**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

**FORM 10-Q**

**(Mark One)**

**x**                              QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**For the quarterly period ended March 31, 2007**

**OR**

**o**                                 TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

**For the transition period from                    to                    **

 

**CommissionFile Number: 001-14049****

**IMS Health Incorporated**

(Exact Name ofRegistrant as Specified in its Charter)

| **Delaware**                                                                        |   | **06-1506026**                        |
|-------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State of  Incorporation)                                                           |   | (I.R.S. Employer  Identification No.) |
| ** **                                                                          |
| **901  Main Avenue, Norwalk, CT 06851**                                             |
| (Address of  principal executive offices)(Zip Code)                                 |
| ** **                                                                          |
| **(203)  845-5200**                                                                 |
| (Registrant’s  telephone number, including area code)                          |
| ** **                                                                          |
| **N/A**                                                                             |
| (Former name,  former address and former fiscal year, if changed since last report) |

 

Indicate by check markwhether the registrant: (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to the filing requirements for the past90 days.       xYes   oNo

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, ornon-accelerated filer.  See definition of“accelerated filer and large accelerated filer” in Rule 12b-2 of the ExchangeAct. (Check one):

| Large Accelerated Filer  x |   | Accelerated  Filer  o |   | Non-Accelerated  Filer  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 ofshares outstanding of each of the issuer’s classes of common stock, as of thelatest practicable date.  At March 31,2007, there were 196,238,638 shares of IMS Health Incorporated Common Stock,$0.01 par value, outstanding.

#  

 

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**IMSHEALTH INCORPORATED**

**INDEX TOFORM 10-Q**
|                                                                                                          | ** ** | **Page**   | ** ** |
|----------------------------------------------------------------------------------------------------------|------------|------------|------------|
| **PART I. FINANCIAL  INFORMATION**                                                                       |       |       |       |
| **Item 1.  Financial Statements (Unaudited)**                                                            |       |       |       |
| ** **                                                                                               |       |       |       |
| Condensed  Consolidated Statements of Financial Position  As of March 31, 2007 and December 31, 2006     |       | 3          |       |
|                                                                                                     |       |       |       |
| Condensed Consolidated  Statements of Income  Three Months Ended March 31, 2007 and 2006                 |       | 4          |       |
|                                                                                                     |       |       |       |
| Condensed  Consolidated Statements of Cash Flows  Three Months Ended March 31, 2007 and 2006             |       | 5          |       |
|                                                                                                     |       |       |       |
| Notes to  Condensed Consolidated Financial Statements                                                    |       | 6          |       |
|                                                                                                     |       |       |       |
| **Item 2.  Management’s Discussion and Analysis of Financial  Condition and Results of Operations** |       | 27         |       |
| ** **                                                                                               |       |       |       |
| **Item 3.  Quantitative and Qualitative Disclosures About Market Risk**                                  |       | 44         |       |
| ** **                                                                                               |       |       |       |
| **Item 4. Controls and  Procedures**                                                                     |       | 44         |       |
| ** **                                                                                               |       |       |       |
| **PART II. OTHER  INFORMATION**                                                                          |       |       |       |
| ** **                                                                                               |       |       |       |
| **Item 1. Legal Proceedings**                                                                            |       | 45         |       |
| ** **                                                                                               | ** ** | ** ** | ** ** |
| **Item 1A. Risk Factors**                                                                                |       | 45         |       |
| ** **                                                                                               |       |       |       |
| **Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity  Securities**           |       | 51         |       |
| ** **                                                                                               |       |       |       |
| **Item 6. Exhibits**                                                                                     |       | 52         |       |
| ** **                                                                                               |       |       |       |
| **SIGNATURES**                                                                                           |       | 53         |       |
| ** **                                                                                               | ** ** | ** ** | ** ** |
| **EXHIBITS**                                                                                             |       | 54         |       |

 

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**PART I. FINANCIALINFORMATION**

**Item 1. FINANCIAL STATEMENTS**

**IMS HEALTH INCORPORATEDCONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)***(Dollars and shares inthousands, except per share data)*
| ** **                                                                                                               | ** ** | **As of March 31,** | ** **    | **As of December 31,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|---------------|---------------------------------------|------------|
| ** **                                                                                                               | ** ** | **2007**                           | ** **    | **2006**                              | ** ** |
| **Assets:**                                                                                                              |       |                               |          |                                  |       |
| ** **                                                                                                               |       |                               |          |                                  |       |
| **Current Assets:**                                                                                                      | ** ** | ** **                         |          |                                  |       |
| Cash and cash  equivalents                                                                                               | ** ** | **$**                              | **162,477**   |                                  | $          | 157,346 |   |
| Accounts receivable,  net of allowances of $7,676 and  $7,860 in 2007 and 2006, respectively                             | ** ** | **401,967**                        |          | 367,413                               |       |
| Other current assets                                                                                                     | ** ** | **189,311**                        |          | 168,534                               |       |
| **Total Current Assets**                                                                                                 | ** ** | **753,755**                        |          | 693,293                               |       |
| Securities and other  investments                                                                                        | ** ** | **6,315**                          |          | 6,401                                 |       |
| Property, plant and  equipment, net of accumulated depreciation of $187,404 and $181,543 in 2007  and 2006, respectively | ** ** | **156,423**                        |          | 148,190                               |       |
| Computer software                                                                                                        | ** ** | **255,617**                        |          | 255,285                               |       |
| Goodwill                                                                                                                 | ** ** | **545,493**                        |          | 531,610                               |       |
| Other assets                                                                                                             | ** ** | **291,003**                        |          | 271,815                               |       |
| **Total Assets**                                                                                                         | ** ** | **$**                              | **2,008,606** |                                  | $          | 1,906,594 |   |
| ** **                                                                                                               | ** ** | ** **                         |          |                                  |       |
| **Liabilities, Minority Interests  and Shareholders’ (Deficit) Equity:**                                            | ** ** | ** **                         |          |                                  |       |
| **Current Liabilities:**                                                                                                 | ** ** | ** **                         |          |                                  |       |
| Accounts payable                                                                                                         | ** ** | **$**                              | **95,611**    |                                  | $          | 82,013 |   |
| Accrued and other  current liabilities                                                                                   | ** ** | **209,065**                        |          | 256,672                               |       |
| Accrued income taxes                                                                                                     | ** ** | **61,338**                         |          | 74,485                                |       |
| Short-term deferred tax  liability                                                                                       | ** ** | **7,206**                          |          | 7,238                                 |       |
| Deferred revenues                                                                                                        | ** ** | **109,529**                        |          | 122,466                               |       |
| **Total Current Liabilities**                                                                                            | ** ** | **482,749**                        |          | 542,874                               |       |
| Postretirement and  postemployment benefits                                                                              | ** ** | **88,442**                         |          | 85,846                                |       |
| Long-term debt (Note 9)                                                                                                  | ** ** | **1,162,587**                      |          | 975,406                               |       |
| Other liabilities                                                                                                        | ** ** | **238,287**                        |          | 168,149                               |       |
| **Total Liabilities**                                                                                                    | ** ** | **$**                              | **1,972,065** |                                  | $          | 1,772,275 |   |
| ** **                                                                                                               | ** ** | ** **                         |          |                                  |       |
| **Commitments and Contingencies  (Note 7)**                                                                              | ** ** | ** **                         |          |                                  |       |
| **Minority Interests**                                                                                                   | ** ** | **$**                              | **100,618**   |                                  | $          | 100,410 |   |
| ** **                                                                                                               | ** ** | ** **                         |          |                                  |       |
| **Shareholders’ (Deficit) Equity:**                                                                                 | ** ** | ** **                         |          |                                  |       |
| Common Stock, par value  $.01, authorized 800,000 shares; issued 335,045 shares in 2007 and 2006,  respectively          | ** ** | **$**                              | **3,350**     |                                  | $          | 3,350 |   |
| Capital in excess of  par                                                                                                | ** ** | **506,882**                        |          | 497,955                               |       |
| Retained earnings                                                                                                        | ** ** | **2,640,740**                      |          | 2,612,939                             |       |
| Treasury stock, at  cost, 138,807 and 134,367 shares in 2007 and 2006, respectively                                      | ** ** | **(3,176,134**                     | **)**         | (3,044,996                            | )          |
| Cumulative translation  adjustment                                                                                       | ** ** | **24,013**                         |          | 28,786                                |       |
| Unamortized  postretirement and postemployment balances (SFAS No. 158)                                              | ** ** | **(63,013**                        | **)**         | (64,264                               | )          |
| Unrealized gain on  changes in fair value of cash flow hedges, net of tax                                                | ** ** | **6**                              |          | 6                                     |       |
| Unrealized gain on  investments, net of tax                                                                              | ** ** | **79**                             |          | 133                                   |       |
| **Total Shareholders’ (Deficit)  Equity**                                                                           | ** ** | **$**                              | **(64,077**   | **)**                                 | $          | 33,909 |   |
| **Total Liabilities, Minority Interests and  Shareholders’ (Deficit) Equity**                                       | ** ** | **$**                              | **2,008,606** |                                  | $          | 1,906,594 |   |

 

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

3

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**IMS HEALTH INCORPORATED**

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

*(Dollars andshares in thousands, except per share data)*
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** **  |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|-------------|
| ** **                                                                                               | ** ** | **2007**                                         | ** **  | **2006** | ** ** |
| ** **                                                                                               | ** ** | ** **                                       |        |   |   |
| Information and  analytics revenue                                                                       | ** ** | **411,187**                                      |        | 377,135 |   |
| Consulting and services  revenue                                                                         | ** ** | **99,162**                                       |        | 69,019 |   |
| **Operating Revenue**                                                                                    | ** ** | **$**                                            | **510,349** |   | $ | 446,154 |   |
|                                                                                                     | ** ** | ** **                                       |        |   |   |
| Operating costs                                                                                          | ** ** | **229,249**                                      |        | 197,718 |   |
| External-use software  amortization                                                                      | ** ** | **11,245**                                       |        | 10,292 |   |
| Selling and  administrative expenses                                                                     | ** ** | **139,641**                                      |        | 124,351 |   |
| Depreciation and other  amortization                                                                     | ** ** | **19,151**                                       |        | 17,057 |   |
| **Operating Income**                                                                                     | ** ** | **111,063**                                      |        | 96,736 |   |
| Interest income                                                                                          | ** ** | **1,798**                                        |        | 1,543 |   |
| Interest expense                                                                                         | ** ** | **(8,556**                                       | **)**       | (8,459 | ) |
| (Losses) gains from  investments, net                                                                    | ** ** | **(211**                                         | **)**       | 2,673 |   |
| Other (expense) income,  net                                                                             | ** ** | **(2,778**                                       | **)**       | 1,772 |   |
| **Non-Operating Loss, Net**                                                                              | ** ** | **(9,747**                                       | **)**       | (2,471 | ) |
| Income before provision  for income taxes                                                                | ** ** | **101,316**                                      |        | 94,265 |   |
| (Provision) benefit for  income taxes (Note 11)                                                          | ** ** | **(15,747**                                      | **)**       | 23,832 |   |
| **Net Income**                                                                                           | ** ** | **$**                                            | **85,569**  |   | $ | 118,097 |   |
|                                                                                                     | ** ** | ** **                                       |        |   |   |
| **Basic Earnings Per Share of  Common Stock**                                                            | ** ** | **$**                                            | **0.44**    |   | $ | 0.56 |   |
| **Diluted Earnings Per Share of  Common Stock**                                                          | ** ** | **$**                                            | **0.43**    |   | $ | 0.56 |   |
| ** **                                                                                               | ** ** | ** **                                       |        |   |   |
| Weighted average number  of shares outstanding — Basic                                              | ** ** | **196,639**                                      |        | 209,262 |   |
| Dilutive effect of  shares issuable as of period-end under stock-based compensation plans and  other     | ** ** | **3,751**                                        |        | 2,559 |   |
| Adjustment of shares  outstanding applicable to exercised and cancelled stock options during the  period | ** ** | **374**                                          |        | 81 |   |
| **Weighted Average Number of Shares Outstanding —  Diluted**                                        | ** ** | **200,764**                                      |        | 211,902 |   |

 

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

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**IMS HEALTH INCORPORATED**

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

*(Dollars andshares in thousands, except per share data)*
| ** **                                                                               | ** ** | **Three Months Ended March 31,** | ** **  |
|------------------------------------------------------------------------------------------|------------|------------------------------------------------------|-------------|
| ** **                                                                               | ** ** | **2007**                                             | ** **  | **2006** | ** ** |
| **Cash Flows from Operating  Activities:**                                               |       |                                                 |        |   |   |
| Net income                                                                               | ** ** | **$**                                                | **85,569**  |   | $ | 118,097 |   |
| **Adjustments to reconcile net  income to net cash   provided by operating activities:** | ** ** | ** **                                           |        |   |   |
| Depreciation and  amortization                                                           | ** ** | **30,396**                                           |        | 27,349 |   |
| Bad debt expense                                                                         | ** ** | **275**                                              |        | — |   |
| Deferred income  taxes                                                                   | ** ** | **(9,726**                                           | **)**       | (2,892 | ) |
| Losses (gains)  from investments, net                                                    | ** ** | **211**                                              |        | (2,673 | ) |
| Minority  interests in net income of consolidated companies                              | ** ** | **1,898**                                            |        | 891 |   |
| Non-cash  stock-based compensation charges                                               | ** ** | **10,510**                                           |        | 11,155 |   |
| Excess tax  benefits from stock-based compensation                                       | ** ** | **(1,659**                                           | **)**       | (454 | ) |
| Change in assets and  liabilities, excluding effects from acquisitions and dispositions: | ** ** | ** **                                           |        |   |   |
| Net increase in  accounts receivable                                                     | ** ** | **(35,484**                                          | **)**       | (10,527 | ) |
| Net decrease  (increase) in inventory                                                    | ** ** | **1,217**                                            |        | (1,343 | ) |
| Net increase in  prepaid expenses and other current assets                               | ** ** | **(25,496**                                          | **)**       | (12,580 | ) |
| Net increase  (decrease) in accounts payable                                             | ** ** | **12,053**                                           |        | (2,195 | ) |
| Net decrease in  accrued and other current liabilities                                   | ** ** | **(46,185**                                          | **)**       | (27,201 | ) |
| Net decrease in  accrued severance, impairment and other charges                         | ** ** | **(1,564**                                           | **)**       | (11,081 | ) |
| Net decrease in  deferred revenues                                                       | ** ** | **(14,200**                                          | **)**       | (918 | ) |
| Net increase  (decrease) in accrued income taxes                                         | ** ** | **5,843**                                            |        | (37,558 | ) |
| Net decrease  (increase) in pension assets (net of liabilities)                          | ** ** | **1,236**                                            |        | (7,212 | ) |
| Net decrease  (increase) in other long-term assets (net of long-term liabilities)        | ** ** | **1,155**                                            |        | (1,286 | ) |
| Net tax benefit  on stock-based compensation                                             | ** ** | **3,542**                                            |        | 204 |   |
| **Net Cash Provided by Operating  Activities**                                           | ** ** | **19,591**                                           |        | 39,776 |   |
| **Cash Flows Used in Investing  Activities:**                                            | ** ** | ** **                                           |        |   |   |
| Capital  expenditures                                                                    | ** ** | **(13,940**                                          | **)**       | (5,406 | ) |
| Additions to  computer software                                                          | ** ** | **(19,891**                                          | **)**       | (19,257 | ) |
| Payments for  acquisitions of businesses, net of cash acquired                           | ** ** | **(13,453**                                          | **)**       | (18,298 | ) |
| Proceeds from  sales of investments, net                                                 |       | —                                               |        | 4,057 |   |
| Other investing  activities, net                                                         | ** ** | **(3,995**                                           | **)**       | 1,966 |   |
| **Net Cash Used in Investing  Activities**                                               | ** ** | **(51,279**                                          | **)**       | (36,938 | ) |
| **Cash Flows Provided by (Used  in) Financing Activities:**                              | ** ** | ** **                                           |        |   |   |
| Net increase in  revolving credit facility and other                                     | ** ** | **178,463**                                          |        | 51,750 |   |
| Proceeds from  short-term credit agreement and private placement notes                   |       | —                                               |        | 450,000 |   |
| Payments for  purchase of treasury stock                                                 | ** ** | **(170,000**                                         | **)**       | (728,201 | ) |
| Proceeds from  exercise of stock options                                                 | ** ** | **34,632**                                           |        | 9,792 |   |
| Excess tax  benefits from stock-based compensation                                       | ** ** | **1,659**                                            |        | 454 |   |
| Dividends paid                                                                           | ** ** | **(5,952**                                           | **)**       | (6,035 | ) |
| Proceeds from  employee stock purchase plans                                             | ** ** | **66**                                               |        | — |   |
| (Decrease)  increase in cash overdrafts                                                  | ** ** | **(2,196**                                           | **)**       | 2,986 |   |
| Payments to  minority interests and other financing activities                           | ** ** | **(1,691**                                           | **)**       | (808 | ) |
| **Net Cash Provided by (Used in)  Financing Activities**                                 | ** ** | **34,981**                                           |        | (220,062 | ) |
| Effect of Exchange Rate  Changes on Cash and Cash Equivalents                            | ** ** | **1,838**                                            |        | 705 |   |
| **Increase (Decrease) in Cash and  Cash Equivalents**                                    | ** ** | **5,131**                                            |        | (216,519 | ) |
| **Cash and Cash Equivalents,  Beginning of Period**                                      | ** ** | **157,346**                                          |        | 362,943 |   |
| **Cash and Cash Equivalents, End of Period**                                             | ** ** | **$**                                                | **162,477** |   | $ | 146,424 |   |

 

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

5

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**IMS HEALTH INCORPORATED**

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

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

**Note 1.  Interim Condensed Consolidated FinancialStatements (Unaudited)**

The accompanying CondensedConsolidated Financial Statements (Unaudited) have been prepared in accordancewith accounting principles generally accepted in the United States of Americafor interim financial information and Article 10 of Regulation S-X under theSecurities and Exchange Act of 1934, as amended.  The Condensed Consolidated FinancialStatements (Unaudited) do not include all the information and notes required byaccounting principles generally accepted in the United States of America forcomplete financial statements.  In theopinion of management, all adjustments, all of which are of a normal recurringnature (except for those adjustments related to the Company’s adoption ofFinancial Accounting Standards Board (“FASB”) Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (“FIN 48”) (see Note 11)), considered necessary for a fair presentationof financial position, results of operations and cash flows for the periodspresented have been included.  Theresults of operations for interim periods are not necessarily indicative of theresults expected for the full year.  TheDecember 31, 2006 balance sheet data was derived from audited financialstatements, but does not include all disclosures required by accountingprinciples generally accepted in the United States of America.  The Condensed Consolidated FinancialStatements (Unaudited) and related notes should be read in conjunction with theConsolidated Financial Statements and related notes of IMS Health Incorporated(the “Company” or “IMS”) included in its 2006 Annual Report on Form 10-K.  Certainprior year amounts have been reclassified to conform to the 2007presentation.  Amounts presented in theCondensed Consolidated Financial Statements (Unaudited) may not add due torounding.

**Note 2.  Basis of Presentation**

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

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

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

·                       Launch, Brand Management and Other to supportclient needs relative to market segmentation and positioning, life cycle managementfor prescription and consumer health pharmaceutical products and healtheconomics and outcomes research offerings.

Within these key information products, we provideconsulting and services that use in-house capabilities and methodologies toassist pharmaceutical clients in analyzing and evaluating market

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trends, strategies and tactics, and to help in the development andimplementation of customized software applications and data warehouse tools.

The Company operates inmore than 100 countries.

TheCompany is managed on a global business model with global leaders for themajority of its critical business processes and accordingly has one reportablesegment (See Note 15).

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

In September 2006, the FASB issued Statement of Financial AccountingStandards (“SFAS”) No. 157, “Fair Value Measurements.” This statementdefines fair value, establishes a framework for measuring fair value undergenerally accepted accounting principles, and expands disclosures about fairvalue measurements. This statement is effective for financial statementsissued for fiscal years beginning after November 15, 2007, and interim periodswithin those fiscal years. The Company is currently evaluating this statementto determine any potential impact that it may have on its financial results.

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

**Note 4.   Summaryof Significant Accounting Policies**

*Stock-Based Compensation Expense*

On January 1, 2006, the Company adopted SFASNo. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) whichrequires the measurement and recognition of compensation expense for allshare-based payment awards made to employees and non-employee directorsincluding employee stock options, restricted stock, restricted stock units andemployee stock purchases related to the Employee Stock Purchase Plan based onestimated fair values. SFAS 123R supersedes the Company’s previous accountingunder Accounting Principles Board (“APB”) Opinion No. 25, “Accounting forStock Issued to Employees” (“APB 25”) for periods beginning in  2006. In March 2005, the Securities and Exchange Commission (“SEC”) issued StaffAccounting Bulletin (“SAB”) No. 107 (“SAB 107”) relating to SFAS 123R. TheCompany has applied the provisions of SAB 107 in its adoption of SFAS123R.  The Company adopted SFAS 123Rusing the modified prospective transition method, which requires theapplication of the accounting standard as of January 1, 2006, the first day ofthe Company’s fiscal year 2006. See Note 8 for additional information.

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

Stock-based compensationexpense recognized during the period is based on the value of the portion ofshare-based payment awards that is ultimately expected to vest during theperiod. Stock-based compensation expense recognized in the Company’s  Consolidated Statements of Income for 2006and 2007 included compensation expense for share-based payment awards grantedprior to, but not yet vested as of January 1, 2006, based on the grant datefair value estimated in accordance with the provisions of SFAS 123, and compensationexpense for the share-based payment awards granted subsequent to January 1,2006 based on the grant date fair value estimated in accordance with theprovisions of SFAS 123R.   Prior to theadoption of SFAS 123R, the Company used the straight-line method of attributingthe value of stock-based compensation and continued to use that method afterthe adoption.  As stock-basedcompensation expense recognized in the Consolidated Statements of Income for2006 and 2007 is based on awards ultimately expected to vest, it has beenreduced for estimated forfeitures. SFAS 123R requires forfeitures to beestimated at the time of grant and revised, if necessary, in subsequent periodsif actual forfeitures differ from those estimates. In the Company’s pro formainformation required under SFAS 123 for the periods prior to 2006, the Companyaccounted for stock options by estimating forfeitures in the first threequarters of the year and applying the full year actual forfeitures in thefourth quarter of the year, as well as an estimate of future forfeitures, andrecognized forfeitures as they occurred for restricted stock grants.  The Company’s method of valuation for stockoption awards granted after January 1, 2006 is the Black-Scholes option-pricingmodel which was also previously used for the Company’s pro forma informationrequired under SFAS 123. See Note 8 for additional information.

*Computationof Net Income per Share*

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

SFAS No. 128, “Earningsper Share,” requires that employee equity share options, restricted stock unitsand similar equity instruments granted by the Company be treated as potentialcommon shares outstanding in computing diluted earnings per share. Dilutedshares outstanding include restricted stock units and the dilutive effect ofin-the-money options which is calculated based on the

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average share price for each fiscal period using thetreasury stock method. Under the treasury stock method, the amount the employeemust pay for exercising stock options, the amount of compensation cost forfuture service that the Company has not yet recognized, and the amount ofbenefits that would be recorded in additional paid-in capital when the awardbecomes deductible for tax purposes are assumed to be used to repurchaseshares.

**Note 5.  Acquisitions**

The Company makes acquisitions in order to expand itsproducts, services and geographic reach. During the three months ended March 31, 2007, the Company completed oneacquisition of ValueMedics Research, LLC (U.S.) at a cost of approximately$9,800.  This acquisition was accountedfor under the purchase method of accounting. As such, the aggregate purchase price has been allocated on apreliminary basis to the assets acquired based on estimated fair values as ofthe closing date.  The purchase priceallocations will be finalized after the completion of the valuation of certainassets and liabilities.  Any adjustmentsresulting from the finalization of the purchase price allocations are notexpected to have a material impact on the Company’s results of operations.  The Condensed Consolidated FinancialStatements (Unaudited) include the results of this acquired company subsequentto the closing of the acquisition.  Hadthis acquisition occurred as of January 1, 2007 or 2006, the impact on theCompany’s results of operations would not have been significant.  Goodwill of approximately $6,200 was recordedin connection with this acquisition.  Theamount deductible for tax purposes has not yet been determined.

Duringthe three months ended March 31, 2006, the Company completed one acquisition ofLäkemedelsstatistik AB (Sweden) for an aggregate cost of approximately$12,000.  This acquisition was accountedfor under the purchase method of accounting. As such, the aggregate purchase price has been allocated on apreliminary basis to the assets acquired based on estimated fair values as ofthe closing date.  The Company finalizedthe purchase price allocation for this acquisition during 2006 which did nothave a material impact on the Company’s results of operations.  The Condensed Consolidated FinancialStatements (Unaudited) include the results of this acquired company subsequentto the closing of the acquisition.  Hadthis acquisition occurred as of January 1, 2006, the impact on the Company’sresults of operations would not have been significant.  Goodwill of approximately $9,300 was recordedin connection with this acquisition, of which none is deductible for taxpurposes.

**Note 6.  Goodwill and Intangible Assets**

During the threemonths ended March 31, 2007, the Company recorded additional goodwill ofapproximately $8,000 related to the preliminary allocation of purchase pricefor the acquisition completed during the first quarter of 2007 and also toearn-out agreements for acquisitions completed prior to 2007 (see Note 7).  During the three months ended March 31, 2006,the Company recorded additional goodwill of approximately $11,000 related primarilyto the preliminary allocation of purchase price for the acquisition completedduring the first quarter of 2006 and to earn-out agreements for acquisitionscompleted prior to 2006.

All ofthe Company’s other acquired intangibles are subject to amortization.  Intangibleasset amortization expense was $4,655 and $4,399 during the three months endedMarch 31, 2007 and

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2006, respectively.  At March 31, 2007,intangible assets were primarily composed of customer relationships, databasesand trade names (included in Other assets) and computer software.  The gross carrying amounts and relatedaccumulated amortization of these intangibles were $153,597 and $66,503,respectively, at March 31, 2007 and $133,160 and $46,423, respectively, atDecember 31, 2006.  These intangibles areamortized over periods ranging from two to fifteen years.  As of March 31, 2007, the weighted averageamortization periods of the acquired intangibles by asset class are listed inthe following table: 
| **Intangible Asset Type** | ** ** | **Weighted Average  Amortization (Years) Period** | ** ** |
|-------------------------------------|------------|------------------------------------------------------------------|------------|
| Customer  Relationships             |       | 10.1                                                             |       |
| Computer  Software and Algorithms   |       | 7.0                                                              |       |
| Databases                           |       | 4.7                                                              |       |
| Trade Names                         |       | 4.3                                                              |       |
| Other                               |       | 3.7                                                              |       |
| Weighted average                    |       | 8.9                                                              |       |

 

Based on currentestimated useful lives, amortization expense associated with intangible assetsat March 31, 2007 is estimated to be approximately $4,200 for each of theremaining three quarters in 2007. Thereafter, annual amortization expense associated with intangibleassets is estimated to be as follows:
| **Year Ended December 31,** | ** ** | **Amortization Expense** | ** ** |
|--------------------------------------------|------------|-------------------------------|------------|
| 2008                                       |       | $                             | 14,890     |   |
| 2009                                       |       | 12,835                        |       |
| 2010                                       |       | 9,385                         |       |
| 2011                                       |       | 8,222                         |       |
| 2012                                       |       | 6,449                         |       |
| Thereafter                                 |       | $                             | 22,839     |   |

 

**Note 7.**  **Contingencies**

TheCompany and its subsidiaries are involved in legal and tax proceedings, claimsand litigation arising in the ordinary course of business.  Management periodically assesses the Company’sliabilities and contingencies in connection with these matters based upon thelatest information available.  For thosematters where management currently believes it is probable that the Companywill incur a loss and that the probable loss or range of loss can be reasonablyestimated, the Company has recorded reserves in the Condensed ConsolidatedFinancial Statements (Unaudited) based on its best estimates of such loss.  In other instances, because of theuncertainties related to either the probable outcome or the amount or range ofloss, management is unable to make a reasonable estimate of a liability, ifany.  However, even in many instanceswhere the Company has recorded a reserve, the Company is unable to predict withcertainty the final outcome of the matter or whether resolution of the matterwill materially affect the Company’s results of operations, financial positionor cash flows.  As additional informationbecomes available, the Company adjusts its assessment and estimates of suchliabilities accordingly.

#  

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TheCompany routinely enters into agreements with its suppliers to acquire data andwith its customers to sell data, all in the normal course of business.  In these agreements, the Company sometimesagrees to indemnify and hold harmless the other party for any damages suchother party may suffer as a result of potential intellectual propertyinfringement and other claims related to the use of the data.  These indemnities typically have terms of approximatelytwo years.  The Company has not accrued aliability with respect to these matters, as the exposure is considered remote.

Inconnection with the agreements (the “LLC Agreements”) governing therelationship among the Company and two of its subsidiaries and two third-partyinvestors with respect to IMS Health Licensing Associates, L.L.C., the Companyalso entered into a guaranty agreement. Under the terms of this guaranty agreement, the Company guarantees infavor of the third-party investors the performance of the Company’ssubsidiaries under the LLC Agreements and agrees to indemnify and hold harmlessthe third-party investors against damages, including specified delay damages,the third-party investors may suffer as a result of failures to perform underthe LLC Agreements by the Company and its subsidiaries.

Based on its review of thelatest 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&BLegacy and Related Tax Matters*

*SharingDisputes.*  In 1996 the company then known as The Dun& Bradstreet Corporation (“D&B”) and now known as R.H. DonnelleyCorporation (“Donnelley”) separated into three public companies by spinning offACNielsen Corporation (“ACNielsen”) and the company then known as CognizantCorporation (“Cognizant”) (the “1996 Spin-Off”).  Cognizant is now known as Nielsen MediaResearch, Inc., a subsidiary of The Nielsen Company, formerly known as VNU N.V.(“NMR”).  The agreements effecting the1996 Spin-Off allocated tax-related liability with respect to certain priorbusiness transactions (the “Legacy Tax Controversies”) between D&B andCognizant.  The D&B portion of such liabilityis now shared among Donnelley and certain of its former affiliates (the “DonnelleyParties”), and the Cognizant portion of such liability is shared between NMRand the Company pursuant to the agreements effecting Cognizant’s spin-off ofthe Company in 1998 (the “1998 Spin-Off”).

Theunderlying tax controversies with the Internal Revenue Service (the “IRS”) havesubstantially all been resolved and the Company paid to the IRS the amountsthat it believed were due and owing.  Inthe first quarter of 2006, Donnelley indicated that it disputed the amountscontributed by the Company toward the resolution of these matters based on theDonnelley Parties’ interpretation of the allocation of liability under the 1996Spin-Off agreements.  The DonnelleyParties on the one hand, and NMR and the Company, on the other hand, haveattempted to resolve these disputes through negotiation.  The 1996 Spin-Off agreements provide that ifthe parties cannot reach agreement through negotiation they must arbitrate thedisputes.  As of March 31, 2007, theCompany had a reserve of approximately $20,400 for these matters.

OnAugust 14, 2006, the Donnelley Parties commenced arbitration regarding one ofthese

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disputes(referred to herein as the “Dutch Partnership Dispute”) by filing a Notice ofArbitration and Statement of Claim (the “Donnelley Statement”) with theAmerican Arbitration Association International Center for Dispute Resolution(the “AAA”).  In the Donnelley Statement,the Donnelley Parties claim that the Company and NMR collectively owe approximatelyan additional $10,800 with respect to the Dutch Partnership Dispute; (ifdetermined liable, the Company’s share of this amount would be approximately$5,400).  On October 16, 2006, the Companyand NMR filed a Statement of Defense denying all claims made by the DonnelleyParties in the Donnelley Statement.  Theparties are currently engaged in discovery in this arbitration.  The Company intends to vigorously defend itselfwith respect to the Dutch Partnership Dispute and the remaining disputes.

*ThePartnership (Tax Year 1997)*.  The IRS is seeking toreallocate certain items of partnership income and expense as well as disallowcertain items of partnership expense with respect to a partnership nowsubstantially owned by the Company (the “Partnership”) on the Partnership’s1997 tax return.  During 1997, thePartnership was substantially owned by Cognizant, but liability for this matterwas allocated to the Company pursuant to the agreements effecting the 1998Spin-Off.  The Company has filed a formalprotest relating to the proposed assessment for 1997 with the IRS Office ofAppeals.  The Company is attempting toresolve this matter in the administrative appeals process before proceeding tolitigation if necessary. If the IRS were to ultimately prevail in its position,the Company’s liability (tax and interest, net of tax benefit) with respect totax year 1997 would be approximately $20,600, which amount the Company had reservedin current accrued income taxes payable at March 31, 2007.  During the second quarter of 2007, theCompany intends to file an amended return for this period to prevent furtherinterest from accruing.

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

*MattersBefore the Belgian Competition Service*

Complaintswere filed in 1998 and 1999 against the Company with the Belgian CompetitionService (“BCS”) alleging abuse of a dominant position on the Belgianmarket.  In October 1999 and 2000, theChairman of the Belgian Competition Council (“BCC”) adopted interim measuresagainst the Company, with which the Company complied.  In December 2004, the Company received aformal statement of objections alleging that the Company had abused itsdominant position on the Belgian market in violation of Article 82 of the ECTreaty and corresponding Belgian law. The Company submitted its comments to the statement of objections inwriting to the BCC in February 2005.

Ina separate matter, in October 2004, the BCS notified IMS of a request forinformation in connection with IMS’s acquisition in April 2004 of a competitorin the Belgian market, Source Informatics Belgium S.A.  The BCS is investigating whether suchacquisition may have violated Article 82 of the EC Treaty and correspondingBelgian law.  The Company responded tothe request for information in December 2004.

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TheCompany intends to continue to vigorously defend itself in these matters beforethe Belgian competition authorities. Management of the Company is unable to predict at this time the finaloutcome of these matters or whether adverse resolutions thereof couldmaterially affect the Company’s results of operations, cash flows or financialposition in the period in which such adverse resolution occurs.

*Contingent Consideration*

Under the terms of certainpurchase agreements related to acquisitions made since 2002, the Company may berequired to pay additional amounts as contingent consideration based on theachievement of certain performance related targets during 2006 through2009.  Substantially all of theseadditional payments will be recorded as goodwill in accordance with EmergingIssues Task Force (“EITF”) No. 95-8, “Accounting for Contingent ConsiderationPaid to the Shareholders of an Acquired Enterprise in a Purchase BusinessCombination.”  As of March 31, 2007, approximately$48,000 had been earned under these contingencies.  Based on current estimates, the Companyexpects that additional contingent payments under these agreements may totalapproximately $20,000.  It is expectedthat these contingent payments will be resolved within a specified time periodafter the end of each respective calendar year from 2006 through 2009.

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**Note 8.  Stock-Based Compensation**

The following tablesummarizes stock option activity for the periods indicated.

|                                                         | ** ** | **Shares** | ** ** | **Weighted  Average  Exercise  Price Per  Share** | ** ** |
|---------------------------------------------------------|------------|------------|------------|--------------------------------------------------------|------------|
| Options  Outstanding, December 31, 2004                 |       | 35,500     |       | $                                                      | 21.86      |   |
| Granted                                                 |       | 4,813      |       | $                                                      | 24.12      |   |
| Exercised                                               |       | (8,726     | )          | $                                                      | 18.97      |   |
| Forfeited                                               |       | (575       | )          | $                                                      | 20.63      |   |
| Cancelled                                               |       | (1,028     | )          | $                                                      | 26.93      |   |
| Options  Outstanding, December 31, 2005                 |       | 29,984     |       | $                                                      | 22.91      |   |
| Granted                                                 |       | 11         |       | $                                                      | 24.54      |   |
| Exercised                                               |       | (6,161     | )          | $                                                      | 19.36      |   |
| Forfeited                                               |       | (699       | )          | $                                                      | 23.58      |   |
| Cancelled                                               |       | (1,739     | )          | $                                                      | 28.93      |   |
| **Options  Outstanding, December 31, 2006**             | ** ** | **21,396** | ** ** | **$**                                                  | **23.43**  | ** ** |
| **Granted**                                             | ** ** | **—** | ** ** | **—**                                             | ** ** |
| **Exercised**                                           | ** ** | **(1,637** | **)**      | **$**                                                  | **21.16**  | ** ** |
| **Forfeited**                                           | ** ** | **(111**   | **)**      | **$**                                                  | **24.21**  | ** ** |
| **Cancelled**                                           | ** ** | **(154**   | **)**      | **$**                                                  | **29.48**  | ** ** |
| **Options  Outstanding, March 31, 2007**                | ** ** | **19,494** | ** ** | **$**                                                  | **23.57**  | ** ** |
| **Options  Vested or Expected to Vest, March 31, 2007** | ** ** | **19,186** | ** ** | **$**                                                  | **23.56**  | ** ** |
| **Exercisable, March 31, 2007**                         | ** ** | **15,320** | ** ** | **$**                                                  | **23.44**  | ** ** |

 

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The following table summarizes activity of restricted stock units withservice conditions.

|                                                 | ** ** | **Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|
| Unvested,  December 31, 2004                    |       | 410        |       | $                                                       | 20.01      |   |
| Granted                                         |       | 153        |       | $                                                       | 24.46      |   |
| Vested                                          |       | (119       | )          | $                                                       | 24.41      |   |
| Forfeited                                       |       | —     |       | —                                                  |       |
| Unvested,  December 31, 2005                    |       | 444        |       | $                                                       | 20.30      |   |
| Granted                                         |       | 1,386      |       | $                                                       | 26.12      |   |
| Vested                                          |       | (217       | )          | $                                                       | 22.03      |   |
| Forfeited                                       |       | (55        | )          | $                                                       | 25.79      |   |
| **Unvested,  December 31, 2006**                | ** ** | **1,558**  | ** ** | **$**                                                   | **25.04**  | ** ** |
| **Granted**                                     | ** ** | **69**     | ** ** | **$**                                                   | **29.18**  | ** ** |
| **Vested**                                      | ** ** | **(7**     | **)**      | **$**                                                   | **23.14**  | ** ** |
| **Forfeited**                                   | ** ** | **(31**    | **)**      | **$**                                                   | **26.29**  | ** ** |
| **Unvested,  March 31, 2007**                   | ** ** | **1,589**  | ** ** | **$**                                                   | **25.21**  | ** ** |
| **Vested or Expected to Vest,  March 31, 2007** | ** ** | **1,422**  | ** ** | **$**                                                   | **25.08**  | ** ** |

 

The following table summarizesactivity of restricted stock units with performance conditions.

|                                                 | ** ** | **Shares** | ** ** | **Weighted  Average  Grant Date  Fair Value** | ** ** |
|-------------------------------------------------|------------|------------|------------|---------------------------------------------------------|------------|
| Unvested,  December 31, 2004                    |       | 241        |       | $                                                       | 20.96      |   |
| Granted                                         |       | 194        |       | $                                                       | 20.62      |   |
| Vested                                          |       | (53        | )          | $                                                       | 18.97      |   |
| Forfeited                                       |       | (7         | )          | $                                                       | 17.72      |   |
| Unvested,  December 31, 2005                    |       | 375        |       | $                                                       | 21.12      |   |
| Granted                                         |       | 154        |       | $                                                       | 24.53      |   |
| Vested                                          |       | (181       | )          | $                                                       | 21.76      |   |
| Forfeited                                       |       | (28        | )          | $                                                       | 24.08      |   |
| **Unvested,  December 31, 2006**                | ** ** | **320**    | ** ** | **$**                                                   | **22.14**  | ** ** |
| **Granted**                                     | ** ** | **123**    | ** ** | **$**                                                   | **29.16**  | ** ** |
| **Vested**                                      | ** ** | **(83**    | **)**      | **$**                                                   | **18.56**  | ** ** |
| **Forfeited**                                   | ** ** | **(1**     | **)**      | **$**                                                   | **24.21**  | ** ** |
| **Unvested,  March 31, 2007**                   | ** ** | **359**    | ** ** | **$**                                                   | **25.38**  | ** ** |
| **Vested or Expected to Vest,  March 31, 2007** | ** ** | **341**    | ** ** | **$**                                                   | **25.29**  | ** ** |

 

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The following table summarizes the components andclassification of stock-based compensation expense in the first quarter of 2007and 2006.
| **For the Three Months Ended March 31,** | ** ** | **2007**   | ** ** | **2006** | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Stock Options                                                          | ** ** | **$**      | **5,516**  |     | $          | 9,141 |   |
| Restricted Stock  Units                                                | ** ** | **$**      | **4,767**  |     | $          | 1,772 |   |
| Employee Stock  Purchase Plan                                          | ** ** | **$**      | **227**    |     | $          | 242 |   |
| Total  Stock-Based Compensation Expense                                | ** ** | **$**      | **10,510** |     | $          | 11,155 |   |
|                                                                   | ** ** | ** ** |       |     |       |
| Operating Costs                                                        | ** ** | **$**      | **1,856**  |     | $          | 1,540 |   |
| Selling, &  Administrative Expenses                                | ** ** | **$**      | **8,654**  |     | $          | 9,615 |   |
| Total  Stock-Based Compensation Expense                                | ** ** | **$**      | **10,510** |     | $          | 11,155 |   |
|                                                                   | ** ** | ** ** |       |     |       |
| Tax Benefit on  Stock-Based Compensation Expense                       | ** ** | **$**      | **3,220**  |     | $          | 3,326 |   |
|                                                                   | ** ** | ** ** |       |     |       |
| Capitalized Stock-Based  Compensation Expense                          | ** ** | **$**      | **76**     |     | —     |   |

 

**Note 9. Financial Instruments**

*Foreign Exchange Risk Management*

The Company transacts business in more than 100countries and is subject to risks associated with changing foreign exchangerates. The Company’s objective is to reduce earnings and cash flow volatilityassociated with foreign exchange rate changes. Accordingly, the Company entersinto foreign currency forward contracts to minimize the impact of foreignexchange movements on net income, non-U.S. dollar anticipated royalties, and onthe value of non-functional currency assets and liabilities.

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

The impact of foreignexchange risk management activities on pre-tax income in the three months endedMarch 31, 2007 was a net loss of $836, and net gain of $2,691 in the threemonths ended March 31, 2006.  In addition, at March 31, 2007, the Companyhad approximately $761,064 in foreign exchange forward contracts outstandingwith various expiration dates through February 2008 relating to non - U.S.Dollar Operating Income, non-U.S. Dollar anticipated royalties andnon-functional currency assets and liabilities. Foreign exchange forward contracts are recorded at estimated fairvalue.  The estimated fair values of theforward contracts are based on quoted market prices.

Unrealized and realized gains and losses on thecontracts hedging non-U.S. Dollar Operating Income and non-functional currencyassets and liabilities do not qualify for hedge accounting in accordance withSFAS 133 “Accounting for Derivative Instruments and Hedging Activities,” as

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amended by SFAS No. 138, “Accounting for CertainDerivative Instruments and Certain Hedging Activities,” and SFAS No. 149, “Amendmentof Statement 133 on Derivative Instruments and Hedging Activities,”(collectively, “SFAS No. 133”),  andtherefore are not deferred and are included in the Condensed ConsolidatedStatements of Income (Unaudited) in Other income, net.

Unrealized gains and losses on the contracts hedgingnon-U.S. Dollar anticipated royalties qualify for hedge accounting under SFASNo. 133 and are therefore deferred and included in OCI “Other ComprehensiveIncome.”

*Fair Value of Financial Instruments*

At March 31, 2007, the Company’s financial instrumentsincluded cash, cash equivalents, receivables, accounts payable and long-termdebt.  At March 31, 2007, the fair valuesof cash, cash equivalents, receivables and accounts payable approximatedcarrying values due to the short-term nature of these instruments.  At March 31, 2007, the fair value oflong-term debt approximated carrying value. 

*Credit Concentrations*

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 notrealize a material loss as of March 31, 2007 in the event of non-performance byany one counterparty.  The Company entersinto transactions only with financial institution counterparties that have acredit rating of A or better.  Inaddition, the Company limits the amount of credit exposure with any oneinstitution.

The Company maintains accounts receivable balances($401,967 and $367,413, net of allowances, at March 31, 2007 and December 31,2006, respectively), principally from customers in the pharmaceuticalindustry.  The Company’s tradereceivables do not represent significant concentrations of credit risk at March31, 2007 due to the high quality of its customers and their dispersion acrossmany geographic areas.

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*Lines of Credit*

The following tablesummarizes the Company’s long-term debt at March 31, 2007 and December 31,2006:
| ** **                                                                                                                                        | ** ** | **March 31,  2007** | ** **    | **December 31,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|---------------|-----------------------------|------------|
| 4.6% Private Placement  Notes, principal payment of $150,000 due January 2008, net of interest rate  swaps of $(1,758) and $(2,819), respectively | ** ** | **$**                    | **148,242**   |                        | $          | 147,181 |   |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| 5.55% Private Placement  Notes, principal payment of $150,000 due April 2016                                                                      | ** ** | **150,000**              |          | 150,000                     |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| 1.70% Private Placement  Notes, principal payment of 34,395,000 Japanese Yen due January 2013                                                     | ** ** | **291,807**              |          | 288,670                     |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| Revolving Credit  Facility:                                                                                                                       | ** ** | ** **               |          |                        |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 1.01%                                                             | ** ** | **381,941**              |          | 249,097                     |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| Swiss Franc  denominated borrowings at average floating rates of approximately 2.53%                                                              | ** ** | **51,497**               |          | 59,258                      |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| U.S. Dollar  denominated borrowings at average floating rates of approximately 5.75%                                                              | ** ** | **89,100**               |          | 31,200                      |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| Bank Term Loan,  principal payment of $50,000 due June, 2009 at average floating rate of  approximately 5.60%                                     | ** ** | **50,000**               |          | 50,000                      |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| Total Long-Term Debt                                                                                                                              | ** ** | **$**                    | **1,162,587** |                        | $          | 975,406 |   |

 

In July 2006, the Company entered into a $1,000,000 revolving creditfacility with a syndicate of 12 banks (“Revolving Credit Facility”) replacingits existing $700,000 Amended and Restated Facility (see below).  The terms of the Revolving Credit Facilityextended the maturity of the facility in its entirety to a term of five years,maturing July 2011, reduced the borrowing margins, and increased subsidiaryborrowing limits.  Total borrowings underthe Revolving Credit Facility were $522,538 and $339,555 at March 31, 2007 andDecember 31, 2006, respectively, all of which were classified aslong-term.  In April 2004, the Companyentered into a $700,000 revolving credit facility with a syndicate of 12 banks(the “Unsecured Facility”).  TheUnsecured Facility replaced the Company’s lines of credit with several domesticand international banks.  On March 9,2005, the Company renegotiated with the syndicate of 12 banks to amend and restatethe Unsecured Facility (the “Amended and Restated Facility”).  The terms of the Amended and RestatedFacility extended the maturity of the facility in its entirety to a term offive years, maturing March 2010, reduced the borrowing margins and increasedsubsidiary borrowing limits.

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

In general, rates for borrowing under the Revolving Credit Facility areLIBOR plus 30 basis points and can vary based on the Company’s Debt to EBITDAratio.  The weighted average interestrates for the Company’s lines were 1.97% and 1.61% at March 31, 2007 andDecember 31, 2006, respectively.  Inaddition, the Company is required to pay a commitment fee on any unused portionof the facilities of 0.075%.  At March31, 2007, the Company had approximately $477,462 available under its existingbank credit facilities.

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

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

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

In January 2003, the Company closed a private placement transactionpursuant to which it issued $150,000 of five-year debt to several highly ratedinsurance companies at a fixed rate of 4.60%. The Company used the proceeds to pay down short-term debt.  The Company also swapped $100,000 of itsfixed rate debt to floating rate based on six-month LIBOR plus a margin ofapproximately 107 basis points.  TheCompany accounted for these swaps as fair value hedges under the provisions ofSFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  The Company determined the fair values basedon estimated prices quoted by financial institutions.  The fair values of these swaps were $(1,758)and $(2,819) as of March 31, 2007 and December 31, 2006, respectively.

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The Company’s financingarrangements provide for certain covenants and events of default customary forsimilar instruments, including in the case of its main bank arrangements,the  private placement transactions, andthe term loan, covenants to maintain specific ratios of consolidated totalindebtedness to EBITDA and of EBITDA to certain fixed charges.  At March 31, 2007, the Company was incompliance with these financial debt covenants.

**Note 10.  Pension and Postretirement Benefits**

Thefollowing table provides the Company’s expense associated with pension benefitsthat are accounted for under SFAS No. 87, “Employers’ Accounting for Pensions,”and postretirement benefits that are accounted for under SFAS No. 106, “Employers’Accounting for Postretirement Benefits Other Than Pensions.”  For a complete description of the Company’spension and postretirement benefits, refer to Note 11 of the Company’s 2006Annual Report on Form 10-K as filed with the SEC.
| **Components of Net Periodic Benefit Cost for the** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|----------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| **Three Months Ended March 31,**                                   | ** ** | **2007**                  | ** ** | **2006**                | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                                                           | ** ** | **$**                     | **4,096**  |                    | $          | 3,464 | ** ** | **$** | **6** |   | $ | 10 |   |
| Interest cost                                                                          | ** ** | **4,582**                 |       | 3,911                   | ** ** | **177** |   | 193 |   |
| Expected return  on plan assets                                                        | ** ** | **(7,280**                | **)**      | (6,354                  | )          | — |   | — |   |
| Amortization of  prior service cost (credit)                                           | ** ** | **4**                     |       | (45                     | )          | **(9** | **)** | (141 | ) |
| Amortization of  transition obligation                                                 | ** ** | **(1**                    | **)**      | (1                      | )          | — |   | — |   |
| Amortization of  net loss                                                              | ** ** | **1,095**                 |       | 1,128                   | ** ** | **108** |   | 152 |   |
| Net periodic benefit  cost                                                             | ** ** | **$**                     | **2,496**  |                    | $          | 2,103 | ** ** | **$** | **282** |   | $ | 214 |   |

 

**Note 11.  Income Taxes**

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

The Company adopted the provisions of FIN 48 onJanuary 1, 2007.  As a result of thisadoption, the Company recognized an increase in liabilities for uncertain taxpositions of approximately $51,800 and a corresponding reduction to the January1, 2007 retained earnings balance. As of the adoption date, the Company hadapproximately $117,200 of gross unrecognized tax benefits, of which $107,600,if recognized would favorably affect the effective tax rate.  The Company recognizes interest expense andpenalties related to unrecognized tax benefits in income tax expense.  As of the adoption date, the Company hadaccrued interest and penalties of approximately $13,500.

The Company files numerous consolidated and separateincome tax returns in the U.S. federal and state and non-U.S.jurisdictions.  With few exceptions, theCompany is no longer subject to U.S. federal income tax examinations for the yearsbefore 2003 and is no longer subject to state and local income tax examinationby tax authorities for years before 1997. As well, with few exceptions, the Company is no longer subject toexamination by tax authorities in its material non-U.S. jurisdictions prior to2003. It is reasonably possible that within the next twelve months the Companycould recognize approximately $1,000 of unrecognized tax benefits as a resultof the expiration of certain statutes of limitation.

 

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The Internal Revenue Service (“IRS”) is currentlyauditing the 2004 and 2005 federal income tax returns of the Company.  It is reasonably possible that this audit mayconclude within the next twelve months. To date, no material adjustments havebeen proposed as a result of this audit. At this time, it is not reasonably possible to estimate the impact ofthe resolution of this audit on the financial statements of the Company.  The Company intends to file an amended 1997federal income tax return related to a dispute with the IRS over the allocationof certain items of partnership income and expense to prevent further interestfrom accruing thereon (see Note 7).  Thepayment associated with the filing of this amended return will be approximately$20,600 (tax and interest, net of tax benefit).

For the threemonths ended March 31, 2007, the Company’s effective tax rate was reducedprimarily due to a favorable non-U.S. audit settlement for tax years 1998through 2002 (approximately $16,500) and a reorganization of certain non-U.S.subsidiaries  (approximately$4,400).  For the three months endedMarch 31, 2006, the Company’s effective tax rate was reduced primarily due to afavorable U.S. partnership audit settlement for tax years 1998 through 2003(approximately $69,200) and a favorable U.S. audit settlement for tax years2000 through 2003 (approximately $17,600). Also in the first quarter of 2006, approximately $24,100 of tax expensewas recorded related to disputes between the Company and NMR, on the one hand,and Donnelley and certain of its former affiliates on the other hand, as toproper interpretation of, and allocation of tax liabilities under, the 1996Spin-Off agreements (see Note 7).

While the Companyintends to continue to seek global tax planning initiatives, there can be noassurance that the Company will be able to successfully identify and implementsuch initiatives to reduce or maintain its overall tax rate.

**Note 12.  IMS Health Capital Stock**

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

InJanuary 2007, the Company repurchased approximately 6,135 shares of itsoutstanding Common Stock in a treasury stock transaction at an initial cost ofapproximately $170,000.  The shares werepurchased from a bank pursuant to an accelerated share repurchase program (“ASR”)at an initial cost of $27.71 per share.  The purchase of these shares wasmade pursuant to the Company’s share repurchase programs previously authorizedby the Company’s Board of Directors. As part of the ASR, the Companysimultaneously entered into a forward contract for the final settlement of theASR transaction which was indexed to the price of the Company’s Common Stock.  The ASR agreement provided for the finalsettlement amount to be in the Company’s Common Stock if the Company were toowe an amount to the bank, or in either cash or additional shares of theCompany’s Common Stock, at the Company’s sole discretion, if the bank were toowe an amount to the Company.  As theagreement required the Company to deliver shares to the bank for finalsettlement, the forward contract element qualified for permanent equityclassification and the fair value of the forward contract, which was zero atthe contract’s inception, was recorded in equity in accordance with theprovisions of EITF 00-19, “Accounting for Derivative Financial InstrumentsIndexed to, and Potentially Settled In, a Company’s Own Stock.”  Subsequent changes in the fair value of theforward contract were not recorded as the Company continued to classify theforward contract as equity.  Upon 

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completion of theASR in April 2007, the Company was required to pay approximately $6,000in shares, and therefore issued 203 treasury shares, as fullsettlement of its obligation under the ASR. The total cost of the ASR was approximately $176,000 or $28.68 pershare.  The Company funded the ASR throughits existing bank credit facilities (see Note 9).

On December 19, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. As of March 31, 2007, 10,000 shares remained available for repurchaseunder the December 2006 program.

On January 25, 2006, the Board of Directors authorized a stock repurchaseprogram to buy up to 30,000 shares.  Asof March 31, 2007, 309 shares remained available for repurchase under theJanuary 2006 program.

On November 16, 2005, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. This program was completed inFebruary 2006 at a total cost of $251,619.

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

During2007, the Company repurchased approximately 6,135 shares of outstanding CommonStock under these programs at a total cost of approximately $176,000 pursuantto the ASR described above.  During 2006,the Company repurchased approximately 33,931 shares of outstanding Common Stockunder these programs at a total cost of $880,407.  The 2006 repurchases include the repurchaseof 25,000 shares at a total cost of approximately $645,000 or $25.82 per sharein January 2006 pursuant to an ASR.  Asthe 2006 ASR provided for the final settlement of the contract in either cashor additional shares of the Company’s Common Stock at its sole discretion, theforward contract element of the 2006 ASR, which was indexed to the price of theCompany’s Common Stock, was treated as permanent equity and subsequent changesin fair value were not recorded in accordance with the provisions of EITF00-19.  Total share repurchases duringthe first quarter of 2007 benefited diluted earnings per share (“EPS”) by lessthan $0.01 per share.  Total sharerepurchases during the first quarter of 2006 benefited EPS by approximately$0.02 per share.

Shares acquired through the Company’s repurchase programs describedabove are open-market purchases or privately negotiated transactions in compliancewith SEC Rule 10b-18, with the exception of purchases pursuant to the 2006 and2007 ASR transactions.

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 Common Stock.The preferred and series Common Stock can be issued with varying terms, asdetermined by the Board of Directors.

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**Note 13.  Comprehensive Income**

The following table setsforth the components of comprehensive income, net of income tax expense:
| ** **                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                         | ** ** | **2007**                                         | ** ** | **2006** | ** ** |
| **Net  Income**                                    | ** ** | **$**                                            | **85,569** |   | $ | 118,097 |   |
| Other  comprehensive income, net of taxes:         | ** ** | ** **                                       |       |   |   |
| Unrealized (losses) gains on:                      | ** ** | ** **                                       |       |   |   |
| Available-for-sale equity securities               | ** ** | **(83**                                          | **)**      | 44 |   |
| Tax benefit (expense) on above                     | ** ** | **29**                                           |       | (16 | ) |
| Change in unrealized (losses) gains on investments | ** ** | **(54**                                          | **)**      | 28 |   |
| Foreign currency translation (losses) gains        | ** ** | **(4,773**                                       | **)**      | 9,121 |   |
| Changes in fair value of cash flow hedges          |       | —                                           |       | 43 |   |
| Amortization of SFAS 158 service cost              | ** ** | **1,251**                                        |       | — |   |
| Total other  comprehensive (loss) income           | ** ** | **(3,576**                                       | **)**      | 9,192 |   |
| **Comprehensive Income**                           | ** ** | **$**                                            | **81,993** |   | $ | 127,289 |   |

 

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

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

All of the charge was settled in cash. The Company paid $166 during2007 and there was no remaining accrual balance at March 31, 2007. Alltermination actions under this plan were completed by the end of 2006.

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

 

During the three months ended March 31, 2003, the Company recorded$37,220 of Severance, impairment and other charges as a component of operatingincome. These charges were designed to further streamline operations andincrease productivity through a worldwide reduction in headcount ofapproximately 80 employees and charges related to impaired contracts andassets. The contract-related charges were for impaired data supply and dataprocessing contacts primarily in the Company’s U.S. and Japanese operations.The asset write-downs portion of the 2003 charge related 

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to the Company’s decision to abandon certain products and as such,certain computer software primarily in the U.S., Japan and EMEA waswritten-down to its net realizable value.
| ** **                 | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|----------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at March  31, 2003  |       | $             | 9,958      |         | $          | 22,307     |       | $          | 4,955      |   | $ | 37,220 |   |
| 2003 utilization           |       | (6,197        | )          | (7,047       | )          | (6,634     | )          | (19,878    | )          |
| 2004 utilization           |       | (1,637        | )          | (3,614       | )          | —     |       | (5,251     | )          |
| 2005 utilization           |       | (378          | )          | (6,747       | )          | —     |       | (7,125     | )          |
| 2006 utilization           |       | —        |       | (2,262       | )          | —     |       | (2,262     | )          |
| 2007 utilization           |       | —        |       | (124         | )          | —     |       | (124       | )          |
| 2007 Reversals             |       | —        |       | (2,249       | )          | —     |       | (2,249     | )          |
| Adjustments                |       | (1,746        | )          | 67           |       | 1,679      |       | —     |       |
| Balance at March 31,  2007 |       | $             | —     |         | $          | 331        |       | $          | —     |   | $ | 331 |   |

 

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

The cash portion of the 2003 charge amounted to $30,586, of which theCompany paid approximately $124, $2,262 and $7,125 during 2007, 2006 and 2005,respectively, related primarily to employee termination benefits andcontract-related charges.  The remainingaccrual of $331 at March 31, 2007 relates to a remaining lease obligation andwill be utilized during 2007.

During the fourth quarter of 2001, the Company completed the assessmentof its Competitive Fitness Program. This program was designed to streamlineoperations, increase productivity and improve client service. In connectionwith this program, the Company recorded $94,616 of Severance, impairment andother charges during the fourth quarter of 2001 as a component of operatingincome.  As of March 31, 2007,approximately $1,564 remains to be utilized from 2007 to 2013 related toseverance payments.

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

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| ** **                   | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|------------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                   | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                   | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at December 31,  2001 |       | $             | 39,652     |         | $          | 26,324     |       | $          | 28,640     |   | $ | 94,616 |   |
| 2001 utilization             |       | (3,692        | )          | (6,663       | )          | (27,887    | )          | (38,242    | )          |
| 2002 utilization             |       | (26,277       | )          | (9,819       | )          | (1,474     | )          | (37,570    | )          |
| 2003 utilization             |       | (6,384        | )          | (2,720       | )          | (241       | )          | (9,345     | )          |
| 2004 utilization             |       | (455          | )          | (1,232       | )          | —     |       | (1,687     | )          |
| 2005 utilization             |       | (262          | )          | (1,881       | )          | —     |       | (2,143     | )          |
| 2006 utilization             |       | (264          | )          | (1,887       | )          | —     |       | (2,151     | )          |
| 2007 utilization             |       | (66           | )          | (1,208       | )          | —     |       | (1,274     | )          |
| 2007 Reversal                |       | —        |       | (640         | )          | —     |       | (640       | )          |
| Adjustments                  |       | (688          | )          | (274         | )          | 962        |       | —     |       |
| Balance at March 31, 2007    |       | $             | 1,564      |         | $          | —     |       | $          | —     |   | $ | 1,564 |   |

 

TheCompany currently expects that the $1,564 balance remaining in the 2001 fourthquarter charge will be utilized as follows:

 

| Year Ended December 31, | ** ** | **Outlays** | ** ** |
|----------------------------------------|------------|-------------|------------|
| 2007                                   |       | $           | 196        |   |
| 2008                                   |       | 262         |       |
| 2009                                   |       | 262         |       |
| 2010                                   |       | 262         |       |
| 2011                                   |       | 262         |       |
| Thereafter                             |       | 320         |       |
| Total                                  |       | $           | 1,564      |   |

 

**Note15.  Operations by Business Segment**

Operating segments are defined as components of anenterprise about which financial information is available that is evaluated ona regular basis by the chief operating decision-maker, or decision-makinggroups, in deciding how to allocate resources to an individual segment and inassessing performance of the segment. The Company operates a globally consistent business model, offeringpharmaceutical business information and related services to its customers inmore than 100 countries.  See Note 2.

The Company maintains regional geographic managementto facilitate local execution of its global strategies.  However, the Company maintains global leaders for the majority of its criticalbusiness processes; and the most significant performance evaluations andresource allocations made by the Company’s chief operating decision makers aremade on a global basis.  As such, theCompany has concluded that it maintains one operating and reportable segment.

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**Geographic Financial Information:**

The followingrepresents selected geographic information for the regions in which we operatefor the three months ended March 31, 2007 and 2006:

 
| ** **                              | ** ** | **Americas  (1)** | ** ** | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &  Other** | ** ** | **Total  IMS** | ** ** |
|-----------------------------------------|------------|-------------------|------------|---------------|------------|----------------------------|------------|---------------------------------|------------|----------------|------------|
| **Three months ended March 31,  2007:** |       |              |       |          |       |                       |       |                            |       |           |       |
| Operating  Revenue (4)                  |       | $                 | 231,276    |          | $          | 210,346                    |       | $                               | 68,727     |           | —     |   | $ | 510,349 |   |
| Operating Income  (Loss) (5)            |       | $                 | 75,985     |          | $          | 23,430                     |       | $                               | 26,278     |           | $          | (14,630 | ) | $ | 111,063 |   |
| **Three months ended March 31,  2006:** | ** ** | ** **        | ** ** | ** **    | ** ** | ** **                 | ** ** | ** **                      | ** ** | ** **     | ** ** |
| Operating  Revenue (4)                  |       | $                 | 207,218    |          | $          | 174,713                    |       | $                               | 64,223     |           | —     |   | $ | 446,154 |   |
| Operating Income (Loss)  (5)            |       | $                 | 71,122     |          | $          | 15,398                     |       | $                               | 26,766     |           | $          | (16,550 | ) | $ | 96,736 |   |

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**Notes toGeographic Financial Information:**

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

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

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

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

*(5)**                               OperatingIncome for the three geographic regions does not reflect the allocation ofcertain expenses that are maintained in Corporate and Other and as such, is nota true measure of the respective regions’ profitability.   The Operating Income for the geographicsegments includes the impact of foreign exchange in converting results intoU.S. dollars. $5,596 of Corporate and Other Operating Income (Loss) for thethree months ended March 31, 2006 has been reclassified into the regions($2,152, $2,611 and $833 in the Americas, EMEA and Asia Pacific,respectively)  to conform to the currentyear presentation.*

A summary of the Company’s operating revenue byproduct line for the three months ended March 31, 2007 and 2006 is presentedbelow:

 

|                            | ** ** | **Three Months Ended   March 31,** | ** **  |
|----------------------------|------------|--------------------------------------------------------|-------------|
| ** **                 | ** ** | **2007**                                               | ** **  | **2006** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                                  | **233,032** |   | $ | 214,094 |   |
| Portfolio Optimization     | ** ** | **154,478**                                            |        | 129,811 |   |
| Launch, Brand and Other    | ** ** | **122,839**                                            |        | 102,249 |   |
| Operating Revenue          | ** ** | **$**                                                  | **510,349** |   | $ | 446,154 |   |

 

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**Item2.  Management’s Discussion and Analysisof Financial Condition and Results of Operations**

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

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

***ExecutiveSummary***

***Our Business***

IMS Health Incorporated (“we”, “us” or “our”)is the leading global provider of market intelligence to the pharmaceutical andhealthcare industries. We offer leading-edge market intelligence products andservices that are integral to our clients’ day-to-day operations, includingportfolio optimization capabilities; launch and brand management solutions;sales force effectiveness innovations; managed care and consumer healthofferings; and consulting and services solutions that improve ROI and thedelivery of quality healthcare worldwide. Our information products aredeveloped to meet our clients’ needs by using data secured from a worldwidenetwork of suppliers in more than 100 countries. Our key information productsinclude:

·                  Sales ForceEffectiveness to optimize sales force productivity and territory management;

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

·                  Launch, BrandManagement and Other to support client needs relative to market segmentationand positioning, life cycle management for prescription and consumer healthpharmaceutical products and health economics and outcomes research offerings.

Within these key information products, we provide consulting andservices that use in-house capabilities and methodologies to assistpharmaceutical clients in analyzing and evaluating market trends, strategiesand tactics, and to help in the development and implementation of customizedsoftware applications and data warehouse tools.

We operate in more than100 countries.

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

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

**PerformanceOverview**

Our operating revenue grew 14.4% to $510,349 in thefirst quarter of 2007 as compared to $446,154 in the first quarter of2006.  The operating revenue increase wasa result of growth in all three of our business lines.  Our operating income grew 14.8% to $111,063in the first quarter of 2007 as compared to $96,736 in the first quarter of2006.  The operating income growth was aresult of increased operating revenues offset by increases in operating costs,selling and administrative expenses and depreciation and amortization, asdiscussed below. Our net income was $85,569 for the first quarter of 2007 ascompared to $118,097 for the first quarter of 2006, due to the Non-OperatingLoss, net items discussed below and

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certain tax items asdiscussed in Note 11 of the Condensed Consolidated Financial Statements(Unaudited).  Our diluted earnings pershare of Common Stock decreased to $0.43 for the first quarter of 2007 ascompared to $0.56 for the first quarter of 2006.

**Results of Operations**

*Reclassifications. *Certain prior-year amounts have been reclassified to conform to the2007 presentation.

*References to constant dollar results and resultsexcluding the effect of foreign currency translations. *We report results in U.S.dollars, but we do business on a global basis. Exchange rate fluctuations affect the rate at which we translate foreignrevenues and expenses into U.S. dollars and have important effects on ourresults.  In order to illustrate theseeffects, the discussion of our business in this report sometimes describes themagnitude of changes in constant dollar terms or results excluding the effectof foreign currency translations.  Webelieve this information facilitates a comparative view of businessgrowth.  In the first three months of2007, the U.S. dollar was generally weaker against other currencies as comparedto the first three months of 2006.  As aresult, growth at constant dollar exchange rates was lower than growth atactual currency exchange rates.  See “HowExchange Rates Affect Our Results” below and the discussion of “Market Risk” inthe Management Discussion and Analysis section of our annual report on Form10-K for the year ended December 31, 2006 for a more complete discussionregarding the impact of foreign currency translation on our business.

**Summary ofOperating Results**
| ** **                           | ** ** | ** **                                           | ** **  | **% Variance** | ** ** |
|--------------------------------------|------------|------------------------------------------------------|-------------|---------------------|------------|
| ** **                           | ** ** | **Three Months Ended March 31,** | ** **  | **2007**            | ** ** |
| ** **                           | ** ** | **2007**                                             | ** **  | **2006**            | ** ** | **vs 2006** | ** ** |
| Operating revenue                    | ** ** | **$**                                                | **510,349** |                | $          | 446,154 |   | 14.4 | % |
| Operating costs                      | * *   | **229,249**                                          |        | 197,718             |       | 15.9 | % |
| External-use software  amortization  | ** ** | **11,245**                                           |        | 10,292              |       | 9.3 | % |
| Selling and  administrative expenses | ** ** | **139,641**                                          |        | 124,351             |       | 12.3 | % |
| Depreciation and other  amortization | ** ** | **19,151**                                           |        | 17,057              |       | 12.3 | % |
| Operating income                     | ** ** | **$**                                                | **111,063** |                | $          | 96,736 |   | 14.8 | % |

 

***Operating Income***

Our operating income for the first quarter of 2007grew 14.8% to $111,063 from $96,736 in the first quarter of 2006.  This was due to the increase in our operatingrevenue, offset by increases in our operating costs and selling andadministrative expenses driven by acquisitions, increased cost of data, andinvestments in consulting and services capabilities.  Our operating income increased 14.7% inconstant dollar terms.

***Operating Revenue***

Our operating revenue for the first quarter of 2007grew 14.4% to $510,349 from $446,154 in the first quarter of 2006. On aconstant dollar basis our operating revenue growth was 10.8%.  On a constant dollar basis, acquisitionscompleted within the prior twelve months contributed approximately 1.9 percentagepoints to our operating revenue growth during 2007.  The increase in our operating revenueresulted from growth in revenue in all three of our business lines, togetherwith the effect of

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approximately $16,000 of currency translation.  On a constant dollar basis, all businesslines grew.

**Summary of OperatingRevenue**
| ** **                 | ** ** | ** **                                           | ** **  | ** **                 | ** ** | **% Variance**     | ** ** |
|----------------------------|------------|------------------------------------------------------|-------------|----------------------------|------------|-------------------------|------------|
| ** **                 | ** ** | **Three months ended March 31,** | ** **  | **2007 vs 2006** | ** ** |
| ** **                 | ** ** | **2007**                                             | ** **  | **2006**                   | ** ** | **Reported Rates** | ** ** | **Constant Dollar** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                                | **233,032** |                       | $          | 214,094                 |       | 8.8 | % | 6.0 | % |
| Portfolio Optimization     | ** ** | **154,478**                                          |        | 129,811                    |       | 19.0                    | %          | 15.2 | % |
| Launch, Brand and Other    | ** ** | **122,839**                                          |        | 102,249                    |       | 20.1                    | %          | 15.3 | % |
| Operating Revenue          | ** ** | **$**                                                | **510,349** |                       | $          | 446,154                 |       | 14.4 | % | 10.8 | % |

 

·                  *Sales Force Effectiveness:* The Americas contributed morethan one-half to the revenue growth for the first quarter of 2007.

·                  *Portfolio Optimization:* EMEA contributed more than one-halfand the Americas contributed more than one-quarter to the growth during thefirst quarter of 2007.

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

Consulting and services revenue, as included in thebusiness lines above, was $99,162 in the first quarter of 2007, up 43.7% from$69,019 in the first quarter of 2006 (up 38.5% on a constant dollarbasis).  Approximately one-quarter of theconsulting and services revenue growth for the first quarter of 2007 wasattributable to acquisitions completed during the prior twelve months.

***Operating Costs***

Our operating costs include data processing costs, thecosts of data collection and production, and costs attributable to personnelinvolved in production, data management and the processing and delivery of ourconsulting and services offerings.  Ouroperating costs grew 15.9% to $229,249 in the first quarter of 2007 from$197,718 in the first quarter of 2006.

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our operating costs by approximately $9,000 for the firstquarter of 2007 as compared to the first quarter of 2006.

Excluding the effect offoreign currency translation, our operating costs grew 11.2% in the firstquarter of 2007 as compared to the first quarter of 2006.

·                  *Data*: Data costs increased by approximately $5,000 in thefirst quarter of 2007 as compared to the first quarter of 2006.

·                  *Consulting*: Consulting and services costs increased by approximately $15,000 in thefirst quarter of 2007 as compared to the first quarter of 2006.

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·                  *Production, Client Services and Other*: Production, client servicesand other costs increased by approximately $2,000 in the first quarter of 2007as compared to the first quarter of 2006.

***External-Use SoftwareAmortization***

Ourexternal-use software amortization charges represent the amortizationassociated with software we capitalized under the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 86, “Accounting for the Costs ofComputer Software to be Sold, Leased, or Otherwise Marketed.” Our external-usesoftware amortization charges grew 9.3% in 2007 to $11,245 from $10,292 in2006.

***Selling and AdministrativeExpenses***

Our selling and administrative expenses consistprimarily of the expenses attributable to sales, marketing, and administration,including human resources, legal, management and finance.  Our selling and administrative expenses grew12.3% in the first quarter of 2007, to $139,641 from $124,351 in the firstquarter of 2006:

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our selling and administrative expenses by approximately$6,000 for the first quarter of 2007 as compared to the first quarter of 2006.

Excluding the effect offoreign currency translation, our selling and administrative expenses grew 7.7%in the first quarter of 2007 as compared to the first quarter of 2006 tosupport revenue growth.

·                  *Sales and Marketing*: Sales and marketing expense increasedby approximately $3,000 in the first quarter of 2007 as compared to the firstquarter of 2006.

·                  *Consulting*: Consulting and services expenses increased by approximately $3,000 inthe first quarter of 2007 as compared to the first quarter of 2006.

·                  *Administrative and Other*: Other expenses increased by approximately $7,000 in the first quarter of2007 as compared to the first quarter of 2006. This was partially offset by a $2,900 reversal of restructuring reserves(see Note 14 of Notes to Condensed Consolidated Financial Statements(Unaudited)).

***Depreciation and OtherAmortization***

Our depreciation and otheramortization charges increased 12.3%to $19,151 in the first quarter of 2007from $17,057 in the firstquarter of 2006, resulting fromhigher amortization of intangible assets recorded from acquisitions made during2006 and 2007, and increased internal-use software amortization.

***Trends in our Operating Margins***

Our operating margin for thefirst quarter of 2007 was 21.8%, as comparedto 21.7% in the first quarter of 2006.

Recent acquisitions have also hadan adverse effect on our operating margins due to the fact that some of thesmall businesses we have acquired have historically experienced lower operatingmargins than ours, and

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the revenue and cost synergiesthat we incorporate into our business plans are not all immediatelyrealized.  We also experience higherintangible amortization in the first years after completing an acquisition andmay incur additional costs in integrating the acquired operations into ours,both of which tend to increase our costs and thus decrease our operatingmargins in the initial years of each completed acquisition.

***Non-Operating Loss, net***

Our non-operating loss, net increased to $9,747 in thefirst quarter of 2007 from a loss of $2,471 in the first quarter of 2006.  The increase in our non-operating loss wasdue to the following factors:

·                  *Interest Expense, net*: Net interest expense for the firstquarter was $6,758 in 2007 as compared to $6,916 in 2006, due to lowerborrowing costs in first quarter 2007 versus first quarter 2006.

·                  *Gains from Investments, net*: Losses from investments of $211during the first quarter of 2007 were a result of management fees related toour Enterprise portfolio.  We had netgains from investments of $2,673 during the first quarter of 2006, as a resultof the sale of our investment in Allscripts Healthcare Solutions, Inc., offsetby management fees related to our Enterprise portfolio and write-downs relatedto other-than-temporary declines in the value of our venture capitalinvestments.

·                  *Other (Loss) Income, net*: Other (loss) income, net,decreased by $4,550 due to net foreign exchange losses of $836 and minorityinterest expense of $1,690 in the first quarter of 2007, compared with netforeign exchange gains of $2,691 and minority interest expense of $806 in thefirst quarter of 2006.

***Taxes***

We adopted the provisions of Financial AccountingStandards Board (“FASB”) Interpretation No. 48, “Accounting for Uncertainty inIncome Taxes” (“FIN 48”) on January 1, 2007. As a result of this adoption, we recognized an increase in liabilitiesfor uncertain tax positions of approximately $51,800 and a correspondingreduction to the January 1, 2007 retained earnings balance. As of the adoptiondate, we had approximately $117,200 of gross unrecognized tax benefits, ofwhich $107,600, if recognized would favorably affect the effective taxrate.  We recognize interest expense andpenalties related to unrecognized tax benefits in income tax expense.  As of the adoption date, we had accruedinterest and penalties of approximately $13,500.

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

The Internal Revenue Service (“IRS”) is currentlyauditing our 2004 and 2005 federal income tax returns.  It is reasonably possible that this audit mayconclude within the next twelve months. To date, no material adjustments havebeen proposed as a result of this audit. At this time, it is not reasonably possible to estimate the impact ofthe resolution of this audit on our financial statements.  We intend to file an amended 1997 federalincome tax return related to a dispute with the IRS over the allocation ofcertain items of partnership income and expense to prevent further interestfrom accruing thereon (see Note 7 to 

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Condensed Consolidated Financial Statements(Unaudited)).  The payment associatedwith the filing of this amended return will be approximately $20,600 (tax andinterest, net of tax benefit).

For the threemonths ended March 31, 2007, our effective tax rate was reduced primarily dueto a favorable non-U.S. audit settlement for tax years 1998 through 2002(approximately $16,500) and a reorganization of certain non-U.S. subsidiaries(approximately $4,400).  For the threemonths ended March 31, 2006, our effective tax rate was reduced primarily dueto a favorable U.S. partnership audit settlement for the tax years 1998 through2003 (approximately $69,200) and a favorable U.S. audit settlement for taxyears 2000 through 2003 (approximately $17,600).  Also in the first quarter of 2006,approximately $24,100 of tax expense was recorded related to disputes betweenus and NMR, on the one hand, and Donnelley and certain of its former affiliateson the other hand, as to proper interpretation of, and allocation of taxliabilities under, the 1996 Spin-Off agreements (see Note 7 to our CondensedConsolidated Financial Statements (Unaudited)).

For all periods presented, our effective tax rate wasreduced as a result of global tax planning initiatives.  While we intend to continue to seek globaltax planning initiatives, there can be no assurance that we will be able tosuccessfully identify and implement such initiatives to reduce or maintain ouroverall tax rate.

## **Operating Results by Geographic Region**

The following representsselected geographic information for the regions in which we operate for thethree months ended March 31, 2007 and 2006:
| ** **                              | ** ** | **Americas  (1)** | ** ** | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &   Other** | ** ** | **Total  IMS** | ** ** |
|-----------------------------------------|------------|-------------------|------------|---------------|------------|----------------------------|------------|---------------------------------------|------------|----------------|------------|
| **Three  months ended March 31, 2007:** |       |              |       |          |       |                       |       |                                  |       |           |       |
| Operating Revenue (4)                   |       | $                 | 231,276    |          | $          | 210,346                    |       | $                                     | 68,727     |           | —     |   | $ | 510,349 |   |
| Operating Income (Loss) (5)             |       | $                 | 75,985     |          | $          | 23,430                     |       | $                                     | 26,278     |           | $          | (14,630 | ) | $ | 111,063 |   |
| **Three  months ended March 31, 2006:** | ** ** | ** **        | ** ** | ** **    | ** ** | ** **                 | ** ** | ** **                            | ** ** | ** **     | ** ** |
| Operating Revenue (4)                   |       | $                 | 207,218    |          | $          | 174,713                    |       | $                                     | 64,223     |           | —     |   | $ | 446,154 |   |
| Operating Income (Loss) (5)             |       | $                 | 71,122     |          | $          | 15,398                     |       | $                                     | 26,766     |           | $          | (16,550 | ) | $ | 96,736 |   |

 

**Notes to Geographic Financial Information:**

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

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

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

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

*(5)**                               OperatingIncome for the three geographic regions does not reflect the allocation ofcertain expenses that are maintained in Corporate and Other and as such, is nota true measure of the respective regions’ profitability.   The Operating Income for the geographicsegments includes the impact of foreign exchange in converting results intoU.S. dollars.  $5,596 of Corporate andOther Operating Income (Loss) for the three months ended March 31, 2006 hasbeen reclassified into the regions ($2,152, $2,611 and $833 in the Americas,EMEA and Asia Pacific, respectively)  toconform to the current year presentation.*

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***Americas Region***

Operatingrevenue growth in the Americas region was 11.6% in the first quarter of 2007compared to the first quarter of 2006. Excluding the effect of foreign currency translations, operating revenuegrew 11.7%.  This is driven aboutone-third by Sales Force Effectiveness, one-third by Launch, Brand and Otherbusiness lines and one-quarter by Portfolio Optimization for the first quarterof 2007.

Operatingincome in the Americas region grew 6.8% in the first quarter of 2007 ascompared to the first quarter of 2006. The operating income growth reflects revenue growth in the region offsetby increases in operating expenses of $19,000. Excluding the effect of foreign currency translations, operating incomegrew by 7.2%.

***EMEARegion***

Operatingrevenue increased in the EMEA region by 20.4% in the first quarter of 2007 ascompared to the first quarter of 2006. Excluding the effect of foreign currency translations, operating revenuegrew 11.4%.  This is driven more thanone-half by Portfolio Optimization.

Operatingincome in the EMEA region increased by 52.2% in the first quarter of 2007 ascompared to the first quarter of 2006. The operating income growth reflects revenue growth in the region offsetby increases in operating expenses of $28,000. Excluding the effect of foreign currency translations, operating incomegrew by 46.8%.

***Asia Pacific Region***

Operating revenue in the Asia Pacific region increased7.0% in the first quarter of 2007 as compared to the first quarter of2006.  Excluding the effect of foreigncurrency translations, operating revenue grew 6.4%.  This is driven one-half by Sales ForceEffectiveness and more than one-quarter by Launch, Brand Management and Other.

Operating income in the Asia Pacific region decreased by1.8% in the first quarter of 2007 as compared to the first quarter of2006.  The operating incomedecline reflects increases in operating expenses of $5,000 offset by revenuegrowth in the region.  Excluding theeffect of foreign currency translations, operating income decreased by 1.7%.

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

Weoperate globally, deriving a significant portion of our operating income fromnon-U.S. operations.  As a result,fluctuations in the value of foreign currencies relative to the U.S. dollar mayincrease the volatility of U.S. dollar operating results.  We enter into foreign currency forwardcontracts to partially offset the effect of currency fluctuations.  In the first quarter of 2007, foreigncurrency translation increased U.S. dollar revenue growth by approximately 3.6percentage points, while the impact on operating income growth was anapproximate increase of 0.1 percentage points.

Non-U.S.monetary assets are maintained in currencies other than the U.S. dollar,principally the Euro, the Japanese Yen and the Swiss Franc.  Where monetary assets are held in thefunctional currency of the local entity, changes in the value of thesecurrencies relative to the U.S. dollar are charged or 

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credited toCumulative translation adjustment in the Condensed Consolidated Statements ofFinancial Position (Unaudited).  Theeffect of exchange rate changes during 2007 increased the U.S. dollar amount ofCash and cash equivalents by $1,838.

***Liquidity and Capital Resources***

Our Cash and cash equivalents increased $5,131 duringthe first quarter of 2007 to $162,477 at March 31, 2007 compared to $157,346 atDecember 31, 2006.  The increase reflectscash provided by operating and financing activities of $19,591 and $34,981,respectively, and an increase of $1,838 due to the effect of exchange ratechanges on cash during the first quarter of 2007, offset by cash used in investing activitiesof $51,279.

We currently expect thatwe will use our Cash and cash equivalents primarily to fund:

·                  developmentof software to be used in our new products and capital expenditures to expandand upgrade our information technology capabilities and to build or acquirefacilities to house our growing business (we currently expect to spendapproximately $115,000 to $125,000 during 2007 for software development andcapital expenditures);

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

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

·                  dividendsto our shareholders (we expect 2007 dividends will be $0.12 per share orapproximately $24,000);

·                  payments fortax-related matters, including the D&B Legacy Tax Matters discussed furtherin Note 7 to our Condensed Consolidated Financial Statements (Unaudited).  Payments for certain of the D&B LegacyTax Matters could be up to approximately $33,500 in 2007; and

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

Net cash provided byoperating activities amounted to $19,591 for the three months ended March 31,2007, a decrease of cash provided of $20,185 over the comparable period in2006.  The decrease relates to lower netincome, lower collections of accounts receivable and higher funding of prepaidexpenses and other current assets during the three months ended March 31,2007.  Cash invested in accountsreceivable was driven by the increase in revenues, and DSO (days salesoutstanding) in the first quarter of 2007 was approximately 8 days higher thanthe prior year comparable quarter.

Net cash used in investing activities amounted to$51,279 for the three months ended March 31, 2007, an increase in cash used of$14,341 over the comparable period in 2006. The increase relates to higher capital expenditures during the firstquarter of 2007 related to new facilities and proceeds received from the saleof investments during the first quarter of 2006, partially offset by lowerpayments for acquisitions.

Net cash provided by financing activities amounted to$34,981 for the three months ended 

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March31, 2007, an increase of $255,043 over the comparable period in 2006.  This increase in cash provided was due toreduced purchases of our stock and higher proceeds from the exercise ofemployee stock options during the first quarter of 2007 compared to the firstquarter of 2006, partially offset by lower debt incurred during the firstquarter of 2007 compared to the first quarter of 2006.  Refer to the Stock Repurchase Programs andDebt sections below for further information on our variance between the firstquarters of 2007 and 2006.

Our financing activitiesinclude cash dividends we paid of $0.03 per share quarterly in 2007 and 2006,which amounted to $5,952 and $6,035 during the first three months of 2007 and2006, 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 second quarter of 2007, whichwas declared by our Board of Directors in April 2007, will be based on, andaffected by, a number of factors, including our operating results and financialrequirements. 

**Tax and Other Contingencies**

We are exposed to certainknown tax and other contingencies that are material to our investors.  Thefacts and circumstances surrounding these contingencies and a discussion of theireffect on us are included in Notes 7 and 11 to our Condensed ConsolidatedFinancial Statements (Unaudited) for the period ended March 31, 2007.  We do not know of any material tax or othercontingencies, other than those described in Notes 7 and 11 to our CondensedConsolidated Financial Statements (Unaudited).

These contingencies may havea material effect on our liquidity, capital resources or results ofoperations.  Although we have established reserves for D&B Legacy TaxMatters in accordance with SFAS No. 5, “Accounting for Contingencies,” theactual liability may exceed the amount of the reserve.  We have not established any reserves inrespect of the other contingencies other than those discussed in Notes 7 and 11to our Notes to Condensed Consolidated Financial Statements (Unaudited). In addition, even where our reserves are adequate, the incurrence of any ofthese liabilities may have a material effect on our liquidity and the amount ofcash available to us for other purposes.

Management believes that wehave made appropriate arrangements in respect of the future effect on us ofthese known tax and other contingencies.  Management also believesthat the amount of cash available to us from our operations, together with cashfrom financing, will be sufficient for us to pay any known tax and othercontingencies as they become due without materially affecting our ability toconduct our operations and invest in the growth of our business.

**Stock Repurchase Programs**

Our share repurchaseprogram has been developed to buy opportunistically, when we believe that ourshare price provides us with an attractive use of our cash flow and debtcapacity.

InJanuary 2007, we repurchased approximately 6,135 shares of our outstandingCommon Stock in a treasury stock transaction at an initial cost ofapproximately $170,000.  The shares werepurchased from a bank pursuant to an accelerated share repurchase program (“ASR”)at an initial cost of $27.71 per share.  The purchase of these shares wasmade pursuant to our share repurchase programs previously authorized by ourBoard of Directors. As part of the ASR, we simultaneously entered into aforward contract for the final settlement of the ASR transaction which wasindexed to the price of our Common Stock. The ASR agreement provided for the final settlement amount to be in ourCommon Stock if we were to owe

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an amount to thebank, or in either cash or additional shares of our Common Stock, at our solediscretion, if the bank were to owe an amount to us.  As the agreement required us to delivershares to the bank for final settlement, the forward contract element qualifiedfor permanent equity classification and the fair value of the forward contract,which was zero at the contract’s inception, was recorded in equity inaccordance with the provisions of Emerging Issues Task Force (“EITF”) No. 00-19,“Accounting for Derivative Financial Instruments Indexed to, and PotentiallySettled In, a Company’s Own Stock.” Subsequent changes in the fair value of the forward contract were notrecorded as we continued to classify the forward contract as equity.  Upon completion of the ASR in April 2007, wewere required to pay approximately $6,000 in shares, and thereforeissued 203 treasury shares, as full settlement of our obligation under theASR.  The total cost of the ASR wasapproximately $176,000 or $28.68 per share. We funded the ASR through our existing bank credit facilities (see Note9 to our Condensed Consolidated Financial Statements (Unaudited)).

On December 19, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. As of March 31, 2007, 10,000 shares remained available for repurchaseunder the December 2006 program.

On January 25, 2006, the Board of Directors authorized a stockrepurchase program to buy up to 30,000 shares. As of March 31, 2007, 309 shares remained available for repurchase underthe January 2006 program.

On November 16, 2005, the Board of Directors authorized a stockrepurchase program to buy up to 10,000 shares. This program was completed inFebruary 2006 at a total cost of $251,619.

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

During2007, we repurchased approximately 6,135 shares of outstanding Common Stock underthese programs at a total cost of approximately $176,000 pursuant to the ASRdescribed above.  During 2006, werepurchased approximately 33,931 shares of outstanding Common Stock under theseprograms at a total cost of $880,407. The 2006 repurchases include the repurchase of 25,000 shares at a totalcost of approximately $645,000 or $25.82 per share in January 2006 pursuant toan ASR.  As the 2006 ASR provided for thefinal settlement of the contract in either cash or additional shares of ourCommon Stock at our sole discretion, the forward contract element of the 2006ASR, which was indexed to the price of our Common Stock, was treated aspermanent equity and subsequent changes in fair value were not recorded inaccordance with the provisions of EITF 00-19. Total share repurchases during the first quarter of 2007 benefiteddiluted earnings per share (“EPS”) by less than $0.01 per share.  Total share repurchases during the firstquarter of 2006 benefited EPS by approximately $0.02 per share.

Shares acquired throughour repurchase programs described above are open-market purchases or privatelynegotiated transactions in compliance with Securities and Exchange CommissionRule 10b-18, with the exception of purchases pursuant to the 2006 and 2007 ASRtransactions.

Under our RestatedCertificate of Incorporation as amended, we have the authority to issue 820,000shares with a par value of $.01 per share of which 800,000 represent shares ofCommon Stock, 10,000 represent shares of preferred stock and 10,000 representshares of Series Common Stock.  Thepreferred and series Common Stock can be issued with varying terms, asdetermined by the Board of Directors.

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**Debt**

Inrecent years, we have increased debt levels to balance appropriately theobjective of generating an attractive cost of capital with providing us areasonable amount of financial flexibility. At March 31, 2007, our debt totaled $1,162,587, and management does notbelieve that this level of debt poses a material risk to us due to the followingfactors:

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

·                  atMarch 31, 2007, we had $162,477 in worldwide cash and cash equivalents;

·                  atMarch 31, 2007, we had $477,462 of unused debt capacity under our existing bankcredit facilities; and

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

The following tablesummarizes our long-term debt at March 31, 2007 and December 31, 2006:

|                                                                                                                                                   | ** ** | **March 31,  2007** | ** **    | **December 31,  2006** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|---------------|-----------------------------|------------|
| 4.6% Private  Placement Notes, principal payment of $150,000 due January 2008, net of  interest rate swaps of $(1,758) and $(2,819), respectively | ** ** | **$**                    | **148,242**   |                        | $          | 147,181 |   |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| 5.55% Private  Placement Notes, principal payment of $150,000 due April 2016                                                                      | ** ** | **150,000**              |          | 150,000                     |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| 1.70% Private  Placement Notes, principal payment of 34,395,000 Japanese Yen due January  2013                                                    | ** ** | **291,807**              |          | 288,670                     |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| Revolving Credit  Facility:                                                                                                                       | ** ** | ** **               |          |                        |       |
| Japanese Yen denominated borrowings at average  floating rates of approximately 1.01%                                                             | ** ** | **381,941**              |          | 249,097                     |       |
| Swiss Franc denominated borrowings at average  floating rates of approximately 2.53%                                                              | ** ** | **51,497**               |          | 59,258                      |       |
| U.S. Dollar denominated borrowings at average floating  rates of approximately 5.75%                                                              | ** ** | **89,100**               |          | 31,200                      |       |
| Bank Term Loan,  principal payment of $50,000 due June, 2009 at average floating rate of  approximately 5.60%                                     | ** ** | **50,000**               |          | 50,000                      |       |
|                                                                                                                                              | ** ** | ** **               |          |                        |       |
| Total Long-Term Debt                                                                                                                              | ** ** | **$**                    | **1,162,587** |                        | $          | 975,406 |   |

 

In July 2006, we entered into a $1,000,000 revolving credit facilitywith a syndicate of 12 banks (“Revolving Credit Facility”) replacing ourexisting $700,000 Amended and Restated Facility (see below).  The terms of the Revolving Credit Facilityextended the maturity of the facility in its entirety to

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a term of five years, maturing July 2011, reduced the borrowingmargins, and increased subsidiary borrowing limits.  Total borrowings under the Revolving CreditFacility were $522,538 and $339,555 at March 31, 2007 and December 31, 2006,respectively, all of which were classified as long-term.  In April 2004, we entered into a $700,000revolving credit facility with a syndicate of 12 banks (the “Unsecured Facility”).  The Unsecured Facility replaced our lines ofcredit with several domestic and international banks.  On March 9, 2005, we renegotiated with thesyndicate of 12 banks to amend and restate the Unsecured Facility (the “Amendedand Restated Facility”).  The terms ofthe Amended and Restated Facility extended the maturity of the facility in itsentirety to a term of five years, maturing March 2010, reduced the borrowingmargins and increased subsidiary borrowing limits.

We define long-term lines as those where the lines are non-cancellablefor more than 365 days from the balance sheet date by the financialinstitutions except for specified, objectively measurable violations of theprovisions of the agreement.  Althoughthe 4.6% Private Placement Notes principal payment of $150,000 is due within365 days, we have the ability and intent to refinance the notes with anotherlong-term debt arrangement and continue to classify them as long-term incompliance with SFAS No. 6, “Classification of Short-Term Obligations Expectedto be Refinanced.”

In general, rates for borrowing under the Revolving Credit Facility areLIBOR plus 30 basis points and can vary based on our Debt to EBITDA ratio.  The weighted average interest rates for ourlines were 1.97% and 1.61% at March 31, 2007 and December 31, 2006,respectively.  In addition, we arerequired to pay a commitment fee on any unused portion of the facilities of0.075%.  At March 31, 2007, we hadapproximately $477,462 available under our existing bank credit facilities.

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

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

In January 2006, we closed a private placement transaction pursuant towhich our Japanese subsidiary issued 34,395,000 Japanese Yen seven-year debt(equal to $300,000 at date of issuance) to several highly rated insurancecompanies at a fixed rate of 1.70%.  Weused the proceeds to refinance existing debt in Japan borrowed under ourAmended and Restated Facility.

In January 2003, we closed a private placement transaction pursuant towhich we issued $150,000 of five-year debt to several highly rated insurancecompanies at a fixed rate of 4.60%. We used the proceeds to pay down short-termdebt. We also swapped $100,000 of our fixed rate debt to floating rate based onsix-month LIBOR plus a margin of approximately 107 basis points. We accountedfor these swaps as fair value hedges under the provisions of SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities.” We determined the fairvalues based on estimated prices quoted by financial institutions. The fairvalues of these swaps were $(1,758) and $(2,819) as of March 31, 2007 andDecember 31, 2006, respectively.

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Our financing arrangements provide for certain covenants and events ofdefault customary for similar instruments, including in the case of our mainbank arrangements, the  private placementtransactions, and the term loan, covenants to maintain specific ratios ofconsolidated total indebtedness to EBITDA and of EBITDA to certain fixedcharges.  At March 31, 2007, we were incompliance with these financial debt covenants.

**Severance,Impairment and Other Charges**

Duringthe fourth quarter of 2004, we recorded $36,890 of Severance, impairment andother charges as a component of operating income. As a result of leveragingprior investments in technology and process improvements, we committed to aplan to eliminate selected positions involved primarily in production anddevelopment. The plan resulted in a charge for one-time termination benefits relatingto a headcount reduction of approximately 600 employees located primarily inEMEA and the U.S. These severance benefits were calculated pursuant to theterms of established employee protection plans, in accordance with localstatutory minimum requirements or individual employee contracts, as applicable.

All of the charge was settled in cash. We paid $166 during 2007 andthere was no remaining accrual balance at March 31, 2007. All terminationactions under this plan were completed by the end of 2006.

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

 

During the three months ended March 31, 2003, we recorded $37,220 ofSeverance, impairment and other charges as a component of operating income.These charges were designed to further streamline operations and increaseproductivity through a worldwide reduction in headcount of approximately 80employees and charges related to impaired contracts and assets. Thecontract-related charges were for impaired data supply and data processingcontacts primarily in our U.S. and Japanese operations. The asset write-downsportion of the 2003 charge related to our decision to abandon certain productsand as such, certain computer software primarily in the U.S., Japan and EMEAwas written-down to its net realizable value.

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| ** **                 | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|----------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **Related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                 | ** ** | **Reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at March  31, 2003  |       | $             | 9,958      |         | $          | 22,307     |       | $          | 4,955      |   | $ | 37,220 |   |
| 2003 utilization           |       | (6,197        | )          | (7,047       | )          | (6,634     | )          | (19,878    | )          |
| 2004 utilization           |       | (1,637        | )          | (3,614       | )          | —     |       | (5,251     | )          |
| 2005 utilization           |       | (378          | )          | (6,747       | )          | —     |       | (7,125     | )          |
| 2006 utilization           |       | —        |       | (2,262       | )          | —     |       | (2,262     | )          |
| 2007 utilization           |       | —        |       | (124         | )          | —     |       | (124       | )          |
| 2007 Reversals             |       | —        |       | (2,249       | )          | —     |       | (2,249     | )          |
| Adjustments                |       | (1,746        | )          | 67           |       | 1,679      |       | —     |       |
| Balance at March 31,  2007 |       | $             | —     |         | $          | 331        |       | $          | —     |   | $ | 331 |   |

 

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

The cash portion of the 2003 charge amounted to $30,586, of which wepaid approximately $124, $2,262 and $7,125 during 2007, 2006 and 2005,respectively, related primarily to employee termination benefits andcontract-related charges.  The remainingaccrual of $331 at March 31, 2007 relates to a remaining lease obligation andwill be utilized during 2007.

During the fourth quarter of 2001, we completed the assessment of ourCompetitive Fitness Program. This program was designed to streamlineoperations, increase productivity and improve client service. In connectionwith this program, we recorded $94,616 of Severance, impairment and othercharges during the fourth quarter of 2001 as a component of operating income.  As of March 31, 2007, approximately $1,564remains to be utilized from 2007 to 2013 related to severance payments.

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

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| ** **                   | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|------------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                   | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                   | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2001 |       | $             | 39,652     |         | $          | 26,324     |       | $          | 28,640     |   | $ | 94,616 |   |
| 2001 utilization             |       | (3,692        | )          | (6,663       | )          | (27,887    | )          | (38,242    | )          |
| 2002 utilization             |       | (26,277       | )          | (9,819       | )          | (1,474     | )          | (37,570    | )          |
| 2003 utilization             |       | (6,384        | )          | (2,720       | )          | (241       | )          | (9,345     | )          |
| 2004 utilization             |       | (455          | )          | (1,232       | )          | —     |       | (1,687     | )          |
| 2005 utilization             |       | (262          | )          | (1,881       | )          | —     |       | (2,143     | )          |
| 2006 utilization             |       | (264          | )          | (1,887       | )          | —     |       | (2,151     | )          |
| 2007 utilization             |       | (66           | )          | (1,208       | )          | —     |       | (1,274     | )          |
| 2007 Reversal                |       | —        |       | (640         | )          | —     |       | (640       | )          |
| Adjustments                  |       | (688          | )          | (274         | )          | 962        |       | —     |       |
| Balance at March 31,  2007   |       | $             | 1,564      |         | $          | —     |       | $          | —     |   | $ | 1,564 |   |

 

We currently expect that the $1,564 balance remaining in the 2001fourth quarter charge will be utilized as follows:

| Year Ended December 31, | ** ** | **Outlays** | ** ** |
|----------------------------------------|------------|-------------|------------|
| 2007                                   |       | $           | 196        |   |
| 2008                                   |       | 262         |       |
| 2009                                   |       | 262         |       |
| 2010                                   |       | 262         |       |
| 2011                                   |       | 262         |       |
| Thereafter                             |       | 320         |       |
| Total                                  |       | $           | 1,564      |   |

 

We expect that future results will benefit from the 2001 and 2003restructuring charges to the extent of the contract-related charges and assetwrite-downs primarily through 2007. Our severance actions in the 2001 and 2003programs related to a shifting of resources around the Company. The benefitsfrom the 2004 severance actions will be partially offset by headcount additionsin selected locations. We realized a partial year benefit in 2005, and fullyear benefits are expected to be realized in years subsequent to 2005,primarily in Operating costs and Selling and administrative expense. For the2001 and 2003 charges the income statement lines that will be impacted infuture periods are Operating costs for the contract-related charges andDepreciation and amortization related to the asset write-downs. However, we donot expect a material impact on future cash flows due to the fact that we arestill contractually obligated to continue to make payments under impairedcontracts.

**Recently Issued Accounting Standards**

In September 2006, the FASB issued SFAS No. 157, “Fair ValueMeasurements.” This statement defines fair value, establishes a frameworkfor measuring fair value under generally accepted accounting principles, andexpands disclosures about fair value measurements. This statement iseffective for financial statements issued for fiscal years beginning afterNovember 15, 2007, and interim periods within those fiscal years. We arecurrently evaluating this statement to determine any potential impact that itmay have on our financial results.

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

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

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

This Quarterly Report onForm 10-Q, as well as information included in oral statements or other writtenstatements made or to be made by us, contain statements that, in our opinion,may constitute “forward-looking statements” within the meaning of the PrivateSecurities Litigation Reform Act of 1995. The words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,”“likely,” “project,” “estimate,” “will,” “may,” “should,” “future,” “predicts,”“potential,” “continue” and similar expressions identify these forward-lookingstatements, which appear in a number of places in this Quarterly Report andinclude, but are not limited to, all statements relating to plans for futuregrowth and other business development activities as well as capitalexpenditures, financing sources, dividends and the effects of regulation andcompetition, foreign currency conversion and all other statements regarding ourintent, plans, beliefs or expectations or those of our directors orofficers.  Investors are cautioned thatsuch forward-looking statements are not assurances for future performance orevents and 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:

·                  risks associated withoperating on a global basis, including fluctuations in the value of foreigncurrencies relative to the U.S. dollar, and the ability to successfully hedgesuch risks—we derived approximately 63% of our operating revenue in 2006 fromnon-U.S. operations;

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

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

·                  to the extent we seek growththrough acquisitions, alliances or joint ventures, the ability to identify,consummate and integrate acquisitions, alliances and joint ventures onsatisfactory terms;

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

·                  our ability to successfullymaintain historic effective tax rates;

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

·                  competition, particularly inthe markets for pharmaceutical information;

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·                  regulatory, legislative andenforcement initiatives to which our customers in the pharmaceutical industryare or may become subject restricting the prices that may be charged forprescription or other pharmaceutical products or the manner in which suchproducts may be marketed or sold;

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

·                  consolidation in thepharmaceutical industry and the other industries in which our customersoperate;

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

·                  to the extent unforeseencash needs arise, the ability to obtain financing on favorable terms; and

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

Consequently,all of the forward-looking statements we make in this document are qualified bythe information contained herein, including, but not limited to, theinformation contained under this heading, “Risk Factors” and our CondensedConsolidated Financial Statements (Unaudited) and notes thereto for the threemonths ended March 31, 2007 and by the material set forth under the headings “Business”and “Risk Factors” in our Annual Report on Form 10-K for the year endedDecember 31, 2006.  We are under noobligation to publicly release any revision to any forward-looking statementcontained or incorporated herein to reflect any future events or occurrences.

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**Item 3.  Quantitative and Qualitative DisclosuresAbout Market Risk**

Information in response to this Item is set forth in “Note9. Financial Instruments” in the Notes to the Condensed Consolidated FinancialStatements (Unaudited).

**Item 4. Controls and Procedures**

(a)          Evaluationof Disclosure Controls and Procedures

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the reports that the Company files or submits tothe SEC under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms, and that such information isaccumulated and communicated to the Company’s management, including itsprincipal executive and principal financial officers, or persons performingsimilar functions, asappropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controlsand procedures, management recognized that any controls and procedures, nomatter how well designed and operated, can provide only reasonable assurance ofachieving the desired control objectives, as the Company’s disclosure controlsand procedures are designed to do.  Thus,management necessarily was required to apply its judgment in evaluating thecost-benefit relationship of possible controls and procedures.

The Company’s Chief Executive Officer and****Chief Financial Officer have evaluated theeffectiveness of the Company’s disclosure controls and procedures (as such termis defined in Rules 13a-14c and 15d-14c under the Exchange Act) as of March 31,2007 (the “Evaluation Date”).  Based onsuch evaluation, such officers have concluded that, as of the Evaluation Date,the Company’s disclosure controls and procedures are effective to ensurethat information required to be disclosed by the Company in the reports thatthe Company files or submits under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the SEC’s rulesand forms and to ensure that information required to be disclosed by theCompany in the reports that the Company files or submits under the Exchange Actis accumulated and communicated to the Company’s management, including itsprincipal executive and principal financial officers, or persons performingsimilar functions, as appropriate to allow timely decisions regarding requireddisclosure.

(b)         Changes in Internal Control over Financial Reporting

There have been no changesin the Company’s internal control over financial reporting that occurred duringthe period covered by this report that have materially affected, or arereasonably likely to materially affect, the Company’s internal control overfinancial reporting.

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**PART II.  OTHERINFORMATION**

**Item 1.Legal Proceedings**

Informationin response to this Item is incorporated by reference to the information setforth in “Note 7. Contingencies” in the Notes to the Condensed ConsolidatedFinancial Statements (Unaudited).

**Item 1A.Risk Factors**

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

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

Ourproducts and services incorporate data that we collect from third parties.These suppliers of data may increase restrictions on our use of such data, failto adhere to our quality control standards or refuse altogether to license thedata to us. For example, in 2002 certain of our data suppliers in Japan beganwithholding certain data from us. This interruption in data supply led us todiscontinue one of our Japanese products and adversely affected our operatingresults. If the suppliers of a significant amount of data that we use for one or more of our products or services were toimpose additional contractual restrictions on our use of or access todata, fail to adhere to our quality control standards, or refuse to providedata, now or in the future, our ability to provide products and services to ourclients could be materially adversely impacted, which could result in decreasedrevenue, net income and earnings per share.

**Data protection laws may restrict ouractivities.**

Dataprotection laws affect our collection, use, storage and transfer of personallyidentifiable information both abroad and in the United States. Compliance withsuch laws may require investment or may dictate that we not offer certain typesof products and services. Failure to comply with such laws may result in, amongother things, civil and criminal liability, negative publicity, data beingblocked from use and liability under contractual warranties.

Inaddition, there is an increasing public concern regarding data protectionissues and the number of jurisdictions with data protection laws has beenslowly increasing. For example, there have been a number of legislative andregulatory initiatives in the U.S. and abroad in the area of access to medicaldata. These initiatives tend to seek to place restrictions on the use anddisclosure of patient-identifiable information without consent and, in somecases, seek to extend restrictions to non-patient-identifiable information,e.g., prescriber identifiable information, or to the process of anonymizingdata. There are also some initiatives that seek to restrict access to this informationto non-commercial uses. While most of the current initiatives should not impactour business, there can be no assurance that these initiatives or futureinitiatives will not adversely affect IMS’s ability to generate or assembledata or to develop or market current or future products or services.

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

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

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

Weoperate globally, deriving approximately 63% of our 2006 revenue fromnon-United States operations. As a result, fluctuations in the value of foreigncurrencies relative to the U.S. dollar increase the volatility of U.S. dollar denominatedoperating results. Emerging markets currencies tend to be considerably lessstable than those in established markets, which may further contribute tovolatility in our U.S. dollar-denominated operating results.

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

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

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

·   costs of customizing services for foreignclients;

·   reduced protection for intellectual propertyrights in some countries;

·   the burdens of complying with a wide varietyof foreign laws;

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·   exposure to local economic conditions; and

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

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

Animportant aspect of our business strategy in the past has been growth throughacquisitions or joint ventures and we may continue to acquire or makeinvestments in complementary businesses, technologies, services or products.There can be no assurance that we will be able to continue to identify andconsummate acquisitions or joint ventures on satisfactory terms. Moreover,every acquisition and joint venture entails some degree of uncertainty andrisk. For example, we may be unsuccessful in identifying and evaluatingbusiness, legal or financial risks as part of the due diligence processassociated with a transaction. In addition, some acquisitions will havecontingent consideration components that may require us to pay additionalamounts in the future in relation to future performance results of the acquiredbusiness. If we do not properly assess these risks, or if we fail to realizethe benefits from one or more acquisitions, our business, results of operationsand financial condition could be adversely affected.

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

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

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

Weoperate in approximately 100 countries worldwide and our earnings are subjectto taxation in many differing jurisdictions and at differing rates. We seek toorganize our affairs in a tax efficient manner, taking account of the jurisdictionsin which we operate. Tax laws that apply to our business may be amended by therelevant authorities, for example as a result of changes in fiscalcircumstances or priorities. Such amendments, or their application to ourbusiness, may adversely affect our reported results.

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

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

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

Inthe normal course of our business, we are involved in lawsuits, claims, auditsand investigations, such as those described in Part I, Item 1 of this QuarterlyReport on Form 10-Q. The outcome of these matters could have a material adverseeffect on our business, results of operation or financial condition. Inaddition, we may become subject to future lawsuits, claims, audits andinvestigations that could result in substantial costs and divert our attentionand resources.

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

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

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

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

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

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

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

·   obtaining patent protection for ourtechnology, products and services;

·   defending our patents, copyrights and otherintellectual property;

·   preserving our trade secrets and maintainingthe security of our know-how; and

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·   operating without infringing upon patents andproprietary rights held by third parties.

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

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

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

**Consolidation in the industries in whichour clients operate may put pressure on the pricing of our products andservices, and could increase the cost of acquiring data, leading to decreasedearnings.**

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

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

Ourfuture growth and success will be dependent on our ability to successfullycompete with other companies that provide similar services in the same markets,some of which may have financial, 

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marketing, technical and other advantages.

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

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

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

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

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

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

Thevast majority of our revenues are generated from sales to the pharmaceuticaland healthcare industries. To the extent the businesses we serve, especiallyour clients in the pharmaceutical and healthcare industries, are subject tofinancial pressures of, for example, price controls, increased costs or reduceddemand for their products, the demand for our products and services, or theprice our clients are willing to pay for those products and services, maydecline.

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**Item2.  Changes in Securities, Use ofProceeds and Issuer Purchases of Equity Securities**
| **Period**           | ** ** | **Total Number  of Shares  Purchased(1)** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of Shares  Purchased Under  Publicly Announced  Programs** | ** ** | **Maximum Number of  Shares that May Yet Be  Purchased Under the  Programs(2)** | ** ** |
|----------------------|------------|-----------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|
|                 |       |                                                |       |                                         |       |                                                                                               |       |                                                                                                                    |       |
| January 1-31,  2007  |       | 6,134,970                                           |       | $                                            | 28.69      |                                                                                               | 6,134,970  |                                                                                                                    | 10,308,730 |   |
| February 1-28,  2007 |       | —                                              |       | —                                       |       | —                                                                                             |       | 10,308,730                                                                                                              |       |
| March 1-31, 2007     |       | —                                              |       | —                                       |       | —                                                                                             |       | 10,308,730                                                                                                              |       |
| **Total**            |       | 6,134,970                                           |       |                                         |       | 6,134,970                                                                                          |       | 10,308,730                                                                                                              |       |
|                      |            |                                                     |            |                                              |            |                                                                                                    |            |                                                                                                                         |            |  |

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(1)             Allshares were repurchased through the Company’s publicly announced stockrepurchase programs.

(2)             InJanuary 2006, the Board of Directors authorized a stock repurchase program tobuy up to 30,000,000 shares.  As of March31, 2007, 308,730 shares remained available for repurchase under the January2006 program.  In December 2006, theBoard of Directors authorized a stock repurchase program to buy up to10,000,000 shares. As of March 31, 2007, 10,000,000 shares remained availablefor repurchase under the December 2006 program. Unless terminated earlier by resolution of the Company’s Board ofDirectors, this program will expire when the Company has repurchased all sharesauthorized for repurchase thereunder. See Note 12 of our Notes to Condensed Consolidated Financial Statements(Unaudited) for further details.

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**Item 6. Exhibits**

(a)           Exhibits

 
| Exhibit  Number | ** ** | **Description of Exhibits**                                                                                                                                                        |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |       | Form of Summary for Performance Goals and Award  Opportunities under the IMS Health Incorporated Executive Annual Incentive  Plan and Performance Restricted Stock Incentive Plan. |
|            |       |                                                                                                                                                                               |
| 10.2            |       | Form of Designation of Performance Period,  Performance Goal, And Award Opportunities under the IMS Health Incorporated  Long-Term Incentive Program.                              |
|            |       |                                                                                                                                                                               |
| 10.3            |       | 1998 IMS Health Incorporated Non-Employee Directors’  Deferred Compensation Plan (As amended and restated through February 13,  2007).                                        |
|            |       |                                                                                                                                                                               |
| 31.1            |       | CEO 302 Certification pursuant to Rule  13a-14(a)/15d-14(a)                                                                                                                        |
|            |       |                                                                                                                                                                               |
| 31.2            |       | CFO 302 Certification pursuant to Rule  13a-14(a)/15d-14(a)                                                                                                                        |
|            |       |                                                                                                                                                                               |
| 32.1            |       | Joint CEO/CFO Certification Required Under Section  906 of the Sarbanes-Oxley Act of 2002                                                                                          |

 

#  

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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: May 4, 2007           | Leslye G. Katz                 |
|                        | Senior Vice President and      |
|                        | Chief Financial Officer        |
|                        | (principal financial officer)  |
|                        |                           |
|                        |                           |
|                        | /s/ HARSHAN  BHANGDIA          |   |
| Date: May 4, 2007           | Harshan Bhangdia               |
|                        | Vice President, Controller     |
|                        | (principal accounting officer) |

 

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**EXHIBIT INDEX**
| Exhibit  Number | ** ** | **Description of Exhibits**                                                                                                                                              |
|-----------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1            |       | Form of Summary for Performance Goals and Award  Opportunities under the IMS Health Incorporated Executive Annual Incentive  Plan and Performance Restricted Stock Incentive Plan. |
|            |       |                                                                                                                                                                               |
| 10.2            |       | Form of Designation of Performance Period,  Performance Goal, And Award Opportunities under the IMS Health Incorporated  Long-Term Incentive Program.                              |
|            |       |                                                                                                                                                                               |
| 10.3            |       | 1998 IMS Health Incorporated Non-Employee Directors’  Deferred Compensation Plan (As amended and restated through February 13,  2007).                                        |
|            |       |                                                                                                                                                                               |
| 31.1            |       | CEO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a)                                                                                                                        |
|            |       |                                                                                                                                                                               |
| 31.2            |       | CFO 302 Certification pursuant to Rule  13a-14(a)/15d-14(a)                                                                                                                        |
|            |       |                                                                                                                                                                               |
| 32.1            |       | Joint CEO/CFO Certification Required Under Section  906 of the Sarbanes-Oxley Act of 2002                                                                                          |

 

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