0001442145 Verisk Analytics, Inc. false --12-31 Q1 2021 19.3 17.7 001 001 2,000,000,000 2,000,000,000 544,003,038 544,003,038 162,466,592 162,817,526 381,536,446 381,185,512 560,526 115,284 50,898 31,311 37,683 12,099 1,124,368 449,007 11,929 3.8 0 0 0 99 129.1 14.0 1 13 20 0 5.80 5.80 0 0.1 3.625 3.625 10.6 10.7 4.125 4.125 12.0 12.4 4.00 4.00 5.1 5.4 5.50 5.50 4.3 4.3 4.125 4.125 0.9 1.1 2,000,000,000 0 10 3 1 4 4 3 6.3 3 0 3 0 7 5 6 These accumulated other comprehensive loss components, before tax, are included under "Cost of revenues" and "Selling, general and administrative" in our accompanying condensed consolidated statements of operations. These components are also included in the computation of net periodic (benefit) cost (see Note 13. Pension and Postretirement Benefits for additional details). Includes estimated performance achievement Refer to Note 5. Leases Included in "Depreciation and amortization of fixed assets" in our accompanying consolidated statements of operations Included in "Interest expense" in our accompanying consolidated statements of operations Of which $15.8 million relates to a segment reclassification, refer to Note 14. Segment Reporting Refer to Note 11. 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Table of Contents



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 


FORM 10-Q

 


 

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

For the quarterly period ended March 31, 2021

OR

 

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

 

For the transition period from                      to                     

Commission File Number: 001-34480

 


VERISK ANALYTICS, INC.

(Exact name of registrant as specified in its charter)

 


Delaware

26-2994223

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

  

545 Washington Boulevard

 

Jersey City

 

NJ

07310-1686

(Address of principal executive offices)

(Zip Code)

 

(201) 469-3000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange where registered

Common Stock $.001 par value

VRSK

NASDAQ Global Select Market

 


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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No  ☐

 

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,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

       

Non-accelerated filer

 

 

Smaller reporting company

 

       
    

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

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

 

 

As of April 30, 2021, there were 162,091,206 shares outstanding of the registrant's Common Stock, par value $.001.

 



 

 

 

 

Verisk Analytics, Inc.

Index to Form 10-Q

 

Table of Contents

 

 

 

Page Number

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

 

Condensed Consolidated Balance Sheets

1

Condensed Consolidated Statements of Operations

2

Condensed Consolidated Statements of Comprehensive Income (Loss) 

3

Condensed Consolidated Statements of Changes in Stockholders’ Equity

4

Condensed Consolidated Statements of Cash Flows

5

Notes to Condensed Consolidated Financial Statements

6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. Quantitative and Qualitative Disclosures About Market Risk

29

Item 4. Controls and Procedures

30

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

31

Item 1A. Risk Factors

31

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

31

Item 3. Defaults Upon Senior Securities

31

Item 4. Mine Safety Disclosures

31

Item 5. Other Information

32

Item 6. Exhibits

32

SIGNATURES

33

Exhibit 31.1

 

Exhibit 31.2

 

Exhibit 32.1

 

 

 

 

 

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

As of March 31, 2021 and December 31, 2020

 

 

2021

 

2020

 
 

(in millions, except for share and per share data)

 

ASSETS

 

Current assets:

      
Cash and cash equivalents$390.9 $218.8 
Accounts receivable, net of allowance for doubtful accounts of $19.3 and $17.7, respectively 519.5  432.4 
Prepaid expenses 82.9  81.2 
Income taxes receivable   25.4 
Other current assets 48.3  36.4 

Total current assets

 1,041.6  794.2 

Noncurrent assets:

      
Fixed assets, net 646.6  632.3 
Operating lease right-of-use assets, net 264.0  267.6 
Intangible assets, net 1,355.7  1,384.8 
Goodwill 4,135.6  4,108.1 
Deferred income tax assets 9.0  9.1 
Other noncurrent assets 358.0  365.7 

Total assets

$7,810.5 $7,561.8 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

Current liabilities:

      
Accounts payable and accrued liabilities$380.2 $407.3 
Short-term debt and current portion of long-term debt 464.8  514.3 
Deferred revenues 723.9  466.7 
Operating lease liabilities 37.5  38.7 
Income taxes payable 16.5  3.8 

Total current liabilities

 1,622.9  1,430.8 

Noncurrent liabilities:

      
Long-term debt 2,699.6  2,699.6 
Deferred income tax liabilities 399.6  396.9 
Operating lease liabilities 269.6  271.6 
Other noncurrent liabilities 47.3  64.7 

Total liabilities

 5,039.0  4,863.6 

Commitments and contingencies (Note 16)

 
       

Stockholders’ equity:

      
Common stock, $.001 par value; 2,000,000,000 shares authorized; 544,003,038 shares issued; 162,466,592 and 162,817,526 shares outstanding, respectively 0.1  0.1 
Additional paid-in capital 2,515.3  2,490.9 
Treasury stock, at cost, 381,536,446 and 381,185,512 shares, respectively (4,277.0) (4,179.3)
Retained earnings 4,884.1  4,762.2 
Accumulated other comprehensive losses (366.2) (375.7)
Total Verisk stockholders' equity 2,756.3  2,698.2 
Noncontrolling interest 15.2   

Total stockholders’ equity

 2,771.5  2,698.2 

Total liabilities and stockholders’ equity

$7,810.5 $7,561.8 

 

 

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

 

 

1

 

 

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 
   

(in millions, except for share and per share data)

 
Revenues   $ 726.1     $ 689.8  

Operating expenses:

               
Cost of revenues (exclusive of items shown separately below)     262.4       257.7  
Selling, general and administrative     119.8       112.1  
Depreciation and amortization of fixed assets     48.5       46.1  
Amortization of intangible assets     45.0       41.0  
Other operating income           (19.4 )

Total operating expenses

    475.7       437.5  

Operating income

    250.4       252.3  

Other income (expense):

               
Investment income (loss) and others, net     1.7       (2.1 )
Interest expense     (35.4 )     (33.5 )

Total other expense, net

    (33.7 )     (35.6 )

Income before income taxes

    216.7       216.7  
Provision for income taxes     (48.7 )     (45.0 )

Net income

    168.0       171.7  
Less: Net loss attributable to noncontrolling interest     (0.6 )      
Net income attributable to Verisk   $ 168.6     $ 171.7  
Basic net income per share attributable to Verisk   $ 1.04     $ 1.05  
Diluted net income per share attributable to Verisk   $ 1.03     $ 1.04  

Weighted-average shares outstanding:

               
Basic     162,641,819       162,894,306  
Diluted     164,436,717       165,724,120  

 

 

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

 

2

 

 

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (UNAUDITED)

 

   

Three Months Ended March 31,

 
   

2021

   

2020

 
   

(in millions)

 

Net income

  $ 168.0     $ 171.7  

Other comprehensive income (loss), net of tax:

               
Foreign currency translation adjustment     8.7       (172.6 )
Pension and postretirement liability adjustment     0.8       0.8  

Other comprehensive income (loss)

    9.5       (171.8 )

Comprehensive income (loss)

    177.5       (0.1 )
Less: Comprehensive loss attributable to noncontrolling interest     (0.8 )      
Comprehensive income (loss) attributable to Verisk   $ 178.3     $ (0.1 )

 

 

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

 

3

 

 

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)

For The Three Months Ended March 31, 2021 and 2020

 

  

Common Stock Issued

  

Par Value

  

Additional Paid-in Capital

  

Treasury Stock

  

Retained Earnings

  

Accumulated Other Comprehensive Losses

  

Noncontrolling Interest

  

Total Stockholders’ Equity

 
  

(in millions, except for share data)

 

Balance, January 1, 2021

  544,003,038  $0.1  $2,490.9  $(4,179.3) $4,762.2  $(375.7) $  $2,698.2 

Net income

              168.0         168.0 
Comprehensive loss attributable to noncontrolling interest              0.6      (0.8)  (0.2)

Investment in noncontrolling interest

                    16.0   16.0 

Other comprehensive income

                 9.5      9.5 

Common stock dividend (1)

              (46.7)        (46.7)

Treasury stock acquired (560,526 shares)

           (100.0)           (100.0)

Stock options exercised (115,284 shares transferred from treasury stock)

        6.1   1.3            7.4 
Performance share units lapsed (50,898 shares transferred from treasury stock)        (0.6)  0.6             

Restricted stock lapsed (31,311 shares transferred from treasury stock)

        (0.3)  0.3             

Stock-based compensation expense

        25.4               25.4 

Net share settlement from restricted stock awards (37,683 shares withheld for tax settlement)

        (7.8)              (7.8)

Other stock issuances (12,099 shares transferred from treasury stock)

        1.6   0.1            1.7 

Balance, March 31, 2021

  544,003,038  $0.1  $2,515.3  $(4,277.0) $4,884.1  $(366.2) $15.2  $2,771.5 
                                 

Balance, January 1, 2020

  544,003,038  $0.1  $2,369.1  $(3,849.9) $4,228.4  $(486.9) $  $2,260.8 

Adjustment to opening retained earnings related to Topic 326

              (2.4)        (2.4)

Net income

              171.7         171.7 

Common stock dividend (1)

              (44.3)        (44.3)

Other comprehensive loss

                 (171.8)     (171.8)

Treasury stock acquired (1,124,368 shares)

           (173.8)           (173.8)

Stock options exercised (449,007 shares transferred from treasury stock)

        14.8   4.7            19.5 

Stock-based compensation expense

        19.6               19.6 

Other stock issuances (11,929 shares transferred from treasury stock)

        1.1   0.1            1.2 

Balance, March 31, 2020

  544,003,038  $0.1  $2,404.6  $(4,018.9) $4,353.4  $(658.7) $  $2,080.5 

_______________

(1) Refer to Note 11. Stockholders' Equity for discussion related to quarterly cash dividends declared per share

 

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

 

4

 

VERISK ANALYTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For The Three Months Ended March 31, 2021 and 2020

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 
  

(in millions)

 

Cash flows from operating activities:

        

Net income

 $168.0  $171.7 

Adjustments to reconcile net income to net cash provided by operating activities:

        

Depreciation and amortization of fixed assets

  48.5   46.1 

Amortization of intangible assets

  45.0   41.0 

Amortization of debt issuance costs and original issue discount, net of original issue premium

  0.4   0.3 

Provision for doubtful accounts

  3.2   1.5 

Gain on sale of assets

     (19.4)

Stock-based compensation expense

  25.4   19.6 

Realized loss on available-for-sale securities, net

     0.5 

Deferred income taxes

  (0.7)  (0.1)

Loss on disposal of fixed assets, net

     0.3 

Changes in assets and liabilities, net of effects from acquisitions:

        

Accounts receivable

  (89.5)  (96.5)

Prepaid expenses and other assets

  (4.2)  (18.5)

Operating lease right-of-use assets, net

  10.4   9.3 

Income taxes

  38.4   41.0 

Accounts payable and accrued liabilities

  (25.9)  (61.8)

Deferred revenues

  256.9   237.6 

Operating lease liabilities

  (10.1)  (10.5)

Other liabilities

  (17.1)  0.5 

Net cash provided by operating activities

  448.7   362.6 

Cash flows from investing activities:

        
Acquisitions and purchase of controlling interest, net of cash acquired of $3.8 and $0.0, respectively  (13.7)   

Proceeds from sale of assets

     23.1 

Investments in nonpublic companies

     (63.8)

Capital expenditures

  (59.2)  (52.9)
Payment of contingent liability related to acquisition  (1.2)   

Other investing activities, net

  0.4   6.1 

Net cash used in investing activities

  (73.7)  (87.5)

Cash flows from financing activities:

        

Repayments of short-term debt, net

  (50.0)  (75.0)

Proceeds from issuance of short-term debt with original maturities greater than three months

     20.0 

Repurchases of common stock

  (100.0)  (173.8)

Proceeds from stock options exercised

  7.6   19.2 

Net share settlement of taxes from restricted stock and performance share awards

  (7.8)   

Dividends paid

  (47.1)  (43.9)

Other financing activities, net

  (1.9)  (1.9)

Net cash used in financing activities

  (199.2)  (255.4)

Effect of exchange rate changes

  (3.7)  (0.2)

Net increase in cash and cash equivalents

  172.1   19.5 

Cash and cash equivalents classified within current assets held for sale, beginning of period

     0.3 

Cash and cash equivalents, beginning of period

  218.8   184.6 

Cash and cash equivalents, end of period

 $390.9  $204.4 

Supplemental disclosures:

        

Income taxes paid

 $10.8  $4.1 

Interest paid

 $19.5  $22.6 

Noncash investing and financing activities:

        

Deferred tax liability established on date of acquisition

 $2.2  $ 

Finance lease additions

 $2.0  $1.5 

Operating lease additions, net of terminations

 $6.7  $1.6 

Fixed assets included in accounts payable and accrued liabilities

 $0.9  $0.7 

Dividends included in accrued liabilities and other liabilities

 $0.4  $1.0 

Gain on sale of assets included in other current and long-term assets

 $  $3.5 

Held for sale assets contributed to a nonpublic company

 $  $65.9 

 

 

 

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

 

5

 

VERISK ANALYTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(Amounts in millions, except for share and per share data, unless otherwise stated)

 

 

1. Organization:

 

Verisk Analytics, Inc. and its consolidated subsidiaries (collectively "we") is a data analytics provider serving customers in insurance, energy and specialized markets, and financial services. Using various technologies to collect and analyze billions of records, we draw on numerous data assets and domain expertise to provide first-to-market innovations that are integrated into customer workflows. We offer predictive analytics and decision support solutions to customers in rating, underwriting, claims, catastrophe and weather risk, global risk analytics, natural resources intelligence, economic forecasting, commercial banking and finance, and many other fields. Around the world, we help customers protect people, property, and financial assets. 

 

We were established to serve as the parent holding company of Insurance Services Office, Inc. (“ISO”) upon the completion of the initial public offering (“IPO”), which occurred on October 9, 2009. ISO was formed in 1971 as an advisory and rating organization for the property and casualty ("P&C") insurance industry to provide statistical and actuarial services, to develop insurance programs and to assist insurance companies in meeting state regulatory requirements. Over the past decade, we broadened our data assets, entered new markets, placed a greater emphasis on analytics, and pursued strategic acquisitions. We trade under the ticker symbol “VRSK” on the Nasdaq Global Select Market.

 

Since January 2020, an outbreak of the 2019 novel coronavirus (“COVID-19”) has evolved into a worldwide pandemic. We have modified our operations in line with our business continuity plans due to COVID-19. While our facilities generally remain open, we are making extensive use of the work-from-home model at this moment. On a daily basis, management is reviewing our operations and there have been to date minimal interruptions in our customer facing operations. Given the digital nature of our business and the move toward cloud enablement, we expect to remain operationally stable and fully available to our customers. We are in compliance with all financial covenants and have not observed a loss of any significant customers, a significant deterioration in the collectability of receivables, a significant reduction in our liquidity nor a significant decline in subscription renewal rates. 

 

 

 

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

 

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

 

Our condensed consolidated financial statements as of  March 31, 2021 and for the three months ended March 31, 2021 and 2020, in the opinion of management, include all adjustments, consisting of normal recurring items, to present fairly our financial position, results of operations and cash flows. Our operating results for the three months ended March 31, 2021 are not necessarily indicative of the results to be expected for the full year. Our condensed consolidated financial statements and related notes as of and for the three months ended March 31, 2021 have been prepared on the same basis as and should be read in conjunction with our annual report on Form 10-K for the year ended December 31, 2020. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules of the SEC. We believe the disclosures made are adequate to keep the information presented from being misleading.

 

6

 

Recent Accounting Pronouncements

 

Accounting Standard

Description

Effective Date

Effect on Consolidated Financial Statements or Other Significant Matters

Income Tax (Topic 740) In December 2019, FASB issued ASU No. 2019-12, "Simplifying the Accounting for Income Taxes" ("ASU No. 2019-12")

The amendments in this guidance reflect the FASB’s effort to reduce the complexity of accounting standards while maintaining or enhancing the helpfulness of information provided to financial statement users. Changes include treatment of Hybrid tax regimes, tax basis step-up in goodwill obtained in a transaction that is not a business combination, separate financial statements of legal entities not subject to tax, intraperiod tax allocation, ownership changes in investments, interim-period accounting for enacted changes in tax law, year-to-date loss limitation in interim-period tax accounting, income statement presentation of tax benefits of tax-deductible dividends, and impairment of investment in qualified affordable housing projects accounted for under the equity method.

Fiscal years beginning after December 15, 2020 with early adoption permitted.

We adopted this amendment on January 1, 2021. We evaluated ASU No. 2019-12 and determined that there was no material impact on our Consolidated Financial Statements.

Compensation-Retirement Benefits-Defined Benefit Plans - General (Subtopic 715-20), In August 2018, the FASB issued ASU No. 2018-14, "Changes to the Disclosure requirements for defined benefit plans" ("ASU No. 2018-14")This amendment removes certain disclosures that are not considered cost beneficial, and helps clarify certain required disclosures along with adding additional disclosures. This impacts employers that sponsor defined benefit pension and/or other postretirement plans. The amendment clarifies guidance in ASC 715-20-50-3 to disclose projected benefit obligation (PBO) and accumulated benefit obligation (ABO).Fiscal years ending after December 15, 2020 with early adoption permitted.We adopted ASU No. 2018-14 on December 31, 2020 on a retroactive basis and applied to each comparative period presented in our Consolidated Financial Statements. The adoption of ASU No. 2018-14 did not have a material impact on our Consolidated Financial Statements.

 

 

3. Revenues:

 

Disaggregated revenues by type of service and by country are provided below for the three months ended March 31, 2021 and 2020. No individual customer or country outside of the U.S. accounted for 10.0% or more of our consolidated revenues for the three months ended March 31, 2021 or 2020.

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 
         

Insurance:

        

Underwriting & rating

 $377.1  $350.0 

Claims

  158.5   145.3 

Total Insurance

  535.6   495.3 

Energy and Specialized Markets

  156.2   154.2 

Financial Services

  34.3   40.3 

Total revenues

 $726.1  $689.8 

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Revenues:

        
United States ("U.S.") $561.1  $523.6 
United Kingdom ("U.K.")  48.4   45.8 
Other countries  116.6   120.4 

Total revenues

 $726.1  $689.8 

 

 

Contract assets are defined as an entity's right to consideration in exchange for goods or services that the entity has transferred to a customer when that right is conditioned on something other than the passage of time. As of March 31, 2021 and December 31, 2020, we had no contract assets. Contract liabilities are defined as an entity's obligation to transfer goods or services to a customer for which the entity has received consideration (an amount of consideration is due) from the customer. As of March 31, 2021 and December 31, 2020, we had contract liabilities of $725.1 million and $468.2 million, respectively. The $256.9 million increase in contract liabilities from December 31, 2020 to March 31, 2021 was primarily due to billings of $433.3 million that were paid in advance, partially offset by $176.4 million of revenue recognized in the three months ended March 31, 2021. Contract liabilities, which are current and noncurrent, are included in "Deferred revenues" and "Other noncurrent liabilities" in our condensed consolidated balance sheets, respectively, as of March 31, 2021 and December 31, 2020.

 

7

 

Our most significant remaining performance obligations relate to providing customers with the right to use and update the online content over the remaining contract term. Revenues expected to be recognized in the future related to performance obligations, included within "Deferred revenues" and "Other noncurrent liabilities", that are unsatisfied were $725.1 million and $468.2 million as of March 31, 2021 and December 31, 2020, respectively. The disclosure of the timing for satisfying the performance obligation is based on the requirements of contracts with customers. However, from time to time, these contracts may be subject to modifications, impacting the timing of satisfying the performance obligations. These performance obligations, which are expected to be satisfied within one year, comprised approximately 99% of the balance at March 31, 2021 and December 31, 2020.

 

We recognize an asset for incremental costs of obtaining a contract with a customer if we expect the benefits of those costs to be longer than one year. As of March 31, 2021 and December 31, 2020, we had deferred commissions of $79.9 million and $73.8 million, respectively, which have been included in "Prepaid expenses" and "Other noncurrent assets" in our accompanying condensed consolidated balance sheets.

 

 

4. Fair Value Measurements:

 

We have certain assets and liabilities that are reported at fair value in our accompanying condensed consolidated balance sheets. To increase consistency and comparability of assets and liabilities recorded at fair value, Accounting Standards Codification ("ASC") 820-10, Fair Value Measurements (“ASC 820-10”), established a three-level fair value hierarchy to prioritize the inputs to valuation techniques used to measure fair value. ASC 820-10 requires disclosures detailing the extent to which companies measure assets and liabilities at fair value, the methods and assumptions used to measure fair value and the effect of fair value measurements on earnings. In accordance with ASC 820-10, we applied the following fair value hierarchy:

 

Level 1 -

Assets or liabilities for which the identical item is traded on an active exchange, such as publicly-traded instruments.

  

Level 2 -

Assets or liabilities valued based on observable market data for similar instruments.

  

Level 3 -

Assets or liabilities for which significant valuation assumptions are not readily observable in the market; instruments valued based on the best available data, some of which are internally-developed, and considers risk premiums that market participants would require.

 

The fair values of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, and short-term debt approximate their carrying amounts because of the short-term nature of these instruments. The investments in registered investment companies, which are Level 1 assets measured at fair value on a recurring basis, were $4.3 million and $4.1 million as of March 31, 2021 and December 31, 2020, respectively. The investments in registered investment companies are valued using quoted prices in active markets multiplied by the number of shares owned and were included in "Other current assets" in our accompanying condensed consolidated balance sheets. For the three months ended March 31, 2021, we determined the provision for credit losses related to accounts receivable and investments in registered investment companies was immaterial.      

 

We elected not to carry our long-term debt at fair value. The carrying value of the long-term debt represents amortized cost, inclusive of unamortized premium, and net of unamortized discount and debt issuance costs. We assess the fair value of these financial instruments based on an estimate of interest rates available to us for financial instruments with similar features, our current credit rating and spreads applicable to us. The following table summarizes the carrying value and estimated fair value of these financial instruments as of March 31, 2021 and December 31, 2020, respectively:

 

   

2021

  

2020

 
 

Fair Value

 

Carrying

  

Estimated

  

Carrying

  

Estimated

 
 

Hierarchy

 

Value

  

Fair Value

  

Value

  

Fair Value

 

Financial instruments not carried at fair value:

                 

Senior notes (Note 10)

Level 2

 $3,141.1  $3,426.9  $3,140.8  $3,652.2 

 

On February 1, 2020, the sale of the aerial imagery sourcing group was completed. We contributed the assets related to the disposed business and cash of $63.8 million in exchange for a noncontrolling 35.0% ownership interest in a nonpublic company, Vexcel Group, Inc ("Vexcel"). As of March 31, 2021 and December 31, 2020, we had an investment of $129.1 million related to such interest. The value of the investment is based on management estimates with the assistance of valuations performed by third party specialists. This investment was included in "Other noncurrent assets" in our accompanying condensed consolidated balance sheets. For the three months ended March 31, 2021, there was no provision for credit losses related to this investment. Refer to Note 7. Dispositions for further discussion.

 

As of March 31, 2021 and December 31, 2020, we had securities of $14.0 million, which were accounted for as cost-based investments under ASC 323-10-25, The Equity Method of Accounting for Investments in Common Stock ("ASC 323-10-25"). We do not have the ability to exercise significant influence over the investees’ operating and financial policies. As of March 31, 2021 and December 31, 2020, we also had investments in private companies of $49.9 million and $49.5 million, respectively, accounted for in accordance with ASC 323-10-25 as equity method investments. These investments were included in "Other noncurrent assets" in our accompanying condensed consolidated balance sheets. For the three months ended March 31, 2021, there was no provision for credit losses related to these investments.

 

 

5. Leases:

 

We have operating and finance leases for corporate offices, data centers, and certain equipment that are accounted for under ASC 842, Leases ("ASC 842"). Our leases have remaining lease terms ranging from one year to thirteen years, some of which include the options to extend our leases for up to twenty years, and some of which include the options to terminate our leases within one year. Extension and termination options are considered in the calculation of our right-of-use (“ROU”) assets and lease liabilities when we determine it is reasonably certain that we will exercise those options.

 

8

 

The following table presents lease cost, cash paid for amounts included in the measurement of lease liabilities, ROU assets obtained, weighted-average remaining lease terms, and weighted-average discount rates for finance and operating leases for the three months ended March 31, 2021 and 2020, respectively:

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Lease cost:

        
Operating lease cost (1) $13.3  $12.4 
Sublease income  (0.4)   

Finance lease costs

        
Depreciation of finance lease assets (2)  3.5   1.6 
Interest on finance lease liabilities (3)  0.3   0.2 

Total lease cost

 $16.7  $14.2 
         

Other information:

        

Cash paid for amounts included in the measurement of lease liabilities

        
Operating cash outflows from operating leases $(12.5) $(13.6)
Operating cash outflows from finance leases $(0.3) $(0.2)
Financing cash outflows from finance leases $(1.9) $(1.9)
Weighted-average remaining lease term - operating leases (in years)  9.1   9.3 
Weighted-average remaining lease term - finance leases (in years)  2.0   2.2 
Weighted-average discount rate - operating leases  4.0%  4.0%
Weighted-average discount rate - finance leases  4.1%  3.7%

 

_______________

(1) Included in "Cost of revenues" and "Selling, general and administrative" expenses in our accompanying condensed consolidated statements of operations

(2) Included in "Depreciation and amortization of fixed assets" in our accompanying condensed consolidated statements of operations

(3) Included in "Interest expense" in our accompanying condensed consolidated statements of operations

 

Our ROU assets and lease liabilities for finance leases were $26.8 million and $24.8 million, respectively, as of March 31, 2021. Our ROU assets and lease liabilities for finance leases were $27.1 million and $24.7 million, respectively, as of December 31, 2020. Our ROU assets for finance leases were included in "Fixed assets, net" in our accompanying condensed consolidated balance sheets. Our lease liabilities for finance leases were included in the "Short-term debt and current portion of long-term debt" and "Long-term debt" in our accompanying condensed consolidated balance sheets (see Note 10. Debt).

 

Maturities of lease liabilities for the remainder of 2021 and the years through 2026 and thereafter are as follows:

 

  

March 31, 2021

 

Years Ending

 

Operating Leases

  

Finance Leases

 
2021 $37.6  $13.7 
2022  46.5   11.8 
2023  44.4   0.6 
2024  36.6   0.1 
2025  33.3    
2026 and thereafter  173.3    

Total lease payments

  371.7   26.2 
Less: Amount representing interest  (64.6)  (1.4)
Present value of total lease payments $307.1  $24.8 

 

9

 
 

6. Acquisitions:

 

2021 Acquisitions and Purchase of Controlling Interest

 

For the three months ended March 31, 2021, we had acquisitions and purchase of controlling interest totaling $13.7 million. On March 2, 2021, we acquired a 51% ownership in Whitespace Software Limited ("Whitespace") for a net cash purchase price of $12.8 million. The remaining 49% ownership interest in Whitespace will be acquired by us, in three equal proportions over the next three years, at a purchase price determined based upon a fixed revenue multiple and adjusted for any free cash flow shortfall. Whitespace, a provider of digital placing technology to the (re)insurance market, has become part of the underwriting & rating category within our Insurance segment. Our investment in Whitespace will enable a seamless real-time quote-to-bind electronic placing and global distribution solution, with straight-through submissions for our customers. The preliminary purchase price allocation of the acquisition is presented in the table below.

 

The preliminary purchase price allocation of the 2021 acquisitions and purchase of controlling interest resulted in the following:

 

  

Total

 

Cash and cash equivalents

 $3.8 

Accounts receivable

  1.1 

Other current assets

  0.8 

Fixed assets

  0.1 

Intangible assets

  11.4 

Goodwill

 

20.9

 

Total assets acquired

  38.1 

Current liabilities

  1.0 

Deferred revenues

  1.4 

Deferred income tax, net

  2.2 

Total liabilities assumed

  4.6 

Net assets acquired

  33.5 

Less: Noncontrolling interest

  16.0 

Less: Cash acquired

  3.8 

Net cash purchase price

 $13.7 

 

 

The preliminary amounts assigned to intangible assets by type for the 2021 acquisitions and purchase of controlling interest are summarized in the table below:

 

  

Weighted Average Useful Life (in years)

  

Total

 

Technology-based

 4  $3.1 

Marketing-related

 5   0.6 

Customer-related

 12   7.7 

Total intangible assets

    $11.4 

 

 

The preliminary allocations of the purchase price for the 2021 and 2020 acquisitions and purchase of controlling interest with less than a year of ownership are subject to revisions as additional information is obtained about the facts and circumstances that existed as of each acquisition date. The revisions may have a significant impact on our condensed consolidated financial statements. The allocations of the purchase price will be finalized once all the information that was known and knowable as of the acquisition date is obtained and analyzed, but not to exceed one year from the acquisition date. The primary areas of the purchase price allocation that are not yet finalized relate to income and non-income taxes, deferred revenues, the valuation of intangible assets acquired, and residual goodwill. The goodwill associated with our acquisitions include the acquired assembled work force, the value associated with the opportunity to leverage the work force to continue to develop the technology and content assets, as well as our ability to grow through adding additional customer relationships or new solutions in the future. Of the $20.9 million in goodwill associated with our acquisitions and purchase of controlling interest, $20.0 million is not deductible for tax purposes. The preliminary amounts assigned to intangible assets by type for these acquisitions and purchase of controlling interest were based upon our valuation model and historical experiences with entities with similar business characteristics. 

 

10

 

For the three months ended March 31, 2021, we incurred transaction costs of $0.5 million related to the 2021 acquisitions and purchase of controlling interest. For the three months ended March 31, 2020, we incurred no transaction costs. The transaction costs were included within "Selling, general and administrative" expenses in our accompanying condensed consolidated statements of operations. The 2021 acquisitions and purchase of controlling interest were immaterial to our condensed consolidated financial statements for the three months ended  March 31, 2021 and 2020, and therefore, supplemental information disclosure on an unaudited pro forma basis is not presented.

 

Acquisition Escrows and Related Liabilities

 

Pursuant to the related acquisition agreements, we have funded various escrow accounts to satisfy pre-acquisition indemnity and tax claims arising subsequent to the applicable acquisition dates. At  March 31, 2021 and  December 31, 2020, the current portion of the escrows amounted to $19.1 million and $1.7 million, respectively, and the noncurrent portion of the escrows amounted to $1.3 million and $18.5 million, respectively. The current and noncurrent portions of the escrows have been included in “Other current assets” and “Other noncurrent assets” in our accompanying condensed consolidated balance sheets, respectively.

 

The acquisitions of Emergence Network Intelligence Limited, Validus, Arium Limited, and Rebmark Legal Solutions Limited included acquisition-related contingent payments, for which the sellers of these acquisitions could receive additional payments by achieving the specific predetermined revenue, EBITDA, and EBITDA margin earn-out targets for exceptional performance. In addition, as a result of our acquisition of Franco Signor LLC ("Franco Signor") on September 9, 2020, we assumed a preexisting acquisition-related contingent payment arrangement through Franco Signor's asset acquisition of Sharpline, in which Sharpline could receive an additional payment by achieving predetermined revenue earn-out targets for exceptional performance. We believe that the liabilities recorded as of  March 31, 2021 and  December 31, 2020 reflect the best estimate of acquisition-related contingent payments. The associated current portion of contingent payments were $0.3 million and $0.6 million as of  March 31, 2021 and December 31, 2020, respectively. The associated noncurrent portion of contingent payments were $0.0 and $0.2 million as of  March 31, 2021 and December 31, 2020, respectively.

 

 

7. Dispositions:

 

On February 1, 2020, the sale of the aerial imagery sourcing group was completed. We contributed assets related to the disposed business, including cash of $63.8 million, in exchange for a noncontrolling 35.0% ownership interest in a nonpublic company, Vexcel. We determined the fair value of the securities associated with the noncontrolling ownership interest in Vexcel with the assistance of valuations performed by third party specialists, including the discounted cash flow analysis and estimates made by management. The securities were concluded not to have a readily determinable fair value and did not qualify for the practical expedient to estimate fair value. The contributed assets approximated the fair value of the equity securities related to the noncontrolling ownership interest; therefore, there was no gain or loss recorded in conjunction with this disposition for the three months ended March 31, 2020. 

             

On February 14, 2020, the sale of the compliance background screening business was completed for net cash proceeds of $23.1 million. A gain of $15.9 million was included in "Other operating income" within our accompanying condensed consolidated statements of operations for the three months ended March 31, 2020.

             

On March 1, 2020, the sale of the data warehouse business within the Financial Services segment was completed. We recorded a gain of $3.5 million in "Other operating income" within our accompanying condensed consolidated statements of operations for the three months ended March 31, 2020. 

 

11

 
 

8. Goodwill and Intangible Assets:

 

The following is a summary of the change in goodwill from December 31, 2020 through March 31, 2021, both in total and as allocated to our operating segments:

 

  

Insurance

  

Energy and Specialized Markets

  

Financial Services

  

Total

 

Goodwill at December 31, 2020

 $1,208.6  $2,423.6  $475.9  $4,108.1 
Acquisitions  20.9         20.9 
Purchase accounting reclassifications  1.1         1.1 
Current period adjustment (1)  15.8   (15.8)      
Foreign currency translation adjustment  3.1   2.6   (0.2)  5.5 

Goodwill at March 31, 2021

 $1,249.5  $2,410.4  $475.7  $4,135.6 

_____________

(1) Of which $15.8 million relates to a segment reclassification, refer to Note 14. Segment Reporting

 

Goodwill and intangible assets with indefinite lives are subject to impairment testing annually as of June 30, or whenever events or changes in circumstances indicate that the carrying amount may not be fully recoverable. Goodwill impairment testing compares the carrying value of each reporting unit to its fair value. If the fair value of the reporting unit exceeds the carrying value of the net assets, including goodwill assigned to that reporting unit, goodwill is not impaired. If the carrying value of the reporting unit’s net assets, including goodwill, exceeds the fair value of the reporting unit, then an impairment loss is recorded for the difference between the carrying amount and the fair value of the reporting unit. We completed the required annual impairment test as of June 30, 2020, and concluded that there was no impairment of goodwill. There were no triggering events for the three months ended March 31, 2021 that would impact the results of the impairment test performed as of June 30, 2020.

 

Our intangible assets and related accumulated amortization consisted of the following:

 

 

Weighted Average Useful Life (in years)

 

Cost

  

Accumulated Amortization

  

Net

 

March 31, 2021

             
Technology-based7 $563.8  $(364.9) $198.9 
Marketing-related15  277.5   (118.3)  159.2 
Contract-based6  5.0   (5.0)   
Customer-related13  1,013.6   (373.9)  639.7 
Database-based18  503.9   (146.0)  357.9 
Total intangible assets $2,363.8  $(1,008.1) $1,355.7 

December 31, 2020

             

Technology-based

7 $559.6  $(349.5) $210.1 

Marketing-related

16  275.2   (113.4)  161.8 

Contract-based

6  5.0   (5.0)   

Customer-related

13  1,004.3   (354.2)  650.1 

Database-based

19  501.0   (138.2)  362.8 

Total intangible assets

 $2,345.1  $(960.3) $1,384.8 

 

Amortization expense related to intangible assets for the three months ended March 31, 2021 and 2020 was $45.0 million and $41.0 million, respectively. Estimated amortization expense for the remainder of 2021 and the years through 2027 and thereafter for intangible assets subject to amortization is as follows:

 

Years Ending

 

Amount

 
2021 $135.4 
2022  157.5 
2023  144.8 
2024  139.1 
2025  114.9 
2026  110.6 
2027 and thereafter  553.4 
Total $1,355.7 

 

 

 

9. Income Taxes:

 

Our effective tax rate for the three months ended March 31, 2021 was 22.5% compared to the effective tax rate for the three months ended March 31, 2020 of 20.8%. The effective tax rate for the three months ended March 31, 2021 was higher than the effective tax rate for the three months ended  March 31, 2020 primarily due to reduced stock option exercises resulting in lower tax benefits from equity compensation in the current period versus the prior period. The impact of lower stock benefits was partially offset by non-recurring tax expense recorded in the prior period in connection with our disposition of the aerial imagery sourcing group resulting from differences in the book and tax basis of the assets and entities disposed. The difference between statutory tax rates and our effective tax rate is primarily due to tax benefits attributable to equity compensation, offset by additional state and local taxes. 

 

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10. Debt:

 

The following table presents short-term and long-term debt by issuance as of March 31, 2021 and December 31, 2020:

 

 

Issuance Date

 

Maturity Date

 

2021

  

2020

 

Short-term debt and current portion of long-term debt:

           

Syndicated revolving credit facility

Various

 

Various

 $  $50.0 

Senior notes:

           

5.800% senior notes, less unamortized discount and debt issuance costs of $0.0 and $(0.1), respectively

4/6/2011

 

5/1/2021

  450.0   449.9 

Finance lease liabilities (1)

Various

 

Various

  14.8   14.4 

Short-term debt and current portion of long-term debt

  464.8   514.3 

Long-term debt:

           

Senior notes:

           

3.625% senior notes, less unamortized discount and debt issuance costs of $(10.6) and $(10.7), respectively

5/13/2020

 

5/15/2050

  489.4   489.3 

4.125% senior notes, inclusive of unamortized premium, and net of unamortized discount and debt issuance costs of $12.0 and $12.4, respectively

3/6/2019

 

3/15/2029

  612.0   612.4 

4.000% senior notes, less unamortized discount and debt issuance costs of $(5.1) and $(5.4), respectively

5/15/2015

 

6/15/2025

  894.9   894.6 

5.500% senior notes, less unamortized discount and debt issuance costs of $(4.3) and $(4.3), respectively

5/15/2015

 

6/15/2045

  345.7   345.7 

4.125% senior notes, less unamortized discount and debt issuance costs of $(0.9) and $(1.1), respectively

9/12/2012

 

9/12/2022

  349.1   348.9 

Finance lease liabilities (1)

Various

 

Various

  10.0   10.3 

Syndicated revolving credit facility debt issuance costs

Various

 

Various

  (1.5)  (1.6)

Long-term debt

  2,699.6   2,699.6 

Total debt

 $3,164.4  $3,213.9 

_______________

(1) Refer to Note 5. Leases

 

As of March 31, 2021 and December 31, 2020, we had senior notes with an aggregate principal amount of $3,150.0 million outstanding, respectively, and were in compliance with our financial and other debt covenants.

 

As of March 31, 2021, we had a $1,000.0 million committed senior unsecured Credit Facility (the "Credit Facility") with Bank of America N.A., HSBC Bank USA, N.A., JP Morgan Chase Bank, N.A., Wells Fargo Bank, National Association, Citibank, N.A., Credit Suisse AG, Cayman Islands Branch, Morgan Stanley Bank, N.A., TD Bank, N.A., and the Northern Trust Company. The Credit Facility may be used for general corporate purposes, including working capital needs and capital expenditures, acquisitions, dividend payments, and the share repurchase program (the "Repurchase Program"). As of March 31, 2021, we were in compliance with all financial and other debt covenants under the Credit Facility. As of March 31, 2021 and December 31, 2020, the available capacity under the Credit Facility was $994.9 million and $944.6 million, net of the letters of credit of $5.1 million and $5.4 million, respectively. 

 

 

11. Stockholders’ Equity:

 

We have 2,000,000,000 shares of authorized common stock as of  March 31, 2021 and December 31, 2020. Our common shares have rights to any dividend declared by the board of directors (the "Board"), subject to any preferential or other rights of any outstanding preferred stock, and voting rights to elect all current members of the Board.

 

We have 80,000,000 shares of authorized preferred stock, par value $0.001 per share. The preferred shares have preferential rights over the common shares with respect to dividends and net distribution upon liquidation. We did not issue any preferred shares as of March 31, 2021. At  March 31, 2021 and December 31, 2020, the adjusted closing price of our common stock was $176.69 and $207.59 per share, respectively.

 

On February 17, 2021, our Board approved a cash dividend of $0.29 per share of common stock issued and outstanding to the holders of record as of March 15, 2021. A cash dividend of $47.1 million was paid on March 31, 2021 and recorded as a reduction to retained earnings. We paid a cash dividend of $43.9 million on March 31, 2020 at $0.27 per share of common stock issued and outstanding to the holders of record as of March 13, 2020. 

 

13

 

Share Repurchase Program

 

Since May 2010, we have authorized repurchases of up to $4,100.0 million of our common stock through our Repurchase Program, inclusive of the $300.0 million authorization approved by our Board on February 16, 2021. Since the introduction of share repurchase as a feature of our capital management strategies in 2010, we have repurchased shares with an aggregate value of $3,621.2 million. As of March 31, 2021, we had $478.8 million available to repurchase shares through our Repurchase Program. We have no obligation to repurchase stock under this program and intend to use this authorization as a means of offsetting dilution from the issuance of shares under our 2013 Equity Incentive Plan (the "2013 Incentive Plan"), our 2009 Equity Incentive Plan (the “2009 Incentive Plan”), our sharesave plan (“UK Sharesave Plan”), and our employee stock purchase plan ("ESPP") while providing flexibility to repurchase additional shares if warranted. This authorization has no expiration date and may be increased, reduced, suspended, or terminated at any time. Shares that are repurchased under our Repurchase Program will be recorded as treasury stock and will be available for future issuance.

 

In December 2020, we entered into an Accelerated Share Repurchase ("ASR") agreement to repurchase shares of our common stock for an aggregate purchase price of $50.0 million with HSBC Bank USA, N.A. The ASR agreement is accounted as a treasury stock transaction and forward stock purchase agreement indexed to our common stock. The forward stock purchase agreement is classified as an equity instrument under ASC 815-40, Contracts in Entity's Own Equity ("ASC 815-40") and deemed to have a fair value of zero at the respective effective date. Upon payment of the aggregate purchase price on January 4, 2021, we received an aggregate delivery of 192,687 shares of our common stock at a price of $207.59. Upon the final settlement of the ASR agreement in February 2021, we received an additional 70,787 shares as determined by the volume weighted average share price of our common stock during the term of the ASR agreement. The aggregate purchase price was recorded as a reduction to stockholders' equity in our condensed consolidated statements of changes in stockholders' equity for the three months ended March 31, 2021. These repurchases of 263,474 shares for the three months ended March 31, 2021 resulted in a reduction of outstanding shares used to calculate the weighted average common shares outstanding for basic and diluted earnings per share ("EPS").

 

During the three months ended March 31, 2021, we repurchased 560,526 shares of common stock with an aggregate value of $100.0 million as part of the Repurchase Program, inclusive of the ASR, at a weighted average price of $178.40 per share. We utilized cash from operations and borrowings from our Credit Facility to fund these repurchases.

 

Treasury Stock

 

As of March 31, 2021, our treasury stock consisted of 381,536,446 shares of common stock, carried at cost. During the three months ended March 31, 2021, we transferred 209,592 shares of common stock from the treasury shares at a weighted average treasury stock price of $11.11 per share.

 

Earnings Per Share

 

Basic EPS is computed by dividing net income attributable to Verisk by the weighted average number of common shares outstanding during the period. The computation of diluted EPS is similar to the computation of basic EPS except that the denominator is increased to include the number of additional common shares that would have been outstanding, using the treasury stock method, if the dilutive potential common shares, including vested and nonvested stock options, nonvested restricted stock awards, nonvested restricted stock units, nonvested performance awards consisting of performance share units (“PSU”), and nonvested deferred stock units, had been issued.

 

The following is a presentation of the numerators and denominators of the basic and diluted EPS computations for the three months ended March 31, 2021 and 2020:

 

  

Three Months Ended March 31,

 
  

2021

  

2020

 

Numerator used in basic and diluted EPS:

        

Net income attributable to Verisk

 $168.6  $171.7 

Denominator:

        

Weighted average number of common shares used in basic EPS

  162,641,819   162,894,306 

Effect of dilutive shares:

        

Potential common shares issuable from stock options and stock awards

  1,794,898   2,829,814 

Weighted average number of common shares and dilutive potential common shares used in diluted EPS

  164,436,717   165,724,120 

 

The potential shares of common stock that were excluded from diluted EPS were 946,563 and 1,009,520 for the three months ended March 31, 2021 and 2020, respectively, because the effect of including these potential shares was anti-dilutive.

 

Accumulated Other Comprehensive Losses

 

The following is a summary of accumulated other comprehensive losses as of March 31, 2021 and December 31, 2020:

 

  

2021

  

2020

 
Foreign currency translation adjustment $(283.5) $(292.2)
Pension and postretirement adjustment, net of tax  (82.7)  (83.5)

Accumulated other comprehensive losses

 $(366.2) $(375.7)

 

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The before tax and after tax amounts of other comprehensive income (loss) for the three months ended March 31, 2021 and 2020 are summarized below:

 

  

Before Tax

  

Tax (Expense) Benefit

  

After Tax

 

For the Three Months Ended March 31, 2021

            
Foreign currency translation adjustment $8.7  $  $8.7 
Pension and postretirement adjustment before reclassifications  2.1   (0.5)  1.6 
Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1)  (1.1)  0.3   (0.8)
Pension and postretirement adjustment  1.0   (0.2)  0.8 
Total other comprehensive income $9.7  $(0.2) $9.5 

For the Three Months Ended March 31, 2020

            

Foreign currency translation adjustment

 $(172.6) $  $(172.6)

Pension and postretirement adjustment before reclassifications

  2.1   (0.6)  1.5 

Amortization of net actuarial loss and prior service benefit reclassified from accumulated other comprehensive losses (1)

  (1.0)  0.3   (0.7)

Pension and postretirement adjustment

  1.1   (0.3)  0.8 

Total other comprehensive loss

 $(171.5) $(0.3) $(171.8)

_______________

(1)

These accumulated other comprehensive loss components, before tax, are included under “Cost of revenues” and “Selling, general and administrative” in our accompanying condensed consolidated statements of operations. These components are also included in the computation of net periodic (benefit) cost (see Note 13. Pension and Postretirement Benefits for additional details).

 

 

12. Equity Compensation Plans:

 

All of our outstanding stock options, restricted stock awards, deferred stock units, and PSUs are covered under our 2013 Incentive Plan or 2009 Incentive Plan. Awards under our 2013 Incentive Plan may include one or more of the following types: (i) stock options (both nonqualified and incentive stock options), (ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units, (v) performance awards, (vi) other share-based awards, and (vii) cash. Employees, directors and consultants are eligible for awards under our 2013 Incentive Plan. We transferred common stock under these plans from our treasury shares. As of March 31, 2021, there were 1,937,143 shares of common stock reserved and available for future issuance under our 2013 Incentive Plan. Cash received from stock option exercises for the three months ended  March 31, 2021 and 2020 was $7.6 million and $19.2 million, respectively.

 

We grant equity awards to our key employees. The nonqualified stock options have an exercise price equal to the adjusted closing price of our common stock on the grant date, with a ten-year contractual term. The fair value of the restricted stock is determined using the closing price of our common stock on the grant date. The restricted stock is not assignable or transferable until it becomes vested. PSUs vest at the end of a three-year performance period, subject to the recipient’s continued service. Each PSU represents the right to receive one share of our common stock and the ultimate realization is based on our achievement of certain market performance criteria and may range from 0% to 200% of the recipient’s target levels of 100% established on the grant date. The fair value of PSUs is determined on the grant date using the Monte Carlo Simulation model. We recognize the expense of the equity awards ratably over the vesting period, which could be up to four years.

 

15

 

On January 15, 2021, we granted 706,507 stock options, 134,777 shares of restricted stock, and 59,144 performance share units to key employees. The stock options and restricted stock have a graded service vesting period of four years, and the performance share units have a three-year performance period, subject to the recipients' continued service. 

 

A summary of the status of the stock options, restricted stock, and PSUs awarded under our 2013 Incentive Plan as of December 31, 2020 and March 31, 2021 and changes during the interim period are presented below:

 

  

Stock Option

  

Restricted Stock

  

PSU

 
  

Number of Shares

  

Weighted Average Exercise Price

  

Aggregate Intrinsic Value

  

Number of Shares

  

Weighted Average Grant Date Fair Value Per Share

  

Number of Shares

  

Weighted Average Grant Date Fair Value Per Share

 
          

(in millions)

                 

Outstanding at December 31, 2020

  5,611,777  $98.28  $613.4   390,054  $131.63   145,609  $170.75 

Granted

  709,811  $190.10       135,380  $190.10   59,144  $210.07 

Dividend reinvestment

    $         $   269   N/A 

Exercised or lapsed

  (115,284) $64.73  $13.5   (36,637) $158.23   (42,610) $140.70 

Canceled, expired or forfeited

  (20,245) $136.35       (3,216) $141.28        

Outstanding at March 31, 2021

  6,186,059  $109.31  $416.8   485,581  $145.47   162,412  $192.99 

Exercisable at March 31, 2021

  3,588,921  $82.06  $339.6                 

Exercisable at December 31, 2020

  3,494,164  $76.84  $456.9                 

Nonvested at March 31, 2021

  2,597,138           485,581       162,412     

Expected to vest at March 31, 2021

  2,296,123           432,880       115,599 (1)    

 


(1)

Includes estimated performance achievement

 

The fair value of the stock options granted was estimated using a Black-Scholes valuation model that uses the weighted average assumptions noted in the following table for the three months ended March 31, 2021 and 2020:

 

  

2021

  

2020

 
Option pricing model  Black-Scholes   Black-Scholes 

Expected volatility

  23.60%  18.17%

Risk-free interest rate

  0.37%  1.59%

Expected term in years

  4.3   4.3 

Dividend yield

  0.63%  0.71%

Weighted average grant date fair value per stock option

 $36.09  $25.49 

 

The expected term for the stock options granted was estimated based on studies of historical experience and projected exercise behavior. However, for certain awards granted, for which no historical exercise pattern exists, the expected term was estimated using the simplified method. The risk-free interest rate is based on the yield of U.S. Treasury zero coupon securities with a maturity equal to the expected term of the equity award. The volatility factor is calculated using historical daily closing prices over the most recent period that commensurate with the expected term of the stock option awards. The expected dividend yield was based on our expected annual dividend rate on the date of grant.

 

Intrinsic value for stock options is calculated based on the exercise price of the underlying awards and the adjusted closing price of our common stock as of the reporting date. Excess tax benefits from exercised stock options were recorded as income tax benefit in our condensed consolidated statements of operations. This tax benefit is calculated as the excess of the intrinsic value of options exercised and restricted stock lapsed in excess of compensation recognized for financial reporting purposes. The weighted average remaining contractual terms were 6.3 years and 4.8 years for the outstanding and exercisable stock options, respectively, as of March 31, 2021.

 

For the three months ended March 31, 2021, there was $128.3 million of total unrecognized compensation costs, exclusive of the impact of vesting upon retirement eligibility, related to nonvested stock-based compensation arrangements granted under our 2013 Incentive Plan. That cost is expected to be recognized over a weighted average period of 2.8 years. The total grant date fair value of options vested was $6.2 million and $5.6 million during the three months ended  March 31, 2021 and 2020, respectively. The total grant date fair value of restricted stock vested during the three months ended  March 31, 2021 and 2020 was $6.8 million and $6.1 million, respectively. The total grant date fair value of PSUs vested during the three months ended  March 31, 2021 and 2020 was $3.1 million and $2.1 million, respectively.

Our UK Sharesave Plan offers qualifying employees in the United Kingdom the opportunity to own shares of our common stock. Employees who elect to participate are granted stock options, of which the exercise price is equal to the adjusted closing price of our common stock on the grant date discounted by 5%, and enter into a savings contract, the proceeds of which are then used to exercise the options upon the three-year maturity of the savings contract. During the three months ended March 31, 2021 and 2020, we granted no stock options under our UK Sharesave Plan. As of March 31, 2021, there were 454,205 shares of common stock reserved and available for future issuance under our UK Sharesave Plan.

Our ESPP offers eligible employees the opportunity to purchase shares of our common stock at a discount of its fair market value at the time of purchase. During the three months ended March 31, 2021 and 2020, we issued 10,137 and 9,451 shares of common stock at a weighted discounted price of $167.84 and $132.41 for the ESPP, respectively. As of  March 31, 2021, there were 1,250,129 shares of common stock reserved and available for future issuance under our ESPP.

 

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13. Pension and Postretirement Benefits:

 

We maintain a frozen qualified defined benefit pension plan for certain employees through membership in our Pension Plan for Insurance Organizations (the “Pension Plan”), a multiple-employer trust. We also apply a cash balance formula to determine future benefits. Under the cash balance formula, each participant has an account, which is credited annually based on the interest earned on the previous year-end cash balance. We also have a frozen non-qualified supplemental cash balance plan (“SERP”) for certain employees. The SERP is funded from our general assetsDuring the first quarter of 2021, we changed the investment guidelines on our Pension Plan assets to target investment allocation of 50% to equity securities and 50% to debt securities from our previous target allocation of 55% to equity securities and 45% to debt securities as of December 31, 2020.

 

We also provide certain healthcare and life insurance benefits to certain qualifying active and retired employees. Our Postretirement Health and Life Insurance Plan (the “Postretirement Plan”), which has been frozen, is contributory, requiring participants to pay a stated percentage of the premium for coverage. The components of net periodic benefit for the three months ended March 31 are summarized below:

 

  

Pension Plan and SERP

  

Postretirement Plan

 
  

For the Three Months Ended March 31,

 
  

2021

  

2020

  

2021

  

2020

 
Interest cost $2.8  $3.3  $  $ 
Expected return on plan assets  (8.2)  (7.6)  (0.1)   
Amortization of net actuarial loss  1.0   1.0   0.1    

Net periodic benefit

 $(4.4) $(3.3) $  $ 
Employer contributions (refunds), net $0.2  $0.2  $(0.4) $(0.4)

 

The expected contributions to the Pension Plan, SERP and Postretirement Plan for the year ending  December 31, 2021 are consistent with the amounts previously disclosed as of December 31, 2020.

 

 

14. Segment Reporting:

 

ASC 280-10, Disclosures About Segments of an Enterprise and Related Information (“ASC 280-10”), establishes standards for reporting information about operating segments. ASC 280-10 requires that a public business enterprise reports financial and descriptive information about its reportable operating segments. Operating segments are components of an enterprise for which separate financial information is available that is evaluated regularly by the Chief Operating Decision Maker (“CODM”) in deciding how to allocate resources and in assessing performance. Our President and Chief Executive Officer is identified as the CODM as defined by ASC 280-10. Our operating segments are the following: Insurance, Energy and Specialized Markets, and Financial Services. These three operating segments are also our reportable segments.

 

Each of the reportable segments, Insurance, Energy and Specialized Markets, and Financial Services has a portion of its revenue from more than one of the three revenue types described within our revenue recognition policy. Below is the overview of the solutions offered within each reportable segment.

 

Insurance: We are the leading provider of statistical, actuarial and underwriting data for the U.S. P&C insurance industry. Our databases include cleansed and standardized records describing premiums and losses in insurance transactions, casualty and property risk attributes for commercial buildings and their occupants, and fire suppression capabilities of municipalities. We use this data to create policy language and proprietary risk classifications that are industry standards and to generate prospective loss cost estimates used to price insurance policies, which are accessed via a hosted platform. We also develop solutions that our customers use to analyze key processes in managing risk. Our combination of algorithms and analytic methods incorporate our proprietary data to generate solutions. We also help businesses and governments better anticipate and manage climate and weather-related risks. In most cases, our customers integrate the solutions into their models, formulas or underwriting criteria in order to predict potential loss events, ranging from hurricanes to earthquakes. We develop catastrophe and extreme event models and offer solutions covering natural and man-made risks, including acts of terrorism. We further develop solutions that allow customers to quantify costs after loss events occur. Our multitier, multispectral terrestrial imagery and data acquisition, processing, analytics, and distribution system using the remote sensing and machine learning technologies help gather, store, process, and deliver geographic and spatially referenced information that supports uses in many markets. Additionally, we offer fraud-detection solutions including review of data on claim histories, analysis of claims to find emerging patterns of fraud, and identification of suspicious claims in the insurance sector. Our underwriting & rating, insurance anti-fraud claims, catastrophe modeling, loss quantification, and weather risk solutions are included in this segment. During the first quarter of 2021, due to management restructuring, our CODM reorganized Atmospheric and Environmental Research ("AER"), an immaterial component of the Energy and Specialized Markets segment, to the Insurance segment. Consequently, AER became part of the underwriting and rating category within the Insurance segment. The inclusion of AER within our Insurance segment better aligns with how our CODM makes operating decisions, assesses the performance of the business, and allocates resources. Our prior year results have been recast to reflect this change. The related impact to our condensed consolidated financial statements was not material for all periods presented.

 

17

 

Energy and Specialized Markets: We are a leading provider of data analytics via hosted platform for the global energy, chemicals, and metals and mining industries. Our research and consulting solutions focus on exploration strategies and screening, asset development and acquisition, commodity markets, and corporate analysis in the areas of business environment, business improvement, business strategies, commercial advisory, and transaction support. We gather and manage proprietary information, insight, and analysis on oil and gas fields, mines, refineries, and other assets across the interconnected global energy sectors to advise customers in making asset investment and portfolio allocation decisions. Our analytical tools measure and observe environmental properties and translate those measurements into actionable information based on customer needs. In addition, we provide market and cost intelligence to energy companies to optimize financial results. We further offer a suite of data and information services that enable improved compliance with global Environmental Health and Safety requirements related to the safe manufacturing, distribution, transportation, usage, and disposal of chemicals and products. Our energy business and environmental health and safety services are included in this segment.

 

Financial Services: We maintain a bank account consortia to provide competitive benchmarking, decisioning algorithms, business intelligence, and customized analytic services that help financial institutions, payment networks and processors, alternative lenders, regulators, and merchants make better strategy, marketing, and risk decisions. Customers apply our solutions in the areas of tailored data management and media effectiveness that include business intelligence platforms, profile views, mobile data solutions, enterprise database services, and fraud risk scoring algorithms for marketing, fraud, and risk mitigation. In addition, our bankruptcy management solutions assist creditors, debt servicing businesses, and credit services to enhance regulatory compliance by eliminating stay violation and portfolio valuation risk.

 

The three aforementioned operating segments represent the segments for which discrete financial information is available and upon which operating results are regularly evaluated by our CODM in order to assess performance and allocate resources. We use EBITDA as the profitability measure for making decisions regarding ongoing operations. EBITDA is net income before interest expense, provision for income taxes, and depreciation and amortization of fixed and intangible assets. EBITDA is the measure of operating results used to assess corporate performance and optimal utilization of debt and acquisitions. Operating expenses consist of direct and indirect costs principally related to personnel, facilities, software license fees, consulting, travel, and third-party information services. Indirect costs are generally allocated to the segments using fixed rates established by management based upon estimated expense contribution levels and other assumptions that management considers reasonable. We do not allocate interest expense and provision for income taxes since these items are not considered in evaluating the segment’s overall operating performance. In addition, our CODM does not evaluate the financial performance of each segment based on assets. See Note 3. Revenues for information on disaggregated revenues by type of service and by country.

 

The following tables provide our revenue and EBITDA by reportable segment for the three months ended March 31, 2021 and 2020, and the reconciliation of EBITDA to income before income taxes as shown in our accompanying condensed consolidated statements of operations:

 

  

For the Three Months Ended

 
  

March 31, 2021

  

March 31, 2020

 
  

Insurance

  

Energy and Specialized Markets

  

Financial Services

  

Total

  

Insurance