Tableof Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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| **(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, 2008** |
|           |   |
| **OR**         |
|           |   |
| **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**

 

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**IHSINC.**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                    | ** ** | **13-3769440**      |
|---------------------------------|------------|---------------------|
| (State or Other Jurisdiction of |       | (IRS Employer       |
| Incorporation or Organization)  |       | Identification No.) |

 

**15 Inverness Way East**

**Englewood, CO 80112**

(Address of Principal Executive Offices)

 

**(303) 790-0600**

(Registrant’s telephone number, includingarea code)

 

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Indicate by check mark whether the registrant (1) has filed allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 
|   | x YES | o NO |   |
|--------|-------|------|--------|

 

Indicate by check mark whether the registrant is a large acceleratedfiler, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” and “accelerated filer,”and smaller reporting company in Rule 12b-2 of the Exchange Act. (Checkone):

 

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

 

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Act).

 
|   | o YES | x NO |   |
|--------|-------|------|--------|

 

As of August 31, 2008, there were 48,232,452shares of our Class A Common Stock outstanding and 13,750,000shares of our Class B Common Stock outstanding.

 

 

 

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Tableof Contents

 

**TABLE OF CONTENTS**

 
| ** **       | ** ** | **Page**                                                                                    |
|------------------|------------|---------------------------------------------------------------------------------------------|
| ** **       | ** ** | ** **                                                                                  |
| **PART I**  | ** ** | ** **                                                                                  |
|             | Item 1.    | Financial Statements                                                                        | 3 |
|             | Item 2.    | Management’s  Discussion and Analysis of Financial Condition and Results of Operations | 20 |
|             | Item 3.    | Quantitative  and Qualitative Disclosures About Market Risk                                 | 27 |
|             | Item 4.    | Controls and  Procedures                                                                    | 27 |
|             |       |                                                                                        |
| **PART II** | ** ** | ** **                                                                                  |
|             | Item 1.    | Legal Proceedings                                                                           | 27 |
|             | Item 1A.   | Risk Factors                                                                                | 27 |
|             | Item 2.    | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 32 |
|             | Item 6.    | Exhibits                                                                                    | 32 |
|             |       |                                                                                        |
| **SIGNATURE**    |       | 33                                                                                          |

 

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Table of Contents

 

**PART I.FINANCIAL INFORMATION**

Item 1. FinancialStatements

 

**IHSINC.**

**CONDENSEDCONSOLIDATED BALANCE SHEETS**

 

**(In thousands except share data)**

 
| ** **                                                                                                                                                                                                                                    | ** ** | **As of**                | ** ** | **As of**                  | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|---------------------------------|------------|
| ** **                                                                                                                                                                                                                                    | ** ** | **August 31, 2008** | ** ** | **November 30, 2007** | ** ** |
| ** **                                                                                                                                                                                                                                    | ** ** | **(Unaudited)**               | ** ** | ** **                      | ** ** |
| **Assets**                                                                                                                                                                                                                                    |       |                          |       |                            |       |
| Current assets:                                                                                                                                                                                                                               |       |                          |       |                            |       |
| Cash and cash  equivalents                                                                                                                                                                                                                    |       | $                             | 87,479     |                            | $          | 148,484 |   |
| Short-term  investments                                                                                                                                                                                                                       |       | —                        |       | 10,518                          |       |
| Accounts receivable,  net                                                                                                                                                                                                                     |       | 146,992                       |       | 175,542                         |       |
| Deferred  subscription costs                                                                                                                                                                                                                  |       | 35,550                        |       | 35,910                          |       |
| Deferred income  taxes                                                                                                                                                                                                                        |       | 23,333                        |       | 17,681                          |       |
| Other                                                                                                                                                                                                                                         |       | 15,804                        |       | 14,112                          |       |
| Total current  assets                                                                                                                                                                                                                         |       | 309,158                       |       | 402,247                         |       |
| Non-current  assets:                                                                                                                                                                                                                          |       |                          |       |                            |       |
| Property and  equipment, net                                                                                                                                                                                                                  |       | 55,849                        |       | 58,756                          |       |
| Equity investment  in joint venture                                                                                                                                                                                                           |       | 65,612                        |       | —                          |       |
| Intangible  assets, net                                                                                                                                                                                                                       |       | 213,056                       |       | 206,359                         |       |
| Goodwill, net                                                                                                                                                                                                                                 |       | 597,105                       |       | 564,582                         |       |
| Prepaid pension  asset                                                                                                                                                                                                                        |       | 94,286                        |       | 91,116                          |       |
| Other                                                                                                                                                                                                                                         |       | 657                           |       | 747                             |       |
| Total non-current  assets                                                                                                                                                                                                                     |       | 1,026,565                     |       | 921,560                         |       |
| Total assets                                                                                                                                                                                                                                  |       | $                             | 1,335,723  |                            | $          | 1,323,807 |   |
| **Liabilities and stockholders’ equity**                                                                                                                                                                                                 |       |                          |       |                            |       |
| Current  liabilities:                                                                                                                                                                                                                         |       |                          |       |                            |       |
| Short-term debt                                                                                                                                                                                                                               |       | $                             | 17,234     |                            | $          | 3,062 |   |
| Accounts payable                                                                                                                                                                                                                              |       | 19,708                        |       | 37,550                          |       |
| Accrued  compensation                                                                                                                                                                                                                         |       | 24,704                        |       | 37,014                          |       |
| Accrued royalties                                                                                                                                                                                                                             |       | 12,909                        |       | 22,684                          |       |
| Other accrued  expenses                                                                                                                                                                                                                       |       | 42,176                        |       | 37,435                          |       |
| Income tax  payable                                                                                                                                                                                                                           |       | 2,541                         |       | 15,255                          |       |
| Deferred  subscription revenue                                                                                                                                                                                                                |       | 263,963                       |       | 239,395                         |       |
| Total current  liabilities                                                                                                                                                                                                                    |       | 383,235                       |       | 392,395                         |       |
| Long-term debt                                                                                                                                                                                                                                |       | —                        |       | 37                              |       |
| Accrued pension  liability                                                                                                                                                                                                                    |       | 11,073                        |       | 11,965                          |       |
| Accrued  post-retirement benefits                                                                                                                                                                                                             |       | 7,966                         |       | 10,203                          |       |
| Deferred income  taxes                                                                                                                                                                                                                        |       | 71,462                        |       | 60,461                          |       |
| Other liabilities                                                                                                                                                                                                                             |       | 6,425                         |       | 7,619                           |       |
| Minority  interests                                                                                                                                                                                                                           |       | 279                           |       | 219                             |       |
| Commitments and  contingencies                                                                                                                                                                                                                |       |                          |       |                            |       |
| Stockholders’  equity:                                                                                                                                                                                                                   |       |                          |       |                            |       |
| Class A  common stock, $0.01 par value per share, 80,000,000 shares authorized,  50,238,694 and 49,831,293 shares issued, 48,232,452 and 48,758,518 shares  outstanding at August 31, 2008 and November 30, 2007, respectively |       | 502                           |       | 498                             |       |
| Class B  common stock, $0.01 par value per share, 13,750,000 shares authorized, issued  and outstanding at August 31, 2008 and November 30, 2007                                                                               |       | 138                           |       | 138                             |       |
| Additional paid  in capital                                                                                                                                                                                                                   |       | 422,998                       |       | 381,124                         |       |
| Treasury stock,  at cost: 2,006,242 and 1,072,775 shares at August 31, 2008 and November 30,  2007, respectively                                                                                                                    |       | (102,931                      | )          | (46,045                         | )          |
| Retained earnings                                                                                                                                                                                                                             |       | 550,939                       |       | 483,804                         |       |
| Accumulated other  comprehensive income (loss)                                                                                                                                                                                                |       | (16,363                       | )          | 21,389                          |       |
| Total  stockholders’ equity                                                                                                                                                                                                              |       | 855,283                       |       | 840,908                         |       |
| Total liabilities  and stockholders’ equity                                                                                                                                                                                              |       | $                             | 1,335,723  |                            | $          | 1,323,807 |   |

 

See accompanyingnotes.

 

3

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**IHSINC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS**

 

**(Inthousands except per-share amounts)**

 
| ** **                                                                                                                                                                                               | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                                                                                                                                               | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                                                                                                                                                                               | ** ** | ** **                                            | ** ** | **(Unaudited)**                                      | ** ** | ** ** | ** ** |
| **Revenue:**                                                                                                                                                                                             |       |                                                  |       |                                                 |       |   |   |   |   |
| Products                                                                                                                                                                                                 |       | $                                                     | 182,032    |                                                 | $          | 159,202 |   | $ | 524,317 |   | $ | 419,428 |   |
| Services                                                                                                                                                                                                 |       | 25,402                                                |       | 24,154                                               |       | 89,087 |   | 71,449 |   |
| Total revenue                                                                                                                                                                                            |       | 207,434                                               |       | 183,356                                              |       | 613,404 |   | 490,877 |   |
| **Operating expenses:**                                                                                                                                                                                  |       |                                                  |       |                                                 |       |   |   |   |   |
| Cost of revenue:                                                                                                                                                                                         |       |                                                  |       |                                                 |       |   |   |   |   |
| Products                                                                                                                                                                                                 |       | 74,700                                                |       | 68,392                                               |       | 216,502 |   | 173,891 |   |
| Services                                                                                                                                                                                                 |       | 16,641                                                |       | 14,657                                               |       | 57,179 |   | 42,649 |   |
| Total cost of revenue (includes stock-based  compensation expense of $391, $383, $1,078 and $839 for the three and nine  months ended August 31, 2008 and 2007, respectively)                       |       | 91,341                                                |       | 83,049                                               |       | 273,681 |   | 216,540 |   |
| Selling, general and administrative (includes stock-based compensation  expense of $9,961; $8,759; $32,352 and $21,684 for the three and nine months  ended August 31, 2008 and 2007, respectively) |       | 73,036                                                |       | 66,479                                               |       | 217,845 |   | 180,977 |   |
| Depreciation and amortization                                                                                                                                                                            |       | 9,675                                                 |       | 7,118                                                |       | 28,181 |   | 16,619 |   |
| Restructuring charges                                                                                                                                                                                    |       | 12,479                                                |       | —                                               |       | 12,479 |   | — |   |
| Gain on sales of assets, net                                                                                                                                                                             |       | —                                                |       | —                                               |       | (119 | ) | (756 | ) |
| Net periodic pension and post-retirement expense  (benefits)                                                                                                                                             |       | (1,082                                                | )          | 257                                                  |       | (3,261 | ) | (365 | ) |
| Other income, net                                                                                                                                                                                        |       | (2,106                                                | )          | (3,019                                               | )          | (3,242 | ) | (3,379 | ) |
| Total operating expenses                                                                                                                                                                                 |       | 183,343                                               |       | 153,884                                              |       | 525,564 |   | 409,636 |   |
| **Operating income**                                                                                                                                                                                     |       | 24,091                                                |       | 29,472                                               |       | 87,840 |   | 81,241 |   |
| Interest income                                                                                                                                                                                          |       | 754                                                   |       | 1,970                                                |       | 2,668 |   | 5,318 |   |
| Interest expense                                                                                                                                                                                         |       | (363                                                  | )          | (99                                                  | )          | (1,342 | ) | (308 | ) |
| Non-operating income, net                                                                                                                                                                                |       | 391                                                   |       | 1,871                                                |       | 1,326 |   | 5,010 |   |
| Income from continuing operations before  income taxes and minority interests                                                                                                                            |       | 24,482                                                |       | 31,343                                               |       | 89,166 |   | 86,251 |   |
| Provision for income taxes                                                                                                                                                                               |       | (4,585                                                | )          | (9,580                                               | )          | (25,609 | ) | (27,532 | ) |
| Income from continuing operations before  equity investments and minority interests                                                                                                                      |       | 19,897                                                |       | 21,763                                               |       | 63,557 |   | 58,719 |   |
| Income from equity investment                                                                                                                                                                            |       | 1,169                                                 |       | —                                               |       | 2,213 |   | — |   |
| Minority interests                                                                                                                                                                                       |       | (42                                                   | )          | (32                                                  | )          | (57 | ) | (29 | ) |
| **Net income**                                                                                                                                                                                           |       | $                                                     | 21,024     |                                                 | $          | 21,731 |   | $ | 65,713 |   | $ | 58,690 |   |
| Net income per share:                                                                                                                                                                                    |       |                                                  |       |                                                 |       |   |   |   |   |
| Basic (Class A and Class B common  stock)                                                                                                                                                      |       | $                                                     | 0.34       |                                                 | $          | 0.36 |   | $ | 1.06 |   | $ | 1.00 |   |
| Diluted (Class A and Class B  common stock)                                                                                                                                                    |       | $                                                     | 0.33       |                                                 | $          | 0.35 |   | $ | 1.04 |   | $ | 0.98 |   |
| Weighted average shares:                                                                                                                                                                                 |       |                                                  |       |                                                 |       |   |   |   |   |
| Basic (Class A common stock)                                                                                                                                                                        |       | 48,142                                                |       | 47,367                                               |       | 48,278 |   | 44,954 |   |
| Basic (Class B common stock)                                                                                                                                                                        |       | 13,750                                                |       | 13,750                                               |       | 13,750 |   | 13,750 |   |
| Diluted (Class A common stock)                                                                                                                                                                      |       | 62,770                                                |       | 62,197                                               |       | 62,947 |   | 59,616 |   |
| Diluted (Class B common stock)                                                                                                                                                                      |       | 13,750                                                |       | 13,750                                               |       | 13,750 |   | 13,750 |   |

 

See accompanyingnotes.

 

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**IHSINC.**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS**

 

**(Inthousands)**

 
| ** **                                                                       | ** ** | **Nine Months Ended August 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                       | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                                                       | ** ** | **(Unaudited)**                                      | ** ** |
| **Operating activities**                                                         |       |                                                 |       |   |   |
| Net income                                                                       |       | $                                                    | 65,713     |   | $ | 58,690 |   |
| Reconciliation of net income to net cash  provided by operating activities: |       |                                                 |       |   |   |
| Depreciation and amortization                                                    |       | 28,181                                               |       | 16,619 |   |
| Stock-based compensation expense                                                 |       | 33,430                                               |       | 22,523 |   |
| Gain on sales of assets, net                                                     |       | (119                                                 | )          | (756 | ) |
| Impairment of assets                                                             |       | 323                                                  |       | — |   |
| Distributions from equity-method investment                                      |       | 2,603                                                |       | — |   |
| Non-cash net periodic pension and  post-retirement benefits                      |       | (4,685                                               | )          | (2,988 | ) |
| Undistributed earnings of unconsolidated  subsidiaries, net                      |       | (2,213                                               | )          | 96 |   |
| Minority interests                                                               |       | 57                                                   |       | (203 | ) |
| Deferred income taxes                                                            |       | 2,082                                                |       | 7,715 |   |
| Change in assets and liabilities:                                                |       |                                                 |       |   |   |
| Accounts receivable, net                                                         |       | 24,555                                               |       | 25,312 |   |
| Other current assets                                                             |       | (2,881                                               | )          | 1,384 |   |
| Accounts payable                                                                 |       | (15,437                                              | )          | (28,477 | ) |
| Accrued expenses                                                                 |       | (16,503                                              | )          | (18,828 | ) |
| Income taxes                                                                     |       | (4,124                                               | )          | 841 |   |
| Deferred subscription revenue                                                    |       | 26,501                                               |       | 6,832 |   |
| Other liabilities                                                                |       | 617                                                  |       | — |   |
| **Net cash provided by operating activities**                                    |       | 138,100                                              |       | 88,760 |   |
| **Investing activities**                                                         |       |                                                 |       |   |   |
| Capital expenditures on property and  equipment                                  |       | (8,155                                               | )          | (7,173 | ) |
| Intangible assets acquired                                                       |       | (4,000                                               | )          | — |   |
| Change in other assets                                                           |       | (5,721                                               | )          | (3,409 | ) |
| Purchase of investments                                                          |       | —                                               |       | (83,675 | ) |
| Sales and maturities of investments                                              |       | 10,500                                               |       | 68,833 |   |
| Acquisitions of businesses, net of cash  acquired                                |       | (130,878                                             | )          | (87,343 | ) |
| Proceeds from sales of assets                                                    |       | 140                                                  |       | 2,461 |   |
| **Net cash used in investing activities**                                        |       | (138,114                                             | )          | (110,306 | ) |
| **Financing activities**                                                         |       |                                                 |       |   |   |
| Proceeds from borrowings                                                         |       | 50,000                                               |       | — |   |
| Repayment of borrowings                                                          |       | (53,099                                              | )          | (500 | ) |
| Excess tax benefit from equity compensation  plans                               |       | 1,509                                                |       | 715 |   |
| Repurchases of common stock                                                      |       | (56,886                                              | )          | (25,409 | ) |
| **Net cash used in financing activities**                                        |       | (58,476                                              | )          | (25,194 | ) |
| Foreign exchange impact on cash balance                                          |       | (2,515                                               | )          | (928 | ) |
| Net decrease in cash and cash equivalents                                        |       | (61,005                                              | )          | (47,668 | ) |
| Cash and cash equivalents at the beginning  of the period                        |       | 148,484                                              |       | 180,034 |   |
| Cash and cash equivalents at the end of the  period                              |       | $                                                    | 87,479     |   | $ | 132,366 |   |

 

See accompanyingnotes.

 

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**IHS INC.**

**CONSOLIDATED STATEMENT OF CHANGES INSTOCKHOLDERS’ EQUITY**

**(In thousands)**

 
| ** **                                | ** ** | **Shares of  Class A  Common  Stock** | ** ** | **Class A  Common  Stock** | ** ** | **Shares of  Class B  Common  Stock** | ** ** | **Class B  Common  Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Treasury  Stock** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------|------------|-------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|---------------------|------------|------------------------|------------|-----------------------------------------------------------|------------|-----------|------------|
| ** **                                | ** ** | ** **                                      | ** ** | ** **                      | ** ** | ** **                                      | ** ** | ** **                      | ** ** | **(Unaudited)**                  | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                                                | ** ** |
| **Balance  at November 30, 2007**    |       | 48,759                                          |       | $                               | 498        |                                            | 13,750     |                            | $          | 138                              |       | $                   | 381,124    |                   | $          | (46,045                                                   | )          | $         | 483,804    |   | $ | 21,389 |   | $ | 840,908 |   |
| Stock-based award  activity               |       | 145                                             |       | 4                               |       | —                                          |       | —                          |       | 32,663                           |       | (16,341             | )          | —                 |       | —                                                    |       | 16,326    |       |
| Excess tax  benefit on vested shares      |       | —                                          |       | —                          |       | —                                          |       | —                          |       | 9,211                            |       | —              |       | —                 |       | —                                                    |       | 9,211     |       |
| Repurchases of  common stock              |       | (672                                            | )          | —                          |       | —                                          |       | —                          |       | —                           |       | (40,545             | )          | —                 |       | —                                                    |       | (40,545   | )          |
| Net income                                |       | —                                          |       | —                          |       | —                                          |       | —                          |       | —                           |       | —              |       | 65,713                 |       | —                                                    |       | 65,713    |       |
| Other  comprehensive income:              |       |                                            |       |                            |       |                                            |       |                            |       |                             |       |                |       |                   |       |                                                      |       |      |       |
| Foreign currency  translation adjustments |       | —                                          |       | —                          |       | —                                          |       | —                          |       | —                           |       | —              |       | —                 |       | (37,752                                                   | )          | (37,752   | )          |
| Comprehensive  income, net of tax    |       | —                                          |       | —                          |       | —                                          |       | —                          |       | —                           |       | —              |       | —                 |       | —                                                    |       | 27,961    |       |
| Adoption of FIN  48                       |       | —                                          |       | —                          |       | —                                          |       | —                          |       | —                           |       | —              |       | 1,422                  |       | —                                                    |       | 1,422     |       |
| **Balance  at August 31, 2008**      |       | 48,232                                          |       | $                               | 502        |                                            | 13,750     |                            | $          | 138                              |       | $                   | 422,998    |                   | $          | (102,931                                                  | )          | $         | 550,939    |   | $ | (16,363 | ) | $ | 855,283 |   |

 

See accompanying notes.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**1.**              Basis of Presentation andSignificant Accounting Policies

** **

***Nature of Operations***

*** ***

IHS Inc. (IHS, the Company, we, our, orus) is a publicly traded Delaware corporation. IHS is a leading provider andcomprehensive source of Critical Information and Insight in a sizable andgrowing global market. Our customers rely on our products and services tofacilitate crucial decision-making, support key processes, and improveproductivity. At the heart of our products and services is data obtained frompublic sources, third parties, and our own proprietary databases. We transformthat data into Critical Information and Insight that is both useful to ourcustomers and available where and when they make critical business decisions.The data becomes Critical Information when we combine it with our proprietaryand third-party technology to create graphical user interfaces, search andnavigation tools, and online delivery systems or we deliver as individualdocuments. We further transform that information into Insight products andservices with analysis and interpretation from our teams of experts.

 

We serve some of the world’s largestcorporations across multiple industries, as well as governments and otherorganizations, in more than 100 countries. Our primary operations outside theUnited States are in the United Kingdom, Canada and Switzerland.  We have structured our business around ourcustomers and the geographies in which they reside. This allows us to tailorand expand the solutions we offer to meet the unique needs of our customersboth globally and in local markets.

 

In addition to structuring our businessaround the regions, we have targeted four specific information “domains”—Energy,Product Lifecycle, Security, and Environment. Since these four informationdomains represent areas where our customers have needs for critical informationand insight, we use these domains to set priorities and design our businessobjectives.  The information that ourcustomers need to address their complex business issues continues to convergeat the intersection of the information domains that we serve.  As we continue to deliver CriticalInformation and Insight in those four information domains, we prepare andanalyze our financial reports to include our three geographic reportablesegments: Americas, including the United States, Canada and Latin America;Europe, Middle East and Africa (EMEA) and Asia Pacific.

 

***Consolidation Policy***

*** ***

The consolidated financialstatements include the accounts of all wholly-owned and majority-ownedsubsidiaries. All significant intercompany accounts and transactions have beeneliminated.  Investments inunconsolidated affiliated companies are accounted for under the equity methodand are included in “Equity Investment in Joint Venture” in the accompanyingConsolidated Balance Sheets. Our proportionate share of income from theunconsolidated affiliates is included in “Income from Equity Investment” in theaccompanying Consolidated Statements of Operations.  We generally utilize the equity method ofaccounting when we have a non-controlling ownership interest of between 20% and50% in an entity, provided we are able to exercise significant influence overthe investee’s operations.

 

***Unaudited Condensed ConsolidatedFinancial Statements***

*** ***

The accompanying unauditedcondensed consolidated financial statements reflect all adjustments, consistingof normal recurring accruals, which are necessary for a fair presentation ofthe financial position, results of operations and cash flows for the periodspresented. The accompanying condensed consolidated financial statements includeour accounts and the accounts of our majority-owned domestic and foreignsubsidiaries.  All significantintercompany transactions and balances have been eliminated in consolidation.These condensed consolidated financial statements should be read in conjunctionwith the consolidated financial statements for the year ended November 30,2007.  The results of operations for thethree and nine months ended August 31, 2008, are not necessarilyindicative of the results that may be achieved for the full fiscal year andcannot be used to indicate financial performance for the entire year.

 

The year-end condensed consolidatedbalance sheet data was derived from the audited November 30, 2007, balancesheet.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

***ResultsSubject to Seasonal Variations***

*** ***

Historically, ourbusiness has had seasonal aspects. However, with the continued organic growth in our subscription-basedbusiness model combined with several acquisitions in recent years, our seasonalaspects have diminished. Our first quarter does benefit from the inclusion ofthe results from CERAWeek, an annual energy executive gathering.  Subscriptions are generally paid in full within one-to-twomonths after the subscription period commences. As a result, the timing of ourcash flows generally precedes the recognition of revenue and income.

 

***Use of Estimates***

*** ***

The preparationof interim condensed consolidated financial statements in conformity withaccounting principles generally accepted in the United States requires us tomake estimates and assumptions that affect the amounts reported and disclosedin the financial statements and the accompanying notes. Significant estimateshave been made in areas that include revenue recognition, useful lives of fixedand intangible assets, allocation of purchase price to acquired assets andliabilities, the recoverability of intangible assets and goodwill, income andother taxes, pension and post-retirement benefits, and stock-basedcompensation. Actual results could differ from those estimates.

 

***Reclassification***

 

***Certain prior-year balances have been reclassified toconform to current-year presentation.***

*** ***

***Income Taxes***

 

Oureffective quarterly rate is estimated based upon the effective tax rateexpected to be applicable for the full fiscal year.

 

Oureffective tax rate for the third quarter of 2008 was 18.7% compared to 30.6%for the prior year period.  Our effectivetax rate for the nine months ended August 31, 2008 was 28.7% compared to31.9% for the prior year period.  The2008 rate reflects the positive impact from our recent internal legal entityreorganization within EMEA.

 

OnDecember 1, 2007 we adopted the provisions of Financial AccountingStandards Board Interpretation No. 48 (FIN 48).  Upon adoption, we recognized a $1.4 milliondecrease in liabilities on uncertain tax positions, resulting in a balance of$1.7 million in unrecognized tax benefits as of December 1, 2007.  Since December 1, 2007, unrecognized taxbenefits decreased by $0.2 million. During the third quarter of 2008, unrecognized tax benefits did notmaterially change.  As of August 31,2008, the total amount of unrecognized tax benefits was $1.5 million.  If recognized, essentially all of theunrecognized tax benefits would affect our effective tax rate.

 

We recognize interest and penalties related tounrecognized tax benefits within the provision for income taxes.  For the ninemonths ended August 31, 2008, we recognized $0.1 million of net benefitfrom interest on unrecognized tax benefits.

 

Weare subject to taxation and file income tax returns in the U.S. and in manyforeign jurisdictions. For U.S. federal and United Kingdom income tax purposes,effectively all years prior to 2005 are closed. All years prior to 2007 are effectively closed for Swiss income taxpurposes, and for Canadian purposes all years prior to 2004 are effectively closed.

 

Theopen tax years contain matters that could be subject to differinginterpretations of applicable tax laws and regulations as it relates to theamount and/or timing of income, deductions and tax credits. Although theoutcome of tax audits is always uncertain, we believe that adequate amounts oftax and interest have been provided for any adjustments that are expected toresult from an audit of the open tax years. Although timing of the resolution and/or closure of audits is highlyuncertain, we do not believe it is reasonably possible that our unrecognizedtax benefits will materially change in the next 12 months.

 

***New AccountingPronouncements***

 

In September 2006,the Financial Accounting Standards Board (FASB) issued SFAS No. 157, *Fair Value Measurements* (SFAS No. 157). Among other requirements,SFAS No. 157 defines fair value and establishes a framework for measuringfair value and also expands disclosure about the use of fair value to measureassets and liabilities. Subsequently, the FASB deferred the application of thispronouncement for non-financial assets and liabilities to fiscal yearsbeginning after November 15, 2008. SFAS No. 157 is effective for financial assets and liabilitiesbeginning the first fiscal year that begins after November 15, 2007. Weadopted SFAS No. 157 for financial assets and liabilities on December 1,2007, with no material impact to our consolidated financial statements.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

In February 2007,the FASB issued SFAS No. 159, *The Fair Value Option forFinancial Assets and Financial Liabilities* (SFAS No. 159). SFASNo. 159 expands the use of fair value measurement by permitting entitiesto choose to measure many financial instruments and certain other items at fairvalue that are not currently required to be measured at fair value. SFAS No. 159was effective beginning the first fiscal year that begins after November 15,2007. We have opted not to electively adopt the provisions of SFAS No. 159in the accompanying consolidated financial statements.

 

In December 2007,the FASB issued SFAS No. 141(R), *BusinessCombinations*and SFAS No. 160, *Accountingand Reporting of Noncontrolling Interest in Consolidated Financial Statements,an amendment of ARB No. 51*. These new standards will significantly change the accounting for andreporting of business combination transactions and noncontrolling (minority)interests in consolidated financial statements.  SFAS Nos. 141(R) and160 are required to be adopted simultaneously and are effective for the firstannual reporting period beginning on or after December 15, 2008.  Thus, we are required to adopt thesestandards on December 1, 2009, the first day of our 2010 fiscal year.Earlier adoption is prohibited.  We arecurrently evaluating the impact of adopting SFAS Nos. 141(R) and 160 onour consolidated financial statements.

 

In March 2008,the FASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities*.  SFAS No. 161 requires additionaldisclosures related to the use of derivative instruments, the accounting forderivatives and how derivatives impact financial statements.  SFAS No. 161 is effective for fiscalyears and interim periods beginning after November 15, 2008.  Thus, we are required to adopt this standardon December 1, 2008, the first day of our 2009 fiscal year.  We are currently evaluating the impact ofadopting SFAS No. 161 on our consolidated financial statements.

 

In May 2008,the FASB issued SFAS No. 162, *The Hierarchy of GeneralAccepted Accounting Principles*. This statement documents the hierarchy of the various sources ofaccounting principles and the framework for selecting the principles used inpreparing financial statements.  Thisstatement shall be effective 60 days following the Securities and ExchangeCommission’s approval of the Public Company Accounting Oversight Boardamendments to AU Section 411, *The Meaning of PresentFairly in Conformity With Generally Accepted Accounting Principles*.  SFAS No. 162 will not have a materialimpact to our consolidated financial statements.

 

**2.****             ****Business Combinations**

 

In December 2007, we acquiredMcCloskey Group Limited (McCloskey), the leading provider of news, criticalinformation and insight on the international coal markets located near London,England.  We acquired McCloskey for £13.9million, or approximately $28.2 million using cash on hand.

 

On March 3, 2008, weacquired Prime Publications Limited (Prime), which owns a 50% interest in theLloyd’s Register-Fairplay Limited (LRF) joint venture, a leading source ofglobal maritime information.  LRF is thepre-eminent brand name in the maritime information industry and the only organizationthat provides comprehensive details of the current world merchant fleet(tankers, cargo, carrier and passenger ships) and a complete range of productsand services to assist the world’s maritime community.  The investment in LRF was the primary asset of Prime.  Lloyd’s Register of London, England is thejoint venture partner owning the other 50%. IHS accounts for the joint venture under the equity method ofaccounting.  IHS acquired 100 percent ofthe stock of Prime for approximately £38.0million, or approximately $74.6 million, which included £10.7 million, or approximately $21.2 million innon-interest bearing seller notes valued at $18.2 million and the remainder waspaid in cash.

 

Also on March 3,2008, we acquired Dolphin Software, Inc. (Dolphin) for approximately $23.7million in cash. Dolphin is a leader in developing and using chemical datainformation and software used by companies to record and track chemicals storedand used in their facilities.

 

On March 13, 2008,we acquired Environmental Software Providers (ESP), a provider of enterpriseinformation solutions used by companies to assist in managing theirenvironmental sustainability programs for approximately $18.7 million in cash.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

On March 14, 2008,we acquired the assets of JFA International (JFA), a London, England basedprovider of strategic analysis to the energy industry’s exploration andproduction sectors.  JFA was acquired for£2.0million, or approximately $3.9 million.

 

Theseacquisitions were accounted for using the purchase method of accounting. Ourconsolidated financial statements include all the assets and liabilitiesacquired and the results of operations from the respective date of acquisition.Pro forma results of the acquired businesses have not been presented as theydid not have a material impact on our results of operations.

 

Thepurchase prices for these 2008 acquisitions, excluding acquired cash andincluding acquisition-related costs and notes payable, were initially allocatedas follows:

 
| ** **                         | ** ** | **Prime**           | ** ** | **McCloskey** | ** ** | **All others** | ** ** | **Total** | ** ** |
|------------------------------------|------------|---------------------|------------|---------------|------------|---------------------|------------|-----------|------------|
|                               |       | **(In  thousands)** |       |
| Assets:                            |       |                |       |          |       |                |       |      |       |
| Current assets                     |       | $                   | 110        |          | $          | 774                 |       | $         | 2,944      |   | $ | 3,828 |   |
| Property and equipment             |       | 6                   |       | 114           |       | 741                 |       | 861       |       |
| Intangible assets                  |       | 3,572               |       | 8,180         |       | 21,755              |       | 33,507    |       |
| Goodwill                           |       | 687                 |       | 24,136        |       | 34,136              |       | 58,959    |       |
| Equity investment in joint venture |       | 72,271              |       | —        |       | —              |       | 72,271    |       |
| Other long-term assets             |       | —              |       | —        |       | 52                  |       | 52        |       |
| Total assets                       |       | 76,646              |       | 33,204        |       | 59,628              |       | 169,478   |       |
| Liabilities:                       |       |                |       |          |       |                |       |      |       |
| Current liabilities                |       | 1,079               |       | 2,700         |       | 4,655               |       | 8,434     |       |
| Deferred taxes                     |       | 1,000               |       | 2,298         |       | 3,620               |       | 6,918     |       |
| Other long-term liabilities        |       | —              |       | —        |       | 20                  |       | 20        |       |
| Total liabilities                  |       | 2,079               |       | 4,998         |       | 8,295               |       | 15,372    |       |
| Purchase price                     |       | $                   | 74,567     |          | $          | 28,206              |       | $         | 51,333     |   | $ | 154,106 |   |

 

**3.**              **Commitments and Contingencies**

 

We are a party to various legalproceedings that arise in the ordinary course of business.  In the opinion of management, none of theseactions, either individually or in the aggregate, is expected to have amaterial adverse affect on our financial condition, liquidity or results ofoperations.

 

**4.**              Other Comprehensive Income(Loss)

** **

**Ourcomprehensive income (loss) was as follows:**

 
| ** **                                     | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|------------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                     | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                     | ** ** | **(In thousands)**                               | ** ** |
| Net income                                     |       | $                                                     | 21,024     |                                                 | $          | 21,731 |   | $ | 65,713 |   | $ | 58,690 |   |
| Other comprehensive income (loss):             |       |                                                  |       |                                                 |       |   |   |   |   |
| Foreign currency translation adjustment        |       | (32,042                                               | )          | 4,160                                                |       | (37,752 | ) | 7,939 |   |
| Total comprehensive income (loss), net of  tax |       | $                                                     | (11,018    | )                                                    | $          | 25,891 |   | $ | 27,961 |   | $ | 66,629 |   |

 

**5.****              Restructuring Charge**

 

During the third quarter of 2008, we executeda restructuring initiative which primarily affected the Americas and EMEAsegments.  One-time, involuntarybenefit arrangements and other exit costs are accounted for under theprovisions of SFAS No. 146, “*Accountingfor Costs Associated with Exit or Disposal Activities*.” Costsarising under our defined benefit pension plans from providing enhancedbenefits are accounted for under the provisions of SFAS No. 88, “*Employers’ Accounting for Settlements andCurtailments of Defined Benefit Pension Plans and for Termination Benefits*,”and will be reflected when paid in the fourth quarter of 2008.  Restructuring and related expenses consist ofdirect and incremental costs associated with restructuring and relatedactivities, including severance, outplacement and other employee relatedbenefits; facility closure including non-cash expenses related to fixed assetand leasehold improvement write-offs; and other expenses include legal expensesassociated with employee terminations which were incurred during the quarter.

 

This initiative was undertaken to further therealignment of our resources around our regional organizational structure andto further transform our knowledge-based data accumulation operations to ensurecontinuous improvement in 

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

the quality of the critical information and insight we deliver to ourcustomers.  During the course of therestructuring, we reduced our aggregate workforce by approximately 7%, weeliminated certain contractor positions and we closed certain offices.  As a result of this initiative, we expect torealize an annual improvement to pre-tax income of between $8.0 million and$10.0 million beginning in the fourth quarter of 2008.

 

The restructuring charge was incurred in itsentirety during the third quarter of 2008. Approximately $5.8 million of the charge related to our Americassegment, $6.3 million pertained to our EMEA segment and $0.4 millionrelated to our shared service segment. The restructuring charge was comprised of the following (in thousands):

 
| Employee severance and other termination  benefits |   | $   | 11,241 |   |
|----------------------------------------------------|--------|-----|--------|--------|
| Contract termination costs                         |   | 639 |   |
| Other                                              |   | 599 |   |
| Total                                              |   | $   | 12,479 |   |

 

A reconciliation of the related accruedrestructuring liability as of August 31, 2008 was as follows:

 
| ** **                                                       | ** ** | **Employee  Severance and  Other  Termination  Benefits** | ** ** | **Contract  Termination  Costs** | ** ** | **Other** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------|------------|-----------|------------|-----------|------------|
| ** **                                                       | ** ** | **(In thousands)**                                        | ** ** |
| Beginning balance                                                |       | $                                                              | —     |                             | $          | —    |       | $         | —     |   | $ | — |   |
| Add: Restructuring costs incurred                                |       | 11,241                                                         |       | 639                              |       | 599       |       | 12,479    |       |
| Less: Amount paid during the quarter ended  August 31, 2008 |       | (5,028                                                         | )          | (512                             | )          | (205      | )          | (5,745    | )          |
| Balance at August 31, 2008                                  |       | $                                                              | 6,213      |                             | $          | 127       |       | $         | 394        |   | $ | 6,734 |   |

 

**6.****     Stock-Based Compensation**

 

On August 31,2008, we had one share-based compensation plan: the Amended and Restated IHSInc. 2004 Long-Term Incentive Plan (LTIP). The LTIP provides for the grant ofnon-qualified stock options, incentive stock options, stock appreciationrights, restricted stock, restricted stock units, performance units andperformance shares, cash-based awards, other stock based awards and coveredemployee annual incentive awards. The 2004 Directors Stock Plan, a sub-planunder the LTIP, provides for the grant of restricted stock and restricted stockunits to non-employee directors as defined in that plan. We believe that suchawards better align the interests of our employees and non-employee directorswith those of our shareholders.

 

Wehave authorized a maximum of 11,250,000 shares, less the number of sharesrelating to any award granted and outstanding.

 

Stock-based compensation expense that has been charged against incomefor the plan was as follows:

 
| ** **                          | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|-------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                          | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                          | ** ** | **(In thousands)**                               | ** ** |
| Cost of revenue                     |       | $                                                     | 391        |                                                 | $          | 383 |   | $ | 1,078 |   | $ | 839 |   |
| Selling, general and administrative |       | 9,961                                                 |       | 8,759                                                |       | 32,352 |   | 21,684 |   |
| Stock-based compensation expense    |       | $                                                     | 10,352     |                                                 | $          | 9,142 |   | $ | 33,430 |   | $ | 22,523 |   |

 

Totalincome tax benefit recognized in the income statement for share-basedcompensation arrangements August 31 was as follows:

 
| ** **         | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|--------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **         | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **         | ** ** | **(In thousands)**                               | ** ** |
| Income tax benefit |       | $                                                     | 3,830      |                                                 | $          | 3,383 |   | $ | 12,369 |   | $ | 8,334 |   |
|                    |            |                                                       |            |                                                      |            |  |  |  |  |  |  |  |  |

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

Nocompensation cost was capitalized during the nine months ended August 31,2008 and 2007.

 

*Nonvested Stock.*  Share awards generally vest from one to fouryears. Share awards are generally subject to either cliff vesting or gradedvesting. The fair value of nonvested stock is based on the fair value of ourcommon stock on the date of grant. We amortize the value of share awards toexpense over the vesting period on a straight-line basis. Approximately half ofour outstanding awards are performance based. For those awards, an evaluation is made each quarter as to thelikelihood of the performance criteria being met. Compensation expense is thenadjusted to reflect the number of shares expected to vest and the cumulativevesting period met to date. Additionally, we estimate forfeitures at the grant date and recognizecompensation cost based on the number of awards expected to vest. There may beadjustments in future periods if the likelihood of meeting performance criteriachanges or if actual forfeitures differ from our estimates. Our forfeiture rateis based upon historical experience as well as anticipated employee turnoverconsidering certain qualitative factors.

 

Total compensation expense related to nonvested awards, both shareawards and stock options, not yet recognized was $67.6 million as of August 31,2008, with a weighted-average recognition period of less than 2 years.

 

A summary of the status of our nonvested shares as of August 31,2008, and changes during the nine months ended August 31, 2008, was asfollows:

 
| ** **                       | ** ** | **Shares**              | ** ** | **Weighted-  Average Grant  Date Fair Value** | ** ** |
|----------------------------------|------------|-------------------------|------------|--------------------------------------------------------------|------------|
| ** **                       | ** ** | **(in thousands)** | ** ** | ** **                                                   | ** ** |
| Balances, November 30, 2007 |       | 2,429                   |       | $                                                            | 32.16      |   |
| Granted                          |       | 837                     |       | $                                                            | 62.23      |   |
| Vested                           |       | (761                    | )          | $                                                            | 26.77      |   |
| Forfeited                        |       | (131                    | )          | $                                                            | 44.77      |   |
| Balances, August 31, 2008   |       | 2,374                   |       | $                                                            | 43.85      |   |

 

The total fair value of stock-based compensation that vested during thethree and nine months ended August 31, 2008, was $10.5 million and$48.1 million, respectively, based on the fair value on the vesting date and$5.1 million and $20.4 million, respectively, based on the fair value on thedate of grant.

 

*Stock Options.*  Option awards are granted with an exerciseprice equal to the fair market value of our stock at the date of grant. Optionsoutstanding as of August 31, 2008, vest in various ways over a period of3-to-4 years of continuous service and have 8-year contractual terms.Certain option and share awards provide for accelerated vesting if there is achange in control (as defined in the plans).

 

The following table summarizes changes in outstanding stock optionsduring the nine months ended August 31, 2008, as well as options that arevested and expected to vest and stock options exercisable at August 31,2008:

 
| ** **                                           | ** ** | **Shares**              | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|------------------------------------------------------|------------|-------------------------|------------|-----------------------------------------|------------|------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                           | ** ** | **(in thousands)** | ** ** | ** **                              | ** ** | **(in years)**                                  | ** ** | **(in thousands)**         | ** ** |
| Outstanding at November 30, 2007                |       | 287                     |       | $                                       | 35.31      |                                                 | 2.0        |                            | $          | 10,009 |   |
| Granted                                              |       | —                  |       |                                    |       |                                                 |       |                            |       |
| Exercised                                            |       | (9                      | )          | 37.65                                   |       |                                                 |       | $                               | (271       | ) |
| Forfeited                                            |       | (2                      | )          |                                    |       |                                                 |       |                            | $          | (53 | ) |
| Outstanding at August 31, 2008                  |       | 276                     |       | $                                       | 35.20      |                                                 | 1.25       |                            | $          | 8,005 |   |
| Vested and expected to vest at  August 31, 2008 |       | 276                     |       | $                                       | 35.20      |                                                 | 1.25       |                            | $          | 8,005 |   |
| Exercisable at August 31, 2008                  |       | 28                      |       | $                                       | 37.65      |                                                 | —     |                            | $          | 731 |   |
|                                                      |            |                         |            |                                         |            |                                                      |            |                                 |            |  |  |  |

 

The aggregate intrinsic value amounts in the table above represent thedifference between the closing price of our common stock on August 31,2008, which was $64.16, and the exercise price, multiplied by the number ofin-the-money stock options as of the same date. This represents the amount thatwould have been received by the stock option holders if they had all exercisedtheir stock options on August 31, 2008. In future periods, this amountwill change depending on fluctuations in our stock price.  No options were exercised in the three monthsended August 31, 2008 and the total intrinsic value of stock optionsexercised during the nine months ended August 31, 2008 was $0.3 million.

 

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**IHS INC.**

**NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

**7.****              Debt**

 

On September 7, 2007, we entered into an amended and restatedcredit agreement (Revolver). The $385 million unsecured Revolver allowsus, 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 ourLeverage Ratio, which is the ratio of Consolidated Funded Indebtedness torolling four quarter Consolidated Earnings Before Interest Expense, Taxes,Depreciation and Amortization (EBITDA), as defined in the Revolver. The rateranges from the applicable LIBOR plus 50 basis points to 125 basis points orthe agent bank’s base rate. A commitment fee is payable periodically and rangesfrom 10 to 25 basis points based upon our Leverage Ratio. The Revolver containscertain financial and other covenants, including limitations on capital leaseobligations and maximum Leverage and Interest Coverage Ratios, as defined inthe Revolver.

 

As of August 31, 2008, we had no outstanding balance on theRevolver and had letters of credit totaling approximately $0.7 million. We werein compliance with all of the covenants in the agreement.

 

Asof August 31, 2008, we also had $21.2 million of non-interest bearingnotes that were issued to the sellers of Prime. After discounting these notes assuming an annual interest rate at 5.69%and adjusting for foreign currency translation, the recorded balance at August 31,2008 was $17.2 million.  These notes aredue upon demand and are therefore recorded in “Short-term Debt” in theaccompanying Consolidated Balance Sheets.

 

**8.****              Pensions and PostretirementBenefits**

 

We have defined-benefit plans and defined-contribution plans. Ourdefined-benefit plans consist of a non-contributory retirement plan for all ofour U.S. employees with at least one year of service (U.S. RIP), a pension planthat covers certain employees of one of our United Kingdom-based subsidiaries(U.K. RIP), and a supplemental income plan (SIP) for certain companyexecutives.

 

Ournet periodic pension (income) expense was comprised of the following:

 
| ** **                                       | ** ** | **Three Months Ended August 31, 2008** | ** ** | **Three Months Ended August 31, 2007** | ** ** |
|--------------------------------------------------|------------|-----------------------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| ** **                                       | ** ** | **U.S.  RIP**                                                   | ** ** | **U.K.  RIP**                                                   | ** ** | **SIP** | ** ** | **Total** | ** ** | **U.S.  RIP** | ** ** | **U.K.  RIP** | ** ** | **SIP** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | **(In thousands)**                                         | ** ** |
| Service costs  incurred                          |       | $                                                               | 1,572      |                                                            | $          | 238 |   | $ | 72 |   | $ | 1,882 |   | $ | 1,569 |   | $ | 293 |   | $ | 48 |   | $ | 1,910 |   |
| Interest costs on  projected benefit obligation  |       | 2,999                                                           |       | 539                                                             |       | 130 |   | 3,668 |   | 2,720 |   | 530 |   | 86 |   | 3,336 |   |
| Expected return  on plan assets                  |       | (5,368                                                          | )          | (566                                                            | )          | — |   | (5,934 | ) | (5,077 | ) | (458 | ) | — |   | (5,535 | ) |
| Amortization of  prior service cost              |       | (118                                                            | )          | —                                                          |       | 11 |   | (107 | ) | (119 | ) | — |   | 12 |   | (107 | ) |
| Amortization of  actuarial loss                  |       | —                                                          |       | —                                                          |       | 47 |   | 47 |   | 375 |   | 307 |   | 20 |   | 702 |   |
| Amortization of  transitional obligation/(asset) |       | (142                                                            | )          | —                                                          |       | 10 |   | (132 | ) | (142 | ) | — |   | 11 |   | (131 | ) |
| Settlement  expense                              |       | —                                                          |       | —                                                          |       | — |   | — |   | — |   | — |   | 570 |   | 570 |   |
| Net periodic  pension benefit (income) expense   |       | $                                                               | (1,057     | )                                                               | $          | 211 |   | $ | 270 |   | $ | (576 | ) | $ | (674 | ) | $ | 672 |   | $ | 747 |   | $ | 745 |   |

 

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**IHS INC.**

**NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 
| ** **                                       | ** ** | **Nine Months Ended August 31, 2008** | ** ** | **Nine Months Ended August 31, 2007** | ** ** |
|--------------------------------------------------|------------|----------------------------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                                       | ** ** | **U.S.  RIP**                                                  | ** ** | **U.K.  RIP**                                                  | ** ** | **SIP** | ** ** | **Total** | ** ** | **U.S.  RIP** | ** ** | **U.K.  RIP** | ** ** | **SIP** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | **(In thousands)**                                        | ** ** |
| Service costs  incurred                          |       | $                                                              | 4,716      |                                                           | $          | 714 |   | $ | 216 |   | $ | 5,646 |   | $ | 4,707 |   | $ | 867 |   | $ | 144 |   | $ | 5,718 |   |
| Interest costs on  projected benefit obligation  |       | 8,997                                                          |       | 1,617                                                          |       | 358 |   | 10,972 |   | 8,159 |   | 1,569 |   | 272 |   | 10,000 |   |
| Expected return  on plan assets                  |       | (16,097                                                        | )          | (1,690                                                         | )          | — |   | (17,787 | ) | (15,232 | ) | (1,356 | ) | — |   | (16,588 | ) |
| Amortization of  prior service cost              |       | (354                                                           | )          | —                                                         |       | 33 |   | (321 | ) | (355 | ) | — |   | 34 |   | (321 | ) |
| Amortization of  actuarial loss                  |       | —                                                         |       | —                                                         |       | 141 |   | 141 |   | 1,124 |   | 909 |   | 80 |   | 2,113 |   |
| Amortization of  transitional obligation/(asset) |       | (426                                                           | )          | —                                                         |       | 30 |   | (396 | ) | (426 | ) | — |   | 31 |   | (395 | ) |
| Settlement  expense                              |       | —                                                         |       | —                                                         |       | — |   | — |   | — |   | — |   | 570 |   | 570 |   |
| Net periodic  pension benefit (income) expense   |       | $                                                              | (3,164     | )                                                              | $          | 641 |   | $ | 778 |   | $ | (1,745 | ) | $ | (2,023 | ) | $ | 1,989 |   | $ | 1,131 |   | $ | 1,097 |   |

 

Ournet periodic post-retirement income was comprised of the following:

 
| ** **                                  | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                  | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                                  | ** ** | **(In thousands)**                               | ** ** |
| Service costs incurred                      |       | $                                                     | 25         |                                                 | $          | 34 |   | $ | 75 |   | $ | 103 |   |
| Interest costs                              |       | 158                                                   |       | 148                                                  |       | 474 |   | 444 |   |
| Amortization of prior service amounts       |       | (807                                                  | )          | (808                                                 | )          | (2,419 | ) | (2,422 | ) |
| Amortization of net actuarial loss          |       | 118                                                   |       | 138                                                  |       | 354 |   | 413 |   |
| Net periodic post-retirement benefit income |       | $                                                     | (506       | )                                                    | $          | (488 | ) | $ | (1,516 | ) | $ | (1,462 | ) |

 

**9.**              Earnings per Share

** **

Earnings per common share (EPS) arecomputed in accordance with SFAS No. 128, *Earnings perShare*. Basic EPS is computed by dividing net income by the weightedaverage number of common shares outstanding during the period. Diluted EPSreflects the potential dilution that could occur if securities or othercontracts to issue common stock were exercised or converted into common shares.

 

Our authorized capital stockconsisted of 80,000,000 shares of Class A common stock and 13,750,000shares of Class B common stock. These classes had equal dividend rights and liquidation rights. However,the holders of our Class A common stock were entitled to one vote pershare and holders of our Class B common stock were entitled to ten votesper share on all matters to be voted upon by the stockholders. Each share of Class Bcommon stock was convertible at any time at the option of the holder into oneshare of Class A common stock and would automatically convert, without anyaction by the holder, upon the earlier of the occurrence of specified events orNovember 16, 2009.

 

On September 18,2008, the holders of our 13,750,000 Class B common stock converted it to13,750,000 Class A common shares. With this conversion, the ten to one vote of the Class B shares iseliminated.  In exchange for thisconversion, the number of allowable demand registrations has increased from twoto four times. 

 

We use the two-class method forcomputing basic and diluted EPS amounts. We calculated undistributed earningsas follows:

 
| ** **             | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **             | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **             | ** ** | **(In thousands)**                               | ** ** |
| Net income             |       | $                                                     | 21,024     |                                                 | $          | 21,731 |   | $ | 65,713 |   | $ | 58,690 |   |
| Less: dividends        |       | —                                                |       | —                                               |       | — |   | — |   |
| Undistributed earnings |       | $                                                     | 21,024     |                                                 | $          | 21,731 |   | $ | 65,713 |   | $ | 58,690 |   |

 

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**IHS INC.**

**NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

Weighted average common sharesoutstanding are calculated as follows:

 
| ** **                                    | ** ** | **Three Months Ended August 31,** | ** ** |
|-----------------------------------------------|------------|-------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                              | ** ** | **2007** | ** ** |
| ** **                                    | ** ** | **Class A**                                      | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| ** **                                    | ** ** | **(In thousands)**                               | ** ** |
| Weighted average common shares outstanding:   |       |                                                  |       |   |   |   |   |   |   |
| Shares used in basic per-share calculation    |       | 48,142                                                |       | 13,750 |   | 47,367 |   | 13,750 |   |
| Effect of dilutive securities:                |       |                                                  |       |   |   |   |   |   |   |
| Deferred stock units                          |       | 39                                                    |       | — |   | 20 |   | — |   |
| Restricted shares                             |       | 762                                                   |       | — |   | 1,039 |   | — |   |
| Options                                       |       | 77                                                    |       | — |   | 21 |   | — |   |
| Assumed conversion of Class B shares     |       | 13,750                                                |       | — |   | 13,750 |   | — |   |
| Shares used in diluted per-share  calculation |       | 62,770                                                |       | 13,750 |   | 62,197 |   | 13,750 |   |

 
| ** **                                    | ** ** | **Nine Months Ended August 31,** | ** ** |
|-----------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                    | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                    | ** ** | **Class A**                                     | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| ** **                                    | ** ** | **(In thousands)**                              | ** ** |
| Weighted average common shares outstanding:   |       |                                                 |       |   |   |   |   |   |   |
| Shares used in basic per-share calculation    |       | 48,278                                               |       | 13,750 |   | 44,954 |   | 13,750 |   |
| Effect of dilutive securities:                |       |                                                 |       |   |   |   |   |   |   |
| Deferred stock units                          |       | 39                                                   |       | — |   | 5 |   | — |   |
| Restricted shares                             |       | 808                                                  |       | — |   | 899 |   | — |   |
| Options                                       |       | 72                                                   |       | — |   | 8 |   | — |   |
| Assumed conversion of Class B shares     |       | 13,750                                               |       | — |   | 13,750 |   | — |   |
| Shares used in diluted per-share  calculation |       | 62,947                                               |       | 13,750 |   | 59,616 |   | 13,750 |   |

 

Undistributedearnings and calculated basic and diluted EPS amounts are calculated asfollows:

 
| ** **                                                                             |   | **Three Months Ended August 31,** |       |
|----------------------------------------------------------------------------------------|--------|-------------------------------------------------------|------------|
| ** **                                                                             |   | **2008**                                              |       | **2007** |   |
| ** **                                                                             |   | **Class A**                                      | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** |   |
| ** **                                                                             |   | **(In thousands)**                               |       |
| **Basic**                                                                              |   |                                                  |       |   |   |   |   |   |   |
| Weighted average shares outstanding                                                    |   | 48,142                                                |       | 13,750 |   | 47,367 |   | 13,750 |   |
| Divided by: Total weighted average shares  outstanding (Class A and Class B) |   | 61,892                                                |       | 61,892 |   | 61,117 |   | 61,117 |   |
| Multiplied by: Undistributed earnings                                                  |   | $                                                     | 21,024     |   | $ | 21,024 |   | $ | 21,731 |   | $ | 21,731 |   |
| Subtotal                                                                               |   | $                                                     | 16,353     |   | $ | 4,671 |   | $ | 16,842 |   | $ | 4,889 |   |
| Divided by: Weighted average shares  outstanding                                       |   | 48,142                                                |       | 13,750 |   | 47,367 |   | 13,750 |   |
| Earnings per share                                                                     |   | $                                                     | 0.34       |   | $ | 0.34 |   | $ | 0.36 |   | $ | 0.36 |   |
|                                                                                   |   |                                                  |       |   |   |   |   |   |   |
| **Diluted**                                                                            |   |                                                  |       |   |   |   |   |   |   |
| Weighted average shares outstanding                                                    |   | 62,770                                                |       | 13,750 |   | 62,197 |   | 13,750 |   |
| Divided by: Total weighted average shares  outstanding (Class A and Class B) |   | 62,770                                                |       | 62,770 |   | 62,197 |   | 62,197 |   |
| Multiplied by: Undistributed earnings                                                  |   | $                                                     | 21,024     |   | $ | 21,024 |   | $ | 21,731 |   | $ | 21,731 |   |
| Subtotal                                                                               |   | $                                                     | 21,024     |   | $ | 4,605 |   | $ | 21,731 |   | $ | 4,804 |   |
| Divided by: Weighted average shares  outstanding                                       |   | 62,770                                                |       | 13,750 |   | 62,197 |   | 13,750 |   |
| Earnings per share                                                                     |   | $                                                     | 0.33       |   | $ | 0.33 |   | $ | 0.35 |   | $ | 0.35 |   |

 

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**IHS INC.**

**NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 
| ** **                                                                             | ** ** | **Nine Months Ended August 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **2008**                                             | ** ** | **2007** | ** ** |
| ** **                                                                             | ** ** | **Class A**                                     | ** ** | **Class B** | ** ** | **Class A** | ** ** | **Class B** | ** ** |
| ** **                                                                             | ** ** | **(In thousands)**                              | ** ** |
| **Basic**                                                                              |       |                                                 |       |   |   |   |   |   |   |
| Weighted average shares outstanding                                                    |       | 48,278                                               |       | 13,750 |   | 44,954 |   | 13,750 |   |
| Divided by: Total weighted average shares  outstanding (Class A and Class B) |       | 62,028                                               |       | 62,028 |   | 58,704 |   | 58,704 |   |
| Multiplied by: Undistributed earnings                                                  |       | $                                                    | 65,713     |   | $ | 65,713 |   | $ | 58,690 |   | $ | 58,690 |   |
| Subtotal                                                                               |       | $                                                    | 51,146     |   | $ | 14,567 |   | $ | 44,943 |   | $ | 13,747 |   |
| Divided by: Weighted average shares  outstanding                                       |       | 48,278                                               |       | 13,750 |   | 44,954 |   | 13,750 |   |
| Earnings per share                                                                     |       | $                                                    | 1.06       |   | $ | 1.06 |   | $ | 1.00 |   | $ | 1.00 |   |
|                                                                                   |       |                                                 |       |   |   |   |   |   |   |
| **Diluted**                                                                            |       |                                                 |       |   |   |   |   |   |   |
| Weighted average shares outstanding                                                    |       | 62,947                                               |       | 13,750 |   | 59,616 |   | 13,750 |   |
| Divided by: Total weighted average shares  outstanding (Class A and Class B) |       | 62,947                                               |       | 62,947 |   | 59,616 |   | 59,616 |   |
| Multiplied by: Undistributed earnings                                                  |       | $                                                    | 65,713     |   | $ | 65,713 |   | $ | 58,690 |   | $ | 58,690 |   |
| Subtotal                                                                               |       | $                                                    | 65,713     |   | $ | 14,354 |   | $ | 58,690 |   | $ | 13,536 |   |
| Divided by: Weighted average shares  outstanding                                       |       | 62,947                                               |       | 13,750 |   | 59,616 |   | 13,750 |   |
| Earnings per share                                                                     |       | $                                                    | 1.04       |   | $ | 1.04 |   | $ | 0.98 |   | $ | 0.98 |   |

 

*Share Repurchase Program*

 

During2006, our board of directors approved a program to reduce the dilutive effectsof employee equity grants, by allowing employees to surrender shares back tothe company for a value equal to their statutory tax liability.  IHS then pays the statutory tax on behalf ofthe employee.  Later in 2006, our boardof directors approved an additional program—a stock buyback program—whereby IHSmay acquire up to one million shares per year in the open market to more fullyoffset the dilutive effect of our employee equity programs. This program wasrenewed by the board of directors in late 2007 for fiscal year 2008.  During the three months ended August 31,2008, we repurchased 577,566 shares of our Class A common stock forapproximately $35.0 million, or $60.60 per share, pursuant to the stock buybackprogram and 51,445 shares for approximately $3.2 million, or $62.65 per share,related to shares withheld for taxes. During the nine months ended August 31, 2008, we repurchased671,766 shares of our Class A common stock for approximately $40.5million, or $60.36 per share, pursuant to the stock buyback program and 261,701shares for approximately $16.3 million, or $62.44 per share, related to shareswithheld for taxes.  Since the inceptionof these programs, we have repurchased 1,361,728 shares of our Class Acommon stock for approximately $69.7 million, or $51.20 per share, pursuant tothe stock buyback program and 644,514 shares for approximately $33.2 million,or $51.53 per share, related to shares withheld for taxes.

 

**10.  Goodwilland Intangible Assets**

** **

The following table presents details of our intangible assets, otherthan goodwill, as of August 31, 2008:

 
| ** **                                      | ** ** | **Useful Life** | ** ** | **Gross**  | ** ** | **Accumulated  Amortization** | ** ** | **Net**    | ** ** |
|-------------------------------------------------|------------|----------------------|------------|------------|------------|-------------------------------|------------|------------|------------|
| ** **                                      | ** ** | **(Years)**          | ** ** | ** ** | ** ** | **(In thousands)**       | ** ** | ** ** | ** ** |
| Intangible assets subject to amortization:      |       |                 |       |       |       |                          |       |       |       |
| Information databases                           |       | 5-15                 |       | $          | 149,993    |                          | $          | (26,326    | )          | $ | 123,667 |   |
| Customer relationships                          |       | 2-15                 |       | 48,472     |       | (11,065                       | )          | 37,407     |       |
| Non-compete agreements                          |       | 5                    |       | 5,865      |       | (3,781                        | )          | 2,084      |       |
| Developed computer software                     |       | 5                    |       | 15,621     |       | (3,667                        | )          | 11,954     |       |
| Other                                           |       | 3-11                 |       | 5,421      |       | (1,724                        | )          | 3,697      |       |
| Total                                           |       |                 |       | 225,372    |       | (46,563                       | )          | 178,809    |       |
| Intangible assets not subject to  amortization: |       |                 |       |       |       |                          |       |       |       |
| Trademarks                                      |       |                 |       | 32,885     |       | —                        |       | 32,885     |       |
| Perpetual licenses                              |       |                 |       | 1,362      |       | —                        |       | 1,362      |       |
| Total                                           |       |                 |       | 34,247     |       | —                        |       | 34,247     |       |
| Total intangible assets                         |       |                 |       | $          | 259,619    |                          | $          | (46,563    | )          | $ | 213,056 |   |

 

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**IHS INC.**

**NOTESTO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

Thefollowing table presents details of our intangible assets, other than goodwill,as of November 30, 2007:

 
| ** **                                      | ** ** | **Useful Life** | ** ** | **Gross**  | ** ** | **Accumulated  Amortization** | ** ** | **Net**    | ** ** |
|-------------------------------------------------|------------|----------------------|------------|------------|------------|-------------------------------|------------|------------|------------|
| ** **                                      | ** ** | **(Years)**          | ** ** | ** ** | ** ** | **(In thousands)**       | ** ** | ** ** | ** ** |
| Intangible assets subject to amortization:      |       |                 |       |       |       |                          |       |       |       |
| Information databases                           |       | 5-15                 |       | $          | 137,317    |                          | $          | (14,926    | )          | $ | 122,391 |   |
| Customer relationships                          |       | 2-15                 |       | 45,650     |       | (7,981                        | )          | 37,669     |       |
| Non-compete agreements                          |       | 5                    |       | 5,514      |       | (2,889                        | )          | 2,625      |       |
| Developed computer software                     |       | 5                    |       | 15,036     |       | (2,527                        | )          | 12,509     |       |
| Other                                           |       | 3-11                 |       | 1,009      |       | (984                          | )          | 25         |       |
| Total                                           |       |                 |       | 204,526    |       | (29,307                       | )          | 175,219    |       |
| Intangible assets not subject to  amortization: |       |                 |       |       |       |                          |       |       |       |
| Trademarks                                      |       |                 |       | 29,602     |       | —                        |       | 29,602     |       |
| Perpetual licenses                              |       |                 |       | 1,538      |       | —                        |       | 1,538      |       |
| Total                                           |       |                 |       | 31,140     |       | —                        |       | 31,140     |       |
| Total intangible assets                         |       |                 |       | $          | 235,666    |                          | $          | (29,307    | )          | $ | 206,359 |   |

 

The estimated amortization expense of intangible assets for businesscombinations completed as of August 31, 2008 for each of the next fiveyears is as follows:

 
| **Year**       | ** ** | **Amount**              | ** ** |
|----------------|------------|-------------------------|------------|
| ** **     | ** ** | **(In thousands)** | ** ** |
| Remainder 2008 |       | $                       | 6,024      |   |
| 2009           |       | 22,312                  |       |
| 2010           |       | 19,986                  |       |
| 2011           |       | 18,832                  |       |
| 2012           |       | 17,443                  |       |
|                |            |                         |            |  |

 

Amortization expense of intangible assets was $6.2 million and $3.2million for the three months ended August 31, 2008 and August 31,2007, respectively.  Amortization expenseof intangible assets was $18.2 million and $9.1 million for the nine monthsended August 31, 2008 and August 31, 2007, respectively.

 

Changesin our goodwill from November 30, 2007 to August 31, 2008 wereprimarily the result of the McCloskey, ESP, Dolphin and JFA acquisitions (seeNote 2) and foreign-currency exchange-rate fluctuations.

 

**11.  SegmentInformation**

** **

We prepare and analyze our financial reports to include our threereportable geographic segments: Americas, EMEA and Asia Pacific.  Prior to the third quarter of 2008, wereported as two segments: Energy and Engineering.  However, we have recently reorganized ourmanagement structure to a geographic focus, the point of contact with ourcustomers. This new integrated global organization will make it easier forour customers to do business with us by providing a more cohesive, consistent,and effective sales and marketing approach in each region. By structuring ourbusiness around our geographic segments, we are able to tailor and expand thesolutions we offer to meet the unique needs of our customers both globally andin local markets.  We are also able to manage our Critical Information andInsight activities according to the best practices of each.  This new structure provides a solidfoundation for growth in each market for all of our capabilities. It allows usa more efficient method of bringing new products and services to customers, andsupports growth in existing accounts and with new customers and markets.

 

Information as to the operations of our threesegments is set forth below based on the nature of the offerings. Our Chairmanand Chief Executive Officer represents our chief operating decision maker, andhe evaluates segment performance based primarily on revenue and operatingprofit of these three segments.  Inaddition, he also reviews revenue for the domains and critical information andinsight offerings. The accounting policies of our segments are the same asthose described in the summary of significant accounting policies (seeNote 2 to our consolidated financial statements included in our 2007 Form 10-K).

 

No single customer accounted for 10% or moreof our total revenue for the three or nine months ended August 31, 2008.There are no material inter-segment revenues for any period presented.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

As shown below, certain corporatetransactions are not allocated to the reportable segments. Amounts notallocated include, but are not limited to, such items as, stock-basedcompensation expense, net periodic pension and post-retirement benefits income,corporate-level impairments, and gain (loss) on sales of corporate assets.

 
| ** **                                  | ** ** | **Americas**            | ** ** | **EMEA** | ** ** | **Asia Pacific** | ** ** | **Shared  Services** | ** ** | **Consolidated  Total** | ** ** |
|---------------------------------------------|------------|-------------------------|------------|----------|------------|-----------------------|------------|----------------------|------------|-------------------------|------------|
| ** **                                  | ** ** | **(In thousands)** | ** ** |
| **Three Months Ended August 31, 2008** |       |                    |       |     |       |                  |       |                 |       |                    |       |
| Revenue                                     |       | $                       | 128,936    |     | $          | 64,665                |       | $                    | 13,833     |                    | $          | — |   | $ | 207,434 |   |
| Segment operating income (loss)             |       | 37,160                  |       | 6,301    |       | 4,167                 |       | (23,537              | )          | 24,091                  |       |
| Depreciation and amortization               |       | 5,502                   |       | 3,321    |       | 29                    |       | 823                  |       | 9,675                   |       |
| **Three Months Ended August 31, 2007** |       |                    |       |     |       |                  |       |                 |       |                    |       |
| Revenue                                     |       | $                       | 112,208    |     | $          | 58,043                |       | $                    | 13,105     |                    | $          | — |   | $ | 183,356 |   |
| Segment operating income (loss)             |       | 35,209                  |       | 7,636    |       | 3,327                 |       | (16,700              | )          | 29,472                  |       |
| Depreciation and amortization               |       | 3,766                   |       | 2,723    |       | 31                    |       | 598                  |       | 7,118                   |       |

 
| ** **                                 | ** ** | **Americas**            | ** ** | **EMEA** | ** ** | **Asia Pacific** | ** ** | **Shared  Services** | ** ** | **Consolidated  Total** | ** ** |
|--------------------------------------------|------------|-------------------------|------------|----------|------------|-----------------------|------------|----------------------|------------|-------------------------|------------|
| ** **                                 | ** ** | **(In thousands)** | ** ** |
| **Nine Months Ended August 31, 2008** |       |                    |       |     |       |                  |       |                 |       |                    |       |
| Revenue                                    |       | $                       | 376,328    |     | $          | 195,022               |       | $                    | 42,054     |                    | $          | — |   | $ | 613,404 |   |
| Segment operating income (loss)            |       | 115,164                 |       | 28,705   |       | 11,927                |       | (67,956              | )          | 87,840                  |       |
| Depreciation and amortization              |       | 15,780                  |       | 10,008   |       | 101                   |       | 2,292                |       | 28,181                  |       |
| **Nine Months Ended August 31, 2007** |       |                    |       |     |       |                  |       |                 |       |                    |       |
| Revenue                                    |       | $                       | 308,139    |     | $          | 146,938               |       | $                    | 35,800     |                    | $          | — |   | $ | 490,877 |   |
| Segment operating income (loss)            |       | 94,346                  |       | 24,235   |       | 8,315                 |       | (45,655              | )          | 81,241                  |       |
| Depreciation and amortization              |       | 10,345                  |       | 4,492    |       | 90                    |       | 1,692                |       | 16,619                  |       |

** **

**Revenueby information domain was as follows:**

 
| ** **                | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|---------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                | ** ** | **(In thousands)**                               | ** ** |
| Energy revenue            |       | $                                                     | 107,605    |                                                 | $          | 93,486 |   | $ | 327,555 |   | $ | 269,061 |   |
| Product Lifecycle revenue |       | 72,518                                                |       | 74,216                                               |       | 214,355 |   | 206,162 |   |
| Security revenue          |       | 20,346                                                |       | 15,654                                               |       | 56,112 |   | 15,654 |   |
| Environment revenue       |       | 6,965                                                 |       | —                                               |       | 15,382 |   | — |   |
| Total revenue             |       | $                                                     | 207,434    |                                                 | $          | 183,356 |   | $ | 613,404 |   | $ | 490,877 |   |

** **

**Revenueby product category was as follows:**

 
| ** **                            | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                            | ** ** | **(In thousands)**                               | ** ** |
| Critical Information Products revenue |       | $                                                     | 141,509    |                                                 | $          | 129,665 |   | $ | 411,001 |   | $ | 363,580 |   |
| Critical Information Services revenue |       | 14,501                                                |       | 10,677                                               |       | 39,945 |   | 30,709 |   |
| Insight Products revenue              |       | 40,523                                                |       | 29,537                                               |       | 113,316 |   | 55,848 |   |
| Insight Services revenue              |       | 10,901                                                |       | 13,477                                               |       | 49,142 |   | 40,740 |   |
| Total revenue                         |       | $                                                     | 207,434    |                                                 | $          | 183,356 |   | $ | 613,404 |   | $ | 490,877 |   |

** **

**12.  SubsequentEvents**

** **

**OnSeptember 4, 2008, we acquired Documental Solutions LLC for approximately$24.5 million in cash.  DocumentalSolutions is a leading provider of market intelligence and analysis tools forthe defense and aerospace industry.**

** **

On September 5,2008, we acquired the product portfolio of Divestco USA Inc., a strategicprovider of comprehensive data and analytical tools for the oil and gasindustry, for approximately $3.0 million in cash.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

On September 18,2008, we announced the signing of a definitive agreement to acquire GlobalInsight, Inc. (Global Insight), with products and services focusing oneconomic and financial analysis, forecasting and marketing.  With a purchase price of $200.0 million, theacquisition is pending regulatory review and closing procedures and is expectedto close in October 2008.  The$200.0 million purchase price will be funded 60% by cash payment and 40%through the issuance of non-registered IHS Class A common shares.  The seller will receive $80.0 million of IHSClass A common stock valued at an average of the closing price for the ten daysprior to closing, with a maximum value of $65.50 per share and a minimum valueof $60.50 per share.  The shares issuedare subject to a lock-up whereby 10% of the shares are restricted from sale fora period of one year from closing, 50% are restricted from sale for two yearsfrom the closing and 40% are restricted from sale for three years from theclosing.  We plan to borrow funds throughthe Revolver for most of the cash portion of the purchase price.

 

Aspreviously discussed, our board of directors approved programs for fiscal years2007 and 2008 under which we were authorized to purchase up to one millionshares per year in the open market. Through August 31, 2008, we purchased671,766 shares under this program. Effective September 22, 2008, our board of directors has approved anexpansion of our repurchase program for the remainder of fiscal year 2008 underwhich we may invest up to $25.0 million to repurchase additional shares.

 

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**Item2.**           Management’sDiscussion and Analysis of Financial Condition and Results of Operations

** **

**Forward-Looking Statements**

 

This discussion contains statements that relate to IHS’s future plans,objectives, expectations, performance, events and the like that may constitute “forward-lookingstatements” within the “safe harbor” provisions of the Private SecuritiesLitigation Reform Act of 1995, Section 27A of the Securities Act of 1933,and Section 21E of the Securities Exchange Act of 1934. Words such as “may,”“could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,”“seeks,” “plan,” “project,” “continue,” “predict” and other words orexpressions of similar meaning are intended to identify forward-lookingstatements, although not all forward-looking statements contain theseidentifying words. These statements are based on our current expectations aboutfuture events or results and information that is currently available to us,involve assumptions, risks and uncertainties, and speak only as of the date onwhich such statements are made. Our actual results may differ materially fromthose expressed or implied in these forward-looking statements. Those factorsinclude, but are not limited to, our ability to obtain content from thirdparties (including Standards Development Organizations) on commerciallyreasonable terms, changes in demand for IHS’s products and services, changes inthe energy industry, our ability to develop new products and services, pricingand other competitive pressures, risks associated with the integration ofacquisitions, changes in laws and regulations governing our business andcertain other factors discussed under the caption “Risk Factors” in theMD&A section of our 2007 Form 10-K, and in our other filings with theSEC. IHS undertakes no duty to update, whether as a result of new information,future events or otherwise, unless required by law.

 

**Overview**

 

**Results of Operations**

 

IHS Inc. is a publicly traded Delaware corporation. IHS is aleading provider and comprehensive source of Critical Information and Insightin a sizable and growing global market. Our customers rely on our products andservices to facilitate crucial decision-making, support key processes, andimprove productivity. At the heart of our products and services is dataobtained from public sources, third parties, and our own proprietary databases.We transform that data into Critical Information and Insight that is bothuseful to our customers and available where and when they make criticalbusiness decisions. The data becomes Critical Information when we combine itwith our proprietary and third-party technology to create graphical userinterfaces, search and navigation tools, and online delivery systems or wedeliver as individual documents. We further transform that information intoInsight products and services with analysis and interpretation from our teamsof experts.

 

We sell our offerings primarily through subscriptions. As a result ofour subscription-based business model and historically high renewal rates, wegenerate recurring revenue and cash flow. We generally recognize revenue fromsubscriptions (which are usually for one-year periods) ratably over the term ofthe subscription. Historically, our business has had seasonal aspects. However, with the continued organic growth in our subscription-based businessmodel combined with several acquisitions in recent years, our seasonal aspectshave diminished.  Our first quarter does benefit from the inclusion of theresults from CERAWeek, an annual energy executive gathering. Subscriptions are generally paid in full within one to two months afterthe subscription period commences. As a result, the timing of our cash flowsgenerally precedes the recognition of revenue and income.

 

We serve some of the world’s largest corporations across multipleindustries, as well as governments and other organizations, in more than 100countries. Our primary operations outside the United States are in the UnitedKingdom, Canada and Switzerland. We have structured our business around ourcustomers and the geographies in which they reside. This allows us to tailorand expand the solutions we offer to meet the unique needs of our customersboth globally and in local markets.

 

We have targeted four specific information “domains”—Energy, ProductLifecycle, Security, and Environment. Since these four information domainsrepresent areas where our customers have needs for Critical Information andInsight, we use these domains to set priorities and design our businessstrategies. As we continue to deliver Critical Information and Insight in thosefour information domains, we prepare and analyze our financial reports toinclude our three reportable geographic segments: Americas, including theUnited States, Canada and Latin America, Europe, Middle East and Africa (EMEA)and Asia Pacific.  As the informationthat our customers need to address their complex business issues continues toconverge at the intersection of the information domains that we serve, we havereorganized our management structure to a geographic focus, the point ofcontact with our customers. This new integrated global organization willmake it easier for our customers to do business with us by providing a morecohesive, consistent, and effective sales and marketing approach in eachregion. By structuring our business around customers and the geographies inwhich they reside, we are able to tailor and expand the 

 

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solutions we offer to meet the unique needs of our customers bothglobally and in local markets.  We are also able to better manage ourCritical Information and Insight activities according to the best practices ofeach.  This new structure provides asolid foundation for growth in each market for all of our capabilities. Itallows us a more efficient method of bringing new products and services tocustomers, and supports growth in existing accounts and with new customers andmarkets. As a result of this transformation, our defined operating segmentschanged to geographic segments during the third quarter of 2008.

 

Inherent in all of our strategies is a firm commitment to put ourcustomers first in everything that we do. We believe that maintaining adisciplined “outside-in” approach will allow us to better serve our customersand our shareholders.  Our primary strategy is to achieve and strengthen aleading position in—and at the intersection of—our targeted informationdomains. We also intend to continue driving margin and quality improvementthrough operational transformation. And finally, we intend to enhance theeffectiveness of our other strategies with a continued emphasis onacquisitions.

 

To support these strategies, we have several on-going cross-functionalprojects led by members of the senior leadership team. Our operationaltransformation is an evolution, one which started over three years ago and willcontinue for a few years to come. We have not designed these initiatives aspurely cost-cutting events. Rather, they are multi-faceted endeavors designedto simultaneously improve the quality of our offerings while optimizing theefficiency and effectiveness of the processes involved.

 

Our current initiatives are designed to focus on three key areas: ourcustomers, financial model and operational improvements.  One of the key initiatives is our globalinformation operations, formerly called data accumulation, process improvementinitiative which includes combining our global information operations into ashared service to enhance our ability to work across all geographies.  In addition, we have partnered with a thirdparty to focus on quality and process improvement within our global informationoperations function.  As a result of thisinitiative and the move to further the realignment of our resources around ourregional organizational structure, we incurred a restructuring charge of $12.5million in the third quarter of 2008.

 

**Segment Information**

 
| ** **                    | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|-------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                    | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                    | ** ** | **(In thousands)**                               | ** ** |
| Americas revenue              |       | $                                                     | 128,936    |                                                 | $          | 112,208 |   | $ | 376,328 |   | $ | 308,139 |   |
| EMEA revenue                  |       | 64,665                                                |       | 58,043                                               |       | 195,022 |   | 146,938 |   |
| Asia Pacific revenue          |       | 13,833                                                |       | 13,105                                               |       | 42,054 |   | 35,800 |   |
| Total consolidated revenue    |       | $                                                     | 207,434    |                                                 | $          | 183,356 |   | $ | 613,404 |   | $ | 490,877 |   |
|                          |       |                                                  |       |                                                 |       |   |   |   |   |
| Americas operating income     |       | $                                                     | 37,160     |                                                 | $          | 35,209 |   | $ | 115,164 |   | $ | 94,346 |   |
| EMEA operating income         |       | 6,301                                                 |       | 7,636                                                |       | 28,705 |   | 24,235 |   |
| Asia Pacific operating income |       | 4,167                                                 |       | 3,327                                                |       | 11,927 |   | 8,315 |   |
| Shared services expenses      |       | (23,537                                               | )          | (16,700                                              | )          | (67,956 | ) | (45,655 | ) |
| Consolidated operating income |       | $                                                     | 24,091     |                                                 | $          | 29,472 |   | $ | 87,840 |   | $ | 81,241 |   |

 

**Revenue by information domain was as follows:**

 
| ** **                | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|---------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                | ** ** | **(In thousands)**                               | ** ** |
| Energy revenue            |       | $                                                     | 107,605    |                                                 | $          | 93,486 |   | $ | 327,555 |   | $ | 269,061 |   |
| Product Lifecycle revenue |       | 72,518                                                |       | 74,216                                               |       | 214,355 |   | 206,162 |   |
| Security revenue          |       | 20,346                                                |       | 15,654                                               |       | 56,112 |   | 15,654 |   |
| Environment revenue       |       | 6,965                                                 |       | —                                               |       | 15,382 |   | — |   |
| Total revenue             |       | $                                                     | 207,434    |                                                 | $          | 183,356 |   | $ | 613,404 |   | $ | 490,877 |   |

 

**Revenue by product category was as follows:**

 
| ** **                            | ** ** | **Three Months Ended August 31,** | ** ** | **Nine Months Ended August 31,** | ** ** |
|---------------------------------------|------------|-------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                            | ** ** | **2008**                                              | ** ** | **2007**                                             | ** ** | **2008** | ** ** | **2007** | ** ** |
| ** **                            | ** ** | **(In thousands)**                               | ** ** |
| Critical Information Products revenue |       | $                                                     | 141,509    |                                                 | $          | 129,665 |   | $ | 411,001 |   | $ | 363,580 |   |
| Critical Information Services revenue |       | 14,501                                                |       | 10,677                                               |       | 39,945 |   | 30,709 |   |
| Insight Products revenue              |       | 40,523                                                |       | 29,537                                               |       | 113,316 |   | 55,848 |   |
| Insight Services revenue              |       | 10,901                                                |       | 13,477                                               |       | 49,142 |   | 40,740 |   |
| Total revenue                         |       | $                                                     | 207,434    |                                                 | $          | 183,356 |   | $ | 613,404 |   | $ | 490,877 |   |

 

**Three Months Ended August 31, 2008 Comparedto the Three Months Ended August 31, 2007**

 

**Revenue.**  Revenue was $207.4 million for the threemonths ended August 31, 2008, compared to $183.4 million for the three monthsended August 31, 2007, an increase of $24.0 million or 13%. The increase inrevenue was driven by acquisitions which contributed $17.2 million and organicgrowth which contributed $6.0 million. Organic revenue growth was held down by a once-every-three-year releaseof a certain engineering standard which was released in the third quarter of2007.  Revenue recorded for this standardwas $6.0 million for the third quarter of 2007. The impact of foreign currency added $0.8 million.

 

Revenue from products was $182.0 million forthe third quarter of 2008, up $22.8 million or 14% compared to the same quarterof 2007. Revenue from services was $25.4 million for the third quarter of 2008,up $1.2 million or 5% compared to the same quarter of 2007.  Service revenue for the first half of 2008grew 35% over the same period in 2007. The decrease in growth rate experienced in the third quarter of 2008 isprincipally due to a decrease in consulting services revenue which is acomponent of our Insight Services offerings.

 

        Revenue for the Energy domain was $107.6 million for thequarter ended August 31, 2008, and increase of $14.1 million, or 15% overthe third quarter ended August 31, 2007. This increase was primarily due to an increase in the CriticalInformation sales.  Product Lifecycledomain revenue was $72.5 million for the quarter ended August 31, 2008, adecrease of $1.7 million, or 2% from the third quarter ended August 31,2007.  This decrease was due to the once-every-three-yearrelease of a certain engineering standard which was released in the thirdquarter of 2007.  Revenue recorded forthis standard was $6.0 million for the third quarter of 2007.  Without this timingrelated difference, revenue growth for the Product Lifecycle domain would havebeen $4.3 million, or 6%.  Revenue for the Securitydomain was $20.3 million for the quarter ended August 31, 2008, andincrease of $4.7 million, or 30% over the third quarter ended August 31,2007.  This increase was primarily due toan increase in revenue from Janes offerings. Environment domain revenue was $7.0 million for the quarter ended August 31,2008 and was from acquisitions made within the last twelve months.

 

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Revenue for our Americas segmentwas $128.9 million for the three months ended August 31, 2008, compared to$112.2 million for the three months ended August 31, 2007, an increase of$16.7 million or 15%. The increase in revenue was driven by acquisitions whichcontributed $10.9 million and organic growth which contributed $5.1 million.Favorable foreign currency rates added $0.7 million. Organic growth during thethird quarter of 2008 was driven by price increases and growth in certain criticalinformation subscription products. Organic revenue growth was partially offset by aonce-every-three-year release of a certain engineering standard which wasreleased in the third quarter of 2007. Revenue recorded for this standard was $2.9 million for the thirdquarter of 2007. Revenue from products was$111.2 million for the third quarter of 2008, up $15.1 million or 16% comparedto the same quarter of 2007.  Revenuefrom services was $17.8 million for the third quarter of 2008, up $1.6 millionor 10% compared to the same quarter of 2007.

 

Revenue for our EMEA segment was$64.7 million for the three months ended August 31, 2008, compared to$58.0 million for the three months ended August 31, 2007, an increase of$6.7 million or 11%. The increase in revenue was driven primarily byacquisitions which contributed $5.8 million. Organic growth increased $0.8 million. Foreign currency rates had a minimal impact for the quarter.  Organic growth was driven by price increasesand growth in certain critical information subscription products.  Organic revenue growth was partially offsetby a once-every-three-year release of a certain engineering standardwhich was released in the third quarter of 2007.  Revenue recorded for this standard was $2.9million for the third quarter of2007. Revenuefrom products was $58.1 million for the third quarter of 2008, up $6.5 millionor 13% compared to the same quarter of 2007. Revenue from services was $6.5million for the third quarter of 2008, up $0.1 million or 1% compared to thesame quarter of 2007.  Service revenuefor the first half of 2008 grew 71% over the same period in 2007.  The decrease in growth rate experienced inthe third quarter of 2008 is principally due to a decrease in consultingservices revenue which is a component of our Insight Services offerings.

 

Revenue for our Asia Pacificsegment was $13.8 million for the three months ended August 31, 2008,compared to $13.1 million for the three months ended August 31, 2007, anincrease of $0.7 million or 6%. The increase in revenue was driven in part byacquisitions which contributed $0.4 million and in part by organic growth whichcontributed $0.2 million.  Foreigncurrency rates had a $0.1 million favorable impact for the three months ended August 31,2008.

 

**Cost of Revenue**.  Cost of revenue was $91.3 million for thethree months ended August 31, 2008, compared to $83.0 million for thethree months ended August 31, 2007, an increase of $8.3 million or 10%. Asa percentage of revenue, cost of revenue decreased to 44.0% from 45.3%. Marginsas a percentage of revenue within our Americas segment increased to 59.6% from56.6% with increased sales in our critical information products which have arelatively fixed-cost base.  Margins as apercentage of revenue within our EMEA segment decreased to 50.2% from 52.1%,principally due to a change in product mix. Margins as a percentage of revenue within our Asia Pacific segmentincreased to 58.6% from 52.8%, principally due to an increase in the sale ofhigher margin Insight products.

 

**Selling, General and Administrative Expenses**.  Selling, general and administrative expenses(SG&A) were $73.0 million for the three months ended August 31, 2008,compared to $66.5 million for the three months ended August 31 2007, anincrease of $6.5 million or 10%. Stock-based compensation expense included inSG&A increased $1.2 million. As a percentage of revenue and excludingstock-based compensation expense, SG&A was 30.4% for the three months endedAugust 31, 2008, down from 31.5% for the three months ended August 31,2007.  Organic SG&A increased by $0.8million as we incurred costs related to our quote-to-cash system implementation,however, we have been able to maintain lower organic SG&A growth elsewhereby leveraging the cost base in back-office functions.  Acquisitions contributed $4.7 million of theincrease. Foreign-currency movements decreased SG&A by $0.1 million.

 

**RestructuringCharge**.  During the third quarter of 2008, weexecuted a restructuring initiative which primarily affected the Americas andEMEA segments.  This initiative wasundertaken to further the realignment of our resources around our regionalorganizational structure and to further transform our knowledge-based dataaccumulation operations to ensure continuous improvement in the quality of thecritical information and insight we deliver to our customers.  During the course of the restructuring, wereduced our aggregate workforce by approximately 7%, we eliminated certaincontractor positions and we closed certain offices. The restructuring charge of$12.5 million was incurred in its entirety during the third quarter of 2008 andwas comprised primarily of employee severance and termination benefits.  Approximately $5.8 million of the chargerelated to our Americas segment, $6.3 million pertained to our EMEAsegment and $0.4 million related to corporate costs.

 

**Depreciation and Amortization Expenses**.  Depreciation and amortization expenses were$9.7 million for the three months ended August 31, 2008, compared to $7.1million for the three months ended August 31, 2007, an increase of $2.6million or 37%. The increase was primarily due to acquisitions.

 

**Operating Income**.  Operating income was $24.1 million for thethree months ended August 31, 2008, compared to $29.5 million for thethree months ended August 31, 2007, a decrease of $5.4 million or 18%. Asa percentage of revenue, operating income decreased to 11.6% for the threemonths ended August 31 2008 from 16.1% for the three months ended August 312007.

 

Operating income for our Americassegment was $37.2 million for the three months ended August 31, 2008,compared to $35.2 million for the three months ended August 31, 2007, anincrease of $2.0 million or 6%. The increase was principally due to theadditional revenue discussed above coupled with our ability to leverage arelatively fixed-cost structure with our subscriptions-based products.  This was mostly offset by the restructuringcharge of $5.8 million in the third quarter of 2008.  As a percentage of revenue, Americasoperating income decreased to 28.8% for the three months ended August 31,2008 from 31.4% for the three months ended August 31, 2007, primarily dueto the restructuring charge.

 

Operatingincome for our EMEA segment was $6.3 million for the three months ended August 31,2008, compared to $7.6 million for the three months ended August 31, 2007,a decrease of $1.3 million or 17%. Operating income decreased due to therestructuring charge of $6.3 million in 2008. This was partially offset by the increased revenue in oursubscriptions-based products.  As apercentage of revenue, EMEA operating income decreased to 9.7% for the threemonths ended August

 

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31, 2008from 13.2% for the three months ended August 31, 2007.  This decrease is primarily related to therestructuring charge incurred in 2008.

 

Operating income for our AsiaPacific segment was $4.2 million for the three months ended August 31,2008, compared to $3.3 million for the three months ended August 31, 2007,an increase of $0.9 million or 27%. Operating income increased due to increasedsales in our higher margin subscriptions-based businesses.  As a percentage of revenue, Asia Pacificoperating income increased to 30.1% for the three months ended August 31,2008 from 25.4% for the three months ended August 31, 2007.

 

Operating expenses for our sharedservices were $23.5 million for the three months ended August 31, 2008,compared to $16.7 million for the three months ended August 31, 2007, anincrease of $6.8 million or 41%.  Theincrease in costs is principally due to higher stock-based compensation as wellas our quote-to-cash system implementation and our ongoing transformationalinitiatives.

 

**Provisionfor Income Taxes.**  Our effective taxrate for the three months ended August 31, 2008 was 18.7%, compared to30.6% for the three months ended August 31, 2007. The 2008 ratereflects the impact of our recent internal legal entity reorganization withinEMEA.  The cumulative year-to-date impactof this benefit is reflected in the third quarter.  This reorganization will reduce our effectivetax rate for the foreseeable future. Specifically, our annual tax rate is expected to be below 30% for 2009.

 

**Nine Months Ended August 31, 2008 Compared tothe Nine Months Ended August 31, 2007**

 

**Revenue.**  Revenue was $613.4 million for the ninemonths ended August 31, 2008, compared to $490.9 million for the ninemonths ended August 31, 2007, an increase of $122.5 million or 25%. Thisincrease was driven in part by acquisitions which contributed $81.7 million andorganic growth which contributed $33.2 million. The impact of foreign currency added $7.6 million.

 

Revenue from products was $524.3million for the first nine months of 2008, up $104.9 million or 25% compared tothe same quarter of 2007. Revenue from services was $89.1 million for the thirdquarter of 2008, up $17.6 million or 25% compared to the same quarter of 2007.  Service revenue for the first half of 2008grew 35% over the same period in 2007. The decrease in growth rate experienced in the third quarter of 2008 isprincipally due to a decrease in consulting services revenue which is acomponent of our Insight Services offerings.

 

Revenue for the Energy domain was$327.6 million for the three quarters ended August 31, 2008, and increaseof $58.5 million, or 22% over the three quarters ended August 31,2007.  This increase was primarily due toan increase in the Critical Information sales. Product Lifecycle domain revenue was $214.4 million for the threequarters ended August 31, 2008, an increase of $8.2 million, or 4% fromthe three quarters ended August 31, 2007. This increase was due increases in Critical Information products but washeld down by the once-every-three-year release of a certain engineeringstandard which was released in the third quarter of 2007.  Revenue recorded for this standard was $6.0million for the third quarter of2007.  Revenue for the Security domain was $56.1 million for thethree quarters ended August 31, 2008, and increase of $40.5 million overthe three quarters ended August 31, 2007. This increase was primarily due to an increase in revenue from Janesofferings which was acquired in June 2007. Environment domain revenue was $15.4 million for the three quartersended August 31, 2008 and was from acquisitions made within the lasttwelve months.

 

Revenue for our Americas segmentwas $376.3 million for the nine months ended August 31, 2008, compared to$308.1 million for the nine months ended August 31, 2007, an increase of$68.2 million or 22%.  This increase wasdriven in part by acquisition revenue of $42.4 million and organic growth whichcontributed $20.7 million.  Favorableforeign currency rates added $5.1 million of revenue growth.  Organic growth during the first half of 2008was driven by price increases and growth in certain critical informationsubscription products.  Revenue fromproducts was $318.6 million for the first nine months of 2008, up $57.6 millionor 22% compared to the same quarter of 2007. Revenue from services was $57.7million for the third quarter of 2008, up $10.6 million or 22% compared to thesame quarter of 2007.

 

Revenue for our EMEA segment was$195.0 million for the nine months ended August 31, 2008, compared to$146.9 million for the nine months ended August 31, 2007, an increase of$48.1 million or 33%. This increase was driven in part by acquisitions whichcontributed by $34.1 million and organic growth which contributed $12.0million. Favorable foreign currency rates contributed $2.0 million of revenuegrowth.  Organic growth was drivenprimarily by price increases and growth in certain critical information subscriptionproducts in addition to higher revenue from our consulting business in theregion.  Revenue from products was $166.9million for the first nine months of 2008, up $39.0 million or 31% compared tothe same quarter of 2007.  Revenue fromservices was $28.1 million for the third quarter of 2008, up $9.1 million or48% compared to the same quarter of 2007. Service revenue for the first half of 2008 grew 71% over the same periodin 2007.  The decrease in growth rateexperienced in the third quarter of 2008 is principally due to a decrease inconsulting services revenue which is a component of our Insight Servicesofferings.

 

Revenue for our Asia Pacificsegment was $42.1 million for the nine months ended August 31, 2008,compared to $35.8 million for the nine months ended August 31, 2007, an increaseof $6.3 million or 17%. This increase was driven in part by acquisitions whichcontributed by $5.2 million and organic growth which contributed $0.5million.  Foreign currency rates resultedin a slight favorable increase of $0.5 million of revenue.  Organic growth was driven primarily byincreased sales in our specifications-and-standards offerings in 2008.

 

**Cost of Revenue**.  Cost of revenue was $273.7 million for thenine months ended August 31, 2008, compared to $216.5 million for the ninemonths ended August 31, 2007, an increase of $57.2 million or 26%. As apercentage of revenue, cost of revenue increased to 44.6% from 44.1%.  Margins as a percentage of revenue within ourAmericas segment increased to 58.0% from 57.3% with increased sales in ourcritical information products which have a relatively fixed-cost base.  Margins as a percentage of revenue within ourEMEA segment decreased to 51.5% from 53.6%, principally due to an increase inlower margin services. Margins as a percentage of revenue within our AsiaPacific segment increased to 57.7% from 55.0% principally due to an increase inthe sale of higher margin Insight products.

 

**Selling, General and Administrative Expenses**.  SG&A expenses were $217.8 million for thenine months ended August 31, 2008, compared to $181.0 million for the ninemonths ended August 31, 2007, an increase of $36.8 million or 20%.  Stock-based compensation expense included inSG&A increased $10.7 million to $32.4 million.  As a percentage of revenue and excluding stock-basedcompensation expense, SG&A was 30.2% for the nine months ended August 31,2008, down from 32.5% for the nine months ended August 31 2007.  Organic SG&A increased by $3.7 million aswe incurred costs related to our quote-to-cash system implementation, howeverwe have been able to maintain a lower organic SG&A growth 

 

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byleveraging the cost base in back-office functions.  Acquisitions contributed $21.3 million of theincrease.  Foreign-currency movementsincreased SG&A by $1.2 million.

 

**RestructuringCharge**.  During the third quarter of 2008, weexecuted a restructuring initiative which primarily affected the Americas andEMEA segments.  This initiative wasundertaken to further the realignment of our resources around our regionalorganizational structure and to further transform our knowledge-based dataaccumulation operations to ensure continuous improvement in the quality of thecritical information and insight we deliver to our customers.  During the course of the restructuring, wereduced our aggregate workforce by approximately 7%, we eliminated certaincontractor positions and we closed certain offices. The restructuring charge of$12.5 million was incurred in its entirety during the third quarter of 2008 andwas comprised primarily of employee severance and termination benefits.  Approximately $5.8 million of the chargerelated to our Americas segment, $6.3 million pertained to our EMEAsegment and $0.4 million related to corporate costs.

 

**Depreciation and Amortization Expenses**.  Depreciation and amortization expenses were$28.2 million for the nine months ended August 31, 2008, compared to $16.6million for the nine months ended August 31, 2007, an increase of $11.6million or 70%. The increase was primarily due to acquisitions.

 

**Operating Income**.  Operating income was $87.8 million for thenine months ended August 31, 2008, compared to $81.2 million for the ninemonths ended August 31, 2007, an increase of $6.6 million or 8%. As apercentage of revenue, operating income decreased to 14.3% for the nine monthsended August 31, 2008 from 16.6% for the nine months ended August 31,2007.

 

Operating income for our Americassegment was $115.2 million for the nine months ended August 31, 2008,compared to $94.3 million for the nine months ended August 31, 2007, anincrease of $20.9 million or 22%. The increase was principally due to theadditional revenue discussed above coupled with our ability to leverage arelatively fixed-cost structure with our subscriptions-based products.  This was partially offset by an increase inamortization of assets related to our acquisitions as well as the restructuringcharge in 2008.  As a percentage ofrevenue, Americas operating income remained flat at 30.6%.

 

Operating income for our EMEAsegment was $28.7 million for the nine months ended August 31, 2008,compared to $24.2 million for the nine months ended August 31, 2007, an increaseof $4.5 million or 19%.  Operating incomeincreased due to increased sales from both organic growth and acquisitionrevenue.  This was partially offset byhigher amortization of assets related to our acquisitions as well as therestructuring charge in 2008.  As apercentage of revenue, EMEA operating income decreased to 14.7% for the ninemonths ended August 31, 2008 from 16.5% for the nine months ended August 31,2007.

 

Operating income for our AsiaPacific segment was $11.9 million for the nine months ended August 31,2008, compared to $8.3 million for the nine months ended August 31, 2007,an increase of $3.6 million or 43%. Operating income increased due to increased sales in our higher marginsubscriptions-based products.  As apercentage of revenue, Asia Pacific operating income increased to 28.4% for thenine months ended August 31, 2008 from 23.2% for the nine months ended August 31,2007.

 

Operating expenses for our sharedservices were $68.0 million for the nine months ended August 31, 2008,compared to $45.7 million for the nine months ended August 31, 2007, anincrease of $22.3 million or 49%. Stock-based compensation increased $10.9 million.  The increase in costs is also due to ourquote-to-cash system implementation and our ongoing transformationalinitiatives.

 

**Provisionfor Income Taxes**.  Our effective taxrate for the nine months ended August 31, 2008 was 28.7%, compared to31.9% for the nine months ended August 31, 2007. The 2008 ratereflects the impact of our recent internal legal entity reorganization withinEMEA.  This reorganization will reduceour effective tax rate for the foreseeable future.  Specifically, our annual tax rate is expectedto be below 30% for 2009.

 

**Financial Condition**

** **

**AccountsReceivable. **Accountsreceivable has decreased by $28.5 million, or 16%, to $147.0 million comparedto $175.5 million as of November 30, 2007. The decrease is primarilyattributable to seasonal declines partially offset by organic and acquisitionrelated growth.

 

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**AccruedCompensation.**  Accruedcompensation was $24.7 million as of August 31, 2008, compared to $37.0million as of November 30, 2007, a decrease of $12.3 million, or 33%.  The decrease is primarily due to thedisbursement of annual incentive bonuses during the first quarter of 2008.

 

**DeferredRevenue. **Deferredrevenue was $264.0 million as of August 31, 2008, compared to $239.4million as of November 30, 2007, an increase of $24.6 million, or 10%. Aftereliminating the impact of acquisitions and foreign currency, our deferredrevenue growth was 13% over August 31, 2007.

** **

**Liquidity and Capital Resources**

** **

As of August 31, 2008, we hadcash and cash equivalents of $87.5 million and $17.2 million of short-termdebt. We have generated strong cash flows from operations over the last fewyears. As a result of these factors, as well as the availability of funds underour credit facility, we believe we will have sufficient cash to meet ourworking capital and capital expenditure needs.

 

Our future capital requirementswill depend on many factors, including the timing and extent of spending tosupport product development efforts, acquisitions, our share buyback program, theexpansion of sales and marketing activities, the timing of introductions of newproducts, changing technology, and the continued market acceptance of ourofferings. We could be required, or could elect, to seek additional funding throughpublic or private equity or debt financing for any possible futureacquisitions. Additional funds may not be available on terms acceptable to usor at all. We expect our capital expenditures, excluding potentialacquisitions, to be less than $15 million for 2008.

 

*Cash Flows*

* *

Net cash provided by operatingactivities was approximately $138.1 million for the nine months ended August 31,2008, compared to $88.8 million for the nine months ended August 31, 2007,an increase of $49.3 million. The increase was principally due to theprofitable growth year over year, primarily due to increased pricing, anexpanding subscription base, increased sales and the positive impact of ouracquisitions.  Our subscription-basedbusiness model typically generates a high rate of cash flow and is aided by thefollowing:

 

·                  Relatively low levels ofrequired capital expenditures;

 

·                  Positive working capitalcharacteristics that do not generally require substantial working capitalincreases to support our growth;

 

·                  A cash-for-tax rate thatcontinues to trend lower than our effective tax rate; and

 

·                  Our well-capitalized balancesheet.

 

The positive cash flow impact of our growing business in the firstthree quarters of 2008 was partially offset by the annual bonus payments,which are accrued throughout the year and substantially paid in the firstquarter each year and were approximately $6.4 million higher in 2008 thanin 2007.  In addition, we had payments of$5.7 million related to our restructuring charge in the third quarter of 2008.

 

It is expected that the majority of the $6.7 million remaining balanceof the restructuring charge will be paid in the fourth quarter of 2008.

 

Net cash used ininvesting activities was approximately $138.1 million for the nine months endedAugust 31, 2008, compared to $110.3 million for the nine months ended August 31,2007. The increase is driven primarily by acquisitions.  In 2008, we disbursed $134.9 million for thepurchase of intangible assets and five businesses. In the first three quartersof 2007, we disbursed approximately $87.3 million for acquisitions.

 

Net cash used in financingactivities was $58.5 million for the nine months ended August 31, 2008compared to $25.2 million during the nine months ended August 31,2007.  This increase was primarily due torepurchases of our common stock of $56.9 million in 2008.  During 2008, we borrowed $50.0 million on ourRevolver which was used to fund acquisitions. By August 31, 2008, there was no balance outstanding on theRevolver.  We anticipate borrowing fromthe Revolver during the fourth quarter of 2008 to fund a portion of thepurchase price for the pending Global Insight acquisition and to facilitateactivity related to our share buyback program.

 

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*Share Repurchase Program*

 

During2006, our board of directors approved a program to reduce the dilutive effectsof employee equity grants, by allowing employees to surrender shares back tothe company for a value equal to their statutory tax liability.  IHS then pays the statutory tax on behalf ofthe employee.  Later in 2006, our boardof directors approved an additional program—a stock buyback program—whereby IHSmay acquire up to one million shares per year in the open market to more fullyoffset the dilutive effect of our employee equity programs. This program wasrenewed by the board of directors in late 2007 for fiscal year 2008.  During the three months ended August 31,2008, we repurchased 577,566 shares of our Class A common stock forapproximately $35.0 million, or $60.60 per share, pursuant to the stock buybackprogram and 51,445 shares for approximately $3.2 million, or $62.65 per share,related to shares withheld for taxes. During the nine months ended August 31, 2008, we repurchased671,766 shares of our Class A common stock for approximately $40.5million, or $60.36 per share, pursuant to the stock buyback program and 261,701shares for approximately $16.3 million, or $62.44 per share, related to shareswithheld for taxes.  Since the inceptionof these programs, we have repurchased 1,361,728 shares of our Class Acommon stock for approximately $69.7 million, or $51.20 per share, pursuant tothe stock buyback program and 644,514 shares for approximately $33.2 million,or $51.53 per share, related to shares withheld for taxes.

 

*Credit Facility*

* *

On September 7, 2007, we entered into an amended and restatedcredit agreement (Revolver). The $385 million unsecured Revolver allowsus, 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 ourLeverage Ratio, which is the ratio of Consolidated Funded Indebtedness to rollingfour quarter Consolidated Earnings Before Interest Expense, Taxes, Depreciationand Amortization (EBITDA), as defined in the Revolver. The rate ranges from theapplicable LIBOR plus 50 basis points to 125 basis points or the agent bank’sbase rate. A commitment fee is payable periodically and ranges from 10 to 25basis points based upon our Leverage Ratio. The Revolver contains certainfinancial and other covenants, including limitations on capital leaseobligations and maximum Leverage and Interest Coverage Ratios, as defined inthe Revolver.

 

As of August 31, 2008, we were in compliance with all of thecovenants in the agreement. We had letters of credit totaling approximately$0.7 million as of August 31, 2008.  On March 3, 2008, weborrowed $50.0 million under the Revolver at an annual rate of 3.6% to fundacquisitions.  As of August 31,2008, this had been paid down and the outstanding balance was zero.  Theuse of the Revolver allows us to maintain cash levels to fund the ongoingoperational needs of the business and has tax benefits as we may not have torepatriate cash from foreign locations to fund the acquisitions.

 

We expect to borrow on the Revolver in the fourth quarter upon closingof the Global Insight, Inc., acquisition previously described and to facilitateactivity related to our share buyback program.

 

*Capital Structure*

 

On September 18,2008, the holders of our 13,750,000 Class B common stock converted it to13,750,000 Class A common shares. In exchange for this conversion, the number of allowable demandregistrations has increased from two to four times.

 

**Off-Balance Sheet Transactions**

** **

We have no off-balance sheettransactions.

 

**Critical Accounting Policies**

 

Our management makes a number of significantestimates, assumptions and judgments in the preparation of our financialstatements. See “Management’s Discussion and Analysis and Results ofOperations—Critical Accounting Policies and Estimates” in our 2007 Form 10-Kfor a discussion of the estimates and judgments necessary in our accounting forrevenue recognition, valuation of long-lived and intangible assets andgoodwill, income taxes, pension and post-retirement benefits, and stock-basedcompensation.

 

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**Item 3.**           Quantitative and Qualitative DisclosureAbout Market Risk

** **

For information regarding our exposure to certainmarket risk, see Item 7A, “Quantitative and Qualitative Disclosures About MarketRisk,” in our 2007 Form 10-K. There were no material changes to our marketrisk exposure during the first nine months of 2008.

 

**Item 4.**           Controls and Procedures

** **

*(a) Evaluationof disclosure controls and procedures.*

 

Under the supervision and with the participation ofthe Company’s management, including the Chief Executive Officer and ChiefFinancial Officer, the Company has evaluated the effectiveness of itsdisclosure controls and procedures pursuant to Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as of the end of theperiod covered by this report. Based on that evaluation, the Chief ExecutiveOfficer and Chief Financial Officer concluded that the Company’s disclosurecontrols and procedures as defined in Rules 13a-15(e) and 15d-15(e) underthe Securities Exchange Act of 1934, as amended, are effective in ensuring thatall material information required to be filed in this quarterly report has beenmade known to them in a timely fashion.

 

*(b) Changesin internal control over financial reporting.*

 

Therewere no changes in our internal control over financial reporting that occurredduring the period covered by this Form 10-Q that have materially affected,or are reasonably likely to materially affect, our internal control over financialreporting.

 

**PART II. OTHER INFORMATION**

** **

**Item 1.**           Legal Proceedings

** **

Fromtime to time, we are involved in litigation, most of which is incidental to ourbusiness. In our opinion, no litigation to which we currently are a party islikely to have a material adverse effect on our results of operations orfinancial condition.

 

**Item 1A. Risk Factors**

 

*We are exposed to a variety of risks anduncertainties in conducting our business, including, but not limited to, therisks described below. This section includes forward-looking statementsand future expectations as of the date of this annual report. You shouldcarefully consider the risks described in this section and all of the otherinformation provided in this annual report. If any of the events or developmentsdescribed below actually occurs, our business, financial condition, and resultsof operations may be adversely affected. In that case, the trading price of ourClass A common stock could decline and you could lose all or part of yourinvestment.*

 

***Our growth strategymay prove unsuccessful.***

*** ***

Our growth strategy involves enhancing ourofferings to meet our customers’ needs.  Oursuccess in meeting these needs depends in large part upon our ability todeliver consistent, high-quality, and timely offerings covering issues,developments, and trends that our customers view as important.  In addition, we plan to grow by achieving ourstrategy of being the leading source of Critical Information and Insight in ourtargeted information domains through profitable organic growth andacquisitions.  We are investing in ourgrowth strategy and it may take a considerable amount of time and expense tofully execute it or benefit from it.  Ifwe are unable to execute our growth strategy, or if we do so less capably thanour competitors, our operating performance including our ability to generateadditional revenues on a profitable basis may be adversely affected.

 

***If we are unable tosuccessfully identify or effectively integrate acquisitions, our financialresults may be adversely affected.***

*** ***

We intend to continue to selectively pursueacquisitions to complement our internal growth.  There can be no assurance that we will be ableto identify suitable candidates for successful acquisitions at acceptableprices.  In addition, our ability toachieve the expected returns and synergies from our past and futureacquisitions and alliances depends in part upon our ability to integrate theofferings, technology, administrative functions, and personnel of thesebusinesses into our business in an efficient and effective manner.  We cannot assure you that we will besuccessful in integrating acquired businesses or that our acquired businesseswill perform at the levels we anticipate.

 

***If we are unable toconsistently renew subscriptions for our offerings, our results could weaken.***

*** ***

In 2007, we derived more than 74% of ourrevenues from subscriptions to our offerings.  These subscriptions are generally for a termof one year.  Our results depend on ourability to achieve and sustain high annual renewal rates on existingsubscriptions and to enter into new subscription arrangements on commerciallyacceptable terms.  Our failure to achievehigh annual renewal rates on commercially acceptable terms would have amaterial adverse effect on our business, financial condition, and operatingresults.

 

***Our internationaloperations are subject to exchange rate fluctuations and other risks relatingto non-U.S. operations.***

*** ***

We operate in over 100 countries around theworld and a significant part of our revenue comes from international sales.  In the first three quarters of 2008, wegenerated approximately half of our revenues from sales outside the UnitedStates and we expect to increase our international presence over time.  Operations outside of the United States may beaffected by changes in trade protection laws, policies, 

 

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and measures as well as other regulatory requirements affecting tradeand investment; unexpected changes in regulatory requirements; social,political, labor, or economic conditions in a specific country or region; anddifficulties in staffing and managing foreign operations.  In addition, we must manage the uncertaintiesof obtaining data and creating solutions that are relevant to particulargeographic markets; the complexity of maintaining and monitoring effectivepolicies and procedures in locations around the world; differing levels ofintellectual property protection in various jurisdictions; and restrictions orlimitations on the repatriation of funds.

 

Significant fluctuations in exchange ratesbetween the U.S. dollar and foreign currencies may adversely affect our netrevenues.  Our primary operations outsidethe United States are in the United Kingdom, Canada, and Switzerland.  Our operating profit outside the United Stateshas historically exceeded our domestic operating profit.

 

We are expanding our sales and marketingefforts in certain emerging markets.  Expanding our business into emerging marketsmay present additional risks beyond those associated with more developedinternational markets.  In any emergingmarket, we may face additional risks, including cash-based economies,inconsistent government policies, and sudden currency revaluations.

 

***The loss of, or theinability to attract and retain, key personnel could impair our future success.***

*** ***

Our future success depends in part on thecontinued service of our employees—including executive officers and other keymanagement, sales, marketing, product development, and operations personnel—andon our ability to continue to attract, motivate, and retain additional highlyqualified employees. The loss of the services of one or more of our keypersonnel or our inability to recruit replacements for such personnel or tootherwise attract, motivate, or retain qualified personnel could have anadverse effect on our business, operating results, and financial condition.

 

***We may not be ableto protect intellectual property rights.***

*** ***

We rely on copyright laws and nondisclosure,license, and confidentiality arrangements to protect our proprietary rights aswell as the intellectual property rights of third parties whose content welicense. However, it is not possible to prevent all unauthorized uses of theserights. We cannot assure you that the steps we have taken to protect ourintellectual property rights, and the rights of those from whom we licenseintellectual property, are adequate to deter misappropriation or that we willbe able to detect unauthorized uses and take timely and effective steps toremedy this unauthorized conduct. In particular, a significant portion of ourrevenues are derived internationally including jurisdiction where protectingintellectual property rights may prove even more challenging. To prevent orrespond to unauthorized uses of our intellectual property, we might be requiredto engage in costly and time-consuming litigation and we may not ultimatelyprevail. In addition, our offerings could be less differentiated from those ofour competitors, which could adversely affect the fees we are able to charge.

 

***We rely on a networkof independent contractors and dealers whose actions could have an adverseeffect on our business.***

*** ***

We obtain some of our critical informationfrom independent contractors, particularly in our Energy segment and forcertain offerings of our Jane’s business.  In addition, we rely on a network of dealersto sell our offerings in locations where we do not maintain a sales office orsales teams.  These independentcontractors and dealers are not employees of our company.  As a result, we are limited in our ability tomonitor and direct their activities.  Theloss of a significant number of these independent contractors could disrupt ourinformation-gathering efforts or our sales, marketing, and distributionactivities.  In addition, if any actionsor business practices of these individuals or entities violate our policies orprocedures or are otherwise deemed inappropriate or illegal, we could besubject to litigation, regulatory sanctions, or reputation damage, any of whichcould adversely affect our business.

 

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As part of our strategic business model, weoutsource certain operations and engage independent contractors to perform workin various locations around the world.  Examplesinclude “back office” services such as payroll as well as highly technicalservices such as data entry, programming, indexing, and testing.  By entering into these independent contractorarrangements, we face risks that one or more independent contractors mayunexpectedly cease operations, that they may perform work that deviates fromour standards, that events in a given region may disrupt the independentcontractor’s operations, or that we may not be able to adequately protect ourintellectual property.  If these riskswere to occur, they could adversely affect our business.

 

***We are affected byconditions and trends in our targeted industries, which may inhibit our abilityto grow or otherwise adversely affect our business.***

*** ***

Our business, financial condition, andresults of operations depend upon conditions and trends affecting theindustries in which our customers do business.  Examples of such industries include energy,defense, aviation, and manufacturing.  Itis possible that a global economic decline or a decline in several of our customers’industries, for any reason, could adversely impact our customers and thusreduce our revenues.  Our ability to growwill depend in part upon the growth of these industries as well as our abilityto increase sales of our offerings to customers in these industries.  It is possible that, if we fail to manage oursales and marketing efforts, consolidation of businesses could reduce ourcurrent and potential customers and could have a material adverse effect on ourbusiness.  Moreover, the larger organizationsresulting from consolidation could have greater bargaining power, which couldadversely affect the pricing of our offerings.  Factors that adversely affect revenues andcash flows in our customers’ industries, including operating results, capitalrequirements, regulation, and litigation, could reduce the funds available tothem to purchase our offerings.  

 

***We depend on contentobtained through agreements with third parties, including Standards DevelopmentOrganizations (SDOs) for offerings in our Product Lifecycle domain, and thefailure to maintain these agreements on commercially reasonable terms couldprove harmful to our business.***

*** ***

Certain of our offerings in the Engineeringsegment (particularly our Specs and Standards offerings in the Product Lifecycleinformation domain) include content that is either purchased or licensed fromthird parties, including SDOs.  Offeringsthat rely upon SDO information accounted for approximately 27% of our totalrevenue in 2007.  We believe that thecontent licensed from many of these third parties, particularly the SDOsreferred to above, cannot be obtained from alternate sources on favorableterms, if at all.  Our license agreementswith these third parties are generally nonexclusive and many are terminable onless than one year’s notice. In addition, many of these third parties competewith one another and us.  As a result, wemay not be able to maintain or renew these agreements at cost-effective prices,and these third parties might restrict or withdraw their content from us forcompetitive or other reasons.  When SDO royaltypayments increase, our operating margins may decline.  If we are unable to maintain or renew asignificant number of these third party content agreements, particularly thosewe have with SDOs, or if we renew a significant number of these agreements onterms that are less favorable to us, the quality of our offerings and ourbusiness, operating results, and financial condition may be adversely affected.

 

***Our investments intechnology may not be sufficient and may not result in an increase in ourrevenue or decreases in our operating costs.***

*** ***

As the technological landscape continues toevolve, it may become increasingly difficult for us to make timely, cost-effectivechanges to our offerings in a manner that adequately differentiates them fromthose of our competitors. We cannot assure you that our investments have beenor will be sufficient to maintain or improve our competitive position or thatthe development of new or improved technologies and products by our competitorswill not have a material adverse effect on our businesses.

 

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***We operate in competitivemarkets, which may adversely affect our market share and financial results.***

*** ***

Some of our competitors focus on sub-marketswithin our targeted industries while others have significant financial andinformation-gathering resources, recognized brands, technologicalexpertise, and market experience. We believe that competitors are continuouslyenhancing their products and services, developing new products and services,and investing in technology to better serve the needs of their existingcustomers and to attract new customers.

 

We face competition in specific industriesand with respect to specific offerings. We may also face competition fromorganizations and businesses that have not traditionally competed with us butthat could adapt their products and services to meet the demands of ourcustomers. Increased competition may require us to reduce the prices of ourofferings or make additional capital investments which would adversely affectour margins. If we are unable or unwilling to do so, we may lose market sharein our target markets and our financial results may be adversely affected.

 

Most of our license agreements with SDOs arenonexclusive, which allow the SDOs to distribute their standards themselves orlicense them to other third parties for distribution.  In addition, some of the critical informationwe use in our offerings is publicly available in raw form at little or no cost. The Internet and other electronic mediahave simplified the process of locating, gathering, and disseminating information.

 

***We could experienceproperty damage, system failures, or capacity constraints, which couldinterrupt the delivery of our offerings to customers and ultimately cause us tolose customers.***

*** ***

Our ability to protect our data centersagainst damage from interruptions or breach of information systems security,fire, power loss, sabotage, telecommunications failure, or other accidents ordisasters is critical. Any delays or failures in our systems or errors in thetechnology that we use to store and deliver our content to customers would harmour business. The growth of our customer base may also strain our systems inthe future. In addition, our products could be affected by failures of third-partytechnology used in our products and we could have no control over remedyingthese failures. Any failures or problems with our systems or offerings couldforce us to incur significant costs to remedy the failures or problems,decrease customer demand for our products, tarnish our reputation, and harm ourbusiness.

 

***We may be exposed tolitigation related to content we make available to customers, and we may facelegal liability or damage to our reputation if our customers are not satisfiedwith our offerings or if our offerings are misused.***

*** ***

As a provider of Critical Information andInsight, and as a user of third-party content, we face potentialliability for, among other things, breach of contract, negligence, andcopyright and trademark infringement. Our professional reputation is animportant factor in attracting and retaining our customers and in buildingrelationships with the third parties. If customers were to become dissatisfiedwith the quality of our offerings, our reputation could be damaged and ourbusiness could be materially adversely affected. In addition, if theinformation in our offerings is incorrect for any reason, or if it is misusedor used inappropriately, we could be subject to reputation damage orlitigation.

 

***Our offerings couldinfringe on the intellectual property rights of others, which may require us toengage in costly litigation and could disrupt our business.***

*** ***

Third parties may assert infringement orother intellectual property claims against us based on their intellectualproperty rights. If such claims are successful, we may have to pay substantialdamages, possibly including treble damages, for past infringement. We mightalso be prohibited from selling our offerings or providing certain informationwithout first obtaining a license from the third party, which, if available atall, may require us to pay additional royalties. Even if infringement claimsagainst us are without merit, defending a lawsuit takes significant time, maybe expensive, and may divert our management’s attention from other businessconcerns.

 

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***Shares eligible forfuture sale could depress the price of our shares.***

*** ***

Sales of substantial amounts of theClass A common stock in the public market, or the perception that suchsales could occur, could adversely affect the market price of the shares.  As of September 18, 2008, there were63,870,075 shares of Class A common stock and no shares of Class Bcommon stock outstanding.  Through itssubsidiary, Urvanos Investments Limited, TBG Holdings N.V. indirectly owned anaggregate of 14,708,859 shares of Class A common.  In addition, investment entities affiliated withGeneral Atlantic LLC owned 2,735,409 shares of Class A common stock andWoodbridge International Holdings S.A. owned 4,399,000 shares ofClass A common stock.

 

TBG and Woodbridge are entitled to require usto register their shares under the Securities Act under certain conditions.  For rights and conditions applicable to TBGsee “Selling Stockholders—Registration Rights Agreements” under our post-effectiveamendment to a registration statement dated May 21, 2007 as well as ourForm 8-K dated September 18, 2008, in which we announced an agreement toincrease TBG’s demand registration rights from two to four.  For rights and conditions applicable toWoodbridge, see the Jane’s Information Group Stock Purchase Agreement includedas an exhibit to our report on Form 10-Q for the quarter endedAugust 31, 2007.  The sale by us orany of these stockholders of shares of common stock in the public market, orthe perception that such sales might occur, could have a material adverseeffect on the price of our shares.

 

***The price of ourClass A common stock may be volatile and may be affected by marketconditions beyond our control.***

*** ***

Our share price is likely to fluctuate in thefuture because of the volatility of the stock market in general and a varietyof factors, many of which are beyond our control.

 

Market fluctuations could result in volatilityin the price of shares of our Class A common stock, which could cause adecline in the value of your investment.  In addition, if our operating results fail tomeet the expectations of stock analysts or investors, we may experience animmediate and significant decline in the trading price of our Class Acommon stock.

 

***Provisions in ourcharter documents and under Delaware law could discourage a takeover thatstockholders may consider favorable.***

*** ***

Certain provisions in our governing documents could make a merger,tender offer, or proxy contest involving us difficult, even if such eventswould be beneficial to the interests of our stockholders.  These provisions include our dual classstructure, our classified board, our supermajority voting requirements, and ouradoption of a rights agreement, commonly known as a “poison pill.”  In addition, we are subject to certainDelaware anti-takeover provisions.  UnderDelaware law, a corporation may not engage in a business combination with anyholder of 15% or more of its capital stock unless the holder has held the stockfor three years or, among other things, the board of directors has approved thetransaction.  Accordingly, our board ofdirectors could rely upon these or other provisions in our governing documentsand upon Delaware law to prevent or delay an acquisition of us. 

 

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**Item 2.****           Unregistered Sales ofEquity Securities and Use of Proceeds**

 

Items2(a) and (b) are inapplicable.

 
| (c) | The  following table provides a month-to-month summary of the share repurchase  activity under the current stock repurchase program during the nine months  ended August 31, 2008: |
|-----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **Period**                                    | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average Fair  Market Value  per Share** | ** ** | **Total Number  of Shares  Purchased as  Part of Publicly  Announced  Plans or  Programs** | ** ** | **Maximum  Number of  Shares That  May Yet Be  Purchased  Under the  Plans or  Programs** | ** ** |
|-----------------------------------------------|------------|--------------------------------------------------|------------|----------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|
| December 1 — December 31, 2007 |       | —                                           |       | $                                                        | —     |                                                                                                                     | —     |                                                                                                                    | 1,000,000  |   |
| January 1 — January 31, 2008   |       | 66,300                                           |       | $                                                        | 58.41      |                                                                                                                     | 66,300     |                                                                                                                    | 933,700    |   |
| February 1 — February 29, 2008 |       | 200                                              |       | $                                                        | 60.02      |                                                                                                                     | 200        |                                                                                                                    | 933,500    |   |
| March 1 – March 31, 2008       |       | 27,700                                           |       | $                                                        | 60.00      |                                                                                                                     | 27,700     |                                                                                                                    | 905,800    |   |
| April 1 – April 30, 2008       |       | —                                           |       | —                                                   |       | —                                                                                                                   |       | 905,800                                                                                                                 |       |
| May 1 – May 31, 2008           |       | —                                           |       | —                                                   |       | —                                                                                                                   |       | 905,800                                                                                                                 |       |
| June 1 – June 30, 2008         |       | 244,146                                          |       | $                                                        | 58.82      |                                                                                                                     | 244,146    |                                                                                                                    | 661,654    |   |
| July 1 – July 31, 2008         |       | 302,572                                          |       | $                                                        | 61.94      |                                                                                                                     | 302,572    |                                                                                                                    | 359,082    |   |
| August 1 – August 31, 2008     |       | 30,848                                           |       | $                                                        | 61.53      |                                                                                                                     | 30,848     |                                                                                                                    | 328,234    |   |
| Total                                         |       | 671,766                                          |       | $                                                        | 60.36      |                                                                                                                     | 671,766    | (1)                                                                                                                     | 328,234    | (1) |

 

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| (1) | During 2006, our  board of directors authorized the repurchase of up to one million IHS shares  of Class A common stock per year to more fully offset the dilutive  effect of our employee equity programs. Effective September 22, 2008, our  board of directors has approved an expansion of our repurchase program for  the remainder of fiscal year 2008 under which we may invest up to $25 million  to repurchase additional shares. Repurchases will be made from time to time  in the open market. This table does not include the surrender of common  shares by employees to the company to cover taxes due by employees upon the  vesting of employee-equity awards. |
|-----|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| **Item  6.** | **Exhibits**                                                  |
|--------------|---------------------------------------------------------------|
| ** **   | ** **                                                    |
| **(a)**      | **Index  of Exhibits**                                        |
| ** **   | ** **                                                    |
| ** **   | **The  following exhibits are filed as part of this report:** |

 
| **Exhibit  Number** | ** ** | **Description**                                                                                                                                                                                 |
|---------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 31.1*               |       | Certification of the Chief Executive Officer  Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities  Exchange Act.                                                         |
|                |       |                                                                                                                                                                                            |
| 31.2*               |       | Certification of the Chief Financial Officer  Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities  Exchange Act.                                                         |
|                |       |                                                                                                                                                                                            |
| 32.1*               |       | Certification  of the Chief Executive Officer and Chief Financial Officer Pursuant to 18  U.S.C. Section 1350, as adopted Pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002. |
|                |       |                                                                                                                                                                                            |
| 99.1*               |       | Agreement  and Plan of Merger by and among IHS, Global Insight, et al., dated as of  September 18, 2008.                                                                                        |

 

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*                 Filedelectronically herewith.

 

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**SIGNATURE**

** **

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Registrant has duly caused this report to be signed on itsbehalf by the undersigned, thereunto duly authorized, on September 30,2008.

 

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

 

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