBITDA, respectively. This segment’s revenue and EBITDA had a CAGR of 28.1% and 41.6%, respectively, for the five-year period ended December 31, 2008.
 
Our Market Opportunity
 
We believe there is a long-term trend for companies to set strategy and direct operations using data and analytics to guide their decisions, which has resulted in a large and rapidly growing market for professional and business information. According to a 2008 report from Veronis Suhler Stevenson, an industry consultant, spending on professional and business information services in the U.S. reached $46 billion in 2007 and is projected to grow at a CAGR of 9% through 2012. Another research firm, International Data Corporation, or IDC, in a report dated March 2008, estimates that the business analytics services market, which totaled $32 billion in 2007, will grow at a CAGR of 9% through 2012.
 
         
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We believe that the consistent decline in the cost of computing power contributes to the trend towards greater use of data and analytics. As a result, larger data sets are assembled faster and at a lower cost per record while the complexity and accuracy of analytical applications and solutions have expanded. This trend has led to an increase in the use of analytic output, which can be generated and applied more quickly, resulting in more informed decision making. As computing power increases, cost decreases and accuracy improves, we believe customers will continue to apply and integrate data and analytic solutions more broadly.
 
Companies that engage in risk transactions, including P&C insurers, healthcare payors and mortgage lenders and insurers, are particularly motivated to use enhanced analytics because of several factors affecting risk markets:
 
  •      the total value of exposures in risk transactions is increasing;
 
  •      the number of participants in risk transactions is often large and the asymmetry of information among participants is often substantial; and
 
  •      the failure to understand risk can lead to large and rapid declines in financial performance.
 
The total value of exposures in risk transactions is increasing
 
Across our target markets, the number and value of the assets managed in risk transactions exhibits long-term growth. For example:
 
  •      U.S. property value exposed to hurricanes continues to increase dramatically due to population dynamics and increase of wealth among other factors, with the current trend predicting a doubling of losses every ten years. At this rate, a repeat of the 1926 Great Miami hurricane could result in $500 billion in economic damage as soon as the 2020’s according to Natural Hazards Review; and
 
  •      U.S. health expenditures have grown at a CAGR of 7% between 1997 and 2007 and are expected to grow over 6% annually through 2018, according to data compiled by the U.S. Department of Health and Human Services; and
 
  •      The total value of outstanding U.S. mortgage debt grew from $10.7 trillion at the end of 2004 to $14.6 trillion at December 31, 2008, a CAGR of over 8%.
 
The number of participants in risk transactions is often large and the asymmetry of information among participants is often substantial
 
Many risk transactions involve multiple participants who either structure the transaction or bear some of the risk. For example, in the P&C insurance industry, a single commercial building might be assessed, underwritten and insured by a combination of insurance agents and brokers, managing general agents, loss inspection consultants, underwriters, reinsurers, corporate risk managers and capital markets participants looking to securitize the risk of catastrophic loss. In the healthcare industry, insurers and third-party administrators strive to refine their understanding of transactions at the point at which care is delivered to the patient and to determine the legitimacy of claims filed by providers and insurers. Investors in mortgages are far removed from the mortgage brokers and lenders who originate the loans, the appraisers who assess the mortgaged properties, the servicers who manage the cash flows associated with the mortgages, and the packagers who assemble pools of loans to be securitized.
 
Due to the greater separation of counterparties and the potential asymmetry of data about underlying risks available to counterparties, the different participants in such transactions are in jeopardy of knowing less than their counterparties about the risk they bear. In the securitization and trading markets, this problem is exacerbated by the loss of information through the pooling of risks.
 
One outcome of asymmetric information is fraudulent transactions. The Coalition Against Insurance Fraud estimates that the cost of fraud in the U.S. P&C insurance industry is as high as $80 billion each year.


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The U.S. government estimates fraudulent billings to U.S. healthcare programs, both public and private, to be between 3% to 10% of total annual healthcare expenditures, or between $71 billion and $238 billion in 2008.
 
Failure to understand risk can lead to large and rapid declines in performance
 
Any company that bears risk will find its profits predominantly tied directly to its ability to select risks. In the P&C insurance industry, the cost of goods sold is unknown to the insurer at the time the insurance policy is written. Therefore, efficient pricing of insurance policies depends on the ability to predict the potential losses and costs associated with underwriting each policy. There are a significant number of factors which correlate with the size of a potential loss, including weather, geographic location of risk, insured characteristics and prior claims costs. An insurance company differentiates itself by utilizing appropriate and reliable data and complex analytics to select the risks that will have the best risk-return profile. The importance of predicting loss in order to select and price risk, and the linkage of these analytics to profitability, is true for all companies participating in risk-bearing transactions.
 
The current U.S. mortgage crisis provides an example of how failure to understand risk can lead to a rapid loss of performance by companies that bear risk. As the housing sector and mortgage origination market expanded rapidly in the first half of this decade, the need for underwriting discipline and risk analysis was underestimated by mortgage brokers, lenders, investors and regulators. We believe the mortgage “bubble” that ended in 2007 masked the need to integrate analytics into the origination and securitization processes in order to manage exposures and profits. The rising level of mortgage default and fraud in 2007 and 2008, combined with severe contraction in the mortgage origination market, has forced 199 and 111 of the top originators into failure in 2007 and 2008, respectively, according to the Mortgage Daily. The Mortgage Bankers Association reports a drop from 5,000 mortgage bankers in 2007 to 3,500 mortgage bankers in 2008, based upon lenders that originated at least 100 loans each year. This in turn has heightened awareness among various participants in the market of the need to improve the quality of mortgage underwriting analysis, in part through more sophisticated use of data. This sophisticated use of data may extend beyond the acceptance or rejection of risk to include risk-based pricing in order to enhance financial performance in the face of a challenging market.
 
Our Competitive Strengths
 
We believe our competitive strengths include the following:
 
Our Solutions are Embedded In Our Customers’ Critical Decision Processes
 
Our customers use our solutions to make better risk decisions and to price risk appropriately. These solutions are embedded in our customers’ critical decision processes. In the U.S. P&C insurance industry, our solutions for prospective loss costs, policy language, rating/underwriting rules and regulatory filing services are the industry standard. Our decision analytics solutions facilitate the profitable underwriting of policies. In the U.S. healthcare and mortgage industries, our predictive models, loss estimation tools and fraud
identification applications are the primary solutions that allow customers to understand their risk exposures and proactively manage them. Over the last three years, we have retained 98% of our customers across all of our businesses, which we believe reflects our customers’ recognition of the value they derive from our solutions.
 
Extensive and Differentiated Data Assets and Analytic Methods
 
We maintain what we believe are some of the largest, most accurate, and most complete databases in the markets we serve. Our unique, proprietary data assets allow us to provide our customers with a comprehensive set of risk analytics and decision support solutions. Our largest data sets are sourced from our customers and are not available from any other vendor. Much of the information we provide is not available from any other source and would be difficult and costly for another party to replicate. As a result, our accumulated experience and years of significant investment have given us a competitive advantage in serving our customers. By continuously adding records to our data sets we are able to refresh and to refine our data assets, risk models and other analytic methods.


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Culture of Continuous Improvement
 
Our intellectual capital and focus on continuous improvement have allowed us to develop proprietary algorithms and solutions that assist our customers in making informed risk decisions. Our skilled workforce understands issues affecting our targeted markets and to develop analytic solutions tailored to these markets. Our team includes approximately 578 individuals with advanced degrees, certifications and professional designations in such fields as actuarial science, data management, mathematics, statistics, economics, soil mechanics, meteorology and various engineering disciplines. Leveraging the expertise of our people, we have been able to continuously improve our operations by constantly enhancing the timeliness, relevance and quality of our solutions. Over the last three years, we have retained over 95% of our most highly-rated employees. Over the last decade, we transitioned our compensation and benefit plans to be pay-for-performance-oriented, including incentive compensation plans and greater equity participation by employees. As of December 31, 2008 and June 30, 2009, our employees owned approximately 25% of the company.
 
Attractive Operating Model
 
We believe we have an attractive operating model due to the recurring nature of our revenues, the scalability of our solutions and the low capital intensity of our business.
 
Recurring Nature of Revenues.  We offer our solutions and services primarily through annual subscriptions or long-term agreements, which are generally pre-paid and represented approximately 76% of our revenues in 2008. The combination of our historically high renewal rates, which we believe are due to the embedded nature of our solutions, and our subscription-based revenue model, results in predictable cash flows.
 
Scalable Solutions.  Our technology infrastructure and scalable solution platforms allow us to accommodate significant additional transaction volumes with limited incremental costs. This operating leverage enabled us to increase our EBITDA margins from 37.2% in 2004 to 42.0% in 2008.
 
Low Capital Intensity.  We have low capital needs that allow us to generate strong cash flow. In 2008, our operating income and capital expenditures as a percentage of revenue were 34.8% and 3.7%, respectively.
 
Our Growth Strategy
 
Over the past five fiscal years, we have grown our revenues at a CAGR of 13.0% through the successful execution of our business plan. These results reflect strong organic revenue growth, new product development and selected acquisitions. To build on our base revenue, we use our intellectual property and customer relationships to generate insight into where we may more effectively extract or apply data. We then innovate or adapt analytics that expand the range, utility and predictive capabilities of our solutions to grow our revenues profitably. We have made, and continue to make, investments in people, data sets, analytic solutions, technology, and complementary businesses.
 
To serve our customers and grow our business, we aggressively pursue the following strategies:
 
Increase Sales to Insurance Customers
 
We expect to expand the application of our solutions in insurance customers’ underwriting and claims processes. We encourage our customers to share more data with us to enhance the power of our analytics so that our customers can profit from improved risk management decisions. Building on our deep knowledge of, and embedded position in, the insurance industry, we expect to sell more solutions to existing customers tailored to specific lines of insurance. In addition, as our databases continue to grow, we believe the predictive capability of our algorithms will also improve, enhancing the value of our existing offerings and increasing demand for our solutions. By increasing the breadth and relevance of our offerings, we believe we can strengthen our relationships with customers and increase our value to their decision making in critical ways.


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Develop New, Proprietary Data Sets and Predictive Analytics
 
We work with our customers to understand their evolving needs. We plan to create new solutions by enriching our mix of proprietary data sets, analytic solutions and effective decision support across the markets we serve. Our data sets produce analytics focused on emergent risks and evolving issues within both new and current customer segments. We constantly seek to add new data that can further leverage our analytic methods, technology platforms and intellectual capital. Current areas of focus in the U.S. include commercial loss histories, detailed policy level information, vehicle-generated data, loan-level mortgage data, pharmaceutical claims and healthcare claims data. We believe this strategy will spur revenue growth and improve profitability.
 
Leverage Our Intellectual Capital to Expand into Adjacent Markets and New Customer Sectors
 
Our organization is built on nearly four decades of intellectual property in risk management. We believe we can continue to profitably expand the use of our intellectual capital and apply our analytic methods in new markets, where significant opportunities for long-term growth exist. For example, we have leveraged our skills in predictive models for losses in the healthcare segment into providing predictive analytic solutions for workers’ compensation claims. In addition, we are leveraging our industry-leading solutions for detecting fraud in mortgage insurance to enhance the accuracy of our mortgage lending fraud platform. We also continue to pursue growth through targeted international expansion. We have already demonstrated the effectiveness of this strategy with our expansion into healthcare and non-insurance financial services. We believe there are numerous opportunities to repurpose our existing data assets and analytic capabilities to expand into new markets.
 
Pursue Strategic Acquisitions that Complement Our Leadership Positions
 
We will continue to expand our data and analytics capabilities across industries. While we expect this will occur primarily through organic growth, we have and will continue to acquire assets and businesses that strengthen our value proposition to customers. We primarily focus on smaller acquisitions of differentiated proprietary data that is complementary to our own, analytical applications or models that can leverage our proprietary data and businesses that address new risk markets. Our acquisitions have been, and will continue to be, primarily focused within our Decision Analytics segment. We have developed an internal capability to source, evaluate and integrate acquisitions that have created value for shareholders. We have acquired 15 businesses in the past five years, which in the aggregate have increased their revenue with a weighted average CAGR of 31% over the same period.
 
Our History
 
We trace our history to 1971, when Insurance Services Office, Inc., or ISO, started operations as a not-for-profit advisory and rating organization providing services for the U.S. P&C insurance industry. ISO was formed as an association of insurance companies to gather statistical data and other information from insurers and report to regulators, as required by law. ISO’s original functions also included developing programs to help insurers define and manage insurance products and providing information to help insurers determine their own independent premium rates. Insurers used and continue to use our offerings primarily in their product development, underwriting and rating functions. Today, those businesses form the core of our Risk Assessment segment.
 
Over the past decade, we have transformed our business beyond its original functions by deepening and broadening our data assets, developing a set of integrated risk management solutions and services and addressing new markets through our Decision Analytics segment.
 
Our expansion into analytics began when we acquired the American Insurance Services Group and certain operations and assets of the National Insurance Crime Bureau in 1997 and 1998, respectively. Those organizations brought to the company large databases of insurance claims, as well as expertise in detecting and preventing claims fraud. To further expand our Decision Analytics segment, we acquired AIR Worldwide in 2002, the technological leader in catastrophe modeling. In 2004, we entered the healthcare space by acquiring several businesses that now offer web-based analytical and reporting systems for health insurers,


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provider organizations and self-insured employers. In 2005 we entered the mortgage lending sector, acquiring the first of several businesses that now provide automated fraud detection, compliance and decision support solutions for the U.S. mortgage industry. In 2006, to bolster our position in the claims field we acquired Xactware, a leading supplier of estimating software for professionals involved in building repair and reconstruction.
 
These acquisitions have added scale, geographic reach, highly skilled workforces, and a wide array of new capabilities to our Decision Analytics segment. They have helped to make us a leading provider of information and decision analytics for customers involved in the business of risk in the U.S. and selectively around the world.
 
Our senior management operating team, which includes our chief executive officer, chief financial officer, chief operating officer, general counsel and the three senior officers who lead our largest business units, have been with us for an average of almost twenty years. This team has led our transformation to a successful for-profit entity, focused on growth with our U.S. P&C insurer customers and expansion into a variety of new markets.
 
Services
 
Risk Assessment Segment
 
Our Risk Assessment segment serves our P&C insurance customers and focuses on the first two decision making processes in our Risk Analysis Framework: prediction of loss and selection and pricing of risk. Within this segment, we also provide solutions to help our insurance customers comply with their reporting requirements in each U.S. state in which they operate. Our customers include most of the P&C insurance providers in the United States and we have retained approximately 99% of our P&C insurance customer base within the Risk Assessment segment in each of the last five years.
 
For the year ended December 31, 2008 and the six months ended June 30, 2009, our Risk Assessment segment produced revenues of $504 million and $263 million, representing 56% and 52% of our total revenues, respectively, and EBITDA of $223 million and $121 million, representing 59% and 57% of our total EBITDA, respectively. This segment’s revenues and EBITDA have a CAGR of 5.7% and 7.6%, respectively, for the five-year period ended December 31, 2008.
 
Statistical Agent and Data Services
 
The P&C insurance industry is heavily regulated in the United States. P&C insurers are required to collect statistical data about their premiums and losses and to report that data to regulators in every state in which they operate. Our statistical agent services have enabled P&C insurers to meet these regulatory requirements for over 30 years. We aggregate the data and, as a licensed “statistical agent” in all 50 states, Puerto Rico and the District of Columbia, we report these statistics to insurance regulators. We are able to capture significant economies of scale given the level of penetration of this service within the U.S. P&C insurance industry.
 
To provide our customers and the regulators the information they require, we maintain one of the largest private databases in the world. Over the past four decades, we have developed core expertise in acquiring, processing, managing and operating large and comprehensive databases that are the foundation of our Risk Assessment segment. We use our proprietary technology to assemble, organize and update vast amounts of detailed information submitted by our customers. We supplement this data with publicly available information.
 
Each year, P&C insurers send us approximately 2.5 billion detailed individual records of insurance transactions, such as insurance premiums collected or losses incurred. We maintain a database of over 14 billion statistical records, including approximately 5 billion commercial lines records and approximately 9 billion personal lines records. We collect unit-transaction detail of each premium and loss record, which enhances the validity, reliability and accuracy of our data sets and our actuarial analyses. Our proprietary quality process includes almost 2,500 separate checks to ensure that data meet our high standards of quality.


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Actuarial Services
 
We provide actuarial services to help our customers price their risks as they underwrite. We project future losses and loss expenses utilizing a broad set of data. These projections tend to be more reliable than if our customers used solely their own data. We provide loss costs by coverage, class, territory, and many other categories. Our customers can use our estimates of future loss costs in making independent decisions about the prices charged for their policies. For most P&C insurers, in most lines of business, we believe our loss costs are an essential input to rating decisions. We make a number of actuarial adjustments, including loss development and loss adjustment expenses before the data is used to estimate future loss costs. Our actuarial services are also used to create the analytics underlying our industry-standard insurance programs described below.
 
Our employees include over 200 actuarial professionals, including 41 Fellows and 24 Associates of the Casualty Actuarial Society, as well as 154 Chartered Property Casualty Underwriters, 12 Certified and 23 Associate Insurance Data Managers, 178 members of the Insurance Data Management Association and 145 professionals with advanced degrees, including PhDs in mathematics and statistical modeling who review both the data and the models.
 
Using our large database of premium and loss data, our actuaries are able to perform sophisticated analyses using our predictive models and analytic methods to help our P&C insurance customers with pricing, loss reserving, and marketing. We distribute a number of actuarial products and offer flexible services to meet our customers’ needs. In addition, our actuarial consultants provide customized services for our clients that include assisting them with the development of independent insurance programs, analysis of their own underwriting experience, development of classification systems and rating plans and a wide variety of other business decisions. We also supply information to a wide variety of customers in other markets including reinsurance, government agencies and real estate.
 
Industry-Standard Insurance Programs
 
We are the recognized leader in the United States for industry-standard insurance programs that help P&C insurers define coverages and issue policies. Our policy language, prospective loss cost information and policy writing rules can serve as integrated turnkey insurance programs for our customers. Insurance companies need to ensure that their policy language, rules, and rates comply with all applicable legal and regulatory requirements. Insurers must also make sure their policies remain competitive by promptly changing coverages in response to changes in statutes or case law. To meet their needs, we process and interface with state regulators on average over 4,000 filings each year, ensuring smooth implementation of our rules and forms. When insurers choose to develop their own alternative programs, our industry-standard insurance programs also help regulators make sure that such insurers’ policies meet basic coverage requirements.
 
Standardized coverage language, which has been tested in litigation and tailored to reflect judicial interpretation, helps to ensure consistent treatment of claimants. As a result, our industry-standard language also simplifies claim settlements and can reduce the occurrence of costly litigation, because our language causes the meaning of coverage terminology to become established and known. Our policy language includes standard coverage language, endorsements and policy writing support language that assist our customers in understanding the risks they assume and the coverages they are offering. With these policy programs, insurers also benefit from economies of scale. We have over 200 specialized lawyers and insurance experts reviewing changes in each state’s insurance rules and regulations, including on average over 11,000 legislative bills, 750 regulatory actions and 2,000 court cases per year, to make any required changes to our policy language and rating information.
 
To cover the wide variety of risks in the marketplace, we offer a broad range of policy programs. For example, in the homeowner’s line of insurance, we maintain policy language and rules for six basic coverages, 172 national endorsements, and 469 state-specific endorsements. Overall, we provide policy language, prospective loss costs, policy writing rules and a variety of other solutions for 24 lines of insurance.


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Property-Specific Rating and Underwriting Information
 
We gather information on individual properties and communities so that insurers can use our information to evaluate and price personal and commercial property insurance, as well as commercial liability insurance. Our property-specific rating and underwriting information allow our customers to understand, quantify, underwrite, mitigate and avoid potential loss for residential and commercial properties. Our database contains loss costs and other vital information on approximately 2.7 million commercial buildings in the United States and also holds information on approximately 4.5 million individual businesses occupying those buildings. We have a staff of more than 600 field representatives strategically located around the United States who observe and report on conditions at commercial and residential properties, evaluate community fire-protection capabilities and assess the effectiveness of municipal building-code enforcement. Each year, our field staff visits over 350,000 commercial properties to collect information on new buildings and verify building attributes.
 
We also provide proprietary analytic measures of the ability of individual communities to mitigate losses from important perils. Nearly every property insurer in the United States uses our evaluations of community firefighting capabilities to help determine premiums for fire insurance throughout the country. We provide field-verified and validated data on the fire protection services for more than 46,000 fire response jurisdictions. We also offer services to evaluate the effectiveness of community enforcement of building codes and the efforts of communities to mitigate damage from flooding. Further, we provide information on the insurance rating territories, premium taxes, crime risk and hazards of windstorm, earthquake, wildfire and other perils. To supplement our data on specific commercial properties and individual communities, we have assembled, from a variety of internal and third-party sources, information on hazards related to geographic locations representing every postal address in the United States. Insurers use this information not only for policy quoting but also for analyzing risk concentration in geographical areas.
 
Decision Analytics Segment
 
In the Decision Analytics segment, we support all four phases of our Risk Analysis Framework. We develop predictive models to forecast scenarios and produce both standard and customized analytics that help our customers better predict loss; select and price risk; detect fraud before and after a loss event; and quantify losses.
 
(GRAPH)
 
As we develop our models to quantify loss and detect fraud, we improve our ability to predict the loss and prevent the fraud from happening. We believe this provides us with a significant competitive advantage over firms that do not offer solutions which operate both before and after loss events.


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For the year ended December 31, 2008 and the six months ended June 30, 2009, our Decision Analytics segment produced revenues of $389 million and $241 million, representing 44% and 48% of our total revenues, respectively, and EBITDA of $153 million and $90 million, representing 41% and 43% of our total EBITDA, respectively. This segment’s revenues and EBITDA have a CAGR of 28.1% and 41.6%, respectively, for the five-year period ended December 31, 2008.
 
Fraud Detection and Prevention
 
P&C Insurance
 
We are a leading provider of fraud-detection tools for the P&C insurance industry. Our fraud solutions improve our customers’ profitability by both predicting the likelihood that fraud is occurring and detecting suspicious activity after it has occurred. When a claim is submitted, our system searches our database and returns information about other claims filed by the same individuals or businesses (either as claimants or insurers) that help our customers determine if fraud has occurred. The system searches for matches in identifying information fields, such as name, address, Social Security number, vehicle identification number, driver’s license number, tax identification number, or other parties to the loss. Our system also includes advanced name and address searching to perform intelligent searches and improve the overall quality of the matches. Information from match reports speeds payment of meritorious claims while providing a defense against fraud and can lead to denial of a claim, negotiation of a reduced award, or further investigation by the insurer or law enforcement.
 
We have a comprehensive system used by claims adjusters and investigations professionals to process claims and fight fraud. Claims databases are one of the key tools in the fight against insurance fraud. The benefits of a single all-claims database include improved efficiency in reporting data and searching for information, enhanced capabilities for detecting suspicious claims, and superior information for investigating fraudulent claims, suspicious individuals and possible fraud rings. Our database contains information on more than 600 million claims and is the world’s largest database of claims information. Insurers and other participants submit new claim reports, more than 238,000 a day on average, across all categories of the U.S. P&C insurance industry.
 
We also provide a service allowing insurers to report thefts of automobiles and property, improving the chances of recovering those items; a service that helps owners and insurers recover stolen heavy construction and agricultural equipment; an expert scoring system that helps distinguish between suspicious and meritorious claims; and products that use link-analysis technology to help visualize and fight insurance fraud.
 
We have begun to expand our fraud solutions to overseas markets. We built and launched a system in Israel in 2006 that provides claims fraud detection, claims investigation support and some underwriting services to all Israeli insurers.
 
Mortgage
 
We are a leading provider of automated fraud detection, compliance and decision-support tools for the mortgage industry. Utilizing our own loan level application database combined with actual mortgage loan performance data, we have established a risk scoring system which increases our customers’ ability to detect fraud. We provide solutions that detect fraud through each step of the mortgage lifecycle and provide regulatory compliance solutions that perform instant compliance reviews of each mortgage application. Our fraud solutions can improve our customers’ profitability by predicting the likelihood that a customer account is experiencing fraud. Our solution analyzes customer transactions in real time and generates recommendations for immediate action which are critical to stopping fraud and abuse. These applications can also detect some organized fraud schemes that are too complex and well-hidden to be identified by other methods.
 
Effective fraud detection relies on pattern identification, which in turn requires us to identify, isolate and track mortgage applications through time. Histories of multiple loans, both valid and fraudulent, are required to compare a submitted loan both to actual data and heuristic analyses. For this reason, unless fraud


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detection solutions are fueled by comprehensive data, their practicality is limited. Our proprietary database contains more than 13 million current and historical loan applications collected over the past three years. This database contains data from loan applications as well as supplementary third-party data.
 
Our technology employs sophisticated models to identify patterns in the data. Our solution provides a score which predicts whether the information provided by a mortgage applicant is correct. Working with data obtained through our partnership with a credit bureau, we have demonstrated a strong correlation between fraudulent information in the application and the likelihood of both foreclosure and early payment default on loans. We believe our solution is based upon a more comprehensive set of loan level information than any other provider in the mortgage industry.
 
We also provide forensic audit services for the mortgage origination and mortgage insurance industries. Our predictive screening tools predict which defaulted loans are the most likely candidates for full audits for the purpose of detecting fraud. We then generate detailed audit reports on defaulted mortgage loans. Those reports serve as a key component of the loss mitigation strategies of mortgage loan insurers. The recent turmoil in the mortgage industry has created a period of unprecedented opportunity for growth in demand for our services, as we believe most mortgage insurers do not have the in-house capacity to respond to, and properly review, all of their defaulted loans for evidence of fraud.
 
Healthcare
 
We offer solutions that help healthcare claims payors detect fraud, abuse and overpayment. Our approach combines computer-based modeling and profiling of claims with analysis performed by clinical experts. We run our customers’ claims through our proprietary analytic system to identify potential fraud, abuse and overpayment, and then a registered nurse, physician, or other clinical specialist skilled in coding and reimbursement decisions reviews all suspect claims and billing patterns. This combination of system and human review is unique in the industry and we believe offers improved accuracy for paying claims.
 
We analyze the patterns of claims produced by individual physicians, physicians’ practices, hospitals, dentists and pharmacies to locate the sources of fraud. After a suspicious source of claims is identified, our real-time analytic solutions investigate each claim individually for particular violations including upcoding, multiple billings, services claimed but not rendered and billing by unlicensed providers. By finding the individual claims with the most cost-recovery potential, and also minimizing the number of false-positive indications of fraud, we enable the special investigation units of healthcare payors to efficiently control their claims costs while maintaining high levels of customer service to their insurers.
 
We also offer web-based reporting tools that let payors take definitive action to prevent overpayments or payment of fraudulent claims. The tools provide the documentation that helps to identify, investigate, and prevent abusive and fraudulent activity by providers.
 
Prediction of Loss and Selection and Pricing of Risk
 
P&C Insurance
 
We pioneered the field of probabilistic catastrophe modeling used by insurers, reinsurers and financial institutions to manage their catastrophe risk. Our models of global natural hazards, which form the basis of our solutions, enable companies to identify, quantify, and plan for the financial consequences of catastrophic events. We have developed models covering natural hazards, including hurricanes, earthquakes, winter storms, tornadoes, hailstorms and flood for potential loss events in more than 50 countries. We have also developed and introduced a probabilistic terrorism model capable of quantifying the risk in the United States from this emerging threat, which supports pricing and underwriting decisions down to the level of an individual policy.
 
Healthcare
 
We are a leading provider of healthcare business intelligence and predictive modeling. We provide analytical and reporting systems to health insurers, provider organizations and self-insured employers. Those


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organizations use our solutions to review their healthcare data, including information on claims, membership, providers and utilization, and provide cost trends, forecasts and actuarial, financial and utilization analyses.
 
For example, our solutions allow our customers to predict medical costs and improve the financing and organization of health services. Our predictive models help our customers identify high-cost cases for care- and disease-management intervention, compare providers adjusting for differences in health, predict resource use for individuals and populations, establish health-based and performance-based payments, negotiate payments and incentives, negotiate premium rates and measure return on investment.
 
We also provide our customers healthcare consulting services using complex clinical analyses to uncover reasons behind cost and utilization increases. Physicians and hospitals are adopting and acquiring new technologies, drugs and devices more rapidly than ever before. We provide financial and actuarial consulting, clinical consulting, technical and implementation services and training services to help our customers manage costs and risks to their practices.
 
We are also beginning to expand our healthcare business internationally. We have recently secured an agreement with the German government to develop a risk-adjustment methodology based on our solutions. Our diagnosis-based risk-adjustment methods and predictive modeling tools will support the German healthcare system in the improvement of quality and efficiency of care.
 
Quantification of Loss
 
P&C Insurance
 
We provide data, analytic and networking products for professionals involved in estimating all phases of building repair and reconstruction. We provide solutions for every phase of a building’s life, including:
 
  •      estimating replacement costs during the insurance underwriting process;
 
  •      quantifying the ultimate cost of repair or reconstruction of damaged or destroyed buildings;
 
  •      aiding in the settlement of insurance claims; and
 
  •      tracking the process of repair or reconstruction and facilitating communication among insurers, adjusters, contractors and policyholders.
 
To help our customers estimate replacement costs, we also provide a solution that assists contractors and insurance adjusters to estimate repairs using a patented plan-sketching program. The program allows our customers to sketch floor plans, roof plans and wall-framing plans and automatically calculates material and labor quantities for the construction of walls, floors, footings and roofs.
 
We also offer our customers access to wholesale and retail price lists, which include structural repair and restoration pricing for 466 separate economic areas in North America. We revise this information monthly and, in the aftermath of a major disaster, we can update the price lists as often as weekly to reflect rapid price changes. Our structural repair and cleaning database contains more than 11,000 unit-cost line items. For each line item such as smoke cleaning, water extraction and hazardous cleanup, we provide time and material pricing, including labor, labor productivity rates (for new construction and restoration), labor burden and overhead, material costs and equipment costs. We improve our pricing data by analyzing the actual claims experience of our customers to verify our estimates. We estimate that more than 60% of all homeowners’ claims settled in the U.S. in 2007 used our solution. Such a large percentage of the industry’s claims leads to accurate pricing information which we believe is unmatched in the industry.
 
We also estimate industry-wide insured losses from individual catastrophic events. We report information on disasters and determine the extent and type of damage, dates of occurrence, and geographic areas affected. We define a catastrophe as an event that causes $25 million or more in direct insured losses to property and that affects a significant number of policyholders and insurers. For each catastrophe, our loss estimate represents anticipated industry-wide insurance payments for property lines of insurance covering fixed property, building contents, time-element losses, vehicles and inland marine (diverse goods and properties). We assign a serial number that allows our customers to track losses and reserves related to a single, discrete event.


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Under many reinsurance contracts and catastrophe bonds, our serial number is important for determining which losses will trigger reinsurance coverage or payment.
 
Our estimates allow our customers to set loss reserves, deploy field adjusters and verify internal company estimates. Our estimates also keep insurers, their customers, regulators, and other interested parties informed about the total costs of disasters. We also provide our customers access to daily reports on severe weather and catastrophes and we maintain a database of information on catastrophe losses in the United States since 1950.
 
Healthcare
 
Bodily injury and workers’ compensation claims present a complex array of medical, legal and occupational issues. We offer a comprehensive claims-management solution that helps our customers manage bodily injury claims, workers’ compensation claims and accident-related comparative-liability claims. We have a database of our customers’ claims histories, including detailed settlements, medical conditions, provider information and litigation issues, to help them deal with bodily injury claims. Our system also contains a library of more than 18,700 medical conditions to help our customers better understand injuries, treatments, complications and pre-existing conditions. This allows our customers to identify developing trends in claims settlements that may lead to changes in underwriting, legal and/or training practices.
 
Our database also enables our customers to track and direct their workers’ compensation cases, including evaluating the medical and occupational situation of each claimant, maintain consistency and quality in claims handling and to develop optimal return-to-work plans. In addition, we have solutions which assist our customers in better identifying and evaluating accident-related comparative liability claims. This helps our customers to manage each claim until settlement.
 
Our Customers
 
Risk Assessment Customers
 
The customers in our Risk Assessment segment include the top 100 P&C insurance providers in the United States, including AIG, Allstate, CNA, Hartford, Liberty Mutual, Nationwide, Fireman’s Fund, State Farm, Travelers and Zurich. Our statistical agent services are used by a substantial majority of P&C insurance providers in the United States to report to regulators. Our actuarial services and industry-standard insurance programs are used by the majority of insurers and reinsurers in the United States. In addition, certain agencies of the federal government, including the Federal Emergency Management Agency, or FEMA, as well as county and state governmental agencies and organizations, use our solutions to help satisfy government needs for risk assessment and emergency response information. In 2008 our largest Risk Assessment customer accounted for 4.9% of segment revenues, and our top ten customers accounted for 27.8% of segment revenues. Please see “Certain Relationships and Related Transactions — Customer Relationships” for more information on our relationship with our principal stockholders.
 
Decision Analytics Customers
 
In the Decision Analytics segment, we provide our P&C insurance solutions to the majority of the P&C insurers in the United States. Specifically, our claims database serves thousands of customers, representing more than 92% of the P&C insurance industry by premium volume, 26 state workers’ compensation insurance funds, 583 self-insurers, 459 third-party administrators, several state fraud bureaus, and many law-enforcement agencies involved in investigation and prosecution of insurance fraud. In addition, our catastrophe modeling solutions have been used in approximately 70% of the dollar value of catastrophe bond securitizations through 2008. Also, P&C insurance companies using our building and repair solutions handle over 60% of the property claims in the United States. We estimate that more than 80% of insurance repair contractors and service providers in the United States and Canada with computerized estimating systems use our building and repair pricing data.
 
In the U.S. healthcare industry, our customers include numerous Blue Cross and Blue Shield plans, Kaiser Permanente and Munich Reinsurance. In 2008, our largest customer in the Decision Analytics segment


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accounted for 3.8% of segment revenues and our top ten Decision Analytics customers accounted for 20.5% of segment revenues.
 
In the U.S. mortgage industry, we have more than 950 customers, including Wells Fargo, Citigroup and Bank of America. We provide our solutions to 14 of the top 20 mortgage lenders and four of the top six mortgage insurers, United Guaranty, RMIC, PMI and Genworth. We have been providing services to mortgage insurers for over 20 years.
 
Our Competitors
 
We believe no single competitor currently offers the same scope of services and market coverage we provide. The breadth of markets we serve exposes us to a broad range of competitors.
 
Risk Assessment Competitors
 
Our Risk Assessment segment operates primarily in the U.S. P&C insurance industry, where we enjoy a leading market presence. We have a number of competitors in specific lines or services.
 
We encounter competition from a number of sources, including insurers who develop internal technology and actuarial methods for proprietary insurance programs. Competitors also include other statistical agents including the National Independent Statistical Service, the Independent Statistical Service, and other advisory organizations providing underwriting rules, prospective loss costs and coverage language, such as the American Association of Insurance Services and Mutual Services Organization.
 
Competitors for our property-specific rating and underwriting information are primarily limited to a number of regional providers of commercial property inspections and surveys, including Overland Solutions, Inc. and Regional Reporting, Inc. We also compete with a variety of organizations that offer consulting services, primarily specialty technology and consulting firms. In addition, a customer may use its own internal resources rather than engage an outside firm for these services. Our competitors also include information technology product and services vendors including CDS, Inc., management and strategy consulting firms including Deloitte, and smaller specialized information technology firms and analytical services firms including Pinnacle Consulting and EMB.
 
Decision Analytics Competitors
 
In the P&C insurance claims market and catastrophe modeling market, certain products are offered by a number of companies, including, ChoicePoint (loss histories and motor vehicle records for personal lines underwriting), Explore Information Services (personal automobile underwriting) and Risk Management Solutions (catastrophe modeling). We believe that our P&C insurance industry expertise, combined with our ability to offer multiple applications, services and integrated solutions to individual customers, enhances our competitiveness against these competitors with more limited offerings. In the healthcare market, certain products are offered by a number of companies, including Computer Sciences Corporation (evaluation of bodily injury and workers’ compensation claims), Fair Isaac Corporation (workers’ compensation and healthcare claims cost containment) and Ingenix, McKesson and Medstat (healthcare predictive modeling and business intelligence). Competitive factors include application features and functions, ease of delivery and integration, ability of the provider to maintain, enhance and support the applications or services and price. In the mortgage analytics solutions market, our competitors include First American CoreLogic and DataVerify Corporation (mortgage lending fraud identification) and ComplianceEase and Mavent (mortgage regulatory compliance). We believe that none of our competitors in the mortgage analytics market offers the same expertise in fraud detection analytics or forensic audit capabilities.
 
Development of New Solutions
 
We take a market-focused team approach to developing our solutions. Our operating units are responsible for developing, reviewing and enhancing our various products and services. Our data management and production team designs and manages our processes and systems for market data procurement, proprietary


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data production and quality control. Our Enterprise Data Management, or EDM, team supports our efforts to create new information and products from available data and explores new methods of collecting data. EDM is focused on understanding and documenting business-unit and corporate data assets and data issues; sharing and combining data assets across the enterprise; creating an enterprise data strategy; facilitating research and product development; and promoting cross-enterprise communication.
 
Our software development team builds the technology used in many of our solutions. As part of our product-development process, we continually solicit feedback from our customers on the value of our products and services and the market’s needs. We have established an extensive system of customer advisory panels, which meet regularly throughout the year to help us respond effectively to the needs of our markets. In addition, we use frequent sales calls, executive visits, user group meetings, and other industry forums to gather information to match the needs of the market with our product development efforts. We also use a variety of market research techniques to enhance our understanding of our clients and the markets in which they operate.
 
We are currently funding 43 solutions development initiatives for new and enhanced offerings, including:
 
  •      LOCATION Analyst, a new portfolio-assessment system that uses proprietary insurance industry data, visual maps and sophisticated reporting to help insurers make better risk management decisions;
 
  •      360Value, an innovative web-based system for estimating replacement values of residential, commercial and agricultural properties; and
 
  •      Predictive models to help insurers classify, segment and price risks for a variety of lines of insurance.
 
We also add to our offerings through an active acquisition program. Since 2004, we have acquired 15 businesses, which have allowed us to enter new markets, offer new products and enhance the value of existing products with additional proprietary sources of data.
 
When we find it advantageous, we augment our proprietary data sources and systems by forming alliances with other leading information providers and technology companies and integrating their product offerings into our offerings. This approach gives our customers the opportunity to obtain the information they need from a single source and more easily integrate the information into their workflows.
 
Sales, Marketing and Customer Support
 
We sell our products and services primarily through direct interaction with our clients. We employ a three-tier sales structure that includes salespeople, product specialists and sales support. As of June 30, 2009, we had a sales force of 156 people. Within the company, several areas have sales teams that specialize in specific products and services. These specialized sales teams sell specific, highly technical product sets to targeted markets.
 
To provide account management to our largest customers, we segment the insurance market into two groups. National Accounts constitutes our 20 largest customers and Strategic Accounts includes all other insurance companies. Each market segment has its own sales team. Salespeople are responsible for our overall relationship with P&C insurance companies.
 
Salespeople participate in both customer-service and sales activities. They provide direct support, interacting frequently with assigned customers to assure a positive experience using our services. Salespeople also seek out new sales opportunities and provide support to the rest of the sales team. We believe our salespeople’s product knowledge and local presence differentiates us from our competition. Product specialists have product expertise and work with salespeople on specific opportunities for their assigned products. Both salespeople and product specialists have responsibility for identifying new sales opportunities. A team approach and a common customer relationship management system allow for effective coordination between the two groups.


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We go to market using a number of brands, including:
 
(GRAPH)
 
Sources of our Data
 
The data we use to perform our analytics and power our solutions are sourced through six different kinds of data arrangements. First, we gather data from our customers within agreements that also permit our customers to use the solutions created upon their data. These agreements remain in effect unless the data contributor chooses to opt out and represent our primary method of data gathering. It is very rare that contributors elect not to continue providing us data. Second, we have agreements with data contributors in which we specify the particular uses of their data and provide to the data contributors their required levels of privacy, protection of data and where necessary de-identification of data. These agreements represent no cost to us and generally feature a specified period of time for the data contributions and require renewal. Third, we “mine” data found inside the transactions supported by our solutions; as an example, we utilize the claims settlement data generated inside our repair cost estimating solution to improve the cost factors used in our models. Again, these arrangements represent no cost to us and we obtain the consent of our customers to make use of their data in this way. Fourth, we source data generally at no cost from public sources including federal, state and local governments. Fifth, we gather data about the physical characteristics of commercial properties through the direct observation of our field staff that also perform property surveys at the request of, and facilitated by, property insurers. Lastly, we purchase data from data aggregators under contracts that reflect prevailing market pricing for the data elements purchased, including county tax assessor records, descriptions of hazards such as flood plains and professional licenses. In all our modes of data collection, we are the owners of whatever derivative solutions we create using the data. Because of the efficiency of our data gathering methods and the lack of any cost associated with a large portion of our data, our costs to source data were 1.8% and 1.9% of revenues for the year ended December 31, 2008 and the six months ended June 30, 2009, respectively.
 
Information Technology
 
Technology
 
Our information technology systems are fundamental to our success. They are used for the storage, processing, access and delivery of the data which forms the foundation of our business and the development and delivery of our solutions provided to our clients. Much of the technology we use and provide to our clients is developed, maintained and supported by approximately 800 employees. We generally own or have secured ongoing rights to use for the purposes of our business all the customer-facing applications which are material to our operations. We support and implement a mix of technologies, focused on implementing the most efficient technology for any given business requirement or task.


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Customers connect to our systems using a number of different technologies, including internet, VPN, dedicated network connections, Frame Relay and Value Added Network services through vendors such as Advantis and IVANS. We utilize Computer Associates Unicenter, Hewlett Packard Insight Manager, Compuware Vantage and other best-of-breed point technologies to aggressively monitor and automate the management of our environment and applications as well as event-driven operational alerts.
 
Data Centers
 
We have two primary data centers in Jersey City, New Jersey and Orem, Utah. In addition, we have data centers dedicated to certain business units, including AIR and DxCG in Boston and AISG Claimsearch in Israel. In addition to these key data centers, we also have a number of smaller data centers located in other states.
 
Disaster Recovery
 
We are committed to a framework for business continuity management and carry out annual reviews of the state of preparedness of each business unit. All of our critical databases, systems and contracted client services are also regularly recovered. We also have documented disaster recovery plans in place for each of our major data centers and each of our solutions. Our primary data center recovery site is in New York State, approximately 50 miles northwest of Jersey City, New Jersey.
 
Security
 
We have adopted a wide range of measures to ensure the security of our IT infrastructure and data. Security measures generally cover the following key areas: physical security; logical security of the perimeter; network security such as firewalls; logical access to the operating systems; deployment of virus detection software; and appropriate policies and procedures relating to removable media such as laptops. All laptops are encrypted and media leaving our premises that is sent to a third-party storage facility is also encrypted. This commitment has led us to achieve certification from CyberTrust (an industry leader in information security certification) since 2002.
 
Intellectual Property
 
We own a significant number of intellectual property rights, including copyrights, trademarks, trade secrets and patents. Specifically, our policy language, insurance manuals, software and databases are protected by both registered and common law copyrights, and the licensing of those materials to our customers for their use represents a large portion of our revenue. We also own in excess of 200 trademarks in the U.S. and foreign countries, including the names of our products and services and our logos and tag lines, many of which are registered. We believe many of our trademarks, trade names, service marks and logos to be of material importance to our business as they assist our customers in identifying our products and services and the quality that stands behind them. We consider our intellectual property to be proprietary, and we rely on a combination of statutory (e.g., copyright, trademark, trade secret and patent) and contractual safeguards in a comprehensive intellectual property enforcement program to protect them wherever they are used.
 
We also own several software method and processing patents and have several pending patent applications in the U.S. that complement our products. The patents and patent applications include claims which pertain to technology, including a patent for our Claims Outcome Advisor software, our ISO-ITS rating and policy administration software and for our Xactware Sketch product. We believe the protection of our proprietary technology is important to our success and we will continue to seek to protect those intellectual property assets for which we have expended substantial research and development capital and which are material to our business.
 
In order to maintain control of our intellectual property, we enter into license agreements with our customers, granting each customer a license to use our products and services, including our software and databases. This helps to maintain the integrity of our proprietary intellectual property and to protect the embedded information and technology contained in our solutions. As a general practice, employees,


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contractors and other parties with access to our proprietary information sign agreements that prohibit the unauthorized use or disclosure of our proprietary rights, information and technology.
 
Employees
 
As of June 30, 2009, we employed 3,572 full-time and 159 part-time employees. None of our employees are represented by unions. We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements.
 
Properties
 
Our headquarters are in Jersey City, New Jersey. As of June 30, 2009, our principal offices consisted of the following properties:
 
                 
Location
  Square Feet     Lease Expiration Date  
 
Jersey City, New Jersey
    390,991       May 21, 2021  
Orem, Utah
    68,343       January 1, 2017  
Boston, Massachusetts
    47,000       March 31, 2015  
Agoura Hills, California
    28,666       October 30, 2011  
South Jordan, Utah
    23,505       May 31, 2014  
 
We also lease offices in 15 states in the United States and the District of Columbia and Puerto Rico and offices outside the United States to support our international operations in China, England, Israel, India, Japan, Germany and Nepal.
 
We believe that our properties are in good operating condition and adequately serve our current business operations. We also anticipate that suitable additional or alternative space, including those under lease options, will be available at commercially reasonable terms for future expansion.
 
Regulation
 
Because our business involves the distribution of certain personal, public and non-public data to businesses and governmental entities that make eligibility, service and marketing decisions based on such data, certain of our solutions and services are subject to regulation under federal, state and local laws in the United States and, to a lesser extent, foreign countries. Examples of such regulation include the Fair Credit Reporting Act, which regulates the use of consumer credit report information; the Gramm-Leach-Bliley Act, which regulates the use of non-public personal financial information held by financial institutions and applies indirectly to companies that provide services to financial institutions; the Health Insurance Portability and Accountability Act, which restricts the public disclosure of patient information and applies indirectly to companies that provide services to healthcare businesses; the Drivers Privacy Protection Act, which prohibits the public disclosure, use or resale by any state’s department of motor vehicles of personal information about an individual that was obtained by the department in connection with a motor vehicle record, except for a “permissible purpose” and various other federal, state and local laws and regulations.
 
These laws generally restrict the use and disclosure of personal information and provide consumers certain rights to know the manner in which their personal information is being used, to challenge the accuracy of such information and/or to prevent the use and disclosure of such information. In certain instances, these laws also impose requirements for safeguarding personal information through the issuance of data security standards or guidelines. Certain state laws impose similar privacy obligations, as well as obligations to provide notification of security breaches in certain circumstances.
 
We are also licensed as a rating, rate service, advisory or statistical organization under state insurance codes in all fifty states, Puerto Rico, Guam, the Virgin Islands and the District of Columbia. As such an advisory organization, we provide statistical, actuarial, policy language development and related products and services to property/casualty insurers, including advisory prospective loss costs, other prospective cost information, manual rules and policy language. We also serve as an officially designated statistical agent of


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state insurance regulators to collect policy-writing and loss statistics of individual insurers and compile that information into reports used by the regulators.
 
Many of our products, services and operations as well as insurer use of our services are subject to state rather than federal regulation by virtue of the McCarran-Ferguson Act. As a result, many of our operations and products are subject to review and/or approval by state regulators. Furthermore, our operations involving licensed advisory organization activities are subject to periodic examinations conducted by state regulators and our operations and products are subject to state antitrust and trade practice statutes within or outside state insurance codes, which are typically enforced by state attorneys general and/or insurance regulators.
 
Legal Proceedings
 
We are a party to legal proceedings with respect to a variety of matters in the ordinary course of business, including those matters described below. We are unable, at the present time, to determine the ultimate resolution of or provide a reasonable estimate of the range of possible loss attributable to these matters or the impact they may have on our results of operations, financial position, or cash flows. This is primarily because many of these cases remain in their early stages and only limited discovery has taken place. Although we believe we have strong defenses for the litigations proceedings described below, we could in the future incur judgments or enter into settlements of claims that could have a material adverse effect on its results of operations, financial position or cash flows.
 
Claims Outcome Advisor Litigation
 
Hensley, et al. v. Computer Sciences Corporation et al. is a putative nationwide class action complaint, filed in February 2005, in Miller County, Arkansas state court. Defendants include numerous insurance companies and providers of software products used by insurers in paying claims. We are among the named defendants. Plaintiffs allege that certain software products, including our Claims Outcome Advisor product and a competing software product sold by Computer Sciences Corporation, improperly estimated the amount to be paid by insurers to their policyholders in connection with claims for bodily injuries.
 
We entered into settlement agreements with plaintiffs asserting claims relating to the use of Claims Outcome Advisor by defendants Hanover Insurance Group, Progressive Car Insurance, and Liberty Mutual Insurance Group. Each of these settlements was granted final approval by the court and together the settlements resolve the claims asserted in this case against us with respect to the above insurance companies, who settled the claims against them as well. A provision was made in 2006 for this proceeding and the total amount the Company paid in 2008 with respect to these settlements was less than $2.0 million. A fourth defendant, The Automobile Club of California, which is alleged to have used Claims Outcome Advisor was dismissed from the action. On August 18, 2008, pursuant to the agreement of the parties the Court ordered that the claims against us be dismissed with prejudice.
 
Hanover Insurance Group has made a demand for reimbursement, pursuant to an indemnification provision contained in a December 30, 2004 License Agreement between Hanover and the Company, of its settlement and defense costs in the Hensley class action. Specifically, Hanover has demanded $2.5 million including $0.6 million in attorneys’ fees and expenses. We dispute that Hanover is entitled to any reimbursement pursuant to the License Agreement. We have entered into a tolling agreement with Hanover in order to allow the parties time to resolve the dispute without litigation.
 
Xactware Litigation
 
The following two lawsuits have been filed by or on behalf of groups of Louisiana insurance policyholders who claim, among other things, that certain insurers who used products and price information supplied by our subsidiary, Xactware (and those of another provider) did not fully compensate policyholders for property damage covered under their insurance policies. The plaintiffs seek to recover compensation for their damages in an amount equal to the difference between the amount paid by the defendants and the fair market repair/restoration costs of their damaged property.


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Schafer v. State Farm Fire & Cas. Co., et al. is a putative class action pending against us and State Farm Fire & Casualty Company filed in March 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. The court dismissed the antitrust claim as to both defendants and dismissed all claims against us other than fraud, which will proceed to the discovery phase along with the remaining claims against State Farm. The plaintiffs’ motion to certify a class with respect to the fraud and breach of contract claims was denied on August 3, 2009.
 
Mornay v. Travelers Ins. Co., et al. is a putative class action pending against us and Travelers Insurance Company filed in November 2007 in the Eastern District of Louisiana. The complaint alleged antitrust violations, breach of contract, negligence, bad faith, and fraud. As in Schafer, the court dismissed the antitrust claim as to both defendants and dismissed all claims against us other than fraud. The court has stayed all proceedings in the case pending an appraisal of the lead plaintiff’s insurance claims.
 
At this time it is not possible to determine the ultimate resolution of, or estimate the liability related to, these matters. No provision for losses has been provided in connection with the Xactware litigation.
 
iiX Litigation
 
In March 2007, our subsidiary, Insurance Information Exchange, or iiX, as well as other information providers and insurers in the State of Texas, were served with a summons and class action complaint filed in the United States District Court for the Eastern District of Texas alleging violations of the Driver Privacy Protection Act, or the DPPA. Plaintiffs brought the action on their own behalf and on behalf of all similarly situated individuals whose personal information is contained in any motor vehicle record maintained by the State of Texas and who have not provided express consent to the State of Texas for the distribution of their personal information for purposes not enumerated by the DPPA and whose personal information has been knowingly obtained and used by the defendants. The complaint alleges that the defendants knowingly obtained personal information and that the obtaining and use of this personal information was not for a purpose authorized by the DPPA. The complaint seeks liquidated damages in the amount of $2,500 for each instance of a violation of the DPPA, punitive damages and the destruction of any illegally obtained personal information. The Court granted iiX’s motion to dismiss the complaint based on failure to state a claim and lack of standing, and the plaintiffs are appealing the dismissal.


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MANAGEMENT
 
Executive Officers and Directors
 
The following table sets forth information regarding the executive officers and directors of the Company, as of June 30, 2009:
 
             
Name
 
Age
 
Position
 
Frank J. Coyne
    60     Chairman of the Board of Directors, President and Chief Executive Officer
Scott G. Stephenson
    52     Executive Vice President and Chief Operating Officer
Mark V. Anquillare
    43     Senior Vice President and Chief Financial Officer
Kenneth E. Thompson
    49     Senior Vice President, General Counsel and Corporate Secretary
Carole J. Banfield
    69     Executive Vice President — Information Services and Government Relations
Vincent Cialdella
    58     Senior Vice President — AISG
Kevin B. Thompson
    56     Senior Vice President — Insurance Services
J. Hyatt Brown
    71     Director
Glen A. Dell
    73     Director
Christopher M. Foskett
    51     Director
Constantine P. Iordanou
    59     Director
John F. Lehman, Jr. 
    66     Director
Thomas F. Motamed
    60     Director
Samuel G. Liss
    52     Director
Andrew G. Mills
    57     Director
Arthur J. Rothkopf
    74     Director
David B. Wright
    60     Director
 
A brief biography of each executive officer and director follows.
 
Executive Officers
 
Frank J. Coyne has been our Chairman, President and Chief Executive Officer since 2002. From 2000 to 2002, Mr. Coyne served as our President and Chief Executive Officer and he served as our President and Chief Operating Officer from 1999 to 2000. Mr. Coyne joined the Company from Kemper Insurance Cos. where he was Executive Vice President Specialty and Risk Management Groups. Previously, he served in a variety of positions with General Accident Insurance, and was elected its President and Chief Operating Officer in 1991. He has also held executive positions with Lynn Insurance Group, Reliance Insurance Co. and PMA Insurance Co.
 
Scott G. Stephenson has been our Chief Operating Officer since June 2008 and leader of our Decision Analytics segment. From 2002 to 2008, Mr. Stephenson served as our Executive Vice President and he served as President of our Intego Solutions business from 2001 to 2002. Mr. Stephenson joined the Company from Silver Lake Partners, a technology-oriented private equity firm, where he was an executive-in-residence from 1999 to 2001. From 1989 to 1999 Mr. Stephenson was a partner with The Boston Consulting Group, eventually rising to senior partner and member of the firm’s North American operating committee.
 
Mark V. Anquillare has been our Senior Vice President and Chief Financial Officer since 2007. Mr. Anquillare joined the Company as Director of Financial Systems in 1992 and since joining the Company, Mr. Anquillare has held various management positions, including Assistant Vice President, Vice President and


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Controller and Senior Vice President and Controller. Prior to 1992, Mr. Anquillare was employed by the Prudential Insurance Company of America. Mr. Anquillare is a Fellow of the Life Management Institute.
 
Kenneth E. Thompson has been our Senior Vice President, General Counsel and Corporate Secretary since 2006. Prior to joining the Company in 2006, Mr. Thompson was a partner of McCarter & English, LLP from 1997 to 2006. Mr. Thompson also serves on the board of directors of Measurement Specialties, Inc.
 
Carole J. Banfield has been our Executive Vice President Information Services and Government Relations Department focused on our Risk Assessment segment since 1996. Ms. Banfield joined the Company in 1970 as an assistant actuary in the Homeowners Actuarial Division and since 1977 has held various management positions, including Vice President Government and Industry Relations. Ms. Banfield began her career with the National Bureau of Casualty Underwriters in 1962. Ms. Banfield is a member of the American Academy of Actuaries and an Associate of the Casualty Actuarial Society. She currently serves on the board of directors of the American Society of Workers’ Compensation Professionals, the Insurance Data Management Association and on the Industry Advisory Group of ACORD.
 
Vincent Cialdella has been our Senior Vice President, AISG since April 2008 in our Decision Analytics segment. Prior to April 2008, Mr. Cialdella served as Vice President of ISO Claims Solutions, a division of AISG, since 2000. Mr. Cialdella’s career at the Company spans approximately thirty years, during which he has served as Assistant Vice President of Software Products, Corporate Systems and Application Development Support Center.
 
Kevin B. Thompson has been our Senior Vice President, Insurance Services since 2003 focused on our Risk Assessment segment. Mr. Thompson joined the Company in 1974 and has held various management positions, including Vice President, Insurance Services, Vice President, Personal and Standard Commercial Lines, Vice President, Standard Commercial Lines, Assistant Vice President, Commercial Casualty Actuarial. Mr. Thompson is also a Member of the American Academy of Actuaries and Fellow of the Casualty Actuarial Society. From 1996 to 1999 he served as Vice President - Admissions of the Casualty Actuarial Society and as a Member of the Board of Directors from 1994 to 1996.
 
Class A Directors
 
Christopher M. Foskett has served as one of our directors since 1999. Mr. Foskett was a Managing Director and Global Head of the Financial Institutions Group in Citigroup’s Corporate Bank from 2007 to 2008. From 2003 to 2007, Mr. Foskett was Head of Sales and Relationship Management for Citigroup Global Transaction Services. He also served as Global Industry Head for the Insurance and Investment Industries in Citigroup’s Global Corporate Bank from 1999 to 2003. Previously, he held various roles in Citigroup’s mergers and acquisitions group.
 
David B. Wright has served as one of our directors since 1999. Mr. Wright has been Chairman and Chief Executive Officer of Verari Systems since 2006. Before joining Verari Systems, he was Executive Vice President, Office of the CEO, Strategic Alliances and Global Accounts of EMC Corporation from 2004 to 2006. Between 2001 and 2004 he was Chairman and Chief Executive Officer of Legato Systems and from 1997 to 2000 Mr. Wright was the President and Chief Executive Officer of Amdahl Corporation. Mr. Wright is also a director on the board of VA Software and ActiveIdentity.
 
John F. Lehman, Jr. has served as one of our directors since 1995. Mr. Lehman is Chairman of J. F. Lehman & Co., an investment firm that he founded in 1991. Prior to founding J. F. Lehman & Co., he was Managing Director of Paine Webber, Inc. from 1988 to 1991. In 1981, Mr. Lehman was appointed Secretary of the Navy by President Reagan and served in that capacity until 1987. Mr. Lehman was a member of the bipartisan September 11 Commission and serves on the board of directors of Ball Corp., EnerSys, Inc., Hawaii Superferry Inc., Atlantic Marine, Oao Technology Solutions Inc. and Special Devices, Incorporated.
 
Andrew G. Mills has served as one of our directors since 2002. Mr. Mills has been President of The King’s College in New York, NY since 2007. He is the former Chairman of Intego Solutions LLC, which he founded in 2000. Mr. Mills previously served as Chief Executive Officer of The Thomson Corporation’s Financial and Professional Publishing unit and as a member of Thomson’s board of directors. In 1984, he led


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the start-up operations of Business Research Corporation and was responsible for overseeing its sale and integration into The Thompson Corporation. He began his career with Courtaulds Ltd. and joined The Boston Consulting Group in 1979. Mr. Mills is on the board of directors of The King’s College, Lexington Christian Academy, Camp of the Woods and Hope Christian Church, and is a member of the Massachusetts State Board of the Salvation Army.
 
Arthur J. Rothkopf has served as one of our directors since 1993. Mr. Rothkopf has served as Senior Vice President and Counselor to the President of the U.S. Chamber of Commerce since July of 2005. From 1993 to 2005, Mr. Rothkopf was President of Lafayette College in Easton, Pennsylvania. Prior to serving as President of Lafayette College, Mr. Rothkopf was General Counsel and Deputy Secretary of the U.S. Department of Transportation, appointed by President George H. W. Bush. From 1967 through 1991, he practiced law with the Washington, D.C., firm of Hogan & Hartson, where he was a senior partner. Mr. Rothkopf is a trustee of American University in Washington D.C. and a trustee of the Educational Testing Service in Princeton, New Jersey.
 
J. Hyatt Brown has served as one of our directors since 2003. Mr. Brown has been Chairman of Brown & Brown, Inc. since 1993 and served as Brown & Brown’s Chief Executive Officer from 1993 until July 1, 2009. Mr. Brown is a Trustee of Stetson University in Florida, a past member of the Florida Board of Regents and a member of the Florida Council of 100. He was elected to the Florida House of Representatives in 1972 and was elected Speaker in 1978. Mr. Brown retired as Speaker in 1980. He also serves on the board of directors of Rock-Tenn Company, the FPL Group Inc. and the Daytona International Speedway Corporation.
 
Glen A. Dell has served as one of our directors since 1995. Mr. Dell is a retired Partner of MapleWood Equity Partners LP. Mr. Dell served as a Partner of MapleWood Equity Partners LP from 1998 to 2007. From 1992 to 1997, Mr. Dell served as President of Investcorp Management Services Inc., where he was responsible for post-acquisition management of Investcorp’s portfolio of companies in North America. He has also served as a consultant, specializing in interim management services, and held executive positions with General Electric Co., International Paper Co., and JWT Group, Inc. Mr. Dell was a member of the board of directors of Parts Depot, Inc. until February 28, 2008.
 
Class B Directors
 
Constantine P. Iordanou has served as one of our directors since 2001. Mr. Iordanou has served as President and Chief Executive Officer of Arch Capital Group Limited, or ACGL, since August 2003 and as director of ACGL since January 2002. From January 2002 through July 2003, he was Chief Executive Officer of Arch Capital (U.S.) Inc., a wholly owned subsidiary of ACGL. Prior to joining ACGL in 2002, Mr. Iordanou served in various capacities for Zurich Financial Services and its affiliates, including as Senior Executive Vice President of Group Operations and Business Development of Zurich Financial Services, President of Zurich-American Specialties Division, Chief Operating Officer and Chief Executive Officer of Zurich American and Chief Executive Officer of Zurich North America. Prior to joining Zurich in March of 1992, he served as President of the Commercial Casualty division of the Berkshire Hathaway Group and served as Senior Vice President with the American Home Insurance Company, a member of the American International Group.
 
Samuel G. Liss has served as one of our directors since 2005. Mr. Liss has been Executive Vice President at The Travelers Companies since 2004. Before the merger of The St. Paul and Travelers Companies, Mr. Liss served as Executive Vice President at The St. Paul from February 2003 to April 2004. From 1994 to 2001, Mr. Liss was a Managing Director at Credit Suisse First Boston, or CSFB, initially focused on equity research across a range of financial institution sectors and subsequently serving in a Senior Investment Banking relationship, advisory and execution role in CSFB’s Financial Institutions Group, including leadership of its asset management industry practice. Mr. Liss was a senior equity analyst at Salomon Brothers from 1980 to 1994.
 
Thomas F. Motamed has served as one of our directors since 2009. Mr. Motamed is the Chairman of the Board and Chief Executive Officer of CNA Financial Corporation since January 1, 2009. From December


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2002 to June 2008, he served as Vice Chairman and Chief Operating Officer of The Chubb Corporation and President and Chief Operating Officer of Chubb & Son.
 
Board Composition
 
The number of directors will be fixed by our board of directors, subject to the terms of our amended and restated certificate of incorporation. From the date of this prospectus until the earlier of (a) the 24-month anniversary of the date of this prospectus or (b) the date on which there are no shares of Class B common stock issued and outstanding, our board of directors will consist of between 11 and 13 directors, and will be comprised as follows:
 
  •      between eight to ten Class A directors; and
 
  •      three Class B directors.
 
See “Description of Capital Stock — Anti-Takeover Effects of Delaware Law — Staggered Boards.”
 
Director Independence
 
Our board of directors consists of 12 directors, 10 of which are “independent” as defined under applicable listing rules. One Class A seat on our board of directors is currently vacant. Currently, the following individuals serve on our board of directors as independent directors: J. Hyatt Brown, Glen A. Dell, Christopher M. Foskett, Constantine P. Iordanou, John F. Lehman, Jr., Samuel G. Liss, Thomas F. Motamed, Andrew G. Mills, Arthur J. Rothkopf, and David B. Wright.
 
Board Committees
 
Our by-laws provide that the board of directors may designate one or more committees. We currently have the following committees: Executive Committee, Audit Committee, Compensation Committee, Finance and Investment Committee, and Nominating and Corporate Governance Committee.
 
The Executive Committee currently consists of Frank J. Coyne (Chair), Glen A. Dell, Constantine P. Iordanou, John F. Lehman, Jr. and Arthur J. Rothkopf. The Executive Committee exercises all the power and authority of the board of directors (except those powers and authorities that are reserved to the full board of directors under Delaware law) between regularly scheduled board of directors meetings. The Executive Committee also makes recommendations to the full board of directors on various matters. The Executive Committee meets as necessary upon the call of the chairman of the board of directors.
 
The Audit Committee currently consists of Glen A. Dell (Chair), Christopher M. Foskett, Samuel G. Liss, Andrew G. Mills, Thomas F. Motamed and David B. Wright, all of whom are “independent” as defined under applicable listing rules. Each member of our Audit Committee is financially literate, as such term is interpreted by our board of directors. In addition, Glen A. Dell meets the qualifications of an “audit committee financial expert” in accordance with SEC rules, as determined by our board of directors. The Audit Committee reviews and, as it deems appropriate, recommends to the board of directors the internal accounting and financial controls for the Company and the accounting principles and auditing practices and procedures to be employed in preparation and review of the financial statements of the Company. The Audit Committee also provides assistance to our board of directors in fulfilling its responsibilities with respect to our compliance with legal and regulatory requirements. In addition, the Audit Committee also makes recommendations to the board of directors concerning the engagement of the independent accounting firm and the scope of the audit to be undertaken by such auditors.
 
The Compensation Committee currently consists of John F. Lehman, Jr. (Chair), Glen A. Dell, Constantine P. Iordanou and David B. Wright, all of whom are “independent” as defined under applicable listing rules. The Compensation Committee reviews and, as it deems appropriate, recommends to the board of directors policies, practices and procedures relating to the compensation of the officers and other managerial employees and the establishment and administration of employee benefit plans. The Compensation Committee also exercises all authority under the Company’s employee equity incentive plans and advises and consults with the officers of the Company as may be requested regarding managerial personnel policies.


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The Finance and Investment Committee currently consists of Samuel G. Liss (Chair), J. Hyatt Brown, Christopher M. Foskett, Andrew G. Mills, and Thomas F. Motamed. The Finance and Investment Committee meets annually and at such other times as necessary to establish, monitor and evaluate the Company’s investment policies, practices and advisors, and to advise management and the board of directors on the financial aspects of strategic and operational directions, including financial plans, capital planning, financing alternatives, and acquisition opportunities.
 
The Nominating and Corporate Governance Committee currently consists of Constantine P. Iordanou (Chair), J. Hyatt Brown, John F. Lehman, Jr., and Arthur J. Rothkopf. Constantine P. Iordanou, J. Hyatt Brown, John F. Lehman, Jr., and Arthur J. Rothkopf are “independent” as defined under applicable listing rules. Following this offering, we expect that the Nominating and Corporate Governance Committee will be comprised of independent directors in accordance with applicable requirements. The Nominating and Corporate Governance Committee reviews and, as it deems appropriate, recommends to the board of directors policies and procedures relating to director and board of directors committee nominations and corporate governance policies.
 
Code of Business Conduct and Ethics
 
Our board of directors has established a code of business conduct and ethics that applies to our employees, agents, independent contractors, consultants, officers and directors. Any waiver of the code of business conduct and ethics may be made only by our board of directors and will be promptly disclosed as required by law or stock exchange regulations. The board of directors has not granted any waivers to the code of business conduct and ethics.
 
Corporate Governance Guidelines
 
Our board of directors has adopted corporate governance guidelines that comply with the applicable listing requirements and the regulations of the Securities and Exchange Commission.
 
Compensation Committee Interlocks and Insider Participation
 
No member of the Compensation Committee is a current or former officer of the Company or any of our subsidiaries. In addition, there are no compensation committee interlocks with the board of directors or compensation committee of any other company.
 
Directors’ Compensation and Benefits
 
Annual Retainer.  Effective June 1, 2007, each non-employee director receives a retainer fee of $50,000 per year for membership on the board of directors. Each non-employee director who chairs a committee receives an additional $5,000 retainer fee, with the exception of the chairpersons of the Audit Committee and Compensation Committee, each of whom receives an additional $12,500 annual retainer fee.
 
Each non-employee director may elect to receive his or her annual retainer in the form of (i) cash, (ii) deferred cash, (iii) shares of Class A common stock, (iv) deferred shares of Class A common stock, (v) options to purchase Class A common stock or (vi) a combination of (i), (ii), (iii), (iv) and (v), except that not more than 50% of the Annual Retainer may be paid in cash. Any portion of the annual retainer taken in options are exercisable for a period of ten years from the date of grant (subject to earlier termination if the individual ceases to be a director of the Company), vest immediately, and have an exercise price equal to the fair market value of the Class A common stock on the date of grant.
 
Meeting Attendance Fees.  Each non-employee director receives a $1,500 fee for each board of directors or Committee meeting attended in person. Meeting attendance fees are payable only in cash or deferred cash.
 
Stock Option Grants.  Effective as of the 2007 Annual Meeting of Stockholders, each non-employee director receives an annual option grant having a Black-Scholes value of $125,000. The initial awarding of such options is being phased in over a period of three years, so that, from 2007 through 2009, each non-


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employee director receives (or received) the initial grant in the year he or she is (or was) re-elected. Such options are exercisable for a period of ten years from the date of grant (subject to earlier termination if the individual ceases to be a director of the Company), vest on the first anniversary of the date of grant, and have an exercise price equal to the fair market value of the Class A common stock on the date of grant. Prior to the 2007 Annual Meeting of Stockholders, each non-employee director was granted an option to purchase 1,500 shares of Class A common stock every three years upon his or her re-election to the Board.
 
Employee-directors receive no additional compensation for service on the board of directors. Mr. Frank J. Coyne is the only employee-director.
 
The table below shows compensation paid to or earned by the directors during 2008. As noted above, directors may elect to receive compensation in various forms other than cash. Also, prior to 2007, directors received stock option grants every three years upon their re-election to the board. We are required to report equity awards based on accounting expense. The amounts shown for each director are not uniform because accounting expense will differ in part depending on how each director elected to receive his or her compensation and the years in which they were re-elected to the board. The numbers shown in the following table do not take into account the approximately fifty-for-one split that will occur prior to the consummation of this offering.
 
2008 DIRECTOR COMPENSATION
 
                                 
    Fees Earned or
    Stock Awards
    Option Awards
    Total
 
Name
  Paid in Cash ($)     ($)(1)     ($)(1)     ($)  
 
Joseph A. Brandon(2)
    4,500                   4,500  
J. Hyatt Brown(3)
    32,500       25,000       48,863       106,363  
Glen A. Dell(4)
    10,500             103,863       114,363  
Henry J. Feinberg(5)
    12,000             98,863       110,863  
Christopher M. Foskett(6)
    12,000       12,500       87,500       112,000  
Constantine Iordanou(7)
                180,000       180,000  
John F. Lehman, Jr.(8)
                187,500       187,500  
Stephen W. Lilienthal(9)
          12,500             12,500  
Samuel G. Lis