Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. IHS Inc. (1316360) 10-Q published on Jun 28, 2016 at 4:06 pm
Reporting Period: May 30, 2016
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).
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.
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):
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.
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.