Q313 10Q

10-Q 1 q31310q.htm 10-Q Q313 10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________

FORM 10-Q

___________________________________________________



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

For the quarterly period ended August 31, 2013



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

For the transition period from to

Commission file number 001-32511

___________________________________________________

IHS INC.

(Exact name of registrant as specified in its charter)

___________________________________________________



Delaware		13-3769440
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15 Inverness Way East

Englewood, CO 80112

(Address of Principal Executive Offices)

(303) 790-0600

(Registrant’s 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	x	Accelerated filer	o

Non-accelerated filer	o (Do not check if a smaller reporting company)	Smaller Reporting Company	o

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

As of August 31, 2013, there were 67,187,567 shares of our Class A Common Stock outstanding.

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TABLE OF CONTENTS



		Page
PART I. Financial Information
	Item 1. Financial Statements	3
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	25
	Item 4. Controls and Procedures	25

PART II. Other Information
	Item 1. Legal Proceedings	26
	Item 1A. Risk Factors	26
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	28
	Item 6. Exhibits	28

SIGNATURE		29

Cautionary Note Regarding Forward-Looking Statements

This quarterly report on Form 10-Q contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by words such as: “anticipate,” “intend,” “plan,” “goal,” “seek,” “believe,” “project,” “predict,” “estimate,” “expect,” “continue,” “strategy,” “future,” “likely,” “may,” “might,” “should,” “will,” the negative of these terms, and similar references to future periods. Examples of forward-looking statements include, among others, statements we make regarding: guidance and predictions relating to expected operating results, such as revenue growth and earnings; strategic actions, including acquisitions and dispositions, anticipated benefits from strategic actions, and our success in integrating acquired businesses; anticipated levels of capital expenditures in future periods; our belief that we have sufficient liquidity to fund our ongoing business operations; expectations of the effect on our financial condition of claims, litigation, environmental costs, contingent liabilities and governmental and regulatory investigations and proceedings; and our strategy for customer retention, growth, product development, market position, financial results, and reserves.

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: economic and financial conditions, including volatility in interest and exchange rates; our ability to successfully manage risks associated with changes in demand for our products and services as well as changes in our targeted industries; our ability to develop new products and services, pricing, and other competitive pressures, and changes in laws and regulations governing our business; the extent to which we are successful in gaining new long-term relationships with customers or retaining existing ones and the level of service failures that could lead customers to use competitors' services; our ability to successfully integrate acquisitions into our existing businesses and manage risks associated therewith; and the other factors described under the caption “Risk Factors” in our annual report on Form 10-K for the fiscal year ended November 30, 2012 and quarterly report on Form 10-Q for the quarter ended February 28, 2013, along with our other filings with the U.S. Securities and Exchange Commission (SEC).

Any forward-looking statement made by us in this quarterly report on Form 10-Q is based only on information currently available to us and speaks only as of the date on which it is made. We undertake no obligation to publicly update any forward-looking statement, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise.

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PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

IHS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for share and per-share amounts)



	As of			As of
	August 31, 2013			November 30, 2012
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	270,995		$	345,008
Accounts receivable, net	395,584			372,117
Income tax receivable	14,667			20,464
Deferred subscription costs	43,236			47,065
Deferred income taxes	61,308			55,084
Other	42,424			24,145
Total current assets	828,214			863,883
Non-current assets:
Property and equipment, net	233,294			163,013
Intangible assets, net	1,188,415			554,552
Goodwill	3,047,303			1,959,223
Other	25,142			8,540
Total non-current assets	4,494,154			2,685,328
Total assets	$	5,322,368		$	3,549,211
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	394,248		$	170,102
Accounts payable	56,194			52,079
Accrued compensation	56,513			50,497
Accrued royalties	23,261			33,637
Other accrued expenses	86,856			55,304
Deferred revenue	561,137			515,318
Total current liabilities	1,178,209			876,937
Long-term debt	1,913,124			890,922
Accrued pension and postretirement liability	24,149			30,027
Deferred income taxes	362,634			139,235
Other liabilities	41,879			27,732
Commitments and contingencies
Stockholders’ equity:
Class A common stock, $0.01 par value per share, 160,000,000 shares authorized, 67,621,367 shares issued, and 67,187,567 and 65,577,530 shares outstanding at August 31, 2013 and November 30, 2012, respectively	676			676
Additional paid-in capital	736,890			681,409
Treasury stock, at cost: 433,800 and 2,043,837 shares at August 31, 2013 and November 30, 2012, respectively	(36,293		)	(139,821		)
Retained earnings	1,179,710			1,088,787
Accumulated other comprehensive loss	(78,610		)	(46,693		)
Total stockholders’ equity	1,802,373			1,584,358
Total liabilities and stockholders’ equity	$	5,322,368		$	3,549,211

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except for per-share amounts)



	Three months ended August 31,						Nine months ended August 31,
	2013			2012			2013			2012
Revenue:
Products	$	423,482		$	339,946		$	1,120,887		964,444
Services	56,806			45,663			160,069			151,067
Total revenue	480,288			385,609			1,280,956			1,115,511
Operating expenses:
Cost of revenue:
Products	172,853			132,577			456,770			392,931
Services	25,426			21,169			74,008			72,676
Total cost of revenue	198,279			153,746			530,778			465,607
Selling, general and administrative	179,344			138,519			465,182			390,540
Depreciation and amortization	42,431			31,390			107,787			86,683
Restructuring charges	3,264			967			11,283			12,080
Acquisition-related costs	14,499			2,104			18,059			3,472
Net periodic pension and postretirement expense	2,242			2,001			6,724			5,998
Other expense (income), net	803			622			3,733			(680		)
Total operating expenses	440,862			329,349			1,143,546			963,700
Operating income	39,426			56,260			137,410			151,811
Interest income	232			255			879			674
Interest expense	(16,072		)	(5,057		)	(28,356		)	(14,837		)
Non-operating expense, net	(15,840		)	(4,802		)	(27,477		)	(14,163		)
Income from continuing operations before income taxes	23,586			51,458			109,933			137,648
Provision for income taxes	(116		)	(7,384		)	(18,909		)	(25,908		)
Income from continuing operations	23,470			44,074			91,024			111,740
Income (loss) from discontinued operations, net	(108		)	8			(101		)	8
Net income	$	23,362		$	44,082		$	90,923		111,748

Basic earnings per share
Income from continuing operations	$	0.35		$	0.67		$	1.38		$	1.70
Income (loss) from discontinued operations, net	$	—		$	—		$	—		$	—
Net income	$	0.35		$	0.67		$	1.38		$	1.70
Weighted average shares used in computing basic earnings per share	66,650			65,992			66,112			65,795

Diluted earnings per share
Income from continuing operations	$	0.35		$	0.66		$	1.36		$	1.68
Income (loss) from discontinued operations, net	$	—		$	—		$	—		$	—
Net income	$	0.35		$	0.66		$	1.36		$	1.68
Weighted average shares used in computing diluted earnings per share	67,326			66,808			66,843			66,602

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)



	Three months ended August 31,					Nine months ended August 31,
	2013		2012			2013			2012
Net income	$	23,362	$	44,082		$	90,923		$	111,748
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on hedging activities	314		(292		)	875			(457		)
Foreign currency translation adjustment	296		15,458			(32,792		)	5,588
Total other comprehensive income (loss)	610		15,166			(31,917		)	5,131
Comprehensive income	$	23,972	$	59,248		$	59,006		$	116,879

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Nine months ended August 31,
	2013			2012
Operating activities:
Net income	$	90,923		$	111,748
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	107,787			86,683
Stock-based compensation expense	114,794			90,932
Impairment of assets	1,629			—
Excess tax benefit from stock-based compensation	(12,405		)	(13,181		)
Net periodic pension and postretirement expense	6,724			5,998
Pension and postretirement contributions	(12,601		)	(67,023		)
Deferred income taxes	(37,756		)	(7,082		)
Change in assets and liabilities:
Accounts receivable, net	43,662			46,177
Other current assets	3,319			(4,435		)
Accounts payable	(14,442		)	7,806
Accrued expenses	(371		)	(30,678		)
Income tax payable	32,700			16,742
Deferred revenue	21,567			2,505
Other liabilities	(1,161		)	64
Net cash provided by operating activities	344,369			246,256
Investing activities:
Capital expenditures on property and equipment	(65,411		)	(49,699		)
Acquisitions of businesses, net of cash acquired	(1,481,288		)	(306,268		)
Intangible assets acquired	—			(3,700		)
Change in other assets	(5,590		)	1,658
Settlements of forward contracts	2,853			(3,058		)
Net cash used in investing activities	(1,549,436		)	(361,067		)
Financing activities:
Proceeds from borrowings	1,375,000			680,001
Repayment of borrowings	(128,648		)	(476,399		)
Payment of debt issuance costs	(17,360		)	(740		)
Excess tax benefit from stock-based compensation	12,405			13,181
Proceeds from the exercise of employee stock options	549			2,938
Repurchases of common stock	(87,512		)	(35,358		)
Net cash provided by financing activities	1,154,434			183,623
Foreign exchange impact on cash balance	(23,380		)	(5,064		)
Net increase (decrease) in cash and cash equivalents	(74,013		)	63,748
Cash and cash equivalents at the beginning of the period	345,008			234,685
Cash and cash equivalents at the end of the period	$	270,995		$	298,433

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(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, 2012 (Audited)	65,578		$	676	$	681,409	$	(139,821	)	$	1,088,787	$	(46,693	)	$	1,584,358
Stock-based award activity	744		—		14,532		46,775			—		—			61,307
Excess tax benefit on vested shares	—		—		12,405		—			—		—			12,405
Repurchases of common stock	(468	)	—		—		(46,189		)	—		—			(46,189		)
Shares issued for acquisition	1,334		—		28,544		102,942			—		—			131,486
Net income	—		—		—		—			90,923		—			90,923
Other comprehensive loss	—		—		—		—			—		(31,917		)	(31,917		)
Balance at August 31, 2013	67,188		$	676	$	736,890	$	(36,293	)	$	1,179,710	$	(78,610	)	$	1,802,373

See accompanying notes.

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IHS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of IHS Inc. (IHS, we, our, or us) have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our annual report on Form 10-K for the year ended November 30, 2012. In our opinion, these condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented, and such adjustments are of a normal, recurring nature.

Our business has seasonal aspects. Our fourth quarter typically generates our highest quarterly levels of revenue and profit. Conversely, our first quarter generally has our lowest levels of revenue and profit. We also experience event-driven seasonality in our business; for instance, IHS CERAWeek, an annual energy executive gathering, is held during our second quarter. Another example is the triennial release of the Boiler Pressure Vessel Code (BPVC) engineering standard, which generates revenue for us predominantly in the third quarter of every third year. The BPVC benefit most recently occurred in the third quarter of 2013.

Recent Accounting Pronouncements

In September 2011, the Financial Accounting Standards Board (FASB) issued guidance on testing goodwill for impairment that became effective for us in the first quarter of 2013. Under the new guidance, an entity has the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the entity determines that this threshold is not met, then performing the two-step impairment test is unnecessary. The adoption of this standard did not have an impact on our consolidated financial statements.

In February 2013, the FASB issued guidance on the reporting of reclassifications out of accumulated other comprehensive income (AOCI) that will become effective for us in the first quarter of 2014. Under the new guidance, an entity is required to report the effect of significant reclassifications out of AOCI on the respective line items in net income if the amount being reclassified is required under U.S. generally accepted accounting principles (GAAP) to be reclassified in its entirety to net income. For amounts not required under GAAP to be reclassified in their entirety to net income in the same reporting period, an entity is required to cross-reference other GAAP disclosures that provide additional detail about those amounts. We do not expect these changes to impact our consolidated financial statements other than the change in disclosures.


2.	Business Combinations

During the nine months ended August 31, 2013, we completed the following acquisitions:

Exclusive Analysis and the business of Dodson Data Systems. On December 12, 2012, we announced the completion of two strategic acquisitions: Exclusive Analysis, a specialist intelligence company that forecasts political and violent risks worldwide, and the business of Dodson Data Systems, a leading provider of strategic information for companies engaged in oil and gas operations located in the Gulf of Mexico and the United States. We expect that both of these acquisitions will augment our existing product portfolio by providing our customers with additional information, forecasting, and analytics.

Energy Publishing Inc. (Energy Publishing). On December 31, 2012, we acquired Energy Publishing, a leading provider of North American and Australasian coal intelligence. We expect that this transaction will strengthen our position in coal intelligence and give us an immediate presence and deep coverage in North American and Australasian coal markets, complementing our existing global Energy and Power product offerings.

Fekete Associates. On April 5, 2013, we acquired Fekete Associates, a leading provider of integrated reservoir management software and services to the oil and gas industry. We expect that the combination of Fekete's workflow tools with our existing energy information products will create efficiencies for customers by helping them make faster exploration and production decisions.

Waterborne Energy. On May 13, 2013, we acquired Waterborne Energy, a company that provides global research, analysis, and price information in the Liquefied Petroleum Gas (LPG) and Liquefied Natural Gas (LNG) sector. We expect that

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this acquisition will help us provide our customers with comprehensive and complete LPG and LNG intelligence that will aid them in making key business decisions regarding demand, supply, and pricing.

PFC Energy. On June 19, 2013, we acquired PFC Energy, a provider of upstream and downstream energy information, research, and analysis. PFC Energy's product offering set, geographical footprint, and customer relationships are complementary to IHS, and we expect the transaction will bring greater depth and breadth in key areas of the IHS energy solution set. The purchase price allocation for this acquisition is preliminary and may change upon completion of the determination of fair value.

R. L. Polk & Co. (Polk). On July 15, 2013, we acquired Polk, a recognized leader in providing automotive information and analytics solutions, for approximately $1.4 billion, consisting of approximately $1.24 billion in cash, net of cash acquired, and 1,334,477 shares of common stock of IHS, which we issued from our treasury stock. The cash portion of the transaction was funded with cash on hand, cash from our amended existing revolver, and a new bank term loan. We anticipate that the combination of our existing automotive products and the Polk suite of products and services will allow us to further establish our automotive business as a strategic partner for the automotive industry worldwide. The purchase price allocation for this acquisition is preliminary and may change upon completion of the determination of fair value.

We have included revenue and expenses attributable to Polk in the appropriate geographic segment from the date of acquisition. The Polk acquisition contributed $54.8 million of revenue and $4.7 million of income from continuing operations for the post-acquisition period ended August 31, 2013.

The following unaudited pro forma information has been prepared as if the Polk acquisition had been consummated at December 1, 2011. This information is presented for informational purposes only, and is not necessarily indicative of the operating results that would have occurred if the acquisition had been consummated as of that date. This information should not be used as a predictive measure of our future financial position, results of operations, or liquidity.



	Three months ended August 31,				Nine months ended August 31,
Supplemental pro forma financial information (Unaudited)	2013		2012		2013		2012
	(In thousands, except per share data)
Total revenue	$	533,743	$	484,726	$	1,545,639	$	1,410,364
Net income	$	8,134	$	44,697	$	61,297	$	112,513
Diluted earnings per share	$	0.12	$	0.66	$	0.90	$	1.66

The following table summarizes the initial purchase price allocation, net of acquired cash, for all acquisitions completed in the first nine months of 2013 (in thousands):



	Polk		All others		Total
Assets:
Current assets	$	79,581	$	17,059	$	96,640
Property and equipment	32,311		5,498		37,809
Intangible assets	632,100		84,246		716,346
Goodwill	929,981		169,865		1,099,846
Other long-term assets	11,032		210		11,242
Total assets	1,685,005		276,878		1,961,883
Liabilities:
Current liabilities	51,785		24,373		76,158
Deferred taxes	250,024		11,438		261,462
Other long-term liabilities	8,926		2,563		11,489
Total liabilities	310,735		38,374		349,109
Purchase price	$	1,374,270	$	238,504	$	1,612,774

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3.	Commitments and Contingencies

From time to time, we are involved in litigation in the ordinary course of our business, including claims or contingencies that may arise related to matters occurring prior to our acquisition of businesses. Although we can give no assurance as to the outcome of any pending litigation to which we are currently a party, we do not expect the outcome of such proceedings to have a material adverse effect on our results of operations or financial condition.


4.	Restructuring Charges

During the first nine months of 2013, we eliminated 217 positions and incurred additional direct and incremental costs related to identified operational efficiencies, continued consolidation of positions to our accounting and customer care Centers of Excellence (COE) locations, and further consolidation of our legacy data centers. We expect to continue to incur costs related to these and other similar activities in future periods, resulting in additional restructuring charges.

During the first nine months of 2013, we recorded approximately $11.3 million of restructuring charges for these activities. Of these charges, approximately $8.3 million was recorded in the Americas segment, $2.5 million was recorded in the EMEA segment, and $0.4 million was recorded in the APAC segment.

The following table provides a reconciliation of the restructuring liability as of August 31, 2013 (in thousands):



	Employee Severance and Other Termination Benefits			Contract Termination Costs			Other			Total
Balance at November 30, 2012	$	3,163		$	1,503		$	59		$	4,725
Add: Restructuring costs incurred	11,672			217			238			12,127
Revision to prior estimates	(919		)	75			—			(844		)
Less: Amount paid	(9,360		)	(1,592		)	(297		)	(11,249		)
Balance at August 31, 2013	$	4,556		$	203		$	—		$	4,759

As of August 31, 2013, approximately $3.1 million of the remaining restructuring liability was in the Americas segment, $1.5 million was in the EMEA segment, and $0.2 million was in the APAC segment. The entire $4.8 million restructuring liability is expected to be paid within the next twelve months.


5.	Acquisition-related Costs

During the nine months ended August 31, 2013, we recorded approximately $18.1 million of direct and incremental costs associated with acquisition-related activities, including severance, a lease abandonment, and legal and professional fees, such as investment adviser fees associated with the Polk acquisition. Certain of these costs were incurred for a transaction that we chose not to consummate. Substantially all of the costs were incurred within the Americas segment.

The following table provides a reconciliation of the acquisition-related costs accrued liability as of August 31, 2013 (in thousands):



	Employee Severance and Other Termination Benefits			Contract Termination Costs			Other			Total
Balance at November 30, 2012	$	584		$	84		$	—		$	668
Add: Costs incurred	2,640			1,291			14,338			18,269
Revision to prior estimates	(146		)	(44		)	(20		)	(210		)
Less: Amount paid	(1,093		)	(1,085		)	(14,270		)	(16,448		)
Balance at August 31, 2013	$	1,985		$	246		$	48		$	2,279

As of August 31, 2013, the entire remaining $2.3 million acquisition-related costs accrued liability was in the Americas segment. We expect the majority of this liability to be paid within the next two years.

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6.	Stock-based Compensation

Stock-based compensation expense for the three and nine months ended August 31, 2013 and 2012 was as follows (in thousands):



	Three months ended August 31,				Nine months ended August 31,
	2013		2012		2013		2012
Cost of revenue	$	2,649	$	1,488	$	5,625	$	4,467
Selling, general and administrative	41,584		29,050		109,169		86,465
Total stock-based compensation expense	$	44,233	$	30,538	$	114,794	$	90,932

Total income tax benefits recognized for stock-based compensation arrangements were as follows (in thousands):



	Three months ended August 31,				Nine months ended August 31,
	2013		2012		2013		2012
Income tax benefits	$	14,597	$	10,797	$	36,523	$	32,151

No stock-based compensation cost was capitalized during the three and nine months ended August 31, 2013 and 2012.

As of August 31, 2013, there was $128.2 million of unrecognized stock-based compensation cost, adjusted for estimated forfeitures, related to unvested stock-based awards that will be recognized over a weighted-average period of approximately 1.5 years. Total unrecognized stock-based compensation cost will be adjusted for future changes in estimated forfeitures and changes in estimated achievement of performance goals.

Restricted Stock Units (RSUs). The following table summarizes RSU activity during the nine months ended August 31, 2013:



	Shares		Weighted- Average Grant Date Fair Value
	(in thousands)
Balance at November 30, 2012	2,987		$	78.75
Granted	1,091		$	102.84
Vested	(1,138	)	$	71.16
Forfeited	(173	)	$	90.05
Balance at August 31, 2013	2,767		$	90.66

The total fair value of RSUs that vested during the nine months ended August 31, 2013 was $116.4 million based on the weighted-average fair value on the vesting date.


7.	Income Taxes

Our effective tax rate is estimated based upon the effective tax rate expected to be applicable for the full fiscal year.

Our effective tax rate for the three and nine months ended August 31, 2013 was 0.5 percent and 17.2 percent, respectively, compared to 14.3 percent and 18.8 percent for the same periods of 2012. The decrease in the 2013 tax rate reflects the impact of discrete period items, including certain one-time expenses related to the Polk acquisition and a reduction in the statutory tax rate in the United Kingdom.


8.	Debt

Our syndicated bank credit agreement (the Credit Facility) consists of term loans and a $1.0 billion revolver. All borrowings under the Credit Facility are unsecured. The term loans and revolver included in the Credit Facility have a five-year tenor ending in January 2016. Certain terms of our Credit Facility were amended during the third quarter of 2013 as a result of the increased leverage associated with borrowings made to fund the Polk acquisition, including the interest rate, commitment fee, and Leverage Ratio, which is defined as the ratio of Consolidated Funded Indebtedness to rolling four-quarter Consolidated Earnings Before Interest Expense, Taxes, Depreciation and Amortization (EBITDA), as such terms are defined in the Credit Facility. The interest rates for borrowings under the Credit Facility are now the applicable LIBOR plus a spread of 1.00% to 2.25%, depending upon our Leverage Ratio. A commitment fee on any unused balance is payable periodically and ranges from 0.15% to 0.40% based upon our Leverage Ratio. The Credit Facility contains certain financial and other

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covenants, including a maximum Leverage Ratio and a maximum Interest Coverage Ratio, as such terms are defined in the Credit Facility.

We also have a $250 million interest-only term loan agreement. This term loan has a two-and-a-half year tenor ending in March 2015, and borrowings under the loan are unsecured. The interest for borrowing under this term loan, as well as certain financial and other covenants, including a maximum Leverage Ratio and a maximum Interest Coverage ratio, are consistent with the amendment to the existing Credit Facility term loans described above.

During the third quarter of 2013, we entered into a new $700 million term loan agreement to facilitate a portion of the funding for the Polk acquisition. This term loan has a five year tenor ending in July 2018, and borrowings under the loan are unsecured. The interest for borrowing under this term loan, as well as certain financial and other covenants, including a maximum Leverage Ratio and a maximum Interest Coverage ratio, are consistent with the existing credit facilities described above.

As a result of the new and amended credit agreements, we capitalized approximately $13.1 million of debt issuance costs during the third quarter of 2013.

As of August 31, 2013, we were in compliance with all of the covenants in the Credit Facility and had approximately $892 million of outstanding borrowings under the revolver at a current annual interest rate of 2.44% and approximately $1.4 billion of aggregate outstanding borrowings under the term loans at a current weighted average annual interest rate of 2.45%. We have classified $615 million of the revolver borrowings as long-term and $277 million as short-term based upon our current estimate of expected repayments for the next twelve months. Short-term debt also includes $117 million of scheduled term loan principal repayments over the next twelve months. Our credit agreements require a systematic reduction in our leverage ratio each quarter for the first year.

We also had approximately $1.7 million of outstanding letters of credit under the Credit Facility as of August 31, 2013, which reduces the available borrowing under the Credit Facility by an equivalent amount.

The carrying value of our short-term and long-term debt approximates their fair value.


9.	Pensions and Postretirement Benefits

We sponsor a non-contributory, closed defined-benefit retirement plan (the U.S. RIP) for all of our U.S. employees who have at least one year of service and who were hired or acquired before January 1, 2012. We also have a frozen defined-benefit pension plan (the U.K. RIP) that covers certain employees of a subsidiary based in the United Kingdom. We also have an unfunded Supplemental Income Plan (SIP), which is a non-qualified pension plan, for certain U.S. employees who earn over a federally stipulated amount. Benefits for all three plans are generally based on years of service and either average or cumulative base compensation, depending on the plan. Plan funding strategies are influenced by employee benefit laws and tax laws. The U.K. RIP includes a provision for employee contributions and inflation-based benefit increases for retirees.

Our net periodic pension expense (income) for the three and nine months ended August 31, 2013 and 2012 was comprised of the following (in thousands):

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	Three months ended August 31, 2013											Three months ended August 31, 2012
	U.S. RIP			U.K. RIP			SIP		Total			U.S. RIP			U.K. RIP			SIP			Total
Service costs incurred	$	2,524		$	57		$	25	$	2,606		$	2,544		$	33		$	47		2,624
Interest costs on projected benefit obligation	1,240			444			82		1,766			1,736			422			97			2,255
Expected return on plan assets	(1,413		)	(487		)	—		(1,900		)	(2,122		)	(551		)	—			(2,673		)
Amortization of prior service benefit	(336		)	—			—		(336		)	(336		)	—			(2		)	(338		)
Amortization of transitional obligation	—			—			—		—			—			—			11			11
Net periodic pension expense (income)	$	2,015		$	14		$	107	$	2,136		$	1,822		$	(96	)	$	153		$	1,879



	Nine months ended August 31, 2013											Nine months ended August 31, 2012
	U.S. RIP			U.K. RIP			SIP		Total			U.S. RIP			U.K. RIP			SIP			Total
Service costs incurred	7,575			$	162		$	75	$	7,812		$	7,632		$	99		$	141		7,872
Interest costs on projected benefit obligation	3,720			1,261			246		5,227			5,208			1,277			291			6,776
Expected return on plan assets	(4,239		)	(1,385		)	—		(5,624		)	(6,366		)	(1,666		)	—			(8,032		)
Amortization of prior service benefit	(1,008		)	—			—		(1,008		)	(1,008		)	—			(6		)	(1,014		)
Amortization of transitional obligation	—			—			—		—			—			—			31			31
Net periodic pension expense (income)	$	6,048		$	38		$	321	$	6,407		$	5,466		$	(290	)	$	457		$	5,633

We sponsor a contributory postretirement medical plan. The plan grants access to group rates for retiree-medical coverage for all U.S. employees who leave IHS after age 55 with at least 10 years of service. Additionally, we subsidize the cost of coverage for retiree-medical coverage for certain grandfathered employees. Our subsidy is capped at different rates per month depending on individual retirees’ Medicare eligibility.

Our net periodic postretirement expense was comprised of the following for the three and nine months ended August 31, 2013 and 2012 (in thousands):



	Three months ended August 31,				Nine months ended August 31,
	2013		2012		2013		2012
Service costs incurred	$	6	$	4	$	17	$	13
Interest costs	100		118		300		352
Net periodic postretirement expense	$	106	$	122	$	317	$	365


10.	Earnings per Share

Basic earnings per share (EPS) is computed on the basis of the weighted-average number of common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common shares.

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Weighted-average common shares outstanding for the three and nine months ended August 31, 2013 and 2012 were calculated as follows (in thousands):



	Three months ended August 31,		Nine months ended August 31,
	2013	2012	2013	2012
Weighted-average common shares outstanding:
Shares used in basic EPS calculation	66,650	65,992	66,112	65,795
Effect of dilutive securities:
Restricted stock units	676	790	729	770
Stock options and other stock-based awards	—	26	2	37
Shares used in diluted EPS calculation	67,326	66,808	66,843	66,602


11.	Derivatives

To mitigate interest rate exposure on our outstanding Credit Facility debt, we have two interest rate derivative contracts that effectively swap $100 million of floating rate debt at a 1.80% weighted-average fixed interest rate, plus the applicable Credit Facility spread. Both of these interest rate swaps expire in July 2015. Because the terms of the swaps and the variable rate debt coincide, we do not expect any ineffectiveness. We have designated and accounted for these instruments as cash flow hedges, with changes in fair value being deferred in accumulated other comprehensive loss in the consolidated balance sheets.

Since our swaps are not listed on an exchange, we have evaluated fair value by reference to similar transactions in active markets; consequently, we have classified the swaps within Level 2 of the fair value measurement hierarchy. As of August 31, 2013, the fair market value of our swaps was a loss of $2.4 million, and the current mark-to-market loss position is recorded in other liabilities in the consolidated balance sheets.

In the first nine months of 2013, to mitigate foreign currency exposure on Euro-denominated receipts in U.S. Dollar functional entities, we entered into forward contracts that hedge that exposure in the United States and Europe. The total notional value of contracts entered into during the first nine months of 2013 was €20 million, with monthly maturities through the third quarter of 2014. We intend to keep a rolling 12-month hedging program in place to mitigate the foreign currency exposure. Because the critical terms of the forward contracts and the forecasted cash flows coincide, we do not expect any ineffectiveness associated with these contracts. We have designated and accounted for these instruments as cash flow hedges, with changes in fair value being deferred in accumulated other comprehensive loss in the consolidated balance sheets.

Since these forward contracts are not listed on an exchange, we have evaluated fair value by reference to similar transactions in active markets; consequently, we have classified the instruments within Level 2 of the fair value measurement hierarchy. As of August 31, 2013, the fair market value of the hedges was a loss of $0.1 million, and the current mark-to-market gain position is recorded in other assets in the consolidated balance sheets.

We also utilize short-term foreign currency forward contracts to manage market risks associated with fluctuations in balances that are denominated in currencies other than the local functional currency. We account for these forward contracts at fair value and recognize the associated realized and unrealized gains and losses in other expense (income), net, since we have not designated these contracts as hedges for accounting purposes.


12.	Goodwill and Intangible Assets

The following table presents details of our intangible assets, other than goodwill, as of August 31, 2013 and November 30, 2012 (in thousands):

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	As of August 31, 2013							As of November 30, 2012
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets subject to amortization:
Information databases	$	632,401	$	(172,899	)	$	459,502	$	291,265	$	(141,072	)	$	150,193
Customer relationships	471,828		(81,162		)	390,666		266,168		(63,105		)	203,063
Non-compete agreements	3,197		(1,942		)	1,255		4,372		(2,615		)	1,757
Developed computer software	159,533		(59,703		)	99,830		141,570		(46,898		)	94,672
Other	191,013		(17,077		)	173,936		51,214		(12,163		)	39,051
Total	$	1,457,972	$	(332,783	)	$	1,125,189	$	754,589	$	(265,853	)	$	488,736
Intangible assets not subject to amortization:
Trademarks	62,042		—			62,042		64,618		—			64,618
Perpetual licenses	1,184		—			1,184		1,198		—			1,198
Total intangible assets	$	1,521,198	$	(332,783	)	$	1,188,415	$	820,405	$	(265,853	)	$	554,552

Intangible assets amortization expense was $29.5 million and $74.1 million for the three and nine months ended August 31, 2013, respectively, as compared to $21.7 million and $60.8 million for the same respective periods of 2012. The following table presents the estimated future amortization expense related to intangible assets held as of August 31, 2013 (in thousands):



Year	Amount
Remainder of 2013	$	34,250
2014	$	129,407
2015	$	123,153
2016	$	113,886
2017	$	100,292
Thereafter	$	624,201

Changes in our goodwill and gross intangible assets from November 30, 2012 to August 31, 2013 were primarily the result of our recent acquisition activities. Goodwill associated with the Polk acquisition was primarily recognized in the Americas segment, and none of the goodwill associated with the transaction is expected to be deductible for tax purposes. The change in net intangible assets was primarily due to the addition of intangible assets associated with the acquisitions described in Note 2, Business Combinations, partially offset by current year amortization. Goodwill, gross intangible assets, and net intangible assets were all subject to foreign currency translation effects.


13.	Segment Information

We prepare our financial reports and analyze our business results within our three reportable geographic segments: Americas, EMEA, and APAC. We evaluate segment performance primarily at the revenue and operating profit level for each of these three segments. We also evaluate revenues by transaction type.

Information about the operations of our three segments is set forth below. No single customer accounted for 10% or more of our total revenue for the three and nine months ended August 31, 2013 and 2012. There are no material inter-segment revenues for any period presented. Certain corporate transactions are not allocated to the reportable segments, including such items as stock-based compensation expense, net periodic pension and postretirement expense, corporate-level impairments, and gain (loss) on sale of corporate assets.

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	Americas		EMEA		APAC		Shared Services			Consolidated Total
	(In thousands)
Three months ended August 31, 2013
Revenue	$	307,281	$	122,247	$	50,760	$	—		$	480,288
Operating income	$	71,366	$	19,788	$	8,967	$	(60,695	)	$	39,426
Depreciation and amortization	$	34,368	$	5,666	$	558	$	1,839		$	42,431
Three months ended August 31, 2012
Revenue	$	232,369	$	108,505	$	44,735	$	—		$	385,609
Operating income	$	70,086	$	24,590	$	10,001	$	(48,417	)	$	56,260
Depreciation and amortization	$	23,281	$	5,988	$	390	$	1,731		$	31,390

	Americas		EMEA		APAC		Shared Services			Consolidated Total
	(In thousands)
Nine months ended August 31, 2013
Revenue	$	794,072	$	344,662	$	142,222	$	—		$	1,280,956
Operating income	$	213,014	$	56,259	$	28,964	$	(160,827	)	$	137,410
Depreciation and amortization	$	83,833	$	17,057	$	1,495	$	5,402		$	107,787
Nine months ended August 31, 2012
Revenue	$	669,757	$	321,438	$	124,316	$	—		$	1,115,511
Operating income	$	190,071	$	69,553	$	29,489	$	(137,302	)	$	151,811
Depreciation and amortization	$	65,039	$	16,169	$	711	$	4,764		$	86,683

Revenue by transaction type was as follows (in thousands):



	Three months ended August 31,				Nine months ended August 31,
	2013		2012		2013		2012
Subscription revenue	$	365,025	$	294,516	$	986,675	$	855,160
Non-subscription revenue	115,263		91,093		294,281		260,351
Total revenue	$	480,288	$	385,609	$	1,280,956	$	1,115,511


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

The following Management’s Discussion and Analysis is intended to help the reader understand the financial condition and results of operations of IHS Inc. The following discussion should be read in conjunction with our annual report on Form 10-K for the year ended November 30, 2012, the Condensed Consolidated Financial Statements and accompanying notes included in this quarterly report on Form 10-Q, and important information and disclosure that we routinely post to our website (www.ihs.com). However, none of the information provided on our website is incorporated into this quarterly report on Form 10-Q.

Executive Summary

Business Overview

We are a leading source of information, insight and analytics in critical areas that shape today's business landscape. Businesses and governments around the globe rely on our comprehensive content, expert independent analysis and flexible delivery methods to make high-impact decisions and develop strategies with speed and confidence. We have been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, we are committed to sustainable, profitable growth and employ more than 8,000 people in more than 30 countries around the world.

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 stockholders. To achieve

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that goal, we have organized our business around our customers and the geographies in which they reside: Americas, EMEA, and APAC. This structure allows us to tailor and expand the solutions we offer to meet the unique needs of our customers both globally and in local markets.

We generate approximately 75% of our total revenue from sales of our offerings on a subscription basis. Subscription sales tend to generate recurring revenue and cash flow. Our subscriptions are usually for one-year periods and we have historically seen high renewal rates. Subscriptions are generally paid in full within one or two months after the subscription period commences; as a result, the timing of our cash flows generally precedes the recognition of revenue and income.

During the third quarter of 2013, we completed the acquisition of R. L. Polk & Co., a recognized leader in providing automotive information and analytics solutions, for approximately $1.4 billion. This transaction is the largest acquisition we have ever completed, and we anticipate that the combination of our existing automotive products and the Polk suite of products and services will allow us to further establish our automotive business as a strategic partner for the automotive industry worldwide.

We are investing in our people, platforms, processes, and products at a significant rate through a series of initiatives designed to boost colleague productivity, increase efficiencies, develop new and enhanced products, and create scalable platforms designed to accommodate future revenue growth without incurring proportional increases in costs to support that growth. These initiatives include, but are not limited to:

•

Product development – We continue to focus on product development and recently completed significant product releases for our common workflow platforms. We expect to continue to have a significant number of new product releases in 2013-2015. We are making consistent progress in developing and rolling out common commercial platforms to deliver our products, and we believe these common platforms will help us increase our organic revenue growth rates in the future.


•	Data center consolidation and IT security – Due to the widespread escalation in the volume and sophistication of cyber security threats, we are accelerating our data center consolidation program and the upgrade of our information technology (IT) security at all levels of our company, which we believe is a prudent investment in our future and in our customers.


•	Vanguard – Vanguard is our plan for consolidating and standardizing billing systems, general ledgers, sales-force automation capabilities, and all supporting business processes. We have been implementing Vanguard through a series of releases, and we are now completing the final implementations of this program.

Global Operations

A little more than 50 percent of our revenue is transacted outside of the United States; however, just under 30 percent of our revenue is transacted in currencies other than the U.S. dollar. As a result, a strengthening U.S. dollar relative to certain currencies has historically resulted in a negative impact to revenue; conversely, a weakening U.S. dollar has historically resulted in a positive impact to revenue. However, the impact on operating income is diminished due to certain operating expenses denominated in currencies other than the U.S. dollar. Our largest foreign currency exposures, in order of magnitude, are the British Pound, the Euro, and the Canadian Dollar.

Key Performance Indicators

We believe that revenue growth, Adjusted EBITDA (both in dollars and margin), and free cash flow are the key financial measures of our success. Adjusted EBITDA and free cash flow are non-GAAP financial measures (as defined by the rules of the SEC) that are further discussed in the following paragraphs.

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Revenue growth. We review year-over-year revenue growth in our segments as a key measure of our success in addressing customer needs in each region of the world in which we operate. We measure revenue growth in terms of organic, acquisitive, and foreign currency impacts. We define these components as follows:

•

Organic – We define organic revenue growth as total revenue growth from continuing operations for all factors other than acquisitions and foreign currency movements. We drive this type of revenue growth through value realization (pricing), expanding wallet share of existing customers through up-selling and cross-selling efforts, securing new customer business, and through the sale of new or enhanced product offerings.


•	Acquisitive – We define acquisitive revenue as the revenue generated from acquired products and services from the date of acquisition to the first anniversary date of that acquisition. This type of growth comes as a result of our strategy to purchase, integrate, and leverage the value of assets we acquire. We also include the impact of divestitures in this growth metric.


•	Foreign currency – We define the foreign currency impact on revenue as the difference between current revenue at current exchange rates and current revenue at the corresponding prior period exchange rates. Due to the significance of revenue transacted in foreign currencies, we measure the impact of foreign currency movements on revenue.

We also measure and report revenue by transaction type. Understanding revenue by transaction type helps us identify broad changes in product mix. We summarize our transaction type revenue into the following two categories:


•	Subscription revenue represents the significant majority of our revenue, and is comprised of subscriptions to our various information offerings and software maintenance.

•

Non-subscription revenue represents consulting (e.g., research and analysis, modeling, and forecasting), services, single-document product sales, software license sales and associated services, conferences and events, and advertising. Our non-subscription products and services are an important part of our business because they complement our subscription business in creating strong and comprehensive customer relationships.

Non-GAAP measures. We use non-GAAP financial measures such as EBITDA, Adjusted EBITDA, and free cash flow in our operational and financial decision-making, and believe that such measures allow us to focus on what we deem to be more reliable indicators of ongoing operating performance (Adjusted EBITDA) and our ability to generate cash flow from operations (free cash flow). We also believe that investors may find non-GAAP financial measures useful for the same reasons, although we caution readers that non-GAAP financial measures are not a substitute for GAAP financial measures or disclosures. None of these non-GAAP financial measures are recognized terms under GAAP and do not purport to be an alternative to net income or operating cash flow as an indicator of operating performance or any other GAAP measure. Throughout this section on Management’s Discussion and Analysis and on our website (www.ihs.com), we provide reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures.

EBITDA and Adjusted EBITDA. EBITDA and Adjusted EBITDA are used by many of our investors, research analysts, investment bankers, and lenders to assess our operating performance. For example, a measure similar to Adjusted EBITDA is required by the lenders under our term loans and revolving credit agreement. We define EBITDA as net income plus or minus net interest, plus provision for income taxes, depreciation, and amortization. Our definition of Adjusted EBITDA further excludes primarily non-cash items and other items that management does not consider to be useful in assessing our operating performance (e.g., stock-based compensation, restructuring charges, acquisition-related costs, impairment of assets, gain or loss on sale of assets, income or loss from discontinued operations, and pension settlement and mark-to-market adjustments).

Free Cash Flow. We define free cash flow as net cash provided by operating activities less capital expenditures.

Because not all companies use identical calculations, our presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, we believe that these measures can still be useful in evaluating our performance against our peer companies because they provide users with valuable insight into key components of GAAP financial disclosures. For example, a company with higher GAAP net income may not be as appealing to investors if its net income is more heavily comprised of gains on asset sales. Likewise, excluding the effects of interest income and expense moderates the impact of a company’s capital structure on its performance.

Results of Operations

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Total Revenue

Third quarter 2013 revenue increased 25 percent compared to the third quarter of 2012, and our year-to-date 2013 revenue increased 15 percent compared to the same period of 2012. The table below displays the percentage change in revenue due to organic, acquisitive, and foreign currency factors when comparing the three and nine months ended August 31, 2013 to the three and nine months ended August 31, 2012.



	Increase in Total Revenue
(All amounts represent percentage points)	Organic		Acquisitive		Foreign Currency
Third quarter 2013 vs. third quarter 2012	5	%	21	%	(1	)%
Year-to-date 2013 vs. year-to-date 2012	4	%	11	%	(1	)%

Organic growth. Organic growth for the three and nine months ended August 31, 2013, compared to the same periods of 2012, is primarily due to revenue increases in the subscription business, as detailed in the following table:



	Three months ended August 31,						Percent change				Nine months ended August 31,						Percent change
(in thousands, except percentages)	2013			2012			Total		Organic		2013			2012			Total		Organic
Subscription revenue	$	365,025		$	294,516		24	%	5	%	$	986,675		$	855,160		15	%	6	%
Non-subscription revenue	115,263			91,093			27	%	5	%	294,281			260,351			13	%	(3	)%
Total revenue	$	480,288		$	385,609		25	%	5	%	$	1,280,956		$	1,115,511		15	%	4	%

As a percent of total revenue:
Subscription	76		%	76		%					77		%	77		%
Non-subscription	24		%	24		%					23		%	23		%

Our subscription business grew at five percent organically during the third quarter of 2013 and at six percent organically during the nine months ended August 31, 2013, compared to the same periods of 2012, and continues to provide a stable revenue stream that generates significant cash flow. The non-subscription portion of our business also increased five percent organically during the three months ended August 31, 2013, compared to the same period of 2012, which reflects increases from certain seasonal releases, including the Boiler Pressure Vessel Code, and better performance from other non-subscription offerings. Our non-subscription business declined three percent during the nine months ended August 31, 2013, compared to the same period of 2012, reflecting a mix of some underperforming non-strategic assets, weakness in customers' discretionary spending globally, and the impact of the U.S. government's sequestration.

Acquisitive growth. The year-over-year acquisitive revenue growth was primarily due to the Polk acquisition in the third quarter of 2013, as well as other acquisitions we have made in the last twelve months, including the following:


•	Exclusive Analysis; the business of Dodson Data Systems; and Energy Publishing in the first quarter of 2013;


•	Fekete Associates and Waterborne Energy in the second quarter of 2013; and


•	PFC Energy in the third quarter of 2013.

Foreign currency impacts. Foreign currency moved adversely during the three and nine months ended August 31, 2013, compared to the same periods of 2012, which resulted in a negative impact to our revenue for those periods. Due to the extent of our global operations, foreign currency movements could continue to have an adverse impact on our results in the future.

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Revenue by Segment (geography)



	Three months ended August 31,						Percentage Change		Nine months ended August 31,						Percentage Change
(In thousands, except percentages)	2013			2012			Percentage Change		2013			2012			Percentage Change
Revenue:
Americas	$	307,281		$	232,369		32	%	$	794,072		$	669,757		19	%
EMEA	122,247			108,505			13	%	344,662			321,438			7	%
APAC	50,760			44,735			13	%	142,222			124,316			14	%
Total revenue	$	480,288		$	385,609		25	%	$	1,280,956		$	1,115,511		15	%

As a percent of total revenue:
Americas	64		%	60		%			62		%	60		%
EMEA	25		%	28		%			27		%	29		%
APAC	11		%	12		%			11		%	11		%

The percentage change in each geography segment is due to the factors described in the following table.



	Increase (decrease) in revenue
	Third quarter 2013 vs. third quarter 2012						Year-to-date 2013 vs. year-to-date 2012
(All amounts represent percentage points)	Organic		Acquisitive		Foreign Currency		Organic		Acquisitive		Foreign Currency
Americas	4	%	28	%	—	%	3	%	16	%	—	%
EMEA	6	%	8	%	(1	)%	3	%	5	%	(1	)%
APAC	8	%	7	%	(2	)%	11	%	5	%	(1	)%

For the three and nine months ended August 31, 2013, compared to the same periods of 2012, subscription-based revenue continued to be a positive contributor to organic growth in all three regions. Organic growth for the Americas continued to be driven by subscriptions coming from a variety of markets, including our energy and automotive sectors.

EMEA revenue for the three and nine months ended August 31, 2013, compared to the same periods of 2012, continued to grow organically despite being adversely impacted by the extended timing of certain renewals and new subscription business opportunities. Organic subscription revenue growth for EMEA was four percent for the third quarter of 2013, compared to the same period in the prior year, despite the recessionary environment in EMEA.

APAC revenue results for the three and nine months ended August 31, 2013, compared to the same periods of 2012, were also adversely impacted by the extended timing of certain renewals, as well as foreign currency movements.

Operating Expenses

The following table shows our operating expenses and the associated percentages of revenue.

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	Three months ended August 31,						Percentage Change		Nine months ended August 31,						Percentage Change
(In thousands, except percentages)	2013			2012			Percentage Change		2013			2012			Percentage Change
Operating expenses:
Cost of revenue	$	198,279		$	153,746		29	%	$	530,778		$	465,607		14	%
SG&A expense	$	179,344		$	138,519		29	%	$	465,182		$	390,540		19	%
Depreciation and amortization expense	$	42,431		$	31,390		35	%	$	107,787		$	86,683		24	%

As a percent of revenue:
Cost of revenue	41		%	40		%			41		%	42		%
SG&A expense	37		%	36		%			36		%	35		%
Depreciation and amortization expense	9		%	8		%			8		%	8		%

Supplemental information:
SG&A expense, excluding stock-based compensation	$	137,760		$	109,469		26	%	$	356,013		$	304,075		17	%
As a percent of revenue	29		%	28		%			28		%	27		%

Cost of Revenue

For the three and nine months ended August 31, 2013, cost of revenue remained relatively consistent as a percentage of revenue, compared to the same periods in the prior year. We continue to invest in our people, platforms, processes, and products in support of our goals to increase top- and bottom-line growth.

Selling, General and Administrative (SG&A) Expense

We evaluate our SG&A expense after excluding stock-based compensation expense. For the three and nine months ended August 31, 2013, compared to the same periods of 2012, we incurred increased costs in accelerating our data center consolidation project, upgrading our IT security, and investing in new customer workflow platforms and high-growth markets. We anticipate continued increased levels of both SG&A expense and capital expenditures as we continue these efforts through the remainder of 2013.

For the three and nine months ended August 31, 2013, compared to the same periods of 2012, stock-based compensation expense increased as a result of an increase in the number of employees, an increase in our stock price, and the achievement or overachievement of certain company performance metrics. As a percentage of revenue, stock-based compensation was largely unchanged. Please refer to Note 6 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of stock-based compensation.

Depreciation and Amortization Expense

For the three and nine months ended August 31, 2013, compared to the same periods of 2012, depreciation and amortization expense increased primarily due to the increase in depreciable and amortizable assets from capital expenditures and acquisitions. As a percentage of revenue, depreciation expense was largely unchanged.

Restructuring

Please refer to Note 4 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of our restructuring activities. During the first nine months of 2013, we incurred approximately $11.3 million of restructuring charges for direct and incremental costs associated with the following items:

•identified operational efficiencies,

•continued consolidation of positions to our Center of Excellence locations, and

•further consolidation of our legacy data centers.

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In the first nine months of 2013, we eliminated approximately 217 positions related to these activities. We expect to continue to incur costs related to these and other similar activities in future periods, resulting in additional restructuring charges.

Acquisition-related Costs

Please refer to Note 5 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of costs associated with our integration and other acquisition-related activities. During the first nine months of 2013, we recorded approximately $18.1 million of direct and incremental costs associated with acquisition-related activities, including severance, a lease abandonment, and legal and professional fees. Certain of these costs were incurred for a transaction that we chose not to consummate. Because acquisitions are a key component of our growth strategy, we expect that we will continue to perform similar activities for future acquisitions.

Pension and Postretirement Expense

For the three and nine months ended August 31, 2013, compared to the same periods of 2012, net periodic pension and postretirement expense was largely unchanged, reflecting the change in pension strategy that we implemented in the first quarter of 2012.

Our pension expense and associated pension liability as calculated under U.S. GAAP requires the use of assumptions about the estimated long-term rate of return on plan assets and the discount rate. Our pension investment strategy is designed to align the majority of our pension assets with the underlying pension liability, which minimizes volatility caused by changes in asset returns and discount rates. Our pension expense estimates are updated for actual experience through the remeasurement process in the fourth quarter, or sooner if earlier remeasurements are required. For the nine months ended August 31, 2013, we used a 4.5 percent expected long-term rate of return on plan assets and a 4.0 percent discount rate for the U.S. RIP; the actual return on plan assets during that period was negative 3.7 percent. We anticipate that the difference between actual return on plan assets and expected return on plan assets will be largely mitigated by the offsetting change in the pension liability resulting from movements in the discount rate.

Operating Income by Segment (geography)



	Three months ended August 31,						Percentage Change		Nine months ended August 31,						Percentage Change
(In thousands, except percentages)	2013			2012			Percentage Change		2013			2012			Percentage Change
Operating income:
Americas	$	71,366		$	70,086		2	%	$	213,014		$	190,071		12	%
EMEA	19,788			24,590			(20	)%	56,259			69,553			(19	)%
APAC	8,967			10,001			(10	)%	28,964			29,489			(2	)%
Shared services	(60,695		)	(48,417		)			(160,827		)	(137,302		)
Total operating income	$	39,426		$	56,260		(30	)%	$	137,410		$	151,811		(9	)%

As a percent of segment revenue:
Americas	23		%	30		%			27		%	28		%
EMEA	16		%	23		%			16		%	22		%
APAC	18		%	22		%			20		%	24		%

For the three and nine months ended August 31, 2013, compared to the same periods of 2012, operating income as a percentage of revenue for the Americas segment decreased primarily because of amortization expense associated with intangible assets acquired in the Polk acquisition. For the three and nine months ended August 31, 2013, compared to the same periods of 2012, the EMEA segment operating income as a percentage of revenue decreased primarily because of lower margin product mix in a lower-growth environment, increased selling costs, and adverse foreign currency impacts. For the three and nine months ended August 31, 2013, compared to the same periods of 2012, APAC operating income as a percentage of revenue decreased because of the timing of certain renewals, adverse foreign currency impacts, and our continuing investment in the region's infrastructure to support future growth.

Provision for Income Taxes

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EBITDA and Adjusted EBITDA (non-GAAP measures)



	Three months ended August 31,						Percentage Change		Nine months ended August 31,						Percentage Change
(In thousands, except percentages)	2013			2012			Percentage Change		2013			2012			Percentage Change
Net income	$	23,362		$	44,082		(47	)%	$	90,923		$	111,748		(19	)%
Interest income	(232		)	(255		)			(879		)	(674		)
Interest expense	16,072			5,057					28,356			14,837
Provision for income taxes	116			7,384					18,909			25,908
Depreciation	12,964			9,723					33,695			25,842
Amortization	29,467			21,667					74,092			60,841
EBITDA	$	81,749		$	87,658		(7	)%	$	245,096		$	238,502		3	%
Stock-based compensation expense	44,233			30,538					114,794			90,932
Restructuring charges	3,264			967					11,283			12,080
Acquisition-related costs	14,499			2,104					18,059			3,472
Impairment of assets	—			—					1,629			—
Loss on sale of assets	—			—					1,241			—
Income from discontinued operations, net	108			(8		)			101			(8		)
Adjusted EBITDA	$	143,853		$	121,259		19	%	$	392,203		$	344,978		14	%
Adjusted EBITDA as a percentage of revenue	30.0		%	31.4		%			30.6		%	30.9		%

Our Adjusted EBITDA for the three and nine months ended August 31, 2013, compared to the same periods of 2012, increased primarily because of organic subscription revenue growth, acquisitions, and the leverage in our business model. The Polk acquisition is now included in our Adjusted EBITDA results, and the decrease in Adjusted EBITDA margin for the three and nine months ended August 31, 2013, compared to the same periods of 2012, was primarily attributable to the continued impact from recent lower-margin acquisitions, certain one-time investments, and sales of the Boiler Pressure Vessel Code.

Financial Condition



(In thousands, except percentages)	As of August 31, 2013		As of November 30, 2012		Dollar change		Percent change
Accounts receivable, net	$	395,584	$	372,117	$	23,467	6	%
Accrued compensation	$	56,513	$	50,497	$	6,016	12	%
Deferred revenue	$	561,137	$	515,318	$	45,819	9	%

The increase in accounts receivable was primarily due to increases from acquisitions, partially offset by the timing of billings. We continue to experience the historical trend of seeing seasonal decreases in our accounts receivable balances in the second and third quarters, as we typically have the most subscription renewals in our first and fourth fiscal quarters. The increase in accrued compensation was primarily due to an increase in accrued payroll and additions to the bonus accrual related to acquisitions, partially offset by the 2012 bonus payout made in early 2013. The increase in deferred revenue was primarily due to acquisitions and organic revenue growth, with minor adverse effects from foreign currency movements.

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Liquidity and Capital Resources

As of August 31, 2013, we had cash and cash equivalents of $271 million, of which approximately $217 million was held by our foreign subsidiaries. The cash held by our foreign subsidiaries is not available to fund domestic operations, as we have deemed the earnings of those subsidiaries to be indefinitely reinvested. We also had $2.3 billion of debt as of August 31, 2013, which has contributed to an increase in interest expense in 2013, and which will continue to result in increased interest expense for the near future. On a trailing twelve-month basis, the ratio of free cash flow to Adjusted EBITDA was 62 percent. We have approximately $100 million available to borrow against our revolving credit facility. Because of our cash, debt, and cash flow positions, we believe we will have sufficient cash to meet our ongoing working capital and capital expenditure needs.

Historically, we were not required to make cash contributions to our U.S. RIP pension plan because of its funded status. However, due to the global economic downturn, which negatively impacted the returns on our pension assets, we were required to make a cash contribution to our U.S. RIP in fiscal 2012. In considering that requirement and the various changes to our pension strategy, including the annuitization of retiree pension obligations, bringing our pension deficit current, and funding our 2012 pension costs, we made a $65 million contribution to the pension plan in December 2011, the first month of our 2012 fiscal year. Approximately $57 million of the contribution was used for the annuitization and to bring our pension deficit current, with the remaining $8 million used to fund expected 2012 pension costs. In December 2012, the first month of our 2013 fiscal year, we made a $10 million contribution to the pension plan to fund estimated 2013 pension service costs, and we anticipate that we will continue to contribute approximately the same amount in future years to cover annual service costs.

During the third quarter of 2013, we completed the Polk acquisition, which we funded with a combination of cash and stock. We funded the cash portion of the transaction consideration using cash on hand, cash from our existing revolver, and a new bank term loan. Our credit agreements require a systematic reduction in our leverage ratio of 25 basis points per quarter for the first year, ending at a 3.00 to 1.00 ratio effective for the quarter ending August 31, 2014 and thereafter. This leverage ratio requirement will require us to use cash flows from ongoing operations or equity financing to reduce our debt to the required levels.

Our future capital requirements will depend on many factors, including the level of future acquisitions, the need for additional facilities or facility improvements, the timing and extent of spending to support product development efforts, information technology infrastructure investments, 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 financings for any possible future acquisitions; however, additional funds may not be available on terms acceptable to us. We currently expect our capital expenditures to be approximately five percent of revenue in 2013.

Cash Flows



	Nine months ended August 31,
(In thousands, except percentages)	2013			2012			Dollar change			Percent change
Net cash provided by operating activities	$	344,369		$	246,256		$	98,113		40	%
Net cash used in investing activities	$	(1,549,436	)	$	(361,067	)	$	(1,188,369	)	329	%
Net cash provided by financing activities	$	1,154,434		$	183,623		$	970,811		529	%

The increase in net cash provided by operating activities was principally due to a significantly lower pension funding contribution in 2013, as compared to the same period in 2012, as well as overall growth in our business. Our subscription-based business model continues to be a cash-flow generator that is aided by positive working capital characteristics that do not generally require substantial working capital increases to support our growth.

The increase in net cash used in investing activities was principally due to the cash invested in the Polk acquisition. We also invested more in capital expenditures during the first nine months of 2013 compared to the first nine months of 2012.

The increase in net cash provided by financing activities was principally due to our increased credit facility borrowings to fund the Polk acquisition.

Free Cash Flow (non-GAAP measure)

The following table reconciles our non-GAAP free cash flow measure to net cash provided by operating activities.

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	Nine months ended August 31,
(In thousands, except percentages)	2013			2012			Dollar change		Percent change
Net cash provided by operating activities	$	344,369		$	246,256
Capital expenditures on property and equipment	(65,411		)	(49,699		)
Free cash flow	$	278,958		$	196,557		$	82,401	42	%

The increase in free cash flow for the nine months ended August 31, 2013, was principally due to the large pension funding contribution in 2012, which was significantly higher than the contribution in 2013. We also had continuing growth in our business that contributed to the increase. Our free cash flow has historically been very healthy, and we expect that it will continue to be a significant source of funding for our business strategy of growth through organic and acquisitive means.

Credit Facility and Other Debt

Please refer to Note 8 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of the current status of our term loans and revolving credit agreement.

Share Repurchase Program

Please refer to Part II, Item 2 in this quarterly report on Form 10-Q for a discussion of our share repurchase programs.

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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our annual report on Form 10-K for fiscal year 2012 for a discussion of the estimates and judgments necessary in our accounting for revenue recognition, business combinations, goodwill and other intangible assets, income taxes, pension and postretirement benefits, and stock-based compensation.


Item 3.	Quantitative and Qualitative Disclosure About Market Risk

For information regarding our exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our annual report on Form 10-K for fiscal year 2012.

Our credit facility is subject to variable interest rates. We have four-year interest rate derivative contracts that swap variable interest rates for fixed interest rates on $100 million of our credit facility. A hypothetical 10% adverse movement in interest rates related to the term loans, credit facility borrowings, or derivative contracts would have resulted in an increase of approximately $5.6 million in interest expense.


Item 4.	Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act are effective at a reasonable assurance level to ensure that information required to be disclosed in the reports required to be filed or submitted under the Exchange Act is (i) recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

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(b) Changes in internal control over financial reporting.

We are in the process of converting to a new enterprise resource planning (ERP) system, which we are performing through a phased implementation approach. During the fiscal quarter ended February 28, 2013 and early in the second and third fiscal quarters of 2013, we went live on three more phases of the implementation. Each phase includes aspects of financial reporting and shared service center functions and processes, and we are now completing the final implementations of this program. We believe that the new ERP system and related changes to processes and internal controls will enhance our internal control over financial reporting while providing us with the ability to scale our business. We have taken the necessary steps to monitor and maintain appropriate internal control over financial reporting during 2013 and will continue to evaluate the operating effectiveness of related key controls during subsequent periods.

Other than the ERP system implementation discussed above, there were no changes in our internal control over financial reporting that occurred during the period covered by this quarterly report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

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 2012 annual report on Form 10-K and in Part II, Item 1A of our quarterly report on Form 10-Q for the period ended February 28, 2013.

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

The following table provides detail about our share repurchases during the three months ended August 31, 2013.



	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands) (3)
June 1, 2013 to June 30, 2013
Share repurchase programs (1)	—	$	—	—	$	4,021
Employee transactions (2)	6,634	$	105.63	N/A	N/A
July 1, 2013 to July 31, 2013:
Share repurchase programs (1)	—	$	—	—	$	4,021
Employee transactions (2)	19,112	$	104.22	N/A	N/A
August 1, 2013 to August 31, 2013:
Share repurchase programs (1)	—	$	—	—	$	4,021
Employee transactions (2)	13,329	$	109.15	N/A	N/A
Total share repurchases	39,075	$	106.14	—

(1) In March 2011, our board of directors authorized the repurchase of up to one million common shares per fiscal year in the open market (the March 2011 Program). We may execute on this program at our discretion, balancing dilution offset with other investment opportunities of the business, including acquisitions. The March 2011 Program does not have an expiration date.

In October 2012, our board of directors authorized the repurchase of common shares with a maximum aggregate value of $100 million (the October 2012 Program). We may repurchase common shares in open market purchases or through privately negotiated transactions in compliance with Exchange Act Rule 10b-18, subject to market conditions, applicable legal requirements, and other relevant factors. The October 2012 Program does not obligate us to repurchase any dollar amount or number of common shares, and it may be suspended at any time at our discretion. The October 2012 Program does not have an expiration date.

(2) Amounts represent common shares surrendered by employees in an amount equal to the statutory tax liability associated with the vesting of their equity awards. We then pay the statutory tax on behalf of the employee. Our board of directors approved this program in 2006 in an effort to reduce the dilutive effects of employee equity grants.

(3) Amounts represent remaining dollar value of common shares that may yet be purchased under the October 2012 Program. In addition, the March 2011 Program allows us to repurchase up to one million additional common shares per fiscal year. Since no common shares were repurchased under the March 2011 Program in the nine months ended August 31, 2013, there are one million common shares that may yet be purchased under the March 2011 Program in fiscal 2013.

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Item 6.	Exhibits


(a)	Index of Exhibits

The following exhibits are filed as part of this report:



Exhibit Number		Description
2.1		Stock Purchase Agreement by and among IHS Inc., R. L. Polk & Co. and the individuals and entities identified as Sellers on the signature pages thereto, dated as of June 8, 2013 (1)

10.1		Second Amendment to Credit Agreement by and among IHS Inc., certain of its subsidiaries, J.P. Morgan Chase Bank, National Association, Bank of America N.A., RBS Citizens, N.A., Bank of America, N.A. (Canada Branch), Wells Fargo Bank, National Association, HSBC Bank USA, National Association, U.S. Bank, National Association, TD Bank, N.A., Barclays Bank PLC, PNC Bank, National Association, Citibank, N.A., HSBC Bank PLC and Compass Bank dated as of July 15, 2013

10.2		First Amendment to Credit Agreement dated as of July 15, 2013 among IHS Inc., IHS Global Inc., Royal Bank of Canada, and Bank of America, N.A.

10.3		Credit Agreement dated as of July 15, 2013 among IHS Inc., IHS Global Inc., the Lenders party hereto (as defined therein), and JPMorgan Chase Bank, N.A. as Administrative Agent

10.4		Termination Agreement by and between IHS Inc. and Richard Walker, dated September 18, 2013

31.1		Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.

31.2		Certification of the Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Exchange Act.

32		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.

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

(1) Previously filed with the Securities and Exchange Commission as an exhibit to the Registrant's Current Report on Form 8-K filed on July 16, 2013, and incorporated herein by reference.

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SIGNATURE

Pursuant to the requirements 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 September 23, 2013.



IHS INC.

By:	/s/ Heather Matzke-Hamlin
	Name:	Heather Matzke-Hamlin
	Title:	Senior Vice President and Chief Accounting Officer