Table of Contents
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark
One)
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, 2009
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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
|
13-3769440
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(State or Other Jurisdiction of
Incorporation or Organization)
|
(IRS Employer
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.
x
YES
o
NO
Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files).
o
YES
o
NO
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definitions of large accelerated filer, and accelerated filer, and smaller
reporting company in Rule 12b-2 of the Exchange Act.
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).
o
YES
x
NO
As of May 31,
2009, there were 63,151,447
shares of our Class A
Common Stock outstanding.
Table of Contents
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
May 31, 2009
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|
As of
November 30, 2008
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(Unaudited)
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(Audited)
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Assets
|
|
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Current
assets:
|
|
|
|
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Cash
and cash equivalents
|
|
$
|
172,349
|
|
$
|
31,040
|
|
Accounts
receivable, net
|
|
187,409
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|
207,815
|
|
Deferred
subscription costs
|
|
43,255
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35,948
|
|
Deferred
income taxes
|
|
26,797
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|
28,801
|
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Other
|
|
15,956
|
|
14,213
|
|
Total
current assets
|
|
445,766
|
|
317,817
|
|
Non-current
assets:
|
|
|
|
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Property
and equipment, net
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63,815
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59,578
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Intangible
assets, net
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281,058
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285,902
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Equity
investments in joint venture
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|
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56,139
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Goodwill,
net
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783,133
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705,077
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Prepaid
pension asset
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10,624
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8,768
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Other
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3,482
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|
2,899
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Total
non-current assets
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1,142,112
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1,118,363
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Total
assets
|
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$
|
1,587,878
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|
$
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1,436,180
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Liabilities and stockholders equity
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|
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Current
liabilities:
|
|
|
|
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Short-term
debt
|
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$
|
7,137
|
|
$
|
96,020
|
|
Accounts
payable
|
|
23,020
|
|
35,084
|
|
Accrued
compensation
|
|
28,167
|
|
39,083
|
|
Accrued
royalties
|
|
21,713
|
|
24,769
|
|
Other
accrued expenses
|
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45,856
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58,831
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Income
tax payable
|
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2,946
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3,994
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Deferred
subscription revenue
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333,668
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288,145
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Total
current liabilities
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462,507
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545,926
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Long-term
debt
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108,000
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Accrued
pension liability
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7,102
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6,778
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Accrued
post-retirement benefits
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7,331
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8,852
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Deferred
income taxes
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68,102
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65,749
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Other
liabilities
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9,955
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7,820
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Minority
interests
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3,287
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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, 64,608,527 and 64,090,207 shares issued, 63,151,447 and
62,802,179 shares outstanding at May 31, 2009 and
November 30, 2008, respectively
|
|
646
|
|
641
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Additional
paid-in capital
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446,831
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|
408,007
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|
Treasury
stock, at cost: 1,457,080 and 1,288,028 shares at May 31, 2009
and November 30, 2008, respectively
|
|
(72,126
|
)
|
(64,632
|
)
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Retained
earnings
|
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643,277
|
|
584,219
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|
Accumulated
other comprehensive loss
|
|
(97,034
|
)
|
(127,180
|
)
|
Total
stockholders equity
|
|
921,594
|
|
801,055
|
|
Total
liabilities and stockholders equity
|
|
$
|
1,587,878
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$
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1,436,180
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|
See accompanying notes.
3
Table of Contents
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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2009
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2008
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2009
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2008
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(Unaudited)
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Revenue:
|
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Products
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$
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205,170
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$
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177,103
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$
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405,028
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$
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342,285
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Services
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30,106
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30,090
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65,659
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63,685
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Total revenue
|
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235,276
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|
207,193
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470,687
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405,970
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|
Operating expenses:
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Cost of revenue:
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Products
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81,621
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73,237
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164,693
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141,803
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Services
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16,307
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19,943
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|
36,138
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|
40,537
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|
Total cost of revenue
(includes stock-based compensation expense of $781, $376,
$1,460 and $687 for the three and six months ended May 31, 2009 and
2008, respectively)
|
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97,928
|
|
93,180
|
|
200,831
|
|
182,340
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|
Selling, general and administrative
(includes stock-based compensation expense of $14,190;
$10,001; $29,981 and $22,391 for the three and six months ended May 31,
2009 and 2008, respectively)
|
|
82,598
|
|
72,923
|
|
169,054
|
|
144,809
|
|
Depreciation and amortization
|
|
11,636
|
|
9,683
|
|
23,260
|
|
18,506
|
|
Restructuring and other charges
|
|
(61
|
)
|
|
|
(416
|
)
|
|
|
Gain on sales of assets, net
|
|
|
|
|
|
|
|
(119
|
)
|
Net periodic pension and post-retirement benefits
|
|
(689
|
)
|
(1,086
|
)
|
(1,378
|
)
|
(2,179
|
)
|
Other expense (income), net
|
|
1,605
|
|
(323
|
)
|
(469
|
)
|
(1,136
|
)
|
Total operating expenses
|
|
193,017
|
|
174,377
|
|
390,882
|
|
342,221
|
|
Operating income
|
|
42,259
|
|
32,816
|
|
79,805
|
|
63,749
|
|
Interest income
|
|
209
|
|
697
|
|
563
|
|
1,914
|
|
Interest expense
|
|
(512
|
)
|
(843
|
)
|
(1,261
|
)
|
(979
|
)
|
Non-operating (loss) income, net
|
|
(303
|
)
|
(146
|
)
|
(698
|
)
|
935
|
|
Income from continuing operations before income
taxes, equity investments and minority interests
|
|
41,956
|
|
32,670
|
|
79,107
|
|
64,684
|
|
Provision for income taxes
|
|
(8,898
|
)
|
(10,425
|
)
|
(17,905
|
)
|
(21,024
|
)
|
Income from continuing operations before equity
investments and minority interests
|
|
33,058
|
|
22,245
|
|
61,202
|
|
43,660
|
|
Income from equity investment
|
|
|
|
1,044
|
|
|
|
1,044
|
|
Minority interests
|
|
(1,104
|
)
|
(31
|
)
|
(2,144
|
)
|
(15
|
)
|
Net income
|
|
$
|
31,954
|
|
$
|
23,258
|
|
$
|
59,058
|
|
$
|
44,689
|
|
Net
income per share:
|
|
|
|
|
|
|
|
|
|
Basic
(Class A common stock for 2009; Class A and Class B common
stock for 2008*)
|
|
$
|
0.51
|
|
$
|
0.37
|
|
$
|
0.94
|
|
$
|
0.72
|
|
Diluted
(Class A common stock for 2009; Class A and Class B common
stock for 2008*)
|
|
$
|
0.50
|
|
$
|
0.37
|
|
$
|
0.93
|
|
$
|
0.71
|
|
Weighted
average shares:
|
|
|
|
|
|
|
|
|
|
Basic
(Class A common stock for 2009; Class A and Class B common
stock for 2008*)
|
|
63,014
|
|
62,221
|
|
62,916
|
|
62,097
|
|
Diluted
(Class A common stock for 2009; Class A and Class B common
stock for 2008*)
|
|
63,829
|
|
63,086
|
|
63,748
|
|
63,045
|
|
*Note that in September 2008,
the holder of the Class B common stock elected to convert these shares
one-for-one to Class A common stock, after which no shares of Class B
common stock were outstanding.
See accompanying notes.
4
Table of Contents
IHS INC.
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
(Unaudited)
|
|
Operating activities
|
|
|
|
|
|
Net income
|
|
$
|
59,058
|
|
$
|
44,689
|
|
Reconciliation of net income to net cash provided
by operating activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
23,260
|
|
18,506
|
|
Stock-based compensation expense
|
|
31,441
|
|
23,078
|
|
Gain on sales of assets, net
|
|
|
|
(119
|
)
|
Tax benefit from stock-based compensation
|
|
(6,231
|
)
|
(454
|
)
|
Distributions from equity-method investment
|
|
|
|
378
|
|
Non-cash net periodic pension and post-retirement
benefits
|
|
(2,002
|
)
|
(3,122
|
)
|
Undistributed earnings of unconsolidated
affiliates, net
|
|
(324
|
)
|
(1,233
|
)
|
Minority interests
|
|
2,144
|
|
15
|
|
Deferred income taxes
|
|
5,849
|
|
2,075
|
|
Change in assets and liabilities:
|
|
|
|
|
|
Accounts receivable, net
|
|
29,841
|
|
5,800
|
|
Other current assets
|
|
(6,327
|
)
|
(10,078
|
)
|
Accounts payable
|
|
(14,883
|
)
|
(9,956
|
)
|
Accrued expenses
|
|
(31,093
|
)
|
(17,304
|
)
|
Income taxes
|
|
(2,500
|
)
|
(1,413
|
)
|
Deferred subscription revenue
|
|
27,758
|
|
44,568
|
|
Other liabilities
|
|
288
|
|
(457
|
)
|
Net cash provided by operating
activities
|
|
116,279
|
|
94,973
|
|
Investing activities
|
|
|
|
|
|
Capital expenditures on property and equipment
|
|
(9,128
|
)
|
(5,351
|
)
|
Change in other assets
|
|
506
|
|
(2,654
|
)
|
Settlements of forward contracts
|
|
933
|
|
|
|
Sales and maturities of investments
|
|
|
|
10,500
|
|
Cash resulting from consolidation of Lloyds
Register-Fairplay
|
|
3,466
|
|
|
|
Acquisitions of businesses, net of cash acquired
|
|
|
|
(130,878
|
)
|
Proceeds from sales of assets
|
|
|
|
140
|
|
Net cash used in investing
activities
|
|
(4,223
|
)
|
(128,243
|
)
|
Financing activities
|
|
|
|
|
|
Proceeds from borrowings
|
|
82,000
|
|
50,000
|
|
Repayment of borrowings
|
|
(63,266
|
)
|
(43,095
|
)
|
Excess tax benefit from stock-based compensation
plans
|
|
6,231
|
|
454
|
|
Proceeds from the exercise of employee stock
options
|
|
2,019
|
|
|
|
Repurchases of common stock
|
|
(7,494
|
)
|
(18,664
|
)
|
Net cash provided by (used in)
financing activities
|
|
19,490
|
|
(11,305
|
)
|
Foreign exchange impact on cash balance
|
|
9,763
|
|
1,462
|
|
Net increase (decrease) in cash and cash
equivalents
|
|
141,309
|
|
(43,113
|
)
|
Cash and cash equivalents at the beginning of the
period
|
|
31,040
|
|
148,484
|
|
Cash and cash equivalents at the end of the period
|
|
$
|
172,349
|
|
$
|
105,371
|
|
See accompanying notes.
5
Table of Contents
IHS INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN
STOCKHOLDERS EQUITY
(In thousands)
|
|
Shares of
Class A
Common
Stock
|
|
Class A
Common
Stock
|
|
Additional
Paid-In
Capital
|
|
Treasury
Stock
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Loss
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
November 30, 2008
|
|
62,802
|
|
$
|
641
|
|
$
|
408,007
|
|
$
|
(64,632
|
)
|
$
|
584,219
|
|
$
|
(127,180
|
)
|
$
|
801,055
|
|
Stock-based award activity
|
|
349
|
|
5
|
|
32,746
|
|
(7,494
|
)
|
|
|
|
|
25,257
|
|
Excess tax benefit on vested shares
|
|
|
|
|
|
6,078
|
|
|
|
|
|
|
|
6,078
|
|
Net income
|
|
|
|
|
|
|
|
|
|
59,058
|
|
|
|
59,058
|
|
Other comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
30,146
|
|
30,146
|
|
Comprehensive income, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89,204
|
|
Balance at May 31, 2009
|
|
63,151
|
|
$
|
646
|
|
$
|
446,831
|
|
$
|
(72,126
|
)
|
$
|
643,277
|
|
$
|
(97,034
|
)
|
$
|
921,594
|
|
See accompanying notes.
6
Table
of Contents
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 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 or we
deliver as individual documents. 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. Our primary operations outside the United States are in the United
Kingdom, Canada, Switzerland and China. We have structured our business around
our customers and the geographies in which they reside:
Americas
(which includes the United States,
Canada, and Latin America);
EMEA
(Europe, the Middle East, and Africa, with India also included in the region),
and
APAC
(the Asia Pacific region,
which includes many countries such as China, Japan, South Korea, Malaysia, and
Australia). This allows us to tailor and expand the solutions we offer to meet
the unique needs of our customers both globally and in local markets.
In addition to structuring our business around the regions, 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. 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 have categorized these
products and services as Intersection and have not allocated them to any
specific domain. As we continue to
deliver Critical Information and Insight in those four information domains, we
prepare our financial reports and analyze our business across our three
geographic reportable segments:
Americas
,
EMEA
, and
APAC
.
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 Investments in Joint Venture in the
accompanying Condensed Consolidated Balance Sheets. 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. See Note 2 for discussion related to the
consolidation of Lloyds Register-Fairplay joint venture that was effective December 1,
2008.
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,
2008. The results of operations for the
three and six months ended May 31, 2009, 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, 2008, 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 relative to
other revenue streams combined with several acquisitions in recent years, our
seasonal aspects have diminished, although our fourth quarter revenue and
profit still tends to be slightly higher than other quarters due to the product
mix typically sold in the fourth quarter. Our first quarter also benefits from
the inclusion of the results from IHS CERAWeek, an annual energy executive gathering.
7
Table
of Contents
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, contingent liabilities 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 first half
of 2009 was 22.6% compared to 32.5% for the prior year period. The 2009 rate reflects a full year of
beneficial impact of the internal legal entity reorganization within EMEA
completed in the third quarter of 2008 as well as benefits recognized from the
successful outcome to a French tax appeal and favorable UK tax ruling.
As
of May 31, 2009, the total amount of unrecognized tax benefits was $1.7
million, of which less than $0.1 million related to interest. The $0.3 million
increase in unrecognized tax benefits during the first six months of 2009 was
attributable to adjustments made to the reserves during the second quarter of
fiscal 2009, principally as a result of recording a reserve related to an
uncertain UK tax return position.
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, all years prior to 2004 are
effectively 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 December 2007,
the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 141(R),
Business
Combinations
(SFAS No. 141(R)) and SFAS No. 160,
Accounting and Reporting of Noncontrolling Interest
in Consolidated Financial Statements, an amendment of ARB No. 51
(SFAS No. 160). 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 will adopt SFAS No. 141(R) and
SFAS No. 160 in the first quarter of fiscal 2010 and we do not expect the
adoption will have a material effect on our financial position or results of
operations.
In April 2009,
the FASB issued FASB Staff Position (FSP) SFAS No. 141(R)-1,
Accounting for Assets Acquired and Liabilities
Assumed in a Business Combination That Arise from Contingencies
(FSP 141(R)-1), to amend and clarify the initial recognition and
measurement, subsequent measurement and accounting, and related disclosures
arising from contingencies in a business combination under SFAS 141(R). Under
the new guidance, assets acquired and liabilities assumed in a business
combination that arise from contingencies should be recognized at fair value on
the acquisition date if fair value can be determined during the measurement
period. If fair value can not be determined, companies should typically account
for the acquired contingencies using existing guidance. We will adopt FSP
141(R)-1 along with SFAS 141(R) in the first quarter of fiscal 2010 and we
do not expect the adoption will have a material effect on our financial
position or results of operations.
In March 2008, the FASB issued SFAS No. 161,
Disclosures about Derivative Instruments and
Hedging Activities
. (SFAS No. 161) 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,
8
Table
of Contents
2008. Thus, we
adopted this standard on December 1, 2008, the first day of our 2009
fiscal year, with no material impact to our consolidated financial statements.
In June 2009,
the FASB issued SFAS No. 166,
Accounting
for Transfers of Financial Assets, an amendment of FASB Statement No. 140
(SFAS
No. 166), which results in the
removal of the concept of a qualifying
special-purpose entity. SFAS No. 166
is effective as of the beginning of each reporting entitys first annual
reporting period that begins after 15 November 2009.
We do not expect the adoption will have a material
effect on our financial position or results of operations.
In June 2009,
the FASB issued SFAS No. 167,
Amendments
to FASB Interpretation No. 46(R),
which addresses the effects
of eliminating the qualifying special-purpose entity. SFAS No. 167 is
effective as of the beginning of each reporting entitys first annual reporting
period that begins after 15 November 2009,
We do not expect the adoption will have a material effect on our
financial position or results of operations.
2.
Business Combination
Through our ownership of Prime
Publications Limited (Prime), during the first quarter of 2009 we obtained a
controlling interest in the Lloyds Register-Fairplay Limited (LRF) joint
venture, a leading source of global maritime information. LRF is the leading brand name in the maritime
information industry providing 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 is the primary asset of
Prime. Since our acquisition of Prime on
March 3, 2008 and through the year-ended November 30, 2008, we had
accounted for LRF under the equity method of accounting. As of December 1, 2008, we obtained controlling interest and began consolidating
LRF within our results
.
On June 17, 2009, we acquired the
remaining 49.9% of Lloyds Register-Fairplay from Lloyds Register giving us
100% ownership of LRF. The 49.9%
interest was acquired for approximately £37 million, net of cash acquired.
The impact of consolidating our controlling interest
in LRF as of December 1, 2008 was as follows (previously these individual
assets were classified within the equity investment balance):
|
|
(In thousands)
|
|
Assets:
|
|
|
|
Current assets
|
|
$
|
5,597
|
|
Property and equipment
|
|
553
|
|
Intangible assets
|
|
11,407
|
|
Goodwill
|
|
53,267
|
|
Total assets
|
|
70,824
|
|
Liabilities:
|
|
|
|
Current liabilities
|
|
10,487
|
|
Deferred taxes
|
|
1,872
|
|
Other long-term liabilities
|
|
2,253
|
|
Total liabilities
|
|
14,612
|
|
Net
|
|
$
|
56,212
|
|
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.
4.
Other
Comprehensive Income
Our
comprehensive income for the three and six months ended May 31, 2009 and
2008 was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Net income
|
|
$
|
31,954
|
|
$
|
23,258
|
|
$
|
59,058
|
|
$
|
44,689
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment
|
|
48,497
|
|
(1,571
|
)
|
30,146
|
|
(5,710
|
)
|
Total comprehensive income
|
|
$
|
80,451
|
|
$
|
21,687
|
|
$
|
89,204
|
|
$
|
38,979
|
|
9
Table
of Contents
5.
Restructuring
Charges
(Credits)
2008 Restructuring
During the third quarter of 2008, we executed a restructuring
initiative which primarily affected the Americas and EMEA segments. One-time,
involuntary benefit arrangements and other exit costs are accounted for under
the provisions of SFAS No. 146,
Accounting
for Costs Associated with Exit or Disposal Activities
. Costs arising
under our defined benefit pension plans from providing enhanced benefits are
accounted for under the provisions of SFAS No. 88,
Employers Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits
.
Restructuring and related expenses consisted of direct and incremental costs
associated with restructuring and related activities, including severance,
outplacement and other employee related benefits; facility closure including
non-cash expenses related to fixed asset and leasehold improvement write-offs;
and legal expenses associated with employee terminations which were incurred
during the third quarter of 2008.
This initiative was undertaken to further the realignment of our
resources around our regional organizational structure and to further transform
our knowledge-based data accumulation operations to ensure continuous
improvement in the quality of the Critical Information and Insight we deliver
to our customers. During the course of the restructuring, we reduced our
aggregate workforce by approximately 7%, eliminated certain contractor
positions and closed certain offices.
The restructuring charge was incurred in its entirety during the third
quarter of 2008. Approximately $5.8 million of the charge related to our
Americas segment, $6.3 million pertained to our EMEA segment and
$0.4 million related to shared services.
The majority of the liability was paid during 2008 and the remaining
liability at November 30, 2008 was $1.0 million. This remaining balance was substantially paid
as of May 31, 2009. An over-accrual
of $0.4 million was reversed during the first half of 2009.
Global Insight Restructuring
Related to the acquisition of Global Insight in October 2008, we
established a $13.0 million liability for restructuring costs in the opening
balance sheet. Of this total, $8.2 million is employee severance and
other termination benefits and $4.8 million relates to facility closure costs.
Through May 31, 2009, we have paid $3.6 million of the employee
severance and other termination benefits and $0.2 million of the facility
closure costs resulting in a liability balance of $9.2 million as of May 31,
2009.
6.
Stock-based Compensation
On May 31,
2009, 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 11.25 million 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,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Cost of revenue
|
|
$
|
781
|
|
$
|
376
|
|
$
|
1,460
|
|
$
|
687
|
|
Selling, general and administrative
|
|
14,190
|
|
10,001
|
|
29,981
|
|
22,391
|
|
Stock-based compensation expense
|
|
$
|
14,971
|
|
$
|
10,377
|
|
$
|
31,441
|
|
$
|
23,078
|
|
Total income tax benefit recognized in the statement
of operations for share-based compensation arrangements was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Income tax benefit
|
|
$
|
5,539
|
|
$
|
3,840
|
|
$
|
11,633
|
|
$
|
8,539
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No
compensation cost was capitalized during the three and six months ended May 31,
2009 and May 31, 2008.
Nonvested Stock.
Share awards vest from six months to four
years. Share awards are generally subject to either cliff vesting or graded
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. Approximately half of our
outstanding awards are
10
Table of
Contents
performance
based. For those awards, an evaluation is made each quarter as to the
likelihood of the performance criteria being met. Compensation expense is then
adjusted to reflect the 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 $64.0 million as of May 31, 2009,
with a weighted-average recognition period of approximately 1.5 years.
A
summary of the status of our nonvested shares as of May 31, 2009, and
changes during the six months ended May 31, 2009, was as follows:
|
|
Shares
|
|
Weighted-
Average Grant
Date Fair Value
|
|
|
|
(in thousands)
|
|
|
|
Balances, November 30, 2008
|
|
2,176
|
|
$
|
41.81
|
|
Granted
|
|
1,025
|
|
$
|
42.89
|
|
Vested
|
|
(523
|
)
|
$
|
40.57
|
|
Forfeited
|
|
(115
|
)
|
$
|
43.37
|
|
Balances, May 31, 2009
|
|
2,563
|
|
$
|
44.81
|
|
The
total fair value of nonvested stock that vested during the six months ended May 31,
2009, was $22.9 million based on the weighted-average fair value on the
vesting date and $21.2 million based on the weighted-average fair value on
the date of grant.
Stock Options.
Option awards are generally 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,
2009 either cliff vest after 4 years of continuous service or vest in a
graded fashion over three 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 plan).
The
following table summarizes changes in outstanding stock options during the six
months ended May 31, 2009, as well as options that are vested and expected
to vest and stock options exercisable at May 31, 2009:
|
|
Shares
|
|
Weighted-
Average
Exercise
Price
|
|
Weighted-
Average
Remaining
Contractual
Term (years)
|
|
Aggregate
Intrinsic
Value
|
|
|
|
(in thousands)
|
|
|
|
|
|
(in thousands)
|
|
Outstanding at November 30, 2008
|
|
275
|
|
$
|
35.18
|
|
5.5
|
|
$
|
543
|
|
Granted
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
(63
|
)
|
32.24
|
|
|
|
|
|
Forfeited
|
|
(7
|
)
|
37.65
|
|
|
|
|
|
Outstanding at May 31, 2009
|
|
205
|
|
$
|
36.00
|
|
5.6
|
|
$
|
2,465
|
|
Vested and expected to vest at May 31, 2009
|
|
205
|
|
$
|
36.00
|
|
5.6
|
|
$
|
2,465
|
|
Exercisable at May 31, 2009
|
|
101
|
|
$
|
37.65
|
|
|
|
$
|
1,048
|
|
The
aggregate intrinsic value amounts in the table above represent the difference
between the closing price of our common stock on May 31, 2009, which was
$48.00, 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, 2009. In future periods, this amount will change
depending on fluctuations in our stock price. The total intrinsic value of
stock options exercised during the six months ended May 31, 2009 was $0.6
million.
7.
Debt
On September 7, 2007, we entered into an amended and restated
credit agreement (the Revolver). The $385 million unsecured revolving
credit agreement 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
11
Table of
Contents
(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, 2009, we were in compliance with all of the
covenants in the agreement and had $108.0 million of outstanding
borrowings with an annual interest rate of 0.94%. This debt is classified as long-term debt as
of May 31, 2009 as we have the ability and intent to maintain this balance
beyond twelve months. In addition, we
had outstanding letters of credit totaling approximately $1.3 million as
of May 31, 2009.
As of May 31, 2009, we also had $7.1 million of non-interest
bearing notes that were issued to the sellers of Prime. These notes are due
upon demand and are therefore recorded in Short-term Debt in the accompanying
Condensed Consolidated Balance Sheets.
8.
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, 2009
|
|
Three Months Ended May 31, 2008
|
|
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
|
|
(In thousands)
|
|
Service costs incurred
|
|
$
|
1,728
|
|
$
|
125
|
|
$
|
58
|
|
$
|
1,911
|
|
$
|
1,572
|
|
$
|
238
|
|
$
|
72
|
|
$
|
1,882
|
|
Interest costs on projected benefit obligation
|
|
3,230
|
|
376
|
|
123
|
|
3,729
|
|
2,999
|
|
539
|
|
114
|
|
3,652
|
|
Expected return on plan assets
|
|
(5,227
|
)
|
(413
|
)
|
|
|
(5,640
|
)
|
(5,361
|
)
|
(562
|
)
|
|
|
(5,923
|
)
|
Amortization of prior service cost
|
|
(118
|
)
|
|
|
11
|
|
(107
|
)
|
(118
|
)
|
|
|
11
|
|
(107
|
)
|
Amortization of actuarial loss
|
|
|
|
|
|
21
|
|
21
|
|
|
|
|
|
47
|
|
47
|
|
Amortization of transitional obligation/(asset)
|
|
(57
|
)
|
|
|
13
|
|
(44
|
)
|
(142
|
)
|
|
|
10
|
|
(132
|
)
|
Net periodic pension benefit (income) expense
|
|
$
|
(444
|
)
|
$
|
88
|
|
$
|
226
|
|
$
|
(130
|
)
|
$
|
(1,050
|
)
|
$
|
215
|
|
$
|
254
|
|
$
|
(581
|
)
|
|
|
Six Months Ended May 31, 2009
|
|
Six Months Ended May 31, 2008
|
|
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
U.S.
RIP
|
|
U.K.
RIP
|
|
SIP
|
|
Total
|
|
|
|
(In thousands)
|
|
Service costs incurred
|
|
$
|
3,456
|
|
$
|
248
|
|
$
|
116
|
|
$
|
3,820
|
|
$
|
3,144
|
|
$
|
476
|
|
$
|
144
|
|
$
|
3,764
|
|
Interest costs on projected benefit obligation
|
|
6,460
|
|
747
|
|
246
|
|
7,453
|
|
5,998
|
|
1,078
|
|
228
|
|
7,304
|
|
Expected return on plan assets
|
|
(10,454
|
)
|
(819
|
)
|
|
|
(11,273
|
)
|
(10,729
|
)
|
(1,124
|
)
|
|
|
(11,853
|
)
|
Amortization of prior service cost
|
|
(236
|
)
|
|
|
22
|
|
(214
|
)
|
(236
|
)
|
|
|
22
|
|
(214
|
)
|
Amortization of actuarial loss
|
|
|
|
|
|
42
|
|
42
|
|
|
|
|
|
94
|
|
94
|
|
Amortization of transitional obligation/(asset)
|
|
(114
|
)
|
|
|
26
|
|
(88
|
)
|
(284
|
)
|
|
|
20
|
|
(264
|
)
|
Net periodic pension benefit (income) expense
|
|
$
|
(888
|
)
|
$
|
176
|
|
$
|
452
|
|
$
|
(260
|
)
|
$
|
(2,107
|
)
|
$
|
430
|
|
$
|
508
|
|
$
|
(1,169
|
)
|
12
Table of
Contents
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,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Service costs incurred
|
|
$
|
14
|
|
$
|
25
|
|
$
|
28
|
|
$
|
50
|
|
Interest costs
|
|
158
|
|
158
|
|
316
|
|
316
|
|
Amortization of prior service amounts
|
|
(807
|
)
|
(806
|
)
|
(1,614
|
)
|
(1,612
|
)
|
Amortization of net actuarial loss
|
|
76
|
|
118
|
|
152
|
|
236
|
|
Net periodic post-retirement benefit income
|
|
$
|
(559
|
)
|
$
|
(505
|
)
|
$
|
(1,118
|
)
|
$
|
(1,010
|
)
|
9.
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.
For the period ended May 31, 2008, we used the two-class method
for computing basic and diluted EPS amounts. For the period ended May 31,
2009, there was a single class of stock for the purposes of calculating EPS.
Weighted average common shares outstanding were calculated as follows:
|
|
Three Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Class A
|
|
Class A and
Class B
|
|
|
|
(In thousands)
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Shares used in basic per-share calculation
|
|
63,014
|
|
62,221
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Deferred stock units
|
|
52
|
|
42
|
|
Restricted shares
|
|
733
|
|
752
|
|
Options
|
|
30
|
|
71
|
|
Shares used in diluted per-share calculation
|
|
63,829
|
|
63,086
|
|
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
|
|
Class A
|
|
Class A and
Class B
|
|
|
|
(In thousands)
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
Shares used in basic per-share calculation
|
|
62,916
|
|
62,097
|
|
Effect of dilutive securities:
|
|
|
|
|
|
Deferred stock units
|
|
51
|
|
40
|
|
Restricted shares
|
|
748
|
|
839
|
|
Options
|
|
33
|
|
69
|
|
Shares used in diluted per-share calculation
|
|
63,748
|
|
63,045
|
|
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. Additionally, our board of
directors periodically approves additional buyback programs whereby IHS
acquires shares in the open market to more fully offset the dilutive effect of
our employee equity programs. During the three months ended May 31, 2009,
we repurchased 37,577 shares under the tax withholding program for
approximately $1.7 million, or $45.78 per share. In the first half of 2009, we repurchased
169,052 shares under the tax withholding program for approximately $7.5
million, or $44.34 per share. No shares
were repurchased in the first half of 2009 pursuant to a share buyback
program. Since the inception of these
programs, we have withheld for tax 868,446 shares of our Class A common
stock for approximately $43.2 million, or $49.72 per share and we have
repurchased 1,889,557 shares for approximately $94.7 million or $50.13 per
share pursuant to the stock buyback program.
13
Table of Contents
10.
Goodwill and Intangible Assets
The following table presents details of our intangible
assets, other than goodwill, as of May 31, 2009:
|
|
Useful Life
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
(Years)
|
|
(In thousands)
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
Information databases
|
|
5 - 15
|
|
$
|
185,890
|
|
$
|
(40,021
|
)
|
$
|
145,869
|
|
Customer relationships
|
|
2 - 15
|
|
73,482
|
|
(16,069
|
)
|
57,413
|
|
Non-compete agreements
|
|
5
|
|
5,855
|
|
(4,702
|
)
|
1,153
|
|
Developed computer software
|
|
5
|
|
21,800
|
|
(6,215
|
)
|
15,585
|
|
Other
|
|
3 - 11
|
|
5,899
|
|
(4,048
|
)
|
1,851
|
|
Total
|
|
|
|
292,926
|
|
(71,055
|
)
|
221,871
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
57,976
|
|
|
|
57,976
|
|
Perpetual licenses
|
|
|
|
1,211
|
|
|
|
1,211
|
|
Total intangible assets
|
|
|
|
$
|
352,113
|
|
$
|
(71,055
|
)
|
$
|
281,058
|
|
The following table presents details of our intangible assets, other
than goodwill, as of November 30, 2008:
|
|
Useful Life
|
|
Gross
|
|
Accumulated
Amortization
|
|
Net
|
|
|
|
(Years)
|
|
(In thousands)
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
Information databases
|
|
5 - 15
|
|
$
|
176,637
|
|
$
|
(27,770
|
)
|
$
|
148,867
|
|
Customer relationships
|
|
2 - 15
|
|
72,596
|
|
(12,346
|
)
|
60,250
|
|
Non-compete agreements
|
|
5
|
|
5,851
|
|
(4,098
|
)
|
1,753
|
|
Developed computer software
|
|
5
|
|
18,700
|
|
(4,344
|
)
|
14,356
|
|
Other
|
|
3 - 11
|
|
5,872
|
|
(3,190
|
)
|
2,682
|
|
Total
|
|
|
|
279,656
|
|
(51,748
|
)
|
227,908
|
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
|
|
56,844
|
|
|
|
56,844
|
|
Perpetual licenses
|
|
|
|
1,150
|
|
|
|
1,150
|
|
Total intangible assets
|
|
|
|
$
|
337,650
|
|
$
|
(51,748
|
)
|
$
|
285,902
|
|
The estimated amortization expense of intangible
assets for business combinations completed as of May 31, 2009 for each of
the next five years is as follows:
Year
|
|
Amount
|
|
|
|
(In thousands)
|
|
Remainder 2009
|
|
$
|
15,577
|
|
2010
|
|
29,880
|
|
2011
|
|
28,170
|
|
2012
|
|
26,590
|
|
2013
|
|
25,163
|
|
|
|
|
|
|
Amortization
expense of intangible assets was $8.0 million and $6.3 million for the three
months ended May 31, 2009 and May 31, 2008, respectively. Amortization expense of intangible assets was
$15.8 million and $12.0 million for the six months ended May 31, 2009 and May 31,
2008, respectively
Changes
in our goodwill and intangible assets from November 30, 2008 to May 31,
2009 were primarily the result of the consolidation of LRF in the first quarter
of 2009 due to the obtaining of control of the joint venture and to a lesser
extent by the impact of foreign currency rates.
11.
Segment Information
We prepare our financial reports and analyze our business results
within our three reportable geographic segments: Americas, EMEA and APAC. This integrated global organization allows
our customers to do business with us by providing a more cohesive, consistent,
and effective sales and marketing approach in each region. By structuring our
business around our geographic segments, we are able to tailor and expand the
solutions we offer to meet the unique needs of our customers both globally and
in local markets.
14
Table of Contents
We
are also able to manage our activities according to the best practices of each.
This structure provides a solid foundation for growth in each market for all of
our capabilities. It allows us an efficient method of bringing new products and
services to customers, and supports growth in existing accounts and with new
customers and markets.
Information as to the operations of our three segments is set forth
below. Our Chairman and Chief Executive Officer represents our chief operating
decision maker, and he evaluates segment performance based primarily on revenue
and operating profit of these three segments. In addition, he also reviews
revenue for the domains and Critical Information and Insight offerings. The
accounting policies of our segments are the same as those described in the
summary of significant accounting policies (contained in the notes to our
consolidated financial statements included in our 2008 Form 10-K).
No single customer accounted for 10% or more of our total revenue for
the period ended May 31, 2009. 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.
|
|
Americas
|
|
EMEA
|
|
APAC
|
|
Segment
Totals
|
|
Shared
Services
|
|
Consolidated
Total
|
|
|
|
(In thousands)
|
|
Three months ended May 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
148,631
|
|
$
|
67,660
|
|
$
|
18,985
|
|
$
|
235,276
|
|
$
|
|
|
$
|
235,276
|
|
Operating income
|
|
48,047
|
|
12,746
|
|
6,518
|
|
67,311
|
|
(25,052
|
)
|
42,259
|
|
Depreciation and amortization
|
|
7,727
|
|
3,346
|
|
25
|
|
11,098
|
|
538
|
|
11,636
|
|
Three months ended May 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
126,193
|
|
$
|
66,726
|
|
$
|
14,274
|
|
$
|
207,193
|
|
$
|
|
|
$
|
207,193
|
|
Operating income
|
|
39,449
|
|
11,801
|
|
3,789
|
|
55,039
|
|
(22,223
|
)
|
32,816
|
|
Depreciation and amortization
|
|
5,372
|
|
3,444
|
|
37
|
|
8,853
|
|
830
|
|
9,683
|
|
|
|
Americas
|
|
EMEA
|
|
APAC
|
|
Segment
Totals
|
|
Shared
Services
|
|
Consolidated
Total
|
|
|
|
(In thousands)
|
|
Six months ended May 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
296,986
|
|
$
|
136,450
|
|
$
|
37,251
|
|
$
|
470,687
|
|
$
|
|
|
$
|
470,687
|
|
Operating income
|
|
91,684
|
|
26,557
|
|
11,510
|
|
129,751
|
|
(49,946
|
)
|
79,805
|
|
Depreciation and amortization
|
|
15,406
|
|
6,495
|
|
51
|
|
21,952
|
|
1,308
|
|
23,260
|
|
Six months ended May 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
247,392
|
|
$
|
130,357
|
|
$
|
28,221
|
|
$
|
405,970
|
|
$
|
|
|
$
|
405,970
|
|
Operating income
|
|
78,004
|
|
22,404
|
|
7,760
|
|
108,168
|
|
(44,419
|
)
|
63,749
|
|
Depreciation and amortization
|
|
10,278
|
|
6,687
|
|
72
|
|
17,037
|
|
1,469
|
|
18,506
|
|
Revenue
by information domain was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Energy revenue
|
|
$
|
110,310
|
|
$
|
109,646
|
|
$
|
226,410
|
|
$
|
219,942
|
|
Product Lifecycle revenue
|
|
73,291
|
|
72,812
|
|
143,606
|
|
141,843
|
|
Security revenue
|
|
24,831
|
|
18,893
|
|
48,155
|
|
35,765
|
|
Environment revenue
|
|
7,353
|
|
5,842
|
|
14,449
|
|
8,420
|
|
Intersection revenue
|
|
19,491
|
|
|
|
38,067
|
|
|
|
Total revenue
|
|
$
|
235,276
|
|
$
|
207,193
|
|
$
|
470,687
|
|
$
|
405,970
|
|
Revenue
by product category was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Critical Information Products revenue
|
|
$
|
137,251
|
|
$
|
139,248
|
|
$
|
271,394
|
|
$
|
269,670
|
|
Critical Information Services revenue
|
|
13,537
|
|
13,765
|
|
26,688
|
|
25,444
|
|
Insight Products revenue
|
|
67,919
|
|
37,855
|
|
133,634
|
|
72,615
|
|
Insight Services revenue
|
|
16,569
|
|
16,325
|
|
38,971
|
|
38,241
|
|
Total revenue
|
|
$
|
235,276
|
|
$
|
207,193
|
|
$
|
470,687
|
|
$
|
405,970
|
|
15
Table of Contents
12.
Subsequent Event
On June 17, 2009, we acquired
the remaining 49.9% of Lloyds Register-Fairplay from Lloyds Register giving
us 100% ownership of LRF. The 49.9%
interest was acquired for approximately £37 million, net of cash acquired.
Item 2.
Managements
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
We have made statements under the captions Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of Operations, and Business
and Properties and in other sections of this Form 10-Q that are
forward-looking statements. In some cases, you can identify these statements by
forward-looking words such as may, might, will, should, expect, plan,
anticipate, believe, estimate, predict, potential, or continue, the
negative of these terms, and other comparable terminology. These
forward-looking statements, which are subject to risks, uncertainties, and
assumptions, may include projections of our future financial performance based
on our growth strategies and anticipated trends in our business. These
statements are only predictions based on our current expectations and
projections about future events. There are important factors that could cause
our actual results, level of activity, performance, or achievements to differ
materially from the results, level of activity, performance, or achievements
expressed or implied by the forward-looking statements. In particular, you
should consider the risks outlined under Risk Factors in the 2008 Form 10-K.
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, level of
activity, performance, or achievements. Moreover, neither we nor any other
person assumes responsibility for the accuracy or completeness of any of these
forward-looking statements. You should not rely upon forward-looking statements
as predictions of future events.
We are under no duty to update any of these forward-looking statements
after the date of this Form 10-Q to conform our prior statements to actual
results or revised expectations.
Overview
Results
of Operations
IHS is a leading provider and comprehensive source of Critical
Information and Insight in a sizable 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 is transformed into 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 or we
deliver as individual documents. 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. 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.
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
although our fourth quarter revenue and profit tends to be slightly higher than
other quarters due to the product mix typically sold in the fourth quarter. Our
first quarter also benefits from the inclusion of the results from IHS
CERAWeek, an annual energy executive gathering.
We serve some of the worlds largest corporations across multiple
industries, as well as governments and other organizations, in more than 100
countries. Our primary operations outside the United States are in the United
Kingdom, Canada, Switzerland and China. We have structured our business around
our customers and the geographies in which they reside:
Americas
(which includes the United States,
Canada, and Latin America);
EMEA
(Europe, the Middle East, and Africa, with India also included in the region),
16
Table of Contents
and
APAC
(the Asia Pacific region,
which includes many countries such as China, Japan, South Korea, Malaysia, and
Australia). This allows us to tailor and expand the solutions we offer to meet
the unique needs of our customers both globally and in local markets.
Our consolidated
financial statements are expressed in U.S. dollars, but a portion of our
business is conducted in currencies other than U.S. dollars. Approximately 50% of our revenue is
transacted outside of the United States, however, only approximately 30% of our
revenue is transacted in a currency other than U.S. dollars. As a result, a strengthening U.S. dollar has
a negative impact on our revenue while the impact on operating income is
mitigated due to certain operating expenses denominated in currencies other
than the U.S. dollar.
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. In addition, we have certain product lines that intersect multiple
domains. We have categorized these products and services as Intersection and
have not allocated them to any specific domain.
As we continue to deliver Critical Information and Insight in these
four information domains, we prepare our financial reports and analyze our
business across our three reportable geographic 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 have
organized our management structure to a geographic focus, the point of contact
with our customers. This integrated global organization allows for our
customers to do business with us by providing a cohesive, consistent, and
effective sales and marketing approach in each region. By structuring our
business around customers and the geographies in which they reside, we are able
to tailor and expand the solutions we offer to meet the unique needs of our
customers both globally and in local markets. We are also able to manage our
Critical Information and Insight activities according to the best practices of each.
This structure provides a solid foundation for growth in each market for all of
our capabilities. It allows us an efficient method of bringing new products and
services to customers, and supports growth in existing accounts and with new
customers and markets.
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.
Business Combination
Through our ownership of Prime
Publications Limited (Prime), during the first quarter of 2009 we obtained a
controlling interest in the Lloyds Register-Fairplay Limited (LRF) joint
venture, a leading source of global maritime information. LRF is the leading brand name in the maritime
information industry providing 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 is the primary asset of
Prime. Since our acquisition of Prime on
March 3, 2008 and through the year-ended November 30, 2008, we had
accounted for LRF under the equity method of accounting. With the obtaining of the controlling
interest, LRF is now consolidated within our results as of December 1,
2008.
On June 17, 2009,
we acquired the remaining 49.9% of Lloyds Register-Fairplay from Lloyds
Register giving us 100% ownership of LRF.
The 49.9% interest was acquired for approximately £37 million, net of
cash acquired.
Segment
Information
|
|
Americas
|
|
EMEA
|
|
APAC
|
|
Segment
Totals
|
|
Shared
Services
|
|
Consolidated
Total
|
|
|
|
(In thousands)
|
|
Three months ended May 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
148,631
|
|
$
|
67,660
|
|
$
|
18,985
|
|
$
|
235,276
|
|
$
|
|
|
$
|
235,276
|
|
Operating income
|
|
48,047
|
|
12,746
|
|
6,518
|
|
67,311
|
|
(25,052
|
)
|
42,259
|
|
Depreciation and amortization
|
|
7,727
|
|
3,346
|
|
25
|
|
11,098
|
|
538
|
|
11,636
|
|
Three months ended May 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
126,193
|
|
$
|
66,726
|
|
$
|
14,274
|
|
$
|
207,193
|
|
$
|
|
|
$
|
207,193
|
|
Operating income
|
|
39,449
|
|
11,801
|
|
3,789
|
|
55,039
|
|
(22,223
|
)
|
32,816
|
|
Depreciation and amortization
|
|
5,372
|
|
3,444
|
|
37
|
|
8,853
|
|
830
|
|
9,683
|
|
17
Table of Contents
|
|
Americas
|
|
EMEA
|
|
APAC
|
|
Segment
Totals
|
|
Shared
Services
|
|
Consolidated
Total
|
|
|
|
(In thousands)
|
|
Six months ended May 31,
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
296,986
|
|
$
|
136,450
|
|
$
|
37,251
|
|
$
|
470,687
|
|
$
|
|
|
$
|
470,687
|
|
Operating income
|
|
91,684
|
|
26,557
|
|
11,510
|
|
129,751
|
|
(49,946
|
)
|
79,805
|
|
Depreciation and amortization
|
|
15,406
|
|
6,495
|
|
51
|
|
21,952
|
|
1,308
|
|
23,260
|
|
Six months ended May 31,
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
247,392
|
|
$
|
130,357
|
|
$
|
28,221
|
|
$
|
405,970
|
|
$
|
|
|
$
|
405,970
|
|
Operating income
|
|
78,004
|
|
22,404
|
|
7,760
|
|
108,168
|
|
(44,419
|
)
|
63,749
|
|
Depreciation and amortization
|
|
10,278
|
|
6,687
|
|
72
|
|
17,037
|
|
1,469
|
|
18,506
|
|
Revenue
by information domain was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Energy revenue
|
|
$
|
110,310
|
|
$
|
109,646
|
|
$
|
226,410
|
|
$
|
219,942
|
|
Product Lifecycle revenue
|
|
73,291
|
|
72,812
|
|
143,606
|
|
141,843
|
|
Security revenue
|
|
24,831
|
|
18,893
|
|
48,155
|
|
35,765
|
|
Environment revenue
|
|
7,353
|
|
5,842
|
|
14,449
|
|
8,420
|
|
Intersection revenue
|
|
19,491
|
|
|
|
38,067
|
|
|
|
Total revenue
|
|
$
|
235,276
|
|
$
|
207,193
|
|
$
|
470,687
|
|
$
|
405,970
|
|
Revenue
by product category was as follows:
|
|
Three Months Ended May 31,
|
|
Six Months Ended May 31,
|
|
|
|
2009
|
|
2008
|
|
2009
|
|
2008
|
|
|
|
(In thousands)
|
|
Critical Information Products revenue
|
|
$
|
137,251
|
|
$
|
139,248
|
|
$
|
271,394
|
|
$
|
269,670
|
|
Critical Information Services revenue
|
|
13,537
|
|
13,765
|
|
26,688
|
|
25,444
|
|
Insight Products revenue
|
|
67,919
|
|
37,855
|
|
133,634
|
|
72,615
|
|
Insight Services revenue
|
|
16,569
|
|
16,325
|
|
38,971
|
|
38,241
|
|
Total revenue
|
|
$
|
235,276
|
|
$
|
207,193
|
|
$
|
470,687
|
|
$
|
405,970
|
|
Three
Months Ended May 31, 2009 Compared to the Three Months Ended May 31,
2008
Revenue.
Revenue was
$235.3 million for the quarter ended May 31, 2009, compared to $207.2
million for the quarter ended May 31, 2008, an increase of
$28.1 million or 14%. This increase was driven in part by acquisitions
which contributed $35.9 million, or 17%, and organic growth which contributed
$6.9 million, or 3%. Unfavorable
foreign currency rates had an adverse translation impact of $14.8 million, or
7% due to the strengthening U.S. dollar.
Moreover, the growth that we attribute to acquisitions was also
negatively impacted by foreign currency translation. When taking this into consideration, foreign
exchange negatively impacted our overall revenue growth by approximately 10% in
the quarter ended May 31, 2009 in comparison to the quarter ended May 31,
2008. Lastly, the stronger U.S. dollar
negatively impacted organic growth related to pricing pressures on U.S. dollar
denominated revenue streams sold into non-dollar based countries. The amount of this impact is not included in
our 10% estimate as it is not possible to compute precisely.
Our subscription-based revenue accounted for 78% of our revenue in the
quarter and, while growth in this area of the business is slowing, it
maintained a growth rate of 10.1% over the second quarter of 2008. This growth rate was approximately 1.5% lower
sequentially from the quarter ended February 28, 2009. Our other revenue types (consulting,
transaction and other revenue) have been more greatly impacted by the current
difficult economic environment.
Consulting and transaction revenue were down organically by 34% and 18%,
respectively. Revenue from other revenue
types also decreased by 2% organically due to slower software sales. Year-to-date cash-based sales of subscription
products have grown over the same period prior year, however at a lower growth
rate than the 10.1%. As a result, we
expect the subscription based revenue growth rates to decline moderately in the
second half of 2009. Conversely, our
consulting and transaction revenue comparisons to prior year will ease in the
second half of 2009 as we experienced lower revenue levels in these areas in
the second half of 2008.
Revenue for our Americas segment was $148.6 million for the
quarter ended May 31, 2009, compared to $126.2 million for the
quarter ended May 31, 2008, an increase of $22.4 million or 18%. This
increase was driven primarily by acquisitions which added $20.6 million
and organic growth which contributed $5.9 million, or 5% which was in line
with overall company growth and was driven by growth in certain subscription
products. Unfavorable foreign currency rates impacted revenue by $4.0 million.
18
Table of Contents
Revenue for our EMEA segment was $67.7 million for the quarter
ended May 31, 2009, compared to $66.7 million for the quarter ended May 31,
2008, an increase of $1.0 million or 1%. This increase was driven
primarily by acquisitions which contributed $11.9 million and partially
offset by unfavorable foreign currency rates adversely impacted revenue by $9.7
million. Organic revenue decreased by
$1.2 million. The organic decrease was
due primarily the fact that the EMEA region contains a higher percentage of
consulting revenue which experienced lower growth rates.
Revenue for our APAC segment was $19.0 million for the quarter
ended May 31, 2009, compared to $14.3 million for quarter ended May 31,
2008, an increase of $4.7 million or 33%. This increase was driven in part
by acquisitions which contributed $3.4 million, or 24% and organic growth
which contributed $2.3 million, or 16%.
The organic increase was due primarily to the fact that the APAC region
contains a higher percentage of subscription
revenue which experienced higher growth rates. Unfavorable foreign currency rates adversely
impacted revenue by $1.0 million.
Revenue for the Energy domain was $110.3 million for the quarter
ended May 31, 2009, an increase of $0.7 million, or 1% over the
quarter ended May 31, 2008. This growth was primarily due to an increase
in the subscription-based sales which was partially offset by the impact of
unfavorable foreign currency rates and a decrease in consulting revenue. Product Lifecycle domain revenue was
$73.3 million for the quarter ended May 31, 2009, an increase of
$0.5 million, or 1% over the quarter ended May 31, 2008 which was
primarily due to acquisitions, partially offset by the impact of unfavorable
foreign currency rates. Revenue for the
Security domain was $24.8 million for the quarter ended May 31, 2009,
an increase of $5.9 million, or 31% over the quarter ended May 31,
2008 primarily the result of acquisitions. Environment domain revenue was
$7.4 million for the quarter ended May 31, 2009, an increase of $1.5
million, or 26% due to increases in subscription-based products. Intersection
revenue, which includes offerings that intersect multiple domains, was $19.5 million
in the second quarter of 2009 and was entirely attributable to acquisitions.
Cost of Revenue.
Cost of revenue was $97.9 million for
the quarter ended May 31, 2009, compared to $93.2 million for the
quarter ended May 31, 2008, an increase of $4.7 million or 5%. As a
percentage of revenue, cost of revenue improved to 41.6% from 45.0%. Cost of
revenue as a percentage of revenue within our Americas segment improved to
40.1% from 42.8% resulting from increased sales of our subscription products
which have a relatively fixed-cost base. This was partially offset by higher
Insight service revenues which have lower margins. Cost of revenue as a percentage of revenue
within our EMEA segment improved to 44.5% from 47.5%. Cost of revenue as a percentage of revenue
within our APAC segment improved to 36.2% from 44.0%. These improvements were principally due to an
increase in higher margin Insight products combined with a decrease in lower
margin services and the impact of foreign currency fluctuations which have a
more dramatic impact on revenue than they do cost of revenue resulting in
margin improvement. In addition, the
restructuring in the third quarter of 2008 reduced costs of revenue in the
Americas and EMEA segments.
Selling, General and Administrative Expenses.
Selling, general and administrative
(SG&A) expenses were $82.6 million for the quarter ended May 31,
2009, compared to $72.9 million for the quarter ended May 31, 2008,
an increase of $9.7 million or 13%. Stock-based compensation expense included
in SG&A increased $4.2 million to $14.2 million. Excluding
stock-based compensation, organic SG&A decreased by $1.9 million as we
continue to carefully control operating costs which was partially offset by
increased spending related to our quote-to-cash system implementation and other
initiatives. Acquisitions contributed $11.9 million of the increase.
Foreign currency movements decreased SG&A by $4.6 million. As a
percentage of revenue and excluding stock-based compensation expense, SG&A
decreased from 30.4% for the second quarter of 2008 to 29.1% for the second
quarter of 2009.
Depreciation and Amortization Expenses.
Depreciation and amortization expenses were
$11.6 million for the quarter ended May 31, 2009, compared to
$9.7 million for the quarter ended May 31, 2008, an increase of
$1.9 million or 20%. The increase was primarily due to acquisitions made
within the last year.
Operating Income.
Operating income was $42.3 million for
the quarter ended May 31, 2009, compared to $32.8 million for the
quarter ended May 31, 2008, an increase of $9.5 million or 29%. As a
percentage of revenue, operating income increased to 18.0% for the quarter
ended May 31, 2009 from 15.8% for the quarter ended May 31, 2008.
Operating income for our Americas segment was $48.0 million for
the quarter ended May 31, 2009, compared to $39.4 million for the
quarter ended May 31, 2008, an increase of $8.6 million or 22%. The
increase was principally due to the additional revenue discussed above coupled
with our ability to leverage a relatively fixed-cost structure with our
subscriptions-based products. As a
percentage of revenue, Americas operating income increased to 32.3% from 31.3%
in the second quarter of 2008.
Operating income for our EMEA segment was $12.7 million for the
quarter ended May 31, 2009, compared to $11.8 million for the quarter
ended May 31, 2008, an increase of $0.9 million or 8%. As a
percentage of revenue, EMEA operating income increased to 18.8% for the quarter
ended May 31, 2009 compared to 17.7% for the quarter ended May 31,
2008. These increases are primarily due
19
Table of Contents
to
the higher growth in higher margin subscription products in 2009 and decreases
in lower margin service offerings along with the impact of foreign currency
rates at the Operating Income level.
Operating income for our APAC segment was $6.5 million for the
quarter ended May 31, 2009, compared to $3.8 million for the quarter
ended May 31, 2008, an increase of $2.7 million or 72%. Operating
income increased due to the increase in sales. As a percentage of revenue, APAC
operating income improved to 34.3% for the quarter ended May 31, 2009 from
26.5% for the quarter ended May 31, 2008.
This increase was due to the mix of products sold with higher growth of
higher margin Insight products in the second quarter of 2009.
Operating expenses for our shared services were $25.1 million for
the quarter ended May 31, 2009, compared to $22.2 million for the
quarter ended May 31, 2008, an increase of $2.9 million or 13%. As a
percentage of revenue, operating expenses for our shared services was 10.6% for
the quarter ended May 31, 2009 compared to 10.7% for the quarter ended May 31,
2008.
Provision for Income Taxes.
Our effective tax rate for the period ended May 31,
2009 was 21.2%, compared to 31.9% for the period ended May 31, 2008. The 2009 rate reflects the impact of our
internal legal entity reorganization within EMEA that occurred in the third
quarter of 2008 as well as discrete period tax benefits recognized from the
successful outcome of a French tax appeal and a favorable UK tax ruling in the
second quarter of 2009.
Six
Months Ended May 31, 2009 Compared to the Six Months Ended May 31,
2008
Revenue.
Revenue was
$470.7 million for the six months ended May 31, 2009, compared to
$406.0 million for the six months ended May 31, 2008, an increase of
$64.7 million or 16%. This increase was driven in part by acquisitions
which contributed $75.5 million, or 19%, and organic growth which contributed
$18.4 million, or 4.5%. Unfavorable
foreign currency rates had an adverse translation impact of $29.2 million, or 7%
due to the strengthening U.S. dollar.
Moreover, the growth that we attribute to acquisitions was also
negatively impacted by foreign currency translation. When taking this into consideration, foreign
exchange negatively impacted our overall revenue growth by approximately 10% in
the first two quarters of 2009 in comparison to the first two quarters of
2008. Lastly, the stronger U.S. dollar
negatively impacted organic growth related to pricing pressures on U.S. dollar
denominated revenue streams sold into non-dollar based countries. The amount of this impact is not included in
our 10% estimate as it is not possible to compute precisely.
Our subscription based revenue accounted for 77% of our revenue in the
quarter and, while growth in this area of the business is slowing, it
maintained a 10.8% growth rate over the first half of 2008. Our other revenue types (consulting,
transaction and other revenue) have been more greatly impacted by the current
economic environment. Transaction and
consulting revenue were down organically by 19% and 33%, respectively. These decreases were partially offset by
organic growth in other revenue of 3%.
Year-to-date cash-based sales of subscription products have grown over
the same period prior year, however at a lower growth rate than the 10.8%. As a result, we expect the subscription based
revenue growth rates to decline moderately in the second half of 2009. Conversely, our consulting and transaction
revenue comparisons to prior year will ease in the second half of 2009 as we
experienced lower revenue levels in these areas in the second half of 2008.
Revenue for our Americas segment was $297.0 million for the six
months ended May 31, 2009, compared to $247.4 million for the same
period of 2008, an increase of $49.6 million or 20%. This increase was
driven primarily by acquisitions which added $42.5 million and organic
growth which contributed $15.1 million or 6% which was in line with
overall company growth and was driven by growth in certain subscription
products. Unfavorable foreign currency rates impacted revenue by
$8.0 million.
Revenue for our EMEA segment was $136.5 million for the six months
ended May 31, 2009, compared to $130.4 million for the six months
ended May 31, 2008, an increase of $6.1 million or 5%. This increase
was driven primarily by acquisitions which contributed $26.7 million. Organic revenue decreased by $1.2 million due
to slowing consulting revenue. Unfavorable foreign currency rates impacted
revenue by $19.4 million
Revenue for our APAC segment was $37.3 million for the six months
ended May 31, 2009, compared to $28.2 million for the six months
ended May 31, 2008, an increase of $9.1 million or 32%. This increase
was driven in part by acquisitions which contributed $6.4 million and
organic growth which contributed $4.4 million. The organic increase was
due primarily to a the fact that the APAC region contains a higher percentage
of subscription revenue which experienced higher growth rates. Unfavorable foreign currency rates adversely
impacted revenue by $1.8 million.
Revenue for the Energy domain was $226.4 million for the six
months ended May 31, 2009, an increase of $6.5 million, or 3% over
the same period in 2008. This growth was primarily due to an increase in the
subscription-based sales which was partially offset by unfavorable foreign
currency rates and a decrease in consulting revenue. Product Lifecycle domain revenue was
$143.6 million for the six months ended May 31, 2009, an increase of
$1.8 million, or 1% over the six months ended May 31, 2008. Revenue
for the
20
Table of Contents
Security
domain was $48.2 million for the first two quarters of 2009, an increase of $12.4 million over
the same period in 2008. Environment domain revenue was $14.4 million for
the six months ended May 31, 2009 compared to $8.4 million for the six
months ended May 31, 2008. The
increase was primarily from acquisitions. Intersection revenue, which includes
product lines that intersect multiple domains, was $38.1 million in the
first half of 2009 and was entirely attributable to acquisitions.
Cost of Revenue.
Cost of revenue was $200.8 million for
the six months ended May 31, 2009, compared to $182.3 million for the
six months ended May 31, 2008, an increase of $18.5 million or 10%.
As a percentage of revenue, cost of revenue improved to 42.7% from 44.9%. Cost
of revenue as a percentage of revenue within our Americas segment improved to
41.2% from 42.8% resulting from increased sales in our subscription based
products which have a relatively fixed-cost base. Cost of revenue as a
percentage of revenue within our EMEA segment improved to 45.4% from
47.9%. Cost of revenue as a percentage
of revenue within our APAC segment improved to 37.9% from 42.7%. These decreases were principally due to an
increase in higher margin subscription based products combined with a decrease
in lower margin services and the impact of foreign currency fluctuations which
have a more dramatic impact on revenue than they do cost of revenue.
Selling, General and Administrative Expenses.
Selling, general and administrative
(SG&A) expenses were $169.1 million for the first half of 2009,
compared to $144.8 million for the first half of 2008, an increase of
$24.3 million or 17%. Stock-based compensation expense included in
SG&A increased $7.6 million to $30.0 million. Excluding
stock-based compensation, organic SG&A growth was $1.0 million as we
incurred costs related to our quote-to-cash system implementation and other
initiatives. Acquisitions contributed $25.2 million of the increase.
Foreign currency movements decreased SG&A by $9.5 million. As a
percentage of revenue and excluding stock-based compensation expense, SG&A
decreased to 29.5% for the first half of 2009 compared to 30.2% for the first
half of 2008.
Depreciation and Amortization Expenses.
Depreciation and amortization expenses were
$23.3 million for the six months ended May 31, 2009, compared to
$18.5 million for the six months ended May 31, 2008, an increase of
$4.8 million or 26%. The increase was primarily due to acquisitions made
within the last year.
Operating Income.
Operating income was $79.8 million for
the six months ended May 31, 2009, compared to $63.7 million for the
six months ended May 31, 2008, an increase of $16.1 million or 25%.
As a percentage of revenue, operating income increased to 17.0% for the first
half of 2009 from 15.7% for the same period of 2008.
Operating income for our Americas segment was $91.7 million for the
six months ended May 31, 2009, compared to $78.0 million for the six
months ended May 31, 2008, an increase of $13.7 million or 18%. The
increase was principally due to the additional revenue discussed above coupled
with our ability to leverage a relatively fixed-cost structure with our
subscriptions-based products. As a
percentage of revenue, Americas operating income decreased to 30.9% from 31.5%
in the first half of 2008 primarily due to an increase in amortization.
Operating income for our EMEA segment was $26.6 million for the
six months ended May 31, 2009, compared to $22.4 million for the six
months ended May 31, 2008, an increase of $4.2 million or 19%. As a
percentage of revenue, EMEA operating income increased to 19.5% for the six
months ended May 31, 2009 compared to 17.2% for the six months ended May 31,
2008. These increases are primarily due
to the higher growth in higher margin subscription products in 2009 and
decreases in lower margin service offerings along with the impact of foreign currency
rates at the Operating Income level.
Operating income for our APAC segment was $11.5 million for the
first half of 2009, compared to $7.8 million for the same period of 2008,
an increase of $3.7 million or 48%. Operating income increased due to the
increase in sales. As a percentage of revenue, APAC operating income increased
to 30.9% for the six months ended May 31, 2009 from 27.5% for the six
months ended May 31, 2008. This
increase was due to the mix of products sold with higher growth of higher
margin Critical Information products in 2009.
Operating expenses for our shared services were $49.9 million for the
six months ended May 31, 2009, compared to $44.4 million for the six
months ended May 31, 2008, an increase of $5.5 million or 12%. As a percentage
of revenue, operating expenses for our shared services was 10.6% for the first
six months of 2009 compared to 10.9% for the first six months of 2008.
Provision for Income Taxes.
Our effective tax rate for the six months
ended May 31, 2009 was 22.6%, compared to 32.5% for the six months ended May 31,
2008. The 2009 rate reflects the impact
of our internal legal entity reorganization within EMEA that occurred in the
third quarter of 2008 as well as discrete period tax benefits recognized from
the successful outcome of a French tax appeal and a favorable UK tax ruling in
the second quarter of 2009.
21
Table of Contents
Financial
Condition
Accounts
Receivable
. Accounts
receivable has decreased by $20.4 million, or 10%, to $187.4 million compared to $207.8 million
as of November 30, 2008. The
decrease is attributable primarily to the seasonality of billings which was partially offset by a
slight deterioration in our accounts receivable aging.
Accrued Compensation.
Accrued compensation was $28.2 million as of May 31,
2009, compared to $39.1 million as of November 30, 2008, a decrease of
$10.9 million or 28%. The decrease was primarily attributable to disbursement
of annual incentive bonuses during the first quarter partially offset by the
accruals made for the 2009 bonus plan through May 31, 2009.
Deferred Revenue.
Deferred revenue was $333.7
million as of May 31, 2009, compared to $288.1 million as of November 30,
2008, an increase of $45.6 million or 16%. The increase was primarily
attributable to the timing of annual billings as well as both organic and
acquisition related growth. Organic
deferred revenue increased 7% as of May 31, 2009 compared to May 31,
2008.
Liquidity and
Capital Resources
As of May 31, 2009, we had
cash and cash equivalents of $172.3 million and $115.1 million of debt. We have
generated strong cash flows from operations over the last few years. As a
result of these factors, as well as the remaining availability of funds under
our $385.0 million 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, future acquisitions, the expansion of
sales and marketing activities, the timing of introductions of new products,
changing technology, investments in our internal business applications 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 approximately $20 million
for 2009.
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. Additionally, our board of
directors periodically approves additional buyback programs whereby IHS
acquires shares in the open market to more fully offset the dilutive effect of
our employee equity programs. During the three months ended May 31, 2009,
we repurchased 37,577 shares under the tax withholding program for
approximately $1.7 million, or $45.78 per share. In the first half of 2009, we repurchased
169,052 shares under the tax withholding program for approximately $7.5
million, or $44.34 per share. No shares
were repurchased in the first half of 2009 pursuant to a share buyback
program. Since the inception of these
programs, we have withheld for tax 868,446 shares of our Class A common
stock for approximately $43.2 million, or $49.72 per share and we have
repurchased 1,889,557 shares for approximately $94.7 million or $50.13 per
share pursuant to the stock buyback program.
Cash Flows
Net cash provided by operating activities was $116.3 million
for the six months ended May 31, 2009, compared to
$95.0 million for the six months ended May 31, 2008, an increase of $21.3
million
. The increase was principally due to our business growing profitably
year over year. Additionally, bonus
payments were slightly less in the first quarter of 2009 compared to the same
period in 2008 and we made lower tax payments in 2009. Our subscription-based
business model typically generates a high rate of cash flow and is aided by the
following:
·
|
|
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.
|
The positive cash flow impact of our growing
business in the first half of 2009 was partially offset by an increase in
capital expenditures related to new office space build out in our Canada
facility and the outflow of cash related to our rationalization efforts that
occurred at IHS Global Insight.
22
Table of Contents
Net cash used in investing
activities was approximately $4.2 million for the six months ended May 31,
2009, compared to $128.2 million for the six months ended May 31, 2008.
The change is driven primarily by acquisitions in the first half of 2008.
Net cash provided by financing
activities was $19.5 million for the six months ended May 31, 2009
compared to a use of $11.3 million for the six months ended May 31,
2008. Net borrowings from the credit
facility were $28.0 million in the first half of 2009 which were partially
offset by the net repayment of a portion of the notes due to the sellers of
Prime of $9.3 million.
Credit
Facility and Other Debt
On September 7, 2007, we entered into an amended and restated
credit agreement (the Revolver). The $385 million unsecured revolving
credit agreement 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, 2009, we were in compliance with all of the
covenants in the agreement and had $108.0 million of outstanding
borrowings with an annual interest rate of 0.94%. This debt is classified as long-term debt as
of May 31, 2009 as we have the ability and intent to maintain this balance
beyond twelve months. In addition, we
had outstanding letters of credit totaling approximately $1.3 million as
of May 31, 2009.
As of May 31, 2009, we also had $7.1 million of non-interest
bearing notes that were issued to the sellers of Prime. These notes are due
upon demand and are therefore recorded in Short-term Debt in the accompanying
Condensed Consolidated Balance Sheets.
Off-Balance Sheet Transactions
We have no off-balance sheet
transactions.
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 2008 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.
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 2008 Form 10-K.
There were no material changes to our market risk exposure during the first six
months of fiscal 2009.
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.
23
Table of Contents
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 2008 Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and
Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security
Holders
The Annual Meeting of
Stockholders of IHS Inc. was held on May 14, 2009.
Election of Directors.
The shareholders of IHS elected each of
the director nominees proposed by our Board of Directors to serve until the
2012 Annual Meeting of Shareholders or until his successor is duly elected and
qualified. The following is a breakdown
of the voting results:
DIRECTOR
|
|
VOTES
FOR
|
|
VOTES
WITHHELD
|
|
Ruann
F. Ernst
|
|
57,942,614
|
|
144,412
|
|
Christoph
v. Grolman
|
|
57,913,004
|
|
174,022
|
|
Richard
W. Roedel
|
|
56,670,763
|
|
1,416,263
|
|
Appointment
of Ernst & Young LLP as Independent Auditor.
The shareholders of IHS ratified the appointment of Ernst &
Young LLP as the Corporations
independent auditor. The following is a
breakdown of the voting results:
VOTES FOR
|
|
VOTES
AGAINST
|
|
ABSTAIN
|
|
NON
VOTES
|
|
56,506,364
|
|
1,560,596
|
|
20,066
|
|
0
|
|
Tabulation
of Voting Results.
The voting results include all shares of Class A
Common Stock eligible to vote as of the record date. As previously disclosed, during 2008, all
shares of Class B Common Stock were converted to Class A common stock
and there is no longer any Class B Common Stock outstanding.
Item 5. Other Information.
None.
Item 6. Exhibits
(a) Index of Exhibits
The following exhibits
are filed as part of this report:
Exhibit
Number
|
|
Description
|
3.1*
|
|
Amended
and Restated Certificate of Incorporation
|
3.2*
|
|
Amended
and Restated By-L-laws
|
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.
|
24
Table of Contents
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.
25
Table of Contents
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, 2009.
|
IHS INC.
|
|
|
|
By:
|
/s/ Heather
Matzke-Hamlin
|
|
|
Name:
|
Heather Matzke-Hamlin
|
|
|
Title:
|
Senior Vice President
and Chief Accounting
Officer
|
26
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