Table of Contents

 

 

 

**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **(Mark One)**                                                                           | ** ** | ** **                                                                                               |
|------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|
| ** **                                                                               | ** ** | ** **                                                                                               |
| **x**                                                                                    | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934**  |
| ** **                                                                               | ** ** | ** **                                                                                               |
| **For the quarterly period ended  June 30, 2009**                                   |
| ** **                                                                               | ** ** | ** **                                                                                               |
| **OR**                                                                                   |
| ** **                                                                               | ** ** | ** **                                                                                               |
| **o**                                                                                    | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE  ACT OF 1934** |
| ** **                                                                               | ** ** | ** **                                                                                               |
| **For the transition period from       to     ** |

 

**Commission File Number: 001-14049**

 

**IMSHealth Incorporated**

(Exact Name of Registrantas Specified in its Charter)

 

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

 

**901 Main Avenue, Norwalk, CT06851**

(Address of principalexecutive offices)(Zip Code)

 

**(203) 845-5200**

(Registrant’s telephonenumber, including area code)

 

**N/A**

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

 

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

 

x Yes  o No

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (Section 232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).

 

o Yes  o No

 

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

 

| Large Accelerated Filer  x |   | Accelerated Filer o          |
|----------------------------|--------|------------------------------|
|                       |   |                         |
| Non-Accelerated Filer o    |   | Smaller Reporting  Company o |

 

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

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.  At June 30, 2009, there were 182,386,850shares of IMS Health Incorporated Common Stock, $0.01 par value, outstanding.

 

 

 

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Table of Contents

 

**IMS HEALTH INCORPORATED**

 

**INDEX TO FORM 10-Q**

 
| ** **                                                                                              | **PAGE(S)**  |
|---------------------------------------------------------------------------------------------------------|--------------|
| **PART I. FINANCIAL INFORMATION**                                                                  | ** **   |
| **Item 1. Financial Statements (Unaudited)**                                                            |         |
| Condensed  Consolidated Statements of Financial Position                                                |         |
| As of  June 30, 2009 and December 31, 2008                                                    | 3            |
| Condensed  Consolidated Statements of Income                                                            |         |
| Three  Months Ended June 30, 2009 and 2008                                                         | 4            |
| Six Months Ended June 30, 2009 and 2008                                                            | 5            |
| Condensed  Consolidated Statements of Cash Flows                                                        |         |
| Six Months  Ended June 30, 2009 and 2008                                                           | 6            |
| Condensed  Consolidated Statements of Shareholders’ Deficit                                        |         |
| Twelve  Months Ended December 31, 2008 and                                                         |         |
| Six Months  Ended June 30, 2009                                                                    | 7            |
| Notes to Condensed Consolidated Financial Statements                                                    | 8-30         |
| **Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations** | 31-51        |
| **Item 3. Quantitative and Qualitative Disclosures About  Market Risk**                                 | 52           |
| **Item 4. Controls and Procedures**                                                                     | 52           |
| ** **                                                                                              |         |
| **PART II.  OTHER INFORMATION**                                                                    | ** **   |
| **Item  1. Legal Proceedings**                                                                          | 53           |
| ** **                                                                                              | ** **   |
| **Item  1A. Risk Factors**                                                                              | 53 – 54 |
|                                                                                                    |         |
| **Item 2. Unregistered  Sales of Equity Securities and Use of Proceeds**                                | 54           |
|                                                                                                    |         |
| **Item 4. Submission of Matters to a Vote of Security  Holders**                                        | 55           |
|                                                                                                    |         |
| **Item 6.  Exhibits**                                                                                   | 56           |
|                                                                                                    |         |
| **SIGNATURES**                                                                                          | 57           |
| ** **                                                                                              | ** **   |
| **EXHIBITS**                                                                                            | 58           |

 

2

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Table of Contents

 

**PART I.FINANCIAL INFORMATION**

**Item 1. FINANCIAL STATEMENTS**

 

**IMS HEALTH INCORPORATED**

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

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

 
| ** **                                                                                                               | ** ** | **As of June 30,  2009** | ** **    | **As of December 31,  2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|---------------|-----------------------------------|------------|
| **Assets:**                                                                                                              |       |                          |          |                              |       |
| **Current Assets:**                                                                                                      | ** ** | ** **                    | ** **    |                              | ** ** |
| Cash  and cash equivalents                                                                                               | ** ** | **$**                         | **239,780**   |                              | $          | 215,682 |   |
| Accounts  receivable, net of allowances of $9,473****and  $5,960 in 2009 and 2008, respectively                          | ** ** | **329,850**                   |          | 382,776                           |       |
| Other  current assets                                                                                                    | ** ** | **177,770**                   |          | 174,099                           |       |
| **Total Current Assets**                                                                                                 | ** ** | **747,400**                   |          | 772,557                           |       |
| Securities  and other investments                                                                                        | ** ** | **8,119**                     |          | 7,121                             |       |
| Property,  plant and equipment, net of accumulated depreciation of $223,454 and $208,340  in 2009 and 2008, respectively | ** ** | **180,578**                   |          | 183,055                           |       |
| Computer  software                                                                                                       | ** ** | **245,449**                   |          | 253,583                           |       |
| Goodwill  (Note 6)                                                                                                       | ** ** | **674,888**                   |          | 663,532                           |       |
| Other  assets                                                                                                            | ** ** | **174,383**                   |          | 207,289                           |       |
| **Total Assets**                                                                                                         | ** ** | **$**                         | **2,030,817** |                              | $          | 2,087,137 |   |
| ** **                                                                                                               | ** ** | ** **                    |          |                              |       |
| **Liabilities, Redeemable Noncontrolling Interest  and Shareholders’ Deficit:**                                     | ** ** | ** **                    | ** **    |                              | ** ** |
| **Current Liabilities:**                                                                                                 | ** ** | ** **                    | ** **    |                              | ** ** |
| Accounts  payable                                                                                                        | ** ** | **$**                         | **71,390**    |                              | $          | 119,798 |   |
| Accrued  and other current liabilities                                                                                   | ** ** | **248,292**                   |          | 275,764                           |       |
| Accrued  income taxes                                                                                                    |       | —                        |          | 47,735                            |       |
| Short-term  deferred tax liability                                                                                       | ** ** | **2,074**                     |          | 9,444                             |       |
| Deferred  revenues                                                                                                       | ** ** | **107,023**                   |          | 88,484                            |       |
| **Total Current Liabilities**                                                                                            | ** ** | **428,779**                   |          | 541,225                           |       |
| Postretirement  and postemployment benefits                                                                              | ** ** | **112,694**                   |          | 109,516                           |       |
| Long-term  debt (Note 9)                                                                                                 | ** ** | **1,359,295**                 |          | 1,404,199                         |       |
| Other  liabilities                                                                                                       | ** ** | **152,515**                   |          | 185,677                           |       |
| **Total Liabilities**                                                                                                    | ** ** | **$**                         | **2,053,283** |                              | $          | 2,240,617 |   |
| ** **                                                                                                               | ** ** | ** **                    | ** **    |                              | ** ** |
| **Commitments and Contingencies (Note 7)**                                                                               | ** ** | ** **                    | ** **    |                              | ** ** |
| ** **                                                                                                               | ** ** | ** **                    | ** **    |                              | ** ** |
| **Redeemable Noncontrolling Interest (Note 13)**                                                                         | ** ** | **$**                         | —        |                              | $          | 100,000 |   |
| ** **                                                                                                               | ** ** | ** **                    | ** **    |                              | ** ** |
| **Shareholders’ Deficit:**                                                                                          | ** ** | ** **                    | ** **    |                              | ** ** |
| Common  Stock, par value $.01, authorized 800,000 shares; issued 335,045 shares in  2009 and 2008, respectively          | ** ** | **$**                         | **3,350**     |                              | $          | 3,350 |   |
| Capital  in excess of par                                                                                                | ** ** | **530,762**                   |          | 546,478                           |       |
| Retained  earnings                                                                                                       | ** ** | **3,245,400**                 |          | 3,060,345                         |       |
| Treasury  stock, at cost, 152,659 and 153,564 shares in 2009 and 2008, respectively                                      | ** ** | **(3,555,465**                | **)**         | (3,576,446                        | )          |
| Cumulative  translation adjustment                                                                                       | ** ** | **(132,609**                  | **)**         | (171,990                          | )          |
| Unamortized  postretirement and postemployment balances (SFAS No. 158)                                              | ** ** | **(115,366**                  | **)**         | (117,111                          | )          |
| **Total IMS Health Shareholders’ Deficit**                                                                          | ** ** | **$**                         | **(23,928**   | **)**                             | $          | (255,374 | ) |
| **Noncontrolling Interests (Note 13)**                                                                                   | ** ** | **$**                         | **1,462**     |                              | $          | 1,894 |   |
| **Total Shareholders’ Deficit**                                                                                     | ** ** | **$**                         | **(22,466**   | **)**                             | $          | (253,480 | ) |
| **Total Liabilities, Redeemable Noncontrolling  Interest and Shareholders’ Deficit**                                | ** ** | **$**                         | **2,030,817** |                              | $          | 2,087,137 |   |

## ** **

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

 

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## **IMS HEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME (Unaudited)**

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

* *
| ** **                                                                                               | ** ** | **Three Months Ended  June 30,** | ** **     |
|----------------------------------------------------------------------------------------------------------|------------|---------------------------------------|----------------|
| ** **                                                                                               | ** ** | **2009**                              | ** **     | **2008** | ** ** |
| ** **                                                                                               | ** ** | ** **                            |           |   |   |
| Information  and analytics revenue                                                                       | ** ** | **$**                                 | **408,611**    |   | $ | 453,440 |   |
| Consulting  and services revenue                                                                         | ** ** | **114,228**                           |           | 147,269 |   |
| **Operating Revenue**                                                                                    | ** ** | **522,839**                           |           | 600,709 |   |
|                                                                                                     | ** ** | ** **                            |           |   |   |
| Operating  costs of information and analytics                                                            | ** ** | **175,401**                           |           | 193,607 |   |
| Direct  and incremental costs of consulting and services                                                 | ** ** | **57,012**                            |           | 71,951 |   |
| External-use  software amortization                                                                      | ** ** | **10,117**                            |           | 13,043 |   |
| Selling  and administrative expenses                                                                     | ** ** | **162,919**                           |           | 168,365 |   |
| Depreciation  and other amortization                                                                     | ** ** | **22,676**                            |           | 22,366 |   |
| Severance,  impairment and other charges (Note 15)                                                       | ** ** | **25,428**                            |           | — |   |
| **Operating Income**                                                                                     | ** ** | **69,286**                            |           | 131,377 |   |
|                                                                                                     | ** ** | ** **                            |           |   |   |
| Interest  income                                                                                         | ** ** | **476**                               |           | 2,983 |   |
| Interest  expense                                                                                        | ** ** | **(9,055**                            | **)**          | (11,970 | ) |
| Other  income (expense), net                                                                             | ** ** | **4,523**                             |           | (6,159 | ) |
| **Non-Operating Loss, Net**                                                                              | ** ** | **(4,056**                            | **)**          | (15,146 | ) |
| ** **                                                                                               | ** ** | ** **                            |           |   |   |
| Income  before provision for income taxes                                                                | ** ** | **65,230**                            |           | 116,231 |   |
| Provision  for income taxes (Note 11)                                                                    | ** ** | **(1,518**                            | **)**          | (37,505 | ) |
| **Net Income**                                                                                           | ** ** | **$**                                 | **63,712**     |   | $ | 78,726 |   |
| Less:  Net income attributable to noncontrolling interests (Note 13)                                     | ** ** | **829**                               |           | 1,031 |   |
| **Net Income Attributable to IMS Health**                                                                | ** ** | **$**                                 | **62,883**     |   | $ | 77,695 |   |
|                                                                                                     | ** ** | ** **                            |           |   |   |
| **Basic Earnings Per Share of Common Stock**                                                             | ** ** | **$**                                 | **0.34**       |   | $ | 0.43 |   |
| **Diluted Earnings Per Share of Common Stock**                                                           | ** ** | **$**                                 | ** 0.34** |   | $ |  0.42 |   |
| ** **                                                                                               | ** ** | ** **                            |           |   |   |
| Weighted  average number of shares outstanding — Basic                                              | ** ** | **182,380**                           |           | 181,741 |   |
| Dilutive  effect of shares issuable as of period-end under stock-based compensation  plans and other     | ** ** | **124**                               |           | 2,133 |   |
| Adjustment  of shares outstanding applicable to exercised and cancelled stock options  during the period |       | —                                |           | 22 |   |
| **Weighted Average Number of Shares Outstanding —  Diluted**                                        | ** ** | **182,504**                           |           | 183,896 |   |

 

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

 

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## **IMS HEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME (Unaudited)**

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

* *
| ** **                                                                                               | ** ** | **Six Months Ended  June 30,** | ** **  |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------|-------------|
| ** **                                                                                               | ** ** | **2009**                            | ** **  | **2008** | ** ** |
| ** **                                                                                               | ** ** | ** **                          |        |   |   |
| Information  and analytics revenue                                                                       | ** ** | **$**                               | **828,688** |   | $ | 909,627 |   |
| Consulting  and services revenue                                                                         | ** ** | **221,095**                         |        | 265,262 |   |
| **Operating Revenue**                                                                                    | ** ** | **1,049,783**                       |        | 1,174,889 |   |
|                                                                                                     | ** ** | ** **                          |        |   |   |
| Operating  costs of information and analytics                                                            | ** ** | **346,240**                         |        | 386,374 |   |
| Direct  and incremental costs of consulting and services                                                 | ** ** | **118,157**                         |        | 140,456 |   |
| External-use  software amortization                                                                      | ** ** | **20,641**                          |        | 25,757 |   |
| Selling  and administrative expenses                                                                     | ** ** | **323,325**                         |        | 331,133 |   |
| Depreciation  and other amortization                                                                     | ** ** | **45,841**                          |        | 43,410 |   |
| Severance,  impairment and other charges (Note 15)                                                       | ** ** | **25,428**                          |        | — |   |
| **Operating Income**                                                                                     | ** ** | **170,151**                         |        | 247,759 |   |
| ** **                                                                                               | ** ** | ** **                          |        |   |   |
| Interest  income                                                                                         | ** ** | **1,483**                           |        | 5,575 |   |
| Interest  expense                                                                                        | ** ** | **(18,531**                         | **)**       | (23,233 | ) |
| Other  income (expense), net                                                                             | ** ** | **9,418**                           |        | (24,781 | ) |
| **Non-Operating Loss, Net**                                                                              | ** ** | **(7,630**                          | **)**       | (42,439 | ) |
|                                                                                                     | ** ** | ** **                          |        |   |   |
| Income  before provision for income taxes                                                                | ** ** | **162,521**                         |        | 205,320 |   |
| Benefit  (provision) for income taxes (Note 11)                                                          | ** ** | **35,647**                          |        | (65,784 | ) |
| **Net Income**                                                                                           | ** ** | **$**                               | **198,168** |   | $ | 139,536 |   |
| Less:  Net income attributable to noncontrolling interests (Note 13)                                     | ** ** | **1,953**                           |        | 2,666 |   |
| **Net Income Attributable to IMS Health**                                                                | ** ** | **$**                               | **196,215** |   | $ | 136,870 |   |
|                                                                                                     | ** ** | ** **                          |        |   |   |
| **Basic Earnings Per Share of Common Stock**                                                             | ** ** | **$**                               | **1.08**    |   | $ | 0.75 |   |
| **Diluted Earnings Per Share of Common Stock**                                                           | ** ** | **$**                               | **1.08**    |   | $ | 0.74 |   |
|                                                                                                     | ** ** | ** **                          |        |   |   |
| Weighted  average number of shares outstanding — Basic                                              | ** ** | **182,113**                         |        | 183,388 |   |
| Dilutive  effect of shares issuable as of period-end under stock-based compensation  plans and other     | ** ** | **92**                              |        | 1,547 |   |
| Adjustment  of shares outstanding applicable to exercised and cancelled stock options  during the period |       | —                              |        | 38 |   |
| **Weighted Average Number of Shares Outstanding —  Diluted**                                        | ** ** | **182,205**                         |        | 184,973 |   |

 

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

 

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**IMSHEALTH INCORPORATED**

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

*(Dollars in thousands)*

 
| ** **                                                                                | ** ** | **Six Months Ended June 30,** | ** **  |
|-------------------------------------------------------------------------------------------|------------|------------------------------------|-------------|
| ** **                                                                                | ** ** | **2009**                           | ** **  | **2008** | ** ** |
| **Cash Flows from Operating Activities:**                                                 |       |                               |        |   |   |
| Net  income                                                                               | ** ** | **$**                              | **198,168** |   | $ | 139,536 |   |
| **Adjustments to reconcile net income to net cash****provided  by operating activities:** | ** ** | ** **                         |        |   |   |
| Depreciation  and amortization                                                            | ** ** | **66,482**                         |        | 69,167 |   |
| Bad  debt expense                                                                         | ** ** | **2,688**                          |        | 983 |   |
| Deferred  income taxes                                                                    | ** ** | **1,500**                          |        | 1,439 |   |
| Gains  from investments, net                                                              | ** ** | **(38**                            | **)**       | — |   |
| Non-cash  stock-based compensation charges                                                | ** ** | **15,605**                         |        | 16,227 |   |
| Non-cash  portion of severance, impairment and other charges                              | ** ** | **17,210**                         |        | — |   |
| Net  tax benefit on stock-based compensation                                              | ** ** | **(4,440**                         | **)**       | (316 | ) |
| Excess  tax benefits from stock-based compensation                                        |       | —                             |        | (88 | ) |
| Change  in assets and liabilities, excluding effects from acquisitions and  dispositions: | ** ** | ** **                         |        |   |   |
| Net  decrease (increase) in accounts receivable                                           | ** ** | **47,849**                         |        | (28,930 | ) |
| Net  decrease (increase) in work-in-process inventory                                     | ** ** | **3,389**                          |        | (5,468 | ) |
| Net  decrease (increase) in prepaid expenses and other current assets                     | ** ** | **9,016**                          |        | (18,817 | ) |
| Net  decrease in accounts payable                                                         | ** ** | **(50,710**                        | **)**       | (18,196 | ) |
| Net  decrease in accrued and other current liabilities                                    | ** ** | **(22,372**                        | **)**       | (6,995 | ) |
| Net  decrease in accrued severance, impairment and other charges                          | ** ** | **(6,582**                         | **)**       | (27,914 | ) |
| Net  increase (decrease) in deferred revenues                                             | ** ** | **17,658**                         |        | (18,476 | ) |
| Net  (decrease) increase in accrued income taxes                                          | ** ** | **(108,818**                       | **)**       | 6,597 |   |
| Net  decrease in pension assets (net of liabilities)                                      | ** ** | **6,450**                          |        | 1,655 |   |
| Net  decrease in other long-term assets (net of long-term liabilities)                    | ** ** | **1,254**                          |        | 1,642 |   |
| **Net Cash Provided by Operating Activities**                                             | ** ** | **194,309**                        |        | 112,046 |   |
| **Cash Flows Used in Investing Activities:**                                              | ** ** | ** **                         |        |   |   |
| Capital  expenditures                                                                     | ** ** | **(11,210**                        | **)**       | (22,462 | ) |
| Additions  to computer software                                                           | ** ** | **(37,967**                        | **)**       | (36,537 | ) |
| Proceeds  from sale of assets, net                                                        | ** ** | **751**                            |        | 1,392 |   |
| Payments  for acquisitions of businesses, net of cash acquired                            | ** ** | **(2,896**                         | **)**       | (45,308 | ) |
| Funding  of venture capital investments                                                   | ** ** | **(1,000**                         | **)**       | (1,500 | ) |
| Other  investing activities, net                                                          | ** ** | **1,114**                          |        | (1,874 | ) |
| **Net Cash Used in Investing Activities**                                                 | ** ** | **(51,208**                        | **)**       | (106,289 | ) |
| **Cash Flows Used in Financing Activities:**                                              | ** ** | ** **                         |        |   |   |
| Net  increase in revolving credit facility and other                                      | ** ** | **2,544**                          |        | 139,500 |   |
| Proceeds  from private placement notes                                                    |       | —                             |        | 240,000 |   |
| Repayment  of private placement notes                                                     |       | —                             |        | (150,000 | ) |
| Payments  for purchase of treasury stock                                                  |       | —                             |        | (229,340 | ) |
| Proceeds  from exercise of stock options                                                  |       | —                             |        | 5,000 |   |
| Excess  tax benefits from stock-based compensation                                        |       | —                             |        | 88 |   |
| Dividends  paid                                                                           | ** ** | **(11,160**                        | **)**       | (11,067 | ) |
| Proceeds  from employee stock purchase plan and other                                     |       | —                             |        | (25 | ) |
| Decrease  in cash overdrafts                                                              | ** ** | **(4,836**                         | **)**       | (995 | ) |
| Payments  to noncontrolling interests and other financing activities                      | ** ** | **(103,875**                       | **)**       | (3,382 | ) |
| **Net Cash Used in Financing Activities**                                                 | ** ** | **(117,327**                       | **)**       | (10,221 | ) |
| Effect  of Exchange Rate Changes on Cash and Cash Equivalents                             | ** ** | **(1,676**                         | **)**       | 6,940 |   |
| **Increase in Cash and Cash Equivalents**                                                 | ** ** | **24,098**                         |        | 2,476 |   |
| **Cash and Cash Equivalents, Beginning of Period**                                        | ** ** | **215,682**                        |        | 218,249 |   |
| **Cash and Cash Equivalents, End of Period**                                              | ** ** | **$**                              | **239,780** |   | $ | 220,725 |   |

 

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

 

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**IMS HEALTH INCORPORATED**

** **

**CONDENSEDCONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIT (Unaudited)**

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

 
| ** **                                   | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** | ** **         | ** ** | ** **   | ** ** | ** **     | ** **    | **Accumulated  Other Comprehensive Income (Loss)** | ** ** | ** **           | ** ** | ** **      | ** **   | ** **                | ** ** |
|----------------------------------------------|------------|-------------|------------|--------------|------------|-------------|------------|--------------------|------------|--------------|------------|----------------|---------------|----------------------------------------------------|------------|----------------------|------------|-----------------|--------------|---------------------------|------------|
| ** **                                   | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** | ** **         | ** ** | ** **   | ** ** | ** **     | ** **    | ** **                                         | ** ** | **Post  Retirement** | ** ** | **Other**       | ** **   | **Total**                 | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **Shares**  | ** ** | ** **   | ** ** | **Capital** | ** ** | ** **         | ** ** | ** **   | ** ** | **Cumulative** | ** **    | **Post  Employ**                                   | ** ** | **Compre-**          | ** ** | **IMS  Health** | ** **   | ** **                | ** ** | ** ** | ** ** |
| ** **                                   | ** ** | **Common**  | ** ** | **Treasury** | ** ** | **Common**  | ** ** | **in Excess** | ** ** | **Retained** | ** ** | **Treasury**   | ** **    | **Translation**                                    | ** ** | **Adjust**           | ** ** | **hensive**     | ** **   | **Shareholders’**    | ** ** | **Noncontrolling** | ** ** | **Total** | ** ** |
| ** **                                   | ** ** | **Stock**   | ** ** | **Stock**    | ** ** | **Stock**   | ** ** | **of Par**    | ** ** | **Earnings** | ** ** | **Stock**      | ** **    | **Adjustment**                                     | ** ** | **SFAS 158**    | ** ** | **Income**      | ** **   | **(Deficit) Equity** | ** ** | **Interest** | ** ** | **(Deficit) Equity** | ** ** |
| **Balance,  December 31, 2007**         | ** ** | **335,045** | ** ** | **143,818**  | ** ** | **$**       | **3,350**  | ** **         | **$**      | **535,500**  | ** ** | **$**          | **2,771,278** | ** **                                         | **$**      | **(3,355,790**       | **)**      | **$**           | **61,931**   | ** **                | **$**      | **(56,584** | **)** | ** ** | ** ** | **$** | **(40,315** | **)** | **$** | **1,444** | ** ** | **$** | **(38,871** | **)** |
| Net Income  Attributable to IMS Health       |       |        |       |         |       |        |       |               |       | 311,250      |       |           |          |                                               |       |                 |       | $               | 311,250      |                      | 311,250    |   | 940 |   | 312,190 |   |
| Cash Dividends  ($0.12 per share)            |       |        |       |         |       |        |       |               |       | (22,183      | )          |           |          |                                               |       |                 |       |            |         | (22,183                   | )          |   |   | (22,183 | ) |
| Stock-Based  Compensation Expense            |       |        |       |         |       |        |       | 28,036             |       |         |       |           |          |                                               |       |                 |       |            |         | 28,036                    |       |   |   | 28,036 |   |
| Net Tax Benefit  on Stock-Based Compensation |       |        |       |         |       |        |       | (499               | )          |         |       |           |          |                                               |       |                 |       |            |         | (499                      | )          |   |   | (499 | ) |
| Treasury Shares  Acquired Under Purchases    |       |        |       | 10,495       |       |        |       |               |       |         |       | (238,046       | )             |                                               |       |                 |       |            |         | (238,046                  | )          |   |   | (238,046 | ) |
| Treasury Shares  Reissued Under:             |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |                 |       |            |         |                      |       |   |   |   |   |
| Exercise of Stock  Options                   |       |        |       | (277         | )          |        |       | (920               | )          |         |       | 6,441          |          |                                               |       |                 |       |            |         | 5,521                     |       |   |   | 5,521 |   |
| Vesting of  Restricted Stock                 |       |        |       | (473         | )          |        |       | (15,642            | )          |         |       | 10,977         |          |                                               |       |                 |       |            |         | (4,665                    | )          |   |   | (4,665 | ) |
| Employee Stock  Purchase Plan                |       |        |       | 1            |       |        |       | 3                  |       |         |       | (28            | )             |                                               |       |                 |       |            |         | (25                       | )          |   |   | (25 | ) |
| Cumulative  Translation Adjustment           |       |        |       |         |       |        |       |               |       |         |       |           |          | (233,921                                           | )          |                 |       | (233,921        | )            | (233,921                  | )          | (490 | ) | (234,411 | ) |
| SFAS 158  Adjustments                        |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       | (60,527              | )          | (60,527         | )            | (60,527                   | )          |   |   | (60,527 | ) |
| Total  Comprehensive Income                  |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |                 |       | $               | 16,802       |                      |       |   | 450 |   |   |   |
| **Balance,  December 31, 2008**         | ** ** | **335,045** | ** ** | **153,564**  | ** ** | **$**       | **3,350**  | ** **         | **$**      | **546,478**  | ** ** | **$**          | **3,060,345** | ** **                                         | **$**      | **(3,576,446**       | **)**      | **$**           | **(171,990** | **)**                     | **$**      | **(117,111** | **)** | ** ** | ** ** | **$** | **(255,374** | **)** | **$** | **1,894** | ** ** | **$** | **(253,480** | **)** |
| ** **                                   |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |                 |       |            |         |                      |       |   |   |   |   |
| Net Income  Attributable to IMS Health       |       |        |       |         |       |        |       |               |       | 196,215      |       |           |          |                                               |       |                 |       | $               | 196,215      |                      | 196,215    |   | 96 |   | 196,311 |   |
| Cash Dividends  ($0.12 per share)            |       |        |       |         |       |        |       |               |       | (11,160      | )          |           |          |                                               |       |                 |       |            |         | (11,160                   | )          |   |   | (11,160 | ) |
| Stock-Based  Compensation Expense            |       |        |       |         |       |        |       | 15,605             |       |         |       |           |          |                                               |       |                 |       |            |         | 15,605                    |       |   |   | 15,605 |   |
| Net Tax Benefit  on Stock-Based Compensation |       |        |       |         |       |        |       | (4,440             | )          |         |       |           |          |                                               |       |                 |       |            |         | (4,440                    | )          |   |   | (4,440 | ) |
| Treasury Shares  Reissued Under:             |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |                 |       |            |         |                      |       |   |   |   |   |
| Vesting of  Restricted Stock                 |       |        |       | (905         | )          |        |       | (26,881            | )          |         |       | 20,981         |          |                                               |       |                 |       |            |         | (5,900                    | )          |   |   | (5,900 | ) |
| Cumulative  Translation Adjustment           |       |        |       |         |       |        |       |               |       |         |       |           |          | 39,381                                             |       |                 |       | 39,381          |         | 39,381                    |       | (528 | ) | 38,853 |   |
| SFAS 158  Adjustments                        |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       | 1,745                |       | 1,745           |         | 1,745                     |       |   |   | 1,745 |   |
| Total  Comprehensive Income                  |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |                 |       | $               | 237,341      |                      |       |   | (432 | ) |   |   |
| **Balance,  June 30, 2009**             | ** ** | **335,045** | ** ** | **152,659**  | ** ** | **$**       | **3,350**  | ** **         | **$**      | **530,762**  | ** ** | **$**          | **3,245,400** | ** **                                         | **$**      | **(3,555,465**       | **)**      | **$**           | **(132,609** | **)**                     | **$**      | **(115,366** | **)** | ** ** | ** ** | **$** | **(23,928** | **)** | **$** | **1,462** | ** ** | **$** | **(22,466** | **)** |

 

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

 

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** **

**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

**Note 1.  Interim Condensed Consolidated FinancialStatements (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 Article 10of Regulation S-X under the Securities and Exchange Act of 1934, asamended.  The Condensed ConsolidatedFinancial Statements (Unaudited) do not include all the information and notesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, all adjustments, all of which are of anormal recurring nature,considered necessary for a fairpresentation of the statements of financial position, income, shareholders’deficit and cash flows for the periods presented have been included.  The Company has evaluated for disclosuresubsequent events that have occurred up to July 31, 2009, the date ofissuance of these financial statements. The results of operations for interim periods are not necessarilyindicative of the results expected for the full year. The December 31,2008 balance sheet data was derived from audited financial statements, but doesnot include all disclosures required by accounting principles generallyaccepted in the United States of America. The Condensed Consolidated Financial Statements (Unaudited) and relatednotes should be read in conjunction with the Consolidated Financial Statementsand related notes of IMS Health Incorporated (the “Company” or “IMS”) includedin its 2008 Annual Report on Form 10-K. Certain prior year amounts have been reclassified to conform to the 2009presentation.  Amounts presented in theCondensed Consolidated Financial Statements (Unaudited) may not add due torounding.

 

**Note 2.  Basis of Presentation**

** **

IMS Health Incorporated is the leading global provider of marketintelligence to the pharmaceutical and healthcare industries. The Companyoffers leading-edge market intelligence products and services that are integralto its clients’ day-to-day operations, including product and portfoliomanagement capabilities; commercial effectiveness innovations; managed care andconsumer health offerings; and consulting and services solutions that improveproductivity and the delivery of quality healthcare worldwide. The Company’sinformation products are developed to meet client needs by using data securedfrom a worldwide network of suppliers in more than 100 countries. The Company’sbusiness lines are:

 

·                  Commercial Effectiveness to increase clients’productivity across end-to-end sales, marketing, promotional and performancemanagement processes;

 

·                  Product and Portfolio Management to provideclients with insights into market measurement so they can optimize theirproduct portfolio and strategies; and

 

·                  New Business Areas that supportpharmaceutical client business initiatives in managed markets, consumer health,and pricing and market access, and that also serve payer and governmentaudiences.

 

Within these business lines, the Company provides consulting andservices that use in-house capabilities and methodologies to assist clients inanalyzing and evaluating market trends, strategies 

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

andtactics, and to help in the development and implementation of customizedsoftware applications and data warehouse tools.

 

The Company operates 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 16).

 

**Note 3.  Summary of Recent Accounting Pronouncements**

** **

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedStatement of Financial Accounting Standards (“SFAS”) No. 157, “Fair ValueMeasurements.”This statementdefines fair value, establishes a framework for measuring fair value undergenerally accepted accounting principles, and expands disclosures about fairvalue measurements.This statementis effective for financial statements issued for fiscal years beginning after November 15,2007, and interim periods within those fiscal years.  The adoption of SFAS No. 157, effective January 1,2008, did not have a material impact on the Company’s financial position, resultsof operations or cash flows.  In February 2008,the FASB issued Staff Positions No. FAS 157-1 and No. FAS 157-2 whichdelayed the effective date of SFAS No. 157 for one year for certainnon-financial assets and liabilities and removed certain leasing transactionsfrom its scope.  The adoption of StaffPositions No. FAS 157-1 and No. 157-2, effective January 1,2009, did not have a material impact on the Company’s financial position,results of operations or cash flows.

 

In December 2008, the FASB issued FASB Staff Position (“FSP”) FAS132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSPFAS 132(R)-1”), which amends SFAS No. 132 (revised 2003), “Employers’Disclosures about Pensions and Other Postretirement Benefits,” to provide guidanceon an employer’s disclosures about plan assets of a defined benefit pension orother postretirement plan.  FSP FAS132(R)-1 is effective for fiscal years ending after December 15, 2009,with earlier application permitted. Upon initial application, the provisions ofFSP FAS 132(R)-1 are not required for earlier periods that are presented forcomparative purposes.  The Company iscurrently evaluating the new disclosure requirements under FSP FAS 132(R)-1.

 

In April 2009, the FASB issued FSP FAS 157-4, “Determining FairValue When the Volume and Level of Activity for the Asset or Liability HaveSignificantly Decreased and Identifying Transactions That Are Not Orderly” (“FSPFAS 157-4”), which provides guidance on determining fair values when there is noactive market or where the price inputs being used represent distressedsales.  It also reaffirms what SFAS No. 157states is the objective of fair value measurement—to reflect how much an assetwould be sold for in an orderly transaction (as opposed to a distressed orforced transaction) at the date of the financial statements under currentmarket conditions.  FSP FAS 157-4 iseffective for interim and annual periods ending after June 15, 2009.  The adoption of FSP FAS 157-4 did not have amaterial impact on the Company’s financial position, results of operations orcash flows.

 

In April 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “InterimDisclosures about Fair Value of Financial Instruments,” which requiresdisclosures about fair value of financial instruments for interim reportingperiods of publicly traded companies as well as in annual financialstatements.  

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

Thisstandard also requires those disclosures in summarized financial information atinterim reporting periods.  FSP FAS 107-1and APB 28-1 is effective for interim reporting periods ending after June 15,2009.  The adoption of this standard didnot have a material impact on the Company’s financial position, results ofoperations or cash flows.

 

InMay 2009, the FASB issued SFAS No. 165, “Subsequent Events.” Thisstatement establishes general standards of accounting for and disclosures ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued. This statement is effective for interim or annual financial periodsending after June, 15, 2009.  Theadoption of SFAS No. 165 did not have a material impact on the Company’sfinancial position, results of operations or cash flows.

 

In June 2009, theFASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets,an amendment to FASB Statement No. 140.” This statement eliminates the concept of qualifying special-purposeentities (“QSPEs”), changes the requirements for derecognizing financial assetsand requires additional disclosures about transfers of financial assets,including securitization transactions, and an entity’s continuing involvementin and exposure to the risks related to transferred financial assets.  This Statement must be applied as of thebeginning of each reporting entity’s first annual reporting period that beginsafter November 15, 2009, for interim periods within that first annualreporting period and for interim and annual reporting periods thereafter.  The Company is currently evaluating thisstatement to determine any potential impact that it may have on the financialresults of the Company.

 

In June 2009, theFASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).”  The statement eliminates the exemption forQSPEs, requires a new approach for determining who should consolidatevariable-interest entities (“VIEs”), and changes when it is necessary toreassess who should consolidate VIEs. This Statement shall be effective as of the beginning of each reporting entity’sfirst annual reporting period that begins after November 15, 2009, forinterim periods within that first annual reporting period, and for interim andannual reporting periods thereafter.  TheCompany is currently evaluating this statement to determine any potentialimpact that it may have on the financial results of the Company.

 

In June 2009, theFASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM andthe Hierarchy of Generally Accepted Accounting Principles, a replacement of FASBStatement No. 162.”  This statementreplaces FASB Statement No. 162, “The Hierarchy of Generally AcceptedAccounting Principles,” and establishes the FASB Accounting StandardsCodificationTM as the source of authoritative U.S. generally accepted accountingprinciples (“GAAP”) recognized by the FASB to be applied by nongovernmentalentities.  This Statement is effectivefor financial statements issued for interim and annual periods ending after September 15,2009.  The adoption of this statement isnot expected to have a material impact on the financial results of the Company.

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

** **

**Note 4.       Summary of Significant AccountingPolicies**

** **

*Operating Costs of Information and Analytics*

 

Operating costs of information and analytics (“I&A”) include costsof data, data processing and collection and costs attributable to personnelinvolved in production, data management and delivery of the Company’s I&Aofferings.

 

One of the Company’s major expenditures is the cost for the data itreceives from suppliers.  After receiptof the raw data and prior to the data being available for use in any part ofits business, the Company is required to transform the raw data into usefulinformation through a series of comprehensive processes.  These processes involve significant employeecosts and data processing costs.

 

Costs associated 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.

 

*Direct and Incremental Costs of Consulting and Services*

 

Direct and incremental costs of consulting and services (“C&S”)include the costs of the Company’s consulting staff directly involved withdelivering revenue generating engagements, related accommodations and the costsof primary market research data purchased specifically for certain individualC&S engagements.  Although theCompany’s data is used in multiple customer solutions across different offeringswithin both I&A and C&S, the Company does not have a meaningful way toallocate the direct cost of the data between I&A and C&S revenues.  As such, the direct and incremental costs ofC&S do not reflect the total costs incurred to deliver its C&S revenues.

 

Costs associated with the Company’s time and material and fixed-priceC&S contracts are recognized as incurred.

 

**Note 5.  Acquisitions**

** **

The Company makesacquisitions in order to expand its products, services and geographicreach.  On January 1, 2009, theCompany adopted SFAS No. 141R, “Business Combinations” (“SFAS 141R”),which establishes principles and requirements for how an acquirer recognizesand measures in its financial statements the identifiable assets acquired, theliabilities assumed, any noncontrolling interest in the acquiree and thegoodwill acquired.  The impact of theadoption of SFAS 141R on the Company’s financial position, results ofoperations and cash flows will be dependent on the terms and conditions ofacquisitions consummated on or after the adoption date.

 

During the six monthsended June 30, 2009, the Company did not complete any acquisitions.

 

During the sixmonths ended June 30, 2008, the Company completed three acquisitions ofRobinson and James Research Pty Limited (Australia), Fourth Hurdle ConsultingLimited (U.K.) and 

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

Health Benchmarks, Inc.(U.S.) at an aggregate cost of approximately $24,100 which were accounted forunder the purchase method of accounting. As such, the aggregate purchase price was allocated on a preliminarybasis to the assets acquired based on estimated fair values as of the closingdate.  The purchase price allocationswere finalized during the first quarter of 2009 and during 2008. The CondensedConsolidated Financial Statements (Unaudited) include the results of theseacquired companies subsequent to the closing of these acquisitions.  Had these acquisitions occurred as of January 1,2008 or 2007, the impact on the Company’s results of operations would not havebeen significant. Goodwill of approximately $16,400 was recorded in connectionwith these acquisitions, none of which was deductible for tax purposes.

 

**Note 6.  Goodwill and Intangible Assets**

** **

Goodwill and intangible assets that have indefiniteuseful lives are not amortized and are tested at least annually (or based onany triggering event) for impairment. Intangible assets that have finite useful lives are amortized. Duringthe six months ended June 30, 2009, the Company’s goodwill increased by$11,356 mainly due to foreign currency translation adjustments. During the sixmonths ended June 30, 2008, the Company’s goodwill increased by $47,628due to foreign currency translation adjustments and the preliminary allocationof purchase price for the acquisitions completed during the six months ended June 30,2008 (see Note 5).

 

All ofthe Company’s other acquired intangibles are subject to amortization.Intangible asset amortization expense was $4,334 and $8,884 during the threeand six months ended June 30, 2009, respectively, and $4,768 and $9,489during the three and six months ended June 30, 2008, respectively.  AtJune 30, 2009, intangible assets were primarily composed of customerrelationships, databases and trade names (principally included in other assets)and computer software.  The grosscarrying amounts and related accumulated amortization of these intangibles were$188,397 and $107,516, respectively, at June 30, 2009 and $189,383 and$98,736, respectively, at December 31, 2008.  These intangibles are amortized over periodsranging from two to twenty years.  As of June 30,2009, the weighted average amortization periods of the acquired intangibles byasset class are listed in the following table:

 
| **Intangible  Asset Type**       | ** ** | **Weighted  Average********Amortization Period (Years)** | ** ** |
|----------------------------------|------------|----------------------------------------------------------|------------|
| Customer Relationships           |       | 10.0                                                     |       |
| Computer Software and Algorithms |       | 7.0                                                      |       |
| Databases                        |       | 4.7                                                      |       |
| Trade Names                      |       | 4.3                                                      |       |
| Other                            |       | 4.0                                                      |       |
| Weighted average                 |       | 8.8                                                      |       |

 

Based on currentestimated useful lives, amortization expense associated with intangible assetsat June 30, 2009 is estimated to be approximately $4,205 for each of theremaining two quarters in 2009. Thereafter, annual amortization expense associated with intangibleassets is estimated to be as follows:

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

| **Year Ended  December 31,** | ** ** | **Amortization  Expense** | ** ** |
|----------------------------------------|------------|---------------------------|------------|
| 2010                                   |       | 13,299                    |       |
| 2011                                   |       | 11,963                    |       |
| 2012                                   |       | 10,314                    |       |
| 2013                                   |       | 10,036                    |       |
| 2014                                   |       | 8,299                     |       |
| Thereafter                             |       | $                         | 18,561     |   |
|                                        |            |                           |            |  |

 

**Note7.**  **Contingencies**

 

The Company and itssubsidiaries are involved in legal and tax proceedings, claims and litigationarising in the ordinary course of business. Management periodically assessesthe Company’s liabilities and contingencies in connection with these mattersbased upon the latest information available. For those matters where managementcurrently believes it is probable that the Company will incur a loss and thatthe probable loss or range of loss can be reasonably estimated, the Company hasrecorded reserves in the Condensed Consolidated Financial Statements(Unaudited) based on its best estimates of such loss. In other instances,because of the uncertainties related to either the probable outcome or theamount or range of loss, management is unable to make a reasonable estimate ofa liability, if any. However, even in many instances where the Company hasrecorded a reserve, the Company is unable to predict with certainty the finaloutcome of the matter or whether resolution of the matter will materiallyaffect the Company’s results of operations, financial position or cash flows.As additional information becomes available, the Company adjusts its assessmentand estimates of such liabilities accordingly.

 

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

 

Based on its review ofthe latest information available, in the opinion of management, the ultimateliability of the Company in connection with pending tax and legal proceedings,claims and litigation will not have a material effect on the Company’s resultsof operations, cash flows or financial position, with the possible exception ofthe matters described below.

 

*D&B Legacy and Related TaxMatters*

 

**SharingDisputes.** In1996, the company then known as The Dun & Bradstreet Corporation (“D&B”)and now known as R.H. Donnelley Corporation (“Donnelley”) separated into threepublic companies by spinning off ACNielsen Corporation (“ACNielsen”) and thecompany then known as Cognizant Corporation (“Cognizant”) (the “1996 Spin-Off”).  Cognizant is now known as Nielsen MediaResearch, Inc., a subsidiary of The Nielsen Company, formerly known as VNUN.V. (“NMR”).  The agreements effectingthe 1996 Spin-Off allocated tax-related liability with respect to 

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

certain prior businesstransactions between D&B and Cognizant. The D&B portion of such liability is now shared among Donnelley andcertain of its former affiliates (the “Donnelley Parties”), and the Cognizantportion of such liability is shared between NMR and the Company pursuant to theagreements effecting Cognizant’s spin-off of the Company in 1998 (the “1998Spin-Off”).

 

The underlying taxcontroversies with the Internal Revenue Service (“IRS”) have substantially allbeen resolved and the Company paid to the IRS the amounts that it believed weredue and owing.  In the first quarter of2006, Donnelley indicated that it disputed the amounts contributed by theCompany toward the resolution of these matters based on the Donnelley Parties’interpretation of the allocation of liability under the 1996 Spin-Offagreements. In August 2006, the Donnelley Parties commenced arbitrationregarding one of these disputes (referred to herein as the “Dutch PartnershipDispute”).  The Dutch Partnership Disputewas resolved during the third quarter of 2008 when the parties consented to theentry of a consent award by the arbitration panel.  Pursuant to the terms of the consent award,in the third quarter of 2008, the Company made a payment of $4,600 ($3,100 netof tax benefit) and an additional interest and cost payment of $2,600 ($1,700net of tax benefit) to the Donnelley Parties. The remaining disputes were resolved during the second quarter of 2009by agreement among the parties.  Pursuantto the 2009 settlement agreement, the Company made a payment of $10,750 ($8,000net of tax benefit) to the Donnelley Parties in full satisfaction of itsliability with respect to the remaining disputes (see Note 11).

 

**ThePartnership (Tax Year 1997).** During the fourth quarter of 2008, the Companyentered into a final agreement with the IRS in which the IRS disallowed certainitems of partnership expense for tax year 1997 with respect to a partnershipnow substantially owned by the Company (the “Partnership”).  During 1997, the Partnership wassubstantially owned by Cognizant, but liability for this matter was allocatedto the Company pursuant to the agreements effecting the 1998 Spin-Off.  Pursuant to the settlement, during the secondquarter of 2009, the Company paid $20,400 (tax and interest, net of taxbenefit) to the IRS in full satisfaction of its liability with respect to thePartnership for tax year 1997.

 

In addition to thesematters, the Company and its predecessors have entered, and the Companycontinues to enter, into global tax planning initiatives in the normal courseof their businesses.  These activitiesare subject to review by applicable tax authorities.  As a result of the review process,uncertainties exist and it is possible that some of these matters could beresolved adversely to the Company.

 

*IMS Health Government SolutionsVoluntary Disclosure Program Participation*

 

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

 

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**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

years to complete and mayresult in no adverse action against the Company.

 

IMS Government Solutionsdiscovered potential noncompliance with various contract clauses andrequirements under its General Services Administration Contract which wasawarded in 2002 to its predecessor company, Synchronous Knowledge Inc.(Synchronous Knowledge Inc. was acquired by IMS in May 2005).  Upon discovery of the potentialnoncompliance, the Company began remediation efforts, promptly disclosed thepotential noncompliance to the U.S. government, and was accepted into theDepartment of Defense Voluntary Disclosure Program.  The Company filed its Voluntary DisclosureProgram Report (“Disclosure Report”) on August 29, 2008.  Based on the Company’s findings as disclosedin the Disclosure Report, the Company recorded a reserve of approximately$3,700 for this matter in the third quarter of 2008.  The Company is currently unable to determinethe outcome of this matter pending the resolution of the Voluntary DisclosureProgram process and its ultimate liability arising from this matter couldexceed its current reserve.

 

*Other Contingencies*

 

**Contingent Consideration.** Under theterms of certain purchase agreements relatedto acquisitions consummated in 2008 and prior, the Company may be required topay additional amounts as contingent consideration based on the achievement ofcertain performance related targets during 2009. 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 of anAcquired Enterprise in a Purchase Business Combination.” The Company paidapproximately $2,400 under these contingencies during 2009. Based on currentestimates, the Company expects that additional contingent consideration underthese agreements may total approximately $3,200. It is expected that thesecontingencies will be resolved within a specified time period after the end ofcalendar year 2009.

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

**Note 8. ****Stock-Based Compensation**

 

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

 
| ** **                                                  | ** ** | ** ** | ** ** | **Weighted**  | ** ** |
|-------------------------------------------------------------|------------|------------|------------|---------------|------------|
| ** **                                                  | ** ** | ** ** | ** ** | **Average**   | ** ** |
| ** **                                                  | ** ** | ** ** | ** ** | **Exercise**  | ** ** |
| ** **                                                  | ** ** | ** ** | ** ** | **Price Per** | ** ** |
| ** **                                                  | ** ** | **Shares** | ** ** | **Share**     | ** ** |
| Options  Outstanding, December 31, 2006                |       | 21,396     |       | $             | 23.43      |   |
| Granted                                                     |       | —     |       | —        |       |
| Exercised                                                   |       | (6,299     | )          | $             | 22.72      |   |
| Forfeited                                                   |       | (200       | )          | $             | 24.14      |   |
| Cancelled                                                   |       | (371       | )          | $             | 27.61      |   |
| Options  Outstanding, December 31, 2007                |       | 14,526     |       | $             | 23.62      |   |
| Granted                                                     |       | 1,159      |       | $             | 22.58      |   |
| Exercised                                                   |       | (277       | )          | $             | 19.91      |   |
| Forfeited                                                   |       | (88        | )          | $             | 23.86      |   |
| Cancelled                                                   |       | (2,141     | )          | $             | 25.51      |   |
| **Options  Outstanding, December 31, 2008**            | ** ** | **13,179** | ** ** | **$**         | **23.29**  | ** ** |
| **Granted**                                                 | ** ** | **1,795**  | ** ** | **$**         | **13.43**  | ** ** |
| **Exercised**                                               | ** ** | **—** | ** ** | **—**    | ** ** |
| **Forfeited**                                               | ** ** | **(22**    | **)**      | **$**         | **22.58**  | ** ** |
| **Cancelled**                                               | ** ** | **(2,542** | **)**      | **$**         | **29.19**  | ** ** |
| **Options  Outstanding, June 30, 2009**                | ** ** | **12,410** | ** ** | **$**         | **20.66**  | ** ** |
| **Options  Vested or Expected to Vest, June 30, 2009** | ** ** | **12,181** | ** ** | **$**         | **20.74**  | ** ** |
| **Exercisable,  June 30, 2009**                        | ** ** | **9,786**  | ** ** | **$**         | **21.82**  | ** ** |

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

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

 
| ** **                                          | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                          | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested, December 31, 2006          |       | 1,558      |       | $              | 25.04      |   |
| Granted                                             |       | 1,219      |       | $              | 29.64      |   |
| Vested                                              |       | (296       | )          | $              | 26.06      |   |
| Forfeited                                           |       | (148       | )          | $              | 28.09      |   |
| Unvested,  December 31, 2007                   |       | 2,333      |       | $              | 27.16      |   |
| Granted                                             |       | 1,356      |       | $              | 22.24      |   |
| Vested                                              |       | (569       | )          | $              | 27.45      |   |
| Forfeited                                           |       | (348       | )          | $              | 26.74      |   |
| **Unvested,  December 31, 2008**               | ** ** | **2,772**  | ** ** | **$**          | **24.75**  | ** ** |
| **Granted**                                         | ** ** | **2,036**  | ** ** | **$**          | **13.44**  | ** ** |
| **Vested**                                          | ** ** | **(858**   | **)**      | **$**          | **25.69**  | ** ** |
| **Forfeited**                                       | ** ** | **(112**   | **)**      | **$**          | **24.87**  | ** ** |
| **Unvested,  June 30, 2009**                   | ** ** | **3,838**  | ** ** | **$**          | **18.54**  | ** ** |
| **Vested  or Expected to Vest, June 30, 2009** | ** ** | **3,471**  | ** ** | **$**          | **18.65**  | ** ** |

 

Thefollowing table summarizes activity of RSUs with performance conditions:

 
| ** **                                          | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|-----------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                          | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                                          | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                          | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 31, 2006                   |       | 613        |       | $              | 24.20      |   |
| Granted                                             |       | 402        |       | $              | 14.72      |   |
| Vested                                              |       | (84        | )          | $              | 18.65      |   |
| Forfeited                                           |       | (6         | )          | $              | 27.00      |   |
| Unvested,  December 31, 2007                   |       | 925        |       | $              | 20.56      |   |
| Granted                                             |       | 357        |       | $              | 12.97      |   |
| Vested                                              |       | (109       | )          | $              | 23.86      |   |
| Forfeited                                           |       | (12        | )          | $              | 27.26      |   |
| **Unvested, December 31, 2008**                | ** ** | **1,161**  |       | $              | **17.84**  |   |
| **Granted**                                         | ** ** | **655**    | ** ** | **$**          | **13.27**  | ** ** |
| **Vested**                                          | ** ** | **(453**   | **)**      | **$**          | **20.70**  | ** ** |
| **Forfeited**                                       | ** ** | **(2**     | **)**      | **$**          | **24.35**  | ** ** |
| **Unvested,  June 30, 2009**                   | ** ** | **1,361**  | ** ** | **$**          | **15.05**  | ** ** |
| **Vested  or Expected to Vest, June 30, 2009** | ** ** | **1,270**  | ** ** | **$**          | **15.13**  | ** ** |

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

The following table summarizes activity ofnon-employee director deferred stock granted in lieu of board meeting fees:

 
| ** **                               | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                               | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                               | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                               | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Outstanding,  December 31, 2006     |       | 33         |       | $              | 22.49      |   |
| Granted                                  |       | 5          |       | $              | 29.50      |   |
| Outstanding,  December 31, 2007     |       | 38         |       | $              | 23.37      |   |
| Granted                                  |       | 6          |       | $              | 19.71      |   |
| **Outstanding,  December 31, 2008** | ** ** | **44**     | ** ** | **$**          | **22.81**  | ** ** |
| **Granted**                              | ** ** | **4**      | ** ** | **$**          | **13.96**  | ** ** |
| **Issued**                               | ** ** | **(14**    | **)**      | **$**          | **21.68**  | ** ** |
| **Outstanding,  June 30, 2009**     | ** ** | **34**     | ** ** | **$**          | **22.18**  | ** ** |

 

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

 
| ** **                                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------|------------|------------------------|------------|----------------------|------------|
| ** **                                      | ** ** | **June 30,**      | ** ** | **June 30,**    | ** ** |
| ** **                                      | ** ** | **2009**               | ** ** | **2008**             | ** ** | **2009** | ** ** | **2008** | ** ** |
| Stock Options                                   | ** ** | **$**                  | **814**    |                 | $          | 1,199 | ** ** | **$** | **1,178** |   | $ | 3,217 |   |
| RSUs                                            | ** ** | **7,946**              |       | 7,637                | ** ** | **14,427** |   | 13,012 |   |
| Employee Stock  Purchase Plan                   | ** ** | **—**             |       | —               | ** ** | **—** |   | (2 | ) |
| Total  Stock-Based Compensation Expense         | ** ** | **$**                  | **8,760**  |                 | $          | 8,836 | ** ** | **$** | **15,605** |   | $ | 16,227 |   |
|                                            |       |                   |       |                 |       |   |   |   |   |
| Operating Costs  of I&A                     | ** ** | **$**                  | **748**    |                 | $          | 844 | ** ** | **$** | **1,236** |   | $ | 1,621 |   |
| Direct and  Incremental Costs of C&S        | ** ** | **1,235**              |       | 1,003                | ** ** | **2,154** |   | 1,711 |   |
| Selling and  Administrative Expenses            | ** ** | **6,777**              |       | 6,989                | ** ** | **12,215** |   | 12,895 |   |
| Total  Stock-Based Compensation Expense         | ** ** | **$**                  | **8,760**  |                 | $          | 8,836 | ** ** | **$** | **15,605** |   | $ | 16,227 |   |
| ** **                                      | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Tax Benefit on Stock-Based Compensation Expense | ** ** | **$**                  | **2,719**  |                 | $          | 2,727 | ** ** | **$** | **4,954** |   | $ | 5,127 |   |
| ** **                                      | ** ** | ** **             | ** ** | ** **           | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capitalized Stock-Based Compensation Expense    | ** ** | **$**                  | **45**     |                 | $          | 65 | ** ** | **$** | **83** |   | $ | 106 |   |

 

On April 21,2009, the Company awarded its annual grant in the form of restricted stockunits whose vesting and delivery are contingent upon completion of a specifiedperiod of future service.  The awardshave a zero exercise price to the employee and vest ratably over three to fouryears. The Company’s amortization of the award is based upon the fair marketvalue of a share of Common Stock on April 21, 2009.  In addition, on April 21, 2009, theCompany awarded stock appreciation rights (“SARs”) to certain executives. TheSARs have an exercise price of $13.43 to the employee, 

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

vest ratably over 3years, and the Company’s amortization of the award is based upon theBlack-Scholes value.

 

For a complete description of the Company’s Stock Incentive Plans andits accounting policies regarding stock-based compensation, refer to Notes 2and 11 of the Company’s 2008 Annual Report on Form 10-K as filed with theSEC.

 

**Note 9.  Financial Instruments**

** **

On January 1, 2009,the Company adopted SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging Activities—an amendment of FASB Statement No. 133” (“SFAS 161”),which requires enhanced disclosures about an entity’s derivative and hedgingactivities as provided below.  As thisstatement requires only additional disclosures, the adoption of SFAS 161 didnot have an impact on the Company’s financial position, results of operationsor cash flows.

 

***Foreign Exchange Risk Management***

** **

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

 

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

 

Theimpact of foreign exchange risk management activities on pre-tax income for thethree and six months ended June 30, 2009 were net gains of $4,537 and$9,421, respectively, and net losses of $6,131 and $24,728 for the three andsix months ended June 30, 2008, respectively.

 

At June 30, 2009,the Company had assets of approximately $536,349 and liabilities ofapproximately $539,387 in foreign exchange forward contracts outstanding withvarious expiration dates through May 2010 relating to non-US Dollar netincome, non-U.S. Dollar anticipated royalties and non-functional currencyassets and liabilities (see below). Foreign exchange forward contracts arerecorded at estimated fair value. The estimated fair values of the forwardcontracts are based on quoted market prices.

 

Unrealized and realizedgains and losses on the contracts hedging net income and non-functionalcurrency assets and liabilities do not qualify for hedge accounting, andtherefore are not deferred and are included in the Consolidated Statements ofIncome in Other income (expense), net.

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

Unrealized gains andlosses on the contracts hedging non-U.S. Dollar anticipated royalties qualifyfor hedge accounting, and are therefore deferred and included in OCI “OtherComprehensive Income.”

 
| ** **                                                            | ** ** | **Fair Value of Derivative Instruments (****1)** | ** **  |
|-----------------------------------------------------------------------|------------|--------------------------------------------------|-------------|
| ** **                                                            | ** ** | **Asset Derivatives**                            | ** **  | **Liability Derivatives** | ** ** |
| ** **                                                            | ** ** | **As of June 30,  2009**                    | ** **  | **As of December  31, 2008** | ** ** | **As of June 30,  2009** | ** ** | **As of December 31,  2008** | ** ** |
| **Derivatives designated as hedging instruments  under SFAS 133**     | ** ** | ** **                                       |        |   | ** ** | ** ** |   |   |   |
| Foreign Exchange Contracts                                            | ** ** | **$**                                            | **174,811** |   | $ | 172,113 | ** ** | **$** | **176,931** |   | $ | 179,110 |   |
|                                                                  | ** ** | ** **                                       |        |   | ** ** | ** ** |   |   |   |
| **Derivatives not designated as hedging instruments  under SFAS 133** | ** ** | ** **                                       |        |   | ** ** | ** ** |   |   |   |
| Foreign Exchange Contracts                                            | ** ** | **361,538**                                      |        | 236,977 | ** ** | **362,456** |   | 238,023 |   |
| Total Derivatives                                                     | ** ** | **$**                                            | **536,349** |   | $ | 409,090 | ** ** | **$** | **539,387** |   | $ | 417,133 |   |

 

----

*(1) Thenet amounts of these derivatives are included in Current Assets and CurrentLiabilities in the Condensed Consolidated Statements of Financial Position(Unaudited).*

 
| **Effect of Derivatives on Financial Performance for the Three Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| **Derivatives in SFAS 133  Cash Flow Hedging  Relationships**                                                             | ** ** | **Amount of  Gain/(Loss)  Recognized in OCI  on Derivatives** | ** ** | **Location of Gain/(Loss)  Reclassified from OCI** | ** ** | **Amount of  Gain/(Loss) from  OCI into Income** | ** ** |
| ** **                                                                                                                                         | ** ** | **2009** | ** ** | **2008** | ** ** | **into Income** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                                                                               | ** ** | ** ** | ** ** |   |   |   | ** ** | ** ** |   |   |   |
| Foreign Exchange Contracts                                                                                                                         | ** ** | **$** | **(2,800** | **)** | $ | 5,800 |   | Other Income (Expense),  Net | ** ** | **$** | **2,200** |   | $ | (6,000 | ) |
|                                                                                                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| **Effect  of Derivatives on Financial Performance for the Six Months Ended June 30,**  | ** ** |
|----------------------------------------------------------------------------------------|------------|
| **Derivatives in SFAS 133  Cash Flow Hedging  Relationships** | ** ** | **Amount of  Gain/(Loss)  Recognized in OCI  on Derivatives** | ** ** | **Location of Gain/(Loss)  Reclassified from OCI** | ** ** | **Amount of  Gain/(Loss) from  OCI into Income** | ** ** |
| ** **                                                                             | ** ** | **2009** | ** ** | **2008** | ** ** | **into Income** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                   | ** ** | ** ** | ** ** |   |   |   | ** ** | ** ** |   |   |   |
| Foreign Exchange Contracts                                                             | ** ** | **$** | **6,300** |   | $ | (7,600 | ) | Other Income (Expense),  Net | ** ** | **$** | **1,400** |   | $ | (8,200 | ) |
|                                                                                        |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*FairValue Disclosures*

 

At June 30, 2009,the Company’s financial instruments included cash, cash equivalents, and receivables,accounts payable and long-term debt. At June 30, 2009, the fair values ofcash, cash equivalents, receivables and accounts payable approximated carryingvalues due to the short-term

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

nature of theseinstruments. At June 30, 2009, the fair value of long-term debtapproximated carrying value.

 

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

 

Level 1 —      Quoted prices in active markets foridentical assets or liabilities.

 

Level2 —                  Quoted prices for similar assets orliabilities in active markets or quoted prices for identical assets orliabilities in inactive markets; and model-derived valuations in which allsignificant inputs are observable in active markets.

 

Level3 —                  Unobservable inputs reflecting management’sown assumptions about the inputs used in pricing the asset or liability.

 

The following tablesummarizes assets and liabilities measured at fair value on a recurring basisat June 30, 2009:

 
| ** **      | ** ** | **Basis of Fair Value Measurements** | ** ** |
|-----------------|------------|--------------------------------------|------------|
| ** **      | ** ** | **Level 1**                          | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Assets**      |       |                                 |       |   |   |   |   |   |   |
| Derivatives (1) |       | —                               |       | $ | 536,349 |   | — |   | $ | 536,349 |   |
|            |       |                                 |       |   |   |   |   |   |   |
| **Liabilities** |       |                                 |       |   |   |   |   |   |   |
| Derivatives (1) |       | —                               |       | $ | 539,387 |   | — |   | $ | 539,387 |   |

 

----

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

 

*CreditConcentrations*

 

The Company continually monitors its positions with,and the credit quality of, the financial institutions which are counterpartiesto its financial instruments and does not anticipate non-performance by thecounterparties. The Company would not realize a material loss as of June 30,2009 in the event of non-performance by any one counterparty.  In general, the Company enters intotransactions only with financial institution counterparties that have a creditrating of A or better. In addition, the Company limits the amount of creditexposure with any one institution.

 

The Company maintains accounts receivablebalances ($329,850 and $382,776, net of allowances, at June 30, 2009 and December 31,2008, respectively), principally from customers in the pharmaceutical industry.The Company’s trade receivables do not represent significant concentrations ofcredit risk at June 30, 2009 due to the credit worthiness of its customersand their dispersion across many geographic areas.

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

*Linesof Credit*

 

The followingtable summarizes the Company’s long-term debt at June 30, 2009 and December 31,2008:

 
| ** **                                                                                                        | ** ** | **2009**    | ** **    | **2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|----------|------------|
| 5.58% Private  Placement Notes, principal payment of $105,000 due January 2015                               | ** ** | **$**       | **105,000**   |     | $          | 105,000 |   |
| 5.99% Private  Placement Notes, principal payment of $135,000 due January 2018                               | ** ** | **135,000** |          | 135,000  |       |
| 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               | ** ** | **356,654** |          | 381,304  |       |
| Revolving Credit  Facility:                                                                                       | ** ** | ** **  |          |     |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 0.88%                             | ** ** | **329,841** |          | 435,895  |       |
| U.S. Dollar  denominated borrowings at average floating rates of approximately 0.85%                              | ** ** | **232,800** |          | 147,000  |       |
| Bank Term Loan,  principal payment of $50,000 due June 2010 at average floating rate of  approximately 0.82% | ** ** | **50,000**  |          | 50,000   |       |
| Total Long-Term  Debt                                                                                             | ** ** | **$**       | **1,359,295** |     | $          | 1,404,199 |   |

 

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

 

In July 2006, the Company entered into a$1,000,000 revolving credit facility with a syndicate of 12 banks (“RevolvingCredit Facility”) replacing its existing $700,000 facility.  The terms of the Revolving Credit Facilityextended the maturity of the facility in its entirety to a term of five years,maturing July 2011, reduced the borrowing margins, and increasedsubsidiary borrowing limits.  Totalborrowings under the Revolving Credit Facility were $562,641 and $582,895 at June 30,2009 and December 31, 2008, respectively, all of which were classified aslong-term.  The Company defines long-termlines as those where the lines are non-cancellable for more than 365 days fromthe balance sheet date by the financial institutions except for specified,objectively measurable violations of the provisions of the agreement.  In general, rates for borrowing under theRevolving Credit Facility are LIBOR plus 40 basis points and can vary based onthe Company’s Debt to EBITDA ratio.  Theweighted average interest rates for the Company’s lines were 0.87% and 1.36% atJune 30, 2009 and December 31, 2008, respectively.  In addition, the Company is required to pay acommitment fee on any unused portion of the facilities of 0.01%.  At June 30, 2009, the Company hadapproximately $437,359 available under existing bank credit facilities.

 

In June 2006, the Company closed a $50,000 three-year term loanwith a bank.  The term loan allows theCompany to borrow at a floating rate with a lower borrowing margin than theCompany’s revolving credit facility.  Theterm loan also provides the Company with two one-year options to extend theterm at the Company’s discretion.  In August 2008,the Company exercised the first one-year option to extend the term through June 2010,and in June 2009 the Company exercised the second one-year option toextend the term through June 2011. The Company used the proceeds torefinance existing debt borrowed under the revolving credit facility.

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

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

 

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

 

The Company’s financing arrangements provide for certain covenants andevents of default customary for similar instruments, including in the case ofits main bank arrangements, the private placement transactions, and the termloan, covenants to maintain specific ratios of consolidated total indebtednessto EBITDA and of EBITDA to certain fixed charges.  At June 30, 2009, the Company was incompliance with these financial debt covenants.

 

**Note 10. Pension and Postretirement Benefits**

** **

The following tableprovides the Company’s expense associated with pension benefits that areaccounted for under SFAS No. 87, “Employers’ Accounting for Pensions,” andpostretirement benefits that are accounted for under SFAS No. 106, “Employers’Accounting for Postretirement Benefits Other Than Pensions.”  For a complete description of the Company’spension and postretirement benefits, refer to Note 10 of the Company’s 2008Annual 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,**                                    | ** ** | **2009**                  | ** ** | **2008**                | ** ** | **2009** | ** ** | **2008** | ** ** |
| Service cost                                                                           | ** ** | **$**                     | **3,370**  |                    | $          | 4,310 | ** ** | **$** | — |   | $ | — |   |
| Interest cost                                                                          | ** ** | **4,795**                 |       | 5,180                   | ** ** | **180** |   | 192 |   |
| Expected return on plan assets                                                         | ** ** | **(6,061**                | **)**      | (7,926                  | )          | — |   | — |   |
| Amortization of prior service cost (credit)                                            | ** ** | **(28**                   | **)**      | 6                       | ** ** | **(41** | **)** | (3 | ) |
| Amortization of transition obligation (asset)                                          |       | —                    |       | (1                      | )          | — |   | — |   |
| Amortization of net loss                                                               | ** ** | **2,377**                 |       | 632                     | ** ** | **143** |   | 145 |   |
| Settlement charge (credit)                                                             | ** ** | **(8**                    | **)**      | —                  |       | — |   | — |   |
| Net periodic benefit cost                                                              | ** ** | **$**                     | **4,445**  |                    | $          | 2,201 | ** ** | **$** | **282** |   | $ | 334 |   |

** **

**23**

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** **

**IMS HEALTHINCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 
| **Components of Net Periodic Benefit Cost for the** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|-----------------------------------------------------|------------|----------------------|------------|--------------------|------------|
| **Six Months Ended June 30,**                  | ** ** | **2009**             | ** ** | **2008**           | ** ** | **2009** | ** ** | **2008** | ** ** |
| Service cost                                        | ** ** | **$**                | **6,721**  |               | $          | 8,615 | ** ** | **$** | — |   | $ | — |   |
| Interest cost                                       | ** ** | **9,444**            |       | 10,280             | ** ** | **360** |   | 384 |   |
| Expected return on plan assets                      | ** ** | **(11,930**          | **)**      | (15,858            | )          | — |   | — |   |
| Amortization of prior service cost (credit)         | ** ** | **(58**              | **)**      | 12                 | ** ** | **(82** | **)** | (6 | ) |
| Amortization of transition obligation (asset)       |       | —               |       | —             |       | — |   | — |   |
| Amortization of net loss                            | ** ** | **4,728**            |       | 1,264              | ** ** | **286** |   | 291 |   |
| Settlement charge (credit)                          | ** ** | **(8**               | **)**      | —             |       | — |   | — |   |
| Net periodic benefit cost                           | ** ** | **$**                | **8,897**  |               | $          | 4,313 | ** ** | **$** | **564** |   | $ | 669 |   |

** **

**Note 11.  Income Taxes**

** **

The Company operates inmore than 100 countries around the world and its earnings are taxed at theapplicable income tax rate in each of these countries.

 

For the three monthsended June 30, 2009, the Company’s effective tax rate was reduced by thesettlement of a certain state tax matter (tax benefit of $16,300) and theresolution of certain legacy tax matters (tax benefit of $9,500) (see Note 7,“Sharing Disputes.”). For the three months ended March 31, 2009, theCompany’s effective tax rate was reduced as a result of the reorganization ofcertain subsidiaries which resulted in a foreign exchange loss recognized fortax purposes (tax benefit of $63,200), the repayment of a certain intercompanyloan which resulted in a foreign exchange loss recognized for tax purposes (taxbenefit of $6,100) and the expiration of certain statutes of limitation (taxbenefits of $4,000).  For the threemonths ended June 30, 2008, the Company’s effective tax rate was reducedas a result of audit settlements with taxing authorities (tax benefit of$10,300).  Also during this period, theCompany recorded tax expense for tax positions related to non-US transactionsoffset by a benefit related to the expiration of certain statutes of limitation(net tax expense of $5,300).  Further, forthe three months ended March 31, 2008 the Company’s effective tax rate wasreduced as a result of the filing of an advance pricing agreement (“APA”)between two taxing jurisdictions (tax benefit of $4,900).  The APA ensures conformity between thejurisdictions’ taxing authorities regarding the treatment of certainintercompany transactions, thereby allowing the Company to record acorresponding tax benefit.

 

For the three and sixmonths ended June 30, 2009, the Company recorded $1,900 and $5,700,respectively, of tax expense related to unrecognized tax benefits that ifrecognized, would favorably affect the effective tax rate.  Interest and penalties of $800 and $2,500,respectively, are included in these amounts. For the three and six months endedJune 30, 2008, the Company recorded $5,200 and $10,000, respectively, oftax expense related to unrecognized tax benefits including $2,600 and $5,300,respectively, of interest and penalties.

 

The Company filesnumerous consolidated and separate income tax returns in U.S. (federal andstate) and non-U.S. jurisdictions.  The Company isno longer subject to U.S. federal income tax 

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

examinationby tax authorities for years before 2004. The Company is no longer subject tostate and local income tax examination by tax authorities for years before1997.  Further, with few exceptions, theCompany is no longer subject to examination by tax authorities in its materialnon-U.S. jurisdictions prior to 2004.  Itis reasonably possible that within the next twelve months the Company couldrealize $28,900 of unrecognized tax benefits as a result of the expiration ofcertain statutes of limitation.

 

**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 18, 2007, the Board of Directors authorized a stockrepurchase program to buy up to 20,000 shares. As of June 30, 2009, 9,505shares remained available for repurchase under the December 2007 program.

 

During the six months ended June 30, 2009, the Company did notrepurchase any shares of outstanding Common Stock under this program.

 

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

 

These share repurchases positively impacted the Company’s dilutedearnings per share by $0.02 for the three and six months ended June 30,2008.

 

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

 

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

 

**Note 13. Noncontrolling Interests**

** **

On January 1,2009, the Company adopted SFAS No. 160, “Noncontrolling Interests inConsolidated Financial Statements-an Amendment of ARB No. 51” (“SFAS 160”),which established accounting and reporting standards pertaining to ownershipinterests in subsidiaries held by parties other than the parent, the amount ofnet income attributable to the parent and to the noncontrolling interests,changes in a parent’s ownership interests, and the valuation of any retainednoncontrolling equity investment when a subsidiary is deconsolidated.  This statement also established disclosurerequirements that identify and distinguish between the interests of the parentand the interests of the noncontrolling owners. The adoption of SFAS 160 resulted in the 

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

reclassificationof amounts previously referred to as minority interests and currently referredto as noncontrolling interests, from mezzanine equity (between TotalLiabilities and Shareholders’ Deficit) to a separate component of Shareholders’Deficit in the Company’s Condensed Consolidated Statements of FinancialPosition (Unaudited).  Additionally, netincome attributable to noncontrolling interests, which previously was includedin Other expense, net on a pretax basis, is shown separately from net incomeattributable to the Company in the Company’s Condensed Consolidated Statementsof Income (Unaudited).  The adoption ofSFAS 160 did not have a material impact on the Company’s financial position,results of operations or cash flows.

 

Thefollowing table reconciles noncontrolling interests included as a separatecomponent of Shareholders’ Deficit. Prior year amounts have been reclassified to conform to the current yearpresentation as required by SFAS 160.

 
| ** **                                                        | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                                        | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| Noncontrolling  interests, April 1 and January 1        | ** ** | **$**                                 | **1,721**  |                                | $          | 2,340 | ** ** | **$** | **1,894** |   | $ | 1,444 |   |
| Income (loss)  attributable to noncontrolling interests           | ** ** | **58**                                |       | (68                                 | )          | **96** |   | 468 |   |
| Translation  adjustments attributable to noncontrolling interests | ** ** | **(317**                              | **)**      | (288                                | )          | **(528** | **)** | 72 |   |
| Noncontrolling  interests, June 30                           | ** ** | **$**                                 | **1,462**  |                                | $          | 1,984 | ** ** | **$** | **1,462** |   | $ | 1,984 |   |

 

In July 2006, theCompany, together with two of its wholly-owned subsidiaries, entered into anAmended and Restated Agreement of Limited Liability Company of IMS HealthLicensing Associates, L.L.C. (the “Amended LLC Agreement”).  The Amended LLC Agreement governed therelationship between the Company, its subsidiaries and two third-partyinvestors with respect to their interests in IMS Health Licensing Associates,L.L.C. (the “LLC”).  The LLC is aseparate and distinct legal entity that is in the business of licensingdatabase assets and computer software. The Company is the sole managing member of the LLC.  From 1997 until June 30, 2009, theCompany and/or its subsidiaries, or their predecessors, had contributed assetsto, and held a controlling  interest(approximately 93% at June 30, 2009) in the LLC, and the third-partyinvestors had contributed $100,000 to, and held a noncontrolling interest(approximately 7% at June 30, 2009) in the LLC.  Pursuant to the terms of the Amended LLCAgreement, on May 6, 2009, the third-party investors elected to have theirnoncontrolling interests in the LLC liquidated or purchased by the Company orits designee.  On June 30, 2009, awholly-owned subsidiary of the Company purchased the third-party investors’noncontrolling interests in the LLC at a cost of $100,970, which the Companyfinanced through a combination of cash on-hand and borrowings under itsrevolving credit facility. Following the purchase of the noncontrollinginterests, the Company, together with its wholly-owned subsidiaries, hold 100%of the membership interest in the LLC. Under the revisions to EITF Topic No. D-98, “Classification andMeasurement of Redeemable Securities,” these third-party investor contributionsqualified as redeemable noncontrolling interests as their redemption was notsolely within the control of the Company. As such, these redeemable noncontrolling interests were presented inmezzanine equity in the Company’s Condensed Consolidated Statements ofFinancial Position (Unaudited).  Netincome related to these redeemable noncontrolling interests amounted to 

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

$802 and $1,888,respectively, for the three and six months ended June 30, 2009 and $1,100and $2,199, respectively, for the three and six months ended June 30, 2008and is included in net income attributable to noncontrolling interests in theCompany’s Condensed Consolidated Statements of Income (Unaudited).

 

**Note 14.  Comprehensive Income**

** **

The following table setsforth the components of comprehensive income, net of income tax expense:

 
| ** **                                               | ** ** | **Three Months Ended  June 30,** | ** ** | **Six Months Ended  June 30,** | ** ** |
|----------------------------------------------------------|------------|---------------------------------------|------------|-------------------------------------|------------|
| ** **                                               | ** ** | **2009**                              | ** ** | **2008**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Net Income**                                           | ** ** | **$**                                 | **63,712** |                                | $          | 78,726 | ** ** | **$** | **198,168** |   | $ | 139,536 |   |
| Other  comprehensive income, net of tax:                 | ** ** | ** **                            |       |                                | ** ** | ** ** |   |   |   |
| Foreign  currency translation gains                      | ** ** | **13,253**                            |       | 69,820                              | ** ** | **38,853** |   | 13,976 |   |
| Amortization  of SFAS 158 service cost                   | ** ** | **(304**                              | **)**      | 731                                 | ** ** | **1,745** |   | 1,261 |   |
| Total  other comprehensive income, net of tax            | ** ** | **12,949**                            |       | 70,551                              | ** ** | **40,598** |   | 15,237 |   |
|                                                     | ** ** | ** **                            |       |                                | ** ** | ** ** |   |   |   |
| Comprehensive  Income                                    | ** ** | **$**                                 | **76,661** |                                | $          | 149,277 | ** ** | **$** | **238,766** |   | $ | 154,773 |   |
| Less  comprehensive income attributable to:              | ** ** | ** **                            |       |                                | ** ** | ** ** |   |   |   |
| Noncontrolling  interests in permanent equity            | ** ** | **(290**                              | **)**      | (357                                | )          | **(463** | **)** | 539 |   |
| Redeemable  noncontrolling interests in mezzanine equity | ** ** | **802**                               |       | 1,100                               | ** ** | **1,888** |   | 2,199 |   |
| Comprehensive  income attributable to IMS Health         | ** ** | **$**                                 | **76,149** |                                | $          | 148,534 | ** ** | **$** | **237,341** |   | $ | 152,035 |   |

 

**Note 15.  Severance, Impairment and Other Charges**

** **

During the secondquarter of 2009, the Company recorded $25,428 in charges as a component ofoperating income.  Of this amount,$17,210 related to non-cash impairment charges for the write-down of certaincapitalized software assets to their net realizable values in the Company’sAmericas and EMEA regions.  Thewrite-downs were the result of the regular review of the Company’s capitalizedsoftware assets.  The remaining $8,218was for supplier contract-related charges based on a SFAS No. 5, “Accountingfor Contingencies,” assessment for which the Company will not realize anyfuture economic benefit.

 

During the fourth quarter of2008, the Company recorded $9,408 of non-cash impairment charges as a componentof operating income related to the write-off of certain capitalized softwareassets in its EMEA and Asia Pacific regions.  This was the result of the discontinuationof certain IMS products at the end of 2008.

 

In response to healthcaremarketplace dynamics, during the fourth quarter of 2007, the Company committedto a restructuring plan designed to eliminate approximately 1,070 positionsworldwide in production and development, sales, marketing, consulting andservices and administration.  The planalso included the write-down of two impaired computer software assets andrelated contract payments to be incurred with no future economic benefit basedon the Company’s decision to abandon certain products in its EMEA region.  As a result, the Company recorded $88,690 ofSeverance, impairment and other charges as a component of operating income 

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

inthe fourth quarter of 2007.  Theseverance benefits were calculated pursuant to the terms of establishedemployee protection plans, in accordance with local statutory minimumrequirements or individual employee contracts, as applicable.

 

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

 

The severance and contractpayments portion of the fourth quarter 2007 charge was approximately $75,043and will all be settled in cash. Termination actions under the plan weresubstantially completed by the end of June 30, 2009.

 
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | **translation** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007 |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                  |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                  |       | (48,645       | )          | (2,150       | )          | —     |       | —          |       | (50,795    | )          |
| 2009 utilization                  |       | (14,136       | )          | (534         | )          | —     |       | —          |       | (14,670    | )          |
| Currency  translation adjustments |       | —        |       | —       |       | —     |       | (2,057          | )          | (2,057     | )          |
| Balance at  June 30, 2009    |       | $             | 8,802      |         | $          | 776        |       | $               | —     |       | $          | (2,057 | ) | $ | 7,521 |   |

 

TheCompany currently expects that cash outlays will be applied against the $7,521balance remaining in the 2007 fourth quarter charge at June 30, 2009 asfollows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|----------------------------------|------------|-------------|------------|
| 2009                             |       | $           | 6,402      |   |
| 2010                             |       | 941         |       |
| 2011                             |       | 178         |       |
| Total                            |       | $           | 7,521      |   |

 

**Note 16.  Operations by Business Segment**

** **

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

 

The Company maintainsregional geographic management to facilitate local execution of its globalstrategies.  However, the Companymaintains global leaders for the majority of its critical 

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

business processes; andthe most significant performance evaluations and resource allocations made bythe Company’s chief operating decision makers are made on a global basis.  As such, the Company has concluded that itmaintains one operating and reportable segment.

 

**GeographicFinancial Information:**

 

The following represents selected geographic information for theregions in which the Company operates for the three and six months ended June 30,2009 and 2008.

 
| ** **                                 | ** ** | **Americas  (1)** | ** **  | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate & Other** | ** **  | **Total  IMS** | ** ** |
|--------------------------------------------|------------|-------------------|-------------|---------------|------------|-----------------------|------------|--------------------------------|-------------|----------------|------------|
| **Three months ended June 30, 2009:** |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating Revenue  (4)                     | ** ** | **$**             | **232,228** | ** **    | **$**      | **210,306**           | ** ** | **$**                          | **80,305**  | ** **     | **—** | ** ** | **$** | **522,839** | ** ** |
| Operating Income (Loss) (5)                | ** ** | **$**             | **62,938**  | ** **    | **$**      | **24,152**            | ** ** | **$**                          | **27,376**  | ** **     | **$**      | **(45,180** | **)** | **$** | **69,286** | ** ** |
| **Six months ended June 30, 2009:**   | ** ** | ** **        | ** **  | ** **    | ** ** | ** **            | ** ** | ** **                     | ** **  | ** **     | ** ** |
| Operating Revenue (4)                      | ** ** | **$**             | **468,821** | ** **    | **$**      | **416,562**           | ** ** | **$**                          | **164,400** | ** **     | **—** | ** ** | **$** | **1,049,783** | ** ** |
| Operating Income (Loss) (5)                | ** ** | **$**             | **130,780** | ** **    | **$**      | **44,647**            | ** ** | **$**                          | **58,664**  | ** **     | **$**      | **(63,940** | **)** | **$** | **170,151** | ** ** |
| **Three months ended June 30, 2008:** |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating Revenue  (4)                     |       | $                 | 257,020     |          | $          | 260,424               |       | $                              | 83,265      |           | —     |   | $ | 600,709 |   |
| Operating Income (Loss) (5)                |       | $                 | 82,336      |          | $          | 31,624                |       | $                              | 31,953      |           | $          | (14,536 | ) | $ | 131,377 |   |
| **Six months ended June 30, 2008:**   |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating Revenue (4)                      |       | $                 | 509,451     |          | $          | 501,294               |       | $                              | 164,144     |           | —     |   | $ | 1,174,889 |   |
| Operating Income (Loss) (5)                |       | $                 | 161,591     |          | $          | 48,846                |       | $                              | 62,516      |           | $          | (25,194 | ) | $ | 247,759 |   |

 

----

**Notes to Geographic FinancialInformation:**

 

*(1)**                              **Americas includes the UnitedStates, Canada and Latin America.*

*(2)**                              **EMEA includes countries inEurope, the Middle East and Africa.*

*(3)**                              **Asia Pacific includes Japan,Australia and other countries in the Asia Pacific region.*

*(4)**                              **Operating Revenue relates toexternal customers and is primarily based on the location of the customer. TheOperating Revenue for the geographic regions includes the impact of foreignexchange in converting results into U.S. dollars.*

*(5)**                              **Operating Income for the threegeographic regions does not reflect the allocation of certain expenses that aremaintained in Corporate and Other and as such, is not a true measure of therespective regions’ profitability. The Operating Income amounts for thegeographic segments include the impact of foreign exchange in convertingresults into U.S. dollars.*

 

A summary of the Company’soperating revenue by product line for the three and six months ended June 30,2009 and 2008 is presented below:

 
| ** **                              | ** ** | **Three Months Ended  June 30,** | ** **  | **Six Months Ended  June 30,** | ** ** |
|-----------------------------------------|------------|--------------------------------------------|-------------|------------------------------------------|------------|
| ** **                              | ** ** | **2009**                                   | ** **  | **2008**                                 | ** ** | **2009** | ** ** | **2008** | ** ** |
| Commercial Effectiveness                | ** ** | **$**                                      | **263,382** |                                     | $          | 300,735 | ** ** | **$** | **523,023** |   | $ | 586,783 |   |
| Product & Portfolio Management | ** ** | **162,316**                                |        | 187,130                                  | ** ** | **334,004** |   | 370,221 |   |
| New Business Areas                      | ** ** | **97,141**                                 |        | 112,844                                  | ** ** | **192,756** |   | 217,885 |   |
| Operating Revenue                       | ** ** | **$**                                      | **522,839** |                                     | $          | 600,709 | ** ** | **$** | **1,049,783** |   | $ | 1,174,889 |   |

 

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**IMSHEALTH INCORPORATED**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

**Note 17**.  **Subsequent Events**

 

In response toaccelerating healthcare marketplace dynamics compounded by a sustained economicdownturn, on July 20, 2009 the Board of Directors of IMS committed to astreamlining program designed to eliminate approximately 850 positions in allareas of the Company’s business (the “Plan”). The Plan also includes chargesrelated to lease impairments and related accelerated depreciation for variousoffice locations.

 

This Plan will result inthe Company recording a severance, impairment and other charge during the thirdquarter of 2009 relating to termination benefits for employees located in allregions in which the Company operates; however, the majority of actions areplanned for the Company’s EMEA region.

 

The Company currentlyestimates that the total pre-tax charge, including accelerated depreciation,under the Plan will be in the range of $110,000 to $120,000, consisting of $100,000to $110,000 for employee termination benefits and approximately $10,000 forasset impairments, accelerated depreciation and other charges.

 

The Company currentlyestimates that the cash portion of the charge will be in the range of $100,000to $110,000 and will be funded over approximately a two-year period from cashgenerated from operations. The estimated termination benefits under the Planwill be calculated pursuant to the terms of established employee protectionplans, individual employee contracts or in accordance with local statutoryminimum requirements, as applicable.

 

The Company expects thatall actions under the Plan will be completed by the end of the third quarter of2010.

 

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

 

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

 

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

 

***Executive Summary***

*** ***

***Our Business***

*** ***

IMS Health Incorporated (“IMS,” “we,” “us” or “our”) is the leadingglobal provider of market intelligence to the pharmaceutical and healthcareindustries. We offer leading-edge market intelligence products and servicesthat are integral to our clients’ day-to-day operations, including product andportfolio management capabilities; commercial effectiveness innovations;managed care and consumer health offerings; and consulting and servicessolutions that improve productivity and the delivery of quality healthcareworldwide. Our information products are developed to meet client needs by usingdata secured from a worldwide network of suppliers in more than 100 countries.Our business lines are:

 

·                  Commercial Effectiveness to increase clients’productivity across end-to-end sales, marketing, promotional and performancemanagement processes;

 

·                  Product and Portfolio Management to provideclients with insights into market measurement so they can optimize theirproduct portfolio and strategies; and

 

·                  New Business Areas that supportpharmaceutical client business initiatives in managed markets, consumer health,and pricing and market access, and that also serve payer and governmentaudiences.

 

Withinthese business lines, we provide consulting and services that use in-housecapabilities and methodologies to assist clients in analyzing and evaluatingmarket trends, strategies and tactics, and to help in the development andimplementation of customized software applications and data warehouse tools.

 

Weoperate in more than 100 countries.

 

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

 

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

 

**Performance Overview**

 

Operating revenuedeclined 13.0% to $522,839 in the second quarter of 2009 as compared to$600,709 in the second quarter of 2008. Our operating revenue declined 10.6% to $1,049,783 in the six monthsended June 30, 2009 as compared to $1,174,889 in the six months ended June 30,2008.  The three and six month operatingrevenue decreases were a result of revenue declines in all three of ourbusiness lines.  Our operating incomedeclined $62,091 to $69,286 in the second quarter of 2009 as compared to$131,377 in the second quarter of 2008. Our operating income declined $77,608 to $170,151 in the six monthsended June 30, 2009 as compared to $247,759 in the six months ended June 30,2008.  Both the three and six

 

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month operatingincome declines were due to the decrease in our operating revenue and $25,428of asset impairments and supplier contract-related charges, partially offset bydecreases in our operating costs and selling and administrative expenses, asdiscussed below.  Our net incomeattributable to IMS was $62,883 for the second quarter of 2009, a decrease of$14,812 as compared to $77,695 for the second quarter of 2008, and $196,215 forthe six months ended June 30, 2009, an increase of $59,345 as compared to$136,870 for the six months ended June 30, 2008, due to the Non-OperatingLoss, net items discussed below and certain tax items as discussed in Note 11of the Condensed Consolidated Financial Statements (Unaudited).  Our diluted earnings per share of Common Stockdecreased to $0.34 for the second quarter of 2009 as compared to $0.42 for thesecond quarter of 2008 and increased to $1.08 for the six months ended June 30,2009 as compared to $0.74 for the six months ended June 30, 2008.

 

**Resultsof Operations**

 

*Reclassifications.*Certain prior-year amounts have been reclassified to conform to the2009 presentation.

 

*References to constant dollarresults and results excluding the effect of foreign currency translations. *We report results in U.S. dollars, but we do businesson a global basis.  Exchange ratefluctuations affect the rate at which we translate foreign revenues andexpenses into U.S. dollars and may have significant effects on ourresults.  In order to illustrate theseeffects, the discussion of our business in this report sometimes describes themagnitude of changes in constant dollar terms or results excluding the effectof foreign currency translations.  Webelieve this information facilitates a comparative view of our business.  In the first six months of 2009, the U.S.dollar was generally stronger against the other currencies in which we transactbusiness as compared to the first six months of 2008.  The revenue decline at actual currency rateswas greater than the decline at constant dollar exchange rates.  See “How Exchange Rates Affect Our Results”below and the discussion of “Market Risk” in the Management’s Discussion andAnalysis of Financial Condition and Results of Operations section of our annualreport on Form 10-K for the year ended December 31, 2008 for a morecomplete discussion regarding the impact of foreign currency translation on ourbusiness.

 

*References to operating incomeand operating margin excluding asset impairments and supplier contract-relatedcharges.*Wediscuss below what our operating income and operating margin for the three andsix months ended June 30, 2009 would have been had we not recorded assetimpairments and supplier contract-related charges. Because we did not recordsimilar charges in the prior periods, we believe providing these non-GAAPmeasures is useful to investors as it facilitates comparisons across theperiods presented and more clearly indicates trends. Management uses thesenon-GAAP measures in its global decision-making, including developing budgetsand managing expenditures.

 

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**Summary of Operating Results**

 
| ** **                                  | ** ** | **Three Months Ended  June 30,** | ** **  | **% Variance** | ** ** |
|---------------------------------------------|------------|---------------------------------------|-------------|----------------|------------|
| ** **                                  | ** ** | ** **                            | ** **  | ** **     | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **2009**                              | ** **  | **2008**       | ** ** | **vs 2008** | ** ** |
| Information and analytics revenue (I&A) | ** ** | **$**                                 | **408,611** |           | $          | 453,440 |   | (9.9 | )% |
| Consulting  and services revenue (C&S)  | ** ** | **114,228**                           |        | 147,269        |       | (22.4 | )% |
| Operating  Revenue                          | ** ** | **522,839**                           |        | 600,709        |       | (13.0 | )% |
|                                        | ** ** | ** **                            |        |           |       |   |   |
| Operating  costs of I&A                 | ** ** | **175,401**                           |        | 193,607        |       | 9.4 | % |
| Direct  and incremental costs of C&S    | ** ** | **57,012**                            |        | 71,951         |       | 20.8 | % |
| External-use software amortization          | ** ** | **10,117**                            |        | 13,043         |       | 22.4 | % |
| Selling and administrative expenses         | ** ** | **162,919**                           |        | 168,365        |       | 3.2 | % |
| Depreciation and other amortization         | ** ** | **22,676**                            |        | 22,366         |       | (1.4 | )% |
| Severance, impairment and other charges     | ** ** | **25,428**                            |        | —         |       | — |   |
| Operating Income                            | ** ** | **$**                                 | **69,286**  |           | $          | 131,377 |   | (47.3 | )% |

* *
| ** **                                  | ** ** | **Six Months Ended June 30,** | ** **  | **% Variance** | ** ** |
|---------------------------------------------|------------|------------------------------------|-------------|----------------|------------|
| ** **                                  | ** ** | ** **                         | ** **  | ** **     | ** ** | **2009** | ** ** |
| ** **                                  | ** ** | **2009**                           | ** **  | **2008**       | ** ** | **vs 2008** | ** ** |
| Information and analytics revenue (I&A) | ** ** | **$**                              | **828,688** |           | $          | 909,627 |   | (8.9 | )% |
| Consulting  and services revenue (C&S)  | ** ** | **221,095**                        |        | 265,262        |       | (16.7 | )% |
| Operating  Revenue                          | ** ** | **1,049,783**                      |        | 1,174,889      |       | (10.6 | )% |
|                                        | ** ** | ** **                         |        |           |       |   |   |
| Operating  costs of I&A                 | ** ** | **346,240**                        |        | 386,374        |       | 10.4 | % |
| Direct  and incremental costs of C&S    | ** ** | **118,157**                        |        | 140,456        |       | 15.9 | % |
| External-use software amortization          | ** ** | **20,641**                         |        | 25,757         |       | 19.9 | % |
| Selling and administrative expenses         | ** ** | **323,325**                        |        | 331,133        |       | 2.4 | % |
| Depreciation and other amortization         | ** ** | **45,841**                         |        | 43,410         |       | (5.6 | )% |
| Severance, impairment and other charges     | ** ** | **25,428**                         |        | —         |       | — |   |
| Operating Income                            | ** ** | **$**                              | **170,151** |           | $          | 247,759 |   | (31.3 | )% |

 

***Operating Income***

 

Our operatingincome for the second quarter of 2009 declined $62,091 to $69,286 from $131,377in the second quarter of 2008.  This wasdue to the decrease in our operating revenue and $25,428 of asset impairmentsand supplier contract-related charges, partially offset by decreases in ouroperating costs and selling and administrative expenses driven by decreasedcost of data and tight controls on hiring. Our operating income decreased $62,394 or 52.5% in constant dollarterms. Our operating income for the first six months of 2009 declined $77,608to $170,151 from $247,759 in the first six months of 2008.  This was due to the decrease in our operatingrevenue and $25,428 of asset impairments and supplier contract-related charges,partially offset by decreases in our operating costs and selling andadministrative expenses driven by decreased cost of data and tight controls onhiring.  Our operating income decreased$84,378 or 37.3% in constant dollar terms. Excluding the $25,428 of assetimpairments and supplier contract-related charges, our operating income for thethree and six months ended June 30, 2009 would have been $94,714 and$195,579, respectively, representing a decline of 27.9% and 21.1%,respectively, on a reported basis and 

 

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32.1% and 26.6%,respectively, in constant dollar terms.

 

***OperatingRevenue***

 

Our operatingrevenue for the second quarter of 2009 declined 13.0% to $522,839 from $600,709in the second quarter of 2008. On a constant dollar basis, operating revenuedeclined 7.1%.  Operating revenue for thefirst six months of 2009 declined 10.6% to $1,049,783 from $1,174,889 in thefirst six months of 2008. On a constant dollar basis, operating revenuedeclined 4.9%.  On a constant dollarbasis, acquisitions completed within the prior twelve months contributedapproximately 1 percentage point of revenue growth for both the second quarterand first six months of 2009, partially offsetting our operating revenuedecline for these same periods.  Thedecrease in our operating revenue resulted from revenue declines in all threeof our business lines, together with the effect of approximately $39,000 and$71,000 of currency translation for the second quarter and first six months of2009, respectively, as compared to the second quarter and first six months of2008.

 

**Summary of Operating Revenue**

 
| ** **                              | ** ** | ** **                            | ** **  | ** **       | ** ** | **% Variance**      | ** ** |
|-----------------------------------------|------------|---------------------------------------|-------------|------------------|------------|---------------------|------------|
| ** **                              | ** ** | **Three Months Ended  June 30,** | ** **  | **2009 vs 2008** | ** ** |
| ** **                              | ** ** | **2009**                              | ** **  | **2008**         | ** ** | **Reported  Rates** | ** ** | **Constant  Dollar** | ** ** |
| Commercial Effectiveness                | ** ** | **$**                                 | **263,382** |             | $          | 300,735             |       | (12.4 | )% | (7.1 | )% |
| Product & Portfolio Management | ** ** | **162,316**                           |        | 187,130          |       | (13.3               | )%         | (7.1 | )% |
| New Business Areas                      | ** ** | **97,141**                            |        | 112,844          |       | (13.9               | )%         | (7.0 | )% |
| Operating Revenue                       | ** ** | **$**                                 | **522,839** |             | $          | 600,709             |       | (13.0 | )% | (7.1 | )% |

 
| ** **                              | ** ** | ** **                         | ** **    | ** **       | ** ** | **% Variance**      | ** ** |
|-----------------------------------------|------------|------------------------------------|---------------|------------------|------------|---------------------|------------|
| ** **                              | ** ** | **Six Months Ended June 30,** | ** **    | **2009 vs 2008** | ** ** |
| ** **                              | ** ** | **2009**                           | ** **    | **2008**         | ** ** | **Reported  Rates** | ** ** | **Constant  Dollar** | ** ** |
| Commercial Effectiveness                | ** ** | **$**                              | **523,023**   |             | $          | 586,783             |       | (10.9 | )% | (5.8 | )% |
| Product & Portfolio Management | ** ** | **334,004**                        |          | 370,221          |       | (9.8                | )%         | (3.9 | )% |
| New Business Areas                      | ** ** | **192,756**                        |          | 217,885          |       | (11.5               | )%         | (4.5 | )% |
| Operating Revenue                       | ** ** | **$**                              | **1,049,783** |             | $          | 1,174,889           |       | (10.6 | )% | (4.9 | )% |

 

·                  *Commercial Effectiveness:* EMEA contributed approximately one-thirdand the Americas contributed more than one-half to the constant dollar revenuedecline for the second quarter of 2009. Each of EMEA and the Americas contributed approximately one-half to theconstant dollar revenue decline for the first six months of 2009, slightlyoffset by revenue growth in Asia Pacific.

 

·                  *Product & PortfolioManagement:* EMEAcontributed more than two-thirds to the constant dollar revenue decline for thesecond quarter of 2009.  EMEA contributedapproximately one-half and the Americas contributed more than one-third to theconstant dollar revenue decline for the first six months of 2009.

 

·                  *New Business Areas:* The Americas contributed approximatelytwo-thirds and EMEA contributed approximately one-third to the constant dollarrevenue decline for the second quarter of 2009. The 

 

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Americascontributed more than three-quarters to the constant dollar revenue decline forthe first six months of 2009.

 

Consulting andservices (“C&S”) revenue, as included in the business lines above, was$114,228 in the second quarter of 2009, down 22.4% from $147,269 in the secondquarter of 2008 (down 16.8% on a constant dollar basis). C&S revenue was$221,095 in the first six months of 2009, down 16.7% from $265,262 in the firstsix months of 2008 (down 10.9% on a constant dollar basis).

 

***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.

 

Our operatingcosts of I&A declined 9.4% to $175,401 in the second quarter of 2009 from$193,607 in the second quarter of 2008 and declined 10.4% to $346,240 in thefirst six months of 2009 from $386,374 in the first six months of 2008.

 

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation decreased our operating costs of I&A by approximately $16,000and $30,000 for the second quarter and first six months of 2009, respectively,as compared to the second quarter and first six months of 2008.

 

Excluding the effect of foreign currency translation, our operatingcosts of I&A declined 1.5% and 2.8% in the second quarter and first sixmonths of 2009, respectively, as compared to the second quarter and first sixmonths of 2008.

 

·                  *Data*: Data costs decreased by approximately$3,000 and $9,000 in the second quarter and first six months of 2009,respectively, as compared to the second quarter and first six months of 2008.

 

·                  *Production, Client Services andOther*:Production, client services and other costs increased by approximately $1,000in the second quarter of 2009 as compared to the second quarter of 2008 anddecreased by approximately $1,000 in the first six months of 2009 as comparedto the first six months of 2008.

 

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

 

Direct andincremental costs of C&S include the costs of consulting staff directlyinvolved with delivering revenue-generating engagements, related accommodationsand the costs of primary market research data purchased specifically forcertain individual C&S engagements. Direct and incremental costs of C&S do not include an allocation ofdirect costs of data that are included within I&A.

 

Our direct andincremental costs of C&S declined 20.8% to $57,012 in the second quarter of2009 from $71,951 in the second quarter of 2008 and declined 15.9% to $118,157in the first six months of 2009 from $140,456 in the first six months of 2008.

 

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation decreased our direct and incremental costs of C&S byapproximately $7,000 and $12,000 for the second quarter and first six months of2009, respectively, as compared to the second quarter and first six months of2008.

 

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Excluding theeffect of foreign currency translation, our direct and incremental costs ofC&S declined 12.6% and 7.8% in the second quarter and first six months of2009, respectively, as compared to the second quarter and first six months of2008.

 

·                  C&S costs decreased by approximately $8,000 and$10,000 in the second quarter and first six months of 2009, respectively, ascompared to the second quarter and first six months of 2008, due to decreasedlabor cost and primary market research data expense, all directly related tothe C&S revenue decline.

 

***External-UseSoftware 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 Costsof Computer Software to be Sold, Leased, or Otherwise Marketed.” Ourexternal-use software amortization charges declined 22.4% to $10,117 in thesecond quarter of 2009 from $13,043 in the second quarter of 2008 and declined19.9% to $20,641 in the first six months of 2009 from $25,757 in the first sixmonths of 2008. This was due to decreased software amortization associated withassets that were fully amortized or written-down to their net realizablevalues.

 

***Sellingand Administrative Expenses***

 

Our selling andadministrative expenses consist primarily of the expenses attributable tosales, marketing, and administration, including human resources, legal,management and finance.  Our selling andadministrative expenses declined 3.2% to $162,919 in the second quarter of 2009from $168,365 in the second quarter of 2008 and declined 2.4% to $323,325 inthe first six months of 2009 from $331,133 in the first six months of 2008.

 

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation decreased our selling and administrative expenses by approximately$17,000 and $34,000 for the second quarter and first six months of 2009,respectively, as compared to the second quarter and first six months of 2008.

 

Excluding theeffect of foreign currency translation, our selling and administrative expensesgrew 7.1% and 8.4% in second quarter and first six months of 2009,respectively, as compared to the second quarter and first six months of 2008.

 

·                  *Sales and Marketing*: Sales and marketing expenses remainedconstant in the second quarter of 2009 as compared to the second quarter of2008 and decreased by approximately $3,000 in the first six months of 2009 ascompared to the first six months of 2008.

 

·                  *Consulting and Services*: C&S expenses increased by approximately $11,000 and $15,000 in thesecond quarter and first six months of 2009, respectively, as compared to thesecond quarter and first six months of 2008.

 

·                  *Administrative and Other*: Other expenses remained constant in the second quarter of 2009 ascompared to the second quarter of 2008 and increased by approximately $13,000in the first six months of 2009 as compared to the first six months of 2008.

 

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***Depreciationand Other Amortization***

 

Our depreciationand other amortization charges increased 1.4% to $22,676 in the second quarterof 2009 from $22,366 in the second quarter of 2008, and 5.6% to $45,841 in thefirst six months of 2009 from $43,410 in the first six months of 2008, due toincreased depreciation related to new facilities and technology to upgrade ourfinancial systems and increased amortization related to internal-use softwareadditions.

 

***Severance,impairment and other charges***

 

During the secondquarter of 2009, we recorded $25,428 in charges as a component of operatingincome.  Of this amount, $17,210 relatedto non-cash impairment charges for the write-down of certain capitalizedsoftware assets to their net realizable values in our Americas and EMEAregions.  The write-downs were the resultof the regular review of our capitalized software assets.  The remaining $8,218 was for supplier contract-relatedcharges based on a SFAS No. 5, “Accounting for Contingencies,” assessmentfor which we will not realize any future economic benefit (see Note 15 to ourCondensed Consolidated Financial Statements (Unaudited).

 

***Trendsin our Operations***

 

Our operatingmargin for the second quarter of 2009 was 13.3% as compared to 21.9% in thesecond quarter of 2008.  Our operatingmargin for the first six months of 2009 was 16.2% as compared to 21.1% in thefirst six months of 2008. Margins were negatively impacted by revenue declinesand the $25,428 asset impairments and supplier contract-related charges notedabove, partially offset by decreased costs of panel and decreased sales andmarketing costs. Excluding the $25,428 of asset impairments and supplier contract-relatedcharges, our operating margin for the three and six months ended June 30,2009 would have been 18.1% and 18.6%, respectively.

 

Wehave several offerings in the U.S. that utilize prescriber-identifiableinformation.  Over the past several years,there have been a number of state legislative initiatives seeking to imposerestrictions on the commercial use of such information. To date, three states,New Hampshire, Vermont and Maine, have passed laws placing certain restrictionson the license, use or transfer of prescriber-identifiable information forcommercial purposes. Collectively, these three states represent approximatelyone percent of prescription activity in the U.S. and therefore the impact ofthese laws on our business, financial condition and results of operations isnot expected to be material. For additional information regarding the status ofthe laws passed in the three states noted above and related legislativedevelopments in other jurisdictions, see Part II. Item 1A. Risk Factors.

 

***Non-OperatingLoss, net***

 

Our non-operatingloss, net, decreased to a loss of $4,056 in the second quarter of 2009 from aloss of $15,146 in the second quarter of 2008 and decreased to a loss of $7,630in the first six months of 2009 from a loss of $42,439 in the first six monthsof 2008.  This was due to the followingfactors:

 

·                  *Interest Expense, net*: Net interest expense was $8,579 and$17,048 for the second quarter and first six months of 2009, respectively, ascompared to $8,987 and $17,658 for the second quarter and first six months of2008.  This improvement was due to lowerdebt levels and lower borrowing costs in the second quarter and first sixmonths of 2009 as compared to the second quarter and first six 

 

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months of 2008.

 

·                  *Other Income (Expense), net*:***Other income,net, grew by $10,682 in the second quarter of 2009 as compared to the secondquarter of 2008.  This was a result ofnet foreign exchange gains of $4,537 in the second quarter of 2009 as comparedto net foreign exchange losses of $6,130 in the second quarter of 2008. Otherincome, net, grew by $34,199 in the first six months of 2009 as compared to thefirst six months of 2008.  This was aresult of net foreign exchange gains of $9,421 in the first six months of 2009as compared to net foreign exchange losses of $24,728 in the first six monthsof 2008.*

 

***Taxes***

 

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

 

For the three monthsended June 30, 2009, our effective tax rate was reduced by the settlementof a certain state tax matter (tax benefit of $16,300) and the resolution ofcertain legacy tax matters (tax benefit of $9,500) (see Note 7 to our CondensedConsolidated Financial Statements (Unaudited), “Sharing Disputes.”). For thethree months ended March 31, 2009, our effective tax rate was reduced as aresult of the reorganization of certain subsidiaries which resulted in aforeign exchange loss recognized for tax purposes (tax benefit of $63,200), therepayment of a certain intercompany loan which resulted in a foreign exchangeloss recognized for tax purposes (tax benefit of $6,100) and the expiration ofcertain statutes of limitation (tax benefits of $4,000).  For the three months ended June 30,2008, our effective tax rate was reduced as a result of audit settlements withtaxing authorities (tax benefit of $10,300). Also during this period, we recorded tax expense for tax positionsrelated to non-US transactions offset by a benefit related to the expiration ofcertain statutes of limitation (net tax expense of $5,300).  Further, for the three months ended March 31,2008 our effective tax rate was reduced as a result of the filing of an advancepricing agreement (“APA”) between two taxing jurisdictions (tax benefit of$4,900).  The APA ensures conformitybetween the jurisdictions’ taxing authorities regarding the treatment ofcertain intercompany transactions, thereby allowing us to record acorresponding tax benefit.

 

For the three and sixmonths ended June 30, 2009, we recorded approximately $1,900 and $5,700,respectively, of tax expense related to unrecognized tax benefits that ifrecognized, would favorably affect the effective tax rate.  Interest and penalties of $800 and $2,500,respectively, are included in these amounts. For the three and six months endedJune 30, 2008, we recorded $5,200 and $10,000, respectively, of taxexpense related to unrecognized tax benefits including $2,600 and $5,300,respectively, of interest and penalties.

 

We file numerousconsolidated and separate income tax returns in U.S. (federal and state) andnon-U.S. jurisdictions.  We are no longersubject to U.S. federal income tax examination by tax authorities for yearsbefore 2004. We are no longer subject to state and local income tax examinationby tax authorities for years before 1997. Further, with few exceptions, we areno longer subject to examination by tax authorities in material non-U.S.jurisdictions prior to 2004.  It isreasonably possible that within the next twelve months we could realize $28,900of unrecognized tax benefits as a result of the expiration of certain statutesof limitation.

 

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

 

***NetIncome Attributable to Noncontrolling Interests***

 

On January 1,2009, we adopted SFAS No. 160, “Noncontrolling Interests in ConsolidatedFinancial Statements-an Amendment of ARB No. 51” (“SFAS 160”), whichestablished accounting and reporting standards pertaining to ownershipinterests in subsidiaries held by parties other than the parent, the amount ofnet income attributable to the parent and to the noncontrolling interests,changes in a parent’s ownership interests, and the valuation of any retainednoncontrolling equity investment when a subsidiary is deconsolidated.  As a result of the adoption of SFAS 160, netincome attributable to noncontrolling interests, which previously was includedin Other expense, net on a pretax basis, is shown separately from net incomeattributable to the Company in our Condensed Consolidated Statements of Income(Unaudited).  Net Income Attributable to Noncontrolling Interestsdecreased to $829 and $1,953 in the second quarter and first six months of2009, respectively, from $1,031 and $2,666 in the second quarter and first sixmonths of 2008, respectively.  See Note13 to our Condensed Consolidated Financial Statements (Unaudited).

 

## **OperatingResults by Geographic Region**

## ** **

The following represents selected geographicinformation for the regions in which we operate for the three and six monthsended June 30, 2009 and 2008:

 
| ** **                                 | ** ** | **Americas  (1)** | ** **  | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &  Other** | ** **  | **Total  IMS** | ** ** |
|--------------------------------------------|------------|-------------------|-------------|---------------|------------|-----------------------|------------|---------------------------------|-------------|----------------|------------|
| **Three months ended June 30, 2009:** |       |              |        |          |       |                  |       |                            |        |           |       |
| Operating Revenue  (4)                     | ** ** | **$**             | **232,228** | ** **    | **$**      | **210,306**           | ** ** | **$**                           | **80,305**  | ** **     | **—** | ** ** | **$** | **522,839** | ** ** |
| Operating Income (Loss) (5)                | ** ** | **$**             | **62,938**  | ** **    | **$**      | **24,152**            | ** ** | **$**                           | **27,376**  | ** **     | **$**      | **(45,180** | **)** | **$** | **69,286** | ** ** |
| **Six months ended June 30, 2009:**   | ** ** | ** **        | ** **  | ** **    | ** ** | ** **            | ** ** | ** **                      | ** **  | ** **     | ** ** |
| Operating Revenue (4)                      | ** ** | **$**             | **468,821** | ** **    | **$**      | **416,562**           | ** ** | **$**                           | **164,400** | ** **     | **—** | ** ** | **$** | **1,049,783** | ** ** |
| Operating Income (Loss) (5)                | ** ** | **$**             | **130,780** | ** **    | **$**      | **44,647**            | ** ** | **$**                           | **58,664**  | ** **     | **$**      | **(63,940** | **)** | **$** | **170,151** | ** ** |
| **Three months ended June 30, 2008:** |       |              |        |          |       |                  |       |                            |        |           |       |
| Operating Revenue  (4)                     |       | $                 | 257,020     |          | $          | 260,424               |       | $                               | 83,265      |           | —     |   | $ | 600,709 |   |
| Operating Income (Loss) (5)                |       | $                 | 82,336      |          | $          | 31,624                |       | $                               | 31,953      |           | $          | (14,536 | ) | $ | 131,377 |   |
| **Six months ended June 30, 2008:**   |       |              |        |          |       |                  |       |                            |        |           |       |
| Operating Revenue (4)                      |       | $                 | 509,451     |          | $          | 501,294               |       | $                               | 164,144     |           | —     |   | $ | 1,174,889 |   |
| Operating Income (Loss) (5)                |       | $                 | 161,591     |          | $          | 48,846                |       | $                               | 62,516      |           | $          | (25,194 | ) | $ | 247,759 |   |

 

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**Notes to Geographic FinancialInformation:**

 

*(1)**                              **Americas includes the UnitedStates, Canada and Latin America.*

*(2)**                              **EMEA includes countries inEurope, the Middle East and Africa.*

*(3)**                              **Asia Pacific includes Japan,Australia and other countries in the Asia Pacific region.*

*(4)**                              **Operating Revenue relates toexternal customers and is primarily based on the location of the customer. TheOperating Revenue for the geographic regions includes the impact of foreignexchange in converting results into U.S. dollars.*

*(5)**                              **Operating Income for the threegeographic regions does not reflect the allocation of certain expenses that aremaintained in Corporate and Other and as such, is not a true measure of therespective regions’ profitability. The Operating Income amounts for thegeographic segments include the impact of foreign exchange in convertingresults into U.S. dollars.*

 

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***Americas Region***

 

Operatingrevenue declined 9.6% and 8.0% in the Americas region in the second quarter andfirst six months of 2009 as compared to the second quarter and first six monthsof 2008, respectively.  Excluding theeffect of foreign currency translations, operating revenue declined 7.5% and5.6% in the second quarter and first six months of 2009 as compared to thesecond quarter and first six months of 2008, respectively.  This was driven approximately two-thirds byCommercial Effectiveness and more than one-quarter by New Business Areas forthe second quarter of 2009.  The revenuedecline in the first six months of 2009 was driven approximately one-half byCommercial Effectiveness and more than one-quarter by New Business Areas.

 

Operatingincome in the Americas region declined 23.6% and 19.1% in the second quarterand first six months of 2009 as compared to the second quarter and first sixmonths of 2008, respectively.  Theoperating income decline reflected revenue declines in the region which werepartially offset by decreases in operating expenses of $5,000 and $10,000 inthe second quarter and first six months of 2009, respectively.  Excluding the effect of foreign currencytranslations, operating income decreased 22.0% and 17.3% in the second quarterand first six months of 2009 as compared to the second quarter and first sixmonths of 2008, respectively.

 

***EMEARegion***

 

Operatingrevenue decreased in the EMEA region by 19.2% and 16.9% in the second quarterand first six months of 2009 as compared to the second quarter and first sixmonths of 2008, respectively.  Excludingthe effect of foreign currency translations, operating revenue declined 7.8%and 5.6% in the second quarter and first six months of 2009 as compared to thesecond quarter and first six months of 2008, respectively.  The revenue decline in the second quarter of2009 was driven more than one-third by Commercial Effectiveness andapproximately one-half by the Product & Portfolio Management businessline. The revenue decline in the first six months of 2009 was drivenapproximately two-thirds by Commercial Effectiveness and more than one-quarterby the Product & Portfolio Management business line.

 

Operatingincome in the EMEA region declined 23.6% and 8.6% in the second quarter andfirst six months of 2009 as compared to the second quarter and first six monthsof 2008, respectively.  The operatingincome decline reflected revenue declines in the region partially offset bydecreases in operating expenses of $43,000 and $81,000 in the second quarterand first six months of 2009, respectively. Excluding the effect of foreign currency translations, operating incomedecreased 43.1% and 35.2% in the second quarter and first six months of 2009 ascompared to the second quarter and first six months of 2008, respectively.

 

***Asia Pacific Region***

 

Operating revenue in the Asia Pacific region decreased3.6% in the secondquarter of 2009 as compared to the second quarter of 2008 and increased 0.2% in the first six months of2009 as compared to the first six months of 2008.  Excluding the effect of foreigncurrency translations, operating revenue declined 3.0% and 0.7% in the secondquarter and first six months of 2009 as compared to the second quarter and firstsix months of 2008, respectively.  The revenue decline in the secondquarter of 2009 was driven approximately three-quarters by the Product &Portfolio Management business line.  Therevenue decline in the first six months of 2009 was driven primarily by Product &Portfolio Management, partially offset by revenue

 

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growth in the CommercialEffectiveness business line.

 

Operating income in the Asia Pacific region decreased by14.3% and 6.2% in the secondquarter and first six months of 2009 as compared to the second quarter andfirst six months of 2008, respectively.  Operating income decreased in thesecond quarter of 2009 as a result of revenue decline in the region andincreases in operating expenses of $2,000. In the first six months of 2009, the operating income decline reflectedrevenue growth in the region more than offset by increases in operatingexpenses of $4,000.  Excluding the effectof foreign currency translations, operating income decreased by 14.7% and 8.5%in the second quarter and first six months of 2009 as compared to the secondquarter and first six months of 2008, respectively.

 

### **How Exchange Rates AffectOur 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 in which we transact businessrelative to the U.S. dollar may increase the volatility of U.S. dollaroperating results.  We enter into foreigncurrency forward contracts to partially offset the effect of currencyfluctuations. Foreigncurrency translation increased the U.S. dollar revenue decline by approximately5.9 and 5.7 percentage points in the second quarter and first six months of2009, respectively, while the impact on the operating income decline was anapproximate decrease of 5.3 and 6.0 percentage points in the second quarter andfirst six months of 2009, respectively. In 2008, foreign currencytranslation increased U.S. dollar revenue growth by approximately 7.6 and 7.2percentage points in the second quarter and first six months of 2008,respectively, while the impact on operating income growth was an approximateincrease of 9.9  and 8.9 percentagepoints in the second quarter and first six months of 2008, respectively.

 

Non-U.S. monetary assets are maintained in currenciesother than the U.S. dollar, principally the Euro, the Japanese Yen and theSwiss Franc.  Where monetary assets areheld in the functional currency of the local entity, changes in the value ofthese currencies relative to the U.S. dollar are reflected in Cumulativetranslation adjustment in the Condensed Consolidated Statements of FinancialPosition (Unaudited).  The effect ofexchange rate changes during the first six months of 2009 decreased the U.S.dollar amount of Cash and cash equivalents by $1,676. The effect of exchangerate changes during the first six months of 2008 increased the US dollar amountof cash and cash equivalents by $6,940.

 

***Liquidityand Capital Resources***

*** ***

Our cash and cashequivalents increased $24,098 to $239,780 at June 30, 2009 compared to$215,682 at December 31, 2008.  Theincrease reflects cash provided by operating activities of $194,309, partiallyoffset by cash used in investing and financing activities of $51,208 and$117,327, respectively, and a decrease of $1,676 due to the effect of exchangerate changes.

 

We currently expect that wewill use our Cash and cash equivalents primarily to fund:

 

·          development of software to be used in our new productsand capital expenditures to expand and upgrade our information technologycapabilities and to build or acquire facilities to house our business (wecurrently expect to spend approximately $110,000 to $135,000 during 2009 forsoftware development and capital expenditures);

 

·          acquisitions (see Note 5 to our Condensed ConsolidatedFinancial Statements (Unaudited));

 

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·          dividends to our shareholders (we expect 2009dividends will be $0.12 per share or approximately $22,000);

 

·          payments of approximately $125,000 related to ourrestructuring plans and our second quarter 2009 supplier contract-relatedcharge, of which approximately $75,000 is expected to be paid over the nexttwelve months (see Notes 15 and 17 to our Condensed Consolidated FinancialStatements (Unaudited));

 

·          pension and other postretirement benefit plancontributions (we currently expect contributions to U.S. and non-U.S. pensionand other postretirement benefit plans to total approximately $10,000 in 2009)(see Note 10 to our Condensed Consolidated Financial Statements (Unaudited) forinformation regarding our pension and postretirement benefit plan expense); and

 

·          share repurchases (see Note 12 to our CondensedConsolidated Financial Statements (Unaudited)).

 

Net cash providedby operating activities amounted to $194,309 for the six months ended June 30,2009, which represented an increase of $82,263 compared to cash used inoperating activities during the comparable period in 2008.  The increase relates to higher net income,lower accounts receivable balances, the lower funding of prepaid expenses andother current assets and lower accrued severance, impairment and other balances,partially offset by the higher funding of accounts payable and accrued expensesand other current liabilities during the six months ended June 30,2009.  The decrease in accountsreceivable was driven by a decrease in DSO (days sales outstanding), which wasten days lower in the second quarter of 2009 as compared to the prior yearcomparable quarter.  The decrease in DSOwas the result of improved collections and receivables management and lowerrevenue.

 

Net cash used ininvesting activities amounted to $51,208 for the six months ended June 30,2009, a decrease in cash used of $55,081 over the comparable period in2008.  The decrease relates to lowerpayments for acquisitions and lower capital expenditures, partially offset byhigher additions to computer software during the six months ended June 30,2009 as compared to the prior year comparable period.

 

Net cash used infinancing activities amounted to $117,327 for the six months ended June 30,2009, an increase of $107,106 compared to cash used in financing activitiesduring the comparable period in 2008. This increase was due to lower net borrowings of debt, the purchase ofthird-party ownership interests in IMS Health Licensing Associates, L.L.C. (seeNote 13 to our Condensed Consolidated Financial Statements (Unaudited)), lowerproceeds from the exercise of stock options and a decrease in cash overdrafts,partially offset by lower purchases of treasury stock during the six monthsended June 30, 2009 as compared to the prior year comparable period.

 

Our financingactivities include cash dividends we paid of $0.03 per share quarterly, whichamounted to $11,160 and $11,067 during the six months ended June 30, 2009and 2008, respectively.  The payments andlevel of cash dividends made by us are subject to the discretion of our Boardof Directors.  Any future dividends,other than the $0.03 per share dividend for the third quarter of 2009, whichwas declared by our Board of Directors in July 2009, will be based on, andaffected by, a number of factors, including our operating results and financialrequirements.

 

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**Capital and Credit Markets**

 

As the capital andcredit markets have contracted, we have performed additional assessments todetermine the impact, if any, on our financial statements of recent marketdevelopments, including the restructuring or merging of certain financialinstitutions. Our additional assessments included a review of access toliquidity in the capital and credit markets and financial institutioncounterparty creditworthiness.  Based onour assessment, we currently believe we have sufficient liquidity and access tocredit despite the current condition of the capital and credit markets.

 

*Liquidityin the Capital and Credit Markets*

 

We fund ourliquidity needs for capital investment, working capital, and other financialcommitments through cash flow from continuing operations and our diversifiedcredit facility ($437,359 in aggregate commitment available as of June 30,2009). While not significant to us to date, contraction in capital and creditmarkets may result in increased borrowing costs in the future.

 

*Credit Concentrations*

 

We continually monitorour positions with, and the credit quality of, the financial institutions whichare counterparties to our financial instruments and do not anticipatenon-performance by the counterparties. We would not have realized a material loss during the quarter ended June 30,2009 in the event of non-performance by any one counterparty.  In general, we enter into transactions onlywith financial institution counterparties that have a credit rating of A orbetter.  In addition, we limit the amountof credit exposure with any one institution. Particularly in light of the current credit environment, management willcontinue to monitor the status of these counterparties and will take action, asappropriate, to further manage its counterparty credit risk.

 

We maintainaccounts receivable balances ($329,850 and $382,776, net of allowances, at June 30,2009 and December 31, 2008, respectively), principally from customers inthe pharmaceutical industry.  Our tradereceivables do not represent significant concentrations of credit risk at June 30,2009 due to the credit worthiness of our customers and their dispersion acrossmany geographic areas.

 

**Taxand Other Contingencies**

 

We are exposed to certain known tax and other contingencies that arematerial to our investors.  The facts and circumstances surrounding thesecontingencies and a discussion of their effect on us are included in Notes 7and 11 to our Condensed Consolidated Financial Statements (Unaudited) for theperiod ended June 30, 2009.

 

These contingencies may have a material effect onour liquidity, capital resources or results of operations. Inaddition, even where our reserves are adequate, the incurrence of any of theseliabilities may have a material effect on our liquidity and the amount of cashavailable to us for other purposes.

 

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

 

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** **

**Stock Repurchase Programs**

 

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

 

On December 18, 2007, the Board of Directors authorized a stockrepurchase program to buy up to 20,000 shares. As of June 30, 2009, 9,505shares remained available for repurchase under the December 2007 program.

 

During the six months ended June 30, 2009, we did not repurchaseany shares of outstanding Common Stock under this program.

 

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

 

These share repurchases positively impacted our diluted earnings pershare by $0.02 for the three and six months ended June 30, 2008.

 

Shares acquired through our repurchase programs described above areopen-market purchases or privately negotiated transactions in compliance withSEC Rule 10b-18.

 

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

 

**Borrowings**

 

In recent years, we have increased debt levels to balance appropriatelythe objective of generating an attractive cost of capital with providing us areasonable amount of financial flexibility. At June 30, 2009, our debt totaled $1,359,295, and management doesnot believe that this level of debt poses a material risk to us due to thefollowing factors:

 

·                  in each of the last three years, we havegenerated strong net cash provided by operating activities in excess of$350,000;

 

·                  at June 30, 2009, we had $239,780 inworldwide cash and cash equivalents;

 

·                  at June 30, 2009, we had $437,359 ofunused debt capacity under our existing bank credit facilities; and

 

·                  we believe that we have the ability toobtain additional debt capacity outside of our existing debt arrangements.

 

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The followingtable summarizes our long-term debt at June 30, 2009 and December 31,2008:

 
| ** **                                                                                                        | ** ** | **2009**    | ** **    | **2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|----------|------------|
| 5.58% Private  Placement Notes, principal payment of $105,000 due January 2015                               | ** ** | **$**       | **105,000**   |     | $          | 105,000 |   |
| 5.99% Private  Placement Notes, principal payment of $135,000 due January 2018                               | ** ** | **135,000** |          | 135,000  |       |
| 5.55% Private  Placement Notes, principal payment of $150,000 due April 2016                                 | ** ** | **150,000** |          | 150,000  |       |
| 1.70% Private  Placement Note, principal payment of 34,395,000 Japanese Yen due  January 2013                | ** ** | **356,654** |          | 381,304  |       |
| Revolving Credit  Facility:                                                                                       | ** ** | ** **  |          |     |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 0.88%                             | ** ** | **329,841** |          | 435,895  |       |
| U.S. Dollar  denominated borrowings at average floating rates of approximately 0.85%                              | ** ** | **232,800** |          | 147,000  |       |
| Bank Term Loan,  principal payment of $50,000 due June 2010 at average floating rate of  approximately 0.82% | ** ** | **50,000**  |          | 50,000   |       |
| Total Long-Term  Debt                                                                                             | ** ** | **$**       | **1,359,295** |     | $          | 1,404,199 |   |

 

In February 2008, weclosed a private placement transaction pursuant to which we issued $105,000 ofseven-year debt at a fixed rate of 5.58%, and $135,000 of ten-year debt at afixed rate of 5.99% to several highly rated insurance companies. We used theproceeds for share repurchases (see Note 12 to our Condensed ConsolidatedFinancial Statements (Unaudited)) and to refinance existing debt.

 

In July 2006, we entered into a$1,000,000 revolving credit facility with a syndicate of 12 banks (“RevolvingCredit Facility”) replacing our existing $700,000 facility.  The terms of the Revolving Credit Facilityextended the maturity of the facility in its entirety to a term of five years,maturing July 2011, reduced the borrowing margins, and increasedsubsidiary borrowing limits.  Totalborrowings under the Revolving Credit Facility were $562,641 and $582,895 at June 30,2009 and December 31, 2008, respectively, all of which were classified aslong-term.  We define long-term lines asthose where the lines are non-cancellable for more than 365 days from thebalance sheet date by the financial institutions except for specified,objectively measurable violations of the provisions of the agreement.  In general, rates for borrowing under theRevolving Credit Facility are LIBOR plus 40 basis points and can vary based onthe our Debt to EBITDA ratio. The weighted average interest rates for theCompany’s lines were 0.87% and 1.36% at June 30, 2009 and December 31,2008, respectively.  In addition, we arerequired to pay a commitment fee on any unused portion of the facilities of0.01%. At June 30, 2009, we had approximately $437,359 available underexisting bank credit facilities.

 

In June 2006, we closeda $50,000 three-year term loan with a bank. The term loan allows us to borrow at a floating rate with a lowerborrowing margin than our revolving credit facility.  The term loan also provides us with twoone-year options to extend the term at our discretion.  In August 2008, we exercised the firstone-year option to extend the term through June 2010, and in June 2009we exercised the second one-year option to extend the term through June 2011.We used the proceeds to refinance existing debt borrowed under the revolvingcredit facility.

 

In April 2006, weclosed a private placement transaction pursuant to which we issued $150,000 often-year notes to two highly rated insurance companies at a fixed rate of5.55%.  We used the proceeds to refinanceexisting debt of $150,000 drawn under a short term credit agreement with a bankin January 2006.

 

In January 2006, weclosed a private placement transaction pursuant to which our Japanesesubsidiary issued 34,395,000 Japanese Yen seven-year debt (equal to $300,000 atdate of issuance) to several highly 

 

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ratedinsurance companies at a fixed rate of 1.70%. We used the proceeds to refinance existing debt in Japan.

 

Our financing arrangementsprovide for certain covenants and events of default customary for similarinstruments, including in the case of our main bank arrangements, the privateplacement transactions, and the term loan, covenants to maintain specificratios of consolidated total indebtedness to EBITDA and of EBITDA to certainfixed charges.  At June 30, 2009, wewere in compliance with these financial debt covenants.

 

**Severance, Impairment and Other Charges**

 

During the secondquarter of 2009, we recorded $25,428 in charges as a component of operatingincome.  Of this amount, $17,210 relatedto non-cash impairment charges for the write-down of certain capitalizedsoftware assets to their net realizable values in our Americas and EMEAregions.  The write-downs were the resultof the regular review of our capitalized software assets.  The remaining $8,218 was for suppliercontract-related charges based on a SFAS No. 5, “Accounting forContingencies,” assessment for which we will not realize any future economicbenefit.

 

During the fourth quarter of2008, we recorded $9,408 of non-cash impairment charges as a component ofoperating income related to the write-off of certain capitalized softwareassets in our EMEA and Asia Pacific regions.  This was the result of the discontinuation of certainIMS products at the end of 2008.

 

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

 

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

 

The severance and contractpayments portion of the charge was approximately $75,043 and will all besettled in cash. Termination actions under the plan were substantiallycompleted by June 30, 2009.

 

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| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | **translation** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **Reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007 |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                  |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                  |       | (48,645       | )          | (2,150       | )          | —     |       | —          |       | (50,795    | )          |
| 2009 utilization                  |       | (14,136       | )          | (534         | )          | —     |       | —          |       | (14,670    | )          |
| Currency  translation adjustments |       | —        |       | —       |       | —     |       | (2,057          | )          | (2,057     | )          |
| Balance at  June 30, 2009    |       | $             | 8,802      |         | $          | 776        |       | $               | —     |       | $          | (2,057 | ) | $ | 7,521 |   |

 

Wecurrently expect that cash outlays will be applied against the $7,521 balanceremaining in the 2007 fourth quarter charge at June 30, 2009 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|----------------------------------|------------|-------------|------------|
| 2009                             |       | $           | 6,402      |   |
| 2010                             |       | 941         |       |
| 2011                             |       | 178         |       |
| Total                            |       | $           | 7,521      |   |

 

In response toaccelerating healthcare marketplace dynamics compounded by a sustained economicdownturn, on July 20, 2009 our Board of Directors committed to astreamlining program designed to eliminate approximately 850 positions in allareas of our business (the “Plan”). The Plan also includes charges related to leaseimpairments and related accelerated depreciation for various office locations.

 

This Plan will result inus recording a severance, impairment and other charge during the third quarterof 2009 relating to termination benefits for employees located in all regionsin which we operate; however, the majority of actions are planned for our EMEAregion.

 

We currently estimatethat the total pre-tax charge, including accelerated depreciation, under thePlan will be in the range of $110,000 to $120,000, consisting of $100,000 to$110,000 for employee termination benefits and approximately $10,000 for assetimpairments, accelerated depreciation and other charges.

 

We currently estimatethat the cash portion of the charge will be in the range of $100,000 to $110,000and will be funded over approximately a two-year period from cash generatedfrom operations.  The estimatedtermination benefits under the Plan will be calculated pursuant to the terms ofestablished employee protection plans, individual employee contracts or inaccordance with local statutory minimum requirements, as applicable.

 

We expect that all actions under the Plan will be completed by the endof the third quarter of 2010.

 

**Recently Issued AccountingStandards**

 

InSeptember 2006, the Financial Accounting Standards Board (“FASB”) issuedSFAS No. 157, “Fair Value Measurements.”This statement defines fair value, establishes a framework formeasuring fair value under generally accepted accounting principles, and expandsdisclosures about fair value 

 

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measurements.This statement is effective for financial statementsissued for fiscal years beginning after November 15, 2007, and interimperiods within those fiscal years.  Theadoption of SFAS No. 157, effective January 1, 2008, did not have amaterial impact on our financial position, results of operations or cashflows.  In February 2008, the FASBissued Staff Positions No. FAS 157-1 and No. FAS 157-2 which delayedthe effective date of SFAS No. 157 for one year for certain non-financialassets and liabilities and removed certain leasing transactions from itsscope.  The adoption of Staff Positions No. FAS157-1 and No. 157-2, effective January 1, 2009, did not have amaterial impact on our financial position, results of operations or cash flows.

 

In December 2008, the FASB issued FASB Staff Position (“FSP”) FAS132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (“FSPFAS 132(R)-1”), which amends SFAS No. 132 (revised 2003), “Employers’Disclosures about Pensions and Other Postretirement Benefits,” to provideguidance on an employer’s disclosures about plan assets of a defined benefitpension or other postretirement plan. FSP FAS 132(R)-1 is effective for fiscal years ending after December 15,2009, with earlier application permitted. Upon initial application, theprovisions of FSP FAS 132(R)-1 are not required for earlier periods that arepresented for comparative purposes.  Weare currently evaluating the new disclosure requirements under FSP FAS132(R)-1.

 

InApril 2009, the FASB issued FSP FAS 157-4, “Determining Fair Value Whenthe Volume and Level of Activity for the Asset or Liability Have SignificantlyDecreased and Identifying Transactions That Are Not Orderly” (“FSP FAS 157-4”),which provides guidance on determining fair values when there is no activemarket or where the price inputs being used represent distressed sales.  It also reaffirms what SFAS No. 157states is the objective of fair value measurement—to reflect how much an assetwould be sold for in an orderly transaction (as opposed to a distressed orforced transaction) at the date of the financial statements under currentmarket conditions.  FSP FAS 157-4 iseffective for interim and annual periods ending after June 15, 2009.  The adoption of FSP FAS 157-4 did not have amaterial impact on our financial position, results of operations or cash flows.

 

InApril 2009, the FASB issued FSP FAS 107-1 and APB 28-1, “InterimDisclosures about Fair Value of Financial Instruments,” which requiresdisclosures about fair value of financial instruments for interim reportingperiods of publicly traded companies as well as in annual financialstatements.  This standard also requiresthose disclosures in summarized financial information at interim reportingperiods.  FSP FAS 107-1 and APB 28-1 iseffective for interim reporting periods ending after June 15, 2009.  The adoption of this standard did not have amaterial impact on our financial position, results of operations or cash flows.

 

InMay 2009, the FASB issued SFAS No. 165, “Subsequent Events.” Thisstatement establishes general standards of accounting for and disclosures ofevents that occur after the balance sheet date but before financial statementsare issued or are available to be issued. This statement is effective for interim or annual financial periodsending after June, 15, 2009.  Theadoption of SFAS No. 165 did not have a material impact on our financialposition, results of operations or cash flows.

 

In June 2009, theFASB issued SFAS No. 166, “Accounting for Transfers of Financial Assets,an amendment to FASB Statement No. 140.” This statement eliminates the concept of qualifying special-purposeentities (“QSPEs”), changes the requirements for derecognizing financial assetsand requires additional disclosures about transfers of financial assets,including securitization transactions, and an entity’s continuing involvement inand exposure to the risks related to transferred financial assets.  This Statement must be applied as of thebeginning of each reporting entity’s first annual reporting period that 

 

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begins after November 15,2009, for interim periods within that first annual reporting period and forinterim and annual reporting periods thereafter. We are currently evaluating thisstatement to determine any potential impact that it may have on our financialresults.

 

In June 2009, theFASB issued SFAS No. 167, “Amendments to FASB Interpretation No. 46(R).”  The statement eliminates the exemption forQSPEs, requires a new approach for determining who should consolidatevariable-interest entities (“VIEs”), and changes when it is necessary toreassess who should consolidate VIEs. This Statement shall be effective as of the beginning of each reportingentity’s first annual reporting period that begins after November 15,2009, for interim periods within that first annual reporting period, and forinterim and annual reporting periods thereafter. We are currently evaluatingthis statement to determine any potential impact that it may have on ourfinancial results.

 

In June 2009, theFASB issued SFAS No. 168, “The FASB Accounting Standards CodificationTM andthe Hierarchy of Generally Accepted Accounting Principles, a replacement ofFASB Statement No. 162.”  Thisstatement replaces FASB Statement No. 162, “The Hierarchy of GenerallyAccepted Accounting Principles,” and establishes the FASB Accounting StandardsCodificationTM as the source of authoritative U.S. generally accepted accountingprinciples (“GAAP”) recognized by the FASB to be applied by nongovernmentalentities.  This Statement is effectivefor financial statements issued for interim and annual periods ending after September 15,2009.  The adoption of this statement isnot expected to have a material impact on our financial results.

 

***Forward-Looking Statements and Risk Factors***

*** ***

This Quarterly Report on Form 10-Q, as well as informationincluded in oral statements or other written statements made or to be made byus, contain statements that, in our opinion, may constitute “forward-lookingstatements” within the meaning of the Private Securities Litigation Reform Actof 1995.  The words such as “believe,” “expect,”“anticipate,” “intend,” “plan,” “foresee,” “likely,” “project,” “estimate,” “will,”“may,” “should,” “future,” “predicts,” “potential,” “continue” and similarexpressions identify these forward-looking statements, which appear in a numberof places in this Quarterly Report on Form 10-Q and include, but are notlimited to, all statements relating to plans for future growth and otherbusiness development activities as well as capital expenditures, financingsources, dividends and the effects of regulation and competition, foreigncurrency conversion and all other statements regarding our intent, plans,beliefs or expectations or those of our directors or officers.  Investors are cautioned that suchforward-looking statements are not assurances for future performance or eventsand involve risks and uncertainties that could cause actual results anddevelopments to differ materially from those covered in such forward-lookingstatements.  These risks anduncertainties 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 64% of our operatingrevenue in 2008 from non-U.S. operations;

 

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

 

·                          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 

 

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and, specifically, non-patient identifiable information,e.g., prescriber identifiable information, or to the process of anonymizingdata;

 

·                          the impositionof additional restrictions on our use of or access to data, or the refusal bydata suppliers to provide data to us;

 

·                          uncertaintiesassociated with completion of our restructuring plans discussed in Note 17 toour Condensed Consolidated Financial Statements (Unaudited) and under “Severance,Impairment and Other Charges” in Part I. Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations, and the impactof the restructuring activities on our business and financial results,including the timing of the activities and the associated costs and the abilityto achieve projected cost savings;

 

·                          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 of liabilities and accrued income taxbenefits and liabilities;

 

·                          to theextent unforeseen cash needs arise, the ability to obtain financing onfavorable terms, or at all during adverse credit market conditions;

 

·                          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;

 

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

 

·                          ourability to successfully maintain historic effective tax rates;

 

·                          ourability to maintain and defend our intellectual property rights in jurisdictionsaround the world;

 

·                          competition,particularly in the markets for pharmaceutical information and consulting andservices;

 

·                          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; and

 

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·                              terroristactivity, epidemics, credit market disruptions or other conditions that coulddisrupt commerce, the threat of any such conditions, and responses to andresults of such conditions and threats, including but not limited to effects,domestically and/or internationally, on us, our personnel and facilities, ourcustomers and suppliers, financial markets and general economic conditions.

 

Consequently, all of theforward-looking statements we make in this document are qualified by theinformation contained herein, including, but not limited to, the informationcontained under this heading, “Risk Factors” and our Condensed ConsolidatedFinancial Statements (Unaudited) and notes thereto for the three and six monthsended June 30, 2009 and by the material set forth under the headings “Business”and “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31,2008.  We are under no obligation to publiclyrelease any revision to any forward-looking statement contained or incorporatedherein to reflect any future events or occurrences.

 

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

 

There has been nosignificant change in our exposure to market risk during the three and sixmonths ended June 30, 2009.  For adiscussion of our exposure to market risk, refer to Item 7A, Quantitativeand Qualitative Disclosures About Market Risk, in our 2008 Annual Report on Form 10-K.

 

**Item 4.Controls and Procedures**

 

(a)          Evaluation of Disclosure Controls and Procedures

 

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

 

The Company’s ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-14c and 15d-14c under the Exchange Act) as of June 30, 2009(the “Evaluation Date”). Based on such evaluation, such officers have concludedthat, as of the Evaluation Date, the Company’s disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Company in the reports that the Company files or submits under the ExchangeAct is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms and to ensure that informationrequired to be disclosed by the Company in the reports that the Company filesor submits under the Exchange Act is accumulated and communicated to theCompany’s management, including its principal executive and principal financialofficers, or persons performing similar functions, as appropriate to allowtimely decisions regarding required disclosure.

 

(b)         Changes in Internal Controlover 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.

 

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**PART II. OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

Information in response to this Item is incorporated by reference tothe information set forth in “Note 7. Contingencies” in the Notes to theCondensed Consolidated Financial Statements (Unaudited) included in Part I,Item 1 of this Quarterly Report on Form 10-Q.

 

**Item1A. Risk Factors**

 

There have been no materialchanges to the risk factors disclosed in Part I, Item 1A of our AnnualReport on Form 10-K for the fiscal year ended December 31, 2008,except as follows:

 

**Law restricting the use ofinformation may restrict our product and service offerings.**

 

Weprovide several product and service offerings to clients in the U.S. thatinvolve the license, use and transfer of prescriber-identifiable informationfor commercial purposes.  New Hampshire,Vermont and Maine have passed laws placing certain restrictions on the license,use or transfer of such information for commercial purposes.  We challenged all three laws in Federalcourt, asking the courts to declare these laws unconstitutional.

 

·                  With respect to the New Hampshire law, theFederal District Court in Concord, New Hampshire ruled on April 30, 2007that the law violated the First Amendment and was therefore unconstitutionaland enjoined its enforcement.  However,that decision was recently overturned by the U.S. Court of Appeals for theFirst Circuit, which declared the law constitutional. The appeals court vacatedthe lower court’s injunction and the New Hampshire statute became effective on February 9,2009.  On March 27, 2009, we filed apetition for certiorari to the U.S. Supreme Court asking that the Supreme Courtreview the appeals court’s decision in this matter.  On June 29, 2009, the Supreme Courtannounced that it would not hear the case. We have modified our offerings andbelieve we are operating in compliance with the New Hampshire law.

 

·                  With respect to the Maine law, the FederalDistrict Court in Bangor, Maine issued a preliminary injunction on December 21,2007, prohibiting enforcement of the Maine law. The Maine Attorney General has appealed the preliminary injunctionruling to the U.S. Court of Appeals for the First Circuit.

 

·                  With respect to the Vermont law, the FederalDistrict Court in Brattleboro, Vermont held a full trial ending on August 1,2008. On April 23, 2009 the court issued its decision upholding theVermont law. We are appealing the district court’s decision to the U.S. Courtof Appeals for the Second Circuit. The data restrictions in the Vermont lawbecame effective on July 1, 2009. We have modified our offerings and believe we are operating incompliance with the Vermont law.

 

Thesethree states collectively represent approximately one percent of prescriptionactivity in the United States, so the potential financial impact of these lawson our business, financial condition and results of operations is not expectedto be material.  However, there have beena significant number of state legislative initiatives over the past severalyears that seek to impose similar restrictions on the commercial use ofprescriber-identifiable information. During 2009, these initiatives wereintroduced in 23 states. They were unsuccessful in 20 states and remain pendingin Massachusetts, New Jersey and 

 

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NewYork. We are unable to predict whether and in what form these initiatives willcontinue or whether additional states or the Federal government will seek toenact similar or more restrictive legislation or regulation of suchinformation.  In addition, while we willcontinue to seek to adapt our products and service offerings (includingconsulting and services offerings) to comply with the requirements of theselaws, there can be no assurance that our efforts to adapt our offerings will besuccessful and provide the same financial contribution to us.  There can also be no assurance that thesekinds of legislative initiatives will not adversely affect our ability togenerate or assemble data or to develop or market current or future offerings,which could, over time, result in a material adverse impact on our revenues,net income and earnings per share.

 

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

 
| **Period**             | ** ** | **Total  Number of  Shares  Purchased** | ** ** | **Average  Price  Paid per  Share** | ** ** | **Total Number of  Shares Purchased  Under Publicly  Announced Programs** | ** ** | **Maximum Number of  Shares that May Yet  Be Purchased Under  the Programs (1)** | ** ** |
|------------------------|------------|-----------------------------------------|------------|-------------------------------------|------------|---------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------|------------|
|                   |       |                                    |       |                                |       |                                                                      |       |                                                                                  |       |
| April 1-30,  2009 |       | —                                  |       | —                              |       | —                                                                    |       | 9,505,300                                                                             |       |
| May 1-31,  2009   |       | —                                  |       | —                              |       | —                                                                    |       | 9,505,300                                                                             |       |
| June 1-30,  2009  |       | —                                  |       | —                              |       | —                                                                    |       | 9,505,300                                                                             |       |
|                   |       |                                    |       |                                |       |                                                                      |       |                                                                                  |       |
| Total                  |       | —                                  |       | —                              |       | —                                                                    |       | 9,505,300                                                                             |       |

 

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(1)    In December 2007, ourBoard of Directors authorized a stock repurchase program to buy up to20,000,000 shares. As of June 30, 2009, 9,505,300 shares remainedavailable for repurchase under the December 2007 program. Unlessterminated earlier by resolution of our Board of Directors, this program willexpire when we have repurchased all shares authorized for repurchasethereunder.  See Note 12 of our Notes toCondensed Consolidated Financial Statements (Unaudited) for further details.

 

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

 

The Annual Meetingof Shareholders of IMS Health Incorporated was held on May 1, 2009.

 

The followingnominees for director named in the Proxy Statement dated March 27, 2009were elected at the Meeting for a one-year term expiring in 2010 by the votesindicated:

 

| ** **         | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|--------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| H. Eugene Lockhart |       | 141,743,971 |       | 20,339,366  |       | 540,792     |       |
| Bradley T. Sheares |       | 160,361,085 |       | 1,743,771   |       | 519,276     |       |

 

The followingdirectors continue to serve terms expiring in 2010: James D. Edwards, WilliamC. Van Faasen and Bret W. Wise. The following directors continue to serve termsexpiring in 2011: David R. Carlucci, Constantine L. Clemente, Kathryn E. Giustiand M. Bernard Puckett.

 

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

 

| ** **       | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Number of Shares |       | 156,786,103 |       | 5,303,445   |       | 534,585     |       |

 

The approval ofthe amendment to the Restated Certificate of Incorporation to eliminate thesupermajority vote provisions:

 

| ** **       | ** ** | **For**     | ** ** | **Against** | ** ** | **Abstain** | ** ** | **Broker********Non-****Votes** | ** ** |
|------------------|------------|-------------|------------|-------------|------------|-------------|------------|---------------------------------|------------|
| Number of Shares |       | 149,380,679 |       | 475,214     |       | 930,713     |       | 11,837,530                      |       |

 

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**Item 6. Exhibits**

** **

(a)        Exhibits

** **
| **Exhibit  Number** | ** ** | **Description of Exhibits**                                                                                                                                                                     |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |       | Certificate of  Amendment of Restated Certificate of Incorporation (incorporated by reference  to Exhibit 3.1 to the Registrant’s Form 8-K filed on May 5,  2009).                    |
|                |       |                                                                                                                                                                                                      |
| 3.2                 |       | Fifth Amended and  Restated By-laws of IMS Health Incorporated dated May 4, 2009  (incorporated by reference to Exhibit 3.2 to the Registrant’s  Form 8-K filed on May 5, 2009). |
|                |       |                                                                                                                                                                                                      |
| 31.1                |       | CEO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                         |
|                |       |                                                                                                                                                                                                      |
| 31.2                |       | CFO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                         |
|                |       |                                                                                                                                                                                                      |
| 32.1                |       | Joint CEO/CFO  Certification Required Under Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                                          |

 

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**SIGNATURES**

 

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

 

 
|                      | IMS Health Incorporated         |
|---------------------------|---------------------------------|
|                      |                            |
|                      |                            |
|                      | By:                             | /s/ Leslye G. Katz |
| Date: July 31,  2009 | Leslye G. Katz                  |
|                      | Senior Vice President  and      |
|                      | Chief Financial Officer         |
|                      | (principal financial  officer)  |
|                      |                            |
|                      |                            |
|                      | /s/ Harshan Bhangdia            |
| Date: July 31,  2009 | Harshan Bhangdia                |
|                      | Vice President,  Controller     |
|                      | (principal accounting  officer) |
|                           |                                 |  |

 

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# **EXHIBITINDEX**

 
| **Exhibit  Number** | ** ** | **Description of Exhibits**                                                                                                                                                                     |
|---------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 3.1                 |       | Certificate of  Amendment of Restated Certificate of Incorporation (incorporated by reference  to Exhibit 3.1 to the Registrant’s Form 8-K filed on May 5,  2009).                    |
|                |       |                                                                                                                                                                                                      |
| 3.2                 |       | Fifth Amended and  Restated By-laws of IMS Health Incorporated dated May 4, 2009 (incorporated  by reference to Exhibit 3.2 to the Registrant’s Form 8-K filed on  May 5, 2009). |
|                |       |                                                                                                                                                                                                      |
| 31.1                |       | CEO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                         |
|                |       |                                                                                                                                                                                                      |
| 31.2                |       | CFO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a).                                                                                                                                         |
|                |       |                                                                                                                                                                                                      |
| 32.1                |       | Joint CEO/CFO Certification  Required Under Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                           |

 

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