**UNITEDSTATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, 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, 2007**                      |
| ** **     |   | **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 Registrant as Specified in its Charter)

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

 

**901 Main Avenue, Norwalk, CT06851**(Address of principal executive offices)(Zip Code)

**(203) 845-5200**(Registrant’s telephone number, including area code)

**N/A**(Former name, former address and former fiscal year, ifchanged 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 the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject 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, or non-accelerated filer. Seedefinition of “accelerated filer and large accelerated filer” in Rule 12b-2 ofthe Exchange Act. (Check one):

Large Accelerated Filer x                 Accelerated Filer o   Non-AcceleratedFiler 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. AtJune 30, 2007, there were 194,971,605 shares of IMS Health Incorporated CommonStock, $0.01 par value, outstanding.

 

----

**IMSHEALTH INCORPORATED**

**INDEX TOFORM 10-Q**
|                                                                                                             | ** ** | **PAGE(S)** |
|-------------------------------------------------------------------------------------------------------------|------------|-------------|
| **PART  I. FINANCIAL INFORMATION**                                                                          | ** ** | ** **  |
| ** **                                                                                                  | ** ** | ** **  |
| **Item  1. Financial Statements (Unaudited)**                                                               |       | **3**       |
| ** **                                                                                                  |       | ** **  |
| Condensed Consolidated Statements of Financial  Position  As of June 30, 2007 and December 31, 2006         |       | 3           |
|                                                                                                        |       |        |
| Condensed Consolidated Statements of Income  Three Months Ended June 30, 2007 and 2006                      |       | 4           |
|                                                                                                        |       |        |
| Condensed Consolidated Statements of Income  Six Months Ended June 30, 2007 and 2006                        |       | 5           |
|                                                                                                        |       |        |
| Condensed Consolidated Statements of Cash Flows  Six Months Ended June 30, 2007 and 2006                    |       | 6           |
|                                                                                                        |       |        |
| Notes to Condensed Consolidated Financial Statements                                                        |       | 7           |
|                                                                                                        |       | ** **  |
| ****Item 2. Management’s  Discussion and Analysis of Financial Condition and Results of Operations**** |       | **31**      |
| ** **                                                                                                  |       | ** **  |
| **Item 3. Quantitative and Qualitative Disclosures About  Market Risk**                                     | ** ** | **51**      |
| ** **                                                                                                  | ** ** | ** **  |
| ****Item 4. Controls and  Procedures****                                                                    |       | **51**      |
| ** **                                                                                                  |       | ** **  |
| **PART  II. OTHER INFORMATION**                                                                             |       | ** **  |
| ** **                                                                                                  |       | ** **  |
| ****Item 1. Legal Proceedings****                                                                           |       | **52**      |
| ** **                                                                                                  | ** ** | ** **  |
| **Item  1A. Risk Factors**                                                                                  |       | **52**      |
| ** **                                                                                                  |       | ** **  |
| **Item 2. Changes in Securities, Use of Proceeds and Issuer  Purchases of Equity Securities**               |       | **58**      |
| ** **                                                                                                  |       | ** **  |
| **Item 4. Submission of Matters to a Vote of Security  Holders**                                            |       | **58**      |
| ** **                                                                                                  |       | ** **  |
| ****Item 6. Exhibits****                                                                                    |       | **59**      |
| ** **                                                                                                  |       | ** **  |
| **SIGNATURES**                                                                                              |       | **60**      |
| ** **                                                                                                  | ** ** | ** **  |
| **EXHIBITS**                                                                                                |       | **61**      |

 

2

----

**PART I. FINANCIAL INFORMATION**

**Item 1. FINANCIAL STATEMENTS**

**IMS HEALTH INCORPORATED**

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

*(Dollarsand shares in thousands, except per share data)*
| ** **                                                                                                              | ** ** | **As of   June 30,  2007** | ** **    | **As of  December 31,  2006** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|---------------|-----------------------------------------|------------|
|                                                                                                                    | ** ** | ** **                                | ** **    | ** **                              | ** ** |
| **Assets:**                                                                                                             |       |                                      |          |                                    |       |
| **Current Assets:**                                                                                                     |       |                                      |          |                                    |       |
| Cash and cash  equivalents                                                                                              | ** ** | **$**                                     | **210,373**   |                                    | $          | 157,346 |   |
| Accounts receivable,  net of allowances of $6,859 and  $7,860 in 2007 and 2006, respectively                            | ** ** | **396,103**                               |          | 367,413                                 |       |
| Other current assets                                                                                                    | ** ** | **189,002**                               |          | 168,534                                 |       |
| **Total Current Assets**                                                                                                | ** ** | **795,478**                               |          | 693,293                                 |       |
| Securities and other  investments                                                                                       | ** ** | **6,246**                                 |          | 6,401                                   |       |
| Property, plant and  equipment, net of accumulated depreciation of $188,196 and $181,543 in 2007 and 2006, respectively | ** ** | **163,218**                               |          | 148,190                                 |       |
| Computer software                                                                                                       | ** ** | **258,050**                               |          | 255,285                                 |       |
| Goodwill                                                                                                                | ** ** | **557,223**                               |          | 531,610                                 |       |
| Other assets                                                                                                            | ** ** | **289,950**                               |          | 271,815                                 |       |
| **Total Assets**                                                                                                        | ** ** | **$**                                     | **2,070,165** |                                    | $          | 1,906,594 |   |
| ** **                                                                                                              | ** ** | ** **                                |          |                                    |       |
| **Liabilities, Minority Interests  and Shareholders’ (Deficit) Equity:**                                           |       |                                      |          |                                    |       |
| **Current Liabilities:**                                                                                                |       |                                      |          |                                    |       |
| Accounts payable                                                                                                        | ** ** | **$**                                     | **78,151**    |                                    | $          | 82,013 |   |
| Accrued and other  current liabilities                                                                                  | ** ** | **210,843**                               |          | 256,672                                 |       |
| Accrued income taxes                                                                                                    | ** ** | **66,316**                                |          | 74,485                                  |       |
| Short-term deferred tax  liability                                                                                      | ** ** | **8,945**                                 |          | 7,238                                   |       |
| Deferred revenues                                                                                                       | ** ** | **121,381**                               |          | 122,466                                 |       |
| **Total Current Liabilities**                                                                                           | ** ** | **485,636**                               |          | 542,874                                 |       |
| Postretirement and  postemployment benefits                                                                             | ** ** | **88,917**                                |          | 85,846                                  |       |
| Long-term debt (Note 9)                                                                                                 | ** ** | **1,171,436**                             |          | 975,406                                 |       |
| Other liabilities                                                                                                       | ** ** | **240,554**                               |          | 168,149                                 |       |
| **Total Liabilities**                                                                                                   | ** ** | **$**                                     | **1,986,543** |                                    | $          | 1,772,275 |   |
| ** **                                                                                                              | ** ** | ** **                                |          |                                    |       |
| **Commitments and Contingencies  (Note 7)**                                                                             |       |                                      |          |                                    |       |
| **Minority Interests**                                                                                                  | ** ** | **$**                                     | **100,936**   |                                    | $          | 100,410 |   |
| ** **                                                                                                              |       |                                      |          |                                    |       |
| **Shareholders’ (Deficit) Equity:**                                                                                |       |                                      |          |                                    |       |
| Common Stock, par value  $.01, authorized 800,000 shares; issued 335,045 shares in 2007 and 2006,  respectively         | ** ** | **$**                                     | **3,350**     |                                    | $          | 3,350 |   |
| Capital in excess of  par                                                                                               | ** ** | **519,043**                               |          | 497,955                                 |       |
| Retained earnings                                                                                                       | ** ** | **2,708,111**                             |          | 2,612,939                               |       |
| Treasury stock, at  cost, 140,074 and 134,367 shares in 2007 and 2006, respectively                                     | ** ** | **(3,253,274**                            | **)**         | (3,044,996                              | )          |
| Cumulative translation  adjustment                                                                                      | ** ** | **67,263**                                |          | 28,786                                  |       |
| Unamortized  postretirement and postemployment balances (SFAS No. 158)                                                  | ** ** | **(61,935**                               | **)**         | (64,264                                 | )          |
| Unrealized gain on  changes in fair value of cash flow hedges, net of tax                                               | ** ** | **6**                                     |          | 6                                       |       |
| Unrealized gain on  investments, net of tax                                                                             | ** ** | **122**                                   |          | 133                                     |       |
| **Total Shareholders’ (Deficit)  Equity**                                                                          | ** ** | **$**                                     | **(17,314**   | **)**                                   | $          | 33,909 |   |
| **Total Liabilities, Minority Interests and  Shareholders’ (Deficit) Equity**                                      | ** ** | **$**                                     | **2,070,165** |                                    | $          | 1,906,594 |   |

 

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

3

----

## **IMS HEALTH INCORPORATED**

## **CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited)**

*(Dollars and shares inthousands, except per share data)*
| ** **                                                                                               | ** ** | **Three Months Ended  June 30,** | ** **  |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------|-------------|
| ** **                                                                                               | ** ** | **2007**                                        | ** **  | **2006** | ** ** |
| ** **                                                                                               | ** ** | ** **                                      |        |   |   |
| Information and  analytics revenue                                                                       | ** ** | **422,864**                                     |        | 393,699 |   |
| Consulting and  services revenue                                                                         | ** ** | **114,608**                                     |        | 92,521 |   |
| **Operating  Revenue**                                                                                   | ** ** | **$**                                           | **537,472** |   | $ | 486,220 |   |
|                                                                                                     | ** ** | ** **                                      |        |   |   |
| Operating costs  of information and analytics                                                            | ** ** | **179,817**                                     |        | 165,956 |   |
| Direct and  incremental costs of consulting and services                                                 | ** ** | **54,053**                                      |        | 46,211 |   |
| External-use  software amortization                                                                      | ** ** | **12,376**                                      |        | 10,981 |   |
| Selling and  administrative expenses                                                                     | ** ** | **154,167**                                     |        | 132,946 |   |
| Depreciation and  other amortization                                                                     | ** ** | **18,922**                                      |        | 17,784 |   |
| Merger costs  (Note 16)                                                                                  | ** ** | **—**                                      |        | 6,016 |   |
| **Operating  Income**                                                                                    | ** ** | **118,137**                                     |        | 106,326 |   |
| Interest income                                                                                          | ** ** | **1,729**                                       |        | 1,212 |   |
| Interest expense                                                                                         | ** ** | **(9,416**                                      | **)**       | (10,188 | ) |
| Gains from  investments, net                                                                             | ** ** | **2,175**                                       |        | 75 |   |
| Other (expense)  income, net                                                                             | ** ** | **(20**                                         | **)**       | 36,860 |   |
| **Non-Operating  (Loss) Income, Net**                                                                    | ** ** | **(5,532**                                      | **)**       | 27,959 |   |
| Income before  provision for income taxes                                                                | ** ** | **112,605**                                     |        | 134,285 |   |
| Provision for  income taxes (Note 12)                                                                    | ** ** | **(39,211**                                     | **)**       | (71,602 | ) |
| **Net  Income**                                                                                          | ** ** | **$**                                           | **73,394**  |   | $ | 62,683 |   |
|                                                                                                     | ** ** | ** **                                      |        |   |   |
| **Basic  Earnings Per Share of Common Stock**                                                            | ** ** | **$**                                           | **0.37**    |   | $ | 0.31 |   |
| **Diluted  Earnings Per Share of Common Stock**                                                          | ** ** | **$**                                           | **0.36**    |   | $ | 0.30 |   |
| ** **                                                                                               | ** ** | ** **                                      |        |   |   |
| Weighted average  number of shares outstanding – Basic                                              | ** ** | **196,502**                                     |        | 200,761 |   |
| Dilutive effect  of shares issuable as of period-end under Stock-based compensation plans and  other     | ** ** | **3,953**                                       |        | 4,787 |   |
| Adjustment of  shares outstanding applicable to exercised and cancelled stock options during  the period | ** ** | **646**                                         |        | 286 |   |
| **Weighted Average Number of  Shares Outstanding – Diluted**                                        | ** ** | **201,101**                                     |        | 205,834 |   |

* *

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

4

----

## **IMS HEALTH INCORPORATED**

**CONDENSED CONSOLIDATED STATEMENTS OF INCOME(Unaudited)**

*(Dollarsand shares in thousands, except per share data)*
| ** **                                                                                               | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                                                                               | ** ** | **2007**                                      | ** ** | **2006** | ** ** |
| ** **                                                                                               | ** ** | ** **                                    |       |   |   |
| Information and  analytics revenue                                                                       | ** ** | **834,051**                                   |       | 770,834 |   |
| Consulting and  services revenue                                                                         | ** ** | **213,770**                                   |       | 161,540 |   |
| **Operating  Revenue**                                                                                   | ** ** | **1,047,821**                                 | ** ** | $ | 932,374 | ** ** |
|                                                                                                     | ** ** | ** **                                    |       |   |   |
| Operating costs  of information and analytics                                                            | ** ** | **352,459**                                   |       | 324,490 |   |
| Direct and  incremental costs of consulting and services                                                 | ** ** | **110,660**                                   |       | 85,395 |   |
| External-use  software amortization                                                                      | ** ** | **23,621**                                    |       | 21,273 |   |
| Selling and  administrative expenses                                                                     | ** ** | **293,808**                                   |       | 257,297 |   |
| Depreciation and  other amortization                                                                     | ** ** | **38,073**                                    |       | 34,841 |   |
| Merger costs  (Note 16)                                                                                  | ** ** | **—**                                    |       | 6,016 |   |
| **Operating  Income**                                                                                    | ** ** | **229,200**                                   |       | 203,062 |   |
| Interest income                                                                                          | ** ** | **3,527**                                     |       | 2,755 |   |
| Interest expense                                                                                         | ** ** | **(17,972**                                   | **)**      | (18,647 | ) |
| Gains from  investments, net                                                                             | ** ** | **1,964**                                     |       | 2,748 |   |
| Other (expense)  income, net                                                                             | ** ** | **(2,798**                                    | **)**      | 38,632 |   |
| **Non-Operating  (Loss) Income, Net**                                                                    | ** ** | **(15,279**                                   | **)**      | 25,488 |   |
| Income before  provision for income taxes                                                                | ** ** | **213,921**                                   |       | 228,550 |   |
| Provision for  income taxes (Note 12)                                                                    | ** ** | **(54,958**                                   | **)**      | (47,770 | ) |
| **Net  Income**                                                                                          | ** ** | **158,963**                                   |       | $ | 180,780 |   |
|                                                                                                     | ** ** | ** **                                    |       |   |   |
| **Basic  Earnings Per Share of Common Stock**                                                            | ** ** | **$**                                         | **0.81**   |   | $ | 0.88 |   |
| **Diluted  Earnings Per Share of Common Stock**                                                          | ** ** | **$**                                         | **0.79**   |   | $ | 0.86 |   |
| ** **                                                                                               | ** ** | ** **                                    |       |   |   |
| Weighted average  number of shares outstanding – Basic                                              | ** ** | **196,570**                                   |       | 204,988 |   |
| Dilutive effect  of shares issuable as of period-end under stock-based compensation plans and  other     | ** ** | **3,286**                                     |       | 4,175 |   |
| Adjustment of  shares outstanding applicable to exercised and cancelled stock options during  the period | ** ** | **1,018**                                     |       | 448 |   |
| **Weighted Average Number of  Shares Outstanding – Diluted**                                        | ** ** | **200,874**                                   |       | 209,611 |   |

 

*See accompanying Notes to theCondensed Consolidated Financial Statements (Unaudited).*

5

----

**IMS HEALTH INCORPORATED**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)**

*(Dollarsand shares in thousands, except per share data)*
| ** **                                                                               | ** ** | **Six Months Ended June 30,** | ** ** |
|------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                               | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| **Cash  Flows from Operating Activities:**                                               |       |                                              |       |   |   |
| Net income                                                                               | ** ** | **158,963**                                       |       | $ | 180,780 |   |
| **Adjustments  to reconcile net income to net cash provided by operating activities:**   | ** ** | ** **                                        |       |   |   |
| Depreciation and amortization                                                            | ** ** | **61,694**                                        |       | 56,114 |   |
| Bad debt expense                                                                         | ** ** | **505**                                           |       | 190 |   |
| Deferred income taxes                                                                    | ** ** | **(21,774**                                       | **)**      | (6,367 | ) |
| Gains from investments, net                                                              | ** ** | **(1,964**                                        | **)**      | (2,748 | ) |
| Minority interests in net income of consolidated  companies                              | ** ** | **3,907**                                         |       | 1,766 |   |
| Non-cash stock-based compensation charges                                                | ** ** | **20,013**                                        |       | 24,354 |   |
| Excess tax benefits from stock-based compensation                                        | ** ** | **(4,227**                                        | **)**      | (2,284 | ) |
| Change in assets  and liabilities, excluding effects from acquisitions and dispositions: | ** ** | ** **                                        |       |   |   |
| Net increase in accounts receivable                                                      | ** ** | **(26,339**                                       | **)**      | (36,109 | ) |
| Net increase in work-in-process inventory                                                | ** ** | **(864**                                          | **)**      | (4,708 | ) |
| Net increase in prepaid expenses and other current  assets                               | ** ** | **(14,397**                                       | **)**      | (1,374 | ) |
| Net decrease in accounts payable                                                         | ** ** | **(3,992**                                        | **)**      | (16,317 | ) |
| Net decrease in accrued and other current  liabilities                                   | ** ** | **(30,900**                                       | **)**      | (16,058 | ) |
| Net decrease in accrued severance, impairment and  other charges                         | ** ** | **(1,754**                                        | **)**      | (12,755 | ) |
| Net (decrease) increase in deferred revenues                                             | ** ** | **(1,015**                                        | **)**      | 3,018 |   |
| Net increase (decrease) in accrued income taxes                                          | ** ** | **10,837**                                        |       | (51,587 | ) |
| Net increase in pension assets (net of liabilities)                                      | ** ** | **(60**                                           | **)**      | (12,926 | ) |
| Net increase in other long-term assets (net of other  long-term liabilities)             | ** ** | **(1,421**                                        | **)**      | (141 | ) |
| Net tax benefit on stock-based compensation                                              | ** ** | **9,588**                                         |       | 5,235 |   |
| **Net  Cash Provided by Operating Activities**                                           | ** ** | **156,800**                                       |       | 108,083 |   |
| **Cash  Flows Used in Investing Activities:**                                            | ** ** | ** **                                        |       |   |   |
| Capital expenditures                                                                     | ** ** | **(26,196**                                       | **)**      | (11,264 | ) |
| Additions to computer software                                                           | ** ** | **(42,858**                                       | **)**      | (44,296 | ) |
| Payments for acquisitions of businesses, net of cash  acquired                           | ** ** | **(22,192**                                       | **)**      | (21,515 | ) |
| Proceeds from sales of investments, net                                                  | ** ** | **3,524**                                         |       | 5,026 |   |
| Funding of venture capital investments                                                   | ** ** | **(1,200**                                        | **)**      | (400 | ) |
| Other investing activities, net                                                          | ** ** | **(8,800**                                        | **)**      | (2,897 | ) |
| **Net  Cash Used in Investing Activities**                                               | ** ** | **(97,722**                                       | **)**      | (75,346 | ) |
| **Cash  Flows Used in Financing Activities:**                                            | ** ** | ** **                                        |       |   |   |
| Net increase (decrease) in revolving credit facility  and other                          | ** ** | **217,798**                                       |       | (60,391 | ) |
| Proceeds from short-term credit agreement, bank term  loan and private placement notes   | ** ** | **—**                                        |       | 650,000 |   |
| Repayment of short-term credit agreement                                                 | ** ** | **—**                                        |       | (150,000 | ) |
| Payments for purchase of treasury stock                                                  | ** ** | **(327,610**                                      | **)**      | (728,564 | ) |
| Proceeds from exercise of stock options                                                  | ** ** | **110,779**                                       |       | 41,348 |   |
| Excess tax benefits from stock-based compensation                                        | ** ** | **4,227**                                         |       | 2,284 |   |
| Dividends paid                                                                           | ** ** | **(11,977**                                       | **)**      | (12,142 | ) |
| Proceeds from employee stock purchase plan                                               | ** ** | **3,330**                                         |       | 2,913 |   |
| (Decrease) increase in cash overdrafts                                                   | ** ** | **(4,588**                                        | **)**      | 10,485 |   |
| Payments to minority interests and other financing  activities                           | ** ** | **(3,381**                                        | **)**      | (1,612 | ) |
| **Net  Cash Used in Financing Activities**                                               | ** ** | **(11,422**                                       | **)**      | (245,679 | ) |
| Effect of Exchange  Rate Changes on Cash and Cash Equivalents                            | ** ** | **5,371**                                         |       | 363 |   |
| **Increase  (Decrease) in Cash and Cash Equivalents**                                    | ** ** | **53,027**                                        |       | (212,579 | ) |
| **Cash  and Cash Equivalents, Beginning of Period**                                      | ** ** | **157,346**                                       |       | 362,943 |   |
| **Cash and Cash Equivalents, End  of Period**                                            | ** ** | **210,373**                                       |       | $ | 150,364 |   |

 

*See accompanying Notes to theCondensed Consolidated Financial Statements (Unaudited).*

6

----

**IMSHEALTH INCORPORATED**

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

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

**Note1.  Interim Condensed ConsolidatedFinancial Statements (Unaudited)**

The accompanying Condensed Consolidated Financial Statements (Unaudited)have been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information and Article10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended.The Condensed Consolidated Financial Statements (Unaudited) do not include allthe information and notes required by accounting principles generally acceptedin the United States of America for complete financial statements. In theopinion of management, all adjustments, all of which are of a normal recurringnature (except for those adjustments related to the Company’s adoption ofFinancial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (“FIN 48”) (see Note 11)), considered necessary for a fair presentationof financial position, results of operations and cash flows for the periodspresented have been included. The results of operations for interim periods arenot necessarily indicative of the results expected for the full year. TheDecember 31, 2006 balance sheet data was derived from audited financialstatements, but does not include all disclosures required by accountingprinciples generally accepted in the United States 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 2006 AnnualReport on Form 10-K. Certain prior yearamounts have been reclassified to conform to the 2007 presentation. Amountspresented in the Condensed Consolidated Financial Statements (Unaudited) maynot add due to rounding.

**Note2.  Basis of Presentation**

IMS is the leading global provider of marketintelligence to the pharmaceutical and healthcare industries. We offer leading-edgemarket intelligence products and services that are integral to our clients’day-to-day operations, including portfolio optimization capabilities; launchand brand management solutions; sales force effectiveness innovations; managedcare and consumer health offerings; and consulting and services solutions thatimprove ROI and the delivery of quality healthcare worldwide. Our informationproducts are developed to meet our clients’ needs by using data secured from aworldwide network of suppliers in more than 100 countries. Our key informationproducts include:

·                       Sales Force Effectiveness to optimize sales force productivity andterritory management;

·                       Portfolio Optimization to provide clients with insights into marketopportunity and business development assessment; and

·                       Launch, Brand Management and Other to support client needs relative tomarket segmentation and positioning, life cycle management for prescription andconsumer health pharmaceutical products and health economics and outcomesresearch offerings.

Within these keyinformation products, 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.

7

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

The Companyoperates in more than 100 countries.

The Company is managed on a global business model with global leadersfor the majority of its critical business processes and accordingly has onereportable segment (See Note 15).

**Note3.  Summary of Recent AccountingPronouncements**

In September 2006, the FASBissued Statement of Financial Accounting Standards (“SFAS”) No. 157, “FairValue Measurements.” This statement defines fair value, establishes aframework for measuring fair value under generally accepted accountingprinciples, and expands disclosures about fair value measurements. Thisstatement is effective for financial statements issued for fiscal yearsbeginning after November 15, 2007, and interim periods within those fiscalyears. The Company is currently evaluating this statement to determine anypotential impact that it may have on its financial results.

In February 2007, the FASBissued SFAS No. 159, “The Fair Value Option for Financial Assets and FinancialLiabilities–Including an amendment of FASB Statement No. 115.” This statementpermits entities to choose to measure many financial instruments and certainother items at fair value. Entities shall report unrealized gains and losses onitems for which the fair value option has been elected in earnings at eachsubsequent reporting date. This statement is effective as of the beginning ofan entity’s first fiscal year that begins after November 15, 2007. The Companyis currently evaluating this statement to determine any potential impact thatit may have on its financial results.

**Note4.  Summary of Significant AccountingPolicies**

*Operating Costs of Informationand Analytics*

Operating costs of information and analytics (“I&A”)include costs of data, data processing and collection and costs attributable topersonnel involved in production, data management and delivery of the Company’sI&A offerings.

Oneof the Company’s major expenditures is the cost for the data itreceives from suppliers.  After receipt of the raw data andprior 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. These processes involve significantemployee 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.

*Directand 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,

8

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

relatedaccommodations and the costs of primary market research data purchasedspecifically for certain individual C&S engagements. Although the Company’sdata is used in multiple customer solutions across different offeringswithin both I&A and C&S, the Company does not have a meaningfulway to allocate the direct cost of the data between I&A and C&Srevenues.  As such, the direct and incremental costs of C&S do notreflect the total costs incurred to deliver its C&S revenues.

Costs associated with theCompany’s time and material and fixed-price C&S contracts are recognized asincurred.

*Stock-BasedCompensation Expense*

On January 1, 2006, the Company adopted SFASNo. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) whichrequires the measurement and recognition of compensation expense for all share-basedpayment awards made to employees and non-employee directors including employeestock options, restricted stock, restricted stock units and employee stockpurchases related to the Employee Stock Purchase Plan based on estimated fairvalues. SFAS 123R supersedes the Company’s previous accounting under AccountingPrinciples Board (“APB”) Opinion No. 25, “Accounting for Stock Issued toEmployees” (“APB 25”) for periods beginning in 2006. In March 2005, theSecurities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin (“SAB”)No. 107 (“SAB 107”) relating to SFAS 123R. The Company has applied theprovisions of SAB 107 in its adoption of SFAS 123R. The Company adopted SFAS123R using the modified prospective transition method, which requires theapplication of the accounting standard as of January 1, 2006, the first day ofthe Company’s fiscal year 2006. See Note 8 for additional information.

SFAS 123R requires companiesto estimate the fair value of stock option awards on the date of grant using anoption-pricing model. The value of the portion of the award that is ultimatelyexpected to vest is recognized as expense over the requisite service period ofthe award in the Company’s Consolidated Statements of Income. Prior to theadoption of SFAS 123R, the Company accounted for stock-based awards toemployees and directors using the intrinsic value method in accordance with APB25 as allowed under SFAS No. 123, “Accounting for Stock-Based Compensation”(“SFAS 123”). Under the intrinsic value method, stock-based compensationexpense had been recognized in the Company’s Consolidated Statements of Incomeonly for stock option modifications and restricted stock units because theexercise price of the Company’s stock options granted to employees and directorsequaled the fair market value of the underlying stock at the date of grant.

Stock-based compensationexpense recognized during the period is based on the value of the portion ofshare-based payment awards that is ultimately expected to vest during theperiod. Stock-based compensation expense recognized in the Company’s ConsolidatedStatements of Income for 2006 and 2007 included compensation expense forshare-based payment awards granted prior to, but not yet vested as of January1, 2006, based on the grant date fair value estimated in accordance with theprovisions of SFAS 123, and compensation expense for the share-based paymentawards granted subsequent to January 1, 2006 based on the grant date fair valueestimated in accordance with the 

9

----

**IMS HEALTHINCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

provisionsof SFAS 123R.  Prior to the adoption ofSFAS 123R, the Company used the straight-line method of attributing the valueof stock-based compensation and continued to use that method after theadoption. As stock-based compensation expense recognized in the ConsolidatedStatements of Income for 2006 and 2007 is based on awards ultimately expectedto vest, it has been reduced for estimated forfeitures. SFAS 123R requiresforfeitures to be estimated at the time of grant and revised, if necessary, insubsequent periods if actual forfeitures differ from those estimates. In theCompany’s pro forma information required under SFAS 123 for the periods priorto 2006, the Company accounted for stock options by estimating forfeitures inthe first three quarters of the year and applying the full year actualforfeitures in the fourth quarter of the year, as well as an estimate of futureforfeitures, and recognized forfeitures as they occurred for restricted stockgrants. The Company’s method of valuation for stock option awards granted afterJanuary 1, 2006 is the Black-Scholes option-pricing model which was alsopreviously used for the Company’s pro forma information required under SFAS123. See Note 8 for additional information.

*Computationof Net Income per Share*

Basic net income per shareis computed using the weighted-average number of common shares outstandingduring the period. Diluted net income per share is computed using theweighted-average number of common shares and dilutive potential common sharesoutstanding during the period. Dilutive potential common shares primarilyconsist of employee stock options and restricted stock units.

SFAS No. 128, “Earningsper Share,” requires that employee equity share options, restricted stock unitsand similar equity instruments granted by the Company be treated as potentialcommon shares outstanding in computing diluted earnings per share. Dilutedshares outstanding include restricted stock units and the dilutive effect ofin-the-money options which is calculated based on the average share price foreach fiscal period using the treasury stock method. Under the treasury stockmethod, the amount the employee must pay for exercising stock options, theamount of compensation cost for future service that the Company has not yetrecognized, and the amount of benefits that would be recorded in additionalpaid-in capital when the award becomes deductible for tax purposes are assumedto be used to repurchase shares.

10

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

**Note 5.  Acquisitions**

The Company makes acquisitions in order to expand itsproducts, services and geographic reach. During the six months ended June 30,2007, the Company completed one acquisition of ValueMedics Research, LLC (U.S.)at a cost of approximately $9,800. This acquisition was accounted for under thepurchase method of accounting. As such, the aggregate purchase price has beenallocated on a preliminary basis to the assets acquired based on estimated fairvalues as of the closing date. The purchase price allocations will be finalizedafter the completion of the valuation of certain assets and liabilities. Anyadjustments resulting from the finalization of the purchase price allocationsare not expected to have a material impact on the Company’s results ofoperations. The Condensed Consolidated Financial Statements (Unaudited) includethe results of this acquired company subsequent to the closing of theacquisition. Had this acquisition occurred as of January 1, 2007 or 2006, theimpact on the Company’s results of operations would not have been significant. Goodwillof approximately $6,000 was recorded in connection with this acquisition, allof which is deductible for tax purposes.

During the six months ended June 30, 2006, the Companycompleted one acquisition of Läkemedelsstatistik AB (Sweden) for an aggregatecost of approximately $12,000. This acquisition was accounted for under thepurchase method of accounting. As such, the aggregate purchase price wasallocated on a preliminary basis to the assets acquired based on estimated fairvalues as of the closing date. The Company finalized the purchase priceallocation for this acquisition during 2006 which did not have a materialimpact on the Company’s results of operations. The Condensed ConsolidatedFinancial Statements (Unaudited) include the results of this acquired companysubsequent to the closing of the acquisition. Had this acquisition occurred asof January 1, 2006, the impact on the Company’s results of operations would nothave been significant. Goodwill of approximately $9,300 was recorded inconnection with this acquisition, none of which is deductible for tax purposes.

**Note 6.  Goodwill and Intangible Assets**

During the six monthsended June 30, 2007, the Company recorded additional goodwill of approximately$14,000 related to the preliminary allocation of purchase price for theacquisition completed during the first six months of 2007 and the completion ofpurchase price allocations for 2006 acquisitions. During the six months endedJune 30, 2006, the Company recorded additional goodwill of approximately$11,000 related primarily to the preliminary allocation of purchase price forthe acquisition completed during the first six months of 2006 and to earn-outagreements for acquisitions completed prior to 2006.

11

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

All of the Company’sother acquired intangibles are subject to amortization.  Intangible assetamortization expense was $4,185 and $8,945 during the three and six monthsended June 30, 2007, respectively, and $4,185 and $8,584 during the three andsix months ended June 30, 2006, respectively.  At June 30, 2007,intangible assets were primarily composed of customer relationships, databasesand trade names (included in Other assets) and computer software. The grosscarrying amounts and related accumulated amortization of these intangibles were$150,188 and $70,793, respectively, at June 30, 2007 and $150,183 and $61,850,respectively, at December 31, 2006. These intangibles are amortized overperiods ranging from two to fifteen years. As of June 30, 2007, the weightedaverage amortization periods of the acquired intangibles by asset class arelisted in the following table: 
| Intangible Asset Type             | ** ** | **Weighted Average  Amortization (Years) Period** |
|-----------------------------------|------------|---------------------------------------------------|
| Customer  Relationships           |       | 10.1                                              |
| Computer  Software and Algorithms |       | 7.0                                               |
| Databases                         |       | 4.7                                               |
| Trade Names                       |       | 4.3                                               |
| Other                             |       | 3.6                                               |
| Weighted Average                  |       | 8.9                                               |

 

Based on currentestimated useful lives, amortization expense associated with intangible assetsat June 30, 2007 is estimated to be approximately $4,100 for each of theremaining two quarters in 2007. Thereafter, annual amortization expenseassociated with intangible assets is estimated to be as follows:
| Year Ended   December 31, | ** ** | **Amortization   Expense** | ** ** |
|------------------------------------------|------------|---------------------------------|------------|
| 2008                                     |       | $                               | 14,598     |   |
| 2009                                     |       | 12,534                          |       |
| 2010                                     |       | 9,053                           |       |
| 2011                                     |       | 7,851                           |       |
| 2012                                     |       | 6,078                           |       |
| Thereafter                               |       | $                               | 21,044     |   |

 

**Note 7.** **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 Companywill incur 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 hasrecorded a reserve, the Company is unable to predict with certainty the finaloutcome of the matter or 

12

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

whetherresolution of the matter will materially affect the Company’s results of operations,financial position or cash flows. As additional information becomes available,the Company adjusts its assessment and estimates of such liabilitiesaccordingly.

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. Theseindemnities typically have terms of approximately two years. The Company hasnot accrued a liability with respect to these matters, as the exposure is consideredremote.

In connection with theagreements (the “LLC Agreements”) governing the relationship among the Companyand two of its subsidiaries and two third-party investors with respect to IMSHealth Licensing Associates, L.L.C., the Company also entered into a guarantyagreement. Under the terms of this guaranty agreement, the Company guaranteesin favor of the third-party investors the performance of the Company’ssubsidiaries under the LLC Agreements and agrees to indemnify and hold harmlessthe third-party investors against damages, including specified delay damages,the third-party investors may suffer as a result of failures to perform underthe 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 financial position, with thepossible exception of the matters described below.

*D&B Legacy and Related TaxMatters*

*SharingDisputes.* In 1996 thecompany then known as The Dun & Bradstreet Corporation (“D&B”) and nowknown as R.H. Donnelley Corporation (“Donnelley”) separated into three publiccompanies by spinning off ACNielsen Corporation (“ACNielsen”) and the companythen known as Cognizant Corporation (“Cognizant”) (the “1996 Spin-Off”). Cognizantis now known as Nielsen Media Research, Inc., a subsidiary of The NielsenCompany, formerly known as VNU N.V. (“NMR”). The agreements effecting the 1996Spin-Off allocated tax-related liability with respect to certain prior businesstransactions (the “Legacy Tax Controversies”) between D&B and Cognizant. TheD&B portion of such liability is now shared among Donnelley and certain ofits former affiliates (the “Donnelley Parties”), and the Cognizant portion ofsuch liability is shared between NMR and the Company pursuant to the agreementseffecting Cognizant’s spin-off of the Company in 1998 (the “1998 Spin-Off”).

The underlying taxcontroversies with the Internal Revenue Service (the “IRS”) have substantiallyall been resolved and the Company paid to the IRS the amounts that it believedwere due and owing. In the first quarter of 2006, Donnelley indicated that itdisputed the amounts contributed by the Company toward the resolution of thesematters based on the Donnelley Parties’ interpretation of the allocation ofliability under the 1996 Spin-Off agreements. The Donnelley Parties on the onehand, and NMR and the Company, on the other hand, have attempted to resolvethese disputes through negotiation. The 1996 Spin-Off agreements provide that ifthe parties cannot

13

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

reach agreement throughnegotiation they must arbitrate the disputes. As of June 30, 2007, the Companyhad a reserve of approximately $20,700 for these matters.

On August 14, 2006, theDonnelley Parties commenced arbitration regarding one of these disputes(referred to herein as the “Dutch Partnership Dispute”) by filing a Notice ofArbitration and Statement of Claim (the “Donnelley Statement”) with theAmerican Arbitration Association International Center for Dispute Resolution(the “AAA”). In the Donnelley Statement, the Donnelley Parties claim that theCompany and NMR collectively owe approximately an additional $10,800 withrespect to the Dutch Partnership Dispute; (if determined liable, the Company’sshare of this amount would be approximately $5,400). On October 16, 2006, theCompany and NMR filed a Statement of Defense denying all claims made by theDonnelley Parties in the Donnelley Statement. The arbitration process iscurrently ongoing. The Company intends to vigorously defend itself with respectto the Dutch Partnership Dispute and the remaining disputes.

*The Partnership (Tax Year 1997)*. The IRS is seeking to reallocate certainitems of 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. During1997, the Partnership was substantially owned by Cognizant, but liability forthis matter was allocated to the Company pursuant to the agreements effectingthe 1998 Spin-Off. The Company has filed a formal protest relating to the proposedassessment for 1997 with the IRS Office of Appeals. The Company is attemptingto resolve this matter in the administrative appeals process before proceedingto litigation if necessary. If the IRS were to ultimately prevail in itsposition, the Company’s liability (tax and interest, net of tax benefit) withrespect to tax year 1997 would be approximately $20,900, which amount the Company had reserved incurrent accrued income taxes payable at June 30, 2007 (See Note 11).

In addition to these matters, the Company and itspredecessors have entered, and the Company continues to enter, into global taxplanning initiatives in the normal course of their businesses. These activitiesare subject to review by applicable tax authorities. As a result of the reviewprocess, uncertainties exist and it is possible that some of these matterscould be resolved adversely to the Company.

*MattersBefore the Belgian Competition Service*

Complaints were filed in 1998 and 1999 against theCompany with the Belgian Competition Service (“BCS”) alleging abuse of adominant position on the Belgian market. In October 1999 and 2000, the Chairmanof the Belgian Competition Council (“BCC”) adopted interim measures against theCompany, with which the Company complied. In December 2004, the Company receiveda formal statement of objections alleging that the Company had abused itsdominant position on the Belgian market in violation of Article 82 of the ECTreaty and corresponding Belgian law. The Company submitted its comments to thestatement of objections in writing to the BCC in February 2005.

14

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

In a separate matter, in October 2004, the BCS notifiedIMS of a request for information in connection with IMS’s acquisition in April2004 of a competitor in the Belgian market, Source Informatics Belgium S.A. TheBCS is investigating whether such acquisition may have violated Article 82 ofthe EC Treaty and corresponding Belgian law. The Company responded to the requestfor information in December 2004.

The Company intends to continue to vigorously defenditself in these matters before the Belgian competition authorities. Managementof the Company is unable to predict at this time the final outcome of thesematters or whether adverse resolutions thereof could materially affect theCompany’s results of operations, cash flows or financial position in the periodin which such adverse resolution occurs.

*Contingent Consideration*

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 2007 through 2009. Substantially all of these additional payments willbe recorded as goodwill in accordance with Emerging Issues Task Force (“EITF”)No. 95-8, “Accounting for Contingent Consideration Paid to the Shareholders ofan Acquired Enterprise in a Purchase Business Combination.” As of June 30,2007, approximately $47,000 had been earned under these contingencies. Based oncurrent estimates, the Company expects that additional contingent paymentsunder these agreements may total approximately $20,000. It is expected thatthese contingent payments will be resolved within a specified time period afterthe end of each respective calendar year from 2007 through 2009.

15

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

**Note 8.  Stock-Based Compensation**

The following table summarizes stock option activityfor the periods indicated.
|                                                        | *** *** | **Shares** | ** ** | **Weighted   Average   Exercise   Price Per   Share** | ** ** |
|--------------------------------------------------------|--------------|------------|------------|--------------------------------------------------------------------------------|------------|
| Options Outstanding, December 31, 2004                 |         | 35,500     |       | $                                                                              | 21.86      |   |
| Granted                                                |         | 4,813      |       | $                                                                              | 24.12      |   |
| Exercised                                              |         | (8,726     | )          | $                                                                              | 18.97      |   |
| Forfeited                                              |         | (575       | )          | $                                                                              | 20.63      |   |
| Cancelled                                              |         | (1,028     | )          | $                                                                              | 26.93      |   |
| 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** | ** ** | **$**                                                                          | **23.43**  | ** ** |
| **Granted**                                            |         | —     | ** ** | **—**                                                                     | ** ** |
| **Exercised**                                          | ** **   | **(4,872** | **)**      | **$**                                                                          | **22.74**  | ** ** |
| **Forfeited**                                          | ** **   | **(138**   | **)**      | **$**                                                                          | **24.20**  | ** ** |
| **Cancelled**                                          | ** **   | **(168**   | **)**      | **$**                                                                          | **29.59**  | ** ** |
| **Options Outstanding, June 30, 2007**                 | ** **   | **16,218** | ** ** | **$**                                                                          | **23.56**  | ** ** |
| **Options Vested or Expected to Vest, June 30,  2007** | ** **   | **16,163** | ** ** | **$**                                                                          | **23.56**  | ** ** |
| **Exercisable,  June 30, 2007**                        | ** **   | **14,738** | ** ** | **$**                                                                          | **23.51**  | ** ** |

 

16

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

The following table summarizes activity of restricted stock units withservice conditions.
|                                                | ** ** | **Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|
| Unvested, December 31, 2004                    |       | 410        |       | $                                                       | 20.01      |   |
| Granted                                        |       | 153        |       | $                                                       | 24.46      |   |
| Vested                                         |       | (119       | )          | $                                                       | 24.41      |   |
| Forfeited                                      |       | —     |       | —                                                  |       |
| 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**  | ** ** | **$**                                                   | **25.04**  | ** ** |
| **Granted**                                    | ** ** | **1,117**  | ** ** | **$**                                                   | **29.74**  | ** ** |
| **Vested**                                     | ** ** | **(267**   | **)**      | **$**                                                   | **26.05**  | ** ** |
| **Forfeited**                                  | ** ** | **(52**    | **)**      | **$**                                                   | **26.50**  | ** ** |
| **Unvested, June 30, 2007**                    | ** ** | **2,356**  | ** ** | **$**                                                   | **27.12**  | ** ** |
| **Vested  or Expected to Vest, June 30, 2007** | ** ** | **2,116**  | ** ** | **$**                                                   | **26.92**  | ** ** |

 

The following table summarizes activity of restricted stock units withperformance conditions.
|                                               | ** ** | **Shares** | ** ** | **Weighted  Average  Grant  Date Fair  Value** | ** ** |
|-----------------------------------------------|------------|------------|------------|-----------------------------------------------------|------------|
| Unvested, December 31, 2004                   |       | 241        |       | $                                                   | 20.96      |   |
| Granted                                       |       | 194        |       | $                                                   | 20.62      |   |
| Vested                                        |       | (53        | )          | $                                                   | 18.97      |   |
| Forfeited                                     |       | (7         | )          | $                                                   | 17.72      |   |
| 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**    | **)**      | **$**                                               | **18.65**  | ** ** |
| **Forfeited**                                 | ** ** | **(1**     | **)**      | **$**                                               | **24.21**  | ** ** |
| **Unvested, June 30, 2007**                   | ** ** | **358**    | ** ** | **$**                                               | **25.37**  | ** ** |
| **Vested or Expected to Vest, June 30, 2007** | ** ** | **340**    | ** ** | **$**                                               | **25.28**  | ** ** |

 

17

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

The following tablesummarizes activity of non-employee director deferred stock granted in lieu ofboard meeting fees:
|                                    | ** ** | **Shares** | ** ** | **Weighted  Average  Grant  Date Fair  Value** | ** ** |
|------------------------------------|------------|------------|------------|------------------------------------------------|------------|
| Outstanding, December 31, 2004     |       | 24         |       | $                                              | 21.47      |   |
| Granted                            |       | 6          |       | $                                              | 24.87      |   |
| Outstanding, December 31, 2005     |       | 30         |       | $                                              | 22.12      |   |
| Granted                            |       | 3          |       | $                                              | 26.13      |   |
| **Outstanding, December 31, 2006** | ** ** | **33**     | ** ** | **$**                                          | **22.49**  | ** ** |
| **Granted**                        | ** ** | **2**      | ** ** | **$**                                          | **29.20**  | ** ** |
| **Outstanding,  June 30, 2007**    | ** ** | **35**     | ** ** | **$**                                          | **22.94**  | ** ** |

 

The following tablesummarizes the components and classification of stock-based compensationexpense in the second quarter of 2007 and 2006.
| ** **                                       | ** ** | **Three Months Ended   June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------|------------|
| ** **                                       | ** ** | **2007**                                              | ** ** | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Stock Options                                    | ** ** | **$**                                                 | **3,563**  |                                          | $          | 9,482 | ** ** | **$** | **9,079** |   | $ | 18,624 |   |
| Restricted Stock  Units                          | ** ** | **5,793**                                             |       | 3,445                                         | ** ** | **10,560** |   | 5,216 |   |
| Employee Stock  Purchase Plan                    | ** ** | **147**                                               |       | 272                                           | ** ** | **374** |   | 514 |   |
| Total  Stock-Based Compensation Expense          | ** ** | **$**                                                 | **9,503**  |                                          | $          | 13,199 | ** ** | **$** | **20,013** |   | $ | 24,354 |   |
|                                             |       |                                                  |       |                                          |       |   |   |   |   |
| Operating Costs  of I&A                      | ** ** | **$**                                                 | **979**    |                                          | $          | 1,411 | ** ** | **$** | **1,961** |   | $ | 2,498 |   |
| Direct and  Incremental Costs of C&S         | ** ** | **1,023**                                             |       | 673                                           | ** ** | **1,897** |   | 1,125 |   |
| Selling, &  Administrative Expenses          | ** ** | **7,501**                                             |       | 11,115                                        | ** ** | **16,155** |   | 20,731 |   |
| Total  Stock-Based Compensation Expense          | ** ** | **$**                                                 | **9,503**  |                                          | $          | 13,199 | ** ** | **$** | **20,013** |   | $ | 24,354 |   |
|                                             |       |                                                  |       |                                          |       |   |   |   |   |
| Tax Benefit on  Stock-Based Compensation Expense | ** ** | **$**                                                 | **2,895**  |                                          | $          | 4,145 | ** ** | **$** | **6,115** |   | $ | 7,471 |   |
|                                             |       |                                                  |       |                                          |       |   |   |   |   |
| Capitalized  Stock-Based Compensation Expense    | ** ** | **$**                                                 | **102**    |                                          | $          | — | ** ** | **$** | **177** |   | $ | — |   |

 

On April 17, 2007, the Company awarded its annualgrant in the form of restricted stock units (“RSUs”) whose vesting and deliveryare contingent upon completion of a specified period of future service.  The awards have a zero exercise price to theemployee and vest ratably over three to four years. The Company’s amortizationof the award is based upon the fair market value of a share of Common Stock onApril 17, 2007.

18

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except pershare data)**

**Note 9. Financial Instruments**

*Foreign Exchange Risk Management*

The Company transacts business in more than 100 countriesand is subject to risks associated with changing foreign exchange rates. TheCompany’s objective is to reduce earnings and cash flow volatility associatedwith foreign exchange rate changes. Accordingly, the Company enters intoforeign currency forward contracts to minimize the impact of foreign exchangemovements on net income, non-U.S. dollar anticipated royalties, and on thevalue of non-functional currency assets and liabilities.

It is the Company’s policy to enter into foreigncurrency transactions only to the extent necessary to meet its objectives asstated above. The Company does not enter into foreign currency transactions forinvestment or speculative purposes. The principal currencies hedged are theEuro, the Japanese Yen, the British Pound, the Swiss Franc and the CanadianDollar.

Theimpact of foreign exchange risk management activities on pre-tax income in thethree and six months ended June 30, 2007 was a net gain of $2,021 and $1,185,respectively and net losses of $7,223 and $4,532 in the three and six monthsended June 30, 2006, respectively.  Inaddition, at June 30, 2007, the Company had approximately $682,259 in foreignexchange forward contracts outstanding with various expiration dates throughMay 2008 relating to non-U.S. Dollar Operating Income, non-U.S. Dollaranticipated royalties and non-functional currency assets and liabilities.  Foreign exchange forward contracts arerecorded at estimated fair value.  Theestimated fair values of the forward contracts are based on quoted marketprices.

 Unrealized and realized gainsand losses on the contracts hedging non-U.S. Dollar Operating Income andnon-functional currency assets and liabilities do not qualify for hedgeaccounting in accordance with SFAS 133, “Accounting for Derivative Instrumentsand Hedging 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 notdeferred and are included in the Condensed Consolidated Statements of Income(Unaudited) in Other (expense) income, net.

*Fair Value of Financial Instruments*

At June 30, 2007, the Company’s financial instruments included cash,cash equivalents, receivables, accounts payable and long-term debt.  At June 30, 2007, the fair values of cash,cash equivalents, receivables and accounts payable approximated carrying valuesdue to the short-term nature of these instruments.  At June 30, 2007, the fair value of long-termdebt approximated carrying value.  

*Credit Concentrations*

The Company continuallymonitors its positions with, and the credit quality of, the financialinstitutions which are counterparties to its financial instruments and does notanticipate non-

19

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

performance by the counterparties. The Company would not realize a material loss as of June 30, 2007 in theevent of non-performance by any one counterparty.  The Company enters into transactions onlywith financial institution counterparties that have a credit rating of A orbetter.  In addition, the Company limitsthe amount of credit exposure with any one institution.

The Company maintains accounts receivable balances ($396,103 and$367,413, net of allowances, at June 30, 2007 and December 31, 2006,respectively), principally from customers in the pharmaceutical industry.  The Company’s trade receivables do notrepresent significant concentrations of credit risk at June 30, 2007 due to thehigh quality of its customers and their dispersion across many geographicareas.

*Borrowings*

The following table summarizes the Company’s long-term debt at June 30,2007 and December 31, 2006:
|                                                                                                                                                   | ** ** | **June 30,  2007** | ** **    | **December 31,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|---------------|-----------------------------|------------|
| 4.6% Private Placement Notes, principal payment of  $150,000 due January 2008, net of interest rate swaps of $(1,892) and  $(2,819), respectively | ** ** | **$**                   | **148,108**   |                        | $          | 147,181 |   |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| 5.55% Private Placement Notes, principal payment of  $150,000 due April 2016                                                                      | ** ** | **150,000**             |          | 150,000                     |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| 1.70% Private Placement Notes, principal payment of  34,395,000 Japanese Yen due January 2013                                                     | ** ** | **278,953**             |          | 288,670                     |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Revolving Credit Facility:                                                                                                                        | ** ** | ** **              |          |                        |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 0.99 %                                                            | ** ** | **365,118**             |          | 249,097                     |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Swiss Franc denominated  borrowings at average floating rates of approximately 2.82%                                                              | ** ** | **71,257**              |          | 59,258                      |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| U.S. Dollar denominated  borrowings at average floating rates of approximately 5.62%                                                              | ** ** | **108,000**             |          | 31,200                      |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Bank Term Loan, principal payment of $50,000 due  June, 2009 at average floating rate of approximately 5.60%                                      | ** ** | **50,000**              |          | 50,000                      |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Total Long-Term  Debt                                                                                                                             | ** ** | **$**                   | **1,171,436** |                        | $          | 975,406 |   |

 

InJuly 2006, the Company entered into a $1,000,000 revolving credit facility witha syndicate of 12 banks (“Revolving Credit Facility”) replacing its existing $700,000 Amended and Restated Facility (seebelow).  The terms of the RevolvingCredit Facility extended the maturity of the facility in its entirety to a termof five years, maturing July 2011, reduced the borrowing margins, and increasedsubsidiary borrowing limits.  Totalborrowings under the Revolving Credit Facility were 

20

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except pershare data)**

$544,374 and $339,555 at June 30, 2007 and December 31, 2006,respectively, all of which were classified as long-term.  In April 2004, the Company entered into a$700,000 revolving credit facility with a syndicate of 12 banks (the “UnsecuredFacility”).  The Unsecured Facilityreplaced the Company’s lines of credit with several domestic and internationalbanks.  On March 9, 2005, the Companyrenegotiated with the syndicate of 12 banks to amend and restate the UnsecuredFacility (the “Amended and Restated Facility”). The terms of the Amended and Restated Facility extended the maturity ofthe facility in its entirety to a term of five years, maturing March 2010,reduced the borrowing margins and increased subsidiary borrowing limits.

The Company defines long-term lines as those where the lines arenon-cancellable for more than 365 days from the balance sheet date by thefinancial institutions except for specified, objectively measurable violationsof the provisions of the agreement. Although the 4.6% Private Placement Notes principal payment of $150,000 isdue within 365 days, the Company has the ability and intent to refinance thenotes with another long-term debt arrangement and continues to classify them aslong-term in compliance with SFAS No. 6, “Classification of Short-TermObligations Expected to be Refinanced.”

In general, rates for borrowing under the Revolving Credit Facility areLIBOR plus 30 basis points and can vary based on the Company’s Debt to EBITDAratio.  The weighted average interestrates for the Company’s lines were 2.15% and 1.61% at June 30, 2007 andDecember 31, 2006, respectively.  Inaddition, the Company is required to pay a commitment fee on any unused portionof the facilities of 0.075%.  At June 30,2007, the Company had approximately $455,626 available under its existing bankcredit facilities.

In June 2006, the Company closed a $50,000three year term loan with a bank.  Theterm loan allows the Company to borrow at a floating rate with a lowerborrowing margin than the Company’s revolving credit facility, and provides theCompany with an option to extend the term up to an additional two years.  The Company used the proceeds to refinanceexisting debt borrowed 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 theproceeds to refinance existing debt of $150,000 drawn under a short term creditagreement with a bank in January 2006.

In January 2006, the Company closed a private placement transactionpursuant to which its Japanese subsidiary issued 34,395,000 Japanese Yenseven-year debt (equal to $300,000 at date of issuance) to several highly ratedinsurance companies at a fixed rate of 1.70%.  The Company used theproceeds to refinance existing debt in Japan borrowed under the Company’sAmended and Restated Facility.

21

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except pershare data)**

In January 2003, the Company closed a private placement transactionpursuant to which it issued $150,000 of five-year debt to several highly ratedinsurance companies at a fixed rate of 4.60%. The Company used the proceeds to pay down short-term debt.  The Company also swapped $100,000 of itsfixed rate debt to floating rate based on six-month LIBOR plus a margin ofapproximately 107 basis points.  TheCompany accounted for these swaps as fair value hedges under the provisions ofSFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  The Company determined the fair values basedon estimated prices quoted by financial institutions.  The fair values of these swaps were $(1,892)and $(2,819) as of June 30, 2007 and December 31, 2006, respectively.

The Company’s financing arrangements provide forcertain covenants and events of default customary for similar instruments,including in the case of its main bank arrangements, the private placementtransactions, and the term loan, covenants to maintain specific ratios ofconsolidated total indebtedness to EBITDA and of EBITDA to certain fixedcharges.  At June 30, 2007, the Companywas in compliance with these financial debt covenants.

**Note 10. Pension and Postretirement Benefits**

The following tablesprovide 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 11 of the Company’s 2006Annual Report on Form 10-K as filed with the SEC.
| **Components of Net Periodic Benefit Cost for the ** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| **Three Months Ended June 30,**                                          | ** ** | **2007**                  | ** ** | **2006**                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                                                                 | ** ** | **$**                     | **4,143**  |                    | $          | 3,599 | ** ** | **$** | **6** |   | $ | 10 |   |
| Interest cost                                                                                | ** ** | **4,611**                 |       | 3,978                   | ** ** | **177** |   | 193 |   |
| Expected return  on plan assets                                                              | ** ** | **(7,318**                | **)**      | (6,437                  | )          | **—** |   | — |   |
| Amortization of  prior service cost (credit)                                                 | ** ** | **5**                     |       | (44                     | )          | **(9** | **)** | (9 | ) |
| Amortization of  transition obligation                                                       | ** ** | **(1**                    | **)**      | (1                      | )          | **—** |   | — |   |
| Amortization of  net loss                                                                    | ** ** | **1,107**                 |       | 1,159                   | ** ** | **108** |   | 152 |   |
| Net periodic  benefit cost                                                                   | ** ** | **$**                     | **2,547**  |                    | $          | 2,254 | ** ** | **$** | **282** |   | $ | 346 |   |

 
| **Components of Net Periodic Benefit Cost for the ** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|----------------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| **Six Months Ended June 30,**                                            | ** ** | **2007**                  | ** ** | **2006**                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                                                                 | ** ** | **$**                     | **8,239**  |                    | $          | 7,063 | ** ** | **$** | **12** |   | $ | 20 |   |
| Interest cost                                                                                | ** ** | **9,193**                 |       | 7,889                   | ** ** | **354** |   | 386 |   |
| Expected return  on plan assets                                                              | ** ** | **(14,598**               | **)**      | (12,791                 | )          | **—** |   | — |   |
| Amortization of  prior service cost (credit)                                                 | ** ** | **9**                     |       | (89                     | )          | **(18** | **)** | (150 | ) |
| Amortization of  transition obligation                                                       | ** ** | **(2**                    | **)**      | (2                      | )          | **—** |   | — |   |
| Amortization of  net loss                                                                    | ** ** | **2,202**                 |       | 2,287                   | ** ** | **216** |   | 304 |   |
| Net periodic  benefit cost                                                                   | ** ** | **$**                     | **5,043**  |                    | $          | 4,357 | ** ** | **$** | **564** |   | $ | 560 |   |

 

22

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except pershare data)**

**Note 11.  IncomeTaxes**

The Company operates in more than 100 countries around the world andits earnings are taxed at the applicable income tax rate in each of these countries.

The Company adopted the provisions of FIN 48 on January 1, 2007.  As a result of this adoption, the Companyrecognized an increase in liabilities for uncertain tax positions ofapproximately $51,800 and a corresponding reduction to the January 1, 2007retained earnings balance. As of the adoption date, the Company hadapproximately $117,200 of gross unrecognized tax benefits, of which $107,600,if recognized, would favorably affect the effective tax rate.  The Company recognizes interest expense and penaltiesrelated to unrecognized tax benefits in income tax expense.  As of the adoption date, the Company hadaccrued interest and penalties of approximately $13,500.

For the six months endedJune 30, 2007, the Company had recorded approximately $7,000 of tax expenserelated to uncertain tax positions that if recognized, would favorably affectthe effective tax rate. Included in this amount is approximately $3,700 ofinterest and penalties.

The Company files numerous consolidated and separate income tax returnsin the U.S. federal and state and non-U.S. jurisdictions.  With few exceptions, the Company is no longersubject to U.S. federal income tax examinations for the years before 2003 andis no longer subject to state and local income tax examination by taxauthorities for years before 1997.  Aswell, with few exceptions, the Company is no longer subject to examination bytax authorities in its material non-U.S. jurisdictions prior to 2003.  It is reasonably possible that within thenext twelve months the Company could recognize approximately $1,000 ofunrecognized benefits as a result of the expiration of certain statutes oflimitation.

The Internal Revenue Service (“IRS”) is currently auditing the 2004 and2005 federal income tax returns of the Company. It is reasonably possible that this audit may conclude within the nexttwelve months. To date, no material adjustments have been proposed as a resultof this audit.  At this time, it is notreasonably possible to estimate the impact of the resolution of this audit onthe financial statements of the Company.

The Company had considered making a deposit of tax to stop the runningof interest for the tax year 1997 related to a dispute over the allocation ofcertain items of partnership income and expense (see Note 7), but is currentlyin discussions with the IRS regarding this matter.  TheCompany had approximately $20,900 (tax and interest, net of tax benefit)reserved in current accrued income taxes payable at June 30, 2007.

For the three and six months ended June 30, 2007, our effective taxrate was reduced primarily due to a favorable non-U.S. audit settlement for taxyears 1998 through 2002 (approximately $16,500) and a reorganization of certainnon-U.S. subsidiaries (approximately $4,400). For the threemonths ended June 30, 2006, the Company’s effective tax rate was primarilyimpacted by approximately $21,400 of tax expense related to areorganization of several of the Company’s subsidiaries.  For the six months ended June30, 2006, the Company’s effective tax rate was reduced primarily due to afavorable U.S. partnership audit settlement of approximately $69,200 for thetax years 1998 through 2003 and a favorable U.S. audit settlement of approximately $17,600 for the tax years 2000through 2003.  Also in 

23

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

the first half of 2006, approximately $21,400 of tax expense wasrecorded related to a reorganization of several of the Company’ssubsidiaries.  Further, approximately$24,800 of tax expense was recorded primarily in the first quarter of 2006related to disputes between the Company and NMR, on the one hand, and Donnelleyand certain of its former affiliates on the other hand, as to properinterpretation of, and allocation of tax liabilities under, the 1996 Spin-Offagreements (see Note 7).

OnJuly 6, 2007, the German State Council accepted the German 2008 Business TaxReform Act (“Bill”).  In order for theBill to be enacted it must be signed by the President and then published in theFederal Gazette. The Bill reduces the German federal tax rate from 25% to 15%.If the Bill is enacted, the Company’s German effective tax rate (including theeffect of local taxes) will be reduced to 31.9% from 40.2%. As a result, theCompany would recognize a tax charge of approximately $7,500 to revalue netdeferred tax assets related to Germany during the quarter in which the Bill isenacted.

Whilethe Company intends to continue to seek global tax planning initiatives, therecan be no assurance that the Company will be able to successfully identify andimplement such initiatives to reduce or maintain its overall tax rate.

**Note 12. IMS Health 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 19, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. As of June 30, 2007, 5,309 shares remained available for repurchaseunder the December 2006 program.

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 2007 at a total cost of $799,906.

On November 16, 2005, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. This program was completed inFebruary 2006 at a total cost of $256,521.

On December 14, 2004, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. This program was completed inJanuary 2006 at a total cost of $242,680.

During the first sixmonths of 2007, the Company repurchased approximately 11,135 shares ofoutstanding Common Stock under these programs at a total cost of $333,621,including the repurchase of 6,135 shares pursuant to an accelerated sharerepurchase program (“ASR”).  As part ofthe ASR, the Company simultaneously entered into a forward contract for thefinal settlement of the ASR transaction which was indexed to the price of theCompany’s Common Stock.  The ASRagreement provided for the final settlement amount to be in the Company’sCommon Stock if the Company were to owe an amount to the bank, or in eithercash or additional shares of the Company’s Common Stock, at the Company’s solediscretion, if the bank were to owe an amount to the Company.  As the agreement required the Company todeliver shares to the bank for final settlement, the forward contract elementqualified for permanent equity classification and the fair value of the forwardcontract, which 

24

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

was zero at the contract’sinception, was recorded in equity in accordance with the provisions of EITF00-19, “Accounting for Derivative Financial Instruments Indexed to, andPotentially Settled In, a Company’s Own Stock.” Subsequent changes in the fair value of the forward contract were notrecorded as the Company continued to classify the forward contract asequity.  Upon completion of the ASR inApril 2007, the Company was required to pay approximately $6,000 in shares, andtherefore issued 203 treasury shares, as full settlement of its obligationunder the ASR.  The total cost of the ASRwas approximately $176,000 or $28.68 per share. The Company funded the ASR through its existing bank credit facilities(see Note 9).

During the first sixmonths of 2006, the Company repurchased approximately 29,000 shares ofoutstanding Common Stock under these programs at a total cost of $746,818.  The 2006 repurchases include the repurchaseof 25,000 shares at a total cost of approximately $645,000 or $25.82 per sharein January 2006 pursuant to an ASR.  Asthe 2006 ASR provided for the final settlement of the contract in either cashor additional shares of the Company’s Common Stock at its sole discretion, theforward contract element of the 2006 ASR, which was indexed to the price of theCompany’s Common Stock, was treated as permanent equity and subsequent changesin fair value were not recorded in accordance with the provisions of EITF00-19.

Total share repurchasesduring the three and six months ended June 30, 2007 benefited diluted earningsper share (“EPS”) by less than $0.01 per share. Total share repurchases during the three and six months ended June 30,2006 benefited EPS by approximately $0.01 per share and $0.04 per share,respectively.

Shares acquired through the Company’srepurchase programs described above are open-market purchases or privately negotiatedtransactions in compliance with SEC Rule 10b-18, with the exception ofpurchases pursuant to the 2006 and 2007 ASR transactions.

Under the Company’s Restated Certificate ofIncorporation as amended, the Company has authority to issue 820,000 shareswith a par value of $.01 per share of which 800,000 represent shares of CommonStock, 10,000 represent shares of preferred stock and 10,000 represent sharesof Series Common Stock. The preferred and series Common Stock can be issuedwith varying terms, as determined by the Board of Directors.

25

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except pershare data)**

**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,** | ** ** |
|-----------------------------------------------------|------------|-------------------------------------------------|-------------|-----------------------------------------------|------------|
| ** **                                          | ** ** | **2007**                                        | ** **  | **2006**                                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Net Income**                                      | ** ** | **$**                                           | **73,394**  | ** **                                    | $          | 62,683 |   | **$** | **158,963** | ** ** | $ | 180,780 |   |
| Other comprehensive income, net of taxes:           |       | ** **                                      | ** **  |                                          |       | ** ** | ** ** |   |   |
| Unrealized gains  (losses) on:                      |       | ** **                                      | ** **  |                                          |       | ** ** | ** ** |   |   |
| Available-for-sale  equity securities               |       | **66**                                          | ** **  | (162                                          | )          | **(17** | **)** | (118 | ) |
| Tax (provision) benefit  on above                   |       | **(23**                                         | **)**       | 57                                            |       | **6** | ** ** | 41 |   |
| Change in unrealized  gains (losses) on investments |       | **43**                                          | ** **  | (105                                          | )          | **(11** | **)** | (77 | ) |
| Foreign currency  translation gains                 |       | **43,249**                                      | ** **  | 9,337                                         |       | **38,476** | ** ** | 18,458 |   |
| Changes in fair value  of cash flow hedges          |       | **—**                                      | ** **  | 22                                            |       | **—** | ** ** | 65 |   |
| Amortization of SFAS  158 service cost              |       | **1,078**                                       | ** **  | —                                        |       | **2,329** | ** ** | — |   |
| Total other comprehensive income                    |       | **44,370**                                      | ** **  | 9,254                                         |       | **40,794** | ** ** | 18,446 |   |
| **Comprehensive  Income**                           | ** ** | **$**                                           | **117,764** | ** **                                    | $          | 71,937 |   | **$** | **199,757** | ** ** | $ | 199,226 |   |

 

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

During the fourth quarter of 2004, the Company recorded $36,890 ofSeverance, impairment and other charges as a component of operating income. Asa result of leveraging prior investments in technology and processimprovements, the Company committed to a plan to eliminate selected positionsinvolved primarily in production and development. The plan resulted in a chargefor one-time termination benefits relating to a headcount reduction ofapproximately 600 employees located primarily in EMEA and the U.S. Theseseverance benefits were calculated pursuant to the terms of establishedemployee protection plans, in accordance with local statutory minimumrequirements or individual employee contracts, as applicable.

All of the charge was settled in cash. The Company paid $166 during thefirst quarter of 2007 and there was no remaining accrual balance at June 30,2007. All termination actions under this plan were completed by the end of2006.
|                             | ** ** | **Severance  related  reserves** | ** ** |
|-----------------------------|------------|----------------------------------|------------|
| Charge at December 31, 2004 |       | $                                | 36,890     |   |
| 2004 utilization            |       | (452                             | )          |
| 2005 utilization            |       | (24,052                          | )          |
| 2006 utilization            |       | (12,220                          | )          |
| 2007 utilization            |       | (166                             | )          |
| Balance at June 30, 2007    |       | $                                | —     |   |

 

26

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except pershare data)**

During the three months ended March 31, 2003, the Company recorded$37,220 of Severance, impairment and other charges as a component of operatingincome. These charges were designed to further streamline operations andincrease productivity through a worldwide reduction in headcount ofapproximately 80 employees and charges related to impaired contracts andassets. The contract-related charges were for impaired data supply and dataprocessing contacts primarily in the Company’s U.S. and Japanese operations.The asset write-downs portion of the 2003 charge related to the Company’sdecision to abandon certain products and as such, certain computer softwareprimarily in the U.S., Japan and EMEA was written-down to its net realizablevalue.
| ** **                | ** ** | **Severance  related  reserves** | ** ** | **Contract  related  reserves** | ** ** | **Asset  write-  downs** | ** ** | **Total** | ** ** |
|---------------------------|------------|----------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------|------------|
| Charge at March  31, 2003 |       | $                                | 9,958      |                            | $          | 22,307                   |       | $         | 4,955      |   | $ | 37,220 |   |
| 2003 utilization          |       | (6,197                           | )          | (7,047                          | )          | (6,634                   | )          | (19,878   | )          |
| 2004 utilization          |       | (1,637                           | )          | (3,614                          | )          | —                   |       | (5,251    | )          |
| 2005 utilization          |       | (378                             | )          | (6,747                          | )          | —                   |       | (7,125    | )          |
| 2006 utilization          |       | —                           |       | (2,262                          | )          | —                   |       | (2,262    | )          |
| 2007 utilization          |       | —                           |       | (248                            | )          | —                   |       | (248      | )          |
| 2007 reversals            |       | —                           |       | (2,249                          | )          | —                   |       | (2,249    | )          |
| Adjustments               |       | (1,746                           | )          | 67                              |       | 1,679                    |       | —    |       |
| Balance at June  30, 2007 |       | $                                | —     |                            | $          | 207                      |       | $         | —     |   | $ | 207 |   |

 

Approximately $9,958 of the 2003 charge related to a worldwidereduction in headcount of approximately 80 employees. These severance benefitswere calculated pursuant to the terms of established employee protection plans,in accordance with local statutory minimum requirements or individual employeecontracts, as applicable.

The cash portion of the 2003 charge amounted to $30,586, of which theCompany paid approximately $248, $2,262 and $7,125 during 2007, 2006 and 2005,respectively, related primarily to employee termination benefits andcontract-related charges.  The remainingaccrual of $207 at June 30, 2007 relates to a remaining lease obligation andwill be utilized during 2007.

During the fourth quarter of 2001, the Company completed the assessmentof its Competitive Fitness Program. This program was designed to streamlineoperations, increase productivity and improve client service. In connectionwith this program, the Company recorded $94,616 of Severance, impairment andother charges during the fourth quarter of 2001 as a component of operatingincome.  As of June 30, 2007,approximately $1,498 remains to be utilized from 2007 to 2013 related toseverance payments.

In the first quarter of 2007, the Company reversed $2,889 of contract-relatedreserves from the 2001 and 2003 charges due primarily to the termination andsettlement of exit related costs for an impaired lease.  These amounts were reversed against Sellingand administrative expenses in the Condensed Consolidated Statements of Income(Unaudited).

27

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**(Dollars and shares in thousands, except pershare data)**

|                              | ** ** | **Severance  related  reserves** | ** ** | **Contract  related  reserves** | ** ** | **Asset  write-  downs** | ** ** | **Total** | ** ** |
|------------------------------|------------|----------------------------------|------------|---------------------------------|------------|--------------------------|------------|-----------|------------|
| Charge at  December 31, 2001 |       | $                                | 39,652     |                            | $          | 26,324                   |       | $         | 28,640     |   | $ | 94,616 |   |
| 2001 utilization             |       | (3,692                           | )          | (6,663                          | )          | (27,887                  | )          | (38,242   | )          |
| 2002 utilization             |       | (26,277                          | )          | (9,819                          | )          | (1,474                   | )          | (37,570   | )          |
| 2003 utilization             |       | (6,384                           | )          | (2,720                          | )          | (241                     | )          | (9,345    | )          |
| 2004 utilization             |       | (455                             | )          | (1,232                          | )          | —                   |       | (1,687    | )          |
| 2005 utilization             |       | (262                             | )          | (1,881                          | )          | —                   |       | (2,143    | )          |
| 2006 utilization             |       | (264                             | )          | (1,887                          | )          | —                   |       | (2,151    | )          |
| 2007 utilization             |       | (132                             | )          | (1,208                          | )          | —                   |       | (1,340    | )          |
| 2007 reversals               |       | —                           |       | (640                            | )          | —                   |       | (640      | )          |
| Adjustments                  |       | (688                             | )          | (274                            | )          | 962                      |       | —    |       |
| Balance at June  30, 2007    |       | $                                | 1,498      |                            | $          | —                   |       | $         | —     |   | $ | 1,498 |   |

 

TheCompany currently expects that the $1,498 balance remaining in the 2001 fourthquarter charge will be utilized as follows:
| Year Ended December 31, | ** ** | **Outlays** | ** ** |
|----------------------------------------|------------|-------------|------------|
| 2007                                   |       | $           | 130        |   |
| 2008                                   |       | 262         |       |
| 2009                                   |       | 262         |       |
| 2010                                   |       | 262         |       |
| 2011                                   |       | 262         |       |
| Thereafter                             |       | 320         |       |
| Total                                  |       | $           | 1,498      |   |

 

**Note 15. Operations by Business Segment**

Operating segments are defined as components of an enterprise aboutwhich financial information is available that is evaluated on a regular basisby the chief operating decision-maker, or decision-making groups, in decidinghow to allocate resources to an individual segment and in assessing performanceof the segment.  The Company operates aglobally consistent business model, offering pharmaceutical businessinformation and related services to its customers in more than 100countries.  See Note 2.

The Company maintains regional geographic management to facilitatelocal execution of its global strategies. However, the Company maintains globalleaders for the majority of its critical business processes; and the mostsignificant performance evaluations and resource allocations made by theCompany’s chief operating decision makers are made on a global basis.  As such, the Company has concluded that itmaintains one operating and reportable segment.

28

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

**GeographicFinancial Information:**

The following represents selected geographicinformation for the regions in which we operate for the three and six monthsended June 30, 2007 and 2006:
| ** **                             | ** ** | **Americas  (1)** | ** ** | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &   Other** | ** ** | **Total  IMS** | ** ** |
|----------------------------------------|------------|-------------------|------------|---------------|------------|----------------------------|------------|---------------------------------------|------------|----------------|------------|
| **Three  months ended June 30, 2007:** |       |              |       |          |       |                       |       |                                  |       |           |       |
| Operating Revenue (4)                  |       | $                 | 240,772    |          | $          | 224,504                    |       | $                                     | 72,196     |           | —     |   | $ | 537,472 |   |
| Operating Income (Loss) (5)            |       | $                 | 77,686     |          | $          | 26,049                     |       | $                                     | 28,501     |           | $          | (14,099 | ) | $ | 118,137 |   |
| **Six  months ended June 30, 2007:**   | ** ** | ** **        | ** ** | ** **    | ** ** | ** **                 | ** ** | ** **                            | ** ** | ** **     | ** ** |
| Operating Revenue (4)                  |       | $                 | 472,048    |          | $          | 434,850                    |       | $                                     | 140,923    |           | —     |   | $ | 1,047,821 |   |
| Operating Income (Loss) (5)            |       | $                 | 153,671    |          | $          | 49,479                     |       | $                                     | 54,779     |           | $          | (28,729 | ) | $ | 229,200 |   |
| **Three  months ended June 30, 2006:** |       |              |       |          |       |                       |       |                                  |       |           |       |
| Operating Revenue (4)                  |       | $                 | 218,732    |          | $          | 202,777                    |       | $                                     | 64,711     |           | —     |   | $ | 486,220 |   |
| Operating Income (Loss) (5)            |       | $                 | 70,204     |          | $          | 31,786                     |       | $                                     | 26,358     |           | $          | (22,022 | ) | $ | 106,326 |   |
| **Six  months ended June 30, 2006:**   | ** ** | ** **        | ** ** | ** **    | ** ** | ** **                 | ** ** | ** **                            | ** ** | ** **     | ** ** |
| Operating Revenue (4)                  |       | $                 | 425,950    |          | $          | 377,490                    |       | $                                     | 128,934    |           | —     |   | $ | 932,374 |   |
| Operating Income (Loss) (5)            |       | $                 | 141,325    |          | $          | 47,183                     |       | $                                     | 53,124     |           | $          | (38,570 | ) | $ | 203,062 |   |

 

----

**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 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 Income for the geographicsegments includes the impact of foreign exchange in converting results intoU.S. dollars.  $6,160 of Corporate andOther Operating Income (Loss) for the three months ended June 30, 2006 has beenreclassified into the regions ($2,319, $2,845 and $996 in the Americas, EMEAand Asia Pacific, respectively) to conform to the current year presentation.$11,756 of Corporate and Other Operating Income (Loss) for the six months endedJune 30, 2006 has been reclassified into the regions ($4,471, $5,456 and $1,829in the Americas, EMEA and Asia Pacific, respectively) to conform to the currentyear presentation.*

A summary of the Company’soperating revenue by product line for the three and six months ended June 30,2007 and 2006 is presented below:
| ** **                 | ** ** | **Three Months Ended June 30,** | ** **  | **Six Months Ended June 30,** | ** ** |
|----------------------------|------------|-----------------------------------------------------|-------------|---------------------------------------------------|------------|
| ** **                 | ** ** | **2007**                                            | ** **  | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                               | **246,221** |                                              | $          | 230,036 | ** ** | **$** | **479,253** |   | $ | 444,130 |   |
| Portfolio  Optimization    | ** ** | **157,020**                                         |        | 138,554                                           | ** ** | **311,498** |   | 268,365 |   |
| Launch, brand  and other   | ** ** | **134,231**                                         |        | 117,630                                           | ** ** | **257,070** |   | 219,879 |   |
| Total Operating  Revenue   | ** ** | **$**                                               | **537,472** |                                              | $          | 486,220 | ** ** | **$** | **1,047,821** |   | $ | 932,374 |   |

 

29

----

**IMSHEALTH INCORPORATED**

**NOTES TOCONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

**Note 16.  Merger Costs**

On July 11, 2005, the Company announced adefinitive agreement to merge with The Nielsen Company (formerly VNU, N.V.) (“Nielsen”),a global information and media company based in Haarlem, The Netherlands.  On November 17, 2005, the Company announcedthe termination of the proposed merger with Nielsen.

In accordance with theterms of the merger termination agreement, Nielsen was required to pay theCompany $45,000 as a result of the acquisition of Nielsen by a private equitygroup in June 2006.  This $45,000 paymentwas received during the second quarter of 2006 and was reflected in Other(expense) income, net in the Condensed Consolidated Statements of Income(Unaudited) for the three and six months ended June 30, 2006.  Additionally, the Company was required to pay$6,016 of investment banker fees and expenses related to the $45,000 paymentreceived which were included in Merger costs in the Condensed ConsolidatedStatements of Income (Unaudited) for the three and six months ended June 30,2006.

30

----

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

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

*This discussion and analysis shouldbe read in conjunction with the accompanying Condensed Consolidated FinancialStatements (Unaudited) and related notes.*

***ExecutiveSummary***

***Our Business***

IMS Health Incorporated (“we”,“us” or “our”) is the leading global provider of market intelligence to thepharmaceutical and healthcare industries. We offer leading-edge marketintelligence products and services that are integral to our clients’ day-to-dayoperations, including portfolio optimization capabilities; launch and brandmanagement solutions; sales force effectiveness innovations; managed care andconsumer health offerings; and consulting and services solutions that improveROI and the delivery of quality healthcare worldwide. Our information productsare developed to meet our clients’ needs by using data secured from a worldwidenetwork of suppliers in more than 100 countries. Our key information productsinclude:

·  SalesForce Effectiveness to optimize sales force productivity and territorymanagement;

·  PortfolioOptimization to provide clients with insights into market opportunity andbusiness development assessment; and

·  Launch,Brand Management and Other to support client needs relative to marketsegmentation and positioning, life cycle management for prescription andconsumer health pharmaceutical products and health economics and outcomesresearch offerings.

Within these key informationproducts, we provide 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.

We operate in more than 100countries.

We manage on a globalbusiness model with global leaders for the majority of our critical businessprocesses and accordingly have one reportable segment.

We believe that importantmeasures of our financial condition and results of operations include operatingrevenue, constant dollar revenue growth, operating income, constant dollaroperating income growth, operating margin and cash flows.

**PerformanceOverview**

Our operatingrevenue grew 10.5% to $537,472 in the second quarter of 2007 as compared to$486,220 in the second quarter of 2006. Our operating revenue grew 12.4% to $1,047,821 in the six months endedJune 30, 2007 as compared to $932,374 in the six months ended June 30,2006.  The quarterly and six monthoperating revenue increases were a result of growth in all three of ourbusiness lines.  Our operating incomegrew 11.1% to $118,137 in the second quarter of 2007 as compared to $106,326 inthe second quarter of 2006.  Ouroperating income grew 12.9% to $229,200 in the six months June 30, 2007 ascompared to $203,062 in the six months ended June 30, 2006.  Both the quarterly and 

31

----

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

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

six monthoperating income growth were a result of increased operating revenues offset byincreases in operating costs, selling and administrative expenses anddepreciation and amortization, as discussed below. Our net income was $73,394for the second quarter of 2007 as compared to $62,683 for the second quarter of2006 and $158,963 for the six months ended June 30, 2007 as compared to$180,780 for the six months ended June 30, 2006, due to the Non-Operating(Loss) Income, net items discussed below and certain tax items as discussed inNote 11 of the Condensed Consolidated Financial Statements (Unaudited).  Our diluted earnings per share of CommonStock increased to $0.36 for the second quarter of 2007 as compared to $0.30for the second quarter of 2006 and decreased to $0.79 for the six months endedJune 30, 2007 as compared to $0.86 for the six months ended June 30, 2006.

**Results of Operations**

*Reclassifications.*Certain prior-year amounts have beenreclassified to conform to the 2007 presentation.

*References to constant dollar results and resultsexcluding 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 have important 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 business growth.  In the first six months of 2007, the U.S.dollar was generally weaker against other currencies as compared to the firstsix months of 2006.  As a result, revenuegrowth at constant dollar exchange rates was lower than growth at actualcurrency exchange rates, while operating income growth at constant dollarexchange rates was slightly higher than growth at actual currency exchangerates due to the mix of actual currency revenue and expense.  See “How Exchange Rates Affect Our Results”below and the discussion of “Market Risk” in the Management Discussion andAnalysis section of our annual report on Form 10-K for the year ended December31, 2006 for a more complete discussion regarding the impact of foreigncurrency translation on our business.

**Summary of Operating Results**
| ** **                                   | ** ** | ** **                                          | ** **  | **% Variance** | ** ** |
|----------------------------------------------|------------|-----------------------------------------------------|-------------|---------------------|------------|
| ** **                                   | ** ** | **Three Months Ended June 30,** | ** **  | **2007**            | ** ** |
| ** **                                   | ** ** | **2007**                                            | ** **  | **2006**            | ** ** | **vs 2006** | ** ** |
| Information and  analytics revenue (I&A) | ** ** | **$**                                               | **422,864** |                | $          | 393,699 |   | 7.4 | % |
| Consulting and  services revenue (C&S)   | ** ** | **114,608**                                         |        | 92,521              |       | 23.9 | % |
| Operating costs  of I&A                  | ** ** | **179,817**                                         |        | 165,956             |       | 8.4 | % |
| Direct and  incremental costs of C&S     | ** ** | **54,053**                                          |        | 46,211              |       | 17.0 | % |
| External use  software amortization          | ** ** | **12,376**                                          |        | 10,981              |       | 12.7 | % |
| Selling and  administrative expenses         | ** ** | **154,167**                                         |        | 132,946             |       | 16.0 | % |
| Depreciation and  amortization               | ** ** | **18,922**                                          |        | 17,784              |       | 6.4 | % |
| Merger costs                                 | ** ** | **—**                                          |        | 6,016               |       | (100.0 | )% |
| Operating income                             | ** ** | **$**                                               | **118,137** |                | $          | 106,326 |   | 11.1 | % |

 

32

----

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

**(Dollars and shares in thousands,except per share data)**
| ** **                                   | ** ** | ** **                                        | ** **  | **% Variance** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------|-------------|---------------------|------------|
| ** **                                   | ** ** | **Six Months Ended June 30,** | ** **  | **2007**            | ** ** |
| ** **                                   | ** ** | **2007**                                          | ** **  | **2006**            | ** ** | **vs 2006** | ** ** |
| Information and  analytics revenue (I&A) | ** ** | **$**                                             | **834,051** |                | $          | 770,834 |   | 8.2 | % |
| Consulting and  services revenue (C&S)   | ** ** | **213,770**                                       |        | 161,540             |       | 32.3 | % |
| Operating costs  of I&A                  | ** ** | **352,459**                                       |        | 324,490             |       | 8.6 | % |
| Direct and  incremental costs of C&S     | ** ** | **110,660**                                       |        | 85,395              |       | 29.6 | % |
| External use  software amortization          | ** ** | **23,621**                                        |        | 21,273              |       | 11.0 | % |
| Selling and  administrative expenses         | ** ** | **293,808**                                       |        | 257,297             |       | 14.2 | % |
| Depreciation and  amortization               | ** ** | **38,073**                                        |        | 34,841              |       | 9.3 | % |
| Merger costs                                 | ** ** | **—**                                        |        | 6,016               |       | (100.0 | %) |
| Operating income                             | ** ** | **$**                                             | **229,200** |                | $          | 203,062 |   | 12.9 | % |

 

***Operating Income***

Our operating income forthe second quarter of 2007 grew 11.1% to $118,137 from $106,326 in the secondquarter of 2006.  This was due to theincrease in our operating revenue and the absence of merger costs in the secondquarter of 2007, offset by increases in our operating costs and selling andadministrative expenses driven by acquisitions, increased cost of data, andinvestments in consulting and services capabilities.  Our operating income increased 12.9% inconstant dollar terms.  Our operatingincome for the first six months of 2007 grew 12.9% to $229,200 from $203,062 inthe first six months of 2006.  This wasdue to the increase in our operating revenue and the absence of merger costsduring the first six months of 2007, offset by increases in our operating costsand selling and administrative expenses driven by acquisitions, increased costof data, and investments in consulting and services capabilities.  Our operating income increased 13.8% inconstant dollar terms.

***OperatingRevenue***

Our operating revenue forthe second quarter of 2007 grew 10.5% to $537,472 from $486,220 in the secondquarter of 2006. On a constant dollar basis, operating revenue growth was8.1%.  Operating revenue for the firstsix months of 2007 grew 12.4% to $1,047,821 from $932,374 in the first sixmonths of 2006. On a constant dollar basis our operating revenue growth was9.4%.  On a constant dollar basis,acquisitions completed within the prior twelve months contributed approximately1.9 percentage points to our operating revenue growth for the second quarterand first six months of 2007.  Theincrease in our operating revenue resulted from growth in revenue in all threeof our business lines, together with the effect of approximately $12,000 and$28,000 of currency translation for the second quarter and first six months of2007, respectively.  On a constant dollarbasis, all business lines grew.

33

----

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

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

**Summary of Operating Revenue**
| ** **                 | ** ** | ** **                                          | ** **  | ** **                 | ** ** | **% Variance**  | ** ** |
|----------------------------|------------|-----------------------------------------------------|-------------|----------------------------|------------|----------------------|------------|
| ** **                 | ** ** | ** **                                          | ** **  | **2007 vs 2006** | ** ** |
| ** **                 | ** ** | **Three Months Ended June 30,** | ** **  | **Reported  Rates**        | ** ** | **Constant  Dollar** | ** ** |
| **2007**                   | ** ** | **2006**                                            |
| Sales Force  Effectiveness | ** ** | **$**                                               | **246,221** |                       | $          | 230,036              |       | 7.0 | % | 5.2 | % |
| Portfolio  Optimization    | ** ** | **157,020**                                         |        | 138,554                    |       | 13.3                 | %          | 11.0 | % |
| Launch, Brand  and Other   | ** ** | **134,231**                                         |        | 117,630                    |       | 14.1                 | %          | 10.6 | % |
| Operating Revenue          | ** ** | **$**                                               | **537,472** |                       | $          | 486,220              |       | 10.5 | % | 8.1 | % |

 
| ** **                 | ** ** | ** **                                        | ** **    | ** **                 | ** ** | **% Variance**  | ** ** |
|----------------------------|------------|---------------------------------------------------|---------------|----------------------------|------------|----------------------|------------|
| ** **                 | ** ** | ** **                                        | ** **    | **2007 vs 2006** | ** ** |
| ** **                 | ** ** | **Six Months Ended June 30,** | ** **    | **Reported  Rates**        | ** ** | **Constant  Dollar** | ** ** |
| **2007**                   | ** ** | **2006**                                          |
| Sales Force  Effectiveness | ** ** | **$**                                             | **479,253**   |                       | $          | 444,130              |       | 7.9 | % | 5.6 | % |
| Portfolio  Optimization    | ** ** | **311,498**                                       |          | 268,365                    |       | 16.1                 | %          | 13.1 | % |
| Launch, Brand  and Other   | ** ** | **257,070**                                       |          | 219,879                    |       | 16.9                 | %          | 12.7 | % |
| Operating Revenue          | ** ** | **$**                                             | **1,047,821** |                       | $          | 932,374              |       | 12.4 | % | 9.4 | % |

 

·                  *Sales Force Effectiveness:* The Americas contributedapproximately two-thirds and Asia Pacific contributed approximately one-thirdto the revenue growth for the second quarter of 2007.  The Americas contributed approximatelytwo-thirds and Asia Pacific contributed more than one-quarter to the revenuegrowth for the first six months of 2007.

·                  *Portfolio Optimization:* EMEA contributed approximatelyone-half and the Americas contributed more than one-third to the growth duringthe second quarter and first six months of 2007.

·                  *Launch, Brand Management and Other:* The Americas contributedmore than one-half and EMEA contributed more than one-quarter to the revenuegrowth for the second quarter and first six months of 2007.

Consulting and services (“C&S”)revenue, as included in the business lines above, was $114,608 in the secondquarter of 2007, up 23.9% from $92,521 in the second quarter of 2006 (up 20.7%on a constant dollar basis).  More thanone-third of the C&S revenue growth for the second quarter of 2007 wasattributable to acquisitions completed during the prior twelve months.  C&S revenue, as included in the businesslines above, was $213,770 in the first six months of 2007, up 32.3% from$161,540 in the first six months of 2006 (up 28.3% on a constant dollarbasis).  Approximately one-third of theC&S revenue growth for the first six months of 2007 was attributable toacquisitions completed during the prior twelve months.

***OperatingCosts 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.

34

----

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

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

Our operating costs ofI&A grew 8.4% to $179,817 in the second quarter of 2007 from $165,956 inthe second quarter of 2006.  Ouroperating costs of I&A grew 8.6% to $352,459 in the first six months of2007 from $324,490 in the first six months of 2006.

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our operating costs of I&A by approximately $6,000and $12,000 for the second quarter and first six months of 2007 as compared to2006, respectively.

Excludingthe effect of foreign currency translation, our operating costs of I&A grew4.9% and 4.8% in the second quarter and first six months of 2007, respectively,as compared to the second quarter and first six months of 2006.

·                  *Data*: Data costs increased by approximately $8,000 and$13,000 in the second quarter and first six months of 2007, compared to 2006,respectively.

·                  *Production, Client Services and Other*: Production, clientservices and other costs remained relatively constant in the second quarter of2007 as compared to the second quarter of 2006 and increased approximately$3,000 in the first six months of 2007 as compared to the first six months of2006.

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

Direct and incrementalcosts of C&S include the costs of consulting staff directly involved withdelivering revenue-generating engagements, related accommodations and the costsof primary market research data purchased specifically for certain individualC&S engagements.  Direct andincremental costs of C&S do not include an allocation of direct costs ofdata that are included within I&A. Our direct and incremental costs of C&S grew 17.0% to $54,053 in thesecond quarter of 2007 from $46,211 in the second quarter of 2006.  Our direct and incremental costs of C&Sgrew 29.6% to $110,660 in the first six months of 2007 from $85,395 in thefirst six months of 2006.

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our direct and incremental costs of C&S byapproximately $2,000 and $5,000 for the second quarter and first six months of2007 as compared to 2006, respectively.

Excludingthe effect of foreign currency translation, our direct and incremental costs ofC&S grew 13.0% and 24.1% in the second quarter and first six months of2007, respectively, as compared to the second quarter and first six months of2006.

·                  C&S costsincreased by approximately $6,000 and $20,000 in the second quarter and firstsix months of 2007 as compared to 2006, respectively, due to increased laborcharges to support C&S revenue growth.

35

----

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

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

***External-Use Software Amortization***

Our external-use software amortization charges represent theamortization associated with software we capitalized under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs ofComputer Software to be Sold, Leased, or Otherwise Marketed.” Our external-usesoftware amortization charges grew 12.7% to $12,376 in the second quarter of2007 from $10,981 in the second quarter of 2006.  Our external-use software amortizationcharges grew 11.0% to $23,621 in the first six months of 2007 from $21,273 inthe first six months of 2006.

***Selling and Administrative Expenses***

Our selling and administrative expenses consist primarily of theexpenses attributable to sales, marketing, and administration, including humanresources, legal, management and finance. Our selling and administrative expenses grew 16.0% in the second quarterof 2007, to $154,167 from $132,946 in the second quarter of 2006.  Our selling and administrative expenses grew14.2% to $293,808 in the first six months of 2007 as compared to $257,297 inthe first six months of 2006:

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our selling and administrative expenses by approximately$5,000 and $11,000 for the second quarter and first six months of 2007 ascompared to 2006, respectively.

Excluding the effect of foreign currency translation, our selling andadministrative expenses grew 7.0% and 7.3% in the second quarter and first sixmonths of 2007, respectively, as compared to the second quarter and first sixmonths of 2006 to support revenue growth.

·                  *Sales and Marketing*: Sales and marketing expense increasedby approximately $5,000 and $8,000 in the second quarter and first six monthsof 2007 compared to 2006, respectively.

·                  *Consulting*: Consulting and services expenses increased by approximately $13,000 and$16,000 in the second quarter and first six months of 2007 compared to 2006,respectively.

·                  *Administrative and Other*: Other expenses decreased by approximately $2,000 in the second quarterof 2007 as compared to the second quarter of 2006.  Other expenses increased by approximately$1,000 in the first six months of 2007 compared to the first six months of2006.

***Depreciation and Other Amortization***

Our depreciation and other amortization chargesincreased 6.4% to $18,922 in thesecond quarter of 2007 from $17,784 in the second quarter of 2006, and 9.3% to $38,073 in the first six monthsof 2007 from $34,841 in the first six months of 2006, resulting fromhigher amortization of intangible assets recorded from acquisitions made during2006 and 2007 and increased internal-use software amortization.

***Merger Costs***

During the second quarter of 2006, we incurred$6,016 of investment banker fees and expenses related to a payment receivedfromThe Nielsen Company (formerlyVNU, N.V.) (“Nielsen”) in accordancewith the terms of the merger termination agreement (see Other (Expense) Income,net below).  See Note 16 to ourCondensed Consolidated Financial Statements (Unaudited).

36

----

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

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

***Trendsin our Operating Margins***

Our operating margin for the second quarterof 2007 was 22.0%, relatively flat ascompared to 21.9% in the second quarter of 2006.  Our operating margin for thefirst six months of 2007 was 21.9%,relatively flat as compared to 21.8% in the first six months of 2006.  Thisis due to the absence of prior year costs related to the terminated merger withNielsen.

A decrease of approximately 0.8 and 0.7 percentagepoints in operating margin for the second quarter and first six months of 2007,respectively, was due to foreign exchange fluctuations.

Recent acquisitions have also had an adverseeffect on our operating margins due to the fact that some of the smallbusinesses we have acquired have historically experienced lower operatingmargins than ours, and the revenue and cost synergies that we incorporate intoour business plans are not all immediately realized.  We also experience higher intangibleamortization in the first years after completing an acquisition and may incuradditional costs in integrating the acquired operations into ours, both ofwhich tend to increase our costs and thus decrease our operating margins in theinitial years of each completed acquisition.

***Non-Operating (Loss) Income, net***

Our non-operating (loss) income, net decreased to a loss of $5,532 inthe second quarter of 2007 from a gain of $27,959 in the second quarter of2006.  Our non-operating (loss) income,net decreased to a loss of $15,279 in the first six months of 2007 from a gainof $25,488 in the first six months of 2006. This was due to the following factors:

·                  *Interest Expense, net*: Net interest expense was $7,687 and$14,445 for the second quarter and first six months of 2007, respectively,compared with $8,976 and $15,892 for the second quarter and first six months of2006, due to lower borrowing costs in the second quarter and first six monthsof 2007 compared with the second quarter and first six months of 2006.

·                  *Gains from Investments, net*: Gains from investments of$2,175 during the second quarter of 2007 were a result of the sale of ourEnterprise Portfolio.  We had net gainsfrom investments of $75 during the second quarter of 2006, as a net result ofEnterprise portfolio sales and management fees. Net gains from investments of $1,964 during the first six months of 2007were a result of the sale of our Enterprise portfolio offset by relatedmanagement fees.  We had net gains frominvestments of $2,748 during the first six months of 2006, as a result of thesale of our investment in Allscripts Healthcare Solutions, Inc., partiallyoffset by management fees related to our Enterprise portfolio and write-downsrelated to other-than-temporary declines in the value of our venture capitalinvestments.

·                  *Other (Expense) Income, net*: Other (expense) income, net,decreased by $36,880 and $41,430 in the second quarter and first six months of2007, respectively, due to the receipt of $45,000 in the second quarter of 2006from Nielsen as a result of the agreement to terminate the proposed merger (seeNote 16 to our Condensed Consolidated Financial Statements (Unaudited)).  This income was partially offset by netforeign exchange gains of $2,021 and $1,185 in the second quarter and first sixmonths of 2007, respectively, and minority interest expense of $1,691 and$3,381 in the second quarter and first six months of 2007, respectively,compared with net foreign exchange losses of $7,223 and $4,532 in the secondquarter and first six months of 2006, respectively, and minority interestexpense of $806 and $1,613 in the second quarter and first six months of 2006,

37

----

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

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

respectively.

***Taxes***

We adopted the provisions of Financial Accounting Standards Board (“FASB”)Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”)on January 1, 2007.  As a result of thisadoption, we recognized an increase in liabilities for uncertain tax positionsof approximately $51,800 and a corresponding reduction to the January 1, 2007retained earnings balance. As of the adoption date, we had approximately$117,200 of gross unrecognized tax benefits, of which $107,600, if recognized,would favorably affect the effective tax rate. We recognize interest expense and penalties related to unrecognized taxbenefits in income tax expense.  As ofthe adoption date, we had accrued interest and penalties of approximately$13,500.

For the six months ended June 30, 2007, we haverecorded approximately $7,000 of tax expense related to uncertain tax positionsthat if recognized, would favorably affect the effective tax rate. Included inthis amount is approximately $3,700 of interest and penalties.

We file numerous consolidated and separate income taxreturns in the U.S. federal and state and non-U.S. jurisdictions.  With few exceptions, we are no longer subjectto U.S. federal income tax examinations for the years before 2003 and are nolonger subject to state and local income tax examination by tax authorities foryears before 1997.  As well, with fewexceptions, we are no longer subject to examination by tax authorities in itsmaterial non-U.S. jurisdictions prior to 2003. It is reasonably possible that within the next twelve months we couldrecognize approximately $1,000 of unrecognized benefits as a result of theexpiration of certain statutes of limitation.

The Internal Revenue Service (“IRS”) is currently auditing our 2004 and2005 federal income tax returns.  It isreasonably possible that this audit may conclude within the next twelve months.To date, no material adjustments have been proposed as a result of thisaudit.  At this time, it is notreasonably possible to estimate the impact of the resolution of this audit onour financial statements.  

We had considered making a deposit of tax to stop the running ofinterest for the tax year 1997 related to a dispute over the allocation ofcertain items of partnership income and expense (see Note 7 to our CondensedConsolidated Financial Statements (Unaudited)), but are currently indiscussions with the IRS regarding this matter. We have approximately $20,900(tax and interest, net of tax benefit) reserved in current accrued income taxespayable at June 30, 2007.

For the three and six months ended June 30, 2007, our effective taxrate was reduced primarily due to a favorable non-U.S. audit settlement for taxyears 1998 through 2002 (approximately $16,500) and a reorganization of certainnon-U.S. subsidiaries (approximately $4,400).  For the threemonths ended June 30, 2006 our effective tax rate was primarily impacted by approximately$21,400 of tax expense related to a reorganization of several of the oursubsidiaries.  For the six months ended June 30, 2006, oureffective tax rate was reduced primarily due to a favorable U.S.partnership audit settlement of approximately $69,200 for the tax years 1998through 2003 and a favorable U.S. audit settlement of approximately $17,600 for the tax years 2000 through 2003.  Also in the first half of 2006, approximately$21,400 of tax expense was recorded related to a reorganization of several ofour subsidiaries.  Further, approximately$24,800 of tax expense was recorded primarily in the first quarter of 2006related to disputes between us and NMR, on the one hand, and Donnelley and certainof its former affiliates on the other hand, as to proper interpretation of, andallocation of tax liabilities under, the 1996 Spin-Off agreements (see Note 7to our Condensed Consolidated Financial Statements (Unaudited)).

38

----

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

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

On July 6, 2007, theGerman State Council accepted the German 2008 Business Tax Reform Act (“Bill”).  In order for the Bill to be enacted it mustbe signed by the President and then published in the Federal Gazette. The Billreduces the German federal tax rate from 25% to 15%. If the Bill is enacted,our German effective tax rate (including the effect of local taxes) will bereduced to 31.9% from 40.2%. As a result, we would recognize a tax charge ofapproximately $7,500 to revalue net deferred tax assets related to Germanyduring the quarter in which the Bill is enacted.

For all periods presented, our effective tax rate was reduced as aresult of global tax planning initiatives. While we intend to continue to seek global tax planning initiatives,there can be no assurance that we will be able to successfully identify andimplement such initiatives to reduce or maintain our overall tax rate.

## **Operating Results by Geographic Region**

The following represents selected geographicinformation for the regions in which we operate for the three and six monthsended June 30, 2007 and 2006:
| ** **                             | ** ** | **Americas  (1)** | ** ** | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &  Other** | ** ** | **Total  IMS** | ** ** |
|----------------------------------------|------------|-------------------|------------|---------------|------------|----------------------------|------------|---------------------------------|------------|----------------|------------|
| **Three  months ended June 30, 2007:** |       |              |       |          |       |                       |       |                            |       |           |       |
| Operating Revenue (4)                  |       | $                 | 240,772    |          | $          | 224,504                    |       | $                               | 72,196     |           | —     |   | $ | 537,472 |   |
| Operating Income (Loss) (5)            |       | $                 | 77,686     |          | $          | 26,049                     |       | $                               | 28,501     |           | $          | (14,099 | ) | $ | 118,137 |   |
| **Six  months ended June 30, 2007:**   | ** ** | ** **        | ** ** | ** **    | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **     | ** ** |
| Operating Revenue (4)                  |       | $                 | 472,048    |          | $          | 434,850                    |       | $                               | 140,923    |           | —     |   | $ | 1,047,821 |   |
| Operating Income (Loss) (5)            |       | $                 | 153,671    |          | $          | 49,479                     |       | $                               | 54,779     |           | $          | (28,729 | ) | $ | 229,200 |   |
| **Three  months ended June 30, 2006:** |       |              |       |          |       |                       |       |                            |       |           |       |
| Operating Revenue (4)                  |       | $                 | 218,732    |          | $          | 202,777                    |       | $                               | 64,711     |           | —     |   | $ | 486,220 |   |
| Operating Income (Loss) (5)            |       | $                 | 70,204     |          | $          | 31,786                     |       | $                               | 26,358     |           | $          | (22,022 | ) | $ | 106,326 |   |
| **Six  months ended June 30, 2006:**   | ** ** | ** **        | ** ** | ** **    | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **     | ** ** |
| Operating Revenue (4)                  |       | $                 | 425,950    |          | $          | 377,490                    |       | $                               | 128,934    |           | —     |   | $ | 932,374 |   |
| Operating Income  (Loss) (5)           |       | $                 | 141,325    |          | $          | 47,183                     |       | $                               | 53,124     |           | $          | (38,570 | ) | $ | 203,062 |   |

 

----

**Notes to Geographic 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 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 Income for the geographicsegments includes the impact of foreign exchange in converting results intoU.S. dollars.  $6,160 of Corporate andOther Operating Income (Loss) for the three months ended June 30, 2006 has beenreclassified into the regions ($2,319, $2,845 and $996 in the Americas, EMEAand Asia Pacific, respectively)  toconform to the current year presentation. $11,756 of Corporate and Other Operating Income (Loss) for the sixmonths ended June 30, 2006 has been reclassified into the regions ($4,471,$5,456 and $1,829 in the Americas, EMEA and Asia Pacific, respectively)  to conform to the current year presentation.*

39

----

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

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

***Americas Region***

Operating revenue growthin the Americas region was 10.1% and 10.8% in the second quarter and first sixmonths of 2007 compared to the second quarter and first six months of2006.  Excluding the effect of foreigncurrency translations, operating revenue grew 9.6% and 10.6% in the secondquarter and first six months of 2007, respectively.  This is driven more than one-third by SalesForce Effectiveness, more than one-third by Launch, Brand and Other businesslines and more than one-quarter by Portfolio Optimization for the secondquarter and first six months of 2007.

Operating income in theAmericas region grew 10.7% and 8.7% in the second quarter and first six monthsof 2007 as compared to the second quarter and first six months of 2006,respectively.  The operating incomegrowth reflects revenue growth in the region offset by increases in operatingexpenses of $15,000 and $34,000 in the second quarter and first six months of 2007,respectively.  Excluding the effect offoreign currency translations, operating income grew by 10.4% and 8.8% in thesecond quarter and first six months of 2007, respectively.

***EMEARegion***

Operating revenueincreased in the EMEA region by 10.7% and 15.2% in the second quarter and firstsix months of 2007 as compared to the second quarter and first six months of2006, respectively.  Excluding the effectof foreign currency translations, operating revenue grew 5.3% and 8.1% in thesecond quarter and first six months of 2007, respectively.  This is driven two-thirds by PortfolioOptimization in both the second quarter and first six months of 2007 andone-third and more than one-quarter by Launch, Brand and Other business linesfor the second quarter of 2007 and first six months of 2007, respectively.

Operating income in theEMEA region declined by 18.0% in the second quarter of 2007 as compared to thesecond quarter of 2006.  The operatingincome decline reflects revenue growth in the region offset by increases inoperating expenses of $27,000.  Excludingthe effect of foreign currency translations, operating income declined by 13.7%in the second quarter of 2007.  Operatingincome in the EMEA region grew by 4.9% in the first six months of 2007 ascompared to the first six months of 2006. The operating income growth reflects revenue growth in the region offsetby increases in operating expenses of $55,000. Excluding the effect of foreign currency translations, operating incomeincreased by 6.1% in the first six months of 2007.

***Asia Pacific Region***

Operatingrevenue in the Asia Pacific region increased 11.6% and 9.3% in the secondquarter and first six months of 2007 as compared to the second quarter andfirst six months of 2006, respectively. Excluding the effect of foreign currency translations, operating revenuegrew 12.3% and 9.3% in the second quarter and first six months of 2007,respectively.  This is driven more thanone-half by Sales Force Effectiveness and one-quarter by Launch, Brand andOther business lines for the second quarter and first six months of 2007.

Operatingincome in the Asia Pacific region increased by 8.1% and 3.1% in the secondquarter and first six months of 2007 as compared to the second quarter andfirst six months of 2006, respectively.  Theoperating income growth reflects revenue growth in the region offset byincreases in operating expenses of $5,000 and $10,000 in the second quarter andfirst six months of 2007, respectively. Excluding the 

40

----

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

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

effect of foreigncurrency translations, operating income increased by 10.0% and 4.1% in thesecond quarter and first six months of 2007, respectively.

### **How Exchange Rates Affect Our Results**

Weoperate globally, deriving a significant portion of our operating income fromnon-U.S. operations.  As a result,fluctuations in the value of foreign currencies relative to the U.S. dollar mayincrease the volatility of U.S. dollar operating results.  We enter into foreign currency forwardcontracts to partially offset the effect of currency fluctuations.  In 2007, foreign currency translationincreased U.S. dollar revenue growth by approximately 2.4 percentage points inthe second quarter of 2007 and increased U.S. dollar revenue growth byapproximately 3.0 percentage points in the first six months of 2007, while theimpact on operating income growth was an approximate decrease of 1.8 percentagepoints in the second quarter of 2007 and an approximate decrease of 0.9percentage points in the first six months of 2007.

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 charged or credited to Cumulative translation adjustment in the CondensedConsolidated Statements of Financial Position (Unaudited).  The effect of exchange rate changes duringthe first six months of 2007 increased the U.S. dollar amount of Cash and cashequivalents by $5,371.

***Liquidity and Capital Resources***

Our Cash and cash equivalents increased $53,027 during the first sixmonths of 2007 to $210,373 at June 30, 2007 compared to $157,346 at December31, 2006.  The increase reflects cashprovided by operating activities of $156,800, an increase of $5,371 due to the effectof exchange rate changes on cash during the first six months of 2007, offset by cash used ininvesting activities of $97,722 and cash used in financing activities of$11,422.

We currently expect that we will use our Cash and cashequivalents primarily to fund:

·                  development ofsoftware to be used in our new products and capital expenditures to expand andupgrade our information technology capabilities and to build or acquirefacilities to house our growing business (we currently expect to spendapproximately $135,000 to $145,000 during full-year 2007 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));

·                  dividends to ourshareholders (we expect 2007 dividends will be $0.12 per share or approximately$24,000);

·                  payments fortax-related matters, including the D&B Legacy Tax Matters discussed furtherin Note 7 to our Condensed Consolidated Financial Statements (Unaudited).  Payments for certain of the D&B LegacyTax Matters could be up to approximately $33,000 in 2007; and

41

----

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

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

·                  pension andother postretirement benefit plan contributions (we currently expectcontributions to U.S. and non-U.S. pension and other postretirement benefitplans to total****approximately $8,000 in 2007).

Net cash provided by operating activities amounted to$156,800 for the six months ended June 30, 2007, an increase of cash providedof $48,717 over the comparable period in 2006. The increase relates to higher collections of accounts receivable, lowerpayments for accrued severance, impairment and other charges and lower fundingof accounts payable, offset by lower net income and higher funding of prepaidexpenses and other current assets and accrued and other liabilities during thesix months ended June 30, 2007.  Cashinvested in accounts receivable was driven by the increase in revenues, and DSO(days sales outstanding) in the first six months of 2007 was approximately 4days higher than the first six months of 2006.

Netcash used in investing activities amounted to $97,722 for the six months endedJune 30, 2007, an increase in cash used of $22,376 over the comparable periodin 2006.  The increase relates to highercapital expenditures during the first six months of 2007 related to new facilitiesand lower proceeds received from the sale of investments during the first sixmonths of 2007.

Netcash used in financing activities amounted to $11,422 for the six months endedJune 30, 2007, a decrease of $234,257 over the comparable period in 2006.  This decrease in cash used was due to reducedpurchases of our stock and higher proceeds from the exercise of employee stockoptions during the first six months of 2007 compared to the first six months of2006, partially offset by lower debt incurred during the first six months of2007 compared to the first six months of 2006. Refer to the Stock Repurchase Programs and Borrowings sections below forfurther information on our variance between the first six months of 2007 and2006.

Our financing activities include cash dividends wepaid of $0.03 per share quarterly in 2007 and 2006, which amounted to $11,977and $12,142 during the first six months of 2007 and 2006, respectively.  The payments and level of cash dividends madeby us are subject to the discretion of our Board of Directors.  Any future dividends, other than the $0.03per share dividend for the third quarter of 2007, which was declared by ourBoard of Directors in July 2007, will be based on, and affected by, a number offactors, including our operating results and financial requirements.

**Taxand Other Contingencies**

We are exposed to certain known tax and othercontingencies that are material to our investors.  The facts andcircumstances surrounding these contingencies and a discussion of their effecton us are included in Notes 7 and 11 to our Condensed Consolidated FinancialStatements (Unaudited) for the period ended June 30, 2007.  We do not know of any material tax or othercontingencies, other than those described in Notes 7 and 11 to our CondensedConsolidated Financial Statements (Unaudited).

These contingencies may have a material effecton our liquidity, capital resources or results of operations. Although we have established reserves for D&B Legacy Tax Matters inaccordance with SFAS No. 5, “Accounting for Contingencies,” the actualliability may exceed the amount of the reserve. We have not established any reserves in respect of the othercontingencies other than those discussed in Notes 7 and 11 to our Notes toCondensed Consolidated Financial Statements (Unaudited).  In addition,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.

42

----

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

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

Management believes that we have made appropriatearrangements in respect of the future effect on us of these known tax andother contingencies.  Management also believes that the amount of cashavailable to 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**

Ourshare repurchase program has been developed to buy opportunistically, when webelieve that our share price provides us with an attractive use of our cashflow and debt capacity.

OnDecember 19, 2006, the Board of Directors authorized a stock repurchase programto buy up to 10,000 shares.  As of June30, 2007, 5,309 shares remained available for repurchase under the December2006 program.

OnJanuary 25, 2006, the Board of Directors authorized a stock repurchase programto buy up to 30,000 shares.  This programwas completed in May 2007 at a total cost of $799,906.

OnNovember 16, 2005, the Board of Directors authorized a stock repurchase programto buy up to 10,000 shares. This program was completed in February 2006 at atotal cost of $256,521.

OnDecember 14, 2004, the Board of Directors authorized a stock repurchase programto buy up to 10,000 shares. This program was completed in January 2006 at atotal cost of $242,680.

During the first sixmonths of 2007, we repurchased approximately 11,135 shares of outstandingCommon Stock under these programs at a total cost of $333,621, including therepurchase of 6,135 shares pursuant to an accelerated share repurchase program(“ASR”).  As part of the ASR, wesimultaneously entered into a forward contract for the final settlement of theASR transaction which was indexed to the price of our Common Stock.  The ASR agreement provided for the finalsettlement amount to be in our Common Stock if we were to owe an amount to thebank, or in either cash or additional shares of our Common Stock, at our solediscretion, if the bank were to owe an amount to us.  As the agreement required us to delivershares to the bank for final settlement, the forward contract element qualifiedfor permanent equity classification and the fair value of the forward contract,which was zero at the contract’s inception, was recorded in equity inaccordance with the provisions of EITF 00-19, “Accounting for Derivative FinancialInstruments Indexed 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 $6,000in shares, and therefore issued 203 treasury shares, as fullsettlement of our obligation under the ASR. The total cost of the ASR was approximately $176,000 or $28.68 pershare.  We funded the ASR through ourexisting bank credit facilities (see Note 9).

During the first sixmonths of 2006, we repurchased approximately 29,000 shares of outstandingCommon Stock under these programs at a total cost of $746,818.  The 2006 repurchases include the repurchaseof 25,000 shares at a total cost of approximately $645,000 or $25.82 per sharein January 2006 pursuant to an ASR.  Asthe 2006 ASR provided for the final settlement of the contract in either cashor additional shares of our Common Stock at our sole discretion, the forwardcontract element of the 2006 ASR, which was indexed to the price of our CommonStock, was treated as permanent equity and 

43

----

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

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

subsequent changes infair value were not recorded in accordance with the provisions of EITF 00-19.

Total share repurchasesduring the three and six months ended June 30, 2007 benefited diluted earningsper share (“EPS”) by less than $0.01 per share. Total share repurchases during the three and six months ended June 30,2006 benefited EPS by approximately $0.01 per share and $0.04 per share,respectively.

Sharesacquired through our repurchase programs described above are open-marketpurchases or privately negotiated transactions in compliance with SEC Rule10b-18, with the exception of purchases pursuant to the 2006 and 2007 ASRtransactions.

Underour Restated Certificate of Incorporation as amended, we have authority toissue 820,000 shares with a par value of $.01 per share of which 800,000represent shares of Common Stock, 10,000 represent shares of preferred stockand 10,000 represent shares of Series Common Stock. 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, 2007, our debttotaled $1,171,435, and management does not believe that this level of debtposes 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, 2007, we had $210,373 in worldwide cash and cash equivalents;

·                  atJune 30, 2007, we had $455,626 of unused debt capacity under our existing bankcredit facilities; and

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

44

----

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

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

The following table summarizes our long-term debt atJune 30, 2007 and December 31, 2006:
|                                                                                                                                                   | ** ** | **June 30,  2007** | ** **    | **December 31,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------|---------------|-----------------------------|------------|
| 4.6% Private  Placement Notes, principal payment of $150,000 due January 2008, net of  interest rate swaps of $(1,892) and $(2,819), respectively | ** ** | **$**                   | **148,108**   |                        | $          | 147,181 |   |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| 5.55% Private  Placement Notes, principal payment of $150,000 due April 2016                                                                      | ** ** | **150,000**             |          | 150,000                     |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| 1.70% Private  Placement Notes, principal payment of 34,395,000 Japanese Yen due January  2013                                                    | ** ** | **278,953**             |          | 288,670                     |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Revolving Credit  Facility:                                                                                                                       | ** ** | ** **              |          |                        |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Japanese Yen denominated borrowings at average  floating rates of approximately 0.99 %                                                            | ** ** | **365,118**             |          | 249,097                     |       |
| Swiss Franc denominated borrowings at average  floating rates of approximatel0y 2.82%                                                             | ** ** | **71,257**              |          | 59,258                      |       |
| U.S. Dollar denominated borrowings at average  floating rates of approximately 5.62%                                                              | ** ** | **108,000**             |          | 31,200                      |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Bank Term Loan,  principal payment of $50,000 due June, 2009 at average floating rate of  approximately 5.60%                                     | ** ** | **50,000**              |          | 50,000                      |       |
|                                                                                                                                              | ** ** | ** **              |          |                        |       |
| Total Long-Term Debt                                                                                                                              | ** ** | **$**                   | **1,171,436** |                        | $          | 975,406 |   |

 

InJuly 2006, we entered into a $1,000,000 revolving credit facility with asyndicate of 12 banks (“Revolving Credit Facility”) replacing our existing$700,000 Amended and Restated Facility (see below).  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 increased subsidiaryborrowing limits.  Total borrowings underthe Revolving Credit Facility were $544,374 and $339,555 at June 30, 2007 andDecember 31, 2006, respectively, all of which were classified aslong-term.  In April 2004, we enteredinto a $700,000 revolving credit facility with a syndicate of 12 banks (the “UnsecuredFacility”).  The Unsecured Facilityreplaced our lines of credit with several domestic and internationalbanks.  On March 9, 2005, we renegotiatedwith the syndicate of 12 banks to amend and restate the Unsecured Facility (the“Amended and Restated Facility”).  Theterms of the Amended and Restated Facility extended the maturity of thefacility in its entirety to a term of five years, maturing March 2010, reducedthe borrowing margins and increased subsidiary borrowing limits.

Wedefine long-term lines as those where the lines are non-cancellable for morethan 365 days from the balance sheet date by the financial institutions exceptfor specified, objectively measurable violations of the provisions of theagreement.  Although the 4.6% PrivatePlacement Notes principal payment of $150,000 is due within 365 days, we havethe ability and intent to refinance the notes with another long-term debtarrangement and continue to classify them as long-term in compliance with SFASNo. 6, “Classification of Short-Term Obligations Expected to be Refinanced.”

Ingeneral, rates for borrowing under the Revolving Credit Facility are LIBOR plus30 basis points

#  

45

----

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

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

and can vary based on our Debt to EBITDA ratio.  The weighted average interest rates for ourlines were 2.15% and 1.61% at June 30, 2007 and December 31, 2006,respectively.  In addition, we arerequired to pay a commitment fee on any unused portion of the facilities of0.075%.  At June 30, 2007, we hadapproximately $455,626 available under our existing bank credit facilities.

InJune 2006, we closed a $50,000 three year term loan with a bank.  The term loan allows us to borrow at afloating rate with a lower borrowing margin than our revolving credit facility,and provides us with an option to extend the term up to an additional twoyears.  We used the proceeds to refinanceexisting debt borrowed under the revolving credit facility.

InApril 2006, we closed a private placement transaction pursuant to which weissued $150,000 of ten-year notes to two highly rated insurance companies at afixed rate of 5.55%.  We used theproceeds to refinance existing debt of $150,000 drawn under a short term creditagreement with a bank in January 2006.

InJanuary 2006, we closed a private placement transaction pursuant to which ourJapanese subsidiary issued 34,395,000 Japanese Yen seven-year debt (equal to$300,000 at date of issuance) to several highly rated insurance companies at afixed rate of 1.70%.  We used theproceeds to refinance existing debt in Japan borrowed under our Amended andRestated Facility.

InJanuary 2003, we closed a private placement transaction pursuant to which weissued $150,000 of five-year debt to several highly rated insurance companiesat a fixed rate of 4.60%. We used the proceeds to pay down short-term debt. Wealso swapped $100,000 of our fixed rate debt to floating rate based onsix-month LIBOR plus a margin of approximately 107 basis points. We accountedfor these swaps as fair value hedges under the provisions of SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities.” We determined the fairvalues based on estimated prices quoted by financial institutions. The fairvalues of these swaps were $(1,892) and $(2,819) as of June 30, 2007 andDecember 31, 2006, respectively.

Our financing arrangementsprovide for certain covenants and events of default customary for similarinstruments, including in the case of our main bank arrangements, the  private placement transactions, and the term loan,covenants to maintain specific ratios of consolidated total indebtedness toEBITDA and of EBITDA to certain fixed charges. At June 30, 2007, we were in compliance with these financial debtcovenants.

**Severance,Impairment and Other Charges**

During the fourth quarter of2004, we recorded $36,890 of Severance, impairment and other charges as acomponent of operating income. As a result of leveraging prior investments intechnology and process improvements, we committed to a plan to eliminateselected positions involved primarily in production and development. The planresulted in a charge for one-time termination benefits relating to a headcountreduction of approximately 600 employees located primarily in EMEA and the U.S.These severance benefits were calculated pursuant to the terms of establishedemployee protection plans, in accordance with local statutory minimumrequirements or individual employee contracts, as applicable.

All of the charge wassettled in cash. We paid $166 during the first quarter of 2007 and there was noremaining accrual balance at June 30, 2007. All termination actions under thisplan were completed by the end of 2006.

46

----

 

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

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

 
|                              | ** ** | **Severance** | ** ** |
|------------------------------|------------|---------------|------------|
| ** **                   | ** ** | **related**   | ** ** |
| ** **                   | ** ** | **reserves**  | ** ** |
| Charge at  December 31, 2004 |       | $             | 36,890     |   |
| 2004 utilization             |       | (452          | )          |
| 2005 utilization             |       | (24,052       | )          |
| 2006 utilization             |       | (12,220       | )          |
| 2007 utilization             |       | (166          | )          |
| Balance at June 30,  2007    |       | $             | —     |   |

 

Duringthe three months ended March 31, 2003, we recorded $37,220 of Severance,impairment and other charges as a component of operating income. These chargeswere designed to further streamline operations and increase productivitythrough a worldwide reduction in headcount of approximately 80 employees andcharges related to impaired contracts and assets. The contract-related chargeswere for impaired data supply and data processing contacts primarily in ourU.S. and Japanese operations. The asset write-downs portion of the 2003 chargerelated to our decision to abandon certain products and as such, certaincomputer software primarily in the U.S., Japan and EMEA was written-down to itsnet realizable value.

 
| ** **                | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|---------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at March  31, 2003 |       | $             | 9,958      |         | $          | 22,307     |       | $          | 4,955      |   | $ | 37,220 |   |
| 2003 utilization          |       | (6,197        | )          | (7,047       | )          | (6,634     | )          | (19,878    | )          |
| 2004 utilization          |       | (1,637        | )          | (3,614       | )          | —     |       | (5,251     | )          |
| 2005 utilization          |       | (378          | )          | (6,747       | )          | —     |       | (7,125     | )          |
| 2006 utilization          |       | —        |       | (2,262       | )          | —     |       | (2,262     | )          |
| 2007 utilization          |       | —        |       | (248         | )          | —     |       | (248       | )          |
| 2007 reversals            |       | —        |       | (2,249       | )          | —     |       | (2,249     | )          |
| Adjustments               |       | (1,746        | )          | 67           |       | 1,679      |       | —     |       |
| Balance at June 30,  2007 |       | $             | —     |         | $          | 207        |       | $          | —     |   | $ | 207 |   |

 

Approximately $9,958 of the2003 charge related to a worldwide reduction in headcount of approximately 80employees. These severance benefits were calculated pursuant to the terms ofestablished employee protection plans, in accordance with local statutoryminimum requirements or individual employee contracts, as applicable.

The cash portion of the 2003charge amounted to $30,586, of which we paid approximately $248, $2,262 and$7,125 during 2007, 2006 and 2005, respectively, related primarily to employeetermination benefits and contract-related charges.  The remaining accrual of $207 at June 30,2007 relates to a remaining lease obligation and will be utilized during 2007.

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 June30, 2007, approximately $1,498 remains to be utilized from 2007 to 2013 relatedto severance payments.

47

----

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

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

 

In the first quarter of2007, we reversed $2,889 of contract-related reserves from the 2001 and 2003charges due primarily to the termination and settlement of exit related costsfor an impaired lease.  These amountswere reversed against Selling and administrative expenses in the CondensedConsolidated 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 utilization             |       | (3,692        | )          | (6,663       | )          | (27,887    | )          | (38,242    | )          |
| 2002 utilization             |       | (26,277       | )          | (9,819       | )          | (1,474     | )          | (37,570    | )          |
| 2003 utilization             |       | (6,384        | )          | (2,720       | )          | (241       | )          | (9,345     | )          |
| 2004 utilization             |       | (455          | )          | (1,232       | )          | —     |       | (1,687     | )          |
| 2005 utilization             |       | (262          | )          | (1,881       | )          | —     |       | (2,143     | )          |
| 2006 utilization             |       | (264          | )          | (1,887       | )          | —     |       | (2,151     | )          |
| 2007 utilization             |       | (132          | )          | (1,208       | )          | —     |       | (1,340     | )          |
| 2007 reversals               |       | —        |       | (640         | )          | —     |       | (640       | )          |
| Adjustments                  |       | (688          | )          | (274         | )          | 962        |       | —     |       |
| Balance at June 30,  2007    |       | $             | 1,498      |         | $          | —     |       | $          | —     |   | $ | 1,498 |   |

 

Wecurrently expect that the $1,498 balance remaining in the 2001 fourth quartercharge will be utilized as follows:

 
| Year Ended December 31, | ** ** | **Outlays** | ** ** |
|----------------------------------------|------------|-------------|------------|
| 2007                                   |       | $           | 130        |   |
| 2008                                   |       | 262         |       |
| 2009                                   |       | 262         |       |
| 2010                                   |       | 262         |       |
| 2011                                   |       | 262         |       |
| Thereafter                             |       | 320         |       |
| Total                                  |       | $           | 1,498      |   |

 

**RecentlyIssued Accounting Standards**

InSeptember 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” 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 financialstatements issued for fiscal years beginning after November 15, 2007, andinterim periods within those fiscal years. We are currently evaluating thisstatement to determine any potential impact that it may have on our financialresults.

In February 2007, the FASB issued SFAS No. 159, “TheFair Value Option for Financial Assets and Financial Liabilities–Including anamendment of FASB Statement No. 115.” This statement permits entities to chooseto measure many financial instruments and certain other items at fairvalue.  Entities shall report unrealizedgains and losses on items for which the fair value option has been elected inearnings at each subsequent reporting date. This statement is effective as of the beginning of an entity’s firstfiscal year that begins after November 15, 2007.  We are currently evaluating this statement to

48

----

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

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

determine any potential impact that it may have on our financialresults.

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

ThisQuarterly Report on Form 10-Q, as well as information included in oralstatements or other written statements made or to be made by us, containstatements that, in our opinion, may constitute “forward-looking statements”within the meaning of the Private Securities Litigation Reform Act of1995.  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:

·                  risksassociated with operating on a global basis, including fluctuations in thevalue of foreign currencies relative to the U.S. dollar, and the ability tosuccessfully hedge such risks—we derived approximately 63% of our operatingrevenue in 2006 from non-U.S. operations;

·                  regulatory,legislative and enforcement initiatives to which we are or may become subjectrelating particularly to tax and to medical privacy and the collection anddissemination of data and, specifically, non-patient identifiable information,e.g., prescriber identifiable information, or to the process of anonymizingdata;

·                  theimposition of additional restrictions on our use of or access to data, or therefusal by data suppliers to provide data to us;

·                  to theextent we seek growth through acquisitions, alliances or joint ventures, theability to identify, consummate and integrate acquisitions, alliances and jointventures on satisfactory terms;

·                  ourability to develop new or advanced technologies, including sophisticatedinformation systems, software and other technology used to deliver our productsand services and to do so on a timely and cost-effective basis, and theexposure to the risk of obsolescence or incompatibility of these technologieswith those of our customers or suppliers; our ability to maintain effectivesecurity measures for our computer and communications systems; and failures ordelays in the operation of our computer or communications systems;

·                  ourability to successfully maintain historic effective tax rates;

·                  ourability to maintain and defend our intellectual property rights injurisdictions around the world;

·                  competition,particularly in the markets for pharmaceutical information;

49

----

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

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

 

·                  regulatory,legislative and enforcement initiatives to which our customers in thepharmaceutical industry are or may become subject restricting the prices thatmay be charged for prescription or other pharmaceutical products or the mannerin which such products may be marketed or sold;

·                  deteriorationin economic conditions, particularly in the pharmaceutical, healthcare or otherindustries in which our customers operate;

·                  consolidationin the pharmaceutical industry and the other industries in which our customersoperate;

·                  conditionsin the securities markets that may affect the value or liquidity of portfolioinvestments; and management’s estimates of lives of assets, recoverability ofassets, fair market value, estimates and liabilities and accrued income taxbenefits and liabilities;

·                  to theextent unforeseen cash needs arise, the ability to obtain financing onfavorable terms; and

·                  terroristactivity, epidemics or other conditions that could disrupt commerce, the threatof any such conditions, and responses to and results of such conditions and threats,including but not limited to effects, domestically and/or internationally, onus, our personnel and facilities, our customers and suppliers, financialmarkets and general economic conditions.

Consequently,all of the forward-looking statements we make in this document are qualified bythe information contained herein, including, but not limited to, theinformation contained under this heading, “Risk Factors” and our CondensedConsolidated Financial Statements (Unaudited) and notes thereto for the threeand six months ended June 30, 2007 and by the material set forth under theheadings “Business” and “Risk Factors” in our Annual Report on Form 10-K forthe year ended December 31, 2006.  We areunder no obligation to publicly release any revision to any forward-lookingstatement contained or incorporated herein to reflect any future events oroccurrences.

50

----

**Item3.  Quantitative and QualitativeDisclosures About Market Risk**

Information in responseto this Item is set forth in “Note 9. Financial Instruments” in the Notes tothe Condensed Consolidated Financial Statements (Unaudited).

**Item 4.Controls and Procedures**

(a)          Evaluation of Disclosure Controls and Procedures

TheCompany maintains disclosure controls and procedures that are designed toensure that information required to be disclosed in the reports that theCompany files or submits to the SEC under the Securities Exchange Act of 1934,as amended (the “Exchange Act”), is recorded, processed, summarized andreported within the time periods specified in the SEC’s rules and forms, andthat such information is accumulated and communicated to the Company’smanagement, including its principal executive and principal financialofficers, or persons performing similar functions, as appropriate, to allow timely decisionsregarding required disclosure.  Indesigning and evaluating the disclosure controls and procedures, managementrecognized that any controls and procedures, no matter how well designed andoperated, can provide only reasonable assurance of achieving the desiredcontrol objectives, as the Company’s disclosure controls and procedures aredesigned to do.  Thus, managementnecessarily was required to apply its judgment in evaluating the cost-benefitrelationship of possible controls and procedures.

The Company’s Chief Executive Officer and****Chief Financial Officer have evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-14c and 15d-14c under the Exchange Act) as of June 30,2007 (the “Evaluation Date”).  Based onsuch evaluation, such officers have concluded that, as of the Evaluation Date,the Company’s disclosure controls and procedures are effective to ensurethat information required to be disclosed by the Company in the reports thatthe Company files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms and to ensure that information required to be disclosed by theCompany in the reports that the Company files or submits under the Exchange Actis accumulated 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.

(b)         Changes in Internal Control over Financial Reporting

Therehave been no changes in the Company’s internal control over financial reportingthat occurred during the period covered by this report that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

51

----

**PART II.  OTHER INFORMATION**

**Item 1.Legal Proceedings**

Informationin response to this Item is incorporated by reference to the information set forthin “Note 7. Contingencies” in the Notes to the Condensed Consolidated FinancialStatements (Unaudited).

**Item 1A.Risk Factors**

In addition to the other information included orincorporated by reference into this Quarterly Report on Form 10-Q, including thematters addressed under the caption “Forward-Looking Statements,” set forthbelow are some of the risks and uncertainties that, if they were to occur,could materially adversely affect our business or could cause our actualresults to differ materially from the results contemplated by theforward-looking statements contained in this report and other public statementswe make.

**Our data suppliers might restrict our useof or refuse to license data, which could lead to our inability to providecertain products or services.**

Our products and servicesincorporate data that we collect from third parties. These suppliers of datamay increase restrictions on our use of such data, fail to adhere to ourquality control standards or refuse altogether to license the data to us. Forexample, in 2002 certain of our data suppliers in Japan began withholdingcertain data from us. This interruption in data supply led us to discontinueone of our Japanese products and adversely affected our operating results. Ifthe suppliers of a significant amount of datathat we use for one or more of our products or services were to imposeadditional contractual restrictions on our use of or access to data,fail to adhere to our quality control standards, or refuse to provide data, nowor in the future, our ability to provide products and services to our clientscould be materially adversely impacted, which could result in decreasedrevenue, net income and earnings per share.

**Data protection laws may restrict ouractivities.**

Data protection laws affectour collection, use, storage and transfer of personally identifiableinformation both abroad and in the United States. Compliance with such laws mayrequire investment or may dictate that we not offer certain types of productsand services. Failure to comply with such laws may result in, among otherthings, civil and criminal liability, negative publicity, data being blockedfrom use and liability under contractual warranties.

In addition, there is anincreasing public concern regarding data protection issues and the number ofjurisdictions with data protection laws has been slowly increasing. Forexample, there have been a number of legislative and regulatory initiatives inthe U.S. and abroad in the area of access to medical data. These initiativestend to seek to place restrictions on the use and disclosure ofpatient-identifiable information without consent and, in some cases, seek toextend restrictions to non-patient-identifiable information, e.g., prescriberidentifiable information, or to the process of anonymizing data. There are alsosome initiatives that seek to restrict access to this information tonon-commercial uses. While most of the current initiatives should not impactour business, there can be no assurance that these initiatives or futureinitiatives will not adversely affect IMS’s ability to generate or assembledata or to develop or market current or future products or services.

52

----

**Hardware and software failures, delays inthe operation of our computer and communications systems or the failure toimplement system enhancements may harm our business.**

Our success depends on theefficient and uninterrupted operation of our computer and communicationssystems. A failure of our network or data gathering procedures could impede theprocessing of data, delivery of databases and services, client orders andday-to-day management of our business and could result in the corruption orloss of data. While many of our operations have appropriate disaster recoveryplans in place, we currently do not have full backup facilities everywhere inthe world to provide redundant network capacity in the event of a systemfailure. Despite any precautions we may take, damage from fire, floods,hurricanes, power loss, telecommunications failures, computer viruses,break-ins, sabotage, breaches of security, epidemics and similar events at ourvarious computer facilities could result in interruptions in the flow of datato our servers and from our servers to our clients. In addition, any failure byour computer environment to provide our required data communications capacitycould result in interruptions in our service. In the event of a delay in thedelivery of data, we could be required to transfer our data collectionoperations to an alternative provider of server hosting services. Such atransfer could result in significant delays in our ability to deliver ourproducts and services to our clients. Additionally, significant delays in theplanned delivery of system enhancements, improvements and inadequate performanceof the systems once they are completed could damage our reputation and harm ourbusiness. Finally, long-term disruptions in the infrastructure caused by eventssuch as natural disasters, the outbreak of war, the escalation of hostilities,epidemics and acts of terrorism (particularly involving cities in which we haveoffices) could adversely affect our businesses. Although we carry property andbusiness interruption insurance, our coverage may not be adequate to compensateus for all losses that may occur.

**Our business is subject to exchange ratefluctuations and our revenue and net income may suffer due to currencytranslations.**

We operate globally,deriving approximately 63% of our 2006 revenue from non-United Statesoperations. As a result, fluctuations in the value of foreign currenciesrelative to the U.S. dollar increase the volatility of U.S. dollar denominatedoperating results. Emerging markets currencies tend to be considerably lessstable than those in established markets, which may further contribute tovolatility in our U.S. dollar-denominated operating results.

As a result of devaluationsand fluctuations in currency exchange rates or the imposition of limitations onconversion of foreign currencies into dollars, we are subject to currencytranslation exposure on the profits of our operations, in addition to economicexposure.

**Our international operations presentrisks to our current businesses that could impede growth in the future.**

International operations aresubject to various risks that could adversely affect our business, including:

·     costs ofcustomizing services for foreign clients;

·     reducedprotection for intellectual property rights in some countries;

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

53

----

·     exposureto local economic conditions; and

·     exposureto local political conditions, including the risks of an outbreak of war, theescalation of hostilities, acts of terrorism and nationalization,expropriation, price controls or other restrictive government actions.

**We may be unsuccessful in identifyingacquisition candidates or evaluating the material risks involved in anyacquisition.**

An important aspect of ourbusiness strategy in the past has been growth through acquisitions or jointventures and we may continue to acquire or make investments in complementarybusinesses, technologies, services or products. There can be no assurance thatwe will be able to continue to identify and consummate acquisitions or jointventures on satisfactory terms. Moreover, every acquisition and joint ventureentails some degree of uncertainty and risk. For example, we may beunsuccessful in identifying and evaluating business, legal or financial risksas part of the due diligence process associated with a transaction. Inaddition, some acquisitions will have contingent consideration components thatmay require us to pay additional amounts in the future in relation to futureperformance results of the acquired business. If we do not properly assessthese risks, or if we fail to realize the benefits from one or moreacquisitions, our business, results of operations and financial condition couldbe adversely affected.

**We may be unsuccessful in integrating anyacquired operations with our existing business.**

We may experiencedifficulties in integrating operations acquired from other companies. Thesedifficulties include the diversion of management’s attention from otherbusiness concerns and the potential loss of key employees of the acquiredoperations. Acquisitions also frequently involve significant costs, oftenrelated 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 and financialcondition could be adversely affected.

**Changes in tax laws or their applicationmay adversely affect our reported results.**

We operate in approximately100 countries worldwide and our earnings are subject to taxation in manydiffering jurisdictions and at differing rates. We seek to organize our affairsin a tax efficient manner, taking account of the jurisdictions in which weoperate. Tax laws that apply to our business may be amended by the relevantauthorities, for example as a result of changes in fiscal circumstances orpriorities. Such amendments, or their application to our business, mayadversely affect our reported results.

**We are involved in tax related mattersthat could have a material effect on us.**

We (and our predecessors)have entered, and we continue to enter, into global tax planning initiatives inthe normal course of business. These activities are subject to review byapplicable tax authorities and courts. As a result of the review process,uncertainties exist and it is possible that some of these matters could beresolved adversely to us, including those tax related matters described in PartI, Item 1 of this Quarterly Report on Form 10-Q. Moreover, there can be noassurance that we will be able to maintain our effective tax rate.

54

----

**We are, and may become, involved inlitigation 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. Theoutcome of these matters could have a material adverse effect on our business,results of operation or financial condition. In addition, we may become subjectto future lawsuits, claims, audits and investigations that could result in substantialcosts and divert our attention and resources.

**Significant technological changes couldrender our products and services obsolete. We may not be able to develop thetechnology necessary for our business, or to do so efficiently.**

We operate in businessesthat require sophisticated data collection and processing systems and softwareand other technology. Some of the technologies supporting the industries weserve are changing rapidly and we must continue to develop cost-effectivetechnologies for data collection and processing to accommodate such changes. Wealso must continue to deliver data to our clients in forms that are easy to usewhile simultaneously providing clear answers to complex questions. There can beno guarantee that we will be able to develop new technologies for datacollection, processing and delivery or that we will be able to do so as quicklyor cost-effectively as our competition. Significant technological change couldrender our products and services obsolete.

Moreover, the introductionof new products and services embodying new technologies and the emergence ofnew industry standards could render existing products and services obsolete.Our continued success will depend on ourability to adapt to changing technologies, manage and process ever-increasing amountsof data and information and improve the performance, features and reliabilityof our products and services in response to changing client and industrydemands. We may experience difficulties that coulddelay or prevent the successful design, development, testing, introduction ormarketing of our products and services. New products and services, orenhancements to existing products and services, may not adequately meet therequirements of current and prospective clients or achieve any degree ofsignificant market acceptance.

**Government imposed price restrictions onpharmaceutical companies could reduce demand for our products and services.**

A number of countries inwhich we operate have enacted regulations limiting the prices pharmaceuticalcompanies may charge for drugs. We believe that such cost containment measureswill cause pharmaceutical companies to seek more effective means of marketingtheir products (which will benefit us in the medium and long-term). However,such governmental regulation may cause pharmaceutical companies to revise orreduce their marketing programs in the near term, which may in turn reduce thedemand for certain of our products and services. This could result in decreasedrevenue, net income and earnings per share.

**Our success will depend on our ability toprotect our intellectual property rights.**

The success of ourbusinesses will continue to depend, in part, on:

·     obtainingpatent protection for our technology, products and services;

·     defendingour patents, copyrights and other intellectual property;

·     preservingour trade secrets and maintaining the security of our know-how; and

55

----

·     operatingwithout infringing upon patents and proprietary rights held by third parties.

We rely on a combination ofcontractual provisions, confidentiality procedures and patent, copyright,trademark, service mark and trade secret laws to protect the proprietaryaspects of our products, services, databases and technologies. There can be noassurance that these protections will be adequate, or that we will adequatelyemploy each and every one of these protections at all times, to providesufficient protection in the future to prevent the use or misappropriation ofour data, technology and other products and services. Further, our competitorsmay develop products, services, databases or technologies that aresubstantially equivalent or superior to our products, services, databases ortechnologies. Although we believe that our products, services, databases,technologies and related proprietary rights do not infringe upon theproprietary rights of third parties, there can be no assurance that thirdparties will not assert infringement claims against us in the future.Litigation may be necessary to enforce our intellectual property rights, toprotect 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 our proprietarymapping software. In addition, the growing need for global data, along withincreased competition and technological advances, puts increasing pressure onus to share our intellectual property for client applications. Any futurelitigation, regardless of outcome, could result in substantial expense anddiversion of resources with no assurance of success and could seriously harmour business, financial condition and operating results.

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

Our success and ability togrow are dependent, in part, on our ability to hire, retain and motivatesufficient numbers of talented people, with the increasingly diverse skillsneeded to serve clients and expand our business, in many locations around theworld. Competition for highly qualified technical and managerial, andparticularly consulting personnel is intense. Recruiting, training andretention costs and benefits place significant demands on our resources. Theinability 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 whichour clients operate may put pressure on the pricing of our products andservices, and could increase the cost of acquiring data, leading to decreasedearnings.**

Consolidation in thepharmaceutical industry could put pressure on the pricing of our informationproducts and services, as the consolidated client seeks pricing concessionsfrom us, and could limit available dollars for our products and services. Inaddition, when companies merge, the products and services they previouslypurchased separately are now purchased only once by the combined entity,leading to contract compression and loss of revenue. While we have experiencedsuccess in mitigating the revenue impact of any pricing pressure througheffective negotiations and by providing services to individual businesseswithin a particular group, there can be no assurance as to the degree to whichwe will be able to continue to do so as consolidation continues.

**Our businesses are subject to significantor 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,

56

----

marketing,technical and other advantages.

**Disruptions in commerce could adverselyaffect our business.**

Commerce could be disruptedby various political, economic, world health or other conditions. Examples ofsuch disruptions that could adversely affect our business include:

·     terroristactivity, the threat of such activity, and responses to and results of suchactivity and threats, including but not limited to effects, domestically and/orinternationally, on us, our personnel and facilities, our customers andsuppliers, financial markets and general economic conditions; and

·     anoutbreak of SARS, avian influenza (Bird Flu) or other epidemic, the fear ofsuch an epidemic, and responses to and results of such an epidemic or fearthereof, including but not limited to effects, domestically and/orinternationally, on us, our personnel and facilities, our customers andsuppliers, financial markets and general economic conditions.

If such disruptions resultin cancellations of or reductions in customer orders or contribute to a generaldecrease in economic activity, or directly impact our marketing, collection,production, delivery, financial and logistics functions, our results ofoperations and financial condition could be materially adversely affected.

**The success of our business will largelydepend on the performance of the pharmaceutical and healthcare industries.**

The vast majority of our revenues aregenerated from sales to the pharmaceutical and healthcare industries. To theextent the businesses we serve, especially our clients in the pharmaceuticaland healthcare industries, are subject to financial pressures of, for example,price controls, increased costs or reduced demand for their products, thedemand for our products and services, or the price our clients are willing topay for those products and services, may decline.

57

----

**Item 2.  Changes inSecurities, Use of Proceeds and Issuer Purchases of Equity Securities**
| **Period**          | ** ** | **Total Number  of Shares  Purchased(**1) | ** ** | **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(**2) | ** ** |
|---------------------|------------|-----------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|
|                |       |                                                |       |                                         |       |                                                                                               |       |                                                                                                                          |       |
| April 1-30, 2007    |       | —                                              |       |                                         |       |                                                                                               |       | 10,308,730                                                                                                                    |       |
| May 1–31, 2007 |       | 2,662,700                                           |       | $                                            | 30.82      |                                                                                               | 2,662,700  |                                                                                                                          | 7,646,030  |   |
| June 1-30, 2007     |       | 2,337,300                                           |       | $                                            | 32.34      |                                                                                               | 2,337,300  |                                                                                                                          | 5,308,730  |   |
|                |       |                                                |       |                                         |       |                                                                                               |       |                                                                                                                          |       |
| **Total**           |       | 5,000,000                                           |       |                                         |       | 5,000,000                                                                                          |       | 5,308,730                                                                                                                     |       |

 

----

(1)             All shares were repurchased through theCompany’s publicly announced stock repurchase programs.

(2)             In January 2006, the Board of Directorsauthorized a stock repurchase program to buy up to 30,000,000 shares.  As of June 30, 2007, no shares remainedavailable for repurchase under the January 2006 program.  In December 2006, the Board of Directorsauthorized a stock repurchase program to buy up to 10,000,000 shares. As ofJune 30, 2007, 5,308,730 shares remained available for repurchase under theDecember 2006 program.  Unless terminatedearlier by resolution of the Company’s Board of Directors, this program willexpire when the Company has repurchased all shares authorized for repurchasethereunder.  See Note 12 of our Notes toCondensed Consolidated Financial Statements (Unaudited) for further details.

**Item 4. Submission of Matters to a Vote of SecurityHolders**

The Annual Meeting ofShareholders of IMS Health Incorporated was held on May 4, 2007.

The following nomineesfor director named in the Proxy Statement dated March 29, 2007 were elected atthe Meeting for a three-year term expiring in 2010 by the votes indicated:
|                        | ** ** | **For**     | ** ** | **Withheld** | ** ** |
|------------------------|------------|-------------|------------|--------------|------------|
| James D. Edwards       |       | 166,615,391 |       | 13,820,826   |       |
| William C. Van  Faasen |       | 166,504,164 |       | 13,932,053   |       |
| Bret W. Wise           |       | 166,615,762 |       | 13,820,455   |       |

 

The following directorscontinue to serve terms expiring in 2008: David R. Carlucci, Constantine L.Clemente, Kathryn E. Giusti and M. Bernard Puckett.  The following directors continue to serveterms expiring in 2009: John P. Imlay, Jr., Robert J. Kamerschen and H. EugeneLockhart.

The appointment of PricewaterhouseCoopers LLP asIndependent Registered Public Accounting Firm was approved by the followingvote:

 
|                  | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Number of Shares |       | 175,371,275 |       | 4,007,723   |       | 1,057,217   |       |

 

The Shareholder Proposalregarding the election of each Director annually:
|                  | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker   Non-Votes** | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|-----------------------------|------------|
| Number of Shares |       | 121,861,561 |       | 38,879,096  |       | 1,093,204   |       | 18,602,356                  |       |

 

58

----

**Item6.  Exhibits**

 

(a)           Exhibits

 
| Exhibit  Number | ** ** | **Description of Exhibits**                                                                                                                                                                                                            |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |       | Underwriting Agreement, between IMS Health  Incorporated and Goldman, Sachs & Co., dated April 20, 2007 (incorporated  by reference to Exhibit 1.1 to the Registrant’s Current Report on Form 8-K,  filed on April 24, 2007). |
|            |       |                                                                                                                                                                                                                                   |
| 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                                                                                                                                              |

 

59

----

**SIGNATURES**

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned thereunto duly authorized.
|                       |  IMS Health  Incorporated

  |
|-----------------------|----------------------------------------|
|                  |                                   |
| By:              |                                   |  /s/ Leslye  G. Katz |   |
| Date: August 3,  2007 |                                   |  Leslye G.  Katz |
|                  |                                   |  Senior  Vice President and |
|                  |                                   |  Chief  Financial Officer |
|                  |                                   |  (principal  financial officer) |
|                  |                                   |   |
|                  |                                   |   |
|                  |                                   |  /s/  Harshan Bhangdia |   |
| Date: August 3,  2007 |                                   |  Harshan  Bhangdia |
|                  |                                   |  Vice  President and Controller |
|                  |                                   |  (principal  accounting officer) |

 

60

----

# **EXHIBITINDEX**

 
| Exhibit  Number | ** ** | **Description of Exhibits**                                                                                                                                                                                                            |
|-----------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |       | Underwriting  Agreement, between IMS Health Incorporated and Goldman, Sachs & Co.,  dated April 20, 2007 (incorporated by reference to Exhibit 1.1 to the Registrant’s  Current Report on Form 8-K, filed on April 24, 2007). |
|            |       |                                                                                                                                                                                                                                   |
| 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                                                                                                                                              |

 

#  

61

----