Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**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 June 30, 2008**                                                        |
|                |       |                                                                                                    |
| **OR**              |
|                |       |                                                                                                    |
| ** ****o****** | ** ** | **TRANSITION REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **          | ** ** | ** **                                                                                              |
| ** **          | ** ** | **For the transition period from       to    **                 |

 

**Commission File Number: 001-14049**

 

 

**IMSHealth Incorporated**

(Exact Name of Registrantas Specified in its Charter)

 

| **Delaware**              | ** ** | **06-1506026**                        |
|---------------------------|------------|---------------------------------------|
| (State of  Incorporation) |       | (I.R.S. Employer  Identification No.) |

 

**901 Main Avenue, Norwalk, CT06851**

(Address of principalexecutive offices)(Zip Code)

 

**(203) 845-5200**

(Registrant’s telephonenumber, including area code)

 

**N/A**

(Former name, formeraddress and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to the filing requirements for the past 90 days.

xYes   oNo

 

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

 

  Large Accelerated Filer x                  AcceleratedFiler o

 

  Non-Accelerated Filer o                     SmallerReporting Company o

 

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

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.  At June 30, 2008, there were 181,869,442shares of IMS Health Incorporated Common Stock, $0.01 par value, outstanding.

 

 

 

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**IMS HEALTH INCORPORATED**

 

**INDEX TO FORM 10-Q**

 
| ** **                                                                                               | ** ** | **PAGE(S)**  |
|----------------------------------------------------------------------------------------------------------|------------|--------------|
| PART I.  FINANCIAL INFORMATION                                                                      | ** ** | ** **   |
|                                                                                                     | ** ** | ** **   |
| Item 1. Financial Statements (Unaudited)                                                                 | ** ** | ** **   |
|                                                                                                     |       |         |
| Condensed  Consolidated Statements of Financial Position                                                 |       |         |
| As of June 30, 2008 and  December 31, 2007                                                     |       | 3            |
|                                                                                                     |       |         |
| Condensed  Consolidated Statements of Income                                                             |       |         |
| Three Months Ended June 30, 2008  and 2007                                                          |       | 4            |
| Six Months Ended  June 30, 2008 and 2007                                                            |       | 5            |
|                                                                                                     |       |         |
| Condensed Consolidated Statements of Cash Flows                                                          |       |         |
| Six Months Ended  June 30, 2008 and 2007                                                            |       | 6            |
|                                                                                                     |       |         |
| Notes to  Condensed Consolidated Financial Statements                                                    |       | 7-27         |
| ** **                                                                                               |       |         |
| **Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of  Operations** |       | 28 – 46 |
| ** **                                                                                               | ** ** |         |
| **Item 3.  Quantitative and Qualitative Disclosures About Market Risk**                                  | ** ** | 47           |
| ** **                                                                                               | ** ** |         |
| **Item 4. Controls  and Procedures**                                                                     | ** ** | 47           |
|                                                                                                     | ** ** | ** **   |
| **PART II.  OTHER INFORMATION**                                                                     | ** ** | ** **   |
| ** **                                                                                               | ** ** |         |
| **Item  1. Legal Proceedings**                                                                           | ** ** | 48           |
| ** **                                                                                               | ** ** | ** **   |
| **Item  1A. Risk Factors**                                                                               | ** ** | 48 – 53 |
|                                                                                                     |       |         |
| **Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds**                                 | ** ** | 54           |
|                                                                                                     |       |         |
| **Item 4. Submission of Matters to a Vote of Security  Holders**                                         | ** ** | 54           |
|                                                                                                     |       |         |
| **Item 6. Exhibits**                                                                                     | ** ** | 55           |
|                                                                                                     |       |         |
| **SIGNATURES**                                                                                           | ** ** | 56           |
| ** **                                                                                               | ** ** | ** **   |
| **EXHIBITS**                                                                                             | ** ** | 57           |

 

2

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**PART I.FINANCIAL INFORMATION**

**Item 1. FINANCIAL STATEMENTS**

 

**IMS HEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)**

*(Dollars and shares in thousands,except per share data)*

 
| ** **                                                                                                               | ** ** | **As of June 30,  2008** | ** **    | **As of December 31,  2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------|---------------|---------------------------------------------|------------|
| **Assets:**                                                                                                              |       |                                    | ** **    |                                        |       |
| **Current  Assets:**                                                                                                     |       |                                    | ** **    |                                        |       |
| Cash and cash  equivalents                                                                                               | ** ** | **$**                                   | **220,725**   | ** **                                  | $          | 218,249 |   |
| Accounts  receivable, net of allowances of $8,664 and $8,980 in 2008 and 2007, respectively                              | ** ** | **444,556**                             | ** **    | 415,926                                     |       |
| Other current  assets                                                                                                    | ** ** | **221,294**                             | ** **    | 205,998                                     |       |
| **Total  Current Assets**                                                                                                | ** ** | **886,575**                             | ** **    | 840,173                                     |       |
| Securities and  other investments                                                                                        | ** ** | **6,916**                               | ** **    | 5,415                                       |       |
| Property, plant  and equipment, net of accumulated depreciation of $217,731 and $201,122 in  2008 and 2007, respectively | ** ** | **197,794**                             | ** **    | 188,877                                     |       |
| Computer  software                                                                                                       | ** ** | **266,870**                             | ** **    | 269,032                                     |       |
| Goodwill (Note  6)                                                                                                       | ** ** | **699,337**                             | ** **    | 651,709                                     |       |
| Other assets                                                                                                             | ** ** | **302,273**                             | ** **    | 288,998                                     |       |
| **Total  Assets**                                                                                                        | ** ** | **$**                                   | **2,359,765** | ** **                                  | $          | 2,244,204 |   |
| ** **                                                                                                               |       |                                    | ** **    |                                        |       |
| **Liabilities,  Minority Interests and Shareholders’ Deficit:**                                                     |       |                                    | ** **    |                                        |       |
| **Current  Liabilities:**                                                                                                |       |                                    | ** **    |                                        |       |
| Accounts payable                                                                                                         | ** ** | **$**                                   | **101,004**   | ** **                                  | $          | 117,488 |   |
| Accrued and  other current liabilities                                                                                   | ** ** | **291,899**                             | ** **    | 333,534                                     |       |
| Accrued income  taxes                                                                                                    | ** ** | **64,059**                              | ** **    | 61,791                                      |       |
| Short-term  deferred tax liability                                                                                       | ** ** | **8,173**                               | ** **    | 7,415                                       |       |
| Deferred  revenues                                                                                                       | ** ** | **97,490**                              | ** **    | 114,316                                     |       |
| **Total  Current Liabilities**                                                                                           | ** ** | **562,625**                             | ** **    | 634,544                                     |       |
| Postretirement  and postemployment benefits                                                                              | ** ** | **80,110**                              | ** **    | 79,992                                      |       |
| Long-term debt  (Note 9)                                                                                                 | ** ** | **1,472,921**                           | ** **    | 1,203,209                                   |       |
| Other  liabilities                                                                                                       | ** ** | **254,211**                             | ** **    | 265,330                                     |       |
| **Total  Liabilities**                                                                                                   | ** ** | **$**                                   | **2,369,867** | ** **                                  | $          | 2,183,075 |   |
| ** **                                                                                                               |       |                                    | ** **    |                                        |       |
| **Commitments  and Contingencies (Note 7)**                                                                              |       |                                    | ** **    |                                        |       |
| **Minority  Interests**                                                                                                  | ** ** | **$**                                   | **101,912**   | ** **                                  | $          | 101,444 |   |
|                                                                                                                     |       |                                    | ** **    |                                        |       |
| **Shareholders’  Deficit:**                                                                                         |       |                                    | ** **    |                                        |       |
| Common Stock,  par value $.01, authorized 800,000 shares; issued 335,045 shares in 2008 and  2007, respectively          | ** ** | **$**                                   | **3,350**     | ** **                                  | $          | 3,350 |   |
| Capital in  excess of par                                                                                                | ** ** | **537,268**                             | ** **    | 535,500                                     |       |
| Retained  earnings                                                                                                       | ** ** | **2,897,081**                           | ** **    | 2,771,278                                   |       |
| Treasury stock,  at cost, 153,176 and 143,818 shares in 2008 and 2007, respectively                                      | ** ** | **(3,570,226**                          | **)**         | (3,355,790                                  | )          |
| Cumulative translation  adjustment                                                                                       | ** ** | **75,829**                              | ** **    | 61,924                                      |       |
| Unamortized  postretirement and postemployment balances (SFAS No. 158)                                              | ** ** | **(55,323**                             | **)**         | (56,584                                     | )          |
| Unrealized gain  on changes in fair value of cash flow hedges, net of tax                                                | ** ** | **7**                                   | ** **    | 7                                           |       |
| **Total  Shareholders’ Deficit**                                                                                    | ** ** | **$**                                   | **(112,014**  | **)**                                       | $          | (40,315 | ) |
| **Total  Liabilities, Minority Interests and Shareholders’ Deficit**                                                | ** ** | **$**                                   | **2,359,765** | ** **                                  | $          | 2,244,204 |   |

## ** **

## ***See accompanying Notes to the Condensed Consolidated FinancialStatements (Unaudited).***

 

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## **IMS HEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME (Unaudited)**

*(Dollarsand shares in thousands, except per share data)*

* *
| ** **                                                                                               | ** ** | **Three Months Ended   June 30,** | ** **  |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|-------------|
| ** **                                                                                               | ** ** | **2008**                                              | ** **  | **2007** | ** ** |
|                                                                                                     |       |                                                  |        |   |   |
| Information and  analytics revenue                                                                       | ** ** | **$**                                                 | **453,440** | ** ** | $ | 420,551 |   |
| Consulting and  services revenue                                                                         | ** ** | **147,269**                                           | ** **  | 116,921 |   |
| **Operating  Revenue**                                                                                   | ** ** | **600,709**                                           | ** **  | 537,472 |   |
|                                                                                                     |       |                                                  | ** **  |   |   |
| Operating costs  of information and analytics                                                            | ** ** | **192,166**                                           | ** **  | 177,828 |   |
| Direct and  incremental costs of consulting and services                                                 | ** ** | **73,660**                                            | ** **  | 55,848 |   |
| External-use  software amortization                                                                      | ** ** | **13,043**                                            | ** **  | 12,376 |   |
| Selling and  administrative expenses                                                                     | ** ** | **168,097**                                           | ** **  | 154,361 |   |
| Depreciation and  other amortization                                                                     | ** ** | **22,366**                                            | ** **  | 18,922 |   |
| **Operating  Income**                                                                                    | ** ** | **131,377**                                           | ** **  | 118,137 |   |
| Interest income                                                                                          | ** ** | **2,983**                                             | ** **  | 1,729 |   |
| Interest expense                                                                                         | ** ** | **(11,970**                                           | **)**       | (9,416 | ) |
| Gains from  investments, net                                                                             | ** ** | **—**                                            | ** **  | 2,175 |   |
| Other expense,  net                                                                                      | ** ** | **(7,782**                                            | **)**       | (20 | ) |
| **Non-Operating  Loss, Net**                                                                             | ** ** | **(16,769**                                           | **)**       | (5,532 | ) |
| Income before  provision for income taxes                                                                | ** ** | **114,608**                                           | ** **  | 112,605 |   |
| Provision for  income taxes (Note 11)                                                                    | ** ** | **(36,913**                                           | **)**       | (39,211 | ) |
| **Net  Income**                                                                                          | ** ** | **$**                                                 | **77,695**  | ** ** | $ | 73,394 |   |
|                                                                                                     |       |                                                  | ** **  |   |   |
| **Basic  Earnings Per Share of Common Stock**                                                            | ** ** | **$**                                                 | **0.43**    | ** ** | $ | 0.37 |   |
| **Diluted  Earnings Per Share of Common Stock**                                                          | ** ** | **$**                                                 | **0.42**    | ** ** | $ | 0.36 |   |
|                                                                                                     | ** ** | ** **                                            | ** **  |   |   |
| Weighted average  number of shares outstanding – Basic                                              | ** ** | **181,741**                                           | ** **  | 196,502 |   |
| Dilutive effect  of shares issuable as of period-end under stock-based compensation plans and  other     | ** ** | **2,133**                                             | ** **  | 3,953 |   |
| Adjustment of  shares outstanding applicable to exercised and cancelled stock options during  the period | ** ** | **22**                                                | ** **  | 646 |   |
| **Weighted  Average Number of Shares Outstanding – Diluted**                                        | ** ** | **183,896**                                           | ** **  | 201,101 |   |

 

*See accompanying Notes to the CondensedConsolidated Financial Statements (Unaudited).*

 

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## **IMS HEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME (Unaudited)**

*(Dollarsand shares in thousands, except per share data)*

* *
| ** **                                                                                               | ** ** | **Six Months Ended  June 30,** | ** **  |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|-------------|
| ** **                                                                                               | ** ** | **2008**                                      | ** **  | **2007** | ** ** |
|                                                                                                     |       |                                          |        |   |   |
| Information and  analytics revenue                                                                       | ** ** | **$**                                         | **909,627** | ** ** | $ | 828,712 |   |
| Consulting and  services revenue                                                                         | ** ** | **265,262**                                   | ** **  | 219,109 |   |
| **Operating  Revenue**                                                                                   | ** ** | **1,174,889**                                 | ** **  | 1,047,821 |   |
|                                                                                                     |       |                                          | ** **  |   |   |
| Operating costs  of information and analytics                                                            | ** ** | **385,452**                                   | ** **  | 348,478 |   |
| Direct and  incremental costs of consulting and services                                                 | ** ** | **141,722**                                   | ** **  | 114,324 |   |
| External-use  software amortization                                                                      | ** ** | **25,757**                                    | ** **  | 23,621 |   |
| Selling and  administrative expenses                                                                     | ** ** | **330,789**                                   | ** **  | 294,125 |   |
| Depreciation and  other amortization                                                                     | ** ** | **43,410**                                    | ** **  | 38,073 |   |
| **Operating  Income**                                                                                    | ** ** | **247,759**                                   | ** **  | 229,200 |   |
| Interest income                                                                                          | ** ** | **5,575**                                     | ** **  | 3,527 |   |
| Interest expense                                                                                         | ** ** | **(23,233**                                   | **)**       | (17,972 | ) |
| Gains from  investments, net                                                                             | ** ** | **—**                                    | ** **  | 1,964 |   |
| Other expense,  net                                                                                      | ** ** | **(28,631**                                   | **)**       | (2,798 | ) |
| **Non-Operating  Loss, Net**                                                                             | ** ** | **(46,289**                                   | **)**       | (15,279 | ) |
| Income before  provision for income taxes                                                                | ** ** | **201,470**                                   | ** **  | 213,921 |   |
| Provision for  income taxes (Note 11)                                                                    | ** ** | **(64,600**                                   | **)**       | (54,958 | ) |
| **Net  Income**                                                                                          | ** ** | **$**                                         | **136,870** | ** ** | $ | 158,963 |   |
|                                                                                                     |       |                                          | ** **  |   |   |
| **Basic  Earnings Per Share of Common Stock**                                                            | ** ** | **$**                                         | **0.75**    | ** ** | $ | 0.81 |   |
| **Diluted  Earnings Per Share of Common Stock**                                                          | ** ** | **$**                                         | **0.74**    | ** ** | $ | 0.79 |   |
|                                                                                                     | ** ** | ** **                                    | ** **  |   |   |
| Weighted average  number of shares outstanding – Basic                                              | ** ** | **183,388**                                   | ** **  | 196,570 |   |
| Dilutive effect  of shares issuable as of period-end under stock-based compensation plans and  other     | ** ** | **1,547**                                     | ** **  | 3,286 |   |
| Adjustment of  shares outstanding applicable to exercised and cancelled stock options during  the period | ** ** | **38**                                        | ** **  | 1,018 |   |
| **Weighted  Average Number of Shares Outstanding – Diluted**                                        | ** ** | **184,973**                                   | ** **  | 200,874 |   |

 

*Seeaccompanying Notes to the Condensed Consolidated Financial Statements (Unaudited).*

 

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**IMSHEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**

*(Dollars and shares in thousands,except per share data)*

 
| ** **                                                                               | ** ** | **Six Months Ended June 30,** | ** **  |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------------|-------------|
| ** **                                                                               | ** ** | **2008**                                          | ** **  | **2007** | ** ** |
| **Cash  Flows from Operating Activities:**                                               |       |                                              |        |   |   |
| Net income                                                                               | ** ** | **$**                                             | **136,870** | ** ** | $ | 158,963 |   |
| **Adjustments  to reconcile net income to net cash provided by operating activities:**   |       |                                              | ** **  |   |   |
| Depreciation and  amortization                                                           | ** ** | **69,167**                                        | ** **  | 61,694 |   |
| Bad debt expense                                                                         | ** ** | **983**                                           | ** **  | 505 |   |
| Deferred income  taxes                                                                   | ** ** | **1,439**                                         | ** **  | (21,774 | ) |
| Gains from  investments, net                                                             |       | —                                            | ** **  | (1,964 | ) |
| Minority  interests in net income of consolidated companies                              | ** ** | **3,850**                                         | ** **  | 3,907 |   |
| Non-cash stock-based  compensation charges                                               | ** ** | **16,227**                                        | ** **  | 20,013 |   |
| Net tax  (expense) benefit on stock-based compensation                                   | ** ** | **(316**                                          | **)**       | 9,588 |   |
| Excess tax  benefits from stock-based compensation                                       | ** ** | **(88**                                           | **)**       | (4,227 | ) |
| Change in assets  and liabilities, excluding effects from acquisitions and dispositions: |       |                                              | ** **  |   |   |
| Net increase in  accounts receivable                                                     | ** ** | **(28,930**                                       | **)**       | (26,339 | ) |
| Net increase in  work-in-process inventory                                               | ** ** | **(5,468**                                        | **)**       | (864 | ) |
| Net increase in  prepaid expenses and other current assets                               | ** ** | **(18,817**                                       | **)**       | (14,397 | ) |
| Net decrease in  accounts payable                                                        | ** ** | **(18,196**                                       | **)**       | (3,992 | ) |
| Net decrease in  accrued and other current liabilities                                   | ** ** | **(6,995**                                        | **)**       | (30,900 | ) |
| Net decrease in  accrued severance, impairment and other charges                         | ** ** | **(27,914**                                       | **)**       | (1,754 | ) |
| Net decrease in  deferred revenues                                                       | ** ** | **(18,476**                                       | **)**       | (1,015 | ) |
| Net increase in  accrued income taxes                                                    | ** ** | **5,413**                                         | ** **  | 10,837 |   |
| Net decrease  (increase) in pension assets (net of liabilities)                          | ** ** | **1,655**                                         | ** **  | (60 | ) |
| Net decrease  (increase) in other long-term assets (net of long-term liabilities)        | ** ** | **1,642**                                         | ** **  | (1,421 | ) |
| **Net  Cash Provided by Operating Activities**                                           | ** ** | **112,046**                                       | ** **  | 156,800 |   |
| **Cash  Flows Used in Investing Activities:**                                            |       |                                              | ** **  |   |   |
| Capital  expenditures                                                                    | ** ** | **(22,462**                                       | **)**       | (26,196 | ) |
| Additions to  computer software                                                          | ** ** | **(36,537**                                       | **)**       | (42,858 | ) |
| Proceeds from  sale of capital asset, net                                                | ** ** | **1,392**                                         | ** **  | — |   |
| Proceeds from  sales of investments, net                                                 |       | **—**                                        | ** **  | 3,524 |   |
| Payments for  acquisitions of businesses, net of cash acquired                           | ** ** | **(45,308**                                       | **)**       | (22,192 | ) |
| Funding of  venture capital investments                                                  | ** ** | **(1,500**                                        | **)**       | (1,200 | ) |
| Other investing  activities, net                                                         | ** ** | **(1,874**                                        | **)**       | (8,800 | ) |
| **Net  Cash Used in Investing Activities**                                               | ** ** | **(106,289**                                      | **)**       | (97,722 | ) |
| **Cash  Flows Used in Financing Activities:**                                            |       |                                              | ** **  |   |   |
| Net increase in  revolving credit facility and other                                     | ** ** | **139,500**                                       | ** **  | 217,798 |   |
| Proceeds from  private placement notes                                                   | ** ** | **240,000**                                       | ** **  | — |   |
| Repayment of  private placement notes                                                    | ** ** | **(150,000**                                      | **)**       | — |   |
| Payments for  purchase of treasury stock                                                 | ** ** | **(229,340**                                      | **)**       | (327,610 | ) |
| Proceeds from  exercise of stock options                                                 | ** ** | **5,000**                                         | ** **  | 110,779 |   |
| Excess tax  benefits from stock-based compensation                                       | ** ** | **88**                                            | ** **  | 4,227 |   |
| Dividends paid                                                                           | ** ** | **(11,067**                                       | **)**       | (11,977 | ) |
| Proceeds from  employee stock purchase plan and other                                    | ** ** | **(25**                                           | **)**       | 3,330 |   |
| Decrease in cash  overdrafts                                                             | ** ** | **(995**                                          | **)**       | (4,588 | ) |
| Payments to  minority interests and other financing activities                           | ** ** | **(3,382**                                        | **)**       | (3,381 | ) |
| **Net  Cash Used in Financing Activities**                                               | ** ** | **(10,221**                                       | **)**       | (11,422 | ) |
| Effect of  Exchange Rate Changes on Cash and Cash Equivalents                            | ** ** | **6,940**                                         | ** **  | 5,371 |   |
| **Increase  in Cash and Cash Equivalents**                                               | ** ** | **2,476**                                         | ** **  | 53,027 |   |
| **Cash  and Cash Equivalents, Beginning of Period**                                      | ** ** | **218,249**                                       | ** **  | 157,346 |   |
| **Cash  and Cash Equivalents, End of Period**                                            | ** ** | **$**                                             | **220,725** | ** ** | $ | 210,373 |   |

 

*See accompanying Notes to the CondensedConsolidated Financial Statements (Unaudited).*

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

** **

**Note 1.  InterimCondensed Consolidated Financial Statements (Unaudited)**

** **

Theaccompanying Condensed Consolidated Financial Statements (Unaudited) have beenprepared in accordance with accounting principles generally accepted in theUnited States of America for interim financial information and Article 10of Regulation S-X under the Securities and Exchange Act of 1934, asamended.  The Condensed ConsolidatedFinancial Statements (Unaudited) do not include all the information and notesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, all adjustments, all of which are of anormal recurring nature, considerednecessary for a fair presentation of the statements of financial position,income and cash flows for the periods presented have been included.  The results of operations for interim periodsare not necessarily indicative of the results expected for the full year.  The December 31, 2007 balance sheet datawas derived from audited financial statements, but does not include alldisclosures required by accounting principles generally accepted in the UnitedStates of America.  The CondensedConsolidated Financial Statements (Unaudited) and related notes should be readin conjunction with the Consolidated Financial Statements and related notes ofIMS Health Incorporated (the “Company” or “IMS”) included in its 2007 AnnualReport on Form 10-K.  Certain prioryear amounts have been reclassified to conform to the 2008 presentation.  Amounts presented in the CondensedConsolidated Financial Statements (Unaudited) may not add due to rounding.

 

**Note 2.  Basisof Presentation**

** **

IMS is the leading global provider of marketintelligence to the pharmaceutical and healthcare industries. The Companyoffers leading-edge market intelligence products and services that are integralto the Company’s clients’ day-to-day operations, including portfoliooptimization capabilities; launch and brand management solutions; sales forceeffectiveness innovations; managed markets and consumer health offerings; andconsulting and services solutions that improve ROI and the delivery of qualityhealthcare worldwide. The Company’s information products are developed to meetclient needs by using data secured from a worldwide network of suppliers inmore than 100 countries. Key information products include:

 

·                  Sales Force Effectiveness to optimize salesforce productivity and territory management;

 

·                  Portfolio Optimization to provide clientswith insights into market opportunity and business development assessment; and

 

·                  Launch, Brand Management and Other to supportclient needs relative to market segmentation and positioning, life cyclemanagement for prescription and consumer health pharmaceutical products andhealth economics and outcomes research offerings.

 

Within these key information products, theCompany provides consulting and services that use in-house capabilities andmethodologies to assist pharmaceutical clients in analyzing and evaluatingmarket trends, strategies and tactics, and to help in the development andimplementation of customized software applications and data warehouse tools.

 

The Company operates in more than 100countries.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

** **

The Company is managed on a global businessmodel with global leaders for the majority of its critical business processesand accordingly has one reportable segment (see Note 15).

 

**Note 3.  Summaryof Recent Accounting Pronouncements**

** **

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 157, “Fair ValueMeasurements.” Thisstatement defines fair value, establishes a framework for measuring fair valueunder generally accepted accounting principles, and expands disclosures aboutfair value measurements. This statement is effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years.  In February 2008, theFASB issued Staff Positions No. FAS 157-1 and No. FAS 157-2 whichdelayed the effective date of SFAS No. 157 for one year for certain nonfinancial assets and liabilities and removed certain leasing transactions fromits scope.  The adoption of SFAS No. 157,effective January 1, 2008, did not have a material impact on the Company’sfinancial position, results of operations or cash flows.  The Company is currently evaluating theimpact of SFAS No. 157 for certain non financial assets and liabilities onits financial results.

 

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities–Including an amendment of FASBStatement No. 115.” This statement permits entities to choose to measuremany financial instruments and certain other items at fair value.  Entities shall report unrealized gains andlosses on items for which the fair value option has been elected in earnings ateach subsequent reporting date.  Thisstatement is effective as of the beginning of an entity’s first fiscal yearthat begins after November 15, 2007. The adoption of SFAS No. 159, effective January 1, 2008, didnot have a material impact on the Company’s financial position, results ofoperations or cash flows as the Company did not elect the fair valuemeasurement option for any additional financial instruments or other items.

 

InDecember 2007, the FASB issued SFAS No. 141R, “Business Combinations.”  This statement establishes principles andrequirements for how an acquirer recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, anynoncontrolling interest in the acquiree and the goodwill acquired.  This statement also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  This statementis effective for fiscal years beginning after December 15, 2008.  The impact on the Company’s financial resultswill be dependent on the terms and conditions of acquisitions consummated on orafter January 1, 2009, the effective date for the Company.

 

InDecember 2007, the FASB issued SFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements - an Amendment of ARB No. 51.”This statement establishes accounting and reporting standards pertaining toownership interests in subsidiaries held by parties other than the parent, theamount of net income attributable to the parent and to the noncontrollinginterest, changes in a parent’s ownership interest, and the valuation of anyretained noncontrolling equity investment when a subsidiary is deconsolidated.This statement also establishes disclosure requirements that identify anddistinguish between the interests of the parent and the interests of thenoncontrolling owners.  This statement iseffective for fiscal years beginning on or after December 15, 2008. The 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

Company is currently evaluating thisstatement to determine any potential impact that it may have on its financialresults.

 

InMarch 2008, the FASB issued SFAS No. 161, “Disclosures aboutDerivative Instruments and Hedging Activities–an amendment of FASB Statement No. 133.”  This statement requires enhanced disclosuresabout an entity’s derivative and hedging activities and thereby improves thetransparency of financial reporting. Entities will be required to provide enhanced disclosures about (a) howand why an entity uses derivative instruments, (b) how derivativeinstruments and related hedged items are accounted for under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities,” and itsrelated interpretations, and (c) how derivative instruments and relatedhedged items affect an entity’s financial position, financial performance, andcash flows.  This statement is effective for financialstatements issued for fiscal years and interim periods beginning after November 15,2008, with early application encouraged. This statement encourages, but does not require, comparative disclosuresfor earlier periods at initial adoption. The Company is currentlyevaluating the new disclosure requirements under this statement.

 

InMay 2008, the FASB issued SFAS No. 162, “The Hierarchy of GenerallyAccepted Accounting Principles.”  Thestatement identifies the sources of accounting principles and the framework forselecting the principles used in the preparation of financial statements ofnongovernmental entities that are presented in conformity with generallyaccepted accounting principles (“GAAP”) in the United States.  This statement is effective 60 days followingthe United States Securities and Exchange Commission’s (“SEC”) approval of thePublic Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411,“The Meaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.”  The adoption of thisstatement is not expected to have an impact on the Company’s financial results.

 

**Note 4.   Summaryof Significant Accounting Policies**

** **

*Operating Costs of Information and Analytics*

 

Operatingcosts of information and analytics (“I&A”) include costs of data, dataprocessing and collection and costs attributable to personnel involved inproduction, data management and delivery of the Company’s I&A offerings.

 

Oneof the Company’s major expenditures is the cost for the data it receives fromsuppliers.  After receipt of the raw dataand prior to the data being available for use in any part of its business, theCompany is required to transform the raw data into useful information through aseries of comprehensive processes.  Theseprocesses involve significant employee costs and data processing costs.

 

Costsassociated with the Company’s data purchases are deferred withinwork-in-process inventory and recognized as expense as the corresponding dataproduct revenue is recognized by the Company, generally over a thirty to sixtyday period.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

*Direct and Incremental Costs of Consulting and Services*

 

Directand incremental costs of consulting and services (“C&S”) include the costsof the Company’s consulting staff directly involved with delivering revenuegenerating engagements, related accommodations and the costs of primary marketresearch data purchased specifically for certain individual C&Sengagements.  Although the Company’s datais used in multiple customer solutions across different offerings within bothI&A and C&S, the Company does not have a meaningful way to allocate thedirect cost of the data between I&A and C&S revenues.  As such, the direct and incremental costs ofC&S do not reflect the total costs incurred to deliver its C&Srevenues.

 

Costsassociated with the Company’s time and material and fixed-price C&Scontracts are recognized as incurred.

 

**Note 5. Acquisitions**

** **

The Company makesacquisitions in order to expand its products, services and geographic reach.During the six months ended June 30, 2008, the Company completed threeacquisitions of Robinson and James Research Pty Limited (Australia), FourthHurdle Consulting Limited (U.K.) and Health Benchmarks, Inc. (U.S.) at anaggregate cost of approximately $24,100 which were accounted for under thepurchase method of accounting.  As such,the aggregate purchase price has been allocated on a preliminary basis to theassets acquired based on estimated fair values as of the closing date.  The purchase price allocations will befinalized after the completion of the valuation of certain assets andliabilities.  Any adjustments resultingfrom the finalization of the purchase price allocations are not expected tohave a material impact on the Company’s results of operations.  The Condensed Consolidated FinancialStatements (Unaudited) include the results of these acquired companiessubsequent to the closing of the acquisition. Had these acquisitions occurred as of January 1, 2008 or 2007, the impacton the Company’s results of operations would not have been significant.Goodwill of approximately $16,400 was recorded in connection with theseacquisitions, none of which is deductible for tax purposes.

 

During the six monthsended June 30, 2007, the Company completed one acquisition of ValueMedicsResearch, LLC (U.S.) at a cost of approximately $9,800 which was accounted forunder the purchase method of accounting. As such, the aggregate purchase price had been allocated on apreliminary basis to the assets acquired based on estimated fair values as ofthe closing date.  The Company finalizedthe purchase price allocation for this acquisition during 2007 which did nothave a material impact on the Company’s results of operations.  The Condensed Consolidated FinancialStatements (Unaudited) include the results of this acquired company subsequentto the closing of the acquisition.  Hadthis acquisition occurred as of January 1, 2007 or 2006, the impact on theCompany’s results of operations would not have been significant.  Goodwill of approximately $6,200 was recordedin connection with this acquisition. There is approximately $8,500 of tax deductible goodwill.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

**Note 6. Goodwill and Intangible Assets**

** **

During the six months ended June 30, 2008, the Company’s goodwillincreased by $47,628 due to foreign currency translation adjustments and thepreliminary allocations of purchase price for the acquisitions completed duringthe six months ended June 30, 2008 (see Note 5).  During the six months ended June 30,2007, the Company’s goodwill increased by $25,613 due to foreign currencytranslation adjustments and the preliminary allocation of purchase price forthe acquisition completed during the six months ended June 30, 2007 (seeNote 5).

 

All ofthe Company’s other acquired intangibles are subject to amortization.  Intangibleasset amortization expense was $4,768 and $9,489 during the three and sixmonths ended June 30, 2008, respectively, and $4,185 and $8,945 during thethree and six months ended June 30, 2007, respectively.  At June 30,2008, intangible assets were primarily composed of customer relationships,databases and trade names (principally included in Other assets) and computersoftware.  The gross carrying amounts andrelated accumulated amortization of these intangibles were $183,132 and$89,087, respectively, at June 30, 2008 and $176,330 and $79,598,respectively, at December 31, 2007. These intangibles are amortized over periods ranging from two to twentyyears.  As of June 30, 2008, theweighted average amortization periods of the acquired intangibles by assetclass are listed in the following table:

 
| **Intangible Asset Type** | ** ** | **Weighted Average  Amortization Period (Years)** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------|------------|
| Customer  Relationships             |       | 10.0                                                             |       |
| Computer  Software and Algorithms   |       | 7.0                                                              |       |
| Databases                           |       | 4.7                                                              |       |
| Trade Names                         |       | 4.3                                                              |       |
| Other                               |       | 3.5                                                              |       |
| Weighted average                    |       | 8.9                                                              |       |

 

Based on currentestimated useful lives, amortization expense associated with intangible assetsat June 30, 2008 is estimated to be approximately $4,725 for each of theremaining two quarters in 2008. Thereafter, annual amortization expense associated with intangibleassets is estimated to be as follows:

 

| **Year Ended   December 31,** | ** ** | **Amortization   Expense** | ** ** |
|----------------------------------------------|------------|---------------------------------|------------|
| 2009                                         |       | $                               | 16,768     |   |
| 2010                                         |       | 12,673                          |       |
| 2011                                         |       | 11,053                          |       |
| 2012                                         |       | 9,159                           |       |
| 2013                                         |       | 8,702                           |       |
| Thereafter                                   |       | $                               | 26,241     |   |

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

**Note7.**  **Contingencies**

 

TheCompany and its subsidiaries are involved in legal and tax proceedings, claimsand litigation arising in the ordinary course of business. Managementperiodically assesses the Company’s liabilities and contingencies in connectionwith these matters based upon the latest information available. For thosematters where management currently believes it is probable that the Company willincur a loss and that the probable loss or range of loss can be reasonablyestimated, the Company has recorded reserves in the Condensed ConsolidatedFinancial Statements (Unaudited) based on its best estimates of such loss. Inother instances, because of the uncertainties related to either the probableoutcome or the amount or range of loss, management is unable to make areasonable estimate of a liability, if any. However, even in many instanceswhere the Company has recorded a reserve, the Company is unable to predict withcertainty the final outcome of the matter or whether resolution of the matterwill materially affect the Company’s results of operations, financial positionor cash flows. As additional information becomes available, the Company adjustsits assessment and estimates of such liabilities accordingly.

 

TheCompany routinely enters into agreements with its suppliers to acquire data andwith its customers to sell data, all in the normal course of business. In theseagreements, the Company sometimes agrees to indemnify and hold harmless theother party for any damages such other party may suffer as a result ofpotential intellectual property infringement and other claims related to theuse of the data. These indemnities typically have terms of approximately twoyears. The Company has not accrued a liability with respect to these matters,as the exposure is considered remote.

 

Inconnection with the agreements governing the relationship among the Company andtwo of its subsidiaries and two third-party investors with respect to IMSHealth Licensing Associates, L.L.C. (the “LLC Agreements”), the Company alsoentered into a guaranty agreement. Under the terms of this guaranty agreement,the Company guarantees in favor of the third-party investors the performance ofthe Company’s subsidiaries under the LLC Agreements and agrees to indemnify andhold harmless the third-party investors against damages, including specifieddelay damages, the third-party investors may suffer as a result of failures toperform under the LLC Agreements by the Company and its subsidiaries.

 

Basedon its review of the latest information available, in the opinion ofmanagement, the ultimate liability of the Company in connection with pendingtax and legal proceedings, claims and litigation will not have a materialeffect on the Company’s results of operations, cash flows or financialposition, with the possible exception of the matters described below.

 

*D&B Legacy and Related Tax Matters*

 

*SharingDisputes. *In 1996 the company then known as The Dun &Bradstreet Corporation (“D&B”) and now known as R.H. Donnelley Corporation(“Donnelley”) separated into three public companies by spinning off ACNielsenCorporation (“ACNielsen”) and the company then known as Cognizant Corporation (“Cognizant”)(the “1996 Spin-Off”).  Cognizant is nowknown as Nielsen Media Research, Inc., a subsidiary of The NielsenCompany, formerly known as VNU N.V. (“NMR”). The agreements effecting the 1996 Spin-Off allocated tax-relatedliability with respect to 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

certain prior businesstransactions (the “Legacy Tax Controversies”) between D&B andCognizant.  The D&B portion of suchliability is now shared among Donnelley and certain of its former affiliates(the “Donnelley Parties”), and the Cognizant portion of such liability isshared between NMR and the Company pursuant to the agreements effectingCognizant’s spin-off of the Company in 1998 (the “1998 Spin-Off”).

 

Theunderlying tax controversies with the Internal Revenue Service (“IRS”) havesubstantially all been resolved and the Company paid to the IRS the amountsthat it believed were due and owing.  Inthe first quarter of 2006, Donnelley indicated that it disputed the amountscontributed by the Company toward the resolution of these matters based on theDonnelley Parties’ interpretation of the allocation of liability under the 1996Spin-Off agreements.  The DonnelleyParties on the one hand, and NMR and the Company, on the other hand, haveattempted to resolve these disputes through negotiation.  The 1996 Spin-Off agreements provide that ifthe parties cannot reach agreement through negotiation they must arbitrate thedisputes.  The Company intends tovigorously defend itself with respect to such disputes.  As of June 30, 2008, the Company had areserve of approximately $22,400 (liability and interest, net of tax benefit)for these matters.

 

OnAugust 14, 2006, the Donnelley Parties commenced arbitration regarding oneof these disputes (referred to herein as the “Dutch Partnership Dispute”) byfiling a Notice of Arbitration and Statement of Claim (the “Donnelley Statement”)with the American Arbitration Association International Center for DisputeResolution (the “AAA”).  In the DonnelleyStatement, the Donnelley Parties claim that the Company and NMR collectivelyowe approximately an additional $10,800 with respect to the Dutch PartnershipDispute; (if determined liable, the Company’s share of this amount would beapproximately $5,400).  On October 16,2006, the Company and NMR filed a Statement of Defense denying all claims madeby the Donnelley Parties in the Donnelley Statement.   In October 2007, a hearing on themerits of the parties’ claims took place before an AAA arbitration panel, andon December 6, 2007, the panel issued a Partial Award.  In the Partial Award, the panel directed theparties to attempt to agree on the allocation of liability between the partiesfor the tax controversy underlying the Dutch Partnership Dispute, in accordancewith principles set out in the Partial Award. The parties were unable to reach agreement and, in March 2008, eachsubmitted to the AAA arbitration panel their own calculation of the allocationof liability.  The calculation submittedby the Donnelley Parties showed an underpayment by each of the Company and NMRof approximately $6,800.  The DonnelleyParties also claimed interest, the costs of the arbitration proceeding andtheir attorneys’ fees, in an aggregate amount of approximately $6,400, of whichthe Company’s share would be approximately $3,200.  The Company and NMR disputed the DonnelleyParties’ computation and additional claims and submitted their own calculationof the allocation of liability.  Thiscalculation showed a current underpayment by each of the Company and NMR ofapproximately $2,500, but also showed potential pending adjustments to suchamount in favor of each of the Company and NMR of approximately $4,800.  These pending adjustments are contingent uponthe IRS’s disposition of certain pending refund claims made by Donnelley.  The Company and NMR have also claimedinterest, the costs of the arbitration proceeding and their attorneys’fees.  In July 2008, the AAAarbitration panel issued a Clarifying Order addressing in concept some (but notall) of the matters disputed by the parties in connection with the applicationof the principles set forth in the Partial Award.  In the Clarifying Order, the panel directedthe parties to submit an agreed joint computation of the principal amount ofthe liability to be shared, as well as proposed provisions for interest and/orcosts or, if no agreement can be reached with respect to those matters,commentary by 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

each of the parties as tothe appropriate approach to be applied with respect thereto by the panel.  Further arbitration proceedings to resolvethese disputes are likely, and the Company continues to believe its reserve forthis matter is adequate.

 

*ThePartnership (Tax Year 1997)*.  The IRS is seeking to reallocate certain itemsof partnership income and expense as well as disallow certain items ofpartnership expense with respect to a partnership now substantially owned bythe Company (the “Partnership”) on the Partnership’s 1997 tax return.  During 1997, the Partnership was substantiallyowned by Cognizant, but liability for this matter was allocated to the Companypursuant to the agreements effecting the 1998 Spin-Off.  The Company has filed a formal protestrelating to the proposed assessment for 1997 with the IRS Office of Appeals.  The Company is attempting to resolve thismatter in the administrative appeals process before proceeding to litigation ifnecessary. If the IRS were to ultimately prevail in its position, the Company’sliability (tax and interest, net of tax benefit) with respect to tax year 1997would be approximately $22,100, which amount the Company had reserved incurrent accrued income taxes payable at June 30, 2008.

 

Inaddition to these matters, the Company and its predecessors have entered, andthe Company continues to enter, into global tax planning initiatives in thenormal course of their businesses.  Theseactivities are subject to review by applicable tax authorities.  As a result of the review process,uncertainties exist and it is possible that some of these matters could beresolved adversely to the Company.

 

*IMSHealth Government Solutions Voluntary Disclosure Program Participation*

 

Our wholly-ownedsubsidiary, IMS Government Solutions Inc., is primarily engaged in providingservices and products under contracts with the U.S. government.  U.S. government contracts are subject toextensive legal and regulatory requirements and, from time to time, agencies ofthe U.S. government have the ability to investigate whether contractors’operations are being conducted in accordance with such requirements.  U.S. government investigations, whetherrelating to these contracts or conducted for other reasons, could result inadministrative, civil or criminal liabilities, including repayments, fines orpenalties being imposed on us, or could lead to suspension or debarment fromfuture U.S. government contracting.  U.S.government investigations often take years to complete and may result in noadverse action against us.

 

IMS Government Solutionshas discovered potential noncompliance with various contract clauses andrequirements under its General Services Administration Contract which wasawarded in 2002 to its predecessor company, Synchronous Knowledge Inc.(Synchronous Knowledge Inc. was acquired by IMS in May 2005).  Upon discovery of the potentialnoncompliance, the Company began remediation efforts, promptly disclosed thepotential noncompliance to the government, and was accepted into the Departmentof Defense Voluntary Disclosure Program. The Company expects to file its Voluntary Disclosure Program Report in August 2008.  The Company is currently unable to determinethe outcome of this matter pending the resolution of the Voluntary DisclosureProgram process and is therefore currently unable to estimate the potential liability,if any, arising from this matter.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

*OtherContingencies*

 

*ContingentConsideration*.  Underthe terms of certain purchase agreements related to acquisitions made since2002, the Company may be required to pay additional amounts as contingentconsideration based on the achievement of certain performance related targetsduring 2008 and 2009.  Substantially allof these additional payments will be recorded as goodwill in accordance withEmerging Issues Task Force (“EITF”) No. 95-8, “Accounting for ContingentConsideration Paid to the Shareholders of an Acquired Enterprise in a PurchaseBusiness Combination.”  As of June 30,2008, approximately $67,200 had been earned under these contingencies since2002.  The Company paid approximately$19,300 under these contingencies during the six months ended June 30,2008.  Based on current estimates, theCompany expects that additional contingent consideration under these agreementsmay total approximately $4,200.  It isexpected that these contingencies will be resolved within a specified timeperiod after the end of each respective calendar year for 2008 and 2009.

 

**Note8.  Stock-Based Compensation**

 

The following table summarizes activity of stock options for theperiods indicated:

 
| ** **                                                  | ** ** | ** ** | ** ** | **Weighted**       | ** ** |
|-------------------------------------------------------------|------------|------------|------------|--------------------|------------|
| ** **                                                  | ** ** | ** ** | ** ** | **Average**        | ** ** |
| ** **                                                  | ** ** | ** ** | ** ** | **Exercise**       | ** ** |
| ** **                                                  | ** ** | ** ** | ** ** | **Price Per** | ** ** |
| ** **                                                  | ** ** | **Shares** | ** ** | **Share**          | ** ** |
| Options  Outstanding, December 31, 2005                |       | 29,984     |       | $                  | 22.91      |   |
| Granted                                                     |       | 11         |       | $                  | 24.54      |   |
| Exercised                                                   |       | (6,161     | )          | $                  | 19.36      |   |
| Forfeited                                                   |       | (699       | )          | $                  | 23.58      |   |
| Cancelled                                                   |       | (1,739     | )          | $                  | 28.93      |   |
| Options  Outstanding, December 31, 2006                |       | 21,396     |       | $                  | 23.43      |   |
| Granted                                                     |       | —     |       | —             |       |
| Exercised                                                   |       | (6,299     | )          | $                  | 22.72      |   |
| Forfeited                                                   |       | (200       | )          | $                  | 24.14      |   |
| Cancelled                                                   |       | (371       | )          | $                  | 27.61      |   |
| **Options  Outstanding, December 31, 2007**            | ** ** | **14,526** | ** ** | **$**              | **23.62**  | ** ** |
| **Granted**                                                 | ** ** | **1,159**  | ** ** | **$**              | **22.58**  | ** ** |
| **Exercised**                                               | ** ** | **(247**   | **)**      | **$**              | **20.24**  | ** ** |
| **Forfeited**                                               | ** ** | **(56**    | **)**      | **$**              | **24.66**  | ** ** |
| **Cancelled**                                               | ** ** | **(559**   | **)**      | **$**              | **26.56**  | ** ** |
| **Options  Outstanding, June 30, 2008**                | ** ** | **14,823** | ** ** | **$**              | **23.48**  | ** ** |
| **Options  Vested or Expected to Vest, June 30, 2008** | ** ** | **14,775** | ** ** | **$**              | **23.48**  | ** ** |
| **Exercisable,  June 30, 2008**                        | ** ** | **13,628** | ** ** | **$**              | **23.55**  | ** ** |

 

The following table summarizes activity ofrestricted stock units (“RSUs”) with service 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

conditions:

 
| ** **                                          | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|-----------------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                          | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 31, 2005                   |       | 444        |       | $                   | 20.30      |   |
| Granted                                             |       | 1,386      |       | $                   | 26.12      |   |
| Vested                                              |       | (217       | )          | $                   | 22.03      |   |
| Forfeited                                           |       | (55        | )          | $                   | 25.79      |   |
| Unvested,  December 31, 2006                   |       | 1,558      |       | $                   | 25.04      |   |
| Granted                                             |       | 1,219      |       | $                   | 29.64      |   |
| Vested                                              |       | (296       | )          | $                   | 26.06      |   |
| Forfeited                                           |       | (148       | )          | $                   | 28.09      |   |
| **Unvested,  December 31, 2007**               | ** ** | **2,333**  | ** ** | **$**               | **27.16**  | ** ** |
| **Granted**                                         | ** ** | **1,209**  | ** ** | **$**               | **22.60**  | ** ** |
| **Vested**                                          | ** ** | **(493**   | **)**      | **$**               | **27.69**  | ** ** |
| **Forfeited**                                       | ** ** | **(163**   | **)**      | **$**               | **27.46**  | ** ** |
| **Unvested,  June 30, 2008**                   | ** ** | **2,886**  | ** ** | **$**               | **25.14**  | ** ** |
| **Vested  or Expected to Vest, June 30, 2008** | ** ** | **2,676**  | ** ** | **$**               | **25.13**  | ** ** |

 

The following tablesummarizes activity of RSUs with performance conditions:

 
| ** **                                          | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|-----------------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                          | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 31, 2005                   |       | 375        |       | $                   | 21.12      |   |
| Granted                                             |       | 154        |       | $                   | 24.53      |   |
| Vested                                              |       | (181       | )          | $                   | 21.76      |   |
| Forfeited                                           |       | (28        | )          | $                   | 24.08      |   |
| Unvested,  December 31, 2006                   |       | 320        |       | $                   | 22.14      |   |
| Granted                                             |       | 123        |       | $                   | 29.16      |   |
| Vested                                              |       | (84        | )          | $                   | 18.65      |   |
| Forfeited                                           |       | (6         | )          | $                   | 27.00      |   |
| **Unvested,  December 31, 2007**               | ** ** | **353**    | ** ** | **$**               | **25.34**  | ** ** |
| **Granted**                                         | ** ** | **238**    | ** ** | **$**               | **24.44**  | ** ** |
| **Vested**                                          | ** ** | **(78**    | **)**      | **$**               | **24.11**  | ** ** |
| **Forfeited**                                       | ** ** | **(10**    | **)**      | **$**               | **27.13**  | ** ** |
| **Unvested,  June 30, 2008**                   | ** ** | **503**    | ** ** | **$**               | **25.07**  | ** ** |
| **Vested  or Expected to Vest, June 30, 2008** | ** ** | **489**    | ** ** | **$**               | **25.05**  | ** ** |

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

Thefollowing table summarizes activity of non-employee director deferred stockgranted in lieu of board meeting fees:

 
| ** **                               | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                               | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                               | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                               | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Outstanding,  December 31, 2005     |       | 30         |       | $                   | 22.12      |   |
| Granted                                  |       | 3          |       | $                   | 26.13      |   |
| Outstanding,  December 31, 2006     |       | 33         |       | $                   | 22.49      |   |
| Granted                                  |       | 5          |       | $                   | 29.50      |   |
| **Outstanding,  December 31, 2007** | ** ** | **38**     | ** ** | **$**               | **23.37**  | ** ** |
| **Granted**                              | ** ** | **2**      | ** ** | **$**               | **23.32**  | ** ** |
| **Outstanding,  June 30, 2008**     | ** ** | **40**     | ** ** | **$**               | **23.37**  | ** ** |

 

The following table summarizes the components andclassification of stock-based compensation expense for the periods indicated:

 
| ** **                                      | ** ** | **Three Months Ended   June 30,** | ** ** | **Six Months Ended   June 30,** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                                      | ** ** | **2008**                                              | ** ** | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| Stock Options                                   | ** ** | **$**                                                 | **1,199**  |                                                | $          | 3,563 | ** ** | **$** | **3,217** | ** ** | $ | 9,079 |   |
| RSUs                                            | ** ** | **7,637**                                             |       | 5,793                                               | ** ** | **13,012** | ** ** | 10,560 |   |
| Employee Stock  Purchase Plan                   | ** ** | **—**                                            |       | 147                                                 | ** ** | **(2** | **)** | 374 |   |
| Total  Stock-Based Compensation Expense         | ** ** | **$**                                                 | **8,836**  |                                                | $          | 9,503 | ** ** | **$** | **16,227** | ** ** | $ | 20,013 |   |
|                                            |       |                                                  |       |                                                |       |   | ** ** |   |   |
| Operating Costs  of I&A                     | ** ** | **$**                                                 | **844**    |                                                | $          | 979 | ** ** | **$** | **1,621** | ** ** | $ | 1,961 |   |
| Direct and  Incremental Costs of C&S        | ** ** | **1,003**                                             |       | 1,023                                               | ** ** | **1,711** | ** ** | 1,897 |   |
| Selling and  Administrative Expenses            | ** ** | **6,989**                                             |       | 7,501                                               | ** ** | **12,895** | ** ** | 16,155 |   |
| Total  Stock-Based Compensation Expense         | ** ** | **$**                                                 | **8,836**  |                                                | $          | 9,503 | ** ** | **$** | **16,227** | ** ** | $ | 20,013 |   |
|                                            |       |                                                  |       |                                                |       |   | ** ** |   |   |
| Tax Benefit on Stock-Based Compensation Expense | ** ** | **$**                                                 | **2,727**  |                                                | $          | 2,895 | ** ** | **$** | **5,127** | ** ** | $ | 6,115 |   |
|                                            |       |                                                  |       |                                                |       |   | ** ** |   |   |
| Capitalized Stock-Based Compensation Expense    | ** ** | **$**                                                 | **65**     |                                                | $          | 102 | ** ** | **$** | **106** | ** ** | $ | 177 |   |

 

On April 15,2008, the Company awarded its annual grant in the form of restricted stockunits whose vesting and delivery are contingent upon completion of a specifiedperiod of future service.  The awardshave a zero exercise price to the employee and vest ratably over three to fouryears.  The Company’s amortization of theaward is based upon the fair market value of a share of Common Stock on April 15,2008.  In addition, on April 15,2008, the Company awarded stock appreciation rights (“SARs”) to certainexecutives. The SARs have an exercise price of $22.58 to the employee, vestratably over 4 years, and the Company’s amortization of the award is based uponthe Black-Scholes value.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

For acomplete description of the Company’s Stock Incentive Plans and its accountingpolicies regarding stock-based compensation, refer to Notes 2 and 11 of theCompany’s 2007 Annual Report on Form 10-K as filed with the SEC.

 

**Note 9.  Financial Instruments**

** **

*ForeignExchange Risk Management*

 

The Company transactsbusiness in more than 100 countries and is subject to risks associated withchanging foreign exchange rates. The Company’s objective is to reduce earningsand cash flow volatility associated with foreign exchange rate changes.Accordingly, the Company enters into foreign currency forward contracts tominimize the impact of foreign exchange movements on net income, non-U.S. Dollaranticipated royalties, and on the value of non-functional currency assets andliabilities.

 

It is the Company’spolicy to enter into foreign currency transactions only to the extent necessaryto meet its objectives as stated above. The Company does not enter into foreigncurrency transactions for investment or speculative purposes. The principalcurrencies hedged are the Euro, the Japanese Yen, the British Pound, the SwissFranc and the Canadian Dollar.

 

The impact of foreignexchange risk management activities on pre-tax income for the three and sixmonths ended June 30, 2008 were net losses of $6,131 and $24,728,respectively, and net gains of $2,021 and $1,185 for the three and six monthsended June 30, 2007, respectively. In addition, at June 30, 2008, the Company had assets ofapproximately $688,856 and liabilities of $693,874 in foreign exchange forwardcontracts outstanding with various expiration dates through May 2009relating to non-U.S. Dollar anticipated royalties and non-functional currencyassets and liabilities (see below). Foreign exchange forward contracts arerecorded at estimated fair value. The estimated fair values of the forwardcontracts are based on quoted market prices.

 

Unrealized and realizedgains and losses on the contracts hedging net income and non-functionalcurrency assets and liabilities do not qualify for hedge accounting inaccordance with SFAS No. 133, “Accounting for Derivative Instruments andHedging Activities,” as amended by SFAS No. 138, “Accounting for CertainDerivative Instruments and Certain Hedging Activities,” and SFAS No. 149, “Amendmentof Statement 133 on Derivative Instruments and Hedging Activities,”(collectively, “SFAS No. 133”), and therefore are not deferred and areincluded in the Consolidated Statements of Income in Other income (expense),net.

 

Unrealized gains andlosses on the contracts hedging non-U.S. Dollar anticipated royalties qualifyfor hedge accounting under SFAS No. 133 and are therefore deferred andincluded in OCI “Other Comprehensive Income.”

 

*FairValue Disclosures*

 

At June 30, 2008,the Company’s financial instruments included cash, cash equivalents,receivables, accounts payable and long-term debt.  At June 30, 2008, the fair values ofcash, cash equivalents, receivables and accounts payable approximated carryingvalues due to the short-term 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

nature of these instruments.  At June 30, 2008, the fair value oflong-term debt approximated carrying value.

 

Effective January 1,2008, the Company adopted SFAS No. 157, “Fair Value Measurements,” (seeNote 3).  SFAS No. 157 establishes athree-level hierarchy for disclosure of fair value measurements as follows:

 
| Level 1 – | Quoted prices in active markets for identical assets  or liabilities.                                                                                                                                                                         |
|----------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Level 2 – | Quoted prices for similar assets or liabilities in  active markets or quoted prices for identical assets or liabilities in  inactive markets; and model-derived valuations in which all significant  inputs are observable in active markets. |
| Level 3 – | Unobservable inputs reflecting management’s own  assumptions about the inputs used in pricing the asset or liability.                                                                                                                    |

 

The following tablesummarizes assets and liabilities measured at fair value on a recurring basisat June 30, 2008:

 
| ** **      | ** ** | **Basis of Fair Value Measurements** | ** ** |
|-----------------|------------|----------------------------------------------------------|------------|
| ** **      | ** ** | **Level 1**                                         | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Assets**      |       |                                                     |       |   |   |   |   |   |   |
| Derivatives (1) |       | —                                                   |       | $ | 688,856 |   | — |   | $ | 688,856 |   |
|            |       |                                                     |       |   |   |   |   |   |   |
| **Liabilities** |       |                                                     |       |   |   |   |   |   |   |
| Derivatives (1) |       | —                                                   |       | $ | 693,874 |   | — |   | $ | 693,874 |   |

 

----

*(1)  Derivatives consist offoreign exchange forward contracts based on observable market inputs of spotand forward rates.*

 

*CreditConcentrations*

 

The Company continuallymonitors its positions with, and the credit quality of, the financialinstitutions which are counterparties to its financial instruments and does notanticipate non-performance by the counterparties. The Company would not realizea material loss as of June 30, 2008 in the event of non-performance by anyone counterparty.  In general, theCompany enters into transactions only with financial institution counterpartiesthat have a credit rating of A or better. In addition, the Company limits theamount of credit exposure with any one institution.

 

The Company maintainsaccounts receivable balances ($444,556 and $415,926, net of allowances, at June 30,2008 and December 31, 2007, respectively), principally from customers inthe pharmaceutical industry. The Company’s trade receivables do not representsignificant concentrations of credit risk at June 30, 2008 due to thecredit worthiness of its customers and their dispersion across many geographicareas.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

*Linesof Credit*

 

The following tablesummarizes the Company’s long-term debt at June 30, 2008 and December 31,2007:

 
| ** **                                                                                                               | ** ** | **2008**    | ** **    | **2007**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|------------|------------|
| 4.6% Private  Placement Note, principal payment of $150,000 due January 2008, net of  interest rate swaps of $(981) | ** ** | **$**       | **—**    |       | $          | 149,019 |   |
| 5.58% Private  Placement Notes, principal payment of $105,000 due January 2015                                      | ** ** | **105,000** | ** **    | **—** | ** ** |
| 5.99% Private  Placement Notes, principal payment of $135,000 due January 2018                                      | ** ** | **135,000** | ** **    | **—** | ** ** |
| 5.55% Private  Placement Notes, principal payment of $150,000 due April 2016                                        | ** ** | **150,000** |          | 150,000    |       |
| 1.70% Private  Placement Note, principal payment of 34,395,000 Japanese Yen due  January 2013                       | ** ** | **317,615** |          | 300,787    |       |
| Revolving Credit  Facility:                                                                                              |       |        |          |       |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 1.24%                                    | ** ** | **374,168** |          | 397,973    |       |
| Swiss Franc  denominated borrowings at average floating rates of approximately 2.78%                                     | ** ** | **27,338**  |          | 54,730     |       |
| U.S. Dollar  denominated borrowings at average floating rates of approximately 3.01%                                     | ** ** | **313,800** |          | 100,700    |       |
| Bank Term Loan,  principal payment of $50,000 due June 2009 at average floating rate of  approximately 2.99%        | ** ** | **50,000**  |          | 50,000     |       |
| Total Long-Term  Debt                                                                                                    | ** ** | **$**       | **1,472,921** |       | $          | 1,203,209 |   |

 

In February 2008,the Company closed a private placement transaction pursuant to which it issued$105,000 of seven-year debt at a fixed rate of 5.58%, and $135,000 of ten-yeardebt at a fixed rate of 5.99% to several highly rated insurance companies.  The Company used the proceeds for sharerepurchases (see Note 12) and to refinance existing debt.

 

In July 2006, the Company entered into a $1,000,000 revolvingcredit facility with a syndicate of 12 banks (“Revolving Credit Facility”)replacing its existing $700,000 facility. The terms of the Revolving Credit Facility extended the maturity of thefacility in its entirety to a term of five years, maturing July 2011,reduced the borrowing margins, and increased subsidiary borrowing limits.  Total borrowings under the Revolving CreditFacility were $715,306 and $553,403 at June 30, 2008 and December 31,2007, respectively, all of which were classified as long-term.  The Company defines long-term lines as thosewhere the lines are non-cancellable for more than 365 days from the balancesheet date by the financial institutions except for specified, objectivelymeasurable violations of the provisions of the agreement.  In general, rates for borrowing under theRevolving Credit Facility are LIBOR plus 40 basis points and can vary based onthe Company’s Debt to EBITDA ratio.  Theweighted average interest rates for the Company’s lines were 2.08% and 2.16% atJune 30, 2008 and December 31, 2007, respectively.  In addition, the Company is required to pay acommitment fee on any unused portion of the facilities of 0.01%.  At June 30, 2008, the Company hadapproximately $284,694 available under its existing bank credit facilities.

 

In June 2006, the Company closed a $50,000 three-year term loanwith a bank.  The term loan allows theCompany to borrow at a floating rate with a lower borrowing margin than theCompany’s revolving credit facility.  Theterm loan also provides the Company with an option to extend the term up to anadditional two years, which the Company intends to do so.  The Company used the proceeds 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

to refinance existing debtborrowed under the revolving credit facility.

 

In April 2006, the Company closed a private placement transactionpursuant to which it issued $150,000 of ten-year notes to two highly ratedinsurance companies at a fixed rate of 5.55%. The Company used the proceeds to refinance existing debt of $150,000drawn under a short term credit agreement with a bank in January 2006.

 

In January 2006, the Company closed a private placementtransaction pursuant to which its Japanese subsidiary issued 34,395,000Japanese Yen seven-year debt (equal to $300,000 at date of issuance) to severalhighly rated insurance companies at a fixed rate of 1.70%.  The Company used the proceeds to refinanceexisting debt in Japan.

 

In January 2003, the Company closed a private placementtransaction pursuant to which it issued $150,000 of five-year debt to severalhighly rated insurance companies at a fixed rate of 4.60%.  The Company used the proceeds to pay downexisting short-term debt.  The Companyalso swapped $100,000 of its fixed rate debt to floating rate based onsix-month LIBOR plus a margin of approximately 107 basis points.  The Company accounted for these swaps as fairvalue hedges under the provisions of SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities.” The Company determined the fair values based on estimated prices quotedby financial institutions.  The fairvalues of these swaps were $(981) as of December 31, 2007.  These notes and the related swaps matured andwere paid off in January 2008. Although these notes were due within 365 days at December 31, 2007,the Company classified the notes as long-term at December 31, 2007 incompliance with SFAS No. 6, “Classification of Short-Term ObligationsExpected to be Refinanced,” as the Company had the ability and intent torefinance these notes with another long-term debt arrangement.

 

The Company’s financing arrangements provide for certain covenants andevents of default customary for similar instruments, including in the case ofits main bank arrangements, the private placement transactions, and the termloan, covenants to maintain specific ratios of consolidated total indebtednessto EBITDA and of EBITDA to certain fixed charges.  At June 30, 2008, the Company was incompliance with these financial debt covenants.

 

**Note 10. Pension and Postretirement Benefits**

** **

The following tableprovides the Company’s expense associated with pension benefits that areaccounted for under SFAS No. 87, “Employers’ Accounting for Pensions,” andpostretirement benefits that are accounted for under SFAS No. 106, “Employers’Accounting for Postretirement Benefits Other Than Pensions.”  For a complete description of the Company’spension and postretirement benefits, refer to Note 10 of the Company’s 2007Annual Report on Form 10-K as filed with the SEC.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 
| **Components of Net Periodic Benefit Cost for the ** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| **Three Months Ended June 30,**                                          | ** ** | **2008**                  | ** ** | **2007**                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service cost                                                                                 | ** ** | **$**                     | **4,310**  | ** **              | $          | 4,143 | ** ** | **$** | **—** | ** ** | $ | 6 |   |
| Interest cost                                                                                | ** ** | **5,180**                 | ** ** | 4,611                   | ** ** | **192** | ** ** | 177 |   |
| Expected return  on plan assets                                                              | ** ** | **(7,926**                | **)**      | (7,318                  | )          | **—** | ** ** | — |   |
| Amortization of  prior service cost (credit)                                                 | ** ** | **6**                     | ** ** | 5                       | ** ** | **(3** | **)** | (9 | ) |
| Amortization of  transition obligation (asset)                                               | ** ** | **(1**                    | **)**      | (1                      | )          | **—** | ** ** | — |   |
| Amortization of  net loss                                                                    | ** ** | **632**                   | ** ** | 1,107                   | ** ** | **145** | ** ** | 108 |   |
| Net periodic  benefit cost                                                                   | ** ** | **$**                     | **2,201**  | ** **              | $          | 2,547 | ** ** | **$** | **334** | ** ** | $ | 282 |   |

** **
| **Components of Net Periodic Benefit Cost for the ** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| **Six Months Ended June 30,**                                            | ** ** | **2008**                  | ** ** | **2007**                | ** ** | **2008** | ** ** | **2007** | ** ** |
| Service cost                                                                                 | ** ** | **$**                     | **8,615**  | ** **              | $          | 8,239 | ** ** | **$** | **—** | ** ** | $ | 12 |   |
| Interest cost                                                                                | ** ** | **10,280**                | ** ** | 9,193                   | ** ** | **384** | ** ** | 354 |   |
| Expected return  on plan assets                                                              | ** ** | **(15,858**               | **)**      | (14,598                 | )          | **—** | ** ** | **—** |   |
| Amortization of  prior service cost (credit)                                                 | ** ** | **12**                    | ** ** | 9                       | ** ** | **(6** | **)** | (18 | ) |
| Amortization of  transition obligation (asset)                                               |       | **—**                | ** ** | (2                      | )          | **—** | ** ** | **—** |   |
| Amortization of  net loss                                                                    | ** ** | **1,264**                 | ** ** | 2,202                   | ** ** | **291** | ** ** | 216 |   |
| Net periodic  benefit cost                                                                   | ** ** | **$**                     | **4,313**  | ** **              | $          | 5,043 | ** ** | **$** | **669** | ** ** | $ | 564 |   |

** **

**Note 11.  Income Taxes**

** **

The Company operates in more than 100 countries aroundthe world and its earnings are taxed at the applicable income tax rate in eachof these countries.

 

For the three months ended June 30, 2008, theCompany’s effective tax rate was reduced by approximately $10,300 as a resultof audit settlements with taxing authorities. Also during this period, the Company recorded tax expense for taxpositions related to non-US transactions offset by a benefit related to theexpiration of certain statutes of limitation, resulting in a net tax expense ofapproximately $5,300.  Further, for thethree months ended March 31, 2008 the Company’s effective tax rate wasreduced by approximately $4,900 primarily as a result of the filing of anadvance pricing agreement (“APA”) between two taxing jurisdictions.  The APA ensures conformity between thejurisdictions’ taxing authorities regarding the treatment of certainintercompany transactions, thereby allowing the Company to record acorresponding tax benefit.  For the six monthsended June 30, 2007, the Company’s effective tax rate was reduced byapproximately $16,500 primarily due to a favorable non-U.S. audit settlementfor tax years 1998 through 2002 and by approximately $4,400 from areorganization of certain non-U.S. subsidiaries.

 

The Company filesnumerous consolidated and separate income tax returns in U.S. (federal andstate) and non-U.S. jurisdictions.  Forthe three and six months ended June 30, 2008, the Company recordedapproximately $5,200 and $10,000, respectively, of tax expense related touncertain tax positions that if recognized, would favorably affect theeffective tax rate.  Included in theseamounts 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

are approximately $2,600 and $5,300, respectively, of interest and penalties.For the three and six months ended June 30, 2007, the Company recordedapproximately $3,300 and $7,000, respectively, of tax expense related to uncertain tax positions includingapproximately $1,900 and $3,700, respectively, of interest and penalties.

 

The IRS has concluded its audit of the Company’s 2004and 2005 federal income tax returns. The resolution of the audit resulted in atax payment of approximately $5,300 for which a reserve had been previouslyestablished. With few exceptions, the Company is no longer subject to U.S.federal income tax examinations for the years before 2004 and is no longersubject to state and local income tax examination by tax authorities for yearsbefore 1997.  Further, with fewexceptions, the Company is no longer subject to examination by tax authoritiesin its material non-U.S. jurisdictions prior to 2003.  It is reasonably possible that within thenext twelve months the Company could realize approximately $17,700 of unrecognizedbenefits; $9,700 as a result of the termination of a non-U.S. agreement and$8,000 mainly as a result of the expiration of certain statutes of limitation.

 

**Note 12.  IMSHealth Capital Stock**

** **

The Company’s share repurchase program has been developed to buyopportunistically, when the Company believes that its share price provides itwith an attractive use of its cash flow and debt capacity.

 

On December 18, 2007, the Board of Directors authorized a stockrepurchase program to buy up to 20,000 shares. As of June 30, 2008, 10,000 shares remained available forrepurchase under the December 2007 program.

 

On December 19, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. This program was completed in November 2007at a total cost of $287,072.

 

On January 25, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 30,000 shares. This program was completed in May 2007at a total cost of $799,906.

 

During the six months ended June 30, 2008, the Company repurchased10,000 shares of outstanding Common Stock under these programs at a total costof $229,340.

 

During the six months ended June 30, 2007, the Company repurchasedapproximately 11,135 shares of outstanding Common Stock under these programs ata total cost of $333,621, including the repurchase of 6,135 shares pursuant toan accelerated share repurchase program (“ASR”).  As part of the ASR, the Companysimultaneously entered into a forward contract for the final settlement of theASR transaction which was indexed to the price of the Company’s CommonStock.  The ASR agreement provided forthe final settlement amount to be in the Company’s Common Stock if the Companywere to owe an amount to the bank, or in either cash or additional shares ofthe Company’s Common Stock, at the Company’s sole discretion, if the bank wereto owe an amount to the Company.  As theagreement required the Company to deliver shares to the bank for finalsettlement, the forward contract element qualified for permanent equityclassification and the fair value of the forward contract, which was zero atthe contract’s inception, was recorded in equity in accordance with theprovisions of EITF 00-19, “Accounting for Derivative Financial InstrumentsIndexed to, and 

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

Potentially Settled In, a Company’s Own Stock.”  Subsequent changes in the fair value of theforward contract were not recorded as the Company continued to classify theforward contract as equity.  Uponcompletion of the ASR in April 2007, the Company was required to payapproximately $6,000 in shares, and therefore issued 203 treasury shares, asfull settlement of its obligation under the ASR.  The total cost of the ASR was approximately$176,000 or $28.68 per share.  TheCompany funded the ASR through its existing bank credit facilities (see Note9).

 

Total share repurchases during the six months ended June 30, 2008positively impacted the Company’s diluted earnings per share (“EPS”) by $0.02per share for the three and six months ended June 30, 2008.  Total share repurchases during the six monthsended June 30, 2007 positively impacted the Company’s diluted EPS by lessthan $0.01 per share for the three and six months ended June 30, 2007.

 

Shares acquired through the Company’s repurchase programs describedabove are open-market purchases or privately negotiated transactions incompliance with SEC Rule 10b-18, with the exception of purchases pursuantto the 2007 ASR.

 

Under the Company’s Restated Certificate of Incorporation as amended,the Company has authority to issue 820,000 shares with a par value of $.01 pershare of which 800,000 represent shares of Common Stock, 10,000 representshares of preferred stock and 10,000 represent shares of Series CommonStock.  The preferred and series CommonStock can be issued with varying terms, as determined by the Board ofDirectors.

 

**Note 13. Comprehensive Income**

** **

The following table sets forth the componentsof comprehensive income, net of income tax expense:

 
| ** **                                                | ** ** | **Three Months Ended   June 30,** | ** **  | **Six Months Ended   June 30,** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------------------------------|-------------|-----------------------------------------------------|------------|
| ** **                                                | ** ** | **2008**                                              | ** **  | **2007**                                            | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Net  Income**                                           | ** ** | **$**                                                 | **77,695**  |                                                | $          | 73,394 | ** ** | **$** | **136,870** |   | $ | 158,963 |   |
| Other  comprehensive income, net of taxes:                |       |                                                  |        |                                                |       |   |   |   |   |
|  Unrealized gains (losses) on:                       |       |                                                  |        |                                                |       |   |   |   |   |
| Available-for-sale  equity securities                     | ** ** | **—**                                            |        | 66                                                  | ** ** | **—** |   | (17 | ) |
| Tax (provision)  benefit on above                         | ** ** | **—**                                            |        | (23                                                 | )          | **—** |   | 6 |   |
|  Change in unrealized gains (losses) on  investments | ** ** | **—**                                            |        | 43                                                  | ** ** | **—** |   | (11 | ) |
| Foreign currency  translation gains                       | ** ** | **69,749**                                            |        | 43,249                                              | ** ** | **13,905** |   | 38,476 |   |
| Amortization of  SFAS 158 service cost                    | ** ** | **731**                                               |        | 1,078                                               | ** ** | **1,261** |   | 2,329 |   |
| Total other  comprehensive income                         | ** ** | **70,480**                                            |        | 44,370                                              | ** ** | **15,166** |   | 40,794 |   |
| **Comprehensive  Income**                                 | ** ** | **$**                                                 | **148,175** |                                                | $          | 117,764 | ** ** | **$** | **152,036** |   | $ | 199,757 |   |

 

**Note 14. Severance, Impairment and Other Charges**

** **

In response to healthcaremarketplace dynamics, during the fourth quarter of 2007, the Company committedto a restructuring plan designed to eliminate approximately 1,070 positions

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

worldwide in production and development, sales, marketing, consultingand services and administration.  Theplan also included the write-down of two impaired computer software assets andrelated contract payments to be incurred with no future economic benefit basedon the Company’s decision to abandon certain products in its EMEA region.  As a result, the Company recorded $88,690 ofSeverance, impairment and other charges as a component of operating income inthe fourth quarter of 2007.  Theseverance benefits were calculated pursuant to the terms of established employeeprotection plans, in accordance with local statutory minimum requirements orindividual employee contracts, as applicable.

 

These charges were designedto strengthen client-facing operations worldwide, increase the Company’soperating efficiencies and streamline its cost structure.  Some of the initiatives included in this planare designed to better align the Company’s resources to help clients manage forchange in a challenging climate.

 

The severance and contractpayments portion of the charge was approximately $75,043 and will all be settledin cash.  The Company expects that alltermination actions under the plan will be completed by the end of 2008.

 
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                        | ** ** | **Related**   | ** ** | **related**  | ** ** | **write-** | ** ** | **translation** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007 |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                  |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                  |       | (26,237       | )          | (1,545       | )          | —     |       | —          |       | (27,782    | )          |
| Currency  translation adjustments |       | —        |       | —       |       | —     |       | 2,135           |       | 2,135      |       |
| Balance at  June 30, 2008    |       | $             | 45,346     |         | $          | 1,915      |       | $               | —     |       | $          | 2,135 |   | $ | 49,396 |   |

 

 The Company currently expects that cashoutlays will be applied against the $49,396 balance remaining in the 2007fourth quarter charge at June 30, 2008 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 33,771     |   |
| 2009                                       |       | 14,244      |       |
| 2010                                       |       | 1,192       |       |
| 2011                                       |       | 189         |       |
| Total                                      |       | $           | 49,396     |   |

 

During the fourth quarter of2001, the Company completed the assessment of its Competitive Fitness Program.This program was designed to streamline operations, increase productivity andimprove client service. In connection with this program, the Company recorded$94,616 of Severance, impairment and other charges during the fourth quarter of2001 as a component of operating income. As of June 30, 2008, approximately $1,237 remains to be utilizedfrom 2008 to 2013 related to severance payments.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIALSTATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except per sharedata)**

 

In the first quarter of2007, the Company reversed $640 of contract-related reserves from the fourthquarter 2001 charge due primarily to the termination and settlement of exitrelated costs for an impaired lease. These amounts were reversed against Selling and administrative expensesin the Condensed Consolidated Statements of Income (Unaudited).

 
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2001 |       | $             | 39,652     |         | $          | 26,324     |       | $          | 28,640     |   | $ | 94,616 |   |
| 2001 – 2005  utilization     |       | (37,070       | )          | (22,315      | )          | (29,602    | )          | (88,987    | )          |
| 2006 utilization                  |       | (264          | )          | (1,887       | )          | —     |       | (2,151     | )          |
| 2007 utilization                  |       | (263          | )          | (1,208       | )          | —     |       | (1,471     | )          |
| 2007 reversals                    |       | —        |       | (640         | )          | —     |       | (640       | )          |
| 2008 utilization                  |       | (132          | )          | —       |       | —     |       | (132       | )          |
| Adjustments                       |       | (688          | )          | (274         | )          | 962        |       | —     |       |
| Balance at  June 30, 2008    |       | $             | 1,235      |         | $          | —     |       | $          | —     |   | $ | 1,235 |   |

 

TheCompany currently expects that the $1,235 balance remaining in the 2001 fourthquarter charge will be utilized as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 130        |   |
| 2009                                       |       | 262         |       |
| 2010                                       |       | 262         |       |
| 2011                                       |       | 262         |       |
| 2012                                       |       | 262         |       |
| Thereafter                                 |       | 57          |       |
| Total                                      |       | $           | 1,235      |   |

** **

**Note 15. Operations by Business Segment**

** **

Operating segments aredefined as components of an enterprise about which financial information isavailable that is evaluated on a regular basis by the chief operatingdecision-maker, or decision-making groups, in deciding how to allocateresources to an individual segment and in assessing performance of thesegment.  The Company operates a globallyconsistent business model, offering pharmaceutical business information andrelated services to its customers in more than 100 countries.  See Note 2.

 

The Company maintainsregional geographic management to facilitate local execution of its globalstrategies.  However, the Companymaintains global leaders for the majority of its critical business processes;and the most significant performance evaluations and resource allocations madeby the Company’s chief operating decision makers are made on a globalbasis.  As such, the Company hasconcluded that it maintains one operating and reportable segment.

 

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**IMS HEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands,except per share data)**

 

**GeographicFinancial Information:**

 

The following represents selected geographicinformation for the regions in which the Company operates for the three and sixmonths ended June 30, 2008 and 2007.

 
| ** **                                  | ** ** | **Americas  (1)** | ** **  | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &  Other** | ** **  | **Total  IMS** | ** ** |
|---------------------------------------------|------------|-------------------|-------------|---------------|------------|----------------------------|------------|---------------------------------|-------------|----------------|------------|
| **Three  months ended June 30, 2008:** |       |              |        |          |       |                       |       |                            |        |           |       |
| Operating Revenue (4)                       | ** ** | **$**             | **257,020** | ** **    | **$**      | **260,424**                | ** ** | **$**                           | **83,265**  | ** **     | **—** | ** ** | **$** | **600,709** | ** ** |
| Operating Income  (Loss) (5)                | ** ** | **$**             | **82,151**  | ** **    | **$**      | **31,624**                 | ** ** | **$**                           | **31,953**  | ** **     | **$**      | **(14,351** | **)** | **$** | **131,377** | ** ** |
| **Six  months ended June 30, 2008:**   | ** ** | ** **        | ** **  | ** **    | ** ** | ** **                 | ** ** | ** **                      | ** **  | ** **     | ** ** |
| Operating  Revenue (4)                      | ** ** | **$**             | **509,450** | ** **    | **$**      | **501,294**                | ** ** | **$**                           | **164,145** | ** **     | **—** | ** ** | **$** | **1,174,889** | ** ** |
| Operating Income  (Loss) (5)                | ** ** | **$**             | **161,293** | ** **    | **$**      | **48,844**                 | ** ** | **$**                           | **62,516**  | ** **     | **$**      | **(24,894** | **)** | **$** | **247,759** | ** ** |
| **Three  months ended June 30, 2007:** |       |              |        |          |       |                       |       |                            |        |           |       |
| Operating Revenue (4)                       |       | $                 | 240,772     |          | $          | 224,504                    |       | $                               | 72,196      |           | —     |   | $ | 537,472 |   |
| Operating Income  (Loss) (5)                |       | $                 | 77,685      |          | $          | 26,049                     |       | $                               | 28,501      |           | $          | (14,098 | ) | $ | 118,137 |   |
| **Six  months ended June 30, 2007:**   | ** ** | ** **        | ** **  | ** **    | ** ** | ** **                 | ** ** | ** **                      | ** **  | ** **     | ** ** |
| Operating  Revenue (4)                      |       | $                 | 472,048     |          | $          | 434,850                    |       | $                               | 140,923     |           | —     |   | $ | 1,047,821 |   |
| Operating Income  (Loss) (5)                |       | $                 | 153,670     |          | $          | 49,478                     |       | $                               | 54,780      |           | $          | (28,728 | ) | $ | 229,200 |   |

 

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**Notes to Geographic FinancialInformation:**

 

*(1)**                               Americasincludes the United States, Canada and Latin America.*

 

*(2)**                               EMEAincludes countries in Europe, the Middle East and Africa.*

 

*(3)**                               AsiaPacific includes Japan, Australia and other countries in the Asia Pacificregion.*

 

*(4)**                               OperatingRevenue relates to external customers and is primarily based on the location ofthe customer. The Operating Revenue for the geographic regions includes theimpact of foreign exchange in converting results into U.S. dollars.*

 

*(5)**                               OperatingIncome for the three geographic regions does not reflect the allocation ofcertain expenses that are maintained in Corporate and Other and as such, is nota true measure of the respective regions’ profitability. The Operating Incomeamounts for the geographic segments include the impact of foreign exchange inconverting results into U.S. dollars.*

 

A summary of theCompany’s operating revenue by product line for the three and six months ended June 30,2008 and 2007 is presented below:

 
| ** **                 | ** ** | **Three Months Ended  June 30,** | ** **  | **Six Months Ended  June 30,** | ** ** |
|----------------------------|------------|-------------------------------------------------|-------------|-----------------------------------------------|------------|
| ** **                 | ** ** | **2008**                                        | ** **  | **2007**                                      | ** ** | **2008** | ** ** | **2007** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                           | **271,079** |                                          | $          | 246,221 | ** ** | **$** | **536,639** |   | $ | 479,253 |   |
| Portfolio Optimization     | ** ** | **168,152**                                     |        | 157,910                                       | ** ** | **334,471** |   | 314,108 |   |
| Launch, Brand  and Other   | ** ** | **161,478**                                     |        | 133,341                                       | ** ** | **303,779** |   | 254,460 |   |
| Operating  Revenue         | ** ** | **$**                                           | **600,709** |                                          | $          | 537,472 | ** ** | **$** | **1,174,889** |   | $ | 1,047,821 |   |

 

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

 

**(Dollars and shares in thousands,except per share data)**

 

*Thisdiscussion and analysis should be read in conjunction with the accompanyingCondensed Consolidated Financial Statements (Unaudited) and related notes.*

 

***ExecutiveSummary***

*** ***

***OurBusiness***

*** ***

IMSHealth Incorporated (“we,” “us” or “our”) is the leading global provider of marketintelligence to the pharmaceutical and healthcare industries. We offerleading-edge market intelligence products and services that are integral to ourclients’ day-to-day operations, including portfolio optimization capabilities;launch and brand management solutions; sales force effectiveness innovations;managed markets and consumer health offerings; and consulting and servicessolutions that improve ROI and the delivery of quality healthcare worldwide.Our information products are developed to meet client needs by using datasecured from a worldwide network of suppliers in more than 100 countries. Keyinformation products include:

 

·      Sales Force Effectiveness to optimizesales force productivity and territory management;

 

·      Portfolio Optimization to provide clientswith insights into market opportunity and business development assessment; and

 

·      Launch, Brand Management and Other to supportclient needs relative to market segmentation and positioning, life cyclemanagement for prescription and consumer health products and health economicsand outcomes research offerings.

 

Withinthese business lines, we provide consulting and services that use in-housecapabilities and methodologies to assist pharmaceutical clients in analyzingand evaluating market trends, strategies and tactics, and to help in thedevelopment and implementation of customized software applications and datawarehouse tools.

 

Weoperate in more than 100 countries.

 

Wemanage on a global business model with global leaders for the majority of ourcritical business processes and accordingly have one reportable segment.

 

Webelieve that important measures of our financial condition and results ofoperations include operating revenue, constant dollar revenue growth, operatingincome, constant dollar operating income growth, operating margin and cashflows.

 

**Performance Overview**

 

        Our operating revenue grew 11.8% to$600,709 in the second quarter of 2008 as compared to $537,472 in the secondquarter of 2007.  Our operating revenuegrew 12.1% to $1,174,889 in the six months ended June 30, 2008 as comparedto $1,047,821 in the six months ended June 30, 2007.  The three and six month operating revenueincreases were a result of growth in all three of our business lines.  Our operating income grew 11.2% to $131,377in the second quarter of 2008 as compared to $118,137 in the second quarter of2007.  Our operating income grew 8.1% to $247,759in the six months ended June 30, 2008 as compared to $229,200 in the sixmonths ended June 30, 2007.  Boththe three and six month operating income growth were a result of increasedoperating revenues offset by increases in operating

 

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costs, selling andadministrative expenses and depreciation and amortization, as discussed below.Our net income was $77,695 for the second quarter of 2008 as compared to$73,394 for the second quarter of 2007 and $136,870 for the six months ended June 30,2008 as compared to $158,963 for the six months ended June 30, 2007, dueto the Non-Operating Loss, net items discussed below and certain tax items asdiscussed in Note 11 of the Condensed Consolidated Financial Statements(Unaudited).  Our diluted earnings pershare of Common Stock increased to $0.42 for the second quarter of 2008 as comparedto $0.36 for the second quarter of 2007 and decreased to $0.74 for the sixmonths ended June 30, 2008 as compared to $0.79 for the six months ended June 30,2007.

 

**Resultsof Operations**

 

*Reclassifications. *Certain prior-year amounts have been reclassified to conform to the2008 presentation.

 

*References to constant dollarresults and results excluding the effect of foreign currency translations. *We report results in U.S.dollars, but we do business on a global basis. Exchange rate fluctuations affect the rate at which we translate foreignrevenues and expenses into U.S. dollars and may have significant effects on ourresults.  In order to illustrate theseeffects, the discussion of our business in this report sometimes describes themagnitude of changes in constant dollar terms or results excluding the effectof foreign currency translations.  Webelieve this information facilitates a comparative view of our business.  In the first six months of 2008, the U.S. dollarwas generally weaker against other currencies as compared to the first sixmonths of 2007.  As a result, growth atconstant dollar exchange rates was lower than growth at actual currencyexchange rates.  See “How Exchange RatesAffect Our Results” below and the discussion of “Market Risk” in the ManagementDiscussion and Analysis section of our annual report on Form 10-K for theyear ended December 31, 2007 for a more complete discussion regarding theimpact of foreign currency translation on our business.

 

**Summary of Operating Results**

 
| ** **                                   | ** ** | ** **                                          | ** **  | **% Variance** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------|------------|
| ** **                                   | ** ** | **Three Months Ended June 30,** | ** **  | **2008**            | ** ** |
| ** **                                   | ** ** | **2008**                                            | ** **  | **2007**            | ** ** | **vs 2007** | ** ** |
| Information and  analytics revenue (I&A) | ** ** | **$**                                               | **453,440** |                | $          | 420,551 |   | 7.8 | % |
| Consulting and  services revenue (C&S)   |       | **147,269**                                         | ** **  | 116,921             |       | 26.0 | % |
| Operating  Revenue                           |       | **600,709**                                         | ** **  | 537,472             |       | 11.8 | % |
|                                         |       | ** **                                          |        |                |       |   |   |
| Operating costs  of I&A                  |       | **192,166**                                         | ** **  | 177,828             |       | 8.1 | % |
| Direct and  incremental costs of C&S     |       | **73,660**                                          | ** **  | 55,848              |       | 31.9 | % |
| External-use  software amortization          | ** ** | **13,043**                                          |        | 12,376              |       | 5.4 | % |
| Selling and  administrative expenses         | ** ** | **168,097**                                         |        | 154,361             |       | 8.9 | % |
| Depreciation and  other amortization         | ** ** | **22,366**                                          |        | 18,922              |       | 18.2 | % |
| Operating Income                             | ** ** | **$**                                               | **131,377** |                | $          | 118,137 |   | 11.2 | % |

 

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| ** **                                   | ** ** | ** **                                        | ** **  | **% Variance** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------|-------------|---------------------|------------|
| ** **                                   | ** ** | **Six Months Ended June 30,** | ** **  | **2008 **      | ** ** |
|                                         | ** ** | **2008**                                          | ** **  | **2007**            | ** ** | **vs 2007** | ** ** |
| Information and  analytics revenue (I&A) | ** ** | **$**                                             | **909,627** |                | $          | 828,712 |   | 9.8 | % |
| Consulting and  services revenue (C&S)   |       | **265,262**                                       | ** **  | 219,109             |       | 21.1 | % |
| Operating  Revenue                           |       | **1,174,889**                                     | ** **  | 1,047,821           |       | 12.1 | % |
|                                         |       | ** **                                        |        |                |       |   |   |
| Operating costs  of I&A                  |       | **385,452**                                       | ** **  | 348,478             |       | 10.6 | % |
| Direct and  incremental costs of C&S     |       | **141,722**                                       | ** **  | 114,324             |       | 24.0 | % |
| External-use  software amortization          | ** ** | **25,757**                                        |        | 23,621              |       | 9.0 | % |
| Selling and  administrative expenses         | ** ** | **330,789**                                       |        | 294,125             |       | 12.5 | % |
| Depreciation and  other amortization         | ** ** | **43,410**                                        |        | 38,073              |       | 14.0 | % |
| Operating Income                             | ** ** | **$**                                             | **247,759** |                | $          | 229,200 |   | 8.1 | % |

 

***Operating Income***

 

Our operatingincome for the second quarter of 2008 grew 11.2% to $131,377 from $118,137 inthe second quarter of 2007.  This was dueto the increase in our operating revenue, offset by increases in our operatingcosts and selling and administrative expenses driven by increased cost of dataand investments in consulting and services capabilities.  Our operating income increased 1.3% inconstant dollar terms.  Our operatingincome for the first six months of 2008 grew 8.1% to $247,759 from $229,200 inthe first six months of 2007.  This wasdue to the increase in our operating revenue, offset by increases in ouroperating costs and selling and administrative expenses driven by increasedcost of data and investments in consulting and services capabilities.  Our operating income decreased 0.8% inconstant dollar terms.

 

***OperatingRevenue***

 

Our operatingrevenue for the second quarter of 2008 grew 11.8% to $600,709 from $537,472 inthe second quarter of 2007. On a constant dollar basis, operating revenuegrowth was 4.2%.  Operating revenue forthe first six months of 2008 grew 12.1% to $1,174,889 from $1,047,821 in thefirst six months of 2007. On a constant dollar basis our operating revenuegrowth was 4.9%.  On a constant dollarbasis, acquisitions completed within the prior twelve months contributedapproximately 2.0 and 1.9 percentage points to our operating revenue growth forthe second quarter and first six months of 2008, respectively.  The increase in our operating revenueresulted from growth in revenue due to higher purchases of products andconsulting offerings from existing customers in all three of our businesslines, together with the effect of approximately $41,000 and $76,000 ofcurrency translation for the second quarter and first six months of 2008,respectively, as compared to the second quarter and first six months of2007.  On a constant dollar basis, ourSales Force Effectiveness and Launch, Brand Management and Other business linesgrew.

 

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**Summary of Operating Revenue**

 
| ** **                 | ** ** | ** **                                          | ** **  | ** **                 | ** ** | **% Variance** | ** ** |
|----------------------------|------------|-----------------------------------------------------|-------------|----------------------------|------------|---------------------|------------|
| ** **                 | ** ** | ** **                                          | ** **  | **2008 vs 2007** | ** ** |
| ** **                 | ** ** | **Three Months Ended June 30,** | ** **  | **Reported**               | ** ** | **Constant**        | ** ** |
| ** **                 | ** ** | **2008**                                            | ** **  | **2007**                   | ** ** | **Rates**           | ** ** | **Dollar** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                               | **271,079** |                       | $          | 246,221             |       | 10.1 | % | 2.5 | % |
| Portfolio  Optimization    | ** ** | **168,152**                                         |        | 157,910                    |       | 6.5                 | %          | (0.7 | )% |
| Launch, Brand  and Other   | ** ** | **161,478**                                         |        | 133,341                    |       | 21.1                | %          | 13.1 | % |
| Operating  Revenue         | ** ** | **$**                                               | **600,709** |                       | $          | 537,472             |       | 11.8 | % | 4.2 | % |

 
| ** **                 | ** ** | ** **                                        | ** **    | ** **                 | ** ** | **% Variance** | ** ** |
|----------------------------|------------|---------------------------------------------------|---------------|----------------------------|------------|---------------------|------------|
| ** **                 | ** ** | ** **                                        | ** **    | **2008 vs 2007** | ** ** |
| ** **                 | ** ** | **Six Months Ended June 30,** | ** **    | **Reported**               | ** ** | **Constant**        | ** ** |
| ** **                 | ** ** | **2008**                                          | ** **    | **2007**                   | ** ** | **Rates**           | ** ** | **Dollar** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                             | **536,639**   |                       | $          | 479,253             |       | 12.0 | % | 4.5 | % |
| Portfolio  Optimization    | ** ** | **334,471**                                       |          | 314,108                    |       | 6.5                 | %          | (0.2 | )% |
| Launch, Brand  and Other   | ** ** | **303,779**                                       |          | 254,460                    |       | 19.4                | %          | 12.0 | % |
| Operating  Revenue         | ** ** | **$**                                             | **1,174,889** |                       | $          | 1,047,821           |       | 12.1 | % | 4.9 | % |

 

·                  *Sales Force Effectiveness:* The Americas was the primarycontributor to the revenue growth for the second quarter of 2008.  The Americas contributed more than one-halfand EMEA contributed more than one-third to the revenue growth for the firstsix months of 2008.

 

·                  *Portfolio Optimization:* EMEA was the primary contributor tothe constant dollar revenue decline for the second quarter of 2008 almostcompletely offset by revenue growth in Asia Pacific.  EMEA was the primary contributor to theconstant dollar revenue decline for the first six months of 2008 almostcompletely offset by revenue growth in Asia Pacific and the Americas.

 

·                  *Launch, Brand Management and Other:* EMEA contributed morethan one-half and the Americas contributed more than one-third to the revenuegrowth for the second quarter of 2008. The Americas and EMEA contributed equally to the growth in the first sixmonths of 2008.

 

Consulting andservices (“C&S”) revenue, as included in the business lines above, was$147,269 in the second quarter of 2008, up 26.0% from $116,921 in the secondquarter of 2007 (up 17.9% on a constant dollar basis).  Approximately one-third of the C&Srevenue growth for the second quarter of 2008 was attributable to acquisitionscompleted during the prior twelve months. C&S revenue, as included in the business lines above, was $265,262in the first six months of 2008, up 21.1% from $219,109 in the first six monthsof 2007 (up 13.5% on a constant dollar basis). More than one-third of the C&S revenue growth for the first sixmonths of 2008 was attributable to acquisitions completed during the prior twelvemonths.

 

***OperatingCosts of Information and Analytics***

 

Operatingcosts of information and analytics (“I&A”) include costs of data, dataprocessing and

 

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collection and costsattributable to personnel involved in production, data management and deliveryof the Company’s I&A offerings.

 

Our operatingcosts of I&A grew 8.1% to $192,166 in the second quarter of 2008 from$177,828 in the second quarter of 2007. Our operating costs of I&A grew 10.6% to $385,452 in the first sixmonths of 2008 from $348,478 in the first six months of 2007.

 

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our operating costs of I&A by approximately $13,000and $26,000 for the second quarter and first six months of 2008, respectively,as compared to the second quarter and first six months of 2007.

 

Excluding the effect of foreign currency translation,our operating costs of I&A grew 0.5% and 3.3% in the second quarter andfirst six months of 2008, respectively, as compared to the second quarter andfirst six months of 2007.

 

·                  *Data*: Data costs increased by approximately $7,000 and$16,000 in the second quarter and first six months of 2008, respectively, ascompared to the second quarter and first six months of 2007.

 

·                  *Production, Client Services and Other*: Production, client servicesand other costs decreased by approximately $6,000 and $5,000 for the secondquarter and first six months of 2008, respectively, as compared to the secondquarter and first six months of 2007.

 

***Directand Incremental Costs of Consulting and Services***

 

Direct andincremental costs of C&S include the costs of consulting staff directlyinvolved with delivering revenue-generating engagements, related accommodationsand the costs of primary market research data purchased specifically forcertain individual C&S engagements. Direct and incremental costs of C&S do not include an allocation ofdirect costs of data that are included within I&A.  Our direct and incremental costs of C&Sgrew 31.9% to $73,660 in the second quarter of 2008 from $55,848 in the secondquarter of 2007.  Our direct andincremental costs of C&S grew 24.0% to $141,722 in the first six months of2008 from $114,324 in the first six months of 2007.

 

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our direct and incremental costs of C&S byapproximately $5,000 and $9,000 for the second quarter and first six months of2008, respectively, as compared to the second quarter and first six months of2007.

 

Excluding the effect of foreign currency translation,our direct and incremental costs of C&S grew 23.0% and 16.0% in the secondquarter and first six months of 2008, respectively, as compared to the secondquarter and first six months of 2007.

 

·                  C&S costsincreased by approximately $13,000 and $18,000 in the second quarter and firstsix months of 2008, respectively, as compared to the second quarter and firstsix months of 2007, due to increased labor, accommodations and primary marketresearch data expense, all directly related to C&S revenue growth.

 

***External-UseSoftware Amortization***

 

Our external-use software amortization charges represent theamortization associated with

 

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software we capitalized under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costsof Computer Software to be Sold, Leased, or Otherwise Marketed.” Ourexternal-use software amortization charges grew 5.4% to $13,043 in the secondquarter of 2008 from $12,376 in the second quarter of 2007.  Our external-use software amortizationcharges grew 9.0% to $25,757 in the first six months of 2008 from $23,621 inthe first six months of 2007.  These weredue to increased software amortization associated with new products.

 

***Sellingand Administrative Expenses***

 

Our selling andadministrative expenses consist primarily of the expenses attributable tosales, marketing, and administration, including human resources, legal,management and finance.  Our selling andadministrative expenses grew 8.9% in the second quarter of 2008, to $168,097from $154,361 in the second quarter of 2007. Our selling and administrative expenses grew 12.5% to $330,789 in thefirst six months of 2008 as compared to $294,125 in the first six months of2007.

 

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our selling and administrative expenses by approximately$9,000 and $18,000 for the second quarter and first six months of 2008,respectively, as compared to the second quarter and first six months of 2007.

 

Excluding theeffect of foreign currency translation, our selling and administrative expensesgrew 2.9% and 6.4% in the second quarter and first six months of 2008,respectively, as compared to the second quarter and first six months of 2007 tosupport revenue growth.

 

·                  *Sales and Marketing*: Sales and marketing expense decreasedby approximately $3,000 in the second quarter of 2008 as compared to the secondquarter of 2007.  Sales and marketingexpense remained relatively constant for the first six months of 2008 as comparedto the first six months of 2007.

 

·                  *Consulting*: Consulting and services expenses decreased by approximately $7,000 inthe second quarter of 2008 as compared to the second quarter of 2007 andincreased by approximately $1,000 in the first six months of 2008 as comparedto the first six months of 2007.

 

·                  *Administrative and Other*: Other expenses increased by approximately $14,000 and $18,000 in thesecond quarter and first six months of 2008, respectively, as compared to thesecond quarter and first six months of 2007.

 

***Depreciationand Other Amortization***

 

Our depreciationand other amortization charges increased 18.2% to $22,366 in the second quarterof 2008 from $18,922 in the second quarter of 2007, and 14.0% to $43,410 in thefirst six months of 2008 from $38,073 in the first six months of 2007 due to increaseddepreciation related to new facilities and technology to upgrade our systemsand increased amortization related to internal-use software additions.

 

***Trendsin our Operating Margins***

 

Our operatingmargin for the second quarter of 2008 was 21.9%, as compared to 22.0% in thesecond quarter of 2007.  Our operatingmargin for the first six months of 2008 was 21.1%, as compared to 21.9% in thefirst six months of 2007.  Margins werenegatively impacted by increased cost of data and our

 

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continuinginvestments in new products and consulting and services capabilities.

 

Recentacquisitions have also had an adverse effect on our operating margins due tothe fact that some of the small businesses we have acquired have historicallyexperienced lower operating margins than ours, and the revenue and costsynergies that we incorporate into our business plans are not all immediatelyrealized.  We also experience higherintangible amortization in the first years after completing an acquisition andmay incur additional costs in integrating the acquired operations into ours,both of which tend to increase our costs and thus decrease our operatingmargins in the initial years of each completed acquisition.

 

***Non-OperatingLoss, net***

 

Our non-operatingloss, net increased to a loss of $16,769 in the second quarter of 2008 from aloss of $5,532 in the second quarter of 2007. Our non-operating loss, net increased to a loss of $46,289 in the firstsix months of 2008 from a loss of $15,279 in the first six months of 2007.  This was due to the following factors:

 

·                  *Interest Expense, net*: Net interest expense was $8,987 and$17,658 for the second quarter and first six months of 2008, respectively, ascompared to $7,687 and $14,445 for the second quarter and first six months of2007.  This was due to higher debt levelsin the second quarter and first six months of 2008 as compared to the secondquarter and first six months of 2007.

 

·                  *Gains from Investments, net*: Gains from investments of$2,175 and $1,964 during the second quarter and first six months of 2007,respectively, were the result of the final distribution from our Enterpriseportfolio, offset by related management fees.

 

·                  *Other Expense, net*:Other expense, net, grew by $7,762 in the second quarter of 2008 as compared tothe second quarter of 2007.  This was aresult of net foreign exchange losses of $6,131 in the second quarter of 2008as compared to net foreign exchange gains of $2,021 in the second quarter of2007.  Other expense, net, grew by$25,833 in the first six months of 2008 as compared to the first six months of2007. This was a result of net foreign exchange losses of $24,728 in the firstsix months of 2008 as compared to net foreign exchange gains of $1,185 in thefirst six months of 2007.

 

***Taxes***

 

We operate in more than100 countries around the world and our earnings are taxed at the applicableincome tax rate in each of these countries.

 

        For thethree months ended June 30, 2008, our effective tax rate was reduced byapproximately $10,300 as a result of audit settlements with taxing authorities.  Also during this period, we recorded taxexpense for tax positions related to non-US transactions offset by a benefitrelated to the expiration of certain statutes of limitation, resulting in a nettax expense of approximately $5,300. Further, for the three months ended March 31, 2008 our effectivetax rate was reduced by approximately $4,900 primarily as a result of thefiling of an advance pricing agreement (“APA”) between two taxingjurisdictions.  The APA ensuresconformity between the jurisdictions’ taxing authorities regarding thetreatment of certain intercompany transactions, thereby allowing us to record acorresponding tax benefit.  For the sixmonths ended June 30, 2007, our effective tax rate was reduced byapproximately $16,500 primarily due to a favorable non-U.S. audit settlementfor tax years 1998 through 2002 and by approximately $4,400 for areorganization of certain non-U.S. subsidiaries.

 

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We file numerousconsolidated and separate income tax returns in U.S. (federal and state) andnon-U.S. jurisdictions.  For the threeand six months ended June 30, 2008, we recorded approximately $5,200 and$10,000, respectively, of tax expense related to uncertain tax positions thatif recognized, would favorably affect the effective tax rate.  Included in these amounts are approximately$2,600 and $5,300, respectively, of interest and penalties. For the three andsix months ended June 30, 2007, we recorded approximately $3,300 and$7,000, respectively,  of tax expenserelated to uncertain tax positions including approximately $1,900 and $3,700,respectively, of interest and penalties.

 

The IRS has concluded itsaudit of our 2004 and 2005 federal income tax returns. The resolution of theaudit resulted in a tax payment of approximately $5,300 for which a reserve hadbeen previously established. With few exceptions, we are no longer subject toU.S. federal income tax examinations for the years before 2004 and are nolonger subject to state and local income tax examination by tax authorities foryears before 1997.  Further, with fewexceptions, we are no longer subject to examination by tax authorities in ourmaterial non-U.S. jurisdictions prior to 2003. It is reasonably possible that within the next twelve months we couldrealize approximately $17,700 of unrecognized benefits; $9,700 as a result ofthe termination of a non-U.S. agreement and $8,000 mainly as a result of theexpiration of certain statutes of limitation.

 

While we intend tocontinue to seek global tax planning initiatives, there can be no assurancethat we will be able to successfully identify and implement such initiatives toreduce or maintain our overall tax rate and therefore rates may go up in thefuture.

 

## **OperatingResults by Geographic Region**

## ** **

The following represents selected geographicinformation for the regions in which we operate for the three and six monthsended June 30, 2008 and 2007:

 
| ** **                                  | ** ** | **Americas  (1)** | ** **  | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &  Other** | ** **  | **Total  IMS** | ** ** |
|---------------------------------------------|------------|-------------------|-------------|---------------|------------|----------------------------|------------|---------------------------------|-------------|----------------|------------|
| **Three  months ended June 30, 2008:** |       |              |        |          |       |                       |       |                            |        |           |       |
| Operating Revenue (4)                       | ** ** | **$**             | **257,020** | ** **    | **$**      | **260,424**                | ** ** | **$**                           | **83,265**  | ** **     | **—** | ** ** | **$** | **600,709** | ** ** |
| Operating Income  (Loss) (5)                | ** ** | **$**             | **82,151**  | ** **    | **$**      | **31,624**                 | ** ** | **$**                           | **31,953**  | ** **     | **$**      | **(14,351** | **)** | **$** | **131,377** | ** ** |
| **Six  months ended June 30, 2008:**   | ** ** | ** **        | ** **  | ** **    | ** ** | ** **                 | ** ** | ** **                      | ** **  | ** **     | ** ** |
| Operating  Revenue (4)                      | ** ** | **$**             | **509,450** | ** **    | **$**      | **501,294**                | ** ** | **$**                           | **164,145** | ** **     | **—** | ** ** | **$** | **1,174,889** | ** ** |
| Operating Income  (Loss) (5)                | ** ** | **$**             | **161,293** | ** **    | **$**      | **48,844**                 | ** ** | **$**                           | **62,516**  | ** **     | **$**      | **(24,894** | **)** | **$** | **247,759** | ** ** |
| **Three  months ended June 30, 2007:** |       |              |        |          |       |                       |       |                            |        |           |       |
| Operating Revenue (4)                       |       | $                 | 240,772     |          | $          | 224,504                    |       | $                               | 72,196      |           | —     |   | $ | 537,472 |   |
| Operating Income  (Loss) (5)                |       | $                 | 77,685      |          | $          | 26,049                     |       | $                               | 28,501      |           | $          | (14,098 | ) | $ | 118,137 |   |
| **Six  months ended June 30, 2007:**   | ** ** | ** **        | ** **  | ** **    | ** ** | ** **                 | ** ** | ** **                      | ** **  | ** **     | ** ** |
| Operating  Revenue (4)                      |       | $                 | 472,048     |          | $          | 434,850                    |       | $                               | 140,923     |           | —     |   | $ | 1,047,821 |   |
| Operating Income  (Loss) (5)                |       | $                 | 153,670     |          | $          | 49,478                     |       | $                               | 54,780      |           | $          | (28,728 | ) | $ | 229,200 |   |

 

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**Notes toGeographic Financial Information:**

 

*(1)**                               Americasincludes the United States, Canada and Latin America.*

 

*(2)**                               EMEAincludes countries in Europe, the Middle East and Africa.*

 

*(3)**                               AsiaPacific includes Japan, Australia and other countries in the Asia Pacificregion.*

 

*(4)**                               OperatingRevenue relates to external customers and is primarily based on the location ofthe customer. The*

 

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*Operating Revenue for thegeographic regions includes the impact of foreign exchange in convertingresults into U.S. dollars.*

 

*(5)**                               OperatingIncome for the three geographic regions does not reflect the allocation ofcertain expenses that are maintained in Corporate and Other and as such, is nota true measure of the respective regions’ profitability. The Operating Incomeamounts for the geographic segments include the impact of foreign exchange inconverting results into U.S. dollars.*

 

***Americas Region***

 

Operatingrevenue growth in the Americas region was 6.7% and 7.9% in the second quarterand first six months of 2008, respectively, as compared to the second quarterand first six months of 2007.  Excludingthe effect of foreign currency translations, operating revenue grew 5.5% and6.4% in the second quarter and first six months of 2008, respectively, ascompared to the second quarter and first six months of 2007.  This was driven more than one-half by Launch,Brand and Other business lines and more than one-third by Sales ForceEffectiveness for the second quarter and first six months of 2008.

 

Operatingincome in the Americas region grew 5.7% and 5.0% in the second quarter andfirst six months of 2008, respectively, as compared to the second quarter andfirst six months of 2007.  The operatingincome growth reflected revenue growth in the region offset by increases inoperating expenses of $12,000 and $30,000 in the second quarter and first sixmonths of 2008, respectively.  Excludingthe effect of foreign currency translations, operating income grew by 4.5% and3.5% in the second quarter and first six months of 2008, respectively.

 

***EMEARegion***

 

Operatingrevenue increased in the EMEA region by 16.0% and 15.3% in the second quarterand first six months of 2008, respectively, as compared to the second quarterand first six months of 2007.  Excludingthe effect of foreign currency translations, operating revenue grew 2.7% and3.1% in the second quarter and first six months of 2008, respectively, ascompared to the second quarter and first six months of 2007.  The revenue growth in the second quarter of2008 was driven by Launch, Brand and Other, offset by declines in revenuegrowth in Sales Force Effectiveness and Portfolio Optimization businesslines.  The growth in the first sixmonths of 2008 was driven by Launch, Brand and Other and Sales ForceEffectiveness business lines, offset by a revenue decline in PortfolioOptimization.

 

Operatingincome in the EMEA region grew 21.4% in the second quarter of 2008 as comparedto the second quarter of 2007 and declined 1.3% in the first six months of 2008as compared to the first six months of 2007. The operating income growth in the second quarter of 2008 reflectedrevenue growth in the region offset by increases in operating expenses of$30,000.  The operating income decline inthe first six months of 2008 reflected revenue growth in the region which wasmore than offset by increases in operating expenses of $67,000.  Growth in data and C&S expense drove theincrease in operating expenses. Excluding the effect of foreign currency translations, operating incomedeclined by 9.2% and 26.9% in the second quarter and first six months of 2008,respectively, as compared to the second quarter and first six months of 2007.

 

***Asia Pacific Region***

 

Operating revenue in the Asia Pacific region increased15.3% and 16.5% in the second quarter and first six months of 2008,respectively, as compared to the second quarter and first six months of2007.  Excluding the effect of foreigncurrency translations, operating revenue grew 4.3% and 5.7%

 

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inthe second quarter and first six months of 2008, respectively, ascompared to the second quarter and first six months of 2007.  Therevenue growth in the second quarter and first six months of 2008 was driven byPortfolio Optimization and Sales Force Effectiveness, offset by a revenuedecline in the Launch, Brand and Other business lines.

 

Operating income in the Asia Pacific region increased by12.1% and 14.1% in the second quarter and first six months of 2008,respectively, as compared to the second quarter and first six months of2007.  The operating income growthreflected revenue growth in the region offset by increases in operatingexpenses of $8,000 and $15,000 in the second quarter and first six months of2008, respectively.  Excluding the effectof foreign currency translations, operating income increased by 1.0% and 2.8%in the second quarter and first six months of 2008, respectively, as comparedto the second quarter and first six months of 2007.

 

### **How Exchange Rates AffectOur Results**

### ** **

We operate globally,deriving a significant portion of our operating income from non-U.S.operations.  As a result, fluctuations inthe value of foreign currencies relative to the U.S. dollar may increase thevolatility of U.S. dollar operating results. We enter into foreign currency forward contracts to partially offset theeffect of currency fluctuations.  In2008, foreign currency translation increased U.S. dollar revenue growth byapproximately 7.6 and 7.2 percentage points in the second quarter and first sixmonths of 2008, respectively, while the impact on operating income growth wasan approximate increase of 9.9 and 8.9 percentage points in the second quarterand first six months of 2008, respectively.

 

Non-U.S. monetary assetsare maintained in currencies other than the U.S. dollar, principally the Euro,the Japanese Yen and the Swiss Franc. Where monetary assets are held in the functional currency of the localentity, changes in the value of these currencies relative to the U.S. dollarare reflected in Cumulative translation adjustment in the CondensedConsolidated Statements of Financial Position (Unaudited).  The effect of exchange rate changes duringthe first six months of 2008 increased the U.S. dollar amount of Cash and cashequivalents by $6,940.

 

Venezuela imposedcurrency exchange restrictions in February 2003, and subsequently adjustedits official exchange rates in February 2004 and once again in March 2005.  At June 30, 2008, IMS AG, our Swissoperating subsidiary, maintained a cash balance of approximately 54,687Venezuelan Bolívars (“Bolívars”), or approximately $25,500.  Maintaining this cash balance in anon-functional currency requires that we mark-to-market the cash balance ateach reporting date with the difference reflected as a gain or loss in thestatement of income.  We currently havelimited ability to exchange or liquidate this Bolívar balance.  We have recognized exchange losses on theBolívar balance in the past, resulting from changes in the official U.S. Dollarto Bolivar exchange rate.  It is not possiblefor us to predict the extent to which we may be affected by future changes inexchange rates and exchange controls imposed by the local government.  However, based on a hypothetical 10% decreasein the value of the Bolívar against the U.S. dollar, we would be required torecord a pre-tax loss of approximately $2,300.

 

***Liquidity and Capital Resources***

*** ***

Our cash and cashequivalents increased $2,476 during the six months ended June 30, 2008 to$220,725 at June 30, 2008 compared to $218,249 at December 31,2007.  The increase reflects cashprovided by operating activities of $112,046 and a $6,940 increase due to theeffect of exchange rate

 

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changes, partially offsetby cash used in investing and financing activities of $106,289 and $10,221,respectively.

 

We currently expect that we will use our cash and cash equivalentsprimarily to fund:

 

·                  developmentof software to be used internally and in our new products and capitalexpenditures to expand and upgrade our information technology capabilities andto build or acquire facilities to house our growing business (we currentlyexpect to spend approximately $130,000 to $155,000 during 2008 for softwaredevelopment and capital expenditures);

 

·                  acquisitions(see Note 5 of Notes to Condensed Consolidated Financial Statements(Unaudited));

 

·                  sharerepurchases (see Note 12 of Notes to Condensed Consolidated FinancialStatements (Unaudited));

 

·                  dividendsto our shareholders (we expect 2008 dividends will be $0.12 per share orapproximately $22,000);

 

·                  payments for tax-related matters,including the D&B Legacy Tax Matters discussed further in Note 7 to ourCondensed Consolidated Financial Statements (Unaudited).  Payments for certain of the D&B LegacyTax Matters could be up to approximately $31,400 in 2008; and

 

·                  pension andother postretirement benefit plan contributions (we currently expect contributionsto U.S. and non-U.S. pension and other postretirement benefit plans to totalapproximately $12,300 in 2008).

 

Net cash providedby operating activities amounted to $112,046 for the six months ended June 30,2008, which represented a decrease of $44,754 from cash provided over thecomparable period in 2007.  The decreaserelates to lower net income, higher severance and other payments related to ourfourth quarter 2007 restructuring plan (see Note 14 of Notes to CondensedConsolidated Financial Statements (Unaudited)), higher funding of accountspayable and lower deferred revenue balances, partially offset by the lowerfunding of accrued expenses and other current liabilities during the six monthsended June 30, 2008.  DSO (dayssales outstanding) in the second quarter of 2008 was approximately 1 day higherthan the prior year comparable quarter.

 

Net cash used ininvesting activities amounted to $106,289 for the six months ended June 30,2008, an increase in cash used of $8,567 over the comparable period in2007.  The increase relates to higherpayments for acquisitions, partially offset by lower capital expenditures andcomputer software additions during the six months ended June 30, 2008.

 

Net cash used infinancing activities amounted to $10,221 for the six months ended June 30,2008, a decrease in cash used of $1,201 over the comparable period in2007.  The decrease relates to lowerpurchases of treasury stock and higher debt levels, partially offset by lowerproceeds from the exercise of employee stock options during the six monthsended June 30, 2008.

 

Our financingactivities include cash dividends we paid of $0.03 per share quarterly, whichamounted to $11,067 and $11,977 during the six months ended June 30, 2008and 2007, respectively.  The payments andlevel of cash dividends made by us are subject to the discretion of our Boardof Directors.

 

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Any futuredividends, other than the $0.03 per share dividend for the third quarter of2008, which was declared by our Board of Directors in July 2008, will bebased on, and affected by, a number of factors, including our operating resultsand financial requirements.

 

**Tax and Other Contingencies**

 

We are exposed to certainknown tax and other contingencies that are material to our investors.  Thefacts and circumstances surrounding these contingencies and a discussion oftheir effect on us are included in Notes 7 and 11 to our Condensed ConsolidatedFinancial Statements (Unaudited) for the period ended June 30, 2008.

 

These contingencies may have a material effect onour liquidity, capital resources or results of operations.  Althoughwe have established reserves for D&B Legacy Tax Matters in accordance withSFAS No. 5, “Accounting for Contingencies,” the actual liability mayexceed the amount of the reserve.  Inaddition, even where our reserves are adequate, the incurrence of any of theseliabilities may have a material effect on our liquidity and the amount of cashavailable to us for other purposes.

 

Management believes that we have made appropriate arrangements inrespect of the future effect on us of these known tax and othercontingencies.  Management also believes that the amount of cash availableto us from our operations, together with cash from financing, will besufficient for us to pay any known tax and other contingencies as they becomedue without materially affecting our ability to conduct our operationsand invest in the growth of our business.

 

**Stock Repurchase Programs**

 

Our share repurchase program has been developed to buyopportunistically, when we believe that our share price provides us with anattractive use of our cash flow and debt capacity.

 

On December 18, 2007, the Board of Directors authorized a stockrepurchase program to buy up to 20,000 shares. As of June 30, 2008, 10,000 shares remained available forrepurchase under the December 2007 program.

 

On December 19, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. This program was completed in November 2007at a total cost of $287,072.

 

On January 25, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 30,000 shares. This program was completed in May 2007at a total cost of $799,906.

 

During the six months ended June 30, 2008, we repurchased 10,000shares of outstanding Common Stock under these programs at a total cost of$229,340.

 

During the six months ended June 30, 2007, we repurchasedapproximately 11,135 shares of outstanding Common Stock under these programs ata total cost of $333,621, including the repurchase of 6,135 shares pursuant toan accelerated share repurchase program (“ASR”).  As part of the ASR, we simultaneously enteredinto a forward contract for the final settlement of the ASR transaction whichwas indexed to the price of our Common Stock. The ASR agreement provided for the final settlement amount to be in ourCommon Stock if we were to owe an amount to the bank, or in either cash oradditional shares of our Common Stock, at our sole discretion, if the bank wereto owe an amount to us.

 

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As the agreement required us to deliver shares to the bank for finalsettlement, the forward contract element qualified for permanent equityclassification and the fair value of the forward contract, which was zero atthe contract’s inception, was recorded in equity in accordance with theprovisions of EITF 00-19, “Accounting for Derivative Financial InstrumentsIndexed to, and Potentially Settled In, a Company’s Own Stock.”  Subsequent changes in the fair value of theforward contract were not recorded as we continued to classify the forwardcontract as equity.  Upon completion ofthe ASR in April 2007, we were required to pay approximately $6,000 inshares, and therefore issued 203 treasury shares, as full settlement of ourobligation under the ASR.  The total costof the ASR was approximately $176,000 or $28.68 per share.  We funded the ASR through our existing bankcredit facilities (see Note 9 of Notes to Condensed Consolidated FinancialStatements (Unaudited)).

 

Total share repurchases during the six months ended June 30, 2008positively impacted our diluted earnings per share (“EPS”) by $0.02 per sharefor the three and six months ended June 30, 2008.  Total share repurchases during the six monthsended June 30, 2007 positively impacted our diluted EPS by less than $0.01per share for the three and six months ended June 30, 2007.

 

Shares acquired through our repurchase programs described above areopen-market purchases or privately negotiated transactions in compliance withSEC Rule 10b-18, with the exception of purchases pursuant to the 2007 ASR.

 

Under our Restated Certificate of Incorporation asamended, we have authority to issue 820,000 shares with a par value of $.01 pershare of which 800,000 represent shares of Common Stock, 10,000 representshares of preferred stock and 10,000 represent shares of Series CommonStock.  The preferred and series CommonStock can be issued with varying terms, as determined by the Board ofDirectors.

 

**Borrowings**

 

In recent years, we haveincreased debt levels to balance appropriately the objective of generating anattractive cost of capital with providing us a reasonable amount of financialflexibility.  At June 30, 2008, ourdebt totaled $1,472,921, and management does not believe that this level ofdebt poses a material risk to us due to the following factors:

 

·      ineach of the last three years, we have generated strong net cash provided byoperating activities in excess of $300,000;

 

·      atJune 30, 2008, we had $220,725 in worldwide cash and cash equivalents;

 

·      atJune 30, 2008, we had $284,694 of unused debt capacity under our existingbank credit facilities; and

 

·      webelieve that we have the ability to obtain additional debt capacity outside ofour existing debt arrangements.

 

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        Thefollowing table summarizes our long-term debt at June 30, 2008 and December 31,2007:

 
| ** **                                                                                                               | ** ** | **2008**    | ** **    | **2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|----------|------------|
| 4.6% Private  Placement Note, principal payment of $150,000 due January 2008, net of interest  rate swaps of $(981) | ** ** | **$**       | **—**    |     | $          | 149,019 |   |
| 5.58% Private  Placement Notes, principal payment of $105,000 due January 2015                                      | ** ** | **105,000** | ** **    | —   | ** ** |
| 5.99% Private  Placement Notes, principal payment of $135,000 due January 2018                                      | ** ** | **135,000** | ** **    | —   | ** ** |
| 5.55% Private  Placement Notes, principal payment of $150,000 due April 2016                                        | ** ** | **150,000** |          | 150,000  |       |
| 1.70% Private  Placement Note, principal payment of 34,395,000 Japanese Yen due  January 2013                       | ** ** | **317,615** |          | 300,787  |       |
| Revolving Credit  Facility:                                                                                              |       |        |          |     |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 1.24%                                    | ** ** | **374,168** |          | 397,973  |       |
| Swiss Franc  denominated borrowings at average floating rates of approximately 2.78%                                     | ** ** | **27,338**  |          | 54,730   |       |
| U.S. Dollar  denominated borrowings at average floating rates of approximately 3.01%                                     | ** ** | **313,800** |          | 100,700  |       |
| Bank Term Loan,  principal payment of $50,000 due June 2009 at average floating rate of  approximately 2.99%        | ** ** | **50,000**  |          | 50,000   |       |
| Total Long-Term  Debt                                                                                                    | ** ** | **$**       | **1,472,921** |     | $          | 1,203,209 |   |

 

In February 2008, we closed a private placement transactionpursuant to which we issued $105,000 of seven-year debt at a fixed rate of5.58%, and $135,000 of ten-year debt at a fixed rate of 5.99% to several highlyrated insurance companies.  We used theproceeds for share repurchases (see Note 12 of Notes to Condensed Consolidated FinancialStatements (Unaudited)) and to refinance existing debt.

 

In July 2006, we entered into a$1,000,000 revolving credit facility with a syndicate of 12 banks (“RevolvingCredit Facility”) replacing our existing $700,000 facility.  The terms of the Revolving Credit Facilityextended the maturity of the facility in its entirety to a term of five years,maturing July 2011, reduced the borrowing margins, and increasedsubsidiary borrowing limits.  Totalborrowings under the Revolving Credit Facility were $715,306 and $553,403 at June 30,2008 and December 31, 2007, respectively, all of which were classified aslong-term.  We define long-term lines asthose where the lines are non-cancellable for more than 365 days from thebalance sheet date by the financial institutions except for specified, objectivelymeasurable violations of the provisions of the agreement.  In general, rates for borrowing under theRevolving Credit Facility are LIBOR plus 40 basis points and can vary based onthe Company’s Debt to EBITDA ratio.  Theweighted average interest rates for our lines were 2.08% and 2.16% at June 30,2008 and December 31, 2007, respectively. In addition, we are required to pay a commitment fee on any unusedportion of the facilities of 0.01%.  At June 30,2008, we had approximately $284,694 available under our existing bank creditfacilities.

 

In June 2006, we closed a $50,000 three-year term loan with abank.  The term loan allows us to borrowat a floating rate with a lower borrowing margin than our revolving creditfacility.  The term loan also provides uswith an option to extend the term up to an additional two years, which weintend to do so.  We used the proceeds torefinance existing debt borrowed under the revolving credit facility.

 

In April 2006, we closed a private placement transaction pursuantto which we issued $150,000 of ten-year notes to two highly rated insurancecompanies at a fixed rate of 5.55%.  Weused the proceeds to refinance existing debt of $150,000 drawn under a shortterm credit agreement with a bank in January 2006.

 

In January 2006, we closed a private placement transactionpursuant to which our Japanese subsidiary issued 34,395,000 Japanese Yenseven-year debt (equal to $300,000 at date of issuance) to several highly

 

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rated insurance companies at a fixed rate of 1.70%.  We used the proceeds to refinance existingdebt in Japan.

 

In January 2003, we closed a private placement transactionpursuant to which we issued $150,000 of five-year debt to several highly ratedinsurance companies at a fixed rate of 4.60%. We used the proceeds to pay down existing short-term debt.  We also swapped $100,000 of our fixed ratedebt to floating rate based on six-month LIBOR plus a margin of approximately107 basis points.  We accounted for theseswaps as fair value hedges under the provisions of SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities.”  We determined the fair values based onestimated prices quoted by financial institutions.  The fair values of these swaps were $(981) asof December 31, 2007.  These notesand the related swaps matured and were paid off in January 2008.  Although these notes were due within 365 daysat December 31, 2007, we classified the notes as long-term at December 31,2007 in compliance with SFAS No. 6, “Classification of Short-TermObligations Expected to be Refinanced,” as we had the ability and intent torefinance these notes with another long-term debt arrangement.

 

Our financingarrangements provide for certain covenants and events of default customary forsimilar instruments, including in the case of our main bank arrangements, theprivate placement transactions, and the term loan, covenants to maintainspecific ratios of consolidated total indebtedness to EBITDA and of EBITDA tocertain fixed charges.  At June 30,2008, we were in compliance with these financial debt covenants.

 

**Severance, Impairment and Other Charges**

 

In response to healthcaremarketplace dynamics, during the fourth quarter of 2007, we committed to arestructuring plan designed to eliminate approximately 1,070 positionsworldwide in production and development, sales, marketing, consulting andservices and administration.  The planalso included the write-down of two impaired computer software assets andrelated contract payments to be incurred with no future economic benefit basedon our decision to abandon certain products in our EMEA region.  As a result, we recorded $88,690 ofSeverance, impairment and other charges as a component of operating income inthe fourth quarter of 2007.  Theseverance benefits were calculated pursuant to the terms of establishedemployee protection plans, in accordance with local statutory minimum requirementsor individual employee contracts, as applicable.

 

These charges were designedto strengthen client-facing operations worldwide, increase our operatingefficiencies and streamline our cost structure. Some of the initiatives included in this plan are designed to betteralign our resources to help clients manage for change in a challenging climate.

 

The severance and contractpayments portion of the charge was approximately $75,043 and will all besettled in cash.  We expect that alltermination actions under the plan will be completed by the end of 2008.

 

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| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                        | ** ** | **Related**   | ** ** | **related**  | ** ** | **write-** | ** ** | **translation** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007 |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                  |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                  |       | (26,237       | )          | (1,545       | )          | —     |       | —          |       | (27,782    | )          |
| Currency  translation adjustments |       | —        |       | —       |       | —     |       | 2,135           |       | 2,135      |       |
| Balance at  June 30, 2008    |       | $             | 45,346     |         | $          | 1,915      |       | $               | —     |       | $          | 2,135 |   | $ | 49,396 |   |

 

Wecurrently expect that cash outlays will be applied against the $49,396 balanceremaining in the 2007 fourth quarter charge at June 30, 2008 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 33,771     |   |
| 2009                                       |       | 14,244      |       |
| 2010                                       |       | 1,192       |       |
| 2011                                       |       | 189         |       |
| Total                                      |       | $           | 49,396     |   |

 

During the fourth quarter of2001, we completed the assessment of our Competitive Fitness Program. Thisprogram was designed to streamline operations, increase productivity andimprove client service. In connection with this program, we recorded $94,616 ofSeverance, impairment and other charges during the fourth quarter of 2001 as acomponent of operating income.  As of June 30,2008, approximately $1,237 remains to be utilized from 2008 to 2013 related toseverance payments.

 

In the first quarter of2007, we reversed $640 of contract-related reserves from the fourth quarter2001 charge due primarily to the termination and settlement of exit relatedcosts for an impaired lease.  Theseamounts were reversed against Selling and administrative expenses in theCondensed Consolidated Statements of Income (Unaudited).

 
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2001 |       | $             | 39,652     |         | $          | 26,324     |       | $          | 28,640     |   | $ | 94,616 |   |
| 2001 – 2005  utilization     |       | (37,070       | )          | (22,315      | )          | (29,602    | )          | (88,987    | )          |
| 2006 utilization                  |       | (264          | )          | (1,887       | )          | —     |       | (2,151     | )          |
| 2007 utilization                  |       | (263          | )          | (1,208       | )          | —     |       | (1,471     | )          |
| 2007 reversals                    |       | —        |       | (640         | )          | —     |       | (640       | )          |
| 2008 utilization                  |       | (132          | )          | —       |       | —     |       | (132       | )          |
| Adjustments                       |       | (688          | )          | (274         | )          | 962        |       | —     |       |
| Balance at  June 30, 2008    |       | $             | 1,235      |         | $          | —     |       | $          | —     |   | $ | 1,235 |   |

 

Wecurrently expect that the $1,235 balance remaining in the 2001 fourth quartercharge will be utilized as follows:

 

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| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 130        |   |
| 2009                                       |       | 262         |       |
| 2010                                       |       | 262         |       |
| 2011                                       |       | 262         |       |
| 2012                                       |       | 262         |       |
| Thereafter                                 |       | 57          |       |
| Total                                      |       | $           | 1,235      |   |

 

**Recently Issued AccountingStandards**

 

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 157, “Fair Value Measurements.” This statement defines fair value,establishes a framework for measuring fair value under generally acceptedaccounting principles, and expands disclosures about fair value measurements. This statement is effective for financialstatements issued for fiscal years beginning after November 15, 2007, andinterim periods within those fiscal years. In February 2008, the FASB issued Staff Positions No. FAS157-1 and No. FAS 157-2 which delayed the effective date of SFAS No. 157for one year for certain non financial assets and liabilities and removedcertain leasing transactions from its scope. The adoption of SFAS No. 157, effective January 1, 2008, didnot have a material impact on our financial position, results of operations orcash flows.  We are currently evaluatingthe impact of SFAS No. 157 for certain non financial assets andliabilities on our financial results.

 

InFebruary 2007, the FASB issued SFAS No. 159, “The Fair Value Optionfor Financial Assets and Financial Liabilities–Including an amendment of FASBStatement No. 115.” This statement permits entities to choose to measuremany financial instruments and certain other items at fair value.  Entities shall report unrealized gains andlosses on items for which the fair value option has been elected in earnings ateach subsequent reporting date.  Thisstatement is effective as of the beginning of an entity’s first fiscal yearthat begins after November 15, 2007. The adoption of SFAS No. 159, effective January 1, 2008, didnot have a material impact on our financial position, results of operations orcash flows as we did not elect the fair value measurement option for anyadditional financial instruments or other items.

 

InDecember 2007, the FASB issued SFAS No. 141R, “Business Combinations.”  This statement establishes principles andrequirements for how an acquirer recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, anynoncontrolling interest in the acquiree and the goodwill acquired.  This statement also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  This statementis effective for fiscal years beginning after December 15, 2008.  The impact on our financial results will bedependent on the terms and conditions of acquisitions consummated on or after January 1,2009, the effective date for us.

 

InDecember 2007, the FASB issued SFAS No. 160, “NoncontrollingInterests in Consolidated Financial Statements - an Amendment of ARB No. 51.”This statement establishes accounting and reporting standards pertaining toownership interests in subsidiaries held by parties other than the parent, theamount of net income attributable to the parent and to the noncontrollinginterest, changes in a parent’s ownership interest, and the valuation of anyretained noncontrolling equity investment when a subsidiary is deconsolidated.This statement also establishes disclosure requirements that identify anddistinguish between the interests of the parent and the interests of thenoncontrolling owners.  This

 

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statementis effective for fiscal years beginning on or after December 15, 2008. Weare currently evaluating this statement to determine any potential impact thatit may have on our financial results.

 

InMarch 2008, the FASB issued SFAS No. 161, “Disclosures aboutDerivative Instruments and Hedging Activities–an amendment of FASB Statement No. 133.”  This statement requires enhanced disclosuresabout an entity’s derivative and hedging activities and thereby improves thetransparency of financial reporting. Entities will be required to provide enhanced disclosures about (a) howand why an entity uses derivative instruments, (b) how derivativeinstruments and related hedged items are accounted for under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities,” and itsrelated interpretations, and (c) how derivative instruments and relatedhedged items affect an entity’s financial position, financial performance, andcash flows.  This statement is effective for financialstatements issued for fiscal years and interim periods beginning after November 15,2008, with early application encouraged. This statement encourages, but does not require, comparative disclosuresfor earlier periods at initial adoption. We are currently evaluating thenew disclosure requirements under this statement.

 

InMay 2008, the FASB issued SFAS No. 162, “The Hierarchy of GenerallyAccepted Accounting Principles.”  Thestatement identifies the sources of accounting principles and the framework forselecting the principles used in the preparation of financial statements ofnongovernmental entities that are presented in conformity with generallyaccepted accounting principles (“GAAP”) in the United States.  This statement is effective 60 days followingthe United States Securities and Exchange Commission’s (“SEC”) approval of thePublic Company Accounting Oversight Board (“PCAOB”) amendments to AU Section 411,“The Meaning of Present Fairly in Conformity With Generally Accepted AccountingPrinciples.”  The adoption of thisstatement is not expected to have an impact on our financial results.

 

***Forward-LookingStatements and Risk Factors***

 

This Quarterly Report on Form 10-Q, as well as informationincluded in oral statements or other written statements made or to be made byus, contain statements that, in our opinion, may constitute “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995.  The words such as “believe,” “expect,”“anticipate,” “intend,” “plan,” “foresee,” “likely,” “project,” “estimate,” “will,”“may,” “should,” “future,” “predicts,” “potential,” “continue” and similarexpressions identify these forward-looking statements, which appear in a numberof places in this Quarterly Report and include, but are not limited to, allstatements relating to plans for future growth and other business developmentactivities as well as capital expenditures, financing sources, dividends andthe effects of regulation and competition, foreign currency conversion and allother statements regarding our intent, plans, beliefs or expectations or thoseof our directors or officers.  Investorsare cautioned that such forward-looking statements are not assurances forfuture performance or events and involve risks and uncertainties that couldcause actual results and developments to differ materially from those coveredin such forward-looking statements. These risks and uncertainties include, but are not limited to:

 

·         risks associated with operating on a global basis,including fluctuations in the value of foreign currencies relative to the U.S.dollar, and the ability to successfully hedge such risks—we derivedapproximately 63% of our operating revenue in 2007 from non-U.S. operations;

 

·         regulatory, legislative andenforcement initiatives to which we are or may become subject relatingparticularly to tax and to medical privacy and the collection and disseminationof data and, specifically, non-patient identifiable information, e.g.,prescriber identifiable information, or to the process of anonymizing data;

 

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·         the imposition of additionalrestrictions on our use of or access to data, or the refusal by data suppliersto provide data to us;

 

·         to the extent we seek growth throughacquisitions, alliances or joint ventures, the ability to identify, consummateand integrate acquisitions, alliances and joint ventures on satisfactory terms;

 

·         our ability to develop new oradvanced technologies, including sophisticated information systems, softwareand other technology used to deliver our products and services and to do so ona timely and cost-effective basis, and the exposure to the risk of obsolescenceor incompatibility of these technologies with those of our customers orsuppliers; our ability to maintain effective security measures for our computerand communications systems; and failures or delays in the operation of ourcomputer or communications systems;

 

·         our ability to successfully maintain historiceffective tax rates;

 

·         our ability to maintain and defendour intellectual property rights in jurisdictions around the world;

 

·         competition, particularly in themarkets for pharmaceutical information;

 

·         regulatory, legislative and enforcement initiatives towhich our customers in the pharmaceutical industry are or may become subjectrestricting the prices that may be charged for prescription or otherpharmaceutical products or the manner in which such products may be marketed orsold;

 

·         deterioration in economicconditions, particularly in the pharmaceutical, healthcare or other industriesin which our customers operate;

 

·         consolidation in the pharmaceuticalindustry and the other industries in which our customers operate;

 

·         conditions in the securities marketsthat may affect the value or liquidity of portfolio investments; and management’sestimates of lives of assets, recoverability of assets, fair market value,estimates and liabilities and accrued income tax benefits and liabilities;

 

·         to the extent unforeseen cash needsarise, the ability to obtain financing on favorable terms; and

 

·        terrorist activity, epidemics or other conditions thatcould disrupt commerce, the threat of any such conditions, and responses to andresults of such conditions and threats, including but not limited to effects,domestically and/or internationally, on us, our personnel and facilities, ourcustomers and suppliers, financial markets and general economic conditions.

 

Consequently, all of theforward-looking statements we make in this document are qualified by theinformation contained herein, including, but not limited to, the informationcontained under this heading, “Risk Factors” and our Condensed ConsolidatedFinancial Statements (Unaudited) and notes thereto for the three and six monthsended June 30, 2008 and by the material set forth under the headings “Business”and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,2007.  We are under no obligation topublicly release any revision to any forward-looking statement contained orincorporated herein to reflect any future events or occurrences.

 

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**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

There has been nosignificant change in our exposure to market risk during the three and sixmonths ended June 30, 2008.  For adiscussion of our exposure to market risk, refer to Item 7A, Quantitativeand Qualitative Disclosures About Market Risk, in our 2007 Annual Report on Form 10-K.

 

**Item 4.Controls and Procedures**

 

(a)   Evaluationof Disclosure Controls and Procedures

 

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the reports that the Company files or submits tothe SEC under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms, and that such information isaccumulated and communicated to the Company’s management, including itsprincipal executive and principal financial officers, or persons performingsimilar functions, as appropriate, to allow timely decisions regarding requireddisclosure.

 

The Company’s ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-14c and 15d-14c under the Exchange Act) as of June 30, 2008(the “Evaluation Date”). Based on such evaluation, such officers have concludedthat, as of the Evaluation Date, the Company’s disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Company in the reports that the Company files or submits under the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms and to ensure that informationrequired to be disclosed by the Company in the reports that the Company filesor submits under the Exchange Act is accumulated and communicated to theCompany’s management, including its principal executive and principal financialofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure.

 

(b)   Changes in Internal Control over Financial Reporting

 

There have been no changes in the Company’s internalcontrol over financial reporting that occurred during the period covered bythis report that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal control over financial reporting.

 

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**PART II. OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

Information in response to this Item is incorporated by reference tothe information set forth in “Note 7. Contingencies” in the Notes to theCondensed Consolidated Financial Statements (Unaudited).

 

**Item 1A. Risk Factors**

 

Inaddition to the other information included or incorporated by reference intothis Quarterly Report on Form 10-Q, including the matters addressed underthe caption “Forward-Looking Statements,” set forth below are some of the risksand uncertainties that, if they were to occur, could materially adverselyaffect our business or could cause our actual results to differ materially fromthe results contemplated by the forward-looking statements contained in thisreport and other public statements we make.

 

**Our data suppliers might restrict our use of or refuse to license data,which could lead to our inability to provide certain products or services.**

 

Our products and services incorporate datathat we collect from third parties. These suppliers of data may increaserestrictions on our use of such data, fail to adhere to our quality controlstandards or refuse altogether to license the data to us. For example, in 2002certain of our data suppliers in Japan began withholding certain data from us.This interruption in data supply led us to discontinue one of our Japaneseproducts and adversely affected our operating results. If the suppliers of asignificant amount of data that we use for one or more of our products orservices were to impose additional contractual restrictions on our use of oraccess to data, fail to adhere to our quality control standards, or refuse to providedata, now or in the future, our ability to provide products and services to ourclients could be materially adversely impacted, which could result in decreasedrevenue, net income and earnings per share.

 

**Dataprotection and privacy laws may restrict our activities.**

 

Dataprotection and privacy laws affect our collection, use, storage and transfer ofpersonally identifiable information both abroad and in the United States.Compliance with such laws may require investment or may dictate that we not offercertain types of products and services. Failure to comply with such laws mayresult in, among other things, civil and criminal liability, negativepublicity, data being blocked from use and liability under contractualwarranties.

 

Inaddition, there is an increasing public concern regarding data protection andprivacy issues and the number of jurisdictions with data protection and privacylaws has been slowly increasing. For example, there have been a number oflegislative and regulatory initiatives in the U.S. and abroad in the area ofaccess to medical data. These initiatives tend to seek to place restrictions onthe use and disclosure of patient-identifiable information without consent and,in some cases, seek to extend restrictions to non-patient-identifiableinformation, e.g., prescriber identifiable information, or to the process ofanonymizing data. There are also some initiatives that seek to restrict accessto this information to non-commercial uses. While most of the currentinitiatives should not impact our business, there can be no assurance thatthese initiatives or future initiatives will not adversely affect IMS’s abilityto generate or assemble data or to develop or market current or future productsor services.

 

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**Hardware and software failures,delays in the operation of our computer and communications systems or thefailure to implement system enhancements may harm our business.**

 

Oursuccess depends on the efficient and uninterrupted operation of our computerand communications systems. A failure of our network or data gatheringprocedures could impede the processing of data, delivery of databases andservices, client orders and day-to-day management of our business and couldresult in the corruption or loss of data. While many of our operations haveappropriate disaster recovery plans in place, we currently do not have fullbackup facilities everywhere in the world to provide redundant network capacityin the event of a system failure. Despite any precautions we may take, damagefrom fire, floods, hurricanes, power loss, telecommunications failures,computer viruses, break-ins, sabotage, breaches of security, epidemics and similarevents at our various computer facilities could result in interruptions in theflow of data to our servers and from our servers to our clients. In addition,any failure by our computer environment to provide our required datacommunications capacity could result in interruptions in our service. In theevent of a delay in the delivery of data, we could be required to transfer ourdata collection operations to an alternative provider of server hostingservices. Such a transfer could result in significant delays in our ability todeliver our products and services to our clients. Additionally, significantdelays in the planned delivery of system enhancements, improvements andinadequate performance of the systems once they are completed could damage our reputationand harm our business. Finally, long-term disruptions in the infrastructurecaused by events such as natural disasters, the outbreak of war, the escalationof hostilities, epidemics and acts of terrorism (particularly involving citiesin which we have offices) could adversely affect our businesses. Although wecarry property and business interruption insurance, our coverage may not beadequate to compensate us for all losses that may occur.

 

**Our business is subject to exchange rate fluctuations and our revenueand net income may suffer due to currency translations.**

 

Weoperate globally, deriving approximately 63% of our 2007 revenue fromnon-United States operations. As a result, fluctuations in the value of foreigncurrencies relative to the U.S. dollar increase the volatility of U.S. dollardenominated operating results. Emerging markets currencies tend to beconsiderably less stable than those in established markets, which may furthercontribute to volatility in our U.S. dollar-denominated operating results.

 

Asa result of devaluations and fluctuations in currency exchange rates or theimposition of limitations on conversion of foreign currencies into dollars, weare subject to currency translation exposure on the profits of our operations,in addition to economic exposure.

 

**Our international operations present risks to our current businessesthat could impede growth in the future.**

 

Internationaloperations are subject to various risks that could adversely affect ourbusiness, including:

 

        ·    costsof customizing services for foreign clients;

 

        ·   reduced protection for intellectual property rights in some countries;

 

        ·    theburdens of complying with a wide variety of foreign laws;

 

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·    exposure to local economic conditions; and

 

·    exposure to local political conditions,including the risks of an outbreak of war, the escalation of hostilities, actsof terrorism and nationalization, expropriation, price controls or otherrestrictive government actions.

 

**We may be unsuccessful in identifying acquisition candidates orevaluating the material risks involved in any acquisition.**

 

Animportant aspect of our business strategy in the past has been growth throughacquisitions or joint ventures and we may continue to acquire or makeinvestments in complementary businesses, technologies, services or products.There can be no assurance that we will be able to continue to identify andconsummate acquisitions or joint ventures on satisfactory terms. Moreover,every acquisition and joint venture entails some degree of uncertainty andrisk. For example, we may be unsuccessful in identifying and evaluating business,legal or financial risks as part of the due diligence process associated with atransaction. In addition, some acquisitions will have contingent considerationcomponents that may require us to pay additional amounts in the future inrelation to future performance results of the acquired business. If we do notproperly assess these risks, or if we fail to realize the benefits from one ormore acquisitions, our business, results of operations and financial conditioncould be adversely affected.

 

**We maybe unsuccessful in integrating any acquired operations with our existingbusiness.**

 

Wemay experience difficulties in integrating operations acquired from othercompanies. These difficulties include the diversion of management’s attentionfrom other business concerns and the potential loss of key employees of theacquired operations. Acquisitions also frequently involve significant costs,often related to integrating information technology, accounting and managementservices and rationalizing personnel levels. If we experience difficulties inintegrating one or more acquisitions, our business, results of operations andfinancial condition could be adversely affected.

 

**Changesin tax laws or their application may adversely affect our reported results.**

 

Weoperate in more than 100 countries worldwide and our earnings are subject totaxation in many differing jurisdictions and at differing rates. We seek toorganize our affairs in a tax efficient manner, taking account of thejurisdictions in which we operate. Tax laws that apply to our business may beamended by the relevant authorities, for example as a result of changes infiscal circumstances or priorities. Such amendments, or their application toour business, may adversely affect our reported results.

 

**We areinvolved in tax related matters that could have a material effect on us.**

 

We(and our predecessors) have entered, and we continue to enter, into global taxplanning initiatives in the normal course of business. These activities aresubject to review by applicable tax authorities and courts. As a result of thereview process, uncertainties exist and it is possible that some of thesematters could be resolved adversely to us, including those tax related mattersdescribed in Part I, Item 1 of this Quarterly Report on Form 10-Q.Moreover, there can be no assurance that we will be able to maintain oureffective tax rate.

 

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**We are, and may become, involvedin litigation that could harm the value of our business.**

 

In the normal course of ourbusiness, we are involved in lawsuits, claims, audits and investigations, suchas those described in Part I, Item 1 of this Quarterly Report on Form 10-Q.The outcome of these matters could have a material adverse effect on ourbusiness, results of operation or financial condition. In addition, we maybecome subject to future lawsuits, claims, audits and investigations that couldresult in substantial costs and divert our attention and resources.

 

**Significant technological changes could render our products andservices obsolete. We may not be able to develop the technology necessary forour business, or to do so efficiently.**

 

Weoperate in businesses that require sophisticated data collection and processingsystems and software and other technology. Some of the technologies supportingthe industries we serve are changing rapidly and we must continue to developcost-effective technologies for data collection and processing to accommodatesuch changes. We also must continue to deliver data to our clients in formsthat are easy to use while simultaneously providing clear answers to complexquestions. There can be no guarantee that we will be able to develop newtechnologies for data collection, processing and delivery or that we will beable to do so as quickly or cost-effectively as our competition. Significanttechnological change could render our products and services obsolete.

 

Moreover,the introduction of new products and services embodying new technologies andthe emergence of new industry standards could render existing products andservices obsolete. Our continued success will depend on our ability to adapt tochanging technologies, manage and process ever-increasing amounts of data andinformation and improve the performance, features and reliability of ourproducts and services in response to changing client and industry demands. Wemay experience difficulties that could delay or prevent the successful design,development, testing, introduction or marketing of our products and services.New products and services, or enhancements to existing products and services,may not adequately meet the requirements of current and prospective clients orachieve any degree of significant market acceptance.

 

**Government imposed price restrictions on pharmaceutical companies couldreduce demand for our products and services.**

 

Anumber of countries in which we operate have enacted regulations limiting theprices pharmaceutical companies may charge for drugs. We believe that such costcontainment measures will cause pharmaceutical companies to seek more effectivemeans of marketing their products (which will benefit us in the medium andlong-term). However, such governmental regulation may cause pharmaceuticalcompanies to revise or reduce their marketing programs in the near term, whichmay in turn reduce the demand for certain of our products and services. Thiscould result in decreased revenue, net income and earnings per share.

 

**Oursuccess will depend on our ability to protect our intellectual property rights.**

 

Thesuccess of our businesses will continue to depend, in part, on:

 

        ·   obtaining patent protection for our technology, products and services;

 

        ·   defending our patents, copyrights and other intellectual property;

 

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        ·   preserving our trade secrets and maintaining the security of ourknow-how; and

 

        ·   operating without infringing upon patents and proprietary rights held bythird parties.

 

Werely on a combination of contractual provisions, confidentiality procedures andpatent, copyright, trademark, service mark and trade secret laws to protect theproprietary aspects of our products, services, databases and technologies.There can be no assurance that these protections will be adequate, or that wewill adequately employ each and every one of these protections at all times, toprovide sufficient protection in the future to prevent the use ormisappropriation of our data, technology and other products and services.Further, our competitors may develop products, services, databases ortechnologies that are substantially equivalent or superior to our products,services, databases or technologies. Although we believe that our products,services, databases, technologies and related proprietary rights do notinfringe upon the proprietary rights of third parties, there can be noassurance that third parties will not assert infringement claims against us inthe future. Litigation may be necessary to enforce our intellectual property rights,to protect our trade secrets and to determine the validity and scope of ourproprietary rights. For example, we have been involved in litigation withInsight Health GmbH & Co. KG in Germany in order to protect ourproprietary mapping software. In addition, the growing need for global data,along with increased competition and technological advances, puts increasingpressure on us to share our intellectual property for client applications. Anyfuture litigation, regardless of outcome, could result in substantial expenseand diversion of resources with no assurance of success and could seriouslyharm our business, financial condition and operating results.

 

**If we are unable to attract, retain and motivate employees, we will notbe able to compete effectively and will not be able to expand our business.**

 

Oursuccess and ability to grow are dependent, in part, on our ability to hire,retain and motivate sufficient numbers of talented people, with theincreasingly diverse skills needed to serve clients and expand our business, inmany locations around the world. Competition for highly qualified technical andmanagerial, and particularly consulting personnel is intense. Recruiting,training and retention costs and benefits place significant demands on our resources.The inability to attract qualified employees in sufficient numbers to meetparticular demands or the loss of a significant number of our employees couldhave a serious negative effect on us, including our ability to obtain andsuccessfully complete important client engagements and thus maintain orincrease our revenues.

 

**Consolidation in the industries in which our clients operate may putpressure on the pricing of our products and services, and could increase thecost of acquiring data, leading to decreased earnings.**

 

Consolidationin the pharmaceutical industry could put pressure on the pricing of ourinformation products and services, as the consolidated client seeks pricingconcessions from us, and could limit available dollars for our products andservices. In addition, when companies merge, the products and services theypreviously purchased separately are now purchased only once by the combinedentity, leading to contract compression and loss of revenue. While we haveexperienced success in mitigating the revenue impact of any pricing pressurethrough effective negotiations and by providing services to individualbusinesses within a particular group, there can be no assurance as to thedegree to which we will be able to continue to do so as consolidationcontinues.

 

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**Our businesses are subject tosignificant or potential competition that is likely to intensify in the future.**

 

Our future growth andsuccess will be dependent on our ability to successfully compete with othercompanies that provide similar services in the same markets, some of which mayhave financial, marketing, technical and other advantages.

 

**Disruptionsin commerce could adversely affect our business.**

 

Commercecould be disrupted by various political, economic, world health or otherconditions. Examples of such disruptions that could adversely affect ourbusiness include:

 
| · |   | terrorist  activity, the threat of such activity, and responses to and results of such  activity and threats, including but not limited to effects, domestically  and/or internationally, on us, our personnel and facilities, our customers  and suppliers, financial markets and general economic conditions; and                                                     |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                    |
| · |   | an  outbreak of SARS, avian influenza (Bird Flu) or other epidemic, the fear of  such an epidemic, and responses to and results of such an epidemic or fear  thereof, including but not limited to effects, domestically and/or  internationally, on us, our personnel and facilities, our customers and  suppliers, financial markets and general economic conditions. |

 

Ifsuch disruptions result in cancellations of or reductions in customer orders orcontribute to a general decrease in economic activity, or directly impact ourmarketing, collection, production, delivery, financial and logistics functions,our results of operations and financial condition could be materially adverselyaffected.

 

**The success of our business will largely depend on the performance ofthe pharmaceutical and healthcare industries.**

 

The vast majority of ourrevenues are generated from sales to the pharmaceutical and healthcareindustries. To the extent the businesses we serve, especially our clients inthe pharmaceutical and healthcare industries, are subject to financialpressures of, for example, price controls, increased costs or reduced demandfor their products, the demand for our products and services, or the price ourclients are willing to pay for those products and services, may decline.

 

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**Item2.  Unregistered Sales of EquitySecurities and Use of Proceeds**

 
| **Period**            | ** ** | **Total Number  of Shares  Purchased** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of Shares  Purchased Under  Publicly Announced  Programs** | ** ** | **Maximum Number of  Shares that May Yet Be  Purchased Under the  Programs (1)** | ** ** |
|-----------------------|------------|--------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|
| April 1-30, 2008 |       | —                                           |       | $                                            | —     |                                                                                               | —     |                                                                                                                          | 10,000,000 |   |
| May 1-31, 2008   |       | —                                           |       | —                                       |       | —                                                                                             |       | 10,000,000                                                                                                                    |       |
| June 1-30, 2008  |       | —                                           |       | —                                       |       | —                                                                                             |       | 10,000,000                                                                                                                    |       |
| **Total**             |       | —                                           |       | $                                            | —     |                                                                                               | —     |                                                                                                                          | 10,000,000 |   |

 

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(1)          In December 2007, theBoard of Directors authorized a stock repurchase program to buy up to20,000,000 shares. As of June 30, 2008, 10,000,000 shares remained availablefor repurchase under the December 2007 program. Unless terminated earlierby resolution of our Board of Directors, this program will expire when we haverepurchased all shares authorized for repurchase thereunder.  See Note 12 of our Notes to CondensedConsolidated Financial Statements (Unaudited) for further details.

 

**Item 4. ****Submission of Matters toa Vote of Security Holder****s**

 

The Annual Meetingof Shareholders of IMS Health Incorporated was held on May 2, 2008.

 

The followingnominees for director named in the Proxy Statement dated March 28, 2008were elected at the Meeting for a three-year term expiring in 2011 by the votesindicated:

 
| ** **               | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|--------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| David R.  Carlucci       |       | 155,069,702 |       | 2,685,011   |       | 1,310,795   |       |
| Constantine L.  Clemente |       | 156,610,336 |       | 1,216,125   |       | 1,239,046   |       |
| Kathryn E,  Giusti       |       | 155,980,310 |       | 1,844,566   |       | 1,240,628   |       |
| M. Bernard  Puckett      |       | 155,860,254 |       | 1,898,217   |       | 1,307,041   |       |

 

The followingdirectors continue to serve terms expiring in 2009: John P. Imlay, Jr.,and H. Eugene Lockhart.  The followingdirectors continue to serve terms expiring in 2010: James D. Edwards, WilliamC. Van Faasen and Bret W. Wise.

 

The ratificationof the appointment of PricewaterhouseCoopers LLP as Independent RegisteredPublic Accounting Firm was approved by the following vote:

 
| ** **       | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Number of Shares |       | 156,231,002 |       | 1,608,234   |       | 1,226,277   |       |

 

The approval ofthe amendment to the Restated Certificate of Incorporation to declassify theBoard of Directors:

 
| ** **       | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker  Non-Votes** | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|-----------------------|------------|
| Number of Shares |       | 157,118,882 |       | 486,025     |       | 1,460,603   |       | 11                    |       |

 

The reapproval ofthe business criteria used for performance goals under the Executive AnnualIncentive Plan:

 
| ** **       | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker  Non-Votes** | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|-----------------------|------------|
| Number of Shares |       | 154,905,119 |       | 2,768,139   |       | 1,392,251   |       | 12                    |       |

 

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**Item 6. Exhibits**

 

(a)   Exhibits

 
| **Exhibit  Number** | ** ** | **Description of Exhibits**                                                                                                                                                                                        |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                         |
| 4.1                 |       | Certificate  of Amendment of Restated Certificate of Incorporation (incorporated by  reference to Exhibit 3.1 to the Registrant’s Current Report on  Form 8-K, filed on May 8, 2008)                     |
|                |       |                                                                                                                                                                                                                         |
| 4.2                 |       | Fourth  Amended and Restated By-laws of IMS Health Incorporated dated May 8,  2008 (incorporated by reference to Exhibit 3.1 to the Registrant’s  Current Report on Form 8-K, filed on May 8, 2008) |
|                |       |                                                                                                                                                                                                                         |
| 10.1                |       | Forms  B and C of Employees’ Stock Appreciation Rights Agreements                                                                                                                                                       |
|                |       |                                                                                                                                                                                                                         |
| 10.2                |       | IMS  Health Incorporated Executive Annual Incentive Plan (As Amended and Restated  June 26, 2008)                                                                                                                       |
|                |       |                                                                                                                                                                                                                         |
| 10.3                |       | IMS  Health Incorporated Supplemental Executive Retirement Plan (As Amended and  Restated Effective as of January 1, 2005)                                                                                              |
|                |       |                                                                                                                                                                                                                         |
| 10.4                |       | IMS  Health Incorporated Executive Pension Plan (As Amended and Restated Effective  as of January 1, 2005)                                                                                                              |
|                |       |                                                                                                                                                                                                                         |
| 10.5                |       | IMS  Health Incorporated U.S. Executive Retirement Plan (As Amended and Restated  Effective as of January 1, 2005)                                                                                                      |
|                |       |                                                                                                                                                                                                                         |
| 10.6                |       | IMS  Health Incorporated Retirement Excess Plan (As Amended and Restated Effective  as of January 1, 2005)                                                                                                              |
|                |       |                                                                                                                                                                                                                         |
| 10.7                |       | IMS Health Incorporated  Savings Equalization Plan (As Amended and Restated Effective as of  January 1, 2005)                                                                                                           |
|                |       |                                                                                                                                                                                                                         |
| 10.8                |       | IMS Health Incorporated  Defined Contribution Executive Retirement Plan (As Amended and Restated  Effective as of January 1, 2009)                                                                                      |
|                |       |                                                                                                                                                                                                                         |
| 10.9                |       | IMS Health Incorporated  Employee Protection Plan and Summary Plan Description (As Amended and  Restated Effective as of January 1, 2008)                                                                               |
|                |       |                                                                                                                                                                                                                         |
| 31.1                |       | CEO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                         |
| 31.2                |       | CFO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                         |
| 32.1                |       | Joint CEO/CFO  Certification Required Under Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                                              |

 

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**SIGNATURES**

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the Registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

 

 
|                      |   | IMS Health  Incorporated        |
|---------------------------|--------|---------------------------------|
|                      |   |                            |
|                      |   |                            |
|                      | By:    | /s/ Leslye G.  Katz             |
| Date: July 31,  2008 |   | Leslye G. Katz                  |
|                      |   | Senior Vice  President and      |
|                      |   | Chief Financial  Officer        |
|                      |   | (principal  financial officer)  |
|                      |   |                            |
|                      |   |                            |
|                      |   | /s/ Harshan  Bhangdia           |
| Date: July 31,  2008 |   | Harshan Bhangdia                |
|                      |   | Vice President,  Controller     |
|                      |   | (principal  accounting officer) |

 

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# **EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description of Exhibits**                                                                                                                                                                                        |
|---------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                |       |                                                                                                                                                                                                                         |
| 4.1                 |       | Certificate  of Amendment of Restated Certificate of Incorporation (incorporated by  reference to Exhibit 3.1 to the Registrant’s Current Report on  Form 8-K, filed on May 8, 2008)                     |
|                |       |                                                                                                                                                                                                                         |
| 4.2                 |       | Fourth  Amended and Restated By-laws of IMS Health Incorporated dated May 8,  2008 (incorporated by reference to Exhibit 3.1 to the Registrant’s  Current Report on Form 8-K, filed on May 8, 2008) |
|                |       |                                                                                                                                                                                                                         |
| 10.1                |       | Forms  B and C of Employees’ Stock Appreciation Rights Agreements                                                                                                                                                       |
|                |       |                                                                                                                                                                                                                         |
| 10.2                |       | IMS  Health Incorporated Executive Annual Incentive Plan (As Amended and Restated  June 26, 2008)                                                                                                                       |
|                |       |                                                                                                                                                                                                                         |
| 10.3                |       | IMS  Health Incorporated Supplemental Executive Retirement Plan (As Amended and  Restated Effective as of January 1, 2005)                                                                                              |
|                |       |                                                                                                                                                                                                                         |
| 10.4                |       | IMS  Health Incorporated Executive Pension Plan (As Amended and Restated Effective  as of January 1, 2005)                                                                                                              |
|                |       |                                                                                                                                                                                                                         |
| 10.5                |       | IMS  Health Incorporated U.S. Executive Retirement Plan (As Amended and Restated  Effective as of January 1, 2005)                                                                                                      |
|                |       |                                                                                                                                                                                                                         |
| 10.6                |       | IMS  Health Incorporated Retirement Excess Plan (As Amended and Restated Effective  as of January 1, 2005)                                                                                                              |
|                |       |                                                                                                                                                                                                                         |
| 10.7                |       | IMS Health Incorporated  Savings Equalization Plan (As Amended and Restated Effective as of  January 1, 2005)                                                                                                           |
|                |       |                                                                                                                                                                                                                         |
| 10.8                |       | IMS Health Incorporated  Defined Contribution Executive Retirement Plan (As Amended and Restated  Effective as of January 1, 2009)                                                                                      |
|                |       |                                                                                                                                                                                                                         |
| 10.9                |       | IMS Health Incorporated  Employee Protection Plan and Summary Plan Description (As Amended and  Restated Effective as of January 1, 2008)                                                                               |
|                |       |                                                                                                                                                                                                                         |
| 31.1                |       | CEO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                         |
| 31.2                |       | CFO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                                                             |
|                |       |                                                                                                                                                                                                                         |
| 32.1                |       | Joint CEO/CFO  Certification Required Under Section 906 of the Sarbanes-Oxley Act of  2002                                                                                                                              |

 

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