Edgar Filing: IHS Inc.

Document

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________

FORM 10-Q

___________________________________________________



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

For the quarterly period ended May 31, 2016



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

For the transition period from to

Commission file number 001-32511

___________________________________________________

IHS INC.

(Exact name of registrant as specified in its charter)

___________________________________________________



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

15 Inverness Way East

Englewood, CO 80112

(Address of Principal Executive Offices)

(303) 790-0600

(Registrant’s telephone number, including area code)

___________________________________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes o No

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



Large accelerated filer	x	Accelerated filer	o

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

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

As of May 31, 2016, there were 67,452,437 shares of our Class A Common Stock outstanding.

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TABLE OF CONTENTS



		Page
PART I. Financial Information
	Item 1. Financial Statements	4
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	30
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	39
	Item 4. Controls and Procedures	40

PART II. Other Information
	Item 1. Legal Proceedings	40
	Item 1A. Risk Factors	40
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	41
	Item 5. Other Information	41
	Item 6. Exhibits	42

SIGNATURE		43

Cautionary Note Regarding Forward-Looking Statements

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

Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based only on our current beliefs, expectations, and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy, and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks, and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements include, among others, the following: economic and financial conditions, including volatility in interest and exchange rates; our ability to manage system failures, capacity constraints, and cyber risks; our ability to successfully manage risks associated with changes in demand for our products and services as well as changes in our targeted industries; our ability to develop new platforms to deliver our products and services, pricing, and other competitive pressures; legislative, regulatory and economic developments, including any new or proposed U.S. Treasury rule changes; the extent to which we are successful in gaining new long-term relationships with customers or retaining existing ones and the level of service failures that could lead customers to use competitors' services; our ability to complete the proposed merger with Markit Ltd. (Markit) on anticipated terms and timing and to achieve anticipated synergies; our ability to successfully integrate our business with Markit, and any acquired business, and manage risks associated therewith; any potential adverse reactions (including litigation), any disruptions or changes to business relationships resulting from the announcement or completion of the merger with Markit; our ability to satisfy our debt obligations and our other ongoing business obligations; the continued availability of capital and financing and rating agency actions; the occurrence of any catastrophic events, including, but not limited to, acts of terrorism or outbreak of war or hostilities; and the other factors described under the caption “Risk Factors” in our annual report on Form 10-K for the fiscal year ended November 30, 2015, along with our other filings with the U.S. Securities and Exchange Commission (SEC).

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

Website and Social Media Disclosure

We use our website (www.ihs.com) and corporate Twitter account (@IHS) as channels of distribution of company information. The information we post through these channels may be deemed material; therefore, investors should monitor these channels in addition to our press releases, SEC filings, and public conference calls and webcasts. None of the information provided on our website or through social media channels is incorporated into, or deemed to be a part of, this quarterly report on Form 10-Q.

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PART I. FINANCIAL INFORMATION


Item 1.	Financial Statements

IHS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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



	As of			As of
	May 31, 2016			November 30, 2015
	(Unaudited)			(Audited)
Assets
Current assets:
Cash and cash equivalents	$	345,540		$	291,580
Accounts receivable, net	378,026			355,913
Income tax receivable	7,737			4,585
Deferred subscription costs	62,481			52,752
Assets held for sale	—			193,377
Other	69,575			57,135
Total current assets	863,359			955,342
Non-current assets:
Property and equipment, net	318,451			314,366
Intangible assets, net	1,320,421			1,014,691
Goodwill	4,081,083			3,287,459
Deferred income taxes	6,630			6,630
Other	26,248			22,593
Total non-current assets	5,752,833			4,645,739
Total assets	$	6,616,192		$	5,601,081
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	473,796		$	36,019
Accounts payable	45,399			59,180
Accrued compensation	69,512			105,477
Accrued royalties	34,810			33,306
Other accrued expenses	131,271			118,217
Income tax payable	45,498			23,339
Deferred revenue	649,794			552,498
Liabilities held for sale	—			32,097
Total current liabilities	1,450,080			960,133
Long-term debt	2,487,524			2,095,183
Accrued pension and postretirement liability	25,902			26,745
Deferred income taxes	329,838			259,524
Other liabilities	66,906			58,619
Commitments and contingencies
Stockholders’ equity:
Class A common stock, $0.01 par value per share, 160,000,000 shares authorized, 71,117,896 and 70,287,707 shares issued, and 67,452,437 and 67,523,885 shares outstanding at May 31, 2016 and November 30, 2015, respectively	711			703
Additional paid-in capital	1,104,593			1,053,141
Treasury stock, at cost: 3,665,459 and 2,763,822 shares at May 31, 2016 and November 30, 2015, respectively	(417,199		)	(317,016		)
Retained earnings	1,750,408			1,655,262
Accumulated other comprehensive loss	(182,571		)	(191,213		)
Total stockholders’ equity	2,255,942			2,200,877
Total liabilities and stockholders’ equity	$	6,616,192		$	5,601,081

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except for per-share amounts)



	Three months ended May 31,						Six months ended May 31,
	2016			2015			2016			2015
Revenue	$	587,969		$	556,940		$	1,136,415		$	1,070,816
Operating expenses:
Cost of revenue	212,287			214,858			423,082			415,203
Selling, general and administrative	206,927			202,660			393,442			389,108
Depreciation and amortization	64,294			53,803			124,809			104,685
Restructuring charges	7,639			6,720			13,342			20,141
Acquisition-related costs	11,561			301			15,343			477
Net periodic pension and postretirement expense	406			497			813			993
Other expense (income), net	(355		)	1,932			862			1,094
Total operating expenses	502,759			480,771			971,693			931,701
Operating income	85,210			76,169			164,722			139,115
Interest income	281			180			545			340
Interest expense	(27,237		)	(17,454		)	(55,377		)	(34,448		)
Non-operating expense, net	(26,956		)	(17,274		)	(54,832		)	(34,108		)
Income from continuing operations before income taxes	58,254			58,895			109,890			105,007
Provision for income taxes	(13,406		)	(12,222		)	(23,815		)	(20,384		)
Income from continuing operations	44,848			46,673			86,075			84,623
Income from discontinued operations, net	5,254			4,279			9,071			5,849
Net income	$	50,102		$	50,952		$	95,146		$	90,472

Basic earnings per share:
Income from continuing operations	$	0.66		$	0.68		$	1.28		$	1.23
Income from discontinued operations, net	0.08			0.06			0.13			0.09
Net income	$	0.74		$	0.74		$	1.41		$	1.32
Weighted average shares used in computing basic earnings per share	67,574			68,802			67,501			68,752

Diluted earnings per share:
Income from continuing operations	$	0.66		$	0.68		$	1.27		$	1.22
Income from discontinued operations, net	0.08			0.06			0.13			0.08
Net income	$	0.74		$	0.74		$	1.40		$	1.31
Weighted average shares used in computing diluted earnings per share	67,808			69,111			67,974			69,258

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited)

(In thousands)



	Three months ended May 31,					Six months ended May 31,
	2016		2015			2016			2015
Net income	$	50,102	$	50,952		$	95,146		$	90,472
Other comprehensive income (loss), net of tax:
Unrealized gain (loss) on hedging activities⁽¹⁾	2,302		(1,535		)	(1,697		)	(2,954		)
Foreign currency translation adjustment	32,441		(9,344		)	10,339			(45,808		)
Total other comprehensive income (loss)	34,743		(10,879		)	8,642			(48,762		)
Comprehensive income	$	84,845	$	40,073		$	103,788		$	41,710

⁽¹⁾Net of tax benefit (expense) of $(1,503); $1,002; $1,108 and $1,929 for the three and six months ended May 31, 2016 and May 31, 2015, respectively.

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)



	Six months ended May 31,
	2016			2015
Operating activities:
Net income	$	95,146		$	90,472
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization	124,809			114,829
Stock-based compensation expense	64,439			67,834
Gain on sale of assets	(43,255		)	—
Impairment of assets	—			1,243
Excess tax benefit from stock-based compensation	(60		)	(5,193		)
Net periodic pension and postretirement expense	813			993
Pension and postretirement contributions	(1,656		)	(2,285		)
Deferred income taxes	25,609			(3,944		)
Change in assets and liabilities:
Accounts receivable, net	13,036			67,628
Other current assets	(28,829		)	(29,725		)
Accounts payable	(19,873		)	(7,002		)
Accrued expenses	(15,598		)	(53,476		)
Income tax	24,839			20,242
Deferred revenue	80,764			70,140
Other liabilities	8,384			2,528
Net cash provided by operating activities	328,568			334,284
Investing activities:
Capital expenditures on property and equipment	(52,660		)	(69,038		)
Acquisitions of businesses, net of cash acquired	(1,113,440		)	(369,908		)
Proceeds from sale of assets	190,215			—
Change in other assets	4,272			(339		)
Settlements of forward contracts	(4,148		)	2,419
Net cash used in investing activities	(975,761		)	(436,866		)
Financing activities:
Proceeds from borrowings	1,100,000			440,000
Repayment of borrowings	(269,882		)	(153,263		)
Payment of debt issuance costs	(15,430		)	—
Excess tax benefit from stock-based compensation	60			5,193
Repurchases of common stock	(106,015		)	(105,247		)
Net cash provided by financing activities	708,733			186,683
Foreign exchange impact on cash balance	(9,148		)	(11,378		)
Net increase in cash and cash equivalents	52,392			72,723
Cash and cash equivalents at the beginning of the period	293,148			153,156
Cash and cash equivalents at the end of the period	$	345,540		$	225,879

See accompanying notes.

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IHS INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

(Unaudited)

(In thousands)



	Class A Common Stock				Additional Paid-In Capital								Accumulated Other Comprehensive Loss
	Shares Outstanding		Amount		Additional Paid-In Capital			Treasury Stock			Retained Earnings		Accumulated Other Comprehensive Loss			Total
Balance at November 30, 2015 (Audited)	67,524		$	703	$	1,053,141		$	(317,016	)	$	1,655,262	$	(191,213	)	$	2,200,877
Stock-based award activity	577		8		53,550			(25,178		)	—		—			28,380
Income tax deficit from stock-based compensation	—		—		(2,098		)	—			—		—			(2,098		)
Repurchases of common stock	(649	)	—		—			(75,005		)	—		—			(75,005		)
Net income	—		—		—			—			95,146		—			95,146
Other comprehensive income	—		—		—			—			—		8,642			8,642
Balance at May 31, 2016	67,452		$	711	$	1,104,593		$	(417,199	)	$	1,750,408	$	(182,571	)	$	2,255,942

See accompanying notes.

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IHS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


1.	Basis of Presentation and Significant Accounting Policies

The accompanying unaudited condensed consolidated financial statements of IHS Inc. (IHS, we, us, or our) have been prepared on substantially the same basis as our annual consolidated financial statements and should be read in conjunction with our annual report on Form 10-K for the year ended November 30, 2015. In our opinion, these condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations, and cash flows for the periods presented, and such adjustments are of a normal, recurring nature.

Our business has seasonal aspects. Our fourth quarter typically generates our highest quarterly levels of revenue and profit. Conversely, our first quarter generally has our lowest levels of revenue and profit. We also experience event-driven seasonality in our business; for instance, IHS Energy CERAWeek (CERAWeek), an annual energy executive gathering, was held during our second quarter in 2015 and was held during our first quarter in 2016. Another example is the biennial release of the Boiler Pressure Vessel Code (BPVC) engineering standard, which generates revenue for us predominantly in the third quarter of every other year. We most recently recognized a benefit in connection with the BPVC release in the third quarter of 2015.

Due to the discontinued operations discussed in Note 8, we have adjusted prior period income statement amounts to reflect the impact of discontinued operations.

Recent Accounting Pronouncements

In April 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-08, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements. The ASU is intended to reduce the frequency of disposals reported as discontinued operations by focusing on strategic shifts that have (or will have) a major effect on an entity’s operations and financial results. We adopted this ASU in the first quarter of 2016, and the adoption of the standard did not have any significant impact on our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09, which establishes a comprehensive new revenue recognition model designed to depict the transfer of goods or services to a customer in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The ASU allows for the use of either the full or modified retrospective transition method. In March, April, and May 2016, the FASB issued ASU 2016-08, ASU 2016-10, and ASU 2016-12, respectively, which provide further revenue recognition guidance related to principal versus agent considerations, performance obligations and licensing, and narrow-scope improvements and practical expedients. All of these standards will be effective for us in the first quarter of our fiscal year 2019, although early adoption is permitted. We are currently evaluating the impact of these new standards on our consolidated financial statements, as well as which transition method we intend to use.

In August 2014, the FASB issued ASU 2014-15, which requires that management evaluate the entity's ability to continue as a going concern within one year after the date that the financial statements are issued. Disclosure is required if there is substantial doubt about the entity's ability to continue as a going concern. The standard will be effective for us in the fourth quarter of our fiscal year 2017, although early adoption is permitted. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

In April 2015, the FASB issued ASU 2015-03, which requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. The standard will be effective for us in the first quarter of our fiscal 2017, although early adoption is permitted. We expect that the only impact of this ASU on our financial statements will be the change in balance sheet presentation of our debt issuance costs.

In April 2015, the FASB issued ASU 2015-05, which provides guidance about a customer's accounting for fees paid in cloud computing arrangements. If a cloud computing arrangement includes a software license, then the customer should account for the software license element consistent with the acquisition of other software licenses. If the arrangement does not contain a software license, the customer should account for the arrangement as a service contract. The standard will be effective for us in the first quarter of our fiscal year 2017, although early adoption is permitted. We anticipate that we will adopt this standard using the prospective transition method, and do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

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In September 2015, the FASB issued ASU 2015-16, which requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined. The standard will be effective for us in the first quarter of our fiscal year 2017, although early adoption is permitted. We do not expect that the adoption of this ASU will have a significant impact on our consolidated financial statements.

In February 2016, the FASB issued ASU 2016-02, which requires that lease assets and lease liabilities be recognized on the balance sheet, and that key information about leasing arrangements be disclosed. The standard will be effective for us in the first quarter of our fiscal 2020, although early adoption is permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, which changes several aspects of the accounting for stock-based compensation, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The standard will be effective for us in the first quarter of our fiscal 2018, although early adoption is permitted. We are currently evaluating the impact of this new standard on our consolidated financial statements.


2.	Business Combinations

During the three and six months ended May 31, 2016, we completed the following acquisitions:

CARPROOF. On December 24, 2015, we acquired CARPROOF, a Canada-based company that offers products and services in vehicle history, appraisal, and valuation for the automotive industry, for approximately $460 million, net of cash acquired. We acquired CARPROOF in order to expand our vehicle history report services into Canada. This acquisition will be included in our Transportation segment.

Oil Price Information Service (OPIS). On February 10, 2016, we acquired OPIS, an internationally referenced pricing reporting agency that serves the oil, natural gas, and biofuels industries, for $654 million, net of cash acquired. OPIS information primarily serves the downstream energy market, and we completed this acquisition in support of our efforts to further diversify our energy portfolio. This acquisition will be included in our Resources segment.

We have preliminarily allocated $376 million of the aggregate purchase price for these two acquisitions to amortizing intangible assets and $789 million to goodwill.

Proposed Merger with Markit Ltd.

On March 20, 2016, we entered into an agreement and plan of merger with Markit Ltd., a Bermuda company (Markit), and Marvel Merger Sub, Inc., a Delaware corporation and an indirect and wholly-owned subsidiary of Markit (Merger Sub), pursuant to which Merger Sub will merge with and into IHS, with IHS surviving such merger as an indirect wholly-owned subsidiary of Markit. Upon completion of the merger, IHS stockholders will receive 3.5566 common shares of Markit for each share of IHS Class A common stock. The completion of the merger is subject to customary closing conditions, including approval by both IHS stockholders and Markit shareholders.

Other than certain acquisition-related costs related to the merger announcement (see Note 7), the proposed merger has had no other impact on these consolidated interim financial statements.


3.	Intangible Assets

The following table presents details of our intangible assets, other than goodwill, as of May 31, 2016 and November 30, 2015 (in thousands):

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	As of May 31, 2016							As of November 30, 2015
	Gross		Accumulated Amortization			Net		Gross		Accumulated Amortization			Net
Intangible assets subject to amortization:
Information databases	$	644,957	$	(253,299	)	$	391,658	$	595,219	$	(233,729	)	$	361,490
Customer relationships	847,600		(160,367		)	687,233		540,467		(135,352		)	405,115
Developed computer software	85,228		(40,593		)	44,635		84,918		(35,988		)	48,930
Trademarks	173,954		(43,998		)	129,956		166,301		(34,777		)	131,524
Other	15,282		(6,054		)	9,228		14,837		(5,802		)	9,035
Total	$	1,767,021	$	(504,311	)	$	1,262,710	$	1,401,742	$	(445,648	)	$	956,094
Intangible assets not subject to amortization:
Trademarks	57,711		—			57,711		58,597		—			58,597
Total intangible assets	$	1,824,732	$	(504,311	)	$	1,320,421	$	1,460,339	$	(445,648	)	$	1,014,691

Intangible assets amortization expense was $39.8 million and $76.8 million for the three and six months ended May 31, 2016, respectively, compared to $32.8 million and $63.8 million for the three and six months ended May 31, 2015. The following table presents the estimated future amortization expense related to intangible assets held as of May 31, 2016 (in thousands):



Year	Amount
Remainder of 2016	$	74,318
2017	$	143,171
2018	$	130,975
2019	$	117,637
2020	$	108,398
Thereafter	$	688,211

Goodwill, gross intangible assets, and net intangible assets were all subject to foreign currency translation effects. Changes in our goodwill and gross intangible assets from November 30, 2015 to May 31, 2016 were primarily the result of recent acquisitions, net of foreign currency effects. The change in net intangible assets was primarily due to acquisitions made in 2016, partially offset by current year amortization.


4.	Debt

The following table summarizes total indebtedness as of May 31, 2016 and November 30, 2015 (in thousands):



	May 31, 2016			November 30, 2015
2014 revolving facility	$	1,015,000		$	710,000
2013 term loan:
Tranche A-1	647,500			665,000
Tranche A-2	543,125			—
5% senior notes due 2022	750,000			750,000
Capital leases	5,695			6,202
Total debt	$	2,961,320		$	2,131,202
Current portion	(473,796		)	(36,019		)
Total long-term debt	$	2,487,524		$	2,095,183

2014 revolving facility. In October 2014, we entered into a $1.3 billion senior unsecured revolving credit agreement (2014 revolving facility). Subject to certain conditions, the 2014 revolving facility may be expanded by up to an aggregate of $500 million in additional commitments. Borrowings under the 2014 revolving facility mature in October 2019 and bear

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interest at the same rates and spreads as the 2013 term loan, as described below. A commitment fee on any unused balance is payable periodically and ranges from 0.13 percent to 0.30 percent based upon our Leverage Ratio. We had approximately $1.5 million of outstanding letters of credit under the 2014 revolving facility as of May 31, 2016, which reduces the available borrowing under the facility by an equivalent amount.

2013 term loan. In February 2016, we amended and restated our senior unsecured amortizing term loan agreement originally entered into in the third quarter of 2013 (2013 term loan), adding a $550 million tranche loan (Tranche A-2) to the amount outstanding under the existing tranche loan (Tranche A-1). The 2013 term loan has a maturity date of October 2019. The interest rates for borrowings under the 2013 term loan are the applicable LIBOR plus a spread of 1.00 percent to 2.00 percent, depending upon our Leverage Ratio, which is defined as the ratio of Consolidated Funded Indebtedness to rolling four-quarter Consolidated Earnings Before Interest Expense, Taxes, Depreciation and Amortization (EBITDA), as such terms are defined in the term loan agreements.

The 2014 revolving facility and the 2013 term loan contain certain financial and other covenants, including a maximum Leverage Ratio and a minimum Interest Coverage Ratio, as such terms are defined in the respective agreements. Both agreements were amended during the first quarter of 2016 to allow for leverage up to 4.0x for up to four quarters in connection with the OPIS acquisition; thereafter, the agreements return to the original leverage allowance of 3.5x, with the ability to temporarily increase leverage to 3.75x for up to three quarters for acquisitions.

5% senior notes due 2022 (5% Notes). In October 2014, we issued $750 million aggregate principal amount of senior unsecured notes due 2022 in an offering not subject to the registration requirements of the Securities Act of 1933, as amended (the Securities Act). In August 2015, we completed a registered exchange offer for the 5% Notes. The 5% Notes bear interest at a fixed rate of 5.000 percent and mature on November 1, 2022. Interest on the 5% Notes is due semiannually on May 1 and November 1 of each year, commencing May 1, 2015. We may redeem the 5% Notes in whole or in part at a redemption price equal to 100% of the principal amount of the notes plus the Applicable Premium, as defined in the indenture governing the 5% Notes. Additionally, at the option of the holders of the notes, we may be required to purchase all or a portion of the notes upon occurrence of a Change of Control Triggering Event as defined in the indenture, at a price equal to 101 percent of the principal amount thereof, plus accrued and unpaid interest to the date of purchase. The indenture contains covenants that limit our ability to, among other things, incur or create liens and enter into sale and leaseback transactions. In addition, the indenture contains a covenant that limits our ability to consolidate or merge with another entity or to sell all or substantially all of our assets to another entity. The indenture contains customary default provisions.

In connection with the proposed merger with Markit described in Note 2 and subject to the terms and conditions of a confidential offering memorandum and consent solicitation statement dated June 27, 2016, Markit commenced an offer to exchange our outstanding 5% Notes for up to an equal principal amount of new 5 percent senior unsecured notes to be issued by Markit subsequent to the consummation of the proposed merger. The obligation to accept the 5% Notes for exchange is subject to certain conditions, including consummation of the proposed merger. In connection with the proposed merger with Markit, we also expect to refinance the 2014 revolving facility and 2013 term loan with a new revolving facility and term loan of Markit Group Holdings Limited (MGHL) and guaranteed by Markit. The new 5 percent notes will be senior unsecured obligations of Markit that will rank pari passu with, including as to guarantors, the new revolving facility, new term loan facility, and the existing $500.0 million of senior unsecured notes of MGHL.

As of May 31, 2016, we were in compliance with all of our debt covenants. We have classified short-term debt based on scheduled term loan amortization payments of $93.8 million and expected cash availability over the next 12 months. As of May 31, 2016, we had approximately $1.015 billion of outstanding borrowings under the 2014 revolving facility at a current annual interest rate of 2.19 percent and approximately $1.191 billion of outstanding borrowings under the 2013 term loan at a current weighted average annual interest rate of 3.01 percent, including the effect of the interest rate swaps described in Note 5.

The carrying value of our debt instruments other than our 5% Notes approximate their fair value because of the variable interest rates associated with those instruments. The fair value of the 5% Notes as of May 31, 2016 was approximately $801 million, and was measured using observable inputs in markets that are not active; consequently, we have classified the 5% Notes within Level 2 of the fair value hierarchy.


5.	Derivatives

Our business is exposed to various market risks, including interest rate and foreign currency risks. We utilize derivative instruments to help us manage these risks. We do not hold or issue derivatives for speculative purposes.

Interest Rate Swaps

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To mitigate interest rate exposure on our outstanding revolving facility debt, we utilize interest rate derivative contracts that effectively swap $400 million of floating rate debt at a 2.86 percent weighted-average fixed interest rate, plus the applicable spread on our floating rate debt. We entered into these swap contracts in November 2013 and January 2014, and the contracts expire between May and November 2020.

Because the terms of these swaps and the variable rate debt (as amended or extended over time) coincide, we do not expect any ineffectiveness. We have designated and accounted for these instruments as cash flow hedges, with changes in fair value being deferred in accumulated other comprehensive income/loss (AOCI) in our consolidated balance sheets.

Foreign Currency Forwards

To mitigate foreign currency exposure, we utilize short-term foreign currency forward contracts that manage market risks associated with fluctuations in balances that are denominated in currencies other than the local functional currency. We account for these forward contracts at fair value and recognize the associated realized and unrealized gains and losses in other expense, net, since we have not designated these contracts as hedges for accounting purposes. The following table summarizes the notional amounts of these outstanding foreign currency forward contracts as of May 31, 2016 and November 30, 2015 (in thousands):



	May 31, 2016		November 30, 2015
Notional amount of currency pair:
Contracts to buy USD with CAD	$	71,146	$	—
Contracts to buy CAD with USD	C$	7,676	C$	9,290
Contracts to buy USD with EUR	$	10,283	$	8,508
Contracts to buy CHF with USD	CHF	19,000	CHF	19,000
Contracts to buy GBP with EUR	£	—	£	3,495
Contracts to buy EUR with GBP	€	7,000	€	—
Contracts to buy USD with GBP	$	111,002	$	—
Contracts to buy GBP with USD	£	—	£	7,231

Fair Value of Derivatives

Since our derivative instruments are not listed on an exchange, we have evaluated fair value by reference to similar transactions in active markets; consequently, we have classified all of our derivative instruments within Level 2 of the fair value measurement hierarchy. The following table shows the classification, location, and fair value of our derivative instruments as of May 31, 2016 and November 30, 2015 (in thousands):



	Fair Value of Derivative Instruments				Location on consolidated balance sheets
	May 31, 2016		November 30, 2015		Location on consolidated balance sheets
Assets:
Derivatives not designated as accounting hedges:
Foreign currency forwards	$	1,195	$	51	Other current assets

Liabilities:
Derivatives designated as accounting hedges:
Interest rate swaps	$	26,867	$	24,345	Other accrued expenses and other liabilities
Derivatives not designated as accounting hedges:
Foreign currency forwards	1,090		363		Other accrued expenses
Total	$	27,957	$	24,708

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The net (gain) loss on foreign currency forwards that are not designated as hedging instruments for the three and six months ended May 31, 2016 and the three and six months ended May 31, 2015, respectively, was as follows (in thousands):



	Amount of (gain) loss recognized in the consolidated statements of operations
	Three months ended May 31,					Six months ended May 31,					Location on consolidated statements of operations
	2016		2015			2016		2015			Location on consolidated statements of operations
Foreign currency forwards	$	8,746	$	(397	)	$	3,772	$	(960	)	Other expense (income), net

The following table provides information about the cumulative amount of unrecognized hedge losses recorded in AOCI, net of tax, as of May 31, 2016 and May 31, 2015, respectively, as well as the activity on our cash flow hedging instruments for the three and six months ended May 31, 2016 and the three and six months ended May 31, 2015, respectively (in thousands):



	Three months ended May 31,						Six months ended May 31,
	2016			2015			2016			2015
Beginning balance	$	(18,556	)	$	(10,901	)	$	(14,557	)	$	(9,482	)
Amount of gain (loss) recognized in AOCI on derivative:
Interest rate swaps	997			(1,690		)	(4,408		)	(3,495		)
Foreign currency forwards	—			312			—			824
Amount of loss (gain) reclassified from AOCI into income:
Interest rate swaps ⁽¹⁾	1,379			280			2,882			508
Foreign currency forwards ⁽¹⁾	(74		)	(437		)	(171		)	(791		)
Ending balance	$	(16,254	)	$	(12,436	)	$	(16,254	)	$	(12,436	)

(1) Pre-tax amounts reclassified from AOCI into income related to interest rate swaps are recorded in interest expense, and pre-tax amounts reclassified from AOCI into income related to foreign currency forwards are recorded in revenue.

Approximately $8.5 million of the $26.9 million unrecognized pre-tax losses relating to the interest rate swaps are expected to be reclassified into interest expense within the next 12 months.


6.	Restructuring Charges

During the six months ended May 31, 2016, we eliminated 245 positions as we continued the transition to our new segment operating model and continued to leverage our shared services cost structure. We also incurred additional direct and incremental costs related to lease abandonments, as well as revising a lease abandonment estimate because we secured a sub-tenant much earlier than anticipated. We expect to continue to incur costs related to these and other similar activities in future periods, resulting in additional restructuring charges.

During the six months ended May 31, 2016, we recorded approximately $13.3 million of restructuring charges for these activities. Of these charges, approximately $7.5 million was recorded in the Resources segment, $2.0 million was recorded in the Transportation segment, and $3.8 million was recorded in the CMS segment.

The following table provides a reconciliation of the restructuring liability as of May 31, 2016 (in thousands):



	Employee Severance and Other Termination Benefits			Contract Termination Costs			Other		Total
Balance at November 30, 2015	$	8,520		$	6,218		$	108	$	14,846
Add: Restructuring costs incurred	13,189			647			—		13,836
Revision to prior estimates	8			(502		)	—		(494		)
Less: Amount paid	(17,640		)	(1,345		)	—		(18,985		)
Balance at May 31, 2016	$	4,077		$	5,018		$	108	$	9,203

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As of May 31, 2016, approximately $4.8 million of the remaining restructuring liability was in the Resources segment, approximately $2.6 million was in the Transportation segment, and approximately $1.6 million was in the CMS segment. Approximately $6.6 million of the balance is expected to be paid within the next 12 months; the remaining amount relates to lease abandonments that will be paid over the remaining lease periods through 2021.


7.	Acquisition-related Costs

During the six months ended May 31, 2016, we recorded approximately $15.3 million of direct and incremental costs associated with acquisition-related activities. These costs were primarily incurred for legal and professional fees associated with recent acquisitions and the proposed merger with Markit Ltd. (see Note 2), but also included employee severance and accruals for cash payments subject to the continuing employment of certain key employees for one year after the acquisition close date. Most of these costs were recorded in the Transportation segment and the shared services function.

The following table provides a reconciliation of the acquisition-related costs accrued liability as of May 31, 2016 (in thousands):



	Employee Severance and Other Termination Benefits			Contract Termination Costs			Other			Total
Balance at November 30, 2015	$	—		$	135		$	305		$	440
Add: Costs incurred	2,163			281			12,917			15,361
Revision to prior estimates	—			(18		)	—			(18		)
Less: Amount paid	(2,163		)	(223		)	(4,177		)	(6,563		)
Balance at May 31, 2016	$	—		$	175		$	9,045		$	9,220

As of May 31, 2016, approximately $6.6 million of the remaining acquisition-related costs accrued liability was in the shared services function, $1.9 million was in the Transportation segment, and $0.7 million was in the Resources segment. We expect that the remaining liability will be substantially paid within the next 12 months.


8.	Discontinued Operations

In October 2015, we announced our intent to divest our OE&RM and GlobalSpec product groups, which are components of our CMS segment, due to a recent portfolio evaluation where we determined that these product groups no longer aligned with our strategic goals. We launched the sales process for both product groups in November 2015 and sold both businesses in the second quarter of 2016 for approximately $190.2 million. The OE&RM sale has a contingent earnout provision of $35.0 million that will be evaluated at the end of 2016. The net gain on sale for these two product groups was approximately $0.3 million. We have entered into transition services agreements (TSAs) with each of the buyers to facilitate an orderly transition process. The results of these product groups have been classified as discontinued operations in the accompanying financial statements and footnotes.

Operating results for discontinued operations for the three and six months ended May 31, 2016 and 2015 were as follows (in thousands):



	Three months ended May 31,						Six months ended May 31,
	2016			2015			2016			2015
Revenue	$	26,738		$	34,467		$	53,579		$	66,852

Income from discontinued operations before income taxes	$	51,601		$	6,760		$	57,381		$	9,240
Tax expense	(46,347		)	(2,481		)	(48,310		)	(3,391		)
Income from discontinued operations, net	$	5,254		$	4,279		$	9,071		$	5,849

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Assets and liabilities from discontinued operations related to the divestiture of the GlobalSpec and OE&RM product groups consisted of the following amounts (in thousands):



	At disposal date		November 30, 2015
Current assets	$	2,484	$	19,505
Property and equipment, net	20,329		16,391
Intangible assets, net	58,780		58,298
Goodwill	103,274		99,183
Total assets	$	184,867	$	193,377

Current liabilities	$	551	$	1,255
Deferred revenue	26,497		19,576
Deferred income taxes	11,887		11,266
Total liabilities	$	38,935	$	32,097


9.	Pensions and Postretirement Benefits

Our net periodic pension expense for the three and six months ended May 31, 2016 and 2015 consisted of the following (in thousands):



	Three months ended May 31,						Six months ended May 31,
	2016			2015			2016			2015
Service costs incurred	$	391		$	494		$	782		$	989
Interest costs on projected benefit obligation	2,077			2,070			4,149			4,147
Expected return on plan assets	(2,158		)	(2,168		)	(4,310		)	(4,345		)
Net periodic pension expense	$	310		$	396		$	621		$	791

Our net periodic postretirement expense for the three and six months ended May 31, 2016 and 2015 consisted of the following (in thousands):



	Three months ended May 31,				Six months ended May 31,
	2016		2015		2016		2015
Service costs incurred	$	2	$	4	$	4	$	8
Interest costs	94		97		188		194
Net periodic postretirement expense	$	96	$	101	$	192	$	202


10.	Stock-based Compensation

Stock-based compensation expense for the three and six months ended May 31, 2016 and 2015 was as follows (in thousands):



	Three months ended May 31,				Six months ended May 31,
	2016		2015		2016		2015
Cost of revenue	$	1,426	$	1,444	$	2,715	$	2,858
Selling, general and administrative	30,668		31,282		59,475		61,741
Total stock-based compensation expense	$	32,094	$	32,726	$	62,190	$	64,599

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



	Three months ended May 31,				Six months ended May 31,
	2016		2015		2016		2015
Income tax benefits	$	10,232	$	10,498	$	19,810	$	20,722

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No stock-based compensation cost was capitalized during the three and six months ended May 31, 2016 and 2015.

As of May 31, 2016, there was $138.0 million of unrecognized stock-based compensation cost, adjusted for estimated forfeitures, related to unvested stock-based awards that will be recognized over a weighted-average period of approximately 1.6 years. Total unrecognized stock-based compensation cost will be adjusted for future changes in estimated forfeitures and changes in estimated achievement of performance goals.

Restricted Stock Units (RSUs). The following table summarizes RSU activity during the six months ended May 31, 2016:



	Shares		Weighted- Average Grant Date Fair Value
	(in thousands)
Balance at November 30, 2015	2,441		$	108.74
Granted	540		$	105.55
Vested	(881	)	$	109.14
Forfeited	(122	)	$	114.73
Balance at May 31, 2016	1,978		$	107.32

The total fair value of RSUs that vested during the six months ended May 31, 2016 was $90.0 million.


11.	Income Taxes

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

Our effective tax rate for the three and six months ended May 31, 2016 was 23.0 percent and 21.7 percent, respectively, compared to 20.8 percent and 19.4 percent for the three and six months ended May 31, 2015, due to an increase in earnings in higher tax jurisdictions.


12.	Commitments and Contingencies

From time to time, we are involved in litigation in the ordinary course of our business, including claims or contingencies that may arise related to matters occurring prior to our acquisition of businesses, such as the matter described below. At the present time, primarily because the matters are generally in early stages, we can give no assurance as to the outcome of any pending litigation to which we are currently a party and we are unable to determine the ultimate resolution of or provide a reasonable estimate of the range of possible loss attributable to these matters or the effect they may have on us. However, we do not expect the outcome of such proceedings to have a material adverse effect on our results of operations or financial condition. We have and will continue to vigorously defend ourselves against these claims.

On April 23, 2013 (prior to our acquisition of R.L. Polk & Co.), our CARFAX subsidiary (CARFAX) was served with a complaint filed in the U.S. District Court for the Southern District of New York, purportedly on behalf of certain auto and light truck dealers. The complaint alleges, among other things, that, in violation of antitrust laws, CARFAX entered into exclusive arrangements regarding the sale of CARFAX vehicle history reports with certain auto manufacturers and owners of two websites providing classified listings of used autos and light trucks. The complaint seeks three times the actual damages that a jury finds the plaintiffs have sustained, injunctive relief, costs and attorneys’ fees. On October 25, 2013, the plaintiffs served a second amended complaint with similar allegations purporting to name approximately 469 auto dealers as plaintiffs, and counsel for plaintiffs have indicated that there may be additional claimants. There are significant legal and factual issues to be determined. We believe, however, that the probability that the outcome of the litigation will have a material adverse effect on our results of operations or financial condition is remote.


13.	Common Stock and Earnings per Share

Weighted-average shares of Class A common stock outstanding for the three and six months ended May 31, 2016 and 2015 were calculated as follows (in thousands):



	Three months ended May 31,		Six months ended May 31,
	2016	2015	2016	2015
Weighted-average shares outstanding:
Shares used in basic EPS calculation	67,574	68,802	67,501	68,752
Effect of dilutive securities:
Restricted stock units	234	309	473	506
Shares used in diluted EPS calculation	67,808	69,111	67,974	69,258

Share Repurchase Programs

In June 2015, our board of directors authorized us to repurchase up to $500 million of our Class A common stock in open market purchases or through privately negotiated transactions in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended (the Exchange Act), subject to market conditions, applicable legal requirements and other relevant factors. The repurchase program does not obligate IHS to repurchase any set dollar amount or number of shares and is scheduled to expire on November 30, 2017, but may be suspended at any time at our discretion. The amount authorized under this program is inclusive of share repurchases of our Class A common stock surrendered by employees in an amount equal to the statutory tax liability associated with the vesting of their equity awards, for which we pay the statutory tax on behalf of the employee. During the six months ended May 31, 2016, we repurchased 648,854 shares on the open market under this program for a total of approximately $75.0 million, at an average price of approximately $115.58 per share. Since inception of the program, we have repurchased a total of 1,879,641 shares for approximately $216.7 million, at an average price of approximately $115.29 per share.


14.	Accumulated Other Comprehensive Income (Loss)

The following table summarizes the changes in AOCI by component (net of tax) for the six months ended May 31, 2016 (in thousands):



	Foreign currency translation			Net pension and OPEB liability			Unrealized losses on hedging activities			Total
Balance at November 30, 2015	$	(163,507	)	$	(13,149	)	$	(14,557	)	$	(191,213	)
Other comprehensive loss before reclassifications	10,339			—			(4,408		)	5,931
Reclassifications from AOCI to income	—			—			2,711			2,711
Balance at May 31, 2016	$	(153,168	)	$	(13,149	)	$	(16,254	)	$	(182,571	)


15.	Segment Information

We prepare our financial reports and analyze our business results within our three operating segments: Resources, Transportation, and CMS. We evaluate segment performance primarily at the revenue and operating profit level for each of these three segments. We also evaluate revenues by transaction type and geography.

Information about the operations of our three segments is set forth below. No single customer accounted for 10% or more of our total revenue for the three and six months ended May 31, 2016 and 2015. There are no material inter-segment revenues for any period presented. Certain corporate transactions are not allocated to the reportable segments, including such items as stock-based compensation expense, net periodic pension and postretirement expense, corporate-level impairments, and gain (loss) on sale of corporate assets.

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	Resources		Transportation		CMS		Shared Services			Consolidated Total
	(In thousands)
Three months ended May 31, 2016
Revenue	$	221,124	$	230,922	$	135,923	$	—		$	587,969
Operating income	$	61,873	$	60,540	$	18,581	$	(55,784	)	$	85,210
Depreciation and amortization	$	26,153	$	27,885	$	10,169	$	87		$	64,294
Three months ended May 31, 2015
Revenue	$	234,673	$	190,292	$	131,975	$	—		$	556,940
Operating income	$	64,186	$	47,833	$	9,666	$	(45,516	)	$	76,169
Depreciation and amortization	$	21,844	$	20,412	$	11,498	$	49		$	53,803
Six months ended May 31, 2016
Revenue	$	437,046	$	430,598	$	268,771	$	—		$	1,136,415
Operating income	$	121,254	$	103,595	$	34,248	$	(94,375	)	$	164,722
Depreciation and amortization	$	50,618	$	53,917	$	20,231	$	43		$	124,809
Six months ended May 31, 2015
Revenue	$	452,242	$	366,008	$	252,566	$	—		$	1,070,816
Operating income	$	120,645	$	88,472	$	15,541	$	(85,543	)	$	139,115
Depreciation and amortization	$	42,993	$	40,344	$	21,245	$	103		$	104,685

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



	Three months ended May 31,				Six months ended May 31,
	2016		2015		2016		2015
Subscription revenue	$	462,042	$	441,718	$	905,201	$	870,982
Non-subscription revenue	125,927		115,222		231,214		199,834
Total revenue	$	587,969	$	556,940	$	1,136,415	$	1,070,816

Revenue by geography was as follows (in thousands):



	Three months ended May 31,				Six months ended May 31,
	2016		2015		2016		2015
Americas	$	410,955	$	375,880	$	787,090	$	716,710
EMEA	119,189		128,902		238,030		249,545
APAC	57,825		52,158		111,295		104,561
Total revenue	$	587,969	$	556,940	$	1,136,415	$	1,070,816


16.	Supplemental Guarantor Information

Our 5% Notes are fully and unconditionally guaranteed on a senior unsecured basis, jointly and severally, by the following wholly owned subsidiaries of IHS Inc. (collectively, the Guarantor Subsidiaries):

•IHS Holding Inc.

•IHS Global Inc.

•R.L. Polk & Co.

•CARFAX, Inc.

The guarantees of our 5% Notes by the Guarantor Subsidiaries contain customary release provisions, which provide for the termination of such guarantees upon (i) the sale or other disposition (including by way of consolidation or merger) of the Guarantor Subsidiary or the sale or disposition of all or substantially all the assets of the Guarantor Subsidiary (in each case other than to the parent company (IHS Inc.) or another subsidiary of the parent company), (ii) the defeasance of the 5% Notes, (iii) at such time as the Guarantor Subsidiary ceases to be a guarantor of any significant indebtedness of the company, or (iv) if approved by the holders of the 5% Notes (except as provided in the indenture governing the 5% Notes).

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The following supplemental tables present condensed consolidating financial information for the parent company, the Guarantor Subsidiaries on a combined basis, and the non-guarantor subsidiaries on a combined basis.

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF MAY 31, 2016

(In thousands)



	IHS Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	150	$	224,853	$	120,537		$	—		$	345,540
Accounts receivable, net	—		204,587		173,439			—			378,026
Income tax receivable	—		—		7,737			—			7,737
Deferred subscription costs	—		65,467		35,092			(38,078		)	62,481
Intercompany receivables	464,204		43,636		180,757			(688,597		)	—
Other	3,941		43,049		22,585			—			69,575
Total current assets	468,295		581,592		540,147			(726,675		)	863,359
Non-current assets:
Property and equipment, net	—		269,203		49,248			—			318,451
Intangible assets, net	—		736,387		584,034			—			1,320,421
Goodwill	—		2,440,621		1,640,462			—			4,081,083
Deferred income taxes	45,459		—		6,630			(45,459		)	6,630
Investment in subsidiaries	3,071,702		3,462,150		—			(6,533,852		)	—
Intercompany notes receivable	—		123,846		1,282,619			(1,406,465		)	—
Other	14,598		10,562		1,088			—			26,248
Total non-current assets	3,131,759		7,042,769		3,564,081			(7,985,776		)	5,752,833
Total assets	$	3,600,054	$	7,624,361	$	4,104,228		$	(8,712,451	)	$	6,616,192
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	41,250	$	432,546	$	—		$	—		$	473,796
Accounts payable	—		23,267		22,132			—			45,399
Accrued compensation	—		52,245		17,267			—			69,512
Accrued royalties	—		27,995		6,815			—			34,810
Other accrued expenses	4,139		77,260		49,872			—			131,271
Income tax payable	8,770		—		36,728			—			45,498
Deferred revenue	—		361,921		325,951			(38,078		)	649,794
Intercompany payables	—		620,461		68,136			(688,597		)	—
Total current liabilities	54,159		1,595,695		526,901			(726,675		)	1,450,080
Long-term debt	1,270,875		1,216,649		—			—			2,487,524
Accrued pension and postretirement liability	18,787		7,801		(686		)	—			25,902
Deferred income taxes	—		264,187		111,110			(45,459		)	329,838
Intercompany notes payable	—		1,282,619		123,846			(1,406,465		)	—
Other liabilities	291		49,592		17,023			—			66,906
Total stockholders’ equity	2,255,942		3,207,818		3,326,034			(6,533,852		)	2,255,942
Total liabilities and stockholders’ equity	$	3,600,054	$	7,624,361	$	4,104,228		$	(8,712,451	)	$	6,616,192

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CONDENSED CONSOLIDATING BALANCE SHEET

AS OF NOVEMBER 30, 2015

(In thousands)



	IHS Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Assets
Current assets:
Cash and cash equivalents	$	—	$	21,048	$	270,532	$	—		$	291,580
Accounts receivable, net	—		192,889		163,024		—			355,913
Income tax receivable	42,663		—		3,021		(41,099		)	4,585
Deferred subscription costs	—		52,210		30,082		(29,540		)	52,752
Intercompany receivables	465,915		38,381		179,798		(684,094		)	—
Assets held for sale	—		99,743		93,634		—			193,377
Other	1,681		38,220		17,234		—			57,135
Total current assets	510,259		442,491		757,325		(754,733		)	955,342
Non-current assets:
Property and equipment, net	—		267,422		46,944		—			314,366
Intangible assets, net	—		768,029		246,662		—			1,014,691
Goodwill	—		2,274,422		1,013,037		—			3,287,459
Deferred income taxes	58,471		—		6,630		(58,471		)	6,630
Investment in subsidiaries	2,416,961		3,045,096		—		(5,462,057		)	—
Intercompany notes receivable	—		—		724,778		(724,778		)	—
Other	10,181		11,130		1,282		—			22,593
Total non-current assets	2,485,613		6,366,099		2,039,333		(6,245,306		)	4,645,739
Total assets	$	2,995,872	$	6,808,590	$	2,796,658	$	(7,000,039	)	$	5,601,081
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt	$	—	$	36,019	$	—	$	—		$	36,019
Accounts payable	5		39,689		19,486		—			59,180
Accrued compensation	—		69,889		35,588		—			105,477
Accrued royalties	—		25,985		7,321		—			33,306
Other accrued expenses	3,453		74,055		40,709		—			118,217
Income tax payable	—		64,077		362		(41,100		)	23,339
Deferred revenue	—		321,766		260,272		(29,540		)	552,498
Intercompany payables	22,721		549,783		122,855		(695,359		)	—
Liabilities held for sale	—		12,402		19,695		—			32,097
Total current liabilities	26,179		1,193,665		506,288		(765,999		)	960,133
Long-term debt	750,000		1,345,183		—		—			2,095,183
Accrued pension and postretirement liability	18,260		8,188		297		—			26,745
Deferred income taxes	—		259,764		46,965		(47,205		)	259,524
Intercompany notes payable	—		724,778		—		(724,778		)	—
Other liabilities	556		40,755		17,308		—			58,619
Total stockholders’ equity	2,200,877		3,236,257		2,225,800		(5,462,057		)	2,200,877
Total liabilities and stockholders’ equity	$	2,995,872	$	6,808,590	$	2,796,658	$	(7,000,039	)	$	5,601,081

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MAY 31, 2016

(In thousands)



	IHS Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	410,984		$	193,693		$	(16,708	)	$	587,969
Operating expenses:
Cost of revenue	—			204,047			24,948			(16,708		)	212,287
Selling, general and administrative	2,762			134,463			69,702			—			206,927
Depreciation and amortization	—			43,633			20,661			—			64,294
Restructuring charges	—			2,257			5,382			—			7,639
Acquisition-related costs	—			9,824			1,737			—			11,561
Net periodic pension and postretirement expense (income)	8			511			(113		)	—			406
Other expense (income), net	—			(1,872		)	1,517			—			(355		)
Total operating expenses	2,770			392,863			123,834			(16,708		)	502,759
Operating income (loss)	(2,770		)	18,121			69,859			—			85,210
Interest income	—			1,824			272			(1,815		)	281
Interest expense	(14,522		)	(14,536		)	6			1,815			(27,237		)
Non-operating income (expense), net	(14,522		)	(12,712		)	278			—			(26,956		)
Income (loss) from continuing operations before income taxes	(17,292		)	5,409			70,137			—			58,254
Benefit (provision) for income taxes	6,830			(2,137		)	(18,099		)	—			(13,406		)
Income (loss) from continuing operations	(10,462		)	3,272			52,038			—			44,848
Income from discontinued operations, net	—			4,170			1,084			—			5,254
Equity in net income of subsidiaries	60,564			53,122			—			(113,686		)	—
Net income	$	50,102		$	60,564		$	53,122		$	(113,686	)	$	50,102

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE THREE MONTHS ENDED MAY 31, 2015

(In thousands)



	IHS Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	389,830		$	179,908		$	(12,798	)	$	556,940
Operating expenses:
Cost of revenue	—			184,301			43,355			(12,798		)	214,858
Selling, general and administrative	2,618			134,444			65,598			—			202,660
Depreciation and amortization	—			37,206			16,597			—			53,803
Restructuring charges	—			5,073			1,647			—			6,720
Acquisition-related costs	—			224			77			—			301
Net periodic pension and postretirement expense (income)	8			563			(74		)	—			497
Other expense (income), net	—			2,123			(191		)	—			1,932
Total operating expenses	2,626			363,934			127,009			(12,798		)	480,771
Operating income (loss)	(2,626		)	25,896			52,899			—			76,169
Interest income	6,442			41			178			(6,481		)	180
Interest expense	(9,811		)	(8,304		)	(5,820		)	6,481			(17,454		)
Non-operating expense, net	(3,369		)	(8,263		)	(5,642		)	—			(17,274		)
Income (loss) from continuing operations before income taxes	(5,995		)	17,633			47,257			—			58,895
Benefit (provision) for income taxes	2,368			(6,961		)	(7,629		)	—			(12,222		)
Income (loss) from continuing operations	(3,627		)	10,672			39,628			—			46,673
Income from discontinued operations, net	—			740			3,539			—			4,279
Equity in net income of subsidiaries	54,579			43,167			—			(97,746		)	—
Net income	$	50,952		$	54,579		$	43,167		$	(97,746	)	$	50,952

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED MAY 31, 2016

(In thousands)



	IHS Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	814,797		$	354,500		$	(32,882	)	$	1,136,415
Operating expenses:
Cost of revenue	—			422,004			33,960			(32,882		)	423,082
Selling, general and administrative	5,847			252,412			135,183			—			393,442
Depreciation and amortization	—			86,672			38,137			—			124,809
Restructuring charges	—			5,957			7,385			—			13,342
Acquisition-related costs	—			10,480			4,863			—			15,343
Net periodic pension and postretirement expense (income)	16			1,021			(224		)	—			813
Other expense (income), net	—			(772		)	1,634			—			862
Total operating expenses	5,863			777,774			220,938			(32,882		)	971,693
Operating income (loss)	(5,863		)	37,023			133,562			—			164,722
Interest income	—			3,614			536			(3,605		)	545
Interest expense	(24,328		)	(33,708		)	(946		)	3,605			(55,377		)
Non-operating expense, net	(24,328		)	(30,094		)	(410		)	—			(54,832		)
Income (loss) from continuing operations before income taxes	(30,191		)	6,929			133,152			—			109,890
Benefit (provision) for income taxes	11,925			(2,737		)	(33,003		)	—			(23,815		)
Income (loss) from continuing operations	(18,266		)	4,192			100,149			—			86,075
Income from discontinued operations, net	—			6,021			3,050			—			9,071
Equity in net income of subsidiaries	113,412			103,199			—			(216,611		)	—
Net income	$	95,146		$	113,412		$	103,199		$	(216,611	)	$	95,146

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CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED MAY 31, 2015

(In thousands)



	IHS Inc.			Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Revenue	$	—		$	754,205		$	345,557		$	(28,946	)	$	1,070,816
Operating expenses:
Cost of revenue	—			389,039			55,110			(28,946		)	415,203
Selling, general and administrative	6,672			253,405			129,031			—			389,108
Depreciation and amortization	—			72,990			31,695			—			104,685
Restructuring charges	—			12,735			7,406			—			20,141
Acquisition-related costs	—			350			127			—			477
Net periodic pension and postretirement expense (income)	15			1,131			(153		)	—			993
Other expense, net	—			361			733			—			1,094
Total operating expenses	6,687			730,011			223,949			(28,946		)	931,701
Operating income (loss)	(6,687		)	24,194			121,608			—			139,115
Interest income	10,349			80			1,049			(11,138		)	340
Interest expense	(19,602		)	(15,986		)	(9,998		)	11,138			(34,448		)
Non-operating expense, net	(9,253		)	(15,906		)	(8,949		)	—			(34,108		)
Income (loss) from continuing operations before income taxes	(15,940		)	8,288			112,659			—			105,007
Benefit (provision) for income taxes	6,296			(3,274		)	(23,406		)	—			(20,384		)
Income (loss) from continuing operations	(9,644		)	5,014			89,253			—			84,623
Income from discontinued operations, net	—			1,417			4,432			—			5,849
Equity in net income of subsidiaries	100,116			93,685			—			(193,801		)	—
Net income	$	90,472		$	100,116		$	93,685		$	(193,801	)	$	90,472

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CONDENSED CONSOLIDATING STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)




	IHS Inc.		Guarantor Subsidiaries		Non-Guarantor Subsidiaries		Eliminating Entries			Consolidated
Three months ended May 31, 2016
Comprehensive income	$	84,845	$	95,381	$	95,075	$	(190,456	)	$	84,845

Three months ended May 31, 2015
Comprehensive income (loss)	$	40,073	$	43,826	$	33,567	$	(77,393	)	$	40,073

Six months ended May 31, 2016
Comprehensive income	$	103,788	$	122,225	$	122,953	$	(245,178	)	$	103,788

Six months ended May 31, 2015
Comprehensive income	$	41,710	$	51,321	$	47,780	$	(99,101	)	$	41,710

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED MAY 31, 2016

(In thousands)



	IHS Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	150	$	183,221		$	145,197		$	—		$	328,568
Investing activities:
Capital expenditures on property and equipment	—		(44,963		)	(7,697		)	—			(52,660		)
Acquisitions of businesses, net of cash acquired	—		(653,906		)	(459,534		)	—			(1,113,440		)
Proceeds from sale of assets	—		124,282			65,933			—			190,215
Change in other assets	—		4,272			—			—			4,272
Settlements of forward contracts	—		—			(4,148		)	—			(4,148		)
Advances provided to other subsidiaries	—		(190,749		)	(624,366		)	815,115			—
Investment in subsidiaries	—		(551,451		)	—			551,451			—
Net cash used in investing activities	—		(1,312,515		)	(1,029,812		)	1,366,566			(975,761		)
Financing activities:
Proceeds from borrowings	—		1,100,000			—			—			1,100,000
Repayment of borrowings	—		(269,882		)	—			—			(269,882		)
Payment of debt issuance costs	—		(15,430		)	—			—			(15,430		)
Excess tax benefit from stock-based compensation	—		60			—			—			60
Repurchases of common stock	—		(106,015		)	—			—			(106,015		)
Advances received from other subsidiaries	—		624,366			190,749			(815,115		)	—
Proceeds from issuance of intercompany equity	—		—			551,451			(551,451		)	—
Net cash provided by financing activities	—		1,333,099			742,200			(1,366,566		)	708,733
Foreign exchange impact on cash balance	—		—			(9,148		)	—			(9,148		)
Net increase (decrease) in cash and cash equivalents	150		203,805			(151,563		)	—			52,392
Cash and cash equivalents at the beginning of the period	—		21,048			272,100			—			293,148
Cash and cash equivalents at the end of the period	$	150	$	224,853		$	120,537		$	—		$	345,540

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CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS

FOR THE SIX MONTHS ENDED MAY 31, 2015

(In thousands)



	IHS Inc.		Guarantor Subsidiaries			Non-Guarantor Subsidiaries			Eliminating Entries			Consolidated
Net cash provided by operating activities	$	—	$	186,247		$	148,037		$	—		$	334,284
Investing activities:
Capital expenditures on property and equipment	—		(60,793		)	(8,245		)	—			(69,038		)
Acquisitions of businesses, net of cash acquired	—		(324,393		)	(45,515		)	—			(369,908		)
Change in other assets	—		(339		)	—			—			(339		)
Settlements of forward contracts	—		—			2,419			—			2,419
Investment in subsidiaries	—		(100		)	—			100			—
Net cash used in investing activities	—		(385,625		)	(51,341		)	100			(436,866		)
Financing activities:
Proceeds from borrowings	—		440,000			—			—			440,000
Repayment of borrowings	—		(152,980		)	(283		)	—			(153,263		)
Excess tax benefit from stock-based compensation	—		5,193			—			—			5,193
Repurchases of common stock	—		(105,247		)	—			—			(105,247		)
Proceeds from issuance of intercompany equity	—		—			100			(100		)	—
Net cash provided by (used in) financing activities	—		186,966			(183		)	(100		)	186,683
Foreign exchange impact on cash balance	—		—			(11,378		)	—			(11,378		)
Net increase (decrease) in cash and cash equivalents	—		(12,412		)	85,135			—			72,723
Cash and cash equivalents at the beginning of the period	—		32,314			120,842			—			153,156
Cash and cash equivalents at the end of the period	$	—	$	19,902		$	205,977		$	—		$	225,879

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

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help the reader understand the financial condition and results of operations of IHS Inc. (IHS, we, us, or our) as of and for the periods presented. The following discussion should be read in conjunction with our annual report on Form 10-K for the year ended November 30, 2015 and the Condensed Consolidated Financial Statements and accompanying notes included in this quarterly report on Form 10-Q. References to 2016 are to our fiscal year 2016, which began on December 1, 2015 and ends on November 30, 2016.

Executive Summary

Business Overview

We are a leading source of information, insight, and analytics in critical areas that shape today's business landscape. Businesses and governments in more than 140 countries rely on our comprehensive content, expert independent analysis, and flexible delivery methods. Our aim is to embed our solutions within the entire spectrum of our customers’ organizations, enabling executive-level capital deployment strategies and following decision-making activities throughout their organizations to front-line employees tasked with managing their company’s complex core daily operations. We have been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, we are committed to sustainable, profitable growth and employ nearly 9,000 people in 33 countries around the world.

To best serve our customers, we recently reorganized our business into the following three industry- and workflow-focused segments:

•Resources, which includes our Energy and Chemicals product offerings;


•	Transportation, which includes our Automotive; Maritime & Trade; and Aerospace, Defense & Security product offerings; and


•	Consolidated Markets & Solutions, which includes our Product Design; Technology, Media & Telecom (TMT); and Economics & Country Risk (ECR) product offerings.

We believe that this sales and operating model helps our customers do business with us by providing a cohesive, consistent, and effective product, sales, and marketing approach by segment.

Subscriptions represented approximately 79 percent of our total revenue in the second quarter of 2016. Our subscription agreements are typically annual and non-cancellable for the term of the subscription and may contain provisions for minimum monthly payments. Our subscription revenue is generally stable and predictable, and we have long-term relationships with many of our customers.

In 2016, we expect to continue to better align and focus our operations through our new operating segment structure, which we believe will simplify our operating model and improve our operational performance by driving greater speed, clarity, and accountability. We are specifically focused on aligning our organizational structure, optimizing product platforms, and simplifying our capital allocation.

Key Performance Indicators

We believe that revenue growth, Adjusted EBITDA (both in dollars and margin), and free cash flow are key financial measures of our success. Adjusted EBITDA and free cash flow are financial measures that are not prepared in accordance with U.S. generally accepted accounting principles (non-GAAP).

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

•

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


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


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

In addition to measuring and reporting revenue by segment, we also measure and report revenue by transaction type and geography. Understanding revenue by transaction type helps us identify broad changes in product mix, while revenue by geography provides us with information about regional dynamics. We summarize our transaction type revenue into the following two categories:


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

•

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

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

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

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

Because not all companies use identical calculations, our presentation of non-GAAP financial measures may not be comparable to other similarly titled measures of other companies. However, these measures can still be useful in evaluating our performance against our peer companies because we believe the measures provide users with valuable insight into key components of GAAP financial disclosures. For example, a company with higher GAAP net income may not be as appealing

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to investors if its net income is more heavily comprised of gains on asset sales. Likewise, eliminating the effects of interest income and expense moderates the impact of a company’s capital structure on its performance.

Strategic Acquisitions and Divestitures

We paid a total purchase price of approximately $1.1 billion for the two acquisitions we completed during the first quarter of 2016, reflecting our narrowed focus on fewer, larger deals. Our consolidated financial statements include the results of operations and cash flows for these business combinations beginning on their respective dates of acquisition.

During 2015, we conducted a complete review of our entire business portfolio. As a result of that review, we determined that the OE&RM and GlobalSpec product offerings no longer fit with our strategic goals, and in the fourth quarter of 2015, we decided to divest those product groups. In the second quarter of 2016, we completed the sale of both of these product groups. We have entered into transition services agreements (TSAs) with the GlobalSpec and OE&RM buyers to facilitate an orderly transition process. The results of these product groups have been classified as discontinued operations in the accompanying financial statements and footnotes. We will continue to evaluate the long-term potential and strategic fit of all of our assets.

For a more detailed description of our recent acquisition and divestiture activity, see Notes 2 and 8 of "Item 1 - Financial Statements - Notes to Consolidated Financial Statements" in Part I of this Form 10-Q.

Global Operations

Approximately 40 percent of our revenue is transacted outside of the United States; however, only about 20 percent of our revenue is transacted in currencies other than the U.S. dollar. As a result, a strengthening U.S. dollar relative to certain currencies has historically resulted in a negative impact on our revenue; conversely, a weakening U.S. dollar has historically resulted in a positive impact on our revenue. However, the impact on operating income is diminished due to certain operating expenses denominated in currencies other than the U.S. dollar. Our largest foreign currency exposures are the British Pound, the Canadian Dollar, and the Euro.

Results of Operations

Total Revenue

Second quarter 2016 revenue increased 6 percent compared to the second quarter of 2015, and our year-to-date 2016 revenue also increased 6 percent. The table below displays the percentage change in revenue due to organic, acquisitive, and foreign currency factors when comparing the three and six months ended May 31, 2016 to the three and six months ended May 31, 2015.



	Change in Total Revenue
(All amounts represent percentage points)	Organic		Acquisitive		Foreign Currency
Second quarter 2016 vs. second quarter 2015	(1	)%	7	%	(1	)%
Year-to-date 2016 vs. year-to-date 2015	1	%	6	%	(1	)%

Organic growth for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, was primarily attributable to 1 percent subscription organic growth for both the three and six months ended May 31, 2016, as well as 2 percent organic growth during the first half of 2016 from our non-subscription product offerings. Non-subscription organic growth declined 6 percent for the second quarter of 2016, compared to the second quarter of 2015, because our CERAWeek event was held in the first quarter this year versus the second quarter last year. Normalizing for the timing of that event, our non-subscription organic revenue growth for the second quarter of 2016 was 6 percent. Our Transportation segment continues to perform very well, with organic revenue growth of 12 percent and 11 percent, respectively, for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015. Resources organic revenue growth declined 8 percent on a year-to-date basis, largely due to continued market pressure in our energy product offerings. Our CMS organic revenue growth was stable at 2 percent and 3 percent for the three and six months ended May 31, 2016, respectively, compared to the three and six months ended May 31, 2015.

Acquisitive revenue growth for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, was primarily due to the acquisitions of CARPROOF and OPIS in the first quarter of 2016, as well as the run-out of the RootMetrics acquisition from the second quarter of 2015.

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Foreign currency had an adverse effect on our year-over-year revenue growth as the U.S. dollar continued to maintain its strength against foreign currencies. We continue to see significant uncertainty in the foreign currency markets.

Revenue by Segment



	Three months ended May 31,						Percentage Change		Six months ended May 31,						Percentage Change
(In thousands, except percentages)	2016			2015			Percentage Change		2016			2015			Percentage Change
Revenue:
Resources	$	221,124		$	234,673		(6	)%	$	437,046		$	452,242		(3	)%
Transportation	230,922			190,292			21	%	430,598			366,008			18	%
CMS	135,923			131,975			3	%	268,771			252,566			6	%
Total revenue	$	587,969		$	556,940		6	%	$	1,136,415		$	1,070,816		6	%

As a percent of total revenue:
Resources	38		%	42		%			38		%	42		%
Transportation	39		%	34		%			38		%	34		%
CMS	23		%	24		%			24		%	24		%

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



	Increase (decrease) in revenue
	Second quarter 2016 vs. second quarter 2015						Year-to-date 2016 vs. year-to-date 2015
(All amounts represent percentage points)	Organic		Acquisitive		Foreign Currency		Organic		Acquisitive		Foreign Currency
Resources	(13	)%	9	%	(1	)%	(8	)%	6	%	(1	)%
Transportation	12	%	9	%	—	%	11	%	7	%	(1	)%
CMS	2	%	2	%	(1	)%	3	%	5	%	(2	)%

Resources revenue for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, continues to be negatively affected by the significant headwinds in the energy industries. On a constant currency basis, our Resources organic subscription base, which represents the annualized value of subscription contracts, declined by approximately $20 million in the first quarter of 2016 and by approximately $15 million in the second quarter of 2016, representing about a 5 percent total decline on a subscription base of approximately $700 million as of the beginning of the year. We anticipate continued pressure on our Resources organic subscription base in the second half of 2016 as we operate in the challenged energy environment. Resources organic non-subscription growth for the second quarter of 2016 was a negative 36 percent, reflecting the impact of the CERAWeek event timing and the continued difficult energy industry environment. Normalizing for the timing impact of that event, Resources organic non-subscription growth for the second quarter of 2016 was a negative 5 percent. For the six months ended May 31, 2016, total Resources organic revenue growth was a negative 8 percent.

Transportation revenue for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, experienced solid organic subscription growth at 10 percent for both the three and six months ended May 31, 2016. Non-subscription organic growth was also strong at 19 percent and 14 percent, respectively, for the three and six months ended May 31, 2016, and was strengthened by certain automotive recall activities during the second quarter, as well as new product launches. We continue to see strong organic growth in our automotive product category and stable organic growth in the other Transportation product categories.

CMS revenue for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, experienced stable organic subscription growth at 3 percent and 4 percent, respectively, and relatively flat organic non-subscription growth for the same periods.

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Revenue by Transaction Type



	Three months ended May 31,						Percent change				Six months ended May 31,						Percent change
(in thousands, except percentages)	2016			2015			Total		Organic		2016			2015			Total		Organic
Revenue:
Subscription	$	462,042		$	441,718		5	%	1	%	$	905,201		$	870,982		4	%	1	%
Non-subscription	125,927			115,222			9	%	(6	)%	231,214			199,834			16	%	2	%
Total revenue	$	587,969		$	556,940		6	%	(1	)%	$	1,136,415		$	1,070,816		6	%	1	%

As a percent of total revenue:
Subscription	79		%	79		%					80		%	81		%
Non-subscription	21		%	21		%					20		%	19		%

Subscription revenue grew at 1 percent organically for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, with Transportation subscription offerings providing the largest contribution to the growth, CMS subscription offerings growing at a steady pace, and Resources subscription offerings declining as a result of the reduction in the energy subscription base in 2015 and into 2016. We expect continued pressure on our Resources organic subscription growth rate throughout 2016.

Non-subscription revenue decreased 6 percent organically for the three months ended May 31, 2016, compared to the three months ended May 31, 2015, due to the CERAWeek event in the first quarter of 2016. Normalizing for the timing of that event, our non-subscription organic revenue growth for the second quarter was 6 percent. For the six months ended May 31, 2016, our non-subscription organic revenue growth was 2 percent, reflecting the strength of the Transportation segment's results, partially offset by decline in the Resources segment from the continued economic challenges.

Revenue by Region



	Three months ended May 31,						Percent change				Six months ended May 31,						Percent change
(in thousands, except percentages)	2016			2015			Total		Organic		2016			2015			Total		Organic
Revenue:
Americas	$	410,955		$	375,880		9	%	(1	)%	$	787,090		$	716,710		10	%	2	%
EMEA	119,189			128,902			(8	)%	(6	)%	238,030			249,545			(5	)%	(3	)%
APAC	57,825			52,158			11	%	11	%	111,295			104,561			6	%	7	%
Total revenue	$	587,969		$	556,940		6	%	(1	)%	$	1,136,415		$	1,070,816		6	%	1	%

As a percent of total revenue:
Americas	70		%	67		%					69		%	67		%
EMEA	20		%	23		%					21		%	23		%
APAC	10		%	9		%					10		%	10		%

Americas organic revenue growth declined 1 percent for the three months ended May 31, 2016 and increased 2 percent for the six months ended May 31, 2016, compared to the three and six months ended May 31, 2015. Organic subscription growth for the three months ended May 31, 2016 was 1 percent and organic non-subscription growth was negative 7 percent, primarily as a result of the CERAWeek timing. Organic subscription growth for the six months ended May 31, 2016 was 1 percent and organic non-subscription growth was 2 percent.

The EMEA organic revenue growth declines for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, included organic subscription growth of negative 2 percent for both periods and organic non-subscription growth of negative 22 percent for the three months, which was largely due to the CERAWeek timing, and negative 6 percent for the six months. Total revenue growth was negatively affected by the strong U.S. dollar, as foreign currency exchange rates had a negative 3 percent impact on EMEA revenue growth for both the three and six months ended May 31, 2016.

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The APAC organic revenue growth increases for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, were primarily fueled by strong organic non-subscription revenue growth activity at 29 percent for the three months and 20 percent for the six months. Organic subscription revenue growth was also positive at 6 percent for the three months and 4 percent for the six months.

Operating Expenses

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



	Three months ended May 31,						Percentage Change		Six months ended May 31,						Percentage Change
(In thousands, except percentages)	2016			2015			Percentage Change		2016			2015			Percentage Change
Operating expenses:
Cost of revenue	$	212,287		$	214,858		(1	)%	$	423,082		$	415,203		2	%
SG&A expense	206,927			202,660			2	%	393,442			389,108			1	%
Total cost of revenue and SG&A expense	$	419,214		$	417,518		—	%	$	816,524		$	804,311		2	%

Depreciation and amortization expense	$	64,294		$	53,803		19	%	$	124,809		$	104,685		19	%

As a percent of revenue:
Total cost of revenue and SG&A expense	71		%	75		%			72		%	75		%
Depreciation and amortization expense	11		%	10		%			11		%	10		%

Cost of Revenue and SG&A Expense

In managing our business, we evaluate our costs by type (e.g., salaries) rather than by income statement classification. As a percent of revenue, cost of revenue and SG&A expense decreased primarily because of ongoing cost management in a lower revenue growth environment, the transition to our new segment operating model and associated simplification and reduction of centralized functions, and reductions in equity compensation, as further discussed below. We have also seen an improvement in this percentage as we seek to increase our subscription-based offerings, which typically carry higher margins than our non-subscription offerings.

Within our cost of revenue and SG&A expense, stock-based compensation expense declined primarily as a result of reducing the number of awards granted to employees.

Depreciation and Amortization Expense

For the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, depreciation and amortization expense increased primarily as a result of an increase in depreciable and amortizable assets from capital expenditures and acquisitions.

Restructuring Charges

Please refer to Note 6 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of our restructuring activities. During the six months ended May 31, 2016, we incurred approximately $13.3 million of restructuring charges, primarily for severance related to resource refinement and alignment across our new segment structure, as well as other restructuring costs related to lease abandonments.

During the six months ended May 31, 2016, we eliminated 245 positions related to these activities. We expect to continue to incur costs related to similar activities in future periods, resulting in additional restructuring charges.

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Acquisition-related Costs

Please refer to Note 7 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of costs associated with our integration and other acquisition-related activities. During the six months ended May 31, 2016, we recorded approximately $15.3 million of direct and incremental costs associated with acquisition-related activities, primarily legal and professional fees associated with recent acquisitions and the proposed merger with Markit Ltd., as well as employee severance and accruals for cash payments subject to the continuing employment of certain key employees.

Operating Income by Segment



	Three months ended May 31,						Percentage Change		Six months ended May 31,						Percentage Change
(In thousands, except percentages)	2016			2015			Percentage Change		2016			2015			Percentage Change
Operating income:
Resources	$	61,873		$	64,186		(4	)%	$	121,254		$	120,645		1	%
Transportation	60,540			47,833			27	%	103,595			88,472			17	%
CMS	18,581			9,666			92	%	34,248			15,541			120	%
Shared services	(55,784		)	(45,516		)			(94,375		)	(85,543		)
Total operating income	$	85,210		$	76,169		12	%	$	164,722		$	139,115		18	%

As a percent of segment revenue:
Resources	28		%	27		%			28		%	27		%
Transportation	26		%	25		%			24		%	24		%
CMS	14		%	7		%			13		%	6		%

For the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, operating income as a percentage of revenue for the Resources segment increased primarily because of the continued focus on cost management in the challenging energy environment. For the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, Transportation segment operating income as a percentage of revenue was relatively flat, but increased overall as a result of profit delivery from revenue growth. For the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, CMS segment operating income as a percentage of revenue increased primarily as a result of increased sales, higher margins, and lower restructuring charges.

Provision for Income Taxes

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EBITDA and Adjusted EBITDA (non-GAAP measures)

The following table provides reconciliations of our net income to EBITDA and Adjusted EBITDA for the three and six months ended May 31, 2016 and May 31, 2015.



	Three months ended May 31,						Percentage Change		Six months ended May 31,						Percentage Change
(In thousands, except percentages)	2016			2015			Percentage Change		2016			2015			Percentage Change
Net income	$	50,102		$	50,952		(2	)%	$	95,146		$	90,472		5	%
Interest income	(281		)	(180		)			(545		)	(340		)
Interest expense	27,237			17,454					55,377			34,448
Provision for income taxes	13,406			12,222					23,815			20,384
Depreciation	24,452			21,048					47,988			40,845
Amortization	39,842			32,755					76,821			63,840
EBITDA	$	154,758		$	134,251		15	%	$	298,602		$	249,649		20	%
Stock-based compensation expense	32,094			32,726					62,190			64,599
Restructuring charges	7,639			6,720					13,342			20,141
Acquisition-related costs	11,561			301					15,343			477
Impairment of assets	—			1,243					—			1,243
Income from discontinued operations, net	(5,254		)	(4,279		)			(9,071		)	(5,849		)
Adjusted EBITDA	$	200,798		$	170,962		17	%	$	380,406		$	330,260		15	%
Adjusted EBITDA as a percentage of revenue	34.2		%	30.7		%			33.5		%	30.8		%

Our Adjusted EBITDA for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, increased primarily because of our increased efforts on managing costs in a lower revenue growth environment. We expect to continue to drive margin improvement versus the prior year as a result of the recent realignment to our new segment structure and other operating efficiencies, including reductions in marketing, sales operations, and sales support.

Financial Condition



(In thousands, except percentages)	As of May 31, 2016		As of November 30, 2015		Dollar change			Percent change
Accounts receivable, net	$	378,026	$	355,913	$	22,113		6	%
Accrued compensation	$	69,512	$	105,477	$	(35,965	)	(34	)%
Deferred revenue	$	649,794	$	552,498	$	97,296		18	%

The increase in accounts receivable is primarily due to acquired accounts receivable balances from CARPROOF and OPIS. The decrease in accrued compensation is primarily due to the 2015 bonus payout made in the first quarter of 2016, partially offset by the current year accrual. The increase in deferred revenue is primarily due to seasonal increases associated with subscription renewals.

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Liquidity and Capital Resources

As of May 31, 2016, we had cash and cash equivalents of $346 million, of which approximately $114 million was held by our foreign subsidiaries. Cash held by our foreign subsidiaries could be subject to U.S. federal income tax if we were to decide to repatriate any of that cash to the U.S.; however, our intent is to permanently reinvest these funds outside of the U.S. and our current plans do not indicate a need to repatriate cash to fund our operations in jurisdictions outside of where such cash is held. We also had approximately $2.96 billion of debt as of May 31, 2016, consisting primarily of $750 million of senior notes, $1.02 billion of revolving facility debt, and $1.19 billion of term loan debt. As of May 31, 2016, we had approximately $285 million available under our revolving credit facility.

Our interest expense for the three and six months ended May 31, 2016, compared to the three and six months ended May 31, 2015, increased primarily because of a higher portion of fixed rate debt, as well as a higher average debt balance as a result of acquisitions and share repurchases. We expect that our interest expense will continue to be higher in 2016 primarily due to the full-year impact of our $400 million floating-to-fixed interest rate swaps, higher floating rate costs due to recent rate increases and an elevated leverage ratio, and higher debt balance.

In June 2015, we announced a $500 million repurchase program for share repurchases through November 2017. This new repurchase program does not obligate us to repurchase any set dollar amount or number of shares. The amount authorized under the program includes open market share repurchases, as well as repurchases for stock surrendered by employees in an amount equal to the statutory tax liability associated with the vesting of their equity awards, for which we pay the statutory tax on behalf of the employee. Since inception of the program, we have repurchased approximately $215 million of share value. As a result of our acquisitions of CARPROOF and OPIS and the proposed merger with Markit Ltd., we have suspended our open market share repurchases as we focus on reducing our leverage ratio. As of May 31, 2016, our Leverage Ratio was 3.6x.

Because of our cash, debt, and cash flow positions, we believe we will have sufficient liquidity to meet our ongoing working capital and capital expenditure needs. Our future capital requirements will depend on many factors, including the number and magnitude of future acquisitions and share repurchase programs, the need for additional facilities or facility improvements, the timing and extent of spending to support product development efforts, information technology infrastructure investments, investments in our internal business applications, the continued market acceptance of our offerings, and acquisition and integration costs associated with the proposed Markit merger. We could be required, or could elect, to seek additional funding through public or private equity or debt financings; however, additional funds may not be available on terms acceptable to us. We expect that our capital expenditures for 2016 will be approximately 5 percent of revenue.

Cash Flows



	Six months ended May 31,
(In thousands, except percentages)	2016			2015			Dollar change			Percent change
Net cash provided by operating activities	$	328,568		$	334,284		$	(5,716	)	(2	)%
Net cash used in investing activities	$	(975,761	)	$	(436,866	)	$	(538,895	)	123	%
Net cash provided by financing activities	$	708,733		$	186,683		$	522,050		280	%

The decrease in net cash provided by operating activities was primarily due to increased cash payments associated with interest expense in 2016, as well as less favorable working capital generation due to reduced energy sales.

The increase in net cash used in investing activities was principally due to the acquisitions of CARPROOF and OPIS in the first quarter of 2016, partially offset by proceeds received from the sale of the GlobalSpec and OE&RM product groups.

The increase in net cash provided by financing activities in 2016 came from additional borrowings on our revolving facility and was principally used to help finance our fiscal year 2016 acquisitions.

Free Cash Flow (non-GAAP measure)

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

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	Six months ended May 31,
(In thousands, except percentages)	2016			2015			Dollar change		Percent change
Net cash provided by operating activities	$	328,568		$	334,284
Capital expenditures on property and equipment	(52,660		)	(69,038		)
Free cash flow	$	275,908		$	265,246		$	10,662	4	%

The increase in free cash flow was due to reduced capital expenditures in the first half of 2016 compared to 2015, partially offset by moderating working capital generation in the first half of 2016. Our free cash flow has historically been positive due to the robust cash generation attributes of our business model, and we expect that it will continue to be a significant source of funding for our business strategy of growth through organic and acquisitive means.

Credit Facility and Other Debt

Please refer to Note 4 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of the current status of our debt arrangements.

Share Repurchase Programs

Please refer to Note 13 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q and to Part II, Item 2 in this quarterly report on Form 10-Q for a discussion of our share repurchase programs.

Off-Balance Sheet Transactions

We have no off-balance sheet transactions.

Critical Accounting Policies

Our management makes a number of significant estimates, assumptions and judgments in the preparation of our financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates” in our annual report on Form 10-K for fiscal year 2015 for a discussion of the estimates and judgments necessary in our accounting for revenue recognition, business combinations, goodwill and other intangible assets, income taxes, pension and postretirement benefits, and stock-based compensation.

Recent Accounting Pronouncements

Please refer to Note 1 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for a discussion of recent accounting pronouncements and their anticipated effect on our business.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks, see Item 7A, “Quantitative and Qualitative Disclosures About Market Risk,” in our annual report on Form 10-K for fiscal year 2015.

Borrowings under the 2014 revolving facility and 2013 term loan are subject to variable interest rates. We use interest rate swaps in order to fix a portion of our variable rate debt as part of our overall interest rate risk management strategy. As of May 31, 2016, we had approximately $2.206 billion of floating-rate debt at a 2.24 percent weighted-average interest rate, of which $400 million was subject to effective floating-to-fixed interest rate swaps. A hypothetical increase in interest rates of 100 basis points applied to our floating rate indebtedness would increase our annual interest expense by approximately $18 million ($22 million without giving effect to any of our interest rate swaps).

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Item 4.	Controls and Procedures

(a) Evaluation of disclosure controls and procedures.

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

(b) Changes in internal control over financial reporting.

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

PART II. OTHER INFORMATION


Item 1.	Legal Proceedings

Please refer to Note 12 to the Condensed Consolidated Financial Statements in this quarterly report on Form 10-Q for information about legal proceedings.

Item 1A. Risk Factors

There have been no material changes to the risk factors associated with our business previously disclosed in Part I of our annual report on Form 10-K for fiscal year 2015.

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

The following table provides detail about our share repurchases during the three months ended May 31, 2016.



	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Dollar Value of Shares That May Yet Be Purchased Under the Plans or Programs (in thousands)
March 1 - March 31, 2016:
Share repurchase programs (1)	—	$	—	—	$	284,939
Employee transactions (2)	308	$	108.01	N/A	N/A
April 1 - April 30, 2016:
Share repurchase programs (1)	—	$	—	—	$	284,350
Employee transactions (2)	4,791	$	122.98	N/A	N/A
May 1 - May 31, 2016:
Share repurchase programs (1)	—	$	—	—	$	283,292
Employee transactions (2)	8,691	$	121.66	N/A	N/A
Total share repurchases	13,790	$	121.82	—

(1) In June 2015, our board of directors authorized us to repurchase up to $500 million of our Class A common stock (the June 2015 Program). We may repurchase shares in open market purchases or through privately negotiated transactions in compliance with Rule 10b-18 of the Exchange Act, subject to market conditions, applicable legal requirements, and other relevant factors. The June 2015 Program does not obligate us to repurchase any set dollar amount or number of shares and is scheduled to expire on November 30, 2017, but may be suspended at any time at our discretion. The amount authorized under the June 2015 Program is inclusive of share repurchases of our Class A common stock surrendered by employees in an amount equal to the statutory tax liability associated with the vesting of their equity awards, for which we pay the statutory tax on behalf of the employee, as previously approved by our board of directors.

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

Item 5. Other Information

Iran Threat Reduction and Syria Human Rights Act Disclosure

Under the Iran Threat Reduction and Syrian Human Rights Act of 2012, which added Section 13(r) of the Exchange Act, we are required to include certain disclosures in our periodic reports if we or any of our affiliates knowingly engaged in certain specified activities during the period covered by the report. Disclosure is generally required even if the transactions or dealings were conducted in compliance with applicable law and regulations. During the third quarter of 2014, we acquired Global Trade Information Services, a Virginia corporation (“GTIS”). GTIS publishes the Global Trade Atlas (the “GTA”), an online trade data system offering global merchandise trade statistics such as import and export data from official sources in more than 65 countries. Included in the GTA is certain trade data sourced from Iran for which GTIS pays an annual fee of approximately $30,000. The procurement of this information is exempt from applicable economic sanctions laws and regulations as a funds transfer related to the exportation or importation of information and informational materials. Sales attributable to this Iranian trade data represented approximately $75,000 in gross revenue for GTIS in the second quarter of 2016 and would have represented approximately 0.01 percent of our second quarter 2016 consolidated revenues and gross profits. Subject to any changes in the exempt status of such activities, we intend to continue these business activities as permissible under applicable export control and economic sanctions laws and regulations.

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Item 6.	Exhibits


(a)	Index of Exhibits

The following exhibits are filed as part of this report:



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

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

32		Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on June 28, 2016.



IHS INC.

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