UNITED STATES
SECURITIES AND EXCHANGE
COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended
May 31, 2008
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OR
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
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Commission file number 001-32511
IHS
INC.
(Exact name of registrant as specified in its charter)
Delaware
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13-3769440
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(State or Other Jurisdiction of
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(IRS Employer
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Incorporation or Organization)
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Identification No.)
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15 Inverness Way East
Englewood, CO 80112
(Address of Principal Executive Offices)
(303) 790-0600
(Registrants telephone number, including area code)
Indicate by
check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
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 definitions
of large accelerated filer, and accelerated filer, and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller Reporting Company
o
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(Do not check if
a smaller reporting
company)
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Indicate by
check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Act).
As of May 31,
2008, there were
48,703,869 shares of our Class A
Common Stock outstanding and 13,750,000 shares of our Class B Common Stock
outstanding.
PART I. FINANCIAL
INFORMATION
Item 1. Financial
Statements
IHS INC.
CONDENSED CONSOLIDATED BALANCE
SHEETS
(In thousands except share data)
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|
As of
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As of
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May 31, 2008
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November 30, 2007
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|
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(Unaudited)
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Assets
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|
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|
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Current assets:
|
|
|
|
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Cash and cash
equivalents
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$
|
105,371
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$
|
148,484
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Short-term
investments
|
|
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10,518
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Accounts
receivable, net
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169,801
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175,542
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Deferred
subscription costs
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42,830
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35,910
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Deferred income
taxes
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21,435
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17,681
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Other
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17,683
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14,112
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Total current
assets
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357,120
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402,247
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Non-current
assets:
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Property and
equipment, net
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58,009
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58,756
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Equity investment
in joint venture
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73,002
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Intangible
assets, net
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223,292
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206,359
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Goodwill, net
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616,199
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564,582
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Prepaid pension
asset
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93,229
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91,116
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Other
|
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835
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|
747
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Total non-current
assets
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1,064,566
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921,560
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Total assets
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$
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1,421,686
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$
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1,323,807
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Liabilities and stockholders equity
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Current
liabilities:
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Short-term debt
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$
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28,485
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$
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3,062
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Accounts payable
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26,092
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37,550
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Accrued
compensation
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19,104
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37,014
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Accrued royalties
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20,599
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22,684
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Other accrued
expenses
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41,299
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37,435
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Income tax
payable
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7,902
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15,255
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Deferred
subscription revenue
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288,346
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239,395
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Total current
liabilities
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431,827
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392,395
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Long-term debt
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37
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Accrued pension
liability
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11,413
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11,965
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Accrued
post-retirement benefits
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8,717
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10,203
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Deferred income
taxes
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68,666
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60,461
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Other liabilities
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7,380
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7,619
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Minority
interests
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252
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219
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Commitments and
contingencies
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Stockholders
equity:
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Class A
common stock, $0.01 par value per share, 80,000,000 shares authorized,
50,081,110 and 49,831,293 shares issued, 48,703,869 and 48,758,518 shares
outstanding at May 31, 2008 and November 30, 2007, respectively
|
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500
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|
498
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Class B
common stock, $0.01 par value per share, 13,750,000 shares authorized, issued
and outstanding at May 31, 2008 and November 30, 2007
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138
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138
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Additional paid
in capital
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411,908
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381,124
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Treasury stock,
at cost: 1,377,231 and 1,072,775 shares at May 31, 2008 and
November 30, 2007, respectively
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(64,709
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)
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(46,045
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)
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Retained earnings
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529,915
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483,804
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Accumulated other
comprehensive income
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15,679
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21,389
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Total
stockholders equity
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893,431
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840,908
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Total liabilities
and stockholders equity
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$
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1,421,686
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$
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1,323,807
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See accompanying
notes.
3
IHS INC.
CONDENSED CONSOLIDATED
STATEMENTS OF OPERATIONS
(In thousands except per-share
amounts)
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Three Months Ended May 31,
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Six Months Ended May 31,
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2008
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2007
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2008
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2007
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(Unaudited)
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Revenue:
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Products
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$
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171,522
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$
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129,136
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$
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331,211
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$
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252,115
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Services
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35,671
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25,764
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74,759
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55,406
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Total revenue
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207,193
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154,900
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405,970
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307,521
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Operating expenses:
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Cost of revenue:
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Products
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71,481
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50,274
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134,575
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99,007
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Services
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21,699
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17,479
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47,765
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34,484
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Total cost of revenue
(includes stock-based
compensation expense of $376, $105, $687 and $456 for the three and six months
ended May 31, 2008 and 2007, respectively)
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93,180
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67,753
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182,340
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133,491
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Selling, general and
administrative
(includes stock-based compensation expense of $10,001;
$5,940; $22,391 and $12,925 for the three and six months ended May 31,
2008 and 2007, respectively)
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72,923
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56,607
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|
144,809
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114,498
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Depreciation and amortization
|
|
9,683
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|
4,921
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|
18,506
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9,501
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Restructuring and other charges
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|
9
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|
|
|
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Gain on sales of assets, net
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|
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(5
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)
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(119
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)
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(756
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)
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Net periodic pension and post-retirement benefits
|
|
(1,086
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)
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(354
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)
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(2,179
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)
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(622
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)
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Other expense (income), net
|
|
(323
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)
|
84
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|
(1,136
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)
|
(360
|
)
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Total operating expenses
|
|
174,377
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|
129,015
|
|
342,221
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|
255,752
|
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Operating income
|
|
32,816
|
|
25,885
|
|
63,749
|
|
51,769
|
|
Interest income
|
|
697
|
|
1,694
|
|
1,914
|
|
3,348
|
|
Interest expense
|
|
(843
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)
|
(76
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)
|
(979
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)
|
(209
|
)
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Non-operating (loss) income, net
|
|
(146
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)
|
1,618
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|
935
|
|
3,139
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Income from continuing operations before
income taxes and minority interests
|
|
32,670
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|
27,503
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|
64,684
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|
54,908
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Provision for income taxes
|
|
(10,425
|
)
|
(8,909
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)
|
(21,024
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)
|
(17,952
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)
|
Income from continuing operations before
equity investments and minority interests
|
|
22,245
|
|
18,594
|
|
43,660
|
|
36,956
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|
Income from equity investment
|
|
1,044
|
|
|
|
1,044
|
|
|
|
Minority interests
|
|
(31
|
)
|
(12
|
)
|
(15
|
)
|
3
|
|
Net income
|
|
$
|
23,258
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|
$
|
18,582
|
|
$
|
44,689
|
|
$
|
36,959
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|
Net income per share:
|
|
|
|
|
|
|
|
|
|
Basic (Class A and Class B common
stock)
|
|
$
|
0.37
|
|
$
|
0.32
|
|
$
|
0.72
|
|
$
|
0.64
|
|
Diluted (Class A and Class B
common stock)
|
|
$
|
0.37
|
|
$
|
0.32
|
|
$
|
0.71
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|
$
|
0.63
|
|
Weighted average shares:
|
|
|
|
|
|
|
|
|
|
Basic (Class A common stock)
|
|
48,471
|
|
43,626
|
|
48,347
|
|
43,733
|
|
Basic (Class B common stock)
|
|
13,750
|
|
13,750
|
|
13,750
|
|
13,750
|
|
Diluted (Class A common stock)
|
|
63,086
|
|
58,281
|
|
63,045
|
|
58,328
|
|
Diluted (Class B common stock)
|
|
13,750
|
|
13,750
|
|
13,750
|
|
13,750
|
|
See accompanying
notes.
4
IHS INC.
CONDENSED CONSOLIDATED
STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
(Unaudited)
|
|
Operating activities
|
|
|
|
|
|
Net income
|
|
$
|
44,689
|
|
$
|
36,959
|
|
Reconciliation of net income to net cash
provided by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
18,506
|
|
9,501
|
|
Stock-based compensation expense
|
|
23,078
|
|
13,381
|
|
Gain on sales of assets, net
|
|
(119
|
)
|
(756
|
)
|
Distributions from equity-method investment
|
|
378
|
|
|
|
Non-cash net periodic pension and
post-retirement benefits
|
|
(3,122
|
)
|
(1,997
|
)
|
Undistributed earnings of unconsolidated
subsidiaries, net
|
|
(1,233
|
)
|
140
|
|
Minority interests
|
|
15
|
|
(234
|
)
|
Deferred income taxes
|
|
2,075
|
|
(1,015
|
)
|
Change in assets and liabilities:
|
|
|
|
|
|
Accounts receivable, net
|
|
5,800
|
|
24,825
|
|
Other current assets
|
|
(10,078
|
)
|
(5,565
|
)
|
Accounts payable
|
|
(9,956
|
)
|
(25,388
|
)
|
Accrued expenses
|
|
(17,304
|
)
|
(15,492
|
)
|
Income taxes
|
|
(1,867
|
)
|
5,311
|
|
Deferred subscription revenue
|
|
44,568
|
|
26,092
|
|
Other liabilities
|
|
(457
|
)
|
|
|
Net cash provided by operating activities
|
|
94,973
|
|
65,762
|
|
Investing activities
|
|
|
|
|
|
Capital expenditures on property and
equipment
|
|
(5,351
|
)
|
(3,645
|
)
|
Change in other assets
|
|
(2,654
|
)
|
(3,496
|
)
|
Sales and maturities of investments
|
|
10,500
|
|
2,008
|
|
Acquisitions of businesses, net of cash
acquired
|
|
(130,878
|
)
|
(14,607
|
)
|
Proceeds from sales of assets
|
|
140
|
|
2,461
|
|
Net cash used in investing activities
|
|
(128,243
|
)
|
(17,279
|
)
|
Financing activities
|
|
|
|
|
|
Proceeds from borrowings
|
|
50,000
|
|
|
|
Repayment of borrowings
|
|
(43,095
|
)
|
(500
|
)
|
Excess tax benefit from equity compensation
plans
|
|
454
|
|
121
|
|
Repurchases of common stock
|
|
(18,664
|
)
|
(15,663
|
)
|
Net cash used in financing activities
|
|
(11,305
|
)
|
(16,042
|
)
|
Foreign exchange impact on cash balance
|
|
1,462
|
|
(189
|
)
|
Net (decrease) increase in cash and cash
equivalents
|
|
(43,113
|
)
|
32,252
|
|
Cash and cash equivalents at the beginning
of the period
|
|
148,484
|
|
180,034
|
|
Cash and cash equivalents at the end of the
period
|
|
$
|
105,371
|
|
$
|
212,286
|
|
See accompanying
notes.
5
IHS INC.
CONSOLIDATED
STATEMENT OF CHANGES IN STOCKHOLDERS EQUITY
(In thousands)
|
|
Shares of
Class A
Common
Stock
|
|
Class A
Common
Stock
|
|
Shares of
Class B
Common
Stock
|
|
Class B
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
|
|
|
|
(Unaudited)
|
|
Balance
at November 30, 2007
|
|
48,759
|
|
$
|
498
|
|
13,750
|
|
$
|
138
|
|
$
|
381,124
|
|
$
|
(46,045
|
)
|
$
|
483,804
|
|
$
|
21,389
|
|
$
|
840,908
|
|
Stock-based award
activity
|
|
39
|
|
2
|
|
|
|
|
|
22,523
|
|
(13,118
|
)
|
|
|
|
|
9,407
|
|
Excess tax
benefit on vested shares
|
|
|
|
|
|
|
|
|
|
8,261
|
|
|
|
|
|
|
|
8,261
|
|
Repurchases of
common stock
|
|
(94
|
)
|
|
|
|
|
|
|
|
|
(5,546
|
)
|
|
|
|
|
(5,546
|
)
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
44,689
|
|
|
|
44,689
|
|
Other
comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,710
|
)
|
(5,710
|
)
|
Comprehensive
income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
38,979
|
|
Adoption of FIN
48
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,422
|
|
|
|
1,422
|
|
Balance
at May 31, 2008
|
|
48,704
|
|
$
|
500
|
|
13,750
|
|
$
|
138
|
|
$
|
411,908
|
|
$
|
(64,709
|
)
|
$
|
529,915
|
|
$
|
15,679
|
|
$
|
893,431
|
|
See accompanying notes.
6
IHS INC.
NOTES TO
UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1.
Basis of Presentation and
Significant Accounting Policies
Nature of Operations
IHS Inc. (IHS, the Company, we, our, or
us) is a publicly traded Delaware corporation. IHS is a leading provider and
comprehensive source of Critical Information and Insight in a sizable and
growing global market. Our customers rely on our products and services to
facilitate crucial decision-making, support key processes, and improve
productivity. At the heart of our products and services is data obtained from
public sources, third parties, and our own proprietary databases. We transform
that data into Critical Information and Insight that is both useful to our
customers and available where and when they make critical business decisions.
The data becomes Critical Information when we combine it with our proprietary
and third-party technology to create graphical user interfaces, search and
navigation tools, and online delivery systems. We further transform that
information into Insight products and services with analysis and interpretation
from our teams of experts.
We serve some of the worlds largest
corporations across multiple industries, as well as governments and other
organizations, in more than 100 countries. We generate approximately half of
our total revenue from outside the United States. Our primary operations
outside the United States are in the United Kingdom, Canada and Switzerland.
Our operating profit outside the United States has historically exceeded our
domestic operating profit. We manage our business through our Energy and
Engineering operating segments.
We have targeted four specific information domainsEnergy,
Product Lifecycle, Security, and Environment. Since these four information
domains represent areas where our customers have needs for critical information
and insight, we use these domains to set priorities and design our business
objectives. As we continue to deliver Critical Information and Insight in those
four information domains, we prepare and analyze our financial reports to
include our two reportable segments. As the information that our customers need
to address their complex business issues continues to converge at the
intersection of the information domains that we serve, we are evolving our
management structure to a geographic focus, the point of contact with our
customers. As a result of this transformation, our defined operating segments
will change to regional segments during the third quarter of 2008.
Consolidation Policy
The consolidated financial
statements include the accounts of all wholly-owned and majority-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated.
Investments in
unconsolidated affiliated companies are accounted for under the equity method
and are included in Equity Investment in Joint Venture in the accompanying
Consolidated Balance Sheets. Our proportionate share of income from the
unconsolidated affiliates is included in Income from Equity Investment in the
accompanying Consolidated Statements of Operations. We generally utilize the equity method of
accounting when we have a non-controlling ownership interest of between 20% and
50% in an entity, provided we are able to exercise significant influence over
the investees operations.
Unaudited Condensed Consolidated
Financial Statements
The accompanying unaudited
condensed consolidated financial statements reflect all adjustments, consisting
of normal recurring accruals, which are necessary for a fair presentation of
the financial position, results of operations and cash flows for the periods
presented. The accompanying condensed consolidated financial statements include
our accounts and the accounts of our majority-owned domestic and foreign subsidiaries. All significant intercompany transactions and
balances have been eliminated in consolidation. These condensed consolidated
financial statements should be read in conjunction with the consolidated
financial statements for the year ended November 30, 2007. The results of operations for the three and
six months ended May 31, 2008, are not necessarily indicative of the
results that may be achieved for the full fiscal year and cannot be used to
indicate financial performance for the entire year.
The year-end condensed consolidated
balance sheet data was derived from the audited November 30, 2007, balance
sheet.
Results Subject to Seasonal
Variations
Historically, our
business has had seasonal aspects.
However, with the continued organic growth in our subscription-based
business model combined with several acquisitions in recent years, our seasonal
aspects have diminished. Our first quarter does benefit from the inclusion of
the results from CERAWeek, an annual energy executive gathering.
Subscriptions are generally paid in full within one to two
months after the subscription period commences. As a result, the timing of our
cash flows generally precedes the recognition of revenue and income.
7
Use of Estimates
The preparation
of interim condensed consolidated financial statements in conformity with
accounting principles generally accepted in the United States requires us to
make estimates and assumptions that affect the amounts reported and disclosed
in the financial statements and the accompanying notes. Significant estimates
have been made in areas that include revenue recognition, useful lives of fixed
and intangible assets, allocation of purchase price to acquired assets and
liabilities, the recoverability of intangible assets and goodwill, income and
other taxes, pension and post-retirement benefits, and stock-based
compensation. Actual results could differ from those estimates.
Reclassification
Certain prior-year balances have been reclassified to
conform to current-year presentation.
Income Taxes
Our
effective quarterly rate is estimated based upon the effective tax rate
expected to be applicable for the full fiscal year.
Our
effective tax rate for the second quarter of 2008 was 31.9% compared to 32.4%
for the prior year period. Our effective
tax rate for the first half of 2008 was 32.5% compared to 32.7% for the prior
year period. The 2008 rate reflects the
impact from net reductions in unrecognized tax benefits principally from the
successful completion of a recent Canadian tax audit, as well as net benefits
from changes to certain estimates.
On
December 1, 2007 we adopted the provisions of Financial Accounting
Standards Board Interpretation No. 48 (FIN 48).
Upon adoption, we recognized a $1.4 million decrease in liabilities on
uncertain tax positions, resulting in a balance of $1.7 million in unrecognized
tax benefits as of December 1, 2007.
Since December 1, 2007, unrecognized tax benefits decreased by $0.2 million. This reduction represents the net of
decreases from the recognition of tax benefits due to the closure of a Canadian
tax audit and from the filing of certain non-U.S. amended tax returns, and
increases due to additional unrecognized tax benefits and accrued interest during
the six months ended May 31, 2008.
As of May 31, 2008, the total amount of unrecognized tax benefits
was $1.5 million. If recognized,
essentially all of the unrecognized tax benefits would affect our effective tax
rate.
We recognize interest and penalties
related to
unrecognized tax benefits within the provision for income taxes
. For the six
months ended May 31, 2008, we recognized $0.1 million of net benefit from
interest on unrecognized tax benefits.
We
are subject to taxation and file income tax returns in the U.S. and in many
foreign jurisdictions. For U.S. federal, Canadian and Swiss income tax
purposes, effectively all years prior to 2004 are closed. For United Kingdom income tax purposes, all
years prior to 2005 are effectively closed.
The
open tax years contain matters that could be subject to differing
interpretations of applicable tax laws and regulations as it relates to the
amount and/or timing of income, deductions and tax credits. Although the
outcome of tax audits is always uncertain, we believe that adequate amounts of
tax and interest have been provided for any adjustments that are expected to
result from an audit of the open tax years.
Although timing of the resolution and/or closure of audits is highly
uncertain, we do not believe it is reasonably possible that our unrecognized
tax benefits will materially change in the next 12 months.
New Accounting Pronouncements
In September 2006,
the Financial Accounting Standards Board (FASB) issued SFAS No. 157,
Fair Value Measurements
(SFAS No. 157). Among other
requirements, SFAS No. 157 defines fair value and establishes a framework
for measuring fair value and also expands disclosure about the use of fair
value to measure assets and liabilities. Subsequently, the FASB deferred the
8
application of this pronouncement for non-financial
assets and liabilities to fiscal years beginning after November 15,
2008. SFAS No. 157 is effective for
financial assets and liabilities beginning the first fiscal year that begins
after November 15, 2007. We adopted SFAS No. 157 for financial assets
and liabilities on December 1, 2007, with no material impact to our
consolidated financial statements.
In February 2007,
the FASB issued SFAS No. 159,
The Fair Value Option for
Financial Assets and Financial Liabilities
(SFAS No. 159). SFAS
No. 159 expands the use of fair value measurement by permitting entities
to choose to measure many financial instruments and certain other items at fair
value that are not currently required to be measured at fair value. SFAS No. 159
was effective beginning the first fiscal year that begins after November 15,
2007. We have opted not to electively adopt the provisions of SFAS No. 159
in the accompanying consolidated financial statements.
In December 2007,
the FASB issued SFAS No. 141(R),
Business
Combinations
and SFAS No. 160,
Accounting
and Reporting of Noncontrolling Interest in Consolidated Financial Statements,
an amendment of ARB No. 51
.
These new standards will significantly change the accounting for and
reporting of business combination transactions and noncontrolling (minority)
interests in consolidated financial statements. SFAS Nos. 141(R) and
160 are required to be adopted simultaneously and are effective for the first
annual reporting period beginning on or after December 15, 2008. Thus, we are required to adopt these
standards on December 1, 2009, the first day of our 2010 fiscal year.
Earlier adoption is prohibited. We are
currently evaluating the impact of adopting SFAS Nos. 141(R) and 160 on
our consolidated financial statements.
In March 2008,
the FASB issued SFAS No. 161,
Disclosures about
Derivative Instruments and Hedging Activities
. SFAS No. 161 requires additional
disclosures related to the use of derivative instruments, the accounting for
derivatives and how derivatives impact financial statements. SFAS No. 161 is effective for fiscal
years and interim periods beginning after November 15, 2008. Thus, we are required to adopt this standard
on December 1, 2008, the first day of our 2009 fiscal year. We are currently evaluating the impact of
adopting SFAS No. 161 on our consolidated financial statements.
In May 2008,
the FASB issued SFAS No. 162,
The Hierarchy of General
Accepted Accounting Principles
.
This statement documents the hierarchy of the various sources of
accounting principles and the framework for selecting the principles used in
preparing financial statements. This
statement shall be effective 60 days following the Securities and Exchange Commissions
approval of the Public Company Accounting Oversight Board amendments to AU Section 411,
The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles
. SFAS No. 162 will not have a material
impact to our consolidated financial statements.
2.
Business Combinations
In December 2007, we acquired
McCloskey Group Limited (McCloskey), the leading provider of news, critical
information and insight on the international coal markets located near London,
England. We acquired McCloskey for £13.9
million, or approximately $28.2 million using cash on hand.
On March 3, 2008, we
acquired Prime Publications Limited (Prime), which owns a 50% interest in the
Lloyds Register-Fairplay Limited (LRF) joint venture, a leading source of global
maritime information. LRF is the
pre-eminent brand name in the maritime information industry and the only
organization that provides comprehensive details of the current world merchant
fleet (tankers, cargo, carrier and passenger ships) and a complete range of
products and services to assist the worlds maritime community. The
investment in LRF was the primary asset of Prime. Lloyds Register of London, England is the
joint venture partner owning the other 50%.
IHS accounts for the joint venture under the equity method of
accounting. IHS acquired 100 percent of
the stock of Prime for approximately £38.0
million, or approximately $74.6 million, which included £10.7 million, or approximately $21.2 million in
non-interest bearing seller notes valued at $18.5 million and the remainder was
paid in cash.
Also on March 3,
2008, we acquired Dolphin Software, Inc. (Dolphin) for approximately $23.7
million in cash. Dolphin is a leader in developing and using chemical data
information and software used by companies to record and track chemicals stored
and used in their facilities.
9
On March 13, 2008,
we acquired Environmental Software Providers (ESP), a provider of enterprise
information solutions used by companies to assist in managing their
environmental sustainability programs for approximately $18.7 million in cash.
On March 14, 2008,
we acquired JFA International (JFA), a London, England based provider of
strategic analysis to the energy industrys exploration and production
sectors. JFA was acquired for
£2.0 million, or
approximately $3.9 million.
Cash used for the March 2008
acquisitions came from cash on hand and a draw down of $50.0 million on our
$385 million revolving credit agreement.
These
acquisitions were accounted for using the purchase method of accounting. Our
consolidated financial statements include all the assets and liabilities
acquired and the results of operations from the respective date of acquisition.
Pro forma results of the acquired businesses have not been presented as they
did not have a material impact on our results of operations.
The
purchase prices for these 2008 acquisitions, excluding acquired cash and
including acquisition-related costs and notes payable, were initially allocated
as follows (in thousands):
|
|
Prime
|
|
McCloskey
|
|
All others
|
|
Total
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
$
|
110
|
|
$
|
774
|
|
$
|
2,944
|
|
$
|
3,828
|
|
Property and equipment
|
|
6
|
|
114
|
|
741
|
|
861
|
|
Intangible assets
|
|
3,572
|
|
8,180
|
|
16,755
|
|
28,507
|
|
Goodwill
|
|
687
|
|
24,136
|
|
34,136
|
|
58,959
|
|
Equity investment in joint venture
|
|
72,271
|
|
|
|
|
|
72,271
|
|
Other long-term assets
|
|
|
|
|
|
52
|
|
52
|
|
Total assets
|
|
76,646
|
|
33,204
|
|
54,628
|
|
164,478
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
1,079
|
|
2,700
|
|
4,655
|
|
8,434
|
|
Deferred taxes
|
|
1,000
|
|
2,298
|
|
3,620
|
|
6,918
|
|
Other long-term liabilities
|
|
|
|
|
|
20
|
|
20
|
|
Total liabilities
|
|
2,079
|
|
4,998
|
|
8,295
|
|
15,372
|
|
Purchase price
|
|
$
|
74,567
|
|
$
|
28,206
|
|
$
|
46,333
|
|
$
|
149,106
|
|
3.
Commitments and Contingencies
We are a party to various legal
proceedings that arise in the ordinary course of business. In the opinion of management, none of these
actions, either individually or in the aggregate, is expected to have a
material adverse affect on our financial condition, liquidity or results of
operations.
10
4.
Other Comprehensive
Income
Our
comprehensive income for the three and six months ended May 31, 2008 and
2007 was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Net income
|
|
$
|
23,258
|
|
$
|
18,582
|
|
$
|
44,689
|
|
$
|
36,959
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
(1,571
|
)
|
6,346
|
|
(5,710
|
)
|
3,779
|
|
Total other comprehensive income, net of
tax
|
|
$
|
21,687
|
|
$
|
24,928
|
|
$
|
38,979
|
|
$
|
40,738
|
|
5.
Stock-Based
Compensation
On May 31,
2008, we had one share based compensation plan: the Amended and Restated IHS
Inc. 2004 Long-Term Incentive Plan (LTIP). The LTIP provides for the grant of
non-qualified stock options, incentive stock options, stock appreciation
rights, restricted stock, restricted stock units, performance units and
performance shares, cash-based awards, other stock based awards and covered
employee annual incentive awards. The 2004 Directors Stock Plan, a sub-plan
under the LTIP, provides for the grant of restricted stock and restricted stock
units to non-employee directors as defined in that plan. We believe that such
awards better align the interests of our employees and non-employee directors
with those of our shareholders.
We
have authorized a maximum of 11,250,000 shares, less the number of shares
relating to any award granted and outstanding.
Stock-based compensation expense that has been charged against income
for the plan was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Cost of revenue
|
|
$
|
376
|
|
$
|
105
|
|
$
|
687
|
|
$
|
456
|
|
Selling, general and administrative
|
|
10,001
|
|
5,940
|
|
22,391
|
|
12,925
|
|
Stock-based compensation expense
|
|
$
|
10,377
|
|
$
|
6,045
|
|
$
|
23,078
|
|
$
|
13,381
|
|
Total income tax benefit recognized in the income
statement for share-based compensation arrangements for the three and six
months ended May 31 was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Income tax benefit
|
|
$
|
3,840
|
|
$
|
2,237
|
|
$
|
8,539
|
|
$
|
4,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No
compensation cost was capitalized during the six months ended May 31, 2008
and 2007.
Nonvested Stock.
Share awards generally vest from one to four
years. Share awards are generally subject to graded vesting but we do have a
limited number of share awards subject to cliff vesting. The fair value of
nonvested stock is based on the fair value of our common stock on the date of
grant. We amortize the value of share awards to expense over the vesting period
on a straight-line basis. For awards with performance conditions, an evaluation
is made each quarter as to the likelihood of the performance criteria being
met. Compensation expense is then adjusted to reflect the
11
number of shares expected to vest and the cumulative vesting period met
to date. Additionally, we estimate
forfeitures at the grant date and recognize compensation cost based on the
number of awards expected to vest. There may be adjustments in future periods
if the likelihood of meeting performance criteria changes or if actual
forfeitures differ from our estimates. Our forfeiture rate is based upon
historical experience as well as anticipated employee turnover considering
certain qualitative factors.
Total compensation expense related to nonvested awards, both share
awards and stock options, not yet recognized was $76.9 million as of May 31,
2008, with a weighted-average recognition period of approximately 2 years.
A summary of the status of our nonvested shares as of May 31,
2008, and changes during the six months ended May 31, 2008, was as
follows:
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
|
|
|
(in thousands)
|
|
|
|
Balances, November 30, 2007
|
|
2,429
|
|
$
|
32.16
|
|
Granted
|
|
785
|
|
$
|
62.03
|
|
Vested
|
|
(593
|
)
|
$
|
25.66
|
|
Forfeited
|
|
(72
|
)
|
$
|
44.83
|
|
Balances, May 31, 2008
|
|
2,549
|
|
$
|
42.53
|
|
The total fair value of nonvested stock that vested during the three
and six months ended May 31, 2008, was $0.6 million and $37.7
million, respectively based on the fair value on the vesting date and $0.3
million and $15.2 million, respectively based on the fair value on the date of
grant.
Stock Options.
Option awards are granted with an exercise
price equal to the fair market value of our stock at the date of grant. Options
outstanding as of May 31, 2008, vest in various ways over a period of
3-to-4 years of continuous service and have 8-year contractual terms.
Certain option and share awards provide for accelerated vesting if there is a
change in control (as defined in the plans).
The following table summarizes changes in outstanding stock options
during the six months ended May 31, 2008, as well as options that are
vested and expected to vest and stock options exercisable at May 31, 2008:
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(in thousands)
|
|
|
|
(in years)
|
|
(in thousands)
|
|
Outstanding at November 30, 2007
|
|
287
|
|
$
|
35.31
|
|
2.0
|
|
$
|
10,009
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(9
|
)
|
37.65
|
|
|
|
|
|
Forfeited
|
|
|
|
|
|
|
|
|
|
Outstanding at May 31, 2008
|
|
278
|
|
$
|
35.21
|
|
1.5
|
|
$
|
6,777
|
|
Vested and expected to vest at May 31,
2008
|
|
278
|
|
$
|
35.21
|
|
1.5
|
|
$
|
6,777
|
|
Exercisable at May 31, 2008
|
|
54
|
|
$
|
37.65
|
|
|
|
$
|
1,181
|
|
The aggregate intrinsic value amounts in the table above represent the
difference between the closing price of our common stock on May 31, 2008,
which was $59.56, and the exercise price, multiplied by the number of
in-the-money stock options as of the same date. This represents the amount that
would have been received by the stock option holders if they had all exercised
their stock options on May 31, 2008. In future periods, this amount will
change depending on fluctuations in our stock price. The total intrinsic value
of stock options exercised during the three and six months ended May 31,
2008 was $0.2 million and $0.3 million, respectively.
12
6.
Debt
On September 7, 2007, we entered into an amended and restated
credit agreement (Revolver). The $385 million unsecured Revolver allows
us, under certain conditions, to increase the facility to a maximum of
$500 million. The agreement expires in September 2012.
The interest rates for borrowing under the Revolver are based upon our
Leverage Ratio, which is the ratio of Consolidated Funded Indebtedness to
rolling four quarter Consolidated Earnings Before Interest Expense, Taxes,
Depreciation and Amortization (EBITDA), as defined in the Revolver. The rate ranges
from the applicable LIBOR plus 50 basis points to 125 basis points or the agent
banks base rate. A commitment fee is payable periodically and ranges from 10
to 25 basis points based upon our Leverage Ratio. The Revolver contains certain
financial and other covenants, including limitations on capital lease
obligations and maximum Leverage and Interest Coverage Ratios, as defined in
the Revolver.
As of May 31, 2008, we were in compliance with all of the
covenants in the agreement. We had
letters of credit totaling approximately $1.0 million as of May 31,
2008. On March 3, 2008, we borrowed $50.0 million under the Revolver
at an annual rate of 3.6% to fund acquisitions, of which $10.0 million was
outstanding as of May 31, 2008. The use of the Revolver allows us to
maintain cash levels to fund the ongoing operational needs of the business and
has tax benefits as we may not have to repatriate cash from foreign locations
to fund the acquisitions.
As
of May 31, 2008, we also had $21.2 million of non-interest bearing notes
that were issued to the sellers of Prime.
After discounting these notes assuming an annual interest rate at 5.69%,
the recorded balance at May 31, 2008 is $18.5 million. These notes are due upon demand and are
therefore recorded in Short-term Debt in
the accompanying Consolidated
Balance Sheets.
7.
Pensions and
Postretirement Benefits
We have defined-benefit plans and defined-contribution plans. Our
defined-benefit plans consist of a non-contributory retirement plan for all of
our U.S. employees with at least one year of service (U.S. RIP), a pension plan
that covers certain employees of one of our United Kingdom-based subsidiaries
(U.K. RIP), and a supplemental income plan (SIP) for certain company
executives.
Our
net periodic pension (income) expense was comprised of the following:
|
|
Three Months Ended May 31, 2008
|
|
Three Months Ended May 31, 2007
|
|
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
|
|
(In thousands)
|
|
Service costs incurred
|
|
$
|
1,572
|
|
$
|
238
|
|
$
|
72
|
|
$
|
1,882
|
|
$
|
1,569
|
|
$
|
288
|
|
$
|
48
|
|
$
|
1,905
|
|
Interest costs on projected benefit
obligation
|
|
2,999
|
|
539
|
|
114
|
|
3,652
|
|
2,720
|
|
499
|
|
82
|
|
3,301
|
|
Expected return on plan assets
|
|
(5,361
|
)
|
(562
|
)
|
|
|
(5,923
|
)
|
(5,078
|
)
|
(451
|
)
|
|
|
(5,529
|
)
|
Amortization of prior service cost
|
|
(118
|
)
|
|
|
11
|
|
(107
|
)
|
(119
|
)
|
|
|
|
|
(119
|
)
|
Amortization of actuarial loss
|
|
|
|
|
|
47
|
|
47
|
|
375
|
|
302
|
|
30
|
|
707
|
|
Amortization of transitional
obligation/(asset)
|
|
(142
|
)
|
|
|
10
|
|
(132
|
)
|
(142
|
)
|
|
|
10
|
|
(132
|
)
|
Net periodic pension benefit (income)
expense
|
|
$
|
(1,050
|
)
|
$
|
215
|
|
$
|
254
|
|
$
|
(581
|
)
|
$
|
(675
|
)
|
$
|
638
|
|
$
|
170
|
|
$
|
133
|
|
13
|
|
Six Months Ended May 31, 2008
|
|
Six Months Ended May 31, 2007
|
|
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
|
|
(In thousands)
|
|
Service costs incurred
|
|
$
|
3,144
|
|
$
|
476
|
|
$
|
144
|
|
$
|
3,764
|
|
$
|
3,138
|
|
$
|
574
|
|
$
|
96
|
|
$
|
3,808
|
|
Interest costs on projected benefit
obligation
|
|
5,998
|
|
1,078
|
|
228
|
|
7,304
|
|
5,440
|
|
1,039
|
|
186
|
|
6,665
|
|
Expected return on plan assets
|
|
(10,729
|
)
|
(1,124
|
)
|
|
|
(11,853
|
)
|
(10,156
|
)
|
(898
|
)
|
|
|
(11,054
|
)
|
Amortization of prior service cost
|
|
(236
|
)
|
|
|
22
|
|
(214
|
)
|
(237
|
)
|
|
|
22
|
|
(215
|
)
|
Amortization of actuarial loss
|
|
|
|
|
|
94
|
|
94
|
|
750
|
|
602
|
|
60
|
|
1,412
|
|
Amortization of transitional
obligation/(asset)
|
|
(284
|
)
|
|
|
20
|
|
(264
|
)
|
(284
|
)
|
|
|
20
|
|
(264
|
)
|
Net periodic pension benefit (income)
expense
|
|
$
|
(2,107
|
)
|
$
|
430
|
|
$
|
508
|
|
$
|
(1,169
|
)
|
$
|
(1,349
|
)
|
$
|
1,317
|
|
$
|
384
|
|
$
|
352
|
|
Our
net periodic post-retirement income was comprised of the following for the
three and six months ended May 31:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Service costs incurred
|
|
$
|
25
|
|
$
|
34
|
|
$
|
50
|
|
$
|
68
|
|
Interest costs
|
|
158
|
|
148
|
|
316
|
|
296
|
|
Amortization of prior service amounts
|
|
(806
|
)
|
(807
|
)
|
(1,612
|
)
|
(1,614
|
)
|
Amortization of net actuarial loss
|
|
118
|
|
138
|
|
236
|
|
276
|
|
Net periodic post-retirement benefit income
|
|
$
|
(505
|
)
|
$
|
(487
|
)
|
$
|
(1,010
|
)
|
$
|
(974
|
)
|
8.
Earnings per Share
Earnings per common share (EPS) are
computed in accordance with SFAS No. 128,
Earnings per
Share
. Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding during the period. Diluted EPS
reflects the potential dilution that could occur if securities or other
contracts to issue common stock were exercised or converted into common shares.
Our authorized capital stock
consists of 80,000,000 shares of Class A common stock and 13,750,000
shares of Class B common stock.
These classes have equal dividend rights and liquidation rights.
However, the holders of our Class A common stock are entitled to one vote
per share and holders of our Class B common stock are entitled to ten
votes per share on all matters to be voted upon by the stockholders. Each share
of Class B common stock is convertible at any time at the option of the
holder into one share of Class A common stock and will automatically
convert, without any action by the holder, upon the earlier of the occurrence
of specified events or November 16, 2009.
We use the two-class method for computing basic and diluted
EPS amounts. We calculated undistributed earnings as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Net income
|
|
$
|
23,258
|
|
$
|
18,582
|
|
$
|
44,689
|
|
$
|
36,959
|
|
Less: dividends
|
|
|
|
|
|
|
|
|
|
Undistributed earnings
|
|
$
|
23,258
|
|
$
|
18,582
|
|
$
|
44,689
|
|
$
|
36,959
|
|
14
Weighted average common shares outstanding are calculated
as follows:
|
|
Three Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
|
|
|
(In thousands)
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Shares used
in basic per-share calculation
|
|
48,471
|
|
13,750
|
|
43,626
|
|
13,750
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Deferred
stock units
|
|
42
|
|
|
|
18
|
|
|
|
Restricted
shares
|
|
752
|
|
|
|
876
|
|
|
|
Options
|
|
71
|
|
|
|
11
|
|
|
|
Assumed
conversion of Class B shares
|
|
13,750
|
|
|
|
13,750
|
|
|
|
Shares used
in diluted per-share calculation
|
|
63,086
|
|
13,750
|
|
58,281
|
|
13,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
|
|
|
(In thousands)
|
|
Weighted
average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Shares used
in basic per-share calculation
|
|
48,347
|
|
13,750
|
|
43,733
|
|
13,750
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
Deferred
stock units
|
|
40
|
|
|
|
18
|
|
|
|
Restricted
shares
|
|
839
|
|
|
|
826
|
|
|
|
Options
|
|
69
|
|
|
|
1
|
|
|
|
Assumed
conversion of Class B shares
|
|
13,750
|
|
|
|
13,750
|
|
|
|
Shares used
in diluted per-share calculation
|
|
63,045
|
|
13,750
|
|
58,328
|
|
13,750
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
earnings and calculated basic and diluted EPS amounts are calculated as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
|
|
|
(In thousands)
|
|
Basic
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
48,471
|
|
13,750
|
|
43,626
|
|
13,750
|
|
Divided by: Total weighted average shares
outstanding (Class A and Class B)
|
|
62,221
|
|
62,221
|
|
57,376
|
|
57,376
|
|
Multiplied
by: Undistributed earnings
|
|
$
|
23,258
|
|
$
|
23,258
|
|
$
|
18,582
|
|
$
|
18,582
|
|
Subtotal
|
|
$
|
18,118
|
|
$
|
5,140
|
|
$
|
14,129
|
|
$
|
4,453
|
|
Divided by:
Weighted average shares outstanding
|
|
48,471
|
|
13,750
|
|
43,626
|
|
13,750
|
|
Earnings per
share
|
|
$
|
0.37
|
|
$
|
0.37
|
|
$
|
0.32
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
63,086
|
|
13,750
|
|
58,281
|
|
13,750
|
|
Divided by: Total weighted average shares
outstanding (Class A and Class B)
|
|
63,086
|
|
63,086
|
|
58,281
|
|
58,281
|
|
Multiplied
by: Undistributed earnings
|
|
$
|
23,258
|
|
$
|
23,258
|
|
$
|
18,582
|
|
$
|
18,582
|
|
Subtotal
|
|
$
|
23,258
|
|
$
|
5,069
|
|
$
|
18,582
|
|
$
|
4,384
|
|
Divided by:
Weighted average shares outstanding
|
|
63,086
|
|
13,750
|
|
58,281
|
|
13,750
|
|
Earnings per
share
|
|
$
|
0.37
|
|
$
|
0.37
|
|
$
|
0.32
|
|
$
|
0.32
|
|
15
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
|
|
Class A
|
|
Class B
|
|
Class A
|
|
Class B
|
|
|
|
(In thousands)
|
|
Basic
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
48,347
|
|
13,750
|
|
43,733
|
|
13,750
|
|
Divided by: Total weighted average shares
outstanding (Class A and Class B)
|
|
62,097
|
|
62,097
|
|
57,483
|
|
57,483
|
|
Multiplied
by: Undistributed earnings
|
|
$
|
44,689
|
|
$
|
44,689
|
|
$
|
36,959
|
|
$
|
36,959
|
|
Subtotal
|
|
$
|
34,794
|
|
$
|
9,895
|
|
$
|
28,118
|
|
$
|
8,841
|
|
Divided by:
Weighted average shares outstanding
|
|
48,347
|
|
13,750
|
|
43,733
|
|
13,750
|
|
Earnings per
share
|
|
$
|
0.72
|
|
$
|
0.72
|
|
$
|
0.64
|
|
$
|
0.64
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
63,045
|
|
13,750
|
|
58,328
|
|
13,750
|
|
Divided by: Total weighted average shares
outstanding (Class A and Class B)
|
|
63,045
|
|
63,045
|
|
58,328
|
|
58,328
|
|
Multiplied
by: Undistributed earnings
|
|
$
|
44,689
|
|
$
|
44,689
|
|
$
|
36,959
|
|
$
|
36,959
|
|
Subtotal
|
|
$
|
44,689
|
|
$
|
9,747
|
|
$
|
36,959
|
|
$
|
8,712
|
|
Divided by:
Weighted average shares outstanding
|
|
63,045
|
|
13,750
|
|
58,328
|
|
13,750
|
|
Earnings per
share
|
|
$
|
0.71
|
|
$
|
0.71
|
|
$
|
0.63
|
|
$
|
0.63
|
|
Share Repurchase Program
During
2006, our board of directors approved a program to reduce the dilutive effects
of employee equity grants, by allowing employees to surrender shares back to
the company for a value equal to their statutory tax liability. IHS then pays the statutory tax on behalf of
the employee. Later in 2006, our board
of directors approved an additional programa stock buyback programwhereby IHS
may acquire up to one million shares per year in the open market to more fully
offset the dilutive effect of our employee equity programs. This program was
renewed by the board of directors in late 2007 for fiscal year 2008. During the three months ended May 31,
2008, we repurchased 27,700 shares of our Class A common stock for
approximately $1.7 million, or $60.00 per share, pursuant to the stock buyback
program and 2,430 shares for approximately $0.2 million, or $63.09 per share,
related to shares withheld for taxes.
During the six months ended May 31, 2008, we repurchased 94,200
shares of our Class A common stock for approximately $5.5 million, or
$58.88 per share, pursuant to the stock buyback program and 210,256 shares for
approximately $13.1 million, or $62.39 per share, related to shares withheld
for taxes. Since the inception of these
programs, we have repurchased 784,162 shares of our Class A common stock
for approximately $34.7 million, or $44.29 per share, pursuant to the stock
buyback program and 593,069 shares for approximately $30.0 million, or $50.56
per share, related to shares withheld for taxes.
16
9.
Goodwill and Intangible Assets
The following table presents details of our intangible assets, other
than goodwill, as of May 31, 2008:
|
|
Useful Life
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
(Years)
|
|
|
|
(In thousands)
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
Information databases
|
|
5-15
|
|
$
|
152,456
|
|
$
|
(23,264
|
)
|
$
|
129,192
|
|
Customer relationships
|
|
2-15
|
|
49,379
|
|
(10,370
|
)
|
39,009
|
|
Non-compete agreements
|
|
5
|
|
5,935
|
|
(3,523
|
)
|
2,412
|
|
Developed computer software
|
|
5
|
|
15,556
|
|
(3,436
|
)
|
12,120
|
|
Other
|
|
3-11
|
|
6,064
|
|
(1,590
|
)
|
4,474
|
|
Total
|
|
|
|
229,390
|
|
(42,183
|
)
|
187,207
|
|
Intangible assets not subject to
amortization:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
34,602
|
|
|
|
34,602
|
|
Perpetual licenses
|
|
|
|
1,483
|
|
|
|
1,483
|
|
Total
|
|
|
|
36,085
|
|
|
|
36,085
|
|
Total intangible assets
|
|
|
|
$
|
265,475
|
|
$
|
(42,183
|
)
|
$
|
223,292
|
|
The following table
presents details of our intangible assets, other than goodwill, as of November 30,
2007:
|
|
Useful Life
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
(Years)
|
|
|
|
(In thousands)
|
|
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
Information databases
|
|
5-15
|
|
$
|
137,317
|
|
$
|
(14,926
|
)
|
$
|
122,391
|
|
Customer relationships
|
|
2-15
|
|
45,650
|
|
(7,981
|
)
|
37,669
|
|
Non-compete agreements
|
|
5
|
|
5,514
|
|
(2,889
|
)
|
2,625
|
|
Developed computer software
|
|
5
|
|
15,036
|
|
(2,527
|
)
|
12,509
|
|
Other
|
|
3-11
|
|
1,009
|
|
(984
|
)
|
25
|
|
Total
|
|
|
|
204,526
|
|
(29,307
|
)
|
175,219
|
|
Intangible assets not subject to
amortization:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
29,602
|
|
|
|
29,602
|
|
Perpetual licenses
|
|
|
|
1,538
|
|
|
|
1,538
|
|
Total
|
|
|
|
31,140
|
|
|
|
31,140
|
|
Total intangible assets
|
|
|
|
$
|
235,666
|
|
$
|
(29,307
|
)
|
$
|
206,359
|
|
The estimated amortization expense of intangible assets for business
combinations completed as of May 31, 2008 for each of the next five years
is as follows:
Year
|
|
Amount
|
|
|
|
(In thousands)
|
|
Remainder 2008
|
|
$
|
12,208
|
|
2009
|
|
21,815
|
|
2010
|
|
19,490
|
|
2011
|
|
18,336
|
|
2012
|
|
16,947
|
|
|
|
|
|
|
Amortization expense of intangible assets was $6.3 million and $3.2
million for the three months ended May 31, 2008 and May 31, 2007,
respectively. Amortization expense of
intangible assets was $12.0 million and $5.9 million for the six months ended May 31,
2008 and May 31, 2007, respectively.
17
Changes
in our goodwill from November 30, 2007 to May 31, 2008 were primarily
the result of the Prime, McCloskey, ESP, Dolphin and JFA acquisitions (see Note
2) and foreign-currency exchange-rate fluctuations.
10.
Segment Information
We have two reportable segments: Energy and
Engineering. Our Energy segment serves the Energy information domain where it
develops and delivers critical oil and gas industry data on exploration,
development, production, and transportation activities to major global energy
producers and national and independent oil companies. Our Energy segment also
provides operational, research, and strategic advisory services to these
customers, as well as to utilities and transportation, petrochemical, coal, and
power companies. Our Engineering segment is focused primarily on the Product
Lifecycle, Security, and Environment information domains where it provides
solutions incorporating technical specifications and standards, regulations,
parts data, design guides, security, environmental, and other information to
customers in its targeted industries. Both segments primarily derive their
revenue from subscriptions. As the information that our customers need to
address their complex business issues continues to converge at the intersection
of the information domains that we serve, we are evolving our management
structure to a geographic focus, the point of contact with our customers. As a result, our defined operating segments
will change to a geographic structure during the third quarter of 2008.
Information as to the operations of our two
segments is set forth below based on the nature of the offerings. Our Chairman
and Chief Executive Officer represents our chief operating decision maker, and
he evaluates segment performance based primarily on revenue and operating
profit. The accounting policies of our segments are the same as those described
in the summary of significant accounting policies (see Note 2 to our
consolidated financial statements included in our 2007 Form 10-K). As our
management structure changes to a geographic focus in the third quarter of
2008, we are modifying our internal reporting to a geographic focus and our
chief operating decision maker will use this information to evaluate
performance.
No single customer accounted for 10% or more
of our total revenue for the three or six months ended May 31, 2008. There
are no material inter-segment revenues for any period presented.
As shown below, certain corporate
transactions are not allocated to the reportable segments. Amounts not
allocated include, but are not limited to, such items as, stock-based
compensation expense, net periodic pension and post-retirement benefits income,
corporate-level impairments, and gain (loss) on sales of corporate assets.
|
|
Energy
|
|
Engineering
|
|
Shared
Services
|
|
Consolidated
Total
|
|
|
|
(In thousands)
|
|
Three Months Ended May 31, 2008
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
109,648
|
|
$
|
97,545
|
|
$
|
|
|
$
|
207,193
|
|
Segment operating income
|
|
38,753
|
|
17,209
|
|
(23,146
|
)
|
32,816
|
|
Depreciation and amortization
|
|
4,313
|
|
4,541
|
|
829
|
|
9,683
|
|
Three Months Ended May 31, 2007
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
88,828
|
|
$
|
66,072
|
|
$
|
|
|
$
|
154,900
|
|
Segment operating income
|
|
28,873
|
|
11,825
|
|
(14,813
|
)
|
25,885
|
|
Depreciation and amortization
|
|
2,917
|
|
1,407
|
|
597
|
|
4,921
|
|
|
|
Energy
|
|
Engineering
|
|
Shared
Services
|
|
Consolidated
Total
|
|
|
|
(In thousands)
|
|
Six Months Ended May 31, 2008
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
219,947
|
|
$
|
186,023
|
|
$
|
|
|
$
|
405,970
|
|
Segment operating income
|
|
77,905
|
|
32,201
|
|
(46,357
|
)
|
63,749
|
|
Depreciation and amortization
|
|
8,371
|
|
8,667
|
|
1,468
|
|
18,506
|
|
Six Months Ended May 31, 2007
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
175,574
|
|
$
|
131,947
|
|
$
|
|
|
$
|
307,521
|
|
Segment operating income
|
|
55,918
|
|
24,810
|
|
(28,959
|
)
|
51,769
|
|
Depreciation and amortization
|
|
5,595
|
|
2,812
|
|
1,094
|
|
9,501
|
|
18
Item 2.
Managements Discussion
and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This discussion contains statements that relate to IHSs future plans,
objectives, expectations, performance, events and the like that may constitute forward-looking
statements within the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933,
and Section 21E of the Securities Exchange Act of 1934. Words such as may,
could, should, would, believe, expect, anticipate, estimate, intend,
seeks, plan, project, continue, predict and other words or
expressions of similar meaning are intended to identify forward-looking
statements, although not all forward-looking statements contain these
identifying words. These statements are based on our current expectations about
future events or results and information that is currently available to us,
involve assumptions, risks and uncertainties, and speak only as of the date on
which such statements are made. Our actual results may differ materially from
those expressed or implied in these forward-looking statements. Those factors
include, but are not limited to, our ability to obtain content from third parties
(including Standards Development Organizations) on commercially reasonable
terms, changes in demand for IHSs products and services, changes in the energy
industry, our ability to develop new products and services, pricing and other
competitive pressures, risks associated with the integration of acquisitions,
changes in laws and regulations governing our business and certain other
factors discussed under the caption Risk Factors in the MD&A section of
our 2007 Form 10-K, and in our other filings with the SEC. IHS undertakes
no duty to update, whether as a result of new information, future events or
otherwise, unless required by law.
Overview
Results of Operations
IHS Inc. is a publicly traded Delaware corporation. IHS is a
leading provider and comprehensive source of Critical Information and Insight
in a sizable and growing global market. Our customers rely on our products and
services to facilitate crucial decision-making, support key processes, and
improve productivity. At the heart of our products and services is data
obtained from public sources, third parties, and our own proprietary databases.
We transform that data into Critical Information and Insight that is both
useful to our customers and available where and when they make critical business
decisions. The data becomes Critical Information when we combine it with our
proprietary and third-party technology to create graphical user interfaces,
search and navigation tools, and online delivery systems. We further transform
that information into Insight products and services with analysis and
interpretation from our teams of experts.
We sell our offerings primarily through subscriptions. As a result of
our subscription-based business model and historically high renewal rates, we
generate recurring revenue and cash flow. We generally recognize revenue from
subscriptions (which are usually for one-year periods) ratably over the term of
the subscription. Historically, our business has had seasonal aspects.
However, with the continued organic growth in our subscription-based business
model combined with several acquisitions in recent years, our seasonal aspects
have diminished. Our first quarter does benefit from the inclusion of the
results from CERAWeek, an annual energy executive gathering. Subscriptions
are generally paid in full within one to two months after the subscription
period commences. As a result, the timing of our cash flows generally precedes
the recognition of revenue and income.
We serve some of the worlds largest corporations across multiple
industries, as well as governments and other organizations, in more than 100
countries. We generate approximately half of our total revenue from outside the
United States. Our primary operations outside the United States are in the
United Kingdom, Canada and Switzerland. Our operating profit outside the United
States has historically exceeded our domestic operating profit. We manage our
business through our Energy and Engineering operating segments.
We have targeted four specific information domainsEnergy, Product
Lifecycle, Security, and Environment. Since these four information domains
represent areas where our customers have needs for critical information and
insight, we use these domains to set priorities and design our business
strategies. As we continue to deliver Critical
19
Information and Insight in those four information domains, we prepare
and analyze our financial reports to include our two reportable segments. As the information that our customers need to
address their complex business issues continues to converge at the intersection
of the information domains that we serve, we are evolving our management
structure to a geographic focus, the point of contact with our customers.
As a result of this transformation, our defined operating segments will change
to geographic segments during the third quarter of 2008.
Inherent in all of our strategies is a firm commitment to put our
customers first in everything that we do. We believe that maintaining a
disciplined outside-in approach will allow us to better serve our customers
and our shareholders. Our primary strategy is to achieve and strengthen a
leading position inand at the intersection ofour targeted information
domains. We also intend to continue driving margin and quality improvement
through operational transformation. And finally, we intend to enhance the
effectiveness of our other strategies with a continued emphasis on
acquisitions.
To support these strategies, we have several on-going cross-functional
projects led by members of the senior leadership team. Our operational
transformation is an evolution, one which started over three years ago and will
continue for a few years to come. We have not designed these initiatives as
purely cost-cutting events. Rather, they are multi-faceted endeavors designed
to simultaneously improve the quality of our offerings while optimizing the
efficiency and effectiveness of the processes involved.
Our current initiatives are designed to focus on three key areas: our
customers, financial model and operational improvements. One of the key initiatives is our data
accumulation process improvement initiative which includes combining our data
accumulation operations into a shared service to enhance our ability to work
across all geographies. In addition, we
have partnered with a third party to focus on quality and process improvement
within our data accumulation function.
As a result of this initiative, it is expected that some existing roles
will be eliminated. At this time, we are still evaluating work functions
and implications to individual roles and colleagues so we do not yet know how
many positions will be affected. It is important to note that any individual
whose job is affected by the changes, and who is not offered another position
within IHS, they will be offered a severance package along with outplacement
assistance.
Segment Information
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2008
|
|
2007
|
|
2008
|
|
2007
|
|
|
|
(In thousands)
|
|
Energy revenue
|
|
$
|
109,648
|
|
$
|
88,828
|
|
$
|
219,947
|
|
$
|
175,574
|
|
Engineering
revenue
|
|
97,545
|
|
66,072
|
|
186,023
|
|
131,947
|
|
Total
consolidated revenue
|
|
$
|
207,193
|
|
$
|
154,900
|
|
$
|
405,970
|
|
$
|
307,521
|
|
Energy operating
income
|
|
$
|
38,753
|
|
$
|
28,873
|
|
$
|
77,905
|
|
$
|
55,918
|
|
Engineering
operating income
|
|
17,209
|
|
11,825
|
|
32,201
|
|
24,810
|
|
Shared services
expenses
|
|
(23,146
|
)
|
(14,813
|
)
|
(46,357
|
)
|
(28,959
|
)
|
Consolidated
operating income
|
|
$
|
32,816
|
|
$
|
25,885
|
|
$
|
63,749
|
|
$
|
51,769
|
|
Three Months Ended May 31, 2008 Compared to
the Three Months Ended May 31, 2007
Revenue.
Revenue was $207.2 million for the three
months ended May 31, 2008, compared to $154.9 million for the three months
ended May 31, 2007, an increase of $52.3 million or 34%. The increase in
revenue was driven in part by acquisitions which contributed $36.0 million and
organic growth which contributed $13.3 million.
The impact of foreign currency added $3.0 million.
Revenue for our Energy segment was
$109.6 million for the three months ended May 31, 2008, compared to $88.8
million for the three months ended May 31, 2007, an increase of $20.8
million or 23%. The increase in revenue was driven in part by acquisitions which
contributed $10.6 million and organic growth which contributed $8.5 million.
Favorable foreign currency rates added
20
$1.8
million. Organic growth during the second quarter of 2008 was driven by price
increases and growth in certain critical information subscription products.
Revenue for our Engineering segment
was $97.5 million for the three months ended May 31, 2008, compared to
$66.1 million for the three months ended May 31, 2007, an increase of
$31.4 million or 48%. The increase in revenue was driven in part by acquisitions
which contributed $25.4 million and in part by organic growth which contributed
$4.8 million. Favorable foreign currency rates added $1.3 million. Organic growth was driven primarily by
increased sales in our specifications-and-standards offerings in 2008.
Cost of Revenue
. Cost of revenue was $93.2 million for the
three months ended May 31, 2008, compared to $67.8 million for the three
months ended May 31, 2007, an increase of $25.4 million or 38%. As a
percentage of revenue, cost of revenue increased to 45.0% from 43.7%. Margins
as a percentage of revenue within our Energy segment remained relatively flat
with increases in our critical information margin being offset by lower consulting
related margins and the near-term impact of recent acquisitions. Margins as a percentage of revenue within our
Engineering segment decreased slightly, principally due to a shift in product
mix.
Selling, General and Administrative Expenses
. Selling, general and administrative expenses
(SG&A) were $72.9 million for the three months ended May 31, 2008,
compared to $56.6 million for the three months ended May 31, 2007, an
increase of $16.3 million or 29%. Stock-based compensation expense included in
SG&A increased $4.1 million. As a percentage of revenue and excluding
stock-based compensation expense, SG&A was 30.4% for the three months ended
May 31, 2008, down from 32.7% for the three months ended May 31,
2007. Organic SG&A increased by $2.3
million as we incurred costs related to our quote-to-cash system implementation
and we have been able to maintain lower organic SG&A growth elsewhere by leveraging
the cost base in back-office functions. Acquisitions
contributed $9.4 million of the increase. Foreign-currency movements also
increased SG&A by $0.6 million.
Depreciation and Amortization Expenses
. Depreciation and amortization expenses were
$9.7 million for the three months ended May 31, 2008, compared to $4.9
million for the three months ended May 31, 2007, an increase of $4.8
million or 97%. The increase was primarily due to acquisitions.
Operating Income
. Operating income was $32.8 million for the
three months ended May 31, 2008, compared to $25.9 million for the three
months ended May 31, 2007, an increase of $6.9 million or 27%. As a
percentage of revenue, operating income decreased to 15.8% for the three months
ended May 31, 2008 from 16.7% for the three months ended May 31,
2007.
Operating income for our Energy
segment was $38.8 million for the three months ended May 31, 2008,
compared to $28.9 million for the three months ended May 31, 2007, an
increase of $9.9 million or 34%. The increase was principally due to the
additional revenue discussed above coupled with our ability to leverage a
relatively fixed-cost structure. As a
percentage of revenue, Energy operating income increased to 35.3% for the three
months ended May 31, 2008 from 32.5% for the three months ended May 31,
2007.
Operating income for our
Engineering segment was $17.2 million for the three months ended May 31,
2008, compared to $11.8 million for the three months ended May 31, 2007,
an increase of $5.4 million or 46%. Operating income increased due to increased
sales in our subscriptions-based businesses along with cost containment in the
second quarter of 2008.
Operating expenses for our shared
services were $23.1 million for the three months ended May 31, 2008,
compared to $14.8 million for the three months ended May 31, 2007, an
increase of $8.3 million or 56%. The
increase in costs are principally due to higher stock-based compensation as
well as our quote-to-cash system implementation and our ongoing
transformational initiatives.
Provision for Income Taxes.
Our effective tax rate for the three months
ended May 31, 2008 was 31.9%, compared to 32.4% for the three months ended
May 31, 2007. The 2008 rate reflects the impact from net reductions
in unrecognized tax benefits principally from the successful completion of a
recent Canadian tax audit, as well as net benefits from changes to certain
estimates.
21
Six Months Ended May 31, 2008 Compared to the
Six Months Ended May 31, 2007
Revenue.
Revenue was $406.0 million for the six months
ended May 31, 2008, compared to $307.5 million for the six months ended May 31,
2007, an increase of $98.5 million or 32%. This increase was driven in part by
acquisitions which contributed $64.4 million and organic growth which
contributed $27.3 million. The impact of
foreign currency added $6.8 million.
Revenue for our Energy segment was $219.9 million for the
six months ended May 31, 2008, compared to $175.6 million for the six
months ended May 31, 2007, an increase of $44.4 million or 25%. This increase was driven in part by organic
revenue growth of $21.4 million and acquisitions which contributed $18.9
million. Favorable foreign currency rates added $4.1 million of revenue growth.
Organic growth during the first half of 2008 was driven by price increases and
growth in certain critical information subscription products.
Revenue for our Engineering segment
was $186.0 million for the six months ended May 31, 2008, compared to
$131.9 million for the six months ended May 31, 2007, an increase of $54.1
million or 41%. This increase was driven in part by acquisitions which
contributed by $45.5 million and organic growth which contributed $5.9 million.
Favorable foreign currency rates contributed $2.7 million of revenue
growth. Organic growth was driven
primarily by increased sales in our specifications-and-standards offerings in
2008.
Cost of Revenue
. Cost of revenue was $182.3 million for the
six months ended May 31, 2008, compared to $133.5 million for the six
months ended May 31, 2007, an increase of $48.8 million or 37%. As a
percentage of revenue, cost of revenue increased to 44.9% from 43.4%. Margins as a percentage of revenue within our
Energy segment remained relatively flat with increases in our critical
information margin being offset by lower consulting related margins. Margins as a percentage of revenue within our
Engineering segment decreased slightly, principally due to a shift in product
mix.
Selling, General and Administrative Expenses
. Selling, general and administrative expenses
(SG&A) were $144.8 million for the six months ended May 31, 2008,
compared to $114.5 million for the six months ended May 31, 2007, an
increase of $30.3 million or 26%. Stock-based compensation expense increased
$9.5 million. As a percentage of revenue and excluding stock-based compensation
expense, SG&A was 30.2% for the six months ended May 31, 2008, down
from 33.0% for the six months ended May 31, 2007. Organic SG&A increased at $2.8 million as
we incurred costs related to our quote-to-cash system implementation and we
have been able to maintain lower organic SG&A growth by leveraging the cost
base in back-office functions. Acquisitions contributed $16.7 million of the
increase. Foreign-currency movements also increased SG&A by $1.4 million.
Depreciation and Amortization Expenses
. Depreciation and amortization expenses were
$18.5 million for the six months ended May 31, 2008, compared to $9.5
million for the six months ended May 31, 2007, an increase of $9.0 million
or 95%. The increase was primarily due to acquisitions.
Operating Income
. Operating income was $63.7 million for the
six months ended May 31, 2008, compared to $51.8 million for the six
months ended May 31, 2007, an increase of $11.9 million or 23%. As a
percentage of revenue, operating income decreased to 15.7% for the six months
ended May 31, 2008 from 16.8% for the six months ended May 31, 2007.
Operating income for our Energy
segment was $77.9 million for the six months ended May 31, 2008, compared
to $55.9 million for the six months ended May 31, 2007, an increase of
$22.0 million or 39%. The increase was principally due to the additional
revenue discussed above coupled with our ability to leverage a relatively
fixed-cost structure. As a percentage of
revenue, Energy operating income increased to 35.4% for the six months ended May 31,
2008 from 31.8% for the six months ended May 31, 2007.
Operating income for our
Engineering segment was $32.2 million for the six months ended May 31,
2008, compared to $24.8 million for the six months ended May 31, 2007, an
increase of $7.4 million or 30%.
Operating income increased due to increased sales in our
subscriptions-based businesses along with operating expense containment in the
first half of 2008. As a percentage of revenue, Engineering operating income
decreased to 17.3% for the six months ended May 31, 2008 from 18.8% for
the six months ended May 31, 2007.
This decrease is principally due to the higher depreciation and
amortization relating to recent acquisitions.
22
Operating expenses for our shared
services were $46.4 million for the six months ended May 31, 2008, compared
to $29.0 million for the six months ended May 31, 2007, an increase of
$17.4 million or 60%. Stock-based
compensation increased $9.7 million. The
increase in costs are also due to our quote-to-cash system implementation and
our ongoing transformational initiatives.
Provision
for Income Taxes
. Our effective tax
rate for the six months ended May 31, 2008 was 32.5%, compared to 32.7%
for the six months ended May 31, 2007. The 2008 rate reflects the
impact from net reductions in unrecognized tax benefits principally from the
successful completion of a recent Canadian tax audit, as well as net benefits
from changes to certain estimates.
Financial Condition
Accounts Receivable.
Accounts receivable has decreased by $5.7 million, or 3%,
to $169.8 million compared to $175.5 million as of November 30, 2007. The
decrease is primarily attributable to seasonal declines partially offset by
organic and acquisition related growth.
Accrued
Compensation.
Accrued
compensation was $19.1 million as of May 31, 2008, compared to $37.0
million as of November 30, 2007, a decrease of $17.9 million, or 48%. The decrease is primarily due to the
disbursement of annual incentive bonuses during the first quarter of 2008.
Deferred Revenue.
Deferred
revenue was $288.3 million as of May 31, 2008, compared to $239.4 million
as of November 30, 2007, an increase of $49.0 million, or 20%. The
increase is attributable to both organic and acquisition related growth.
Liquidity and Capital Resources
As of May 31, 2008, we had
cash and cash equivalents of $105.4 million and $28.5 million of short-term
debt. We have generated strong cash flows from operations over the last few
years. As a result of these factors, as well as the availability of funds under
our credit facility, we believe we will have sufficient cash to meet our
working capital and capital expenditure needs.
Our future capital requirements
will depend on many factors, including the timing and extent of spending to
support product development efforts, the expansion of sales and marketing
activities, the timing of introductions of new products, changing technology,
and the continued market acceptance of our offerings. We could be required, or
could elect, to seek additional funding through public or private equity or
debt financing for any possible future acquisitions. Additional funds may not
be available on terms acceptable to us or at all. We expect our capital
expenditures, excluding potential acquisitions, to be less than $15 million for
2008.
Cash Flows
Net cash provided by operating
activities was approximately $95.0 million for the six months ended May 31,
2008, compared to $65.8 million for the six months ended May 31, 2007, an
increase of $29.2 million. The increase was principally due to the profitable
growth year over year, primarily due to increased pricing, an expanding
subscription base, increased sales and the positive impact of our
acquisitions. Our subscription-based
business model typically generates a high rate of cash flow and is aided by the
following:
·
Relatively low levels of
required capital expenditures;
·
Positive working capital
characteristics that do not generally require substantial working capital
increases to support our growth;
·
A cash-for-tax rate that
continues to trend lower than our effective tax rate; and
·
Our well-capitalized balance
sheet
23
The positive cash flow impact of our growing business in the first half
of 2008 was partially offset by the annual bonus payments, which are
substantially paid in the first quarter each year and were approximately
$6.4 million higher in 2008 than in 2007.
Net cash used in
investing activities was approximately $128.2 million for the six months ended May 31,
2008, compared to $17.3 million for the six months ended May 31, 2007. The
change is driven primarily by acquisitions.
In 2008, we disbursed $130.9 million for the purchase of the assets of
five businesses. In the first half of 2007, we disbursed approximately $14.6
million for acquisitions.
Net cash used in financing
activities was $11.3 million for the six months ended May 31, 2008
compared to $16.0 million during the six months ended May 31, 2007. In the second quarter of 2008, we borrowed
$50.0 million on our Revolver which was used to fund acquisitions. By May 31, 2008, the balance outstanding
on the Revolver was down to $10.0 million.
Share Repurchase Program
During
2006, our board of directors approved a program to reduce the dilutive effects
of employee equity grants, by allowing employees to surrender shares back to
the company for a value equal to their statutory tax liability. IHS then pays the statutory tax on behalf of
the employee. Later in 2006, our board
of directors approved an additional programa stock buyback programwhereby IHS
may acquire up to one million shares per year in the open market to more fully
offset the dilutive effect of our employee equity programs. This program was
renewed by the board of directors in late 2007 for fiscal year 2008. During the three months ended May 31,
2008, we repurchased 27,700 shares of our Class A common stock for
approximately $1.7 million, or $60.00 per share, pursuant to the stock buyback
program and 2,430 shares for approximately $0.2 million, or $63.09 per share,
related to shares withheld for taxes.
During the six months ended May 31, 2008, we repurchased 94,200
shares of our Class A common stock for approximately $5.5 million, or
$58.88 per share, pursuant to the stock buyback program and 210,256 shares for
approximately $13.1 million, or $62.39 per share, related to shares withheld
for taxes. Since the inception of these
programs, we have repurchased 784,162 shares of our Class A common stock
for approximately $34.7 million, or $44.29 per share, pursuant to the stock buyback
program and 593,069 shares for approximately $30.0 million, or $50.56 per
share, related to shares withheld for taxes.
Credit Facility
On September 7, 2007, we entered into an amended and restated
credit agreement (Revolver). The $385 million unsecured Revolver allows
us, under certain conditions, to increase the facility to a maximum of
$500 million. The agreement expires in September 2012.
The interest rates for borrowing under the Revolver are based upon our
Leverage Ratio, which is the ratio of Consolidated Funded Indebtedness to
rolling four quarter Consolidated Earnings Before Interest Expense, Taxes,
Depreciation and Amortization (EBITDA), as defined in the Revolver. The rate
ranges from the applicable LIBOR plus 50 basis points to 125 basis points or
the agent banks base rate. A commitment fee is payable periodically and ranges
from 10 to 25 basis points based upon our Leverage Ratio. The Revolver contains
certain financial and other covenants, including limitations on capital lease
obligations and maximum Leverage and Interest Coverage Ratios, as defined in
the Revolver.
As of May 31, 2008, we were in compliance with all of the
covenants in the agreement. We had letters of credit totaling approximately
$1.0 million as of May 31, 2008. On March 3, 2008, we borrowed
$50.0 million under the Revolver at an annual rate of 3.6% to fund
acquisitions, of which $10.0 million was outstanding as of May 31,
2008. The use of the Revolver allows us to maintain cash levels to fund
the ongoing operational needs of the business and has tax benefits as we may
not have to repatriate cash from foreign locations to fund the acquisitions.
Off-Balance Sheet Transactions
We have no off-balance sheet
transactions.
24
Critical Accounting Policies
Our management makes a number of significant
estimates, assumptions and judgments in the preparation of our financial
statements. See Managements Discussion and Analysis and Results of
OperationsCritical Accounting Policies and Estimates in our 2007 Form 10-K
for a discussion of the estimates and judgments necessary in our accounting for
revenue recognition, valuation of long-lived and intangible assets and
goodwill, income taxes, pension and
post-retirement benefits, and stock-based compensation.
25
Item 3.
Quantitative and
Qualitative Disclosure About Market Risk
For information regarding our exposure to certain
market risk, see Item 7A, Quantitative and Qualitative Disclosures About
Market Risk, in our 2007 Form 10-K. There were no material changes to our
market risk exposure during the first six months of 2008.
26
Item 4.
Controls and Procedures
(a) Evaluation
of disclosure controls and procedures.
Under the supervision and with the participation of
the Companys management, including the Chief Executive Officer and Chief
Financial Officer, the Company has evaluated the effectiveness of its
disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as of the end of the period covered by
this report. Based on that evaluation, the Chief Executive Officer and Chief
Financial Officer concluded that the Companys disclosure controls and
procedures as defined in Rules 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of 1934, as amended, are effective in ensuring that all
material information required to be filed in this quarterly report has been
made known to them in a timely fashion.
(b) Changes
in internal control over financial reporting.
There
were no changes in our internal control over financial reporting that occurred
during the period covered by this Form 10-Q that have materially affected,
or are reasonably likely to materially affect, our internal control over
financial reporting.
27
PART II. OTHER INFORMATION
Item 1.
Legal Proceedings
From
time to time, we are involved in litigation, most of which is incidental to our
business. In our opinion, no litigation to which we currently are a party is
likely to have a material adverse effect on our results of operations or
financial condition.
Item 1A. Risk Factors
There have been no material changes to the risk factors associated with
the business previously disclosed in Part I, Item 1A of our 2007 Annual
Report on Form 10-K.
Item 2.
Unregistered
Sales of Equity Securities and Use of Proceeds
Items
2(a) and (b) are inapplicable.
(c)
|
The
following table provides a month-to-month summary of the share repurchase
activity under the current stock repurchase program during the six months
ended May 31, 2008:
|
Period
|
|
Total Number
of Shares
Purchased
|
|
Average Fair
Market Value
per Share
|
|
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
|
|
Maximum
Number of
Shares That
May Yet Be
Purchased
Under the
Plans or
Programs
|
|
December 1 December 31, 2007
|
|
|
|
$
|
|
|
|
|
1,000,000
|
|
January 1
January 31, 2008
|
|
66,300
|
|
$
|
58.41
|
|
66,300
|
|
933,700
|
|
February 1
February 29, 2008
|
|
200
|
|
$
|
60.02
|
|
200
|
|
933,500
|
|
March 1
March 31, 2008
|
|
27,700
|
|
$
|
60.00
|
|
27,700
|
|
905,800
|
|
April 1
April 30, 2008
|
|
|
|
|
|
|
|
905,800
|
|
May 1
May 31, 2008
|
|
|
|
|
|
|
|
905,800
|
|
Total
|
|
94,200
|
|
$
|
58.88
|
|
94,200
|
(1)
|
905,800
|
(1)
|
(1)
|
During
2006, our board of directors authorized the repurchase of up to one million
IHS shares of Class A common stock per year to more fully offset the
dilutive effect of our employee equity programs. Repurchases will be made
from time to time in the open market. This table does not include the
surrender of common shares by employees to the company to cover taxes due by
employees upon the vesting of employee-equity awards.
|
28
|
The
following exhibits are filed as part of this report:
|
Exhibit Number
|
|
Description
|
31.1*
|
|
Certification of the Chief Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act.
|
|
|
|
31.2*
|
|
Certification of the Chief Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act.
|
|
|
|
32.1*
|
|
Certification of
the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
|
*
Filed
electronically herewith.
29
SIGNATURE
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on June 24, 2008.
|
IHS
INC.
|
|
|
|
|
|
|
By:
|
/s/
Heather Matzke-Hamlin
|
|
|
Name:
|
Heather
Matzke-Hamlin
|
|
|
Title:
|
Senior
Vice President and Chief Accounting Officer
|
30
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