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** **

**UNITEDSTATESSECURITIES 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 February 28, 2009** |
| ** **      | ** ** | ** ** |
| **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 number001-32511**

** **

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**IHSINC.**

(Exact name of registrant asspecified in its charter)

 

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

 

**15Inverness Way EastEnglewood, CO 80112**

(Address of Principal Executive Offices)

 

**(303) 790-0600**

(Registrant’s telephone number, including area code)

 

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Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days.

 

xYES          o NO

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer, or a smaller reporting company. Seedefinitions of “large accelerated filer,” and “accelerated filer,” and smallerreporting company in Rule 12b-2 of the Exchange Act. 

 

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

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule 12b-2of the Act).

 

o YES          x NO

 

As of February 28,2009, there were 63,012,596 sharesof our Class A 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 | 16         |
| Item 3.          | Quantitative  and Qualitative Disclosures About Market Risk                                 | 21         |
| Item 4.          | Controls and  Procedures                                                                    | 21         |
|             |                                                                                        |       |
| **PART II** | ** **                                                                                  | ** ** |
| Item 1.          | Legal Proceedings                                                                           | 22         |
| Item  1A.        | Risk Factors                                                                                | 22         |
| Item 2.          | Unregistered  Sales of Equity Securities and Use of Proceeds                                | 22         |
| Item  6.         | Exhibits                                                                                    | 22         |
|             |                                                                                        |       |
| **SIGNATURE**    |                                                                                        | 23         |

 

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**Tableof Contents**

 

**PART I. FINANCIAL INFORMATION**

Item 1.Financial Statements

 

**IHS INC.CONDENSED CONSOLIDATED BALANCE SHEETS**

** **

**(Inthousands except share data)**

 
| ** **                                                                                                                                                                                                                                       | ** ** | **As of  February 28, 2009** | ** ** | **As of  November 30, 2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                                                                                                                                                                                       | ** ** | **(Unaudited)**                             | ** ** | **(Audited)**                               | ** ** |
| **Assets**                                                                                                                                                                                                                                       | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Current assets:                                                                                                                                                                                                                                  |       |                                        |       |                                        |       |
| Cash and cash  equivalents                                                                                                                                                                                                                       |       | $                                           | 79,900     |                                        | $          | 31,040 |   |
| Accounts  receivable, net                                                                                                                                                                                                                        |       | 222,309                                     |       | 207,815                                     |       |
| Deferred  subscription costs                                                                                                                                                                                                                     |       | 40,367                                      |       | 35,948                                      |       |
| Deferred income  taxes                                                                                                                                                                                                                           |       | 25,486                                      |       | 28,801                                      |       |
| Other                                                                                                                                                                                                                                            |       | 16,901                                      |       | 14,213                                      |       |
| Total current  assets                                                                                                                                                                                                                            |       | 384,963                                     |       | 317,817                                     |       |
| Non-current  assets:                                                                                                                                                                                                                             |       |                                        |       |                                        |       |
| Property and  equipment, net                                                                                                                                                                                                                     |       | 60,880                                      |       | 59,578                                      |       |
| Intangible  assets, net                                                                                                                                                                                                                          |       | 278,372                                     |       | 285,902                                     |       |
| Equity  investments in joint venture                                                                                                                                                                                                             |       | —                                      |       | 56,139                                      |       |
| Goodwill, net                                                                                                                                                                                                                                    |       | 748,878                                     |       | 705,077                                     |       |
| Prepaid pension  asset                                                                                                                                                                                                                           |       | 9,517                                       |       | 8,768                                       |       |
| Other                                                                                                                                                                                                                                            |       | 3,499                                       |       | 2,899                                       |       |
| Total non-current  assets                                                                                                                                                                                                                        |       | 1,101,146                                   |       | 1,118,363                                   |       |
| Total assets                                                                                                                                                                                                                                     |       | $                                           | 1,486,109  |                                        | $          | 1,436,180 |   |
| **Liabilities and stockholders’ equity**                                                                                                                                                                                                    | ** ** | ** **                                  | ** ** | ** **                                  | ** ** |
| Current  liabilities:                                                                                                                                                                                                                            |       |                                        |       |                                        |       |
| Short-term debt                                                                                                                                                                                                                                  |       | $                                           | 6,226      |                                        | $          | 96,020 |   |
| Accounts payable                                                                                                                                                                                                                                 |       | 31,273                                      |       | 35,084                                      |       |
| Accrued  compensation                                                                                                                                                                                                                            |       | 17,677                                      |       | 39,083                                      |       |
| Accrued royalties                                                                                                                                                                                                                                |       | 25,595                                      |       | 24,769                                      |       |
| Other accrued  expenses                                                                                                                                                                                                                          |       | 48,639                                      |       | 58,831                                      |       |
| Income tax  payable                                                                                                                                                                                                                              |       | 10,011                                      |       | 3,994                                       |       |
| Deferred  subscription revenue                                                                                                                                                                                                                   |       | 329,555                                     |       | 288,145                                     |       |
| Total current  liabilities                                                                                                                                                                                                                       |       | 468,976                                     |       | 545,926                                     |       |
| Long-term debt                                                                                                                                                                                                                                   |       | 108,000                                     |       | —                                      |       |
| Accrued pension  liability                                                                                                                                                                                                                       |       | 6,936                                       |       | 6,778                                       |       |
| Accrued  post-retirement benefits                                                                                                                                                                                                                |       | 8,097                                       |       | 8,852                                       |       |
| Deferred income  taxes                                                                                                                                                                                                                           |       | 57,347                                      |       | 65,749                                      |       |
| Other liabilities                                                                                                                                                                                                                                |       | 8,725                                       |       | 7,820                                       |       |
| Minority  interests                                                                                                                                                                                                                              |       | 1,843                                       |       | —                                      |       |
| Commitments and  contingencies                                                                                                                                                                                                                   |       |                                        |       |                                        |       |
| Stockholders’  equity:                                                                                                                                                                                                                      |       |                                        |       |                                        |       |
| Class A  common stock, $0.01 par value per share, 80,000,000 shares authorized,  64,432,099 and 64,090,207 shares issued, 63,012,596 and 62,802,179 shares  outstanding at February 28, 2009 and November 30, 2008,  respectively |       | 641                                         |       | 641                                         |       |
| Additional  paid-in capital                                                                                                                                                                                                                      |       | 430,158                                     |       | 408,007                                     |       |
| Treasury stock,  at cost: 1,419,503 and 1,288,028 shares at February 28, 2009 and  November 30, 2008, respectively                                                                                                                     |       | (70,406                                     | )          | (64,632                                     | )          |
| Retained earnings                                                                                                                                                                                                                                |       | 611,323                                     |       | 584,219                                     |       |
| Accumulated other  comprehensive loss                                                                                                                                                                                                            |       | (145,531                                    | )          | (127,180                                    | )          |
| Total  stockholders’ equity                                                                                                                                                                                                                 |       | 826,185                                     |       | 801,055                                     |       |
| Total liabilities  and stockholders’ equity                                                                                                                                                                                                 |       | $                                           | 1,486,109  |                                        | $          | 1,436,180 |   |

 

See accompanying notes.

 

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**Tableof Contents**

 

**IHS INC.CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS**

** **

**(In thousands except per-share amounts)**

 
| ** **                                                                                                                                                                                           | ** ** | **Three months ended,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                                                                                                                           | ** ** | **February 28,  2009**       | ** ** | **February 29,  2008** | ** ** |
| ** **                                                                                                                                                                                           | ** ** | **(Unaudited)**                   | ** ** |
| **Revenue:**                                                                                                                                                                                         | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Products                                                                                                                                                                                             |       | $                                 | 199,858    |   | $ | 165,182 |   |
| Services                                                                                                                                                                                             |       | 35,553                            |       | 33,595 |   |
| Total revenue                                                                                                                                                                                        |       | 235,411                           |       | 198,777 |   |
| **Operating expenses:**                                                                                                                                                                              | ** ** | ** **                        | ** ** | ** ** | ** ** |
| Cost of revenue:                                                                                                                                                                                     |       |                              |       |   |   |
| Products                                                                                                                                                                                             |       | 83,072                            |       | 68,565 |   |
| Services                                                                                                                                                                                             |       | 19,831                            |       | 20,595 |   |
| Total cost of  revenue (includes stock-based compensation expense of $679 and $311 for the  three months ended February 28, 2009 and February 29, 2008,  respectively)                     |       | 102,903                           |       | 89,160 |   |
| Selling, general  and administrative (includes stock-based compensation expense of $15,791 and  $12,390 for the three months ended February 28, 2009 and  February 29, 2008, respectively) |       | 86,456                            |       | 71,886 |   |
| Depreciation and  amortization                                                                                                                                                                       |       | 11,624                            |       | 8,823 |   |
| Restructuring  charges (credits)                                                                                                                                                                     |       | (355                              | )          | — |   |
| Gain on sales of  assets, net                                                                                                                                                                        |       | —                            |       | (119 | ) |
| Net periodic  pension and post-retirement benefits                                                                                                                                                   |       | (689                              | )          | (1,093 | ) |
| Other income, net                                                                                                                                                                                    |       | (2,074                            | )          | (813 | ) |
| Total operating  expenses                                                                                                                                                                            |       | 197,865                           |       | 167,844 |   |
| **Operating income**                                                                                                                                                                                 |       | 37,546                            |       | 30,933 |   |
| Interest income                                                                                                                                                                                      |       | 354                               |       | 1,217 |   |
| Interest expense                                                                                                                                                                                     |       | (749                              | )          | (136 | ) |
| Non-operating  income, net                                                                                                                                                                           |       | (395                              | )          | 1,081 |   |
| Income from  continuing operations before income taxes and minority interests                                                                                                                        |       | 37,151                            |       | 32,014 |   |
| Provision for  income taxes                                                                                                                                                                          |       | (9,007                            | )          | (10,599 | ) |
| Income from  continuing operations before minority interests                                                                                                                                         |       | 28,144                            |       | 21,415 |   |
| Minority  interests                                                                                                                                                                                  |       | (1,040                            | )          | 16 |   |
| **Net income**                                                                                                                                                                                       |       | $                                 | 27,104     |   | $ | 21,431 |   |
| Net income per  share:                                                                                                                                                                               |       |                              |       |   |   |
| Basic  (Class A common stock for 2009; Class A and Class B common  stock for 2008*)                                                                                                   |       | $                                 | 0.43       |   | $ | 0.35 |   |
| Diluted  (Class A common stock for 2009; Class A and Class B common  stock for 2008*)                                                                                                 |       | $                                 | 0.43       |   | $ | 0.34 |   |
| Weighted average  shares:                                                                                                                                                                            |       |                              |       |   |   |
| Basic  (Class A common stock for 2009; Class A and Class B common  stock for 2008*)                                                                                                   |       | 62,815                            |       | 61,971 |   |
| Diluted  (Class A common stock for 2009; Class A and Class B common  stock for 2008*)                                                                                                 |       | 63,689                            |       | 62,896 |   |

 

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*Note that in September 2008,the holder of the Class B common stock elected to convert these sharesone-for-one to Class A common stock, after which no shares of Class Bcommon stock were outstanding.

 

See accompanying notes.

 

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**IHS INC.CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

** **

**(In thousands)**

 
| ** **                                                                       | ** ** | **Three months ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                       | ** ** | **February 28, 2009**  | ** ** | **February 29, 2008** | ** ** |
| ** **                                                                       | ** ** | **(Unaudited)**                  | ** ** |
| **Operating activities**                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net income                                                                       |       | $                                | 27,104     |   | $ | 21,431 |   |
| Reconciliation of net income to net cash  provided by operating activities: |       |                             |       |   |   |
| Depreciation and amortization                                                    |       | 11,624                           |       | 8,823 |   |
| Stock-based compensation expense                                                 |       | 16,470                           |       | 12,701 |   |
| Gain on sales of assets, net                                                     |       | —                           |       | (119 | ) |
| Non-cash net periodic pension and  post-retirement benefits                      |       | (1,001                           | )          | (1,563 | ) |
| Undistributed earnings of unconsolidated  affiliates, net                        |       | (46                              | )          | (49 | ) |
| Minority interests                                                               |       | 1,040                            |       | (16 | ) |
| Deferred income taxes                                                            |       | (683                             | )          | 2,422 |   |
| Change in assets and liabilities:                                                |       |                             |       |   |   |
| Accounts receivable, net                                                         |       | (12,994                          | )          | (20,167 | ) |
| Other current assets                                                             |       | (8,026                           | )          | (7,423 | ) |
| Accounts payable                                                                 |       | (4,145                           | )          | (3,239 | ) |
| Accrued expenses                                                                 |       | (31,629                          | )          | (20,928 | ) |
| Income taxes                                                                     |       | 1,771                            |       | (2,126 | ) |
| Deferred subscription revenue                                                    |       | 38,941                           |       | 42,733 |   |
| Other liabilities                                                                |       | 189                              |       | — |   |
| **Net cash provided by operating activities**                                    |       | 38,615                           |       | 32,480 |   |
| **Investing activities**                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Capital expenditures on property and  equipment                                  |       | (5,521                           | )          | (3,073 | ) |
| Change in other assets                                                           |       | 617                              |       | (2,624 | ) |
| Settlements of forward contracts                                                 |       | 373                              |       | — |   |
| Sales and maturities of investments                                              |       | —                           |       | 10,500 |   |
| Cash resulting from consolidation of  Lloyd’s Register-Fairplay             |       | 3,466                            |       |   |   |
| Acquisitions of businesses, net of cash  acquired                                |       | —                           |       | (28,206 | ) |
| Proceeds from sales of assets                                                    |       | —                           |       | 140 |   |
| **Net cash used in investing activities**                                        |       | (1,065                           | )          | (23,263 | ) |
| **Financing activities**                                                         | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Proceeds from borrowings                                                         |       | 70,000                           |       | — |   |
| Repayment of borrowings                                                          |       | (51,265                          | )          | (3,099 | ) |
| Excess tax benefit from equity compensation  plans                               |       | 2,217                            |       | 384 |   |
| Repurchases of common stock                                                      |       | (5,774                           | )          | (16,849 | ) |
| **Net cash provided by (used in) financing  activities**                         |       | 15,178                           |       | (19,564 | ) |
| Foreign exchange impact on cash balance                                          |       | (3,868                           | )          | 996 |   |
| Net increase (decrease) in cash and cash  equivalents                            |       | 48,860                           |       | (9,351 | ) |
| Cash and cash equivalents at the beginning  of the period                        |       | 31,040                           |       | 148,484 |   |
| Cash and cash equivalents at the end of the  period                              |       | $                                | 79,900     |   | $ | 139,133 |   |

 

See accompanying notes.

 

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**IHS INC.**

**CONDENSED CONSOLIDATED STATEMENT OF CHANGESIN STOCKHOLDERS’ EQUITY**

 

**(In thousands)**

 
| ** **                               | ** ** | **Shares of  Class A  Common  Stock** | ** ** | **Class A  Common  Stock** | ** ** | **Additional  Paid-In  Capital** | ** ** | **Treasury  Stock** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** | **Total**  | ** ** |
|------------------------------------------|------------|-------------------------------------------------|------------|---------------------------------|------------|----------------------------------|------------|---------------------|------------|------------------------|------------|---------------------------------------------|------------|------------|------------|
| ** **                               | ** ** | ** **                                      | ** ** | ** **                      | ** ** | ** **                       | ** ** | ** **          | ** ** | ** **             | ** ** | ** **                                  | ** ** | ** ** | ** ** |
| **Balance at November 30, 2008**    |       | 62,802                                          |       | $                               | 641        |                             | $          | 408,007             |       | $                      | (64,632    | )                                           | $          | 584,219    |       | $ | (127,180 | ) | $ | 801,055 |   |
| Stock-based award activity               |       | 211                                             |       | —                          |       | 16,231                           |       | (5,774              | )          | —                 |       | —                                      |       | 10,457     |       |
| Excess tax benefit on vested shares      |       | —                                          |       | —                          |       | 5,920                            |       | —              |       | —                 |       | —                                      |       | 5,920      |       |
| Net income                               |       | —                                          |       | —                          |       | —                           |       | —              |       | 27,104                 |       | —                                      |       | 27,104     |       |
| Other comprehensive income:              |       |                                            |       |                            |       |                             |       |                |       |                   |       |                                        |       |       |       |
| Foreign currency translation adjustments |       | —                                          |       | —                          |       | —                           |       | —              |       | —                 |       | (18,351                                     | )          | (18,351    | )          |
| Comprehensive income, net of tax    |       | —                                          |       | —                          |       | —                           |       | —              |       | —                 |       | —                                      |       | 8,753      |       |
| **Balance at February 28, 2009**    |       | 63,013                                          |       | $                               | 641        |                             | $          | 430,158             |       | $                      | (70,406    | )                                           | $          | 611,323    |       | $ | (145,531 | ) | $ | 826,185 |   |

 

See accompanying notes.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

**1.             Basisof Presentation and Significant 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 globalmarket. Our customers rely on our products and services to facilitate crucialdecision-making, support key processes, and improve productivity. At the heartof our products and services is data obtained from public sources, thirdparties, and our own proprietary databases. We transform that data intoCritical Information and Insight that is both useful to our customers andavailable where and when they make critical business decisions. The databecomes Critical Information when we combine it with our proprietary andthird-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, Switzerland and China. We havestructured our business around our customers and the geographies in which theyreside: **Americas** (which includesthe United States, Canada, and Latin America); **EMEA** (Europe, the Middle East, and Africa, with India alsoincluded in the region), and **APAC**(the Asia Pacific region, which includes many countries such as China, Japan,South Korea, Malaysia, and Australia). This allows us to tailor and expand thesolutions we offer to meet the unique needs of our customers both globally andin 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 our customers need to address their complexbusiness issues continues to converge at the intersection of the informationdomains that we serve.  We havecategorized these products and services as Intersection and have not allocatedthem to any specific domain.  As wecontinue to deliver Critical Information and Insight in those four informationdomains, we prepare our financial reports and analyze our business across ourthree geographic reportable segments: **Americas**;**EMEA**, and **APAC**.

 

***Consolidation Policy***

*** ***

The consolidatedfinancial statements include the accounts of all wholly owned andmajority-owned subsidiaries. All significant intercompany accounts andtransactions have been eliminated. Investments in unconsolidated affiliated companies are accounted forunder the equity method and are included in “Equity Investments in JointVenture” in the accompanying Condensed Consolidated Balance Sheets. Wegenerally utilize the equity method of accounting when we have anon-controlling ownership interest of between 20% and 50% in an entity,provided we are able to exercise significant influence over the investee’soperations.  See Note 2 for discussion relatedto consolidation of Lloyd’s Register-Fairplay joint venture effective December 1,2008.

 

***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 30,2008.  The results of operations for thethree months ended February 28, 2009, are not necessarily indicative ofthe results that may be achieved for the full fiscal year and cannot be used toindicate financial performance for the entire year.

 

The year-end condensed consolidatedbalance sheet data was derived from the audited November 30, 2008, balancesheet.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

***Results Subject to SeasonalVariations***

*** ***

 Historically, our business has had seasonalaspects. However, with the continued organic growth in our subscription-basedbusiness model relative to other revenue streams combined with severalacquisitions in recent years, our seasonal aspects have diminished, althoughour fourth quarter revenue and profit still tends to be slightly higher thanother quarters due to the product mix typically sold in the fourth quarter. Ourfirst quarter also benefits from the inclusion of the results from CERAWeek, anannual energy executive gathering.

 

***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-yearbalances have been reclassified to conform to current-year presentation.***

*** ***

***Income Taxes***

*** ***

Our effective quarterly rate is estimatedbased upon the effective tax rate expected to be applicable for the full fiscalyear.

 

Our effective tax rate for the firstquarter of 2009 was 24.2% compared to 33.1% for the prior year period.  The 2009 rate reflects the beneficial impactof the internal legal entity reorganization within EMEA completed in the thirdquarter of 2008.

 

Asof February 28, 2009, the total amount of unrecognized tax benefits was$1.4 million, of which less than $0.1 million related to interest. The $0.3million reduction in unrecognized tax benefits was attributable to adjustmentsmade to the reserves during the first quarter of fiscal 2009, principally as aresult of recording U.S. foreign tax credit benefits on certain non-U.S.subsidiary reserve items.

 

We are subject to taxation and fileincome tax returns in the U.S. and in many foreign jurisdictions. For U.S.federal, Canadian and Swiss income tax purposes, effectively all years prior to2004 are closed. For United Kingdom income tax purposes, all years prior to2005 are effectively closed.

 

The open tax years contain matters thatcould be subject to differing interpretations of applicable tax laws andregulations as it relates to the amount and/or timing of income, deductions andtax credits. Although the outcome of tax audits is always uncertain, we believethat adequate amounts of tax and interest have been provided for anyadjustments that are expected to result from an audit of the open tax years.  Although timing of the resolution and/orclosure of audits is highly uncertain, we do not believe it is reasonablypossible that our unrecognized tax benefits will materially change in the next12 months.

 

***New Accounting Pronouncement***

 

In March 2008,the FASB issued SFAS No. 161, *Disclosures aboutDerivative Instruments and Hedging Activities*.  SFAS 161 requires additional disclosuresrelated to the use of derivative instruments, the accounting for derivativesand how derivatives impact financial statements.  SFAS No. 161 is effective for fiscalyears and interim periods beginning after November 15, 2008.  Thus, we adopted this standard on December 1,2008, the first day of our 2009 fiscal year, with no material impact to ourconsolidated financial statements.

 

**2.    Business Combination**

 

Through our ownership ofPrime Publications Limited (Prime), during the first quarter of 2009 weobtained a controlling interest in the Lloyd’s Register-Fairplay Limited (LRF)joint venture, a leading source of global maritime information.  LRF is the leading brand name in the maritimeinformation industry providing comprehensive details of the current worldmerchant fleet (tankers, cargo, carrier and passenger ships) and a completerange of products and services to assist the world’s maritime community.  The investment in LRF is the primary asset ofPrime.  Since our acquisition of Prime onMarch 3, 

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

2008 and through theyear-ended November 30, 2008, we had accounted for LRF under the equitymethod of accounting.  With the obtainingof the controlling interest, LRF is now consolidated within our results as of December 1,2008.

 

Theimpact of consolidating our controlling interest in LRF as of December 1,2008 was as follows (previously these individual assets were classified withinthe equity investment balance):

 
| ** **                  | ** ** | **(In thousands)** | ** ** |
|-----------------------------|------------|-------------------------|------------|
| Assets:                     |       |                    |       |
| Current assets              |       | $                       | 5,597      |   |
| Property and equipment      |       | 553                     |       |
| Intangible assets           |       | 11,407                  |       |
| Goodwill                    |       | 53,267                  |       |
| Total assets                |       | 70,824                  |       |
| Liabilities:                |       |                    |       |
| Current liabilities         |       | 10,487                  |       |
| Deferred taxes              |       | 1,872                   |       |
| Other long-term liabilities |       | 2,253                   |       |
| Total liabilities           |       | 14,612                  |       |
| Net                         |       | $                       | 56,212     |   |

 

**3.**     **Commitmentsand Contingencies**

 

We are aparty to various legal proceedings that arise in the ordinary course ofbusiness.  In the opinion of management,none of these actions, either individually or in the aggregate, is expected tohave a material adverse affect on our financial condition, liquidity or resultsof operations.

 

**4.   Other Comprehensive Income**

 

Our comprehensive income was as follows:

 
| ** **                                    | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                                    | ** ** | **(In thousands)**          | ** ** |
| Net income                                    |       | $                                | 27,104     |   | $ | 21,431 |   |
| Other comprehensive loss:                     |       |                             |       |   |   |
| Foreign currency translation adjustment       |       | (18,351                          | )          | (4,139 | ) |
| Total other comprehensive income, net of  tax |       | $                                | 8,753      |   | $ | 17,292 |   |

 

**5.  ****Restructuring Charges (Credits)**

 

*2008 Restructuring*

 

During the third quarter of 2008, we executeda restructuring initiative which primarily affected the Americas and EMEAsegments. One-time, involuntary benefit arrangements and other exit costs areaccounted for under the provisions of SFAS No. 146, *Accounting for Costs Associated with Exit or DisposalActivities*. Costs arising under our defined benefit pension plansfrom providing enhanced benefits are accounted for under the provisions of SFASNo. 88, *Employers’ Accounting for Settlementsand Curtailments of Defined Benefit Pension Plans and for Termination Benefits*.Restructuring and related expenses consisted of direct and incremental costsassociated with restructuring and related activities, including severance,outplacement and other employee related benefits; facility closure includingnon-cash expenses related to fixed asset and leasehold improvement write-offs;and legal expenses associated with employee terminations which were incurredduring the third quarter of 2008.

 

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**IHS INC.**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

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 the quality of the Critical Information and Insightwe deliver to our customers. During the course of the restructuring, we reducedour aggregate workforce by approximately 7%, eliminated certain contractorpositions and closed certain offices.

 

The restructuring charge was incurred in itsentirety during the third quarter of 2008. Approximately $5.8 million ofthe charge related to our Americas segment, $6.3 million pertained to ourEMEA segment and $0.4 million related to shared services.  The majority of the liability was paid during2008 and the remaining liability at November 30, 2008 was $1.0million.  This remaining balance wassubstantially paid as of February 28, 2009.  A small over accrual of $0.4 million wasreversed during the first quarter of 2009.

 

*                Global Insight Restructuring*

 

*               *Related to theacquisition of Global Insight in October 2008, we established a $13.0million liability for restructuring costs in the opening balance sheet. Of this total, $8.2 million is employee severance and other terminationbenefits and $4.8 million relates to facility closure costs.  Through February 28,2009, we have paid $1.6 million of the employee severance and other terminationbenefits and $0.2 million of the facility closure costs.

 

**6.**     Stock-basedCompensation

** **

On February 28,2009, 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 and performanceshares, cash-based awards, other stock based awards and covered employee annualincentive awards. The 2004 Directors Stock Plan, a sub-plan under the LTIP,provides for the grant of restricted stock and restricted stock units tonon-employee directors as defined in that plan. We believe that such awardsbetter align the interests of our employees and non-employee directors withthose of our shareholders.

 

Wehave authorized a maximum of 11.25 million 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** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                          | ** ** | **(In thousands)**          | ** ** |
| Cost of revenue                     |       | $                                | 679        |   | $ | 311 |   |
| Selling, general and administrative |       | 15,791                           |       | 12,390 |   |
| Stock-based compensation expense    |       | $                                | 16,470     |   | $ | 12,701 |   |

 

Total income tax benefit recognized in the statementof operations for share-based compensation arrangements was as follows:

 
| ** **         | ** ** | **February 28,  2009** | ** ** | **February 29,  2008** | ** ** |
|--------------------|------------|-----------------------------|------------|-----------------------------|------------|
| ** **         | ** ** | **(In thousands)**     | ** ** |
| Income tax benefit |       | $                           | 6,094      |                        | $          | 4,699 |   |
|                    |            |                             |            |                             |            |  |  |

 

Nocompensation cost was capitalized during the three months ended February 28,2009 and February 29, 2008.

 

*Nonvested Stock.*  Share awards vest from six months 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 evaluationis made each quarter as to the likelihood of the performance criteria beingmet. Compensation expense is then adjusted to reflect the number of sharesexpected to vest and the cumulative vesting period met to date. Additionally,we estimate forfeitures at the grant date and recognize compensation cost basedon the number of awards expected to vest. There may be adjustments in future periodsif the 

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

likelihood of meeting performance criteria changes or if actualforfeitures differ from our estimates. Our forfeiture rate is based uponhistorical experience as well as anticipated employee turnover consideringcertain qualitative factors.

 

Total compensation expense related to nonvested awards, both shareawards and stock options, not yet recognized was $77.3 million as of February 28,2009, with a weighted-average recognition period of approximately 2 years.

 

A summary of the status of our nonvested shares as of February 28,2009, and changes during the three months ended February 28, 2009, was asfollows:

 
| ** **                       | ** ** | **Shares**              | ** ** | **Weighted-  Average Grant  Date Fair Value** | ** ** |
|----------------------------------|------------|-------------------------|------------|--------------------------------------------------------------|------------|
| ** **                       | ** ** | **(in thousands)** | ** ** | ** **                                                   | ** ** |
| Balances, November 30, 2008 |       | 2,176                   |       | $                                                            | 41.81      |   |
| Granted                          |       | 1,000                   |       | $                                                            | 42.94      |   |
| Vested                           |       | (397                    | )          | $                                                            | 41.31      |   |
| Forfeited                        |       | (76                     | )          | $                                                            | 41.32      |   |
| Balances, February 28, 2009 |       | 2,703                   |       | $                                                            | 44.57      |   |

 

The total fair value of nonvested stock that vested during the threemonths ended February 28, 2009, was $17.1 million based on theweighted-average fair value on the vesting date and $16.4 million based onthe weighted-average fair value on the date of grant.

 

*Stock Options.*  Option awards are generally granted with anexercise price equal to the fair market value of our stock at the date ofgrant. Options outstanding as of February 28, 2009 either cliff vest after4 years of continuous service or vest in a graded fashion over three yearsof continuous service and have 8-year contractual terms. Certain option andshare awards provide for accelerated vesting if there is a change in control(as defined in the plan).

 

The following table summarizes changes in outstanding stock optionsduring the three months ended February 28, 2009, as well as options thatare vested and expected to vest and stock options exercisable at February 28,2009:

 
| ** **                                             | ** ** | **Shares**              | ** ** | **Weighted-  Average  Exercise  Price** | ** ** | **Weighted-  Average  Remaining  Contractual  Term (years)** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
|--------------------------------------------------------|------------|-------------------------|------------|-----------------------------------------|------------|-------------------------------------------------------------------|------------|---------------------------------|------------|
| ** **                                             | ** ** | **(in thousands)** | ** ** | ** **                              | ** ** | ** **                                                        | ** ** | **(in thousands)**         | ** ** |
| Outstanding at November 30, 2008                  |       | 275                     |       | $                                       | 35.18      |                                                              | 5.5        |                            | $          | 543 |   |
| Granted                                                |       | —                  |       | —                                  |       |                                                              |       |                            |       |
| Exercised                                              |       | (6                      | )          | 37.65                                   |       |                                                              |       |                            |       |
| Forfeited                                              |       | (7                      | )          | 37.65                                   |       |                                                              |       |                            |       |
| Outstanding at February 28, 2009                  |       | 262                     |       | $                                       | 35.07      |                                                              | 5.2        |                            | $          | 1,486 |   |
| Vested and expected to vest at  February 28, 2009 |       | 262                     |       | $                                       | 35.07      |                                                              | 5.2        |                            | $          | 1,486 |   |
| Exercisable at February 28, 2009                  |       | 158                     |       | $                                       | 33.34      |                                                              | —     |                            | $          | 827 |   |

 

The aggregate intrinsic value amounts in the table above represent thedifference between the closing price of our common stock on February 28,2009, which was $40.73, 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 February 28, 2009. In future periods, this amountwill change depending on fluctuations in our stock price. The total intrinsicvalue of stock options exercised during the three months ended February 28,2009 was less than $0.1 million.

 

**7.   Debt**

 

On September 7, 2007, we entered into anamended and restated credit agreement (the Revolver). The $385 millionunsecured revolving credit agreement allows us, under certain conditions, toincrease the facility to a maximum of $500 million. The agreement expiresin September 2012.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

The interest rates for borrowing under theRevolver are based upon our Leverage Ratio, which is the ratio of ConsolidatedFunded Indebtedness to rolling four quarter Consolidated Earnings BeforeInterest Expense, Taxes, Depreciation and Amortization (EBITDA), as defined inthe Revolver. The rate ranges from the applicable LIBOR plus 50 basis points to125 basis points or the agent bank’s base rate. A commitment fee is payableperiodically and ranges from 10 to 25 basis points based upon our LeverageRatio. The Revolver contains certain financial and other covenants, includinglimitations on capital lease obligations and maximum Leverage and InterestCoverage Ratios, as defined in the Revolver.

 

As of February 28, 2009, we were incompliance with all of the covenants in the agreement and had$108.0 million of outstanding borrowings with an annual interest rate of1.00%.  This debt is classified aslong-term debt as of February 28, 2009 as we have the ability and intentto maintain this balance beyond twelve months. In addition, we had outstanding letters of credit totaling approximately$1.2 million as of February 28, 2009.

 

As of February 28, 2009, we also had$6.2 million of non-interest bearing notes that were issued to the sellersof Prime. These notes are due upon demand and are therefore recorded in “Short-termDebt” in the accompanying Condensed Consolidated Balance Sheets.

 

**8.****                 Pensions andPostretirement Benefits**

 

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.

 

Our net periodic pension (income) expense wascomprised of the following:

 
| ** **                                       | ** ** | **Three months ended February 28, 2009** | ** ** | **Three months ended February 29, 2008** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                       | ** ** | **U.S.  RIP**                                                     | ** ** | **U.K.  RIP**                                                     | ** ** | **SIP** | ** ** | **Total** | ** ** | **U.S.  RIP** | ** ** | **U.K.  RIP** | ** ** | **SIP** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | **(In thousands)**                                           | ** ** |
| Service costs incurred                           |       | $                                                                 | 1,728      |                                                              | $          | 123 |   | $ | 58 |   | $ | 1,909 |   | $ | 1,572 |   | $ | 238 |   | $ | 72 |   | $ | 1,882 |   |
| Interest costs on projected benefit  obligation  |       | 3,230                                                             |       | 371                                                               |       | 123 |   | 3,724 |   | 2,999 |   | 539 |   | 114 |   | 3,652 |   |
| Expected return on plan assets                   |       | (5,227                                                            | )          | (406                                                              | )          | — |   | (5,633 | ) | (5,368 | ) | (562 | ) | — |   | (5,930 | ) |
| Amortization of prior service cost               |       | (118                                                              | )          | —                                                            |       | 11 |   | (107 | ) | (118 | ) | — |   | 11 |   | (107 | ) |
| Amortization of actuarial loss                   |       | —                                                            |       | —                                                            |       | 21 |   | 21 |   | — |   | — |   | 47 |   | 47 |   |
| Amortization of transitional  obligation/(asset) |       | (57                                                               | )          | —                                                            |       | 13 |   | (44 | ) | (142 | ) | — |   | 10 |   | (132 | ) |
| Net periodic pension benefit (income)  expense   |       | $                                                                 | (444       | )                                                                 | $          | 88 |   | $ | 226 |   | $ | (130 | ) | $ | (1,057 | ) | $ | 215 |   | $ | 254 |   | $ | (588 | ) |

** **

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

 
| ** **                                  | ** ** | **Three months ended** | ** ** |
|---------------------------------------------|------------|----------------------------------|------------|
| ** **                                  | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                                  | ** ** | **(In thousands)**          | ** ** |
| Service costs incurred                      |       | $                                | 14         |   | $ | 25 |   |
| Interest costs                              |       | 158                              |       | 158 |   |
| Amortization of prior service amounts       |       | (807                             | )          | (806 | ) |
| Amortization of net actuarial loss          |       | 76                               |       | 118 |   |
| Net periodic post-retirement benefit income |       | $                                | (559       | ) | $ | (505 | ) |

 

**9.**     Earningsper 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.

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 

Our authorized capital stockconsists of 80,000,000 shares of Class A common stock.

 

For the period ended February 29, 2008,we used the two-class method for computing basic and diluted EPS amounts. Forthe period ended February 28, 2009, there was a single class of stock forthe purposes of calculating EPS. Weighted average common shares outstandingwere calculated as follows:

 
| ** **                                    | ** ** | **Three months ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------|------------|
| ** **                                    | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                                    | ** ** | **Class A**                 | ** ** | **Class A and  Class B** | ** ** |
| ** **                                    | ** ** | **(In thousands)**          | ** ** |
| Weighted average common shares outstanding:   |       |                             |       |   |   |
| Shares used in basic per-share calculation    |       | 62,815                           |       | 61,971 |   |
| Effect of dilutive securities:                |       |                             |       |   |   |
| Deferred stock units                          |       | 51                               |       | 38 |   |
| Restricted shares                             |       | 783                              |       | 821 |   |
| Options                                       |       | 40                               |       | 66 |   |
| Shares used in diluted per-share  calculation |       | 63,689                           |       | 62,896 |   |

 

*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.  Additionally, our board ofdirectors periodically approves additional buyback programs whereby IHSacquires shares in the open market to more fully offset the dilutive effect ofour employee equity programs. In the first quarter of 2009, we repurchased131,475 shares under the tax withholding program for approximately $5.8million, or $43.92 per share.  No shareswere repurchased in the first quarter of 2009 pursuant to a share buybackprogram.  Since the inception of theseprograms, we have withheld for tax 830,869 shares of our Class A commonstock for approximately $41.5 million, or $49.90 per share and we haverepurchased 1,889,557 shares for approximately $94.7 million or $50.13 pershare pursuant to the stock buyback program.

 

**10.   Goodwill and Intangible Assets**

 

The following table presents details of our intangibleassets, other than goodwill, as of February 28, 2009:

 
| ** **                                      | ** ** | **Useful Life** | ** ** | **Gross**               | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|-------------------------------------------------|------------|----------------------|------------|-------------------------|------------|-------------------------------|------------|---------|------------|
| ** **                                      | ** ** | **(Years)**          | ** ** | **(In thousands)** | ** ** |
| Intangible assets subject to amortization:      |       |                 |       |                    |       |                          |       |    |       |
| Information databases                           |       | 5 - 15     |       | $                       | 175,878    |                          | $          | (32,200 | )          | $ | 143,678 |   |
| Customer relationships                          |       | 2 - 15     |       | 68,206                  |       | (13,883                       | )          | 54,323  |       |
| Non-compete agreements                          |       | 5                    |       | 5,845                   |       | (4,397                        | )          | 1,448   |       |
| Developed computer software                     |       | 5                    |       | 21,442                  |       | (5,528                        | )          | 15,914  |       |
| Other                                           |       | 3 - 11     |       | 10,248                  |       | (3,727                        | )          | 6,521   |       |
| Total                                           |       |                 |       | 281,619                 |       | (59,735                       | )          | 221,884 |       |
| Intangible assets not subject to  amortization: |       |                 |       |                    |       |                          |       |    |       |
| Trademarks                                      |       |                 |       | 55,417                  |       | —                        |       | 55,417  |       |
| Perpetual licenses                              |       |                 |       | 1,071                   |       | —                        |       | 1,071   |       |
| Total intangible assets                         |       |                 |       | $                       | 338,107    |                          | $          | (59,735 | )          | $ | 278,372 |   |
|                                                 |            |                      |            |                         |            |                               |            |         |            |  |  |  |  |

 

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**IHS INC.**

**NOTES TO UNAUDITED CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

 

The following table presents details of ourintangible assets, other than goodwill, as of November 30, 2008:

 
| ** **                                      | ** ** | **Useful Life** | ** ** | **Gross**               | ** ** | **Accumulated  Amortization** | ** ** | **Net** | ** ** |
|-------------------------------------------------|------------|----------------------|------------|-------------------------|------------|-------------------------------|------------|---------|------------|
| ** **                                      | ** ** | **(Years)**          | ** ** | **(In thousands)** | ** ** |
| Intangible assets subject to amortization:      |       |                 |       |                    |       |                          |       |    |       |
| Information databases                           |       | 5 - 15     |       | $                       | 176,637    |                          | $          | (27,770 | )          | $ | 148,867 |   |
| Customer relationships                          |       | 2 - 15     |       | 72,596                  |       | (12,346                       | )          | 60,250  |       |
| Non-compete agreements                          |       | 5                    |       | 5,851                   |       | (4,098                        | )          | 1,753   |       |
| Developed computer software                     |       | 5                    |       | 18,700                  |       | (4,344                        | )          | 14,356  |       |
| Other                                           |       | 3 - 11     |       | 5,872                   |       | (3,190                        | )          | 2,682   |       |
| Total                                           |       |                 |       | 279,656                 |       | (51,748                       | )          | 227,908 |       |
| Intangible assets not subject to  amortization: |       |                 |       |                    |       |                          |       |    |       |
| Trademarks                                      |       |                 |       | 56,844                  |       | —                        |       | 56,844  |       |
| Perpetual licenses                              |       |                 |       | 1,150                   |       | —                        |       | 1,150   |       |
| Total intangible assets                         |       |                 |       | $                       | 337,650    |                          | $          | (51,748 | )          | $ | 285,902 |   |

 

The estimated amortization expense of intangibleassets for business combinations completed as of February 28, 2009 foreach of the next five years is as follows:

 

| **Year**       | ** ** | **Amount**              | ** ** |
|----------------|------------|-------------------------|------------|
| ** **     | ** ** | **(In thousands)** | ** ** |
| Remainder 2009 |       | $                       | 23,329     |   |
| 2010           |       | 29,731                  |       |
| 2011           |       | 28,170                  |       |
| 2012           |       | 26,590                  |       |
| 2013           |       | 25,163                  |       |
|                |            |                         |            |  |

 

Amortizationexpense of intangible assets was $7.8 million and $5.7 million for the threemonths ended February 28, 2009 and February 29, 2008, respectively.

 

Changesin our goodwill and intangible assets from November 30, 2008 to February 28,2009 were primarily the result of the consolidation of LRF in the first quarterof 2009 due to the obtaining of control which was partially offset by theimpact of foreign currency rates.

 

**11.**          Segment Information

** **

We prepare our financial reports and analyzeour business results within our three reportable geographic segments: Americas,EMEA and APAC.  This integrated globalorganization allows 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 our geographic segments, we are ableto tailor and expand the solutions we offer to meet the unique needs of ourcustomers both globally and in local markets. We are also able to manage ouractivities according to the best practices of each. This structure provides asolid foundation for growth in each market for all of our capabilities. Itallows us an efficient method of bringing new products and services tocustomers, and supports growth in existing accounts and with new customers andmarkets.

 

Information as to the operations of our threesegments is set forth below. Our Chairman and Chief Executive Officerrepresents our chief operating decision maker, and he evaluates segmentperformance based primarily on revenue and operating profit of these threesegments. In addition, he also reviews revenue for the domains and CriticalInformation and Insight offerings. The accounting policies of our segments arethe same as those described in the summary of significant accounting policies (containedin the notes to our consolidated financial statements included in our 2008 Form 10-K).

 

No single customer accounted for 10% or moreof our total revenue for the period ended February 28, 2009. There are nomaterial inter-segment revenues for any period presented.

 

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.

 

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**IHS INC.**

**NOTES TOUNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

 
| ** **                                    | ** ** | **Americas**            | ** ** | **EMEA** | ** ** | **APAC** | ** ** | **Segment  Totals** | ** ** | **Shared  Services** | ** ** | **Consolidated  Total** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|---------------------|------------|----------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **(In thousands)** | ** ** |
| **Three months ended February 28, 2009** |       |                    |       |     |       |     |       |                |       |                 |       |                    |       |
| Revenue                                       |       | $                       | 148,355    |     | $          | 68,790   |       | $                   | 18,266     |                 | $          | 235,411                 |       | $ | — |   | $ | 235,411 |   |
| Operating income                              |       | 45,034                  |       | 13,811   |       | 4,992    |       | 63,837              |       | (26,291              | )          | 37,546                  |       |
| Depreciation and amortization                 |       | 6,282                   |       | 3,149    |       | 26       |       | 9,457               |       | 2,167                |       | 11,624                  |       |
| **Three months ended February 29, 2008** |       |                    |       |     |       |     |       |                |       |                 |       |                    |       |
| Revenue                                       |       | $                       | 121,199    |     | $          | 63,631   |       | $                   | 13,947     |                 | $          | 198,777                 |       | $ | — |   | $ | 198,777 |   |
| Operating income                              |       | 38,555                  |       | 10,603   |       | 3,971    |       | 53,129              |       | (22,196              | )          | 30,933                  |       |
| Depreciation and amortization                 |       | 4,906                   |       | 3,243    |       | 35       |       | 8,184               |       | 639                  |       | 8,823                   |       |

 

Revenue by information domain was as follows:

 
| ** **                | ** ** | **Three months ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                | ** ** | **(In thousands)**          | ** ** |
| Energy revenue            |       | 116,100                          |       | $ | 110,296 |   |
| Product Lifecycle revenue |       | 70,315                           |       | 69,031 |   |
| Security revenue          |       | 23,324                           |       | 16,872 |   |
| Environment revenue       |       | 7,096                            |       | 2,578 |   |
| Intersection revenue      |       | 18,576                           |       | — |   |
| Total revenue             |       | $                                | 235,411    |   | $ | 198,777 |   |
|                           |            |                                  |            |  |  |  |  |

 

Revenue by product category was as follows:

 
| ** **                    | ** ** | **Three months ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| ** **                    | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                    | ** ** | **(In thousands)**          | ** ** |
| Critical Information Products |       | $                                | 134,143    |   | $ | 130,422 |   |
| Critical Information Services |       | 13,151                           |       | 11,679 |   |
| Insight Products              |       | 65,715                           |       | 34,760 |   |
| Insight Services              |       | 22,402                           |       | 21,916 |   |
| Total revenue                 |       | $                                | 235,411    |   | $ | 198,777 |   |

 

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**Item 2.**    Management’sDiscussion and Analysis of Financial Condition and Results of Operations

** **

**Forward-Looking Statements**

 

We have made statements under the captions “RiskFactors,” “Management’s Discussion and Analysis of Financial Condition andResults of Operations,” and “Business and Properties” and in other sections ofthis Form 10-Q that are forward-looking statements. In some cases, you canidentify these statements by forward-looking words such as “may,” “might,” “will,”“should,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,”or “continue,” the negative of these terms, and other comparable terminology.These forward-looking statements, which are subject to risks, uncertainties,and assumptions, may include projections of our future financial performancebased on our growth strategies and anticipated trends in our business. Thesestatements are only predictions based on our current expectations andprojections about future events. There are important factors that could causeour actual results, level of activity, performance, or achievements to differmaterially from the results, level of activity, performance, or achievementsexpressed or implied by the forward-looking statements. In particular, youshould consider the risks outlined under “Risk Factors” in the 2008 Form 10-K.

 

Although we believe the expectationsreflected in the forward-looking statements are reasonable, we cannot guaranteefuture results, level of activity, performance, or achievements. Moreover,neither we nor any other person assumes responsibility for the accuracy orcompleteness of any of these forward-looking statements. You should not relyupon forward-looking statements as predictions of future events.

 

We are under no duty to update any of theseforward-looking statements after the date of this Form 10-Q to conform ourprior statements to actual results or revised expectations.

 

**Overview**

 

**Resultsof Operations**

 

IHS is a leading provider and comprehensivesource of Critical Information and Insight in a sizable global market. Ourcustomers rely on our products and services to facilitate crucialdecision-making, support key processes, and improve productivity. At the heartof our products and services is data obtained from public sources, thirdparties, and our own proprietary databases. We transform that data intoCritical Information and Insight that is both useful to our customers andavailable where and when they make critical business decisions. The data istransformed into 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 sell our offerings primarily throughsubscriptions. As a result of our subscription-based business model andhistorically high renewal rates, we generate recurring revenue and cash flow.We generally recognize revenue from subscriptions (which are usually forone-year periods) ratably over the term of the subscription. Subscriptions aregenerally paid in full within one to two months after the subscription periodcommences. As a result, the timing of our cash flows generally precedes therecognition of revenue and income. Historically, our business has had seasonalaspects. However, with the continued organic growth in our subscription-basedbusiness model combined with several acquisitions in recent years, our seasonalaspects have diminished although our fourth quarter revenue and profit tends tobe slightly higher than other quarters due to the product mix typically sold inthe fourth quarter. Our first quarter also benefits from the inclusion of theresults from CERAWeek, an annual energy executive gathering.

 

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, Switzerland and China. We havestructured our business around our customers and the geographies in which theyreside: **Americas** (which includesthe United States, Canada, and Latin America); **EMEA** (Europe, the Middle East, and Africa, with India alsoincluded in the region), and **APAC**(the Asia Pacific region, which includes many countries such as China, Japan,South Korea, Malaysia, and Australia). This allows us to tailor and expand thesolutions we offer to meet the unique needs of our customers both globally andin local markets.

 

Our consolidated financial statements are expressed in U.S. dollars,but a portion of our business is conducted in currencies other than U.S.dollars.  Just over 50% of our revenue istransacted outside of the United States, however, approximately 30% of ourrevenue is transacted in a currency other than U.S. dollars.  As a result, a strengthening U.S. dollar 

 

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hasa negative impact on our revenue while the impact on operating income ismitigated due to certain operating expenses denominated in currencies otherthan the U.S. dollar.

 

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 businessstrategies. In addition, we have certain product lines that intersect multipledomains. We have categorized these products and services as Intersection andhave not allocated them to any specific domain.

 

As we continue to deliver CriticalInformation and Insight in these four information domains, we prepare ourfinancial reports and analyze our business across our three reportablegeographic segments. As the information that our customers need to addresstheir complex business issues continues to converge at the intersection of theinformation domains that we serve, we have organized our management structureto a geographic focus, the point of contact with our customers. This integratedglobal organization will make it easier for our customers to do business withus by providing a more cohesive, consistent, and effective sales and marketing approachin each region. By structuring our business around customers and thegeographies in which they reside, 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 structureprovides a solid foundation for growth in each market for all of ourcapabilities. It allows us an efficient method of bringing new products andservices to customers, and supports growth in existing accounts and with newcustomers and markets.

 

Inherent in all of our strategies is a firmcommitment to put our customers first in everything that we do. We believe thatmaintaining a disciplined “outside-in” approach will allow us to better serveour customers and our shareholders. Our primary strategy is to achieve andstrengthen a leading position in—and at the intersection of—our targetedinformation domains. We also intend to continue driving margin and qualityimprovement through operational transformation.

 

**BusinessCombination**

 

Through our ownership ofPrime Publications Limited (Prime), during the first quarter of 2009 weobtained a controlling interest in the Lloyd’s Register-Fairplay Limited (LRF)joint venture, a leading source of global maritime information.  LRF is the leading brand name in the maritimeinformation industry providing comprehensive details of the current worldmerchant fleet (tankers, cargo, carrier and passenger ships) and a completerange of products and services to assist the world’s maritime community.  The investment in LRF is the primary asset ofPrime.  Since our acquisition of Prime onMarch 3, 2008 and through the year-ended November 30, 2008, we hadaccounted for LRF under the equity method of accounting.  With the obtaining of the controllinginterest, LRF is now consolidated within our results as of December 1,2008.

 

**SegmentInformation**

 
| ** **                                    | ** ** | **Americas**            | ** ** | **EMEA** | ** ** | **APAC** | ** ** | **Segment  Totals** | ** ** | **Shared  Services** | ** ** | **Consolidated  Total** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|----------|------------|----------|------------|---------------------|------------|----------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **(In thousands)** | ** ** |
| **Three months ended February 28, 2009** |       |                    |       |     |       |     |       |                |       |                 |       |                    |       |
| Revenue                                       |       | $                       | 148,355    |     | $          | 68,790   |       | $                   | 18,266     |                 | $          | 235,411                 |       | $ | — |   | $ | 235,411 |   |
| Operating income                              |       | 45,034                  |       | 13,811   |       | 4,992    |       | 63,837              |       | (26,291              | )          | 37,546                  |       |
| Depreciation and amortization                 |       | 6,282                   |       | 3,149    |       | 26       |       | 9,457               |       | 2,167                |       | 11,624                  |       |
| **Three months ended February 29, 2008** |       |                    |       |     |       |     |       |                |       |                 |       |                    |       |
| Revenue                                       |       | $                       | 121,199    |     | $          | 63,631   |       | $                   | 13,947     |                 | $          | 198,777                 |       | $ | — |   | $ | 198,777 |   |
| Operating income                              |       | 38,555                  |       | 10,603   |       | 3,971    |       | 53,129              |       | (22,196              | )          | 30,933                  |       |
| Depreciation and amortization                 |       | 4,906                   |       | 3,243    |       | 35       |       | 8,184               |       | 639                  |       | 8,823                   |       |

 

Revenue by information domain was as follows:

 
| ** **                | ** ** | **Three months ended** | ** ** |
|---------------------------|------------|----------------------------------|------------|
| ** **                | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                | ** ** | **(In thousands)**          | ** ** |
| Energy revenue            |       | 116,100                          |       | $ | 110,296 |   |
| Product Lifecycle revenue |       | 70,315                           |       | 69,031 |   |
| Security revenue          |       | 23,324                           |       | 16,872 |   |
| Environment revenue       |       | 7,096                            |       | 2,578 |   |
| Intersection revenue      |       | 18,576                           |       | — |   |
| Total revenue             |       | $                                | 235,411    |   | $ | 198,777 |   |
|                           |            |                                  |            |  |  |  |  |

 

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Revenue by product category was as follows:

 
| ** **                    | ** ** | **Three months ended** | ** ** |
|-------------------------------|------------|----------------------------------|------------|
| ** **                    | ** ** | **February 28,  2009**      | ** ** | **February 29,  2008** | ** ** |
| ** **                    | ** ** | **(In thousands)**          | ** ** |
| Critical Information Products |       | $                                | 134,143    |   | $ | 130,422 |   |
| Critical Information Services |       | 13,151                           |       | 11,679 |   |
| Insight Products              |       | 65,715                           |       | 34,760 |   |
| Insight Services              |       | 22,402                           |       | 21,916 |   |
| Total revenue                 |       | $                                | 235,411    |   | $ | 198,777 |   |

 

**ThreeMonths Ended February 28, 2009 Compared to the Three Months Ended February 29,2008**

 

**Revenue.**  Revenue was $235.4 million forthe quarter ended February 28, 2009, compared to $198.8 million for thequarter ended February 29, 2008, an increase of $36.6 million or 18%.This increase was driven in part by acquisitions which contributed $39.6million, or 20%, and organic growth which contributed $11.4 million, or6%.  Sequentially, organic revenue growthis down from 8% for the quarter ended November 30, 2008.  Unfavorable foreign currency rates had anadverse impact of $14.4 million, or 7% due to the strengthening U.S.dollar.  Our acquisitive growth was alsonegatively impacted by foreign exchange. When taking this into consideration, foreign exchange negativelyimpacted our overall revenue growth by approximately 10% in the quarter ended February 28,2009 in comparison to the first quarter of 2008.

 

Our subscription based revenue accounted for76% of our revenue in the quarter and maintained a low double-digit organicgrowth rate of 11.6%.  Our other revenuetypes (consulting, transaction and other revenue) have been more greatlyimpacted by the current economic environment. Transaction and consulting revenue were down organically by 21% and 32%,respectively.  These decreases werepartially offset by organic growth in other revenue of 8%.  CERAWeek revenue, which is included in otherrevenue, was essentially flat year over year.

 

Revenue for our Americas segment was$148.4 million for the quarter ended February 28, 2009, compared to$121.2 million for the quarter ended February 29, 2008, an increaseof $27.2 million or 22%. This increase was driven primarily byacquisitions which added $21.9 million and organic growth whichcontributed $9.2 million. Unfavorable foreign currency rates impactedrevenue by $4.0 million. Organic growth in the first quarter of 2009 wasdriven by price increases and growth in certain Critical Informationsubscription products, primarily within the Energy domain.  The organic growth rate was impacted bydecreases in consulting and advisory services. Revenue from products was $122.8 million for the three months endedFebruary 28, 2009, up $22.3 million or 22% compared to the threemonths ended February 29, 2008. Revenue from services was$25.6 million for first three months of 2009, up $4.9 million or 24%compared to the first three months of 2008.

 

Revenue for our EMEA segment was$68.8 million for the quarter ended February 28, 2009, compared to$63.6 million for the quarter ended February 29, 2008, an increase of$5.2 million or 8%. This increase was driven primarily by acquisitionswhich contributed $14.8 million. Organic product revenue grew by $4.6 million while organic servicerevenue decreased by $4.6 million. Services revenue was impacted by decreases in consulting and advisoryservices. Unfavorable foreign currency rates adversely impacted revenue by $9.6million.

 

Revenue for our APAC segment was$18.3 million for the quarter ended February 28, 2009, compared to$13.9 million for quarter ended February 29, 2008, an increase of$4.4 million or 32%. This increase was driven in part by acquisitionswhich contributed $2.9 million and organic growth which contributed$2.2 million. Unfavorable foreign currency rates adversely impactedrevenue by $0.8 million. Organic product growth was $1.5 million driven primarilyby large subscription orders in China while organic service revenue grew $0.7million.

 

Revenue for the Energy domain was$116.1 million for the quarter ended February 28, 2009, an increaseof $5.8 million, or 5% over the quarter ended February 29, 2008. Thisgrowth was primarily due to an increase in the Critical Information sales whichwas partially offset by unfavorable foreign currency rates.  Product Lifecycle domain revenue was$70.3 million for the quarter ended February 28, 2009, an increase of$1.3 million, or 2% over the quarter ended February 29,

 

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2008. Revenue for the Security domain was $23.3 million for thequarter ended February 28, 2009, an increase of $6.5 million over thequarter ended February 29, 2008. Environment domain revenue was$7.1 million for the quarter ended February 28, 2009 and wasprimarily from acquisitions. Intersection revenue, which includes product linesthat intersect multiple domains, was $18.6 million in the first quarter of2009 and was entirely attributable to acquisitions.

 

**Cost of Revenue.**  Cost of revenue was $102.9 million forthe quarter ended February 28, 2009, compared to $89.2 million forthe quarter ended February 29, 2008, an increase of $13.7 million or15%. As a percentage of revenue, cost of revenue improved to 43.7% from 44.9%.Cost of revenue as a percentage of revenue within our Americas segment improvedto 42.2% from 42.8% resulting from increased sales in our Critical Informationproducts which have a relatively fixed-cost base. Cost of revenue as apercentage of revenue within our EMEA segment improved to 46.2% from48.2%.  Cost of revenue as a percentageof revenue within our APAC segment improved to 39.6% from 41.4%.  These decreases were principally due to anincrease in higher margin Critical Information and Insight products combinedwith a decrease in lower margin services.

 

**Selling, General and Administrative Expenses.**  Selling, general and administrative(SG&A) expenses were $86.5 million for the quarter ended February 28,2009, compared to $71.9 million for the quarter ended February 29,2008, an increase of $14.6 million or 20%. Stock-based compensationexpense included in SG&A increased $3.4 million to $15.8 million.Excluding stock-based compensation, organic SG&A growth was $4.7 million aswe incurred costs related to our quote-to-cash system implementation and otherinitiatives. Acquisitions contributed $13.2 million of the increase.Foreign currency movements decreased SG&A by $6.8 million. As a percentageof revenue and excluding stock-based compensation expense, SG&A wasconsistent with the prior year first quarter at 30.0%.

 

**Depreciation and Amortization Expenses.**  Depreciation and amortization expenses were$11.6 million for the quarter ended February 28, 2009, compared to$8.8 million for the quarter ended February 29, 2008, an increase of$2.8 million or 32%. The increase was primarily due to acquisitions madewithin the last year.

 

**Operating Income.**  Operating income was $37.5 million forthe quarter ended February 28, 2009, compared to $30.9 million forthe quarter ended February 29, 2008, an increase of $6.6 million or21%. As a percentage of revenue, operating income increased to 15.9% for thequarter ended February 28, 2009 from 15.6% for the quarter ended February 29,2008.

 

Operating income for our Americas segment was$45.0 million for the quarter ended February 28, 2009, compared to$38.6 million for the quarter ended February 29, 2008, an increase of$6.4 million or 17%. The increase was principally due to the additionalrevenue discussed above coupled with our ability to leverage a relativelyfixed-cost structure with our subscriptions-based products. This was partiallyoffset by an increase in amortization of assets related to our acquisitions.  As a percentage of revenue, Americasoperating income decreased to 30.4% from 31.8% in the first quarter of 2008.

 

Operating income for our EMEA segment was$13.8 million for the quarter ended February 28, 2009, compared to$10.6 million for the quarter ended February 29, 2008, an increase of$3.2 million or 30%. As a percentage of revenue, EMEA operating incomeincreased to 20.1% for the quarter ended February 28, 2009 compared to16.7% for the quarter ended February 29, 2008.  These increases are primarily due to thehigher growth in higher margin subscription products in 2009 and decreases inlower margin service offerings along with the impact of foreign currency ratesat the Operating Income level.

 

Operating income for our APAC segment was$5.0 million for the quarter ended February 28, 2009, compared to$4.0 million for the quarter ended February 29, 2008, an increase of$1.0 million or 25%. Operating income increased due to the increase insales. As a percentage of revenue, APAC operating income decreased to 27.3% forthe quarter ended February 28, 2009 from 28.5% for the quarter ended February 29,2008.  This decrease was due to the mixof products sold with higher growth of lower margin Insight products in 2009.

 

Operating expenses for our shared serviceswere $26.3 million for the quarter ended February 28, 2009, comparedto $22.2 million for the quarter ended February 29, 2008, an increaseof $4.1 million or 18%. As a percentage of revenue, operating expenses forour shared services was 11.2% for the quarter ended February 28, 2009which was consistent with the prior year. Stock-based compensation increased$3.8 million to $16.5 million.

 

**Provision for Income Taxes.**  Our effective tax rate for the period ended February 28,2009 was 24.2%, compared to 33.1% for the period ended February 29,2008.  The 2009 rate reflects the impactof our internal legal entity reorganization within EMEA that occurred in thethird quarter of 2008.

 

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**FinancialCondition**

 

**AccountsReceivable**.  Accountsreceivable has increased by $14.5 million, or 7%, to $222.3 million compared to $207.8 millionas of November 30, 2008.  Theincrease is attributable to bothorganic and acquisition related growth and a slight deterioration in ouraccounts receivable aging in addition to the seasonality of billings.

 

**Accrued Compensation.**  Accrued compensation was $17.7 million as of February 28,2009, compared to $39.1 million as of November 30, 2008, a decrease of$21.4 million or 55%. The decrease was primarily attributable to disbursementof annual incentive bonuses during the first quarter.

 

**Deferred Revenue.**Deferred revenue was $329.6million as of February 28, 2009, compared to $288.1 million as of November 30,2008, an increase of $41.5 million or 14%. The increase was primarilyattributable to the timing of annual billings as well as both the organic and acquisitionrelated growth.  Organic deferred revenueincreased 12% as of February 28, 2009 compared to February 29, 2008.

 

**Liquidity andCapital Resources**

 

As of February 28, 2009, wehad cash and cash equivalents of $79.9 million and $114.2 million of debt. Wehave generated strong cash flows from operations over the last few years. As aresult of these factors, as well as the remaining availability of funds underour $385.0 million credit facility, we believe we will have sufficient cash tomeet our working capital and capital expenditure needs.

 

Our future capital requirementswill depend on many factors, including the timing and extent of spending tosupport product development efforts, future acquisitions, the expansion ofsales and marketing activities, the timing of introductions of new products,changing technology, investments in our internal business applications and thecontinued market acceptance of our offerings. We could be required, or couldelect, to seek additional funding through public or private equity or debt financingfor any possible future acquisitions. Additional funds may not be available onterms acceptable to us or at all. We expect our capital expenditures, excludingpotential acquisitions, to be approximately $20 million for 2009.

 

*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.  Additionally, our board ofdirectors periodically approves additional buyback programs whereby IHSacquires shares in the open market to more fully offset the dilutive effect ofour employee equity programs. In the first quarter of 2009, we repurchased131,475 shares under the tax withholding program for approximately $5.8million, or $43.92 per share.  No shareswere repurchased in the first quarter of 2009 pursuant to a share buybackprogram.  Since the inception of these programs,we have withheld for tax 830,869 shares of our Class A common stock forapproximately $41.5 million, or $49.90 per share and we have repurchased1,889,557 shares for approximately $94.7 million or $50.13 per share pursuantto the stock buyback program.

 

*Cash Flows*

* *

Net cash provided by operating activities was$38.6 million for the three months ended February 28, 2009, comparedto $32.5 million for the three months ended February 29, 2008, an increaseof $6.1 million. The increase was principally due to our businessgrowing profitably year over year.  Additionally, bonus payments were slightly less in the first quarter of2009 compared to the same period in 2008 and we benefited from the timing ofcertain royalty payments and lower tax payments in 2009. Our subscription-basedbusiness model typically generates a high rate of cash flow and is aided by thefollowing:

 

·                  positive working capital characteristics that do notgenerally require substantial working capital increases to support our growth;

 

·                  a cash-for-tax rate that continues to trend lowerthan our effective tax rate; and

 

·                  our well-capitalized balance sheet.

 

Thepositive cash flow impact of our growing business in the first quarter of 2009was partially offset by an increase in capital expenditures related to newoffice space build out in Canada and the outflow of cash related to ourrationalization efforts that occurred at IHS Global Insight.

 

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Net cash used in investingactivities was approximately $1.1 million for the three months ended February 28,2009, compared to $23.3 million for the three months ended February 29,2008. The change is driven primarily by acquisitions in the first quarter of2008.

 

Net cash provided by financingactivities was $15.2 million for the three months ended February 28, 2009compared to $19.6 million for the three months ended February 29,2008.  Net borrowings from the creditfacility were $28.0 million in the first quarter of 2009 which were partiallyoffset by the repayment of a portion of the notes due to the sellers of Primeof $9.3 million.

 

*CreditFacility and Other Debt*

* *

On September 7, 2007, we entered into anamended and restated credit agreement (the Revolver). The $385 millionunsecured revolving credit agreement allows us, under certain conditions, toincrease the facility to a maximum of $500 million. The agreement expiresin September 2012.

 

The interest rates for borrowing under theRevolver are based upon our Leverage Ratio, which is the ratio of ConsolidatedFunded Indebtedness to rolling four quarter Consolidated Earnings BeforeInterest Expense, Taxes, Depreciation and Amortization (EBITDA), as defined inthe Revolver. The rate ranges from the applicable LIBOR plus 50 basis points to125 basis points or the agent bank’s base rate. A commitment fee is payableperiodically and ranges from 10 to 25 basis points based upon our LeverageRatio. The Revolver contains certain financial and other covenants, includinglimitations on capital lease obligations and maximum Leverage and InterestCoverage Ratios, as defined in the Revolver.

 

As of February 28, 2009, we were incompliance with all of the covenants in the agreement and had$108.0 million of outstanding borrowings with an annual interest rate of1.00%.  This debt is classified aslong-term debt as of February 28, 2009 as we have the ability and intentto maintain this balance beyond twelve months.  In addition, we had outstanding letters of credit totaling approximately$1.2 million as of February 28, 2009.

 

As of February 28, 2009, we also had$6.2 million of non-interest bearing notes that were issued to the sellersof Prime. These notes are due upon demand and are therefore recorded in “Short-termDebt” in the accompanying Condensed Consolidated Balance Sheets.

 

**Off-Balance Sheet Transactions**

** **

We have no off-balance sheettransactions.

 

**Critical Accounting Policies**

 

Ourmanagement makes a number of significant estimates, assumptions and judgmentsin the preparation of our financial statements. See “Management’s Discussionand Analysis and Results of Operations—Critical Accounting Policies andEstimates” in our 2008 Form 10-K for a discussion of the estimates andjudgments necessary in our accounting for revenue recognition, valuation oflong-lived and intangible assets and goodwill, income taxes, pension andpost-retirement benefits, and stock-based compensation.

 

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

** **

Forinformation regarding our exposure to certain market risk, see Item 7A, “Quantitativeand Qualitative Disclosures About Market Risk,” in our 2008 Form 10-K.There were no material changes to our market risk exposure during the firstthree months of fiscal 2009.

 

**Item 4.    Controls and Procedures**

** **

*(a) Evaluationof disclosure controls and procedures.*

 

Underthe supervision and with the participation of the Company’s management,including the Chief Executive Officer and Chief Financial Officer, the Companyhas evaluated the effectiveness of its disclosure controls and procedurespursuant to Rules 13a-15(e) and 15d-15(e) under the SecuritiesExchange Act of 1934, as of the end of the period covered by this report. Basedon that evaluation, the Chief Executive Officer and Chief Financial Officerconcluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and15d-15(e) under the Securities Exchange Act of 1934, as amended, areeffective in ensuring that all material information required to be filed inthis quarterly report has been made known to them in a timely fashion.

 

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*(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 overfinancial reporting.

 

**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.

 

**Item1A.      Risk Factors**

 

There have been no material changes to the risk factors associated withthe business previously disclosed in Part I, Item 1A of our 2008 AnnualReport on Form 10-K.

 

**Item 2.    Unregistered Sales of Equity Securities andUse of Proceeds**

** **

Items2(a),  (b) and (c) areinapplicable.

 

**Item 6.    Exhibits**

** **

(a)   Index of Exhibits

 

The following exhibitsare 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*               |       | Amendment No. 1 to  Registration Rights Agreement by and between IHS Inc. and Urvanos Investments  Limited 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 March 25, 2009.

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

 

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