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, 2006
	OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
	EXCHANGE ACT OF 1934
	For the transition period from                       to

 

Commission file number 001-32511

 

IHS INC.
(Exact name of registrant as specified in its charter)     

Delaware	13-3769440
(State or Other Jurisdiction of Incorporation or Organization)	(IRS 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 is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o

Accelerated filer o

Non-accelerated filer x

 

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

As of May 31, 2006, there were 44,976,727 shares of our Class A Common Stock outstanding and 13,750,000 shares of our Class B Common Stock outstanding.

 

 

TABLE OF CONTENTS

 

PART I
Item 1.		Financial Statements
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 3.		Quantitative and Qualitative Disclosures About Market Risk
Item 4.		Controls and Procedures
PART II
Item 1.		Legal Proceedings
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
Item 4.		Submission of Matters to a Vote of Security Holders
Item 6.		Exhibits
SIGNATURE

 

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

IHS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands except share data)

		As of May 31, 2006			As of November 30, 2005
		(Unaudited)
Assets
Current assets:
Cash and cash equivalents		$	169,997		$	132,365
Short-term investments		19,179			27,223
Accounts receivable, net		109,515			136,950
Deferred subscription costs		34,604			27,918
Deferred income taxes		11,419			11,351
Other		8,051			10,638
Total current assets		352,765			346,445
Non-current assets:
Property and equipment, net		51,795			46,580
Intangible assets, net		42,399			27,456
Goodwill, net		326,315			296,394
Prepaid pension asset		91,002			88,516
Other		2,894			1,765
Total non-current assets		514,405			460,711
Total assets		$	867,170		$	807,156
Liabilities and stockholders’ equity
Current liabilities:
Short-term debt		$	602		$	—
Accounts payable		22,203			41,625
Accrued compensation		15,096			20,135
Accrued royalties		22,385			26,139
Other accrued expenses		34,551			34,975
Income tax payable		8,022			7,726
Deferred subscription revenue		189,596			149,552
Risk management liabilities		—			2,705
Total current liabilities		292,455			282,857
Long-term debt		74			262
Accrued pension liability		7,940			6,824
Accrued post-retirement benefits		20,072			20,278
Deferred income taxes		15,291			15,044
Other liabilities		6,966			4,402
Minority interests		272			309
Commitments and contingencies
Stockholders’ equity:
Class A common stock, $0.01 par value per share, 80,000,000 shares authorized, 44,976,727 and 44,078,231 issued and outstanding at May 31, 2006 and November 30, 2005, respectively		450			441
Class B common stock, $0.01 par value per share, 13,750,000 shares authorized, issued and outstanding at May 31, 2006 and November 30, 2005		138			138
Additional paid in capital		153,624			168,196
Retained earnings		370,082			343,684
Accumulated other comprehensive loss		(194		)	(10,486		)
Unearned compensation		—			(24,793		)
Total stockholders’ equity		524,100			477,180
Total liabilities and stockholders’ equity		$	867,170		$	807,156

See accompanying notes.

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IHS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except per-share amounts)

		Three Months Ended May 31,						Six Months Ended May 31,
		2006			2005			2006			2005
		(Unaudited)
Revenue:
Products		$	110,483		$	96,599		$	217,065		$	193,924
Services		22,372			18,546			45,656			38,204
Total revenue		132,855			115,145			262,721			232,128
Operating expenses:
Cost of revenue:
Products		46,820			44,799			91,440			87,660
Services		15,291			12,372			30,439			24,890
Compensation expense related to equity awards		1,071			76			2,166			155
Total cost of revenue		63,182			57,247			124,045			112,705
Selling, general and administrative		44,580			42,514			87,384			83,073
Depreciation and amortization		3,342			2,859			6,712			5,766
Restructuring and offering charges		—			—			2			—
Compensation expense related to equity awards		3,288			1,154			5,859			2,349
Gain on sales of assets, net		—			(714		)	—			(1,331		)
Net periodic pension and post-retirement benefits		(1,218		)	(939		)	(1,944		)	(1,870		)
Earnings in unconsolidated subsidiaries		(102		)	(21		)	(130		)	(49		)
Other expense (income), net		1,223			7			820			(312		)
Total operating expenses		114,295			102,107			222,748			200,331
Operating income		18,560			13,038			39,973			31,797
Interest income		1,458			934			2,372			1,652
Interest expense		(67		)	(81		)	(152		)	(583		)
Non-operating income, net		1,391			853			2,220			1,069
Income from continuing operations before income taxes and minority interests		19,951			13,891			42,193			32,866
Provision for income taxes		(6,619		)	(4,574		)	(14,092		)	(9,980		)
Income from continuing operations before minority interests		13,332			9,317			28,101			22,886
Minority interests		(56		)	11			(81		)	18
Income from continuing operations		13,276			9,328			28,020			22,904
Discontinued operations:
Loss from discontinued operations, net		(342		)	(682		)	(1,622		)	(1,125		)
Net income		$	12,934		$	8,646		$	26,398		$	21,779
Income from continuing operations per share:
Basic (Class A and Class B common stock)		$	0.24		$	0.17		$	0.50		$	0.42
Diluted (Class A and Class B common stock)		$	0.24		$	0.16		$	0.50		$	0.41
Loss from discontinued operations per share:
Basic (Class A and Class B common stock)		$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)
Diluted (Class A and Class B common stock)		$	(0.01	)	$	(0.01	)	$	(0.03	)	$	(0.02	)
Net income per share:
Basic (Class A and Class B common stock)		$	0.23		$	0.16		$	0.47		$	0.40
Diluted (Class A and Class B common stock)		$	0.23		$	0.15		$	0.47		$	0.39

 

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IHS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(In thousands)

		Three Months Ended May 31,						Six Months Ended May 31,
		2006			2005			2006			2005
		(Unaudited)
Weighted average shares:
Basic (Class A common stock)		42,271			41,341			42,199			41,299
Basic (Class B common stock)		13,750			13,750			13,750			13,750
Diluted (Class A common stock)		56,130			56,020			56,071			55,813
Diluted (Class B common stock)		13,750			13,750			13,750			13,750
Total compensation expense related to equity awards is comprised of the following:
Cost of products revenue		$	1,030		$	73		$	2,083		$	149
Cost of services revenue		41			3			83			6
Selling, general and administrative		3,288			1,154			5,859			2,349
Discontinued operations		—			—			254			—
		$	4,359		$	1,230		$	8,279		$	2,504

 

See accompanying notes.

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IHS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

		Six Months Ended May 31,
		2006			2005
		(Unaudited)
Operating activities
Net income		$	26,398		$	21,779
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization		6,712			5,885
Compensation expense related to equity awards (non-cash portion)		8,025			2,504
Gain on sales of assets, net		—			(1,331		)
Impairment of assets of discontinued operations		1,012			—
Net periodic pension and post-retirement benefits		(1,944		)	(1,870		)
Minority interests		(66		)	(18		)
Deferred income taxes		213			2,305
Change in assets and liabilities:
Accounts receivable, net		30,781			15,238
Other current assets		(2,715		)	(8,258		)
Accounts payable		(20,557		)	(12,334		)
Accrued expenses		(11,586		)	(23,082		)
Income taxes		(247		)	(713		)
Deferred subscription revenue		29,136			24,112
Other liabilities		—			112
Net cash provided by operating activities		65,162			24,329
Investing activities
Capital expenditures on property and equipment		(5,763		)	(2,801		)
Intangible assets acquired		(3,300		)	—
Change in other assets		1,272			(596		)
Purchase of investments		(5,365		)	—
Sales and maturities of investments		14,302			—
Acquisitions of businesses, net of cash acquired		(32,976		)	(2,972		)
Proceeds from sales of assets		—			1,334
Net cash used in investing activities		(31,830		)	(5,035		)
Financing activities
Net payments on debt		(91		)	(270		)
Tax benefit from equity compensation plans		2,194			—
Net cash provided by (used in) financing activities		2,103			(270		)
Foreign exchange impact on cash balance		2,197			(1,803		)
Net increase in cash and cash equivalents		37,632			17,221
Cash and cash equivalents at the beginning of the period		132,365			124,452
Cash and cash equivalents at the end of the period		$	169,997		$	141,673

 

See accompanying notes.

 

6

 

IHS INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.             Basis of Presentation and Significant Accounting Policies

Nature of Operations

IHS Inc. (IHS, the Company, we, our, or us) is a publicly traded Delaware corporation. We are one of the leading global providers of critical technical information, decision-support tools and services to customers in the energy, defense, aerospace, construction, electronics, and automotive industries.

Consolidation Policy

The consolidated financial statements include the accounts of all wholly owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated.

Unaudited Condensed Consolidated Financial Statements

The accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring accruals, which are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. The accompanying condensed consolidated financial statements include our accounts and the accounts of our majority-owned domestic and foreign subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements for the year ended November 30, 2005. The results of operations for the three and six months ended May 31, 2006, are not necessarily indicative of the results that may be achieved for the full fiscal year and cannot be used to indicate financial performance for the entire year.

The year-end condensed consolidated balance sheet data was derived from the audited November 30, 2005, balance sheet.

Results Subject to Seasonal Variations

Although our business model is broadly subscription based resulting in recurring revenue and cash flow, our business does have seasonal aspects. For example, certain sales of non-deferred subscriptions occur most frequently in our first and fourth quarters. Consequently, we generally recognize a greater percentage of our revenue and income from operations in those quarters. Also, our first quarter benefits from the inclusion of the results from CERAWeek, an annual energy executive gathering.

Subscriptions are generally paid in full within one-to-two months after the subscription period commences. As a result, the timing of our cash flows generally precedes the recognition of revenue and income from operations. Due to the historical timing and alignment of our sales to correspond to certain of our customers’ budget and funding cycles, our cash flow provided by operating activities tends to be higher in the first half of our fiscal year as we receive subscription payments.

Use of Estimates

The preparation of interim condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the amounts reported and disclosed in the financial statements and the accompanying notes. Actual results could differ materially from these estimates. On an ongoing basis, we evaluate our estimates, including those related to the allowances for doubtful accounts, fair value of marketable securities and investments, fair value of acquired intangible assets and goodwill, useful lives of intangible assets and property and equipment, and income taxes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.

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Compensation Expense Related to Share-Based Awards

We adopted Statement of Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment, effective December 1, 2005, the first day of our 2006 fiscal year. SFAS 123(R) is a revision of SFAS No. 123. SFAS 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS 123(R) is similar to the approach described in SFAS 123. However, SFAS 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.

SFAS 123(R) permits public companies to adopt its requirements using one of two methods:

1.              A “modified prospective” method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS 123 for all awards granted to employees prior to the effective date of SFAS 123(R) that remain unvested on the effective date.

2.              A “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS 123 for purposes of pro forma disclosures for either (a) all prior periods presented or (b) prior interim periods of the year of adoption.

We elected to use the modified prospective method. During the three and six months ended May 31, 2006, we had unvested performance shares, performance unit awards, restricted shares, and restricted stock awards outstanding.  During the three and six months ended May 31, 2005, we had unvested restricted shares outstanding. In each instance, compensation expense for these equity-based awards is calculated based on the fair value of our Class A common stock on the grant date.

Prior to adopting SFAS 123(R) on December 1, 2005, the fair value of an equity award grant was recorded to additional paid-in capital with the offsetting entry posted to unearned compensation, also an equity account. The unearned compensation was then amortized to compensation expense related to equity awards over the vesting period using the straight-line method. With the adoption of SFAS 123(R), we reclassified $24.8 million of unearned compensation to additional paid-in capital. For equity awards granted subsequent to December 1, 2005, we recognize compensation expense as the equity awards vest with the offsetting entry posted to additional paid-in capital.

Total compensation cost related to nonvested awards not yet recognized was $23.0 million as of May 31, 2006. We expect to recognize this expense over the next two-to-three years.

Income Taxes

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

Our effective tax rate for the three months ended May 31, 2006 was 33.2%, compared to 33.0% for the three months ended May 31, 2005. Our effective tax rate for the six months ended May 31, 2006 was 33.4% compared to 30.4% for the prior-year period. The lower rate in 2005 was primarily due to recognition of the benefits resulting from the favorable settlements of a Canadian and an IRS audit in the first quarter of 2005. There were no discrete period items in 2006.

Earnings per Share

Earnings per common share (EPS) are computed in accordance with SFAS No. 128, Earnings Per Share. Basic EPS is computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common shares.

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Our authorized capital stock consists of 80,000,000 shares of Class A common stock and 13,750,000 shares of Class B common stock. These classes have equal dividend rights and liquidation rights. However, the holders of our Class A common stock are entitled to one vote per share and holders of our Class B common stock are entitled to ten votes per share on all matters to be voted upon by the stockholders. Each share of Class B common stock is convertible at any time at the option of the holder into one share of Class A common stock and will automatically convert, without any action by the holder, upon the earlier of the occurrence of specified events or November 16, 2009.

We use the two-class method for computing basic and diluted EPS amounts. We calculated undistributed earnings as follows:

		Three Months Ended May 31,						Six Months Ended May 31,
		2006			2005			2006			2005
		(In thousands)
Net income		$	12,934		$	8,646		$	26,398		$	21,779
Less: dividends		—			—			—			—
Undistributed earnings		$	12,934		$	8,646		$	26,398		$	21,779

 

Weighted average common shares outstanding are calculated as follows:

		Three Months Ended May 31,
		2006				2005
		Class A		Class B		Class A		Class B
		(In thousands)
Weighted average common shares outstanding:
Shares used in basic per-share calculation		42,271		13,750		41,341		13,750
Effect of dilutive securities:
Deferred stock units		52		—		853		—
Restricted shares		57		—		76		—
Assumed conversion of Class B shares		13,750		—		13,750		—
Shares used in diluted per-share calculation		56,130		13,750		56,020		13,750

 

		Six Months Ended May 31,
		2006				2005
		Class A		Class B		Class A		Class B
		(In thousands)
Weighted average common shares outstanding:
Shares used in basic per-share calculation		42,199		13,750		41,299		13,750
Effect of dilutive securities:
Deferred stock units		73		—		704		—
Restricted shares		49		—		60		—
Assumed conversion of Class B shares		13,750		—		13,750		—
Shares used in diluted per-share calculation		56,071		13,750		55,813		13,750

 

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Undistributed earnings and calculated basic and diluted EPS amounts are calculated as follows:

		Three Months Ended May 31,
		2006						2005
		Class A			Class B			Class A			Class B
		(In thousands)
Basic
Weighted average shares outstanding		42,271			13,750			41,341			13,750
Divided by: Total weighted average shares outstanding (Class A and Class B)		56,021			56,021			55,091			55,091
Multiplied by: Undistributed earnings		$	12,934		$	12,934		$	8,646		$	8,646
Subtotal		$	9,759		$	3,175		$	6,488		$	2,158
Divided by: Weighted average shares outstanding		42,271			13,750			41,341			13,750
Earnings per share		$	0.23		$	0.23		$	0.16		$	0.16
Diluted
Weighted average shares outstanding		56,130			13,750			56,020			13,750
Divided by: Total weighted average shares outstanding (Class A and Class B)		56,130			56,130			56,020			56,020
Multiplied by: Undistributed earnings		$	12,934		$	12,934		$	8,646		$	8,646
Subtotal		$	12,934		$	3,168		$	8,646		$	2,122
Divided by: Weighted average shares outstanding		56,130			13,750			56,020			13,750
Earnings per share		$	0.23		$	0.23		$	0.15		$	0.15

 

		Six Months Ended May 31,
		2006						2005
		Class A			Class B			Class A			Class B
		(In thousands)
Basic
Weighted average shares outstanding		42,199			13,750			41,299			13,750
Divided by: Total weighted average shares outstanding (Class A and Class B)		55,949			55,949			55,049			55,049
Multiplied by: Undistributed earnings		$	26,398		$	26,398		$	21,799		$	21,799
Subtotal		$	19,910		$	6,488		$	16,354		$	5,445
Divided by: Weighted average shares outstanding		42,199			13,750			41,299			13,750
Earnings per share		$	0.47		$	0.47		$	0.40		$	0.40
Diluted
Weighted average shares outstanding		56,071			13,750			55,813			13,750
Divided by: Total weighted average shares outstanding (Class A and Class B)		56,071			56,071			55,813			55,813
Multiplied by: Undistributed earnings		$	26,398		$	26,398		$	21,799		$	21,799
Subtotal		$	26,398		$	6,473		$	21,799		$	5,370
Divided by: Weighted average shares outstanding		56,071			13,750			55,813			13,750
Earnings per share		$	0.47		$	0.47		$	0.39		$	0.39

 

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Capital Structure

For the six months ended May 31, 2006, our capital structure changed as follows:

 

		Class A common shares		Nonvested Restricted shares		Nonvested Performance shares		Total Class A common shares
Balances, November 30, 2005		41,536,517		2,187,204		354,510		44,078,231
Granted		—		71,900		184,380		256,280
Vested equity awards(a)		883,244		(195,357	)	—		687,887
Forfeited		—		(45,671	)	—		(45,671	)
Balances, May 31, 2006		42,419,761		2,018,076		538,890		44,976,727

(a)                     Vested equity awards were primarily comprised of 687,887 deferred stock units, which represented rights to shares of our Class A common stock but not actual Class A shares prior to vesting and delivery.

There was no change to the number of Class B common shares outstanding during the six months ended May 31, 2006.

Derivatives

We follow the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133). SFAS 133 requires every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in our condensed consolidated balance sheet as either a risk management asset or risk management liability measured at its fair value, with changes in the fair value of qualifying hedges recorded in other comprehensive income. SFAS 133 requires that changes in a derivative’s fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Accounting for qualifying hedges allows a derivative’s gains and losses to offset the related results of the hedged item and requires us to formally document, designate and assess the effectiveness of transactions that receive hedge accounting treatment. Based on the criteria established by SFAS 133, all of our qualifying hedges, consisting of foreign-currency forward contracts, are deemed effective. While we expect that our derivative instruments will continue to meet the conditions for hedge accounting, if the hedges did not qualify as effective or if we did not believe that forecasted transactions would occur, the changes in the fair value of the derivatives used as hedges would be reflected in earnings. We do not believe we are exposed to more than a nominal amount of credit risk in our hedging activities, as our counter party is an established, well-capitalized financial institution.

Our Swiss subsidiary’s local currency is its functional currency. The functional currency is used to pay labor and other operating costs, and it also has certain other operating costs which are denominated in British Pound Sterling. However, this subsidiary bills and collects principally in U.S. dollars. Beginning January 2005, to hedge our Swiss subsidiary’s foreign-currency risk, we effectively converted a portion of our Swiss subsidiary’s calendar-year 2005 sales and operating expenses which are denominated in foreign currencies into the local currency using forward contracts. We have not entered into similar contracts to hedge our Swiss subsidiary’s calendar-year 2006 sales and operating expenses. Our Swiss subsidiary’s revenue transactions are subscription-based and, consequently, they are deferred initially and recognized ratably into earnings over the course of the subscription period, generally twelve months. Accordingly, our related hedges are accounted for in the same fashion. As a result, we expect all of the $1.5 million unrealized loss on foreign currency hedges in accumulated other comprehensive income at May 31, 2006 will be recognized in our operating results by the end of November 2006.

During the three months ended May 31, 2006, we recorded losses of $1.1 million in revenue in the accompanying condensed consolidated statement of operations for settled forward exchange contracts. During the three months ended May 31, 2005, we recorded losses of $0.1 million in revenue and gains of $0.1 million in cost of revenue in the accompanying condensed consolidated statement of operations for settled forward exchange contracts.

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During the six months ended May 31, 2006, we recorded losses of $2.2 million in revenue and gains of $0.1 million in cost of revenue in the accompanying condensed consolidated statements of operations for settled forward-exchange contracts. During the six months ended May 31, 2005, we recorded losses of $0.1 million in revenue and gains of $0.2 million in cost of revenue in the accompanying condensed consolidated statement of operations for settled forward exchange contracts.

As of May 31, 2006, we had no risk management assets or liabilities associated with foreign exchange contracts on our condensed consolidated balance sheet as all such transactions had settled early in the first quarter of 2006. As of November 30, 2005, we had current risk management liabilities of $2.7 million and current risk management assets of $0.1 million associated with foreign-exchange contracts, consisting of the fair market value of forward-exchange contracts.

Additionally, for our Swiss subsidiary, we effectively converted a portion of its U.S.-dollar-denominated accounts receivable to its local currency. As of May 31, 2006, the notional amount of this contract was $14.9 million. As of November 30, 2005, the notional amount of this contract was $7.2 million. During the three months ended May 31, 2006 and 2005, we recorded a gain of approximately $0.9 million and a loss of $0.6 million, respectively, in other (income) expense, net for settled foreign exchange contracts. During the six months ended May 31, 2006 and 2005, we recorded a gain of approximately $0.7 million and a loss of $1.0 million, respectively, in other (income) expense, net for settled foreign exchange contracts. Our accounts receivable hedges do not qualify for hedge accounting.

2.             Acquisition

On December 1, 2005, we acquired the assets of a content-and-data-services (CDS) business for approximately $33 million that serves several of the industries targeted by our Engineering segment. The purchase price was paid from existing cash on hand at the acquisition date. The acquisition was accounted for using the purchase method of accounting. Our unaudited condensed consolidated financial statements include all the assets and liabilities acquired and the results of operations from the date of acquisition. Pro forma results of the acquired business have not been presented as they did not have a material impact on our results of operations.

The purchase price for this acquisition was initially allocated as follows (in thousands):

 

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3.             Restructuring and Offering Charges

A summary of the restructuring and offering charges follows (in thousands):

		Three Months Ended May 31,						Six Months Ended May 31,
		2006			2005			2006			2005
Restructuring charge		$	—		$	—		$	(18	)	$	—
Offering costs		—			—			20			—
Total		$	—		$	—		$	2		$	—

 

During the third quarter of 2005, we executed a restructuring initiative affecting our Engineering segment and certain unallocated corporate costs. This initiative was undertaken to reduce costs, further the integration of operations from previous acquisitions, streamline our data delivery processes, and realign the marketing function to support core product initiatives. During the course of the restructuring, we reduced our aggregate workforce by over 100 employees and closed certain offices.

The restructuring charge was incurred in its entirety during the third quarter of 2005. Approximately $4.4 million and $3.8 million of the restructuring charge related to our Engineering segment and certain unallocated corporate costs, respectively. Our Energy segment did not have a restructuring charge. The restructuring charge was comprised of the following (in thousands):

 

A reconciliation of the related accrued restructuring liability from November 30, 2005 to May 31, 2006 was as follows:

		Employee Severance and Other Termination Benefits			Accelerated Vesting of Restricted Shares			Contract Termination Costs			Total
		(In thousands)
Beginning balance		$	399		$	—		$	—		$	399
Add: Restructuring costs incurred		—			—			—			—
Less: Amount reversed during the six months ended May 31, 2006		(18		)	—			—			(18		)
Less: Amount paid during the six months ended May 31, 2006		(184		)	—			—			(184		)
Ending balance		$	197		$	—		$	—		$	197

 

4.             Discontinued Operations

During the third quarter of 2005, a business in our Energy segment was classified as being held for sale. We continually evaluate opportunities to align our business activities within core operations. The business held for sale was a manufacturing operation, which is not a part of our core operations.

During the first quarter of 2006, we revised our estimate, and wrote down the value, of the assets of the discontinued operation $1.0 million based on what we had experienced to date in the sales process. Subsequent to the end of our second quarter 2006, we sold the business to an unrelated third party for approximately $0.4 million, subject to closing adjustments.

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For all of the periods presented, the related results of operations are shown as a discontinued operation, net of tax, in our condensed consolidated statements of operations and cash flows.

The carrying amounts of the major classes of related assets and liabilities were as follows:

 

Operating results of the discontinued operations for the three months ended May 31, 2006 and 2005 were as follows:

		Three Months Ended May 31,						Six Months Ended May 31,
		2006			2005			2006			2005
		(In thousands)
Revenue		$	215		$	143		$	394		$	197
Loss from discontinued operations		$	(552	)	$	(1,100	)	$	(2,457	)	$	(1,814	)
Tax benefit		210			418			835			689
Loss from discontinued operations, net		$	(342	)	$	(682	)	$	(1,622	)	$	(1,125	)

 

5.             Marketable Securities

At May 31, 2006, we owned only short-term investments which were classified as available-for-sale securities and reported at fair value as follows:

 

We use the specific-identification method to account for gains and losses on securities. Realized gains on sales of marketable securities included within other income (expense) were immaterial for the three and six months ended May 31, 2006. At May 31, 2005, we did not have any investments.

We review all marketable securities to determine if any decline in value is other than temporary. We have concluded that the decline in value as of May 31, 2006 is temporary.

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6.             Commitments and Contingencies

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

7.             Other Comprehensive Income (Loss)

Our comprehensive income (loss) for the six months ended May 31, 2006 and 2005 was as follows:

		Three Months Ended May 31,						Six Months Ended May 31,
		2006			2005			2006			2005
								(In thousands)
Net income		$	12,934		$	8,646		$	26,398		$	21,779
Other comprehensive income (loss):
Foreign currency translation adjustment		6,143			(6,933		)	8,807			(8,789		)
Minimum pension liability adjustment		(254		)	—			(323		)	—
Unrealized gains (losses) on foreign currency hedges, net of tax		1,027			(2,306		)	1,788			(2,306		)
Unrealized gains on short-term investments, net of tax		9			(671		)	20			—
Total other comprehensive income, net of tax		$	19,859		$	(1,264	)	$	36,690		$	10,684

 

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8.             Employee Retirement Plans

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

		Three Months Ended May 31, 2006									Three Months Ended May 31, 2005
		U.S. Plan			U.K. Plan			Total			U.S. Plan			U.K. Plan			Total
		(In thousands)
Service costs incurred		$	1,303		$	215		$	1,518		$	669		$	204		$	873
Interest costs on projected benefit obligation		2,653			376			3,029			2,777			379			3,156
Expected return on plan assets		(5,050		)	(359		)	(5,409		)	(5,332		)	(337		)	(5,669		)
Amortization of prior service cost		(111		)	—			(111		)	16			—			16
Amortization of actuarial (gain) loss		244			144			388			—			186			186
Amortization of transitional obligation/(asset)		(142		)	—			(142		)	(142		)	—			(142		)
Net periodic pension benefit (income) expense		$	(1,103	)	$	376		$	(727	)	$	(2,012	)	$	432		$	(1,580	)

 

		Six Months Ended May 31, 2006									Six Months Ended May 31, 2005
		U.S. Plan			U.K. Plan			Total			U.S. Plan			U.K. Plan			Total
		(In thousands)
Service costs incurred		$	2,214		$	427		$	2,641		$	1,338		$	411		$	1,749
Interest costs on projected benefit obligation		5,362			745			6,107			5,554			764			6,318
Expected return on plan assets		(10,110		)	(711		)	(10,821		)	(10,664		)	(678		)	(11,342		)
Amortization of prior service cost		(144		)	—			(144		)	32			—			32
Amortization of actuarial loss		475			285			760			—			374			374
Amortization of transitional obligation/(asset)		(284		)	—			(284		)	(284		)	—			(284		)
Net periodic pension benefit (income) expense		$	(2,487	)	$	746		$	(1,741	)	$	(4,024	)	$	871		$	(3,153	)

 

We have a Supplemental Income Plan (SIP), which is non-qualified pension plan, for certain company executives. We also incurred approximately $0.2 million and $0.4 million of expense related to our SIP for three months and six ended May 31, 2006, respectively. We incurred approximately $0.1 million and $0.2 million of expense related to our SIP for three months and six ended May 31, 2005, respectively.

Our net periodic post-retirement benefit expense was comprised of the following:

		Three Months Ended May 31,						Six Months Ended May 31,
		2006			2005			2006			2005
		(In thousands)
Service costs incurred		$	38		$	210		$	215		$	420
Interest costs		145			367			439			734
Amortization of prior service cost		(807		)	—			(1,076		)	—
Amortization of net actuarial loss		133			64			219			129
Net periodic post-retirement benefit (income) expense		$	(491	)	$	641		$	(203	)	$	1,283

 

During the first quarter of 2006, the human resources committee of our board of directors amended our retiree-medical plan. The new plan design does not cover prescription drug coverage post-Medicare so there is no additional impact from the Medicare Modernization Act.

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During the first quarter of 2006, we notified our employees of certain changes adopted by the human resources committee of our board of directors regarding our U.S. pension and post-retirement benefit plans. These changes took effect May 1, 2006. However, we began recording the effect of these changes as of February 1, 2006, the approximate date the changes were communicated to our employees.

9.             Segment Information

We have two reportable segments: Energy and Engineering. Our Energy segment develops and delivers critical oil and gas industry data on exploration, development, production, and transportation activities to major global energy producers and national and independent oil companies. Our Energy segment also provides operational, research, and strategic advisory services to these customers, as well as to utilities and transportation, petrochemical, coal, and power companies. Our Engineering segment provides solutions incorporating technical specifications and standards, regulations, parts data, design guides, and other information to customers in its targeted industries. Both segments primarily derive their revenue from subscriptions.

Information as to the operations of our two segments is set forth below based on the nature of the offerings. Our Chairman, Chief Executive Officer and their direct reports collectively represent our chief operating decision maker, and they evaluate segment performance based primarily on revenue and operating profit. The accounting policies of our segments are the same as those described in the summary of significant accounting policies (see Note 2 to our 2005 Form 10-K).

No single customer accounted for 10% or more of our total revenue for the three and six months ended May 31, 2006 or 2005. There are no material inter-segment revenues for any period presented.

As shown below, certain corporate transactions are not allocated to the reportable segments. Amounts not allocated include corporate-level restructuring and offering charges, compensation expense related to equity awards, net periodic pension and post-retirement benefits income, corporate-level impairments, and gains on sales of corporate assets.

		Energy			Engineering			Segment Totals			Amounts not Allocated			Consolidated Total
		(In thousands)
Three Months Ended May 31, 2006
Revenue		$	70,375		$	62,480		$	132,855		$	—		$	132,855
Segment operating income		16,410			5,291			21,701			(3,141		)	18,560
Depreciation and amortization		1,941			1,401			3,342			—			3,342
Three Months Ended May 31, 2005
Revenue		$	59,021		$	56,124		$	115,145		$	—		$	115,145
Segment operating income		11,779			833			12,612			426			13,038
Depreciation and amortization		1,736			1,123			2,859			—			2,859

 

		Energy			Engineering			Segment Totals			Amounts not Allocated			Consolidated Total
		(In thousands)
Six Months Ended May 31, 2006
Revenue		$	138,613		$	124,108		$	262,721		$	—		$	262,721
Segment operating income		32,559			13,515			46,074			(6,101		)	39,973
Depreciation and amortization		3,746			2,966			6,712			—			6,712
Six Months Ended May 31, 2005
Revenue		$	117,119		$	115,009		$	232,128		$	—		$	232,128
Segment operating income		24,063			7,034			31,097			700			31,797
Depreciation and amortization		3,506			2,260			5,766			—			5,766

 

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10.       Subsequent Events

In June 2006, we completed two separate acquisition transactions: GeoPLUS Corporation; and Construction Research Communications (CRC) Limited. The combined purchase price of these two businesses was approximately $47 million and was paid from existing cash on hand.

Within our Energy segment, we acquired the assets of GeoPLUS Corporation of Tulsa, Okla. GeoPLUS has a PC-based software family, PETRA®, which is a popular platform used by oil and gas companies to analyze subsurface data from existing oil and gas wells. This acquisition will enhance decision-support tools that our oil-and-gas customers use to analyze the information in our critical exploration-and-production databases.

Within our Engineering segment, we acquired CRC Limited, of London, UK. CRC was created by the Building Research Establishment (BRE) and Emap Construct to deliver a wide range of BRE products relating to the construction industry, ranging from environmental issues to fire safety. This acquisition provides construction professionals and users of BRE data with one of the largest and most comprehensive single sources of critical information for the UK construction industry and other markets utilizing British construction standards.

 

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