Table of Contents

 

 

 

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 
| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended September 30, 2009**

 

**OR**

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For thetransition period from          to        **

 

**Commission File Number: 001-14049**

 

 

**IMS Health Incorporated**

(Exact Name of Registrantas Specified in its Charter)

 

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

 

**901 Main Avenue, Norwalk, CT06851**

(Address of principalexecutive offices)(Zip Code)

 

**(203) 845-5200**

(Registrant’s telephonenumber, including area code)

 

**N/A**

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

 

Indicate by check mark whether the registrant: (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to the filing requirements for the past 90 days.  x Yes o No

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (Section 232.405 of this chapter) during the preceding12 months (or for such shorter period that the registrant was required tosubmit and post such files).  o Yeso No

 

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

 

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

 

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

 

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the latest practicable date.  At September 30, 2009, there were182,441,209 shares of IMS Health Incorporated Common Stock, $0.01 par value,outstanding.

 

 

 

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**IMS HEALTH INCORPORATED**

 

**INDEX TO FORM 10-Q**

 
| ** **                                                                                             | **PAGE(S)**  |
|--------------------------------------------------------------------------------------------------------|--------------|
| **PART I.  FINANCIAL INFORMATION**                                                                | ** **   |
| ** **                                                                                             | ** **   |
| **Item 1. Financial  Statements (Unaudited)**                                                          |         |
| ** **                                                                                             |         |
| Condensed  Consolidated Statements of Financial Position                                               |         |
|                                                                                                   |         |
| As of  September 30, 2009 and December 31, 2008                                              | 3            |
|                                                                                                   |         |
| Condensed  Consolidated Statements of Income                                                           |         |
|                                                                                                   |         |
| Three  Months Ended September 30, 2009 and 2008                                                   | 4            |
|                                                                                                   |         |
| Nine Months  Ended September 30, 2009 and 2008                                                    | 5            |
|                                                                                                   |         |
| Condensed  Consolidated Statements of Cash Flows                                                       |         |
|                                                                                                   |         |
| Nine Months  Ended September 30, 2009 and 2008                                                    | 6            |
|                                                                                                   |         |
| Condensed  Consolidated Statements of Shareholders’ Deficit                                       |         |
|                                                                                                   |         |
| Twelve  Months Ended December 31, 2008 and                                                        |         |
|                                                                                                   |         |
| Nine Months  Ended September 30, 2009                                                             | 7            |
|                                                                                                   |         |
| Notes to  Condensed Consolidated Financial Statements                                                  | 8 – 30  |
|                                                                                                   |         |
| **Item 2.  Management’s Discussion and Analysis of FinancialCondition and Results of Operations** | 31 – 53 |
| ** **                                                                                             |         |
| **Item 3.  Quantitative and Qualitative Disclosures About Market Risk**                                | 54           |
| ** **                                                                                             |         |
| **Item 4. Controls  and Procedures**                                                                   | 54           |
| ** **                                                                                             |         |
| **PART II. OTHER  INFORMATION**                                                                   | ** **   |
| ** **                                                                                             | ** **   |
| **Item 1. Legal  Proceedings**                                                                         | 55           |
| ** **                                                                                             |         |
| **Item 1A. Risk Factors**                                                                              | 55 – 56 |
|                                                                                                   |         |
| **Item 2. Unregistered Sales of Equity Securities and  Use of Proceeds**                               | 56           |
| ** **                                                                                             |         |
| **Item 6. Exhibits**                                                                                   | 57           |
|                                                                                                   |         |
| **SIGNATURES**                                                                                         | 58           |
| ** **                                                                                             |         |
| **EXHIBITS**                                                                                           | 59           |

 

2

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Tableof Contents

 

**PART I.FINANCIAL INFORMATION**

**Item 1. FINANCIAL STATEMENTS**

 

**IMS HEALTH INCORPORATED**

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

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

 
| ** **                                                                                                               | ** ** | **As of September 30,  2009** | ** **    | **As of December 31,  2008** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------|---------------|-----------------------------------|------------|
| **Assets:**                                                                                                              |       |                               |          |                              |       |
| **Current Assets:**                                                                                                      | ** ** | ** **                         |          |                              |       |
| Cash  and cash equivalents                                                                                               | ** ** | **$**                              | **301,711**   |                              | $          | 215,682 |   |
| Accounts  receivable, net of allowances of $10,107****and  $5,960 in 2009 and 2008, respectively                         | ** ** | **309,136**                        |          | 382,776                           |       |
| Other  current assets                                                                                                    | ** ** | **185,714**                        |          | 174,099                           |       |
| **Total Current Assets**                                                                                                 | ** ** | **796,561**                        |          | 772,557                           |       |
| Securities  and other investments                                                                                        | ** ** | **7,503**                          |          | 7,121                             |       |
| Property,  plant and equipment, net of accumulated depreciation of $238,067 and $208,340  in 2009 and 2008, respectively | ** ** | **179,313**                        |          | 183,055                           |       |
| Computer  software                                                                                                       | ** ** | **250,234**                        |          | 253,583                           |       |
| Goodwill  (Note 6)                                                                                                       | ** ** | **699,531**                        |          | 663,532                           |       |
| Other  assets                                                                                                            | ** ** | **177,383**                        |          | 207,289                           |       |
| **Total Assets**                                                                                                         | ** ** | **$**                              | **2,110,525** |                              | $          | 2,087,137 |   |
| ** **                                                                                                               | ** ** | ** **                         |          |                              |       |
| **Liabilities, Redeemable Noncontrolling Interest  and Shareholders’ Deficit:**                                     | ** ** | ** **                         |          |                              |       |
| **Current Liabilities:**                                                                                                 | ** ** | ** **                         |          |                              |       |
| Accounts  payable                                                                                                        | ** ** | **$**                              | **95,326**    |                              | $          | 119,798 |   |
| Accrued  and other current liabilities                                                                                   | ** ** | **364,421**                        |          | 275,764                           |       |
| Accrued  income taxes                                                                                                    |       | —                             |          | 47,735                            |       |
| Short-term  deferred tax liability                                                                                       | ** ** | **2,796**                          |          | 9,444                             |       |
| Deferred  revenues                                                                                                       | ** ** | **103,162**                        |          | 88,484                            |       |
| **Total Current Liabilities**                                                                                            | ** ** | **565,705**                        |          | 541,225                           |       |
| Postretirement  and postemployment benefits                                                                              | ** ** | **111,275**                        |          | 109,516                           |       |
| Long-term  debt (Note 9)                                                                                                 | ** ** | **1,344,850**                      |          | 1,404,199                         |       |
| Other  liabilities                                                                                                       | ** ** | **131,373**                        |          | 185,677                           |       |
| **Total Liabilities**                                                                                                    | ** ** | **$**                              | **2,153,203** |                              | $          | 2,240,617 |   |
| ** **                                                                                                               | ** ** | ** **                         |          |                              |       |
| **Commitments and Contingencies (Note 7)**                                                                               | ** ** | ** **                         |          |                              |       |
| ** **                                                                                                               |       |                               |          |                              |       |
| **Redeemable Noncontrolling Interest (Note 13)**                                                                         | ** ** | **$**                              | —        |                              | $          | 100,000 |   |
| ** **                                                                                                               |       |                               |          |                              |       |
| **Shareholders’ Deficit:**                                                                                          | ** ** | ** **                         |          |                              |       |
| Common  Stock, par value $.01, authorized 800,000 shares; issued 335,045 shares in 2009  and 2008, respectively          | ** ** | **$**                              | **3,350**     |                              | $          | 3,350 |   |
| Capital  in excess of par                                                                                                | ** ** | **538,488**                        |          | 546,478                           |       |
| Retained  earnings                                                                                                       | ** ** | **3,231,111**                      |          | 3,060,345                         |       |
| Treasury  stock, at cost, 152,604 and 153,564 shares in 2009 and 2008, respectively                                      | ** ** | **(3,554,173**                     | **)**         | (3,576,446                        | )          |
| Cumulative  translation adjustment                                                                                       | ** ** | **(151,959**                       | **)**         | (171,990                          | )          |
| Unamortized  postretirement and postemployment balances                                                                  | ** ** | **(111,050**                       | **)**         | (117,111                          | )          |
| **Total IMS Health Shareholders’ Deficit**                                                                          | ** ** | **$**                              | **(44,233**   | **)**                             | $          | (255,374 | ) |
| **Noncontrolling Interests (Note 13)**                                                                                   | ** ** | **$**                              | **1,555**     |                              | $          | 1,894 |   |
| **Total Deficit**                                                                                                        | ** ** | **$**                              | **(42,678**   | **)**                             | $          | (253,480 | ) |
| **Total Liabilities, Redeemable Noncontrolling  Interest and Shareholders’ Deficit**                                | ** ** | **$**                              | **2,110,525** |                              | $          | 2,087,137 |   |

 

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

 

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## **IMS HEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME (Unaudited)**

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

* *
| ** **                                                                                               | ** ** | **Three Months Ended  September 30,** | ** **  |
|----------------------------------------------------------------------------------------------------------|------------|--------------------------------------------|-------------|
| ** **                                                                                               | ** ** | **2009**                                   | ** **  | **2008** | ** ** |
| ** **                                                                                               | ** ** | ** **                                 |        |   |   |
| Information  and analytics revenue                                                                       | ** ** | **$**                                      | **425,197** |   | $ | 445,654 |   |
| Consulting  and services revenue                                                                         | ** ** | **115,574**                                |        | 128,061 |   |
| **Operating Revenue**                                                                                    | ** ** | **540,771**                                |        | 573,715 |   |
|                                                                                                     | ** ** | ** **                                 |        |   |   |
| Operating  costs of information and analytics                                                            | ** ** | **181,974**                                |        | 190,139 |   |
| Direct  and incremental costs of consulting and services                                                 | ** ** | **58,774**                                 |        | 62,185 |   |
| External-use  software amortization                                                                      | ** ** | **9,823**                                  |        | 12,291 |   |
| Selling  and administrative expenses                                                                     | ** ** | **166,885**                                |        | 161,878 |   |
| Depreciation  and other amortization                                                                     | ** ** | **24,558**                                 |        | 23,246 |   |
| Severance,  impairment and other charges (Note 15)                                                       | ** ** | **104,301**                                |        | — |   |
| **Operating (Loss) Income**                                                                              | ** ** | **(5,544**                                 | **)**       | 123,976 |   |
|                                                                                                     | ** ** | ** **                                 |        |   |   |
| Interest  income                                                                                         | ** ** | **183**                                    |        | 3,107 |   |
| Interest  expense                                                                                        | ** ** | **(8,961**                                 | **)**       | (12,119 | ) |
| (Loss)  gains from investments, net                                                                      | ** ** | **(618**                                   | **)**       | 379 |   |
| Other  expense, net                                                                                      | ** ** | **(7,793**                                 | **)**       | (2,981 | ) |
| **Non-Operating Loss, Net**                                                                              | ** ** | **(17,189**                                | **)**       | (11,614 | ) |
| ** **                                                                                               | ** ** | ** **                                 |        |   |   |
| (Loss)  income before provision for income taxes                                                         | ** ** | **(22,733**                                | **)**       | 112,362 |   |
| Benefit  (provision) for income taxes (Note 11)                                                          | ** ** | **13,474**                                 |        | (35,049 | ) |
| **Net (Loss) Income**                                                                                    | ** ** | **$**                                      | **(9,259**  | **)** | $ | 77,313 |   |
| Less:  Net income attributable to noncontrolling interests (Note 13)                                     | ** ** | **41**                                     |        | 1,401 |   |
| **Net (Loss) Income Attributable to IMS Health**                                                         | ** ** | **$**                                      | **(9,300**  | **)** | $ | 75,912 |   |
|                                                                                                     | ** ** | ** **                                 |        |   |   |
| **Basic (Loss) Earnings Per Share of Common Stock**                                                      | ** ** | **$**                                      | **(0.05**   | **)** | $ | 0.42 |   |
| **Diluted (Loss) Earnings Per Share of Common  Stock**                                                   | ** ** | **$**                                      | **(0.05**   | **)** | $ | 0.41 |   |
|                                                                                                     | ** ** | ** **                                 |        |   |   |
| Weighted  average number of shares outstanding – Basic                                              | ** ** | **182,536**                                |        | 182,157 |   |
| Dilutive  effect of shares issuable as of period-end under stock-based compensation  plans and other     | ** ** | **186**                                    |        | 956 |   |
| Adjustment  of shares outstanding applicable to exercised and cancelled stock options  during the period | ** ** | **31**                                     |        | 8 |   |
| **Weighted Average Number of Shares Outstanding –  Diluted**                                        | ** ** | **182,753**                                |        | 183,121 |   |

 

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

 

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## **IMS HEALTH INCORPORATED**

**CONDENSEDCONSOLIDATED STATEMENTS OF INCOME (Unaudited)**

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

* *
| ** **                                                                                               | ** ** | **Nine Months Ended  September 30,** | ** **    |
|----------------------------------------------------------------------------------------------------------|------------|-------------------------------------------|---------------|
| ** **                                                                                               | ** ** | **2009**                                  | ** **    | **2008** | ** ** |
| ** **                                                                                               | ** ** | ** **                                |          |   |   |
| Information  and analytics revenue                                                                       | ** ** | **$**                                     | **1,253,885** |   | $ | 1,355,281 |   |
| Consulting  and services revenue                                                                         | ** ** | **336,670**                               |          | 393,323 |   |
| **Operating Revenue**                                                                                    | ** ** | **1,590,555**                             |          | 1,748,604 |   |
|                                                                                                     | ** ** | ** **                                |          |   |   |
| Operating  costs of information and analytics                                                            | ** ** | **528,213**                               |          | 576,514 |   |
| Direct  and incremental costs of consulting and services                                                 | ** ** | **176,931**                               |          | 202,641 |   |
| External-use  software amortization                                                                      | ** ** | **30,464**                                |          | 38,048 |   |
| Selling  and administrative expenses                                                                     | ** ** | **490,211**                               |          | 493,010 |   |
| Depreciation  and other amortization                                                                     | ** ** | **70,399**                                |          | 66,656 |   |
| Severance,  impairment and other charges (Note 15)                                                       | ** ** | **129,729**                               |          | — |   |
| **Operating Income**                                                                                     | ** ** | **164,608**                               |          | 371,735 |   |
| ** **                                                                                               | ** ** | ** **                                |          |   |   |
| Interest  income                                                                                         | ** ** | **1,666**                                 |          | 8,682 |   |
| Interest  expense                                                                                        | ** ** | **(27,491**                               | **)**         | (35,352 | ) |
| (Loss)  gains from investments, net                                                                      | ** ** | **(581**                                  | **)**         | 379 |   |
| Other  income (expense), net                                                                             | ** ** | **1,588**                                 |          | (27,762 | ) |
| **Non-Operating Loss, Net**                                                                              | ** ** | **(24,818**                               | **)**         | (54,053 | ) |
|                                                                                                     | ** ** | ** **                                |          |   |   |
| Income  before provision for income taxes                                                                | ** ** | **139,790**                               |          | 317,682 |   |
| Benefit  (provision) for income taxes (Note 11)                                                          | ** ** | **49,121**                                |          | (100,833 | ) |
| **Net Income**                                                                                           | ** ** | **$**                                     | **188,911**   |   | $ | 216,849 |   |
| Less:  Net income attributable to noncontrolling interests (Note 13)                                     | ** ** | **1,994**                                 |          | 4,067 |   |
| **Net Income Attributable to IMS Health**                                                                | ** ** | **$**                                     | **186,917**   |   | $ | 212,782 |   |
|                                                                                                     | ** ** | ** **                                |          |   |   |
| **Basic Earnings Per Share of Common Stock**                                                             | ** ** | **$**                                     | **1.03**      |   | $ | 1.16 |   |
| **Diluted Earnings Per Share of Common Stock**                                                           | ** ** | **$**                                     | **1.02**      |   | $ | 1.16 |   |
|                                                                                                     | ** ** | ** **                                |          |   |   |
| Weighted  average number of shares outstanding – Basic                                              | ** ** | **182,255**                               |          | 183,145 |   |
| Dilutive  effect of shares issuable as of period-end under stock-based compensation  plans and other     | ** ** | **88**                                    |          | 1,022 |   |
| Adjustment  of shares outstanding applicable to exercised and cancelled stock options  during the period | ** ** | **34**                                    |          | 36 |   |
| **Weighted Average Number of Shares Outstanding –  Diluted**                                        | ** ** | **182,377**                               |          | 184,203 |   |

 

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

 

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**IMSHEALTH INCORPORATED**

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

*(Dollars in thousands)*

 
| ** **                                                                                | ** ** | **Nine Months Ended September 30,** | ** **  |
|-------------------------------------------------------------------------------------------|------------|------------------------------------------|-------------|
| ** **                                                                                | ** ** | **2009**                                 | ** **  | **2008** | ** ** |
| **Cash Flows from Operating Activities:**                                                 |       |                                     |        |   |   |
| Net  income                                                                               | ** ** | **$**                                    | **188,911** |   | $ | 216,849 |   |
| **Adjustments to reconcile net income to net cash****provided  by operating activities:** | ** ** | ** **                               |        |   |   |
| Depreciation  and amortization                                                            | ** ** | **100,863**                              |        | 104,704 |   |
| Bad  debt expense                                                                         | ** ** | **3,673**                                |        | 1,685 |   |
| Deferred  income taxes                                                                    | ** ** | **(24,187**                              | **)**       | 1,033 |   |
| (Loss)  gains from investments, net                                                       | ** ** | **581**                                  |        | (379 | ) |
| Non-cash  stock-based compensation charges                                                | ** ** | **24,312**                               |        | 22,052 |   |
| Non-cash  portion of severance, impairment and other charges                              | ** ** | **18,248**                               |        | — |   |
| Net  tax benefit on stock-based compensation                                              | ** ** | **(4,632**                               | **)**       | (296 | ) |
| Excess  tax benefits from stock-based compensation                                        |       | —                                   |        | (94 | ) |
| Change  in assets and liabilities, excluding effects from acquisitions and  dispositions: | ** ** | ** **                               |        |   |   |
| Net  decrease in accounts receivable                                                      | ** ** | **64,579**                               |        | 21,479 |   |
| Net  decrease (increase) in work-in-process inventory                                     | ** ** | **2,733**                                |        | (1,027 | ) |
| Net  increase in prepaid expenses and other current assets                                | ** ** | **(3,459**                               | **)**       | (12,859 | ) |
| Net  decrease in accounts payable                                                         | ** ** | **(26,357**                              | **)**       | (26,807 | ) |
| Net  decrease in accrued and other current liabilities                                    | ** ** | **(57**                                  | **)**       | (11,443 | ) |
| Net  increase (decrease) in accrued severance, impairment and other charges               | ** ** | **93,514**                               |        | (38,623 | ) |
| Net  increase (decrease) in deferred revenues                                             | ** ** | **13,549**                               |        | (35,383 | ) |
| Net  (decrease) increase in accrued income taxes                                          | ** ** | **(115,331**                             | **)**       | 5,951 |   |
| Net  decrease in pension assets (net of liabilities)                                      | ** ** | **8,266**                                |        | 3,103 |   |
| Net  decrease in other long-term assets (net of long-term liabilities)                    | ** ** | **2,328**                                |        | 2,617 |   |
| **Net Cash Provided by Operating Activities**                                             | ** ** | **347,534**                              |        | 252,562 |   |
| **Cash Flows Used in Investing Activities:**                                              | ** ** | ** **                               |        |   |   |
| Capital  expenditures                                                                     | ** ** | **(17,093**                              | **)**       | (30,782 | ) |
| Additions  to computer software                                                           | ** ** | **(59,582**                              | **)**       | (51,280 | ) |
| Proceeds  from sale of assets, net                                                        | ** ** | **713**                                  |        | 1,392 |   |
| Proceeds  from sale of investments, net                                                   | ** ** | **38**                                   |        | 379 |   |
| Payments  for acquisitions of businesses, net of cash acquired                            | ** ** | **(3,419**                               | **)**       | (50,395 | ) |
| Funding  of venture capital investments                                                   | ** ** | **(1,000**                               | **)**       | (1,700 | ) |
| Other  investing activities, net                                                          | ** ** | **690**                                  |        | (3,821 | ) |
| **Net Cash Used in Investing Activities**                                                 | ** ** | **(79,653**                              | **)**       | (136,207 | ) |
| **Cash Flows Used in Financing Activities:**                                              | ** ** | ** **                               |        |   |   |
| Net  (decrease) increase in revolving credit facility and other                           | ** ** | **(66,821**                              | **)**       | 56,164 |   |
| Proceeds  from private placement notes                                                    |       | —                                   |        | 240,000 |   |
| Repayment  of private placement notes                                                     |       | —                                   |        | (150,000 | ) |
| Payments  for purchase of treasury stock                                                  |       | —                                   |        | (230,433 | ) |
| Proceeds  from exercise of stock options                                                  |       | —                                   |        | 5,520 |   |
| Excess  tax benefits from stock-based compensation                                        |       | —                                   |        | 94 |   |
| Dividends  paid                                                                           | ** ** | **(16,151**                              | **)**       | (16,626 | ) |
| Proceeds  from employee stock purchase plan and other                                     |       | —                                   |        | (25 | ) |
| Decrease  in cash overdrafts                                                              | ** ** | **(5,443**                               | **)**       | (1,876 | ) |
| Payments  to noncontrolling interests and other financing activities                      | ** ** | **(103,875**                             | **)**       | (5,072 | ) |
| **Net Cash Used in Financing Activities**                                                 | ** ** | **(192,290**                             | **)**       | (102,254 | ) |
| Effect  of Exchange Rate Changes on Cash and Cash Equivalents                             | ** ** | **10,438**                               |        | (3,162 | ) |
| **Increase in Cash and Cash Equivalents**                                                 | ** ** | **86,029**                               |        | 10,939 |   |
| **Cash and Cash Equivalents, Beginning of Period**                                        | ** ** | **215,682**                              |        | 218,249 |   |
| **Cash and Cash Equivalents, End of Period**                                              | ** ** | **$**                                    | **301,711** |   | $ | 229,188 |   |

 

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

 

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**IMS HEALTH INCORPORATED**

** **

**CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’DEFICIT (Unaudited)**

(*Dollars andshares in thousands, except per share data)*

 
| ** **                                     | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** | ** **         | ** ** | ** **   | ** ** | ** **     | ** **    | **Accumulated  Other Comprehensive Income (Loss)** | ** ** | ** **       | ** ** | ** **        | ** **   | ** **             | ** ** |
|------------------------------------------------|------------|-------------|------------|--------------|------------|-------------|------------|--------------------|------------|--------------|------------|----------------|---------------|----------------------------------------------------|------------|------------------|------------|-------------------|--------------|------------------------|------------|
| ** **                                     | ** ** | ** **  | ** ** | ** **   | ** ** | ** **  | ** ** | ** **         | ** ** | ** **   | ** ** | ** **     | ** **    | ** **                                         | ** ** | **Post**         | ** ** | ** **        | ** **   | **Total**              | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **Shares**  | ** ** | ** **   | ** ** | **Capital** | ** ** | ** **         | ** ** | ** **   | ** ** | **Cumulative** | ** **    | **Retirement**                                     | ** ** | **Other**        | ** ** | **IMS  Health**   | ** **   | ** **             | ** ** | ** ** | ** ** |
| ** **                                     | ** ** | **Common**  | ** ** | **Treasury** | ** ** | **Common**  | ** ** | **in Excess** | ** ** | **Retained** | ** ** | **Treasury**   | ** **    | **Translation**                                    | ** ** | **Post  Employ** | ** ** | **Comprehensive** | ** **   | **Shareholders’** | ** ** | **Noncontrolling** | ** ** | **Total** | ** ** |
| ** **                                     | ** ** | **Stock**   | ** ** | **Stock**    | ** ** | **Stock**   | ** ** | **of Par**         | ** ** | **Earnings** | ** ** | **Stock**      | ** **    | **Adjustment**                                     | ** ** | **Adjust**       | ** ** | **Income**        | ** **   | **(Deficit)  Equity**  | ** ** | **Interest** | ** ** | **(Deficit)  Equity** | ** ** |
| **Balance, December 31, 2007**            | ** ** | **335,045** | ** ** | **143,818**  | ** ** | **$**       | **3,350**  | ** **         | **$**      | **535,500**  | ** ** | **$**          | **2,771,278** | ** **                                         | **$**      | **(3,355,790**   | **)**      | **$**             | **61,931**   | ** **             | **$**      | **(56,584** | **)** | ** ** | ** ** | **$** | **(40,315** | **)** | **$** | **1,444** | ** ** | **$** | **(38,871** | **)** |
| Net  Income Attributable to IMS Health         |       |        |       |         |       |        |       |               |       | 311,250      |       |           |          |                                               |       |             |       | $                 | 311,250      |                   | 311,250    |   | 940 |   | 312,190 |   |
| Cash  Dividends ($0.12 per share)              |       |        |       |         |       |        |       |               |       | (22,183      | )          |           |          |                                               |       |             |       |              |         | (22,183                | )          |   |   | (22,183 | ) |
| Stock-Based  Compensation Expense              |       |        |       |         |       |        |       | 28,036             |       |         |       |           |          |                                               |       |             |       |              |         | 28,036                 |       |   |   | 28,036 |   |
| Net  Tax Benefit on Stock-Based Compensation   |       |        |       |         |       |        |       | (499               | )          |         |       |           |          |                                               |       |             |       |              |         | (499                   | )          |   |   | (499 | ) |
| Treasury  Shares Acquired Under Purchases      |       |        |       | 10,495       |       |        |       |               |       |         |       | (238,046       | )             |                                               |       |             |       |              |         | (238,046               | )          |   |   | (238,046 | ) |
| Treasury  Shares Reissued Under:               |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |             |       |              |         |                   |       |   |   |   |   |
| Exercise  of Stock Options                     |       |        |       | (277         | )          |        |       | (920               | )          |         |       | 6,441          |          |                                               |       |             |       |              |         | 5,521                  |       |   |   | 5,521 |   |
| Vesting  of Restricted Stock                   |       |        |       | (473         | )          |        |       | (15,642            | )          |         |       | 10,977         |          |                                               |       |             |       |              |         | (4,665                 | )          |   |   | (4,665 | ) |
| Employee  Stock Purchase Plan                  |       |        |       | 1            |       |        |       | 3                  |       |         |       | (28            | )             |                                               |       |             |       |              |         | (25                    | )          |   |   | (25 | ) |
| Cumulative  Translation Adjustment             |       |        |       |         |       |        |       |               |       |         |       |           |          | (233,921                                           | )          |             |       | (233,921          | )            | (233,921               | )          | (490 | ) | (234,411 | ) |
| Postretirement  and Postemployment Adjustments |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       | (60,527          | )          | (60,527           | )            | (60,527                | )          |   |   | (60,527 | ) |
| Total  Comprehensive Income                    |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |             |       | $                 | 16,802       |                   |       |   | 450 |   |   |   |
| **Balance, December 31, 2008**            | ** ** | **335,045** | ** ** | **153,564**  | ** ** | **$**       | **3,350**  | ** **         | **$**      | **546,478**  | ** ** | **$**          | **3,060,345** | ** **                                         | **$**      | **(3,576,446**   | **)**      | **$**             | **(171,990** | **)**                  | **$**      | **(117,111** | **)** | ** ** | ** ** | **$** | **(255,374** | **)** | **$** | **1,894** | ** ** | **$** | **(253,480** | **)** |
|                                           |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |             |       |              |         |                   |       |   |   |   |   |
| Net  Income Attributable to IMS Health         |       |        |       |         |       |        |       |               |       | 186,917      |       |           |          |                                               |       |             |       | $                 | 186,917      |                   | 186,917    |   | 106 |   | 187,023 |   |
| Cash  Dividends ($0.12 per share)              |       |        |       |         |       |        |       |               |       | (16,151      | )          |           |          |                                               |       |             |       |              |         | (16,151                | )          |   |   | (16,151 | ) |
| Stock-Based  Compensation Expense              |       |        |       |         |       |        |       | 25,350             |       |         |       |           |          |                                               |       |             |       |              |         | 25,350                 |       |   |   | 25,350 |   |
| Net  Tax Benefit on Stock-Based Compensation   |       |        |       |         |       |        |       | (4,632             | )          |         |       |           |          |                                               |       |             |       |              |         | (4,632                 | )          |   |   | (4,632 | ) |
| Treasury  Shares Reissued Under:               |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |             |       |              |         |                   |       |   |   |   |   |
| Vesting  of Restricted Stock                   |       |        |       | (960         | )          |        |       | (28,708            | )          |         |       | 22,273         |          |                                               |       |             |       |              |         | (6,435                 | )          |   |   | (6,435 | ) |
| Cumulative  Translation Adjustment             |       |        |       |         |       |        |       |               |       |         |       |           |          | 20,031                                             |       |             |       | 20,031            |         | 20,031                 |       | (445 | ) | 19,586 |   |
| Postretirement  and Postemployment Adjustments |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       | 6,061            |       | 6,061             |         | 6,061                  |       |   |   | 6,061 |   |
| Total  Comprehensive Income                    |       |        |       |         |       |        |       |               |       |         |       |           |          |                                               |       |             |       | $                 | 213,009      |                   |       |   | (339 | ) |   |   |
| **Balance, September 30, 2009**           | ** ** | **335,045** | ** ** | **152,604**  | ** ** | **$**       | **3,350**  | ** **         | **$**      | **538,488**  | ** ** | **$**          | **3,231,111** | ** **                                         | **$**      | **(3,554,173**   | **)**      | **$**             | **(151,959** | **)**                  | **$**      | **(111,050** | **)** | ** ** | ** ** | **$** | **(44,233** | **)** | **$** | **1,555** | ** ** | **$** | **(42,678** | **)** |

 

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

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

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

 

The accompanying Condensed Consolidated Financial Statements (Unaudited)have been prepared in accordance with accounting principles generally acceptedin the United States of America for interim financial information and Article 10of Regulation S-X under the Securities and Exchange Act of 1934, asamended.  The Condensed ConsolidatedFinancial Statements (Unaudited) do not include all the information and notesrequired by accounting principles generally accepted in the United States ofAmerica for complete financial statements. In the opinion of management, all adjustments, all of which are of anormal recurring nature,considered necessary for a fairpresentation of the statements of financial position, income, shareholders’deficit and cash flows for the periods presented have been included. Theresults of operations for interim periods are not necessarily indicative of theresults expected for the full year. The December 31, 2008 balance sheet datawas derived from audited financial statements, but does not include alldisclosures required by accounting principles generally accepted in the UnitedStates of America.  The CondensedConsolidated Financial Statements (Unaudited) and related notes should be readin conjunction with the Consolidated Financial Statements and related notes ofIMS Health Incorporated (the “Company” or “IMS”) included in its 2008 AnnualReport on Form 10-K.  The Companyhas evaluated for disclosure subsequent events that have occurred up to October30, 2009, the date of issuance of these financial statements.  Certain prior year amounts have beenreclassified to conform to the 2009 presentation.  Amounts presented in the CondensedConsolidated Financial Statements (Unaudited) may not add due to rounding.

 

**Note 2.  Basis of Presentation**

 

IMS Health Incorporated isthe leading global provider of market intelligence to the pharmaceutical andhealthcare industries. The Company offers leading-edge market intelligenceproducts and services that are integral to its clients’ day-to-day operations,including product and portfolio management capabilities; commercialeffectiveness innovations; managed care and consumer health offerings; andconsulting and services solutions that improve productivity and the delivery ofquality healthcare worldwide. The Company’s information products are developedto meet client needs by using data secured from a worldwide network ofsuppliers in more than 100 countries. The Company’s business lines are:

 
| · | Commercial  Effectiveness to increase clients’ productivity across end-to-end sales,  marketing, promotional and performance management processes;                                               |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                  |
| · | Product  and Portfolio Management to provide clients with insights into market  measurement so they can optimize their product portfolio and strategies; and                                          |
|   |                                                                                                                                                                                                  |
| · | New Business Areas that  support pharmaceutical client business initiatives in managed markets,  consumer health, and pricing and market access, and that also serve payer and  government audiences. |

 

Within these business lines,the Company provides consulting and services that use in-house capabilities andmethodologies to assist clients in analyzing and evaluating market trends,strategies and tactics, and to help in the development and implementation ofcustomized software applications and data warehouse tools.

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

The Company operates in morethan 100 countries.

 

The Company is managed on aglobal business model with global leaders for the majority of its critical businessprocesses and accordingly has one reportable segment (see Note 16).

 

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

 

In June 2009, the FinancialAccounting Standards Board (“FASB”) issued authoritative guidance codifying generallyaccepted accounting principles in the U.S. (“GAAP”).  This guidance was effective for financialstatements issued for interim and annual periods ending after September 15,2009.  The adoption of this authoritativeguidance did not have a material impact on the financial results of theCompany.

 

InSeptember 2006, the FASB issued authoritative guidance defining fairvalue, establishing a framework for measuring fair value under GAAP, and expandingdisclosures about fair value measurements.This guidance was effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years.  The adoption of this authoritative guidance did not have amaterial impact on the financialresults of the Company.  In February 2008,the FASB issued authoritative guidance which delayed the effective date of itspreviously issued fair value guidance for one year for certain non-financialassets and liabilities and removed certain leasing transactions from itsscope.  The adoption of this authoritative guidance did not have amaterial impact on the financialresults of the Company.

 

In December 2008, theFASB issued authoritative guidance on an employer’s disclosures about planassets of a defined benefit pension or other postretirement plan.  This guidance is effective for fiscal yearsending after December 15, 2009, with earlier application permitted. Uponinitial application, the provisions of this guidance are not required forearlier periods that are presented for comparative purposes.  The Company is currently evaluating the newdisclosure requirements under this authoritative guidance.

 

In April 2009, the FASBissued authoritative guidance on determining fair values when there is noactive market or where the price inputs being used represent distressedsales.  It also reaffirmed what previousguidance had stated is the objective of fair value measurement—to reflect howmuch an asset would be sold for in an orderly transaction (as opposed to adistressed or forced transaction) at the date of the financial statements undercurrent market conditions.  This guidancewas effective for interim and annual periods ending after September 15,2009.  The adoption of this authoritativeguidance did not have a material impact on the financial results of theCompany.

 

In April 2009, the FASBissued authoritative guidance which required disclosures about fair value offinancial instruments for interim reporting periods of publicly tradedcompanies as well as in annual financial statements. This standard alsorequired those disclosures in summarized financial information at interimreporting periods.  This guidance waseffective for interim reporting periods ending after September 15,2009.  The adoption of this authoritativeguidance did not have a material impact on the financial results of theCompany.

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

InMay 2009, the FASB issued authoritative guidance establishing generalstandards of accounting for and disclosures of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued.  This guidance waseffective for interim or annual financial periods ending after September, 15,2009.  The adoption of this authoritativeguidance did not have a material impact on the financial results of the Company.

 

In June 2009, theFASB issued authoritative guidance eliminating the concept of qualifyingspecial-purpose entities (“QSPEs”), changing the requirements for derecognizingfinancial assets and requiring additional disclosures about transfers offinancial assets, including securitization transactions, and an entity’scontinuing involvement in and exposure to the risks related to transferredfinancial assets.  This guidance must beapplied as of the beginning of each reporting entity’s first annual reportingperiod that begins after November 15, 2009, for interim periods withinthat first annual reporting period and for interim and annual reporting periodsthereafter. The adoption of this authoritative guidance is not expected to havea material impact on the financial results of the Company.

 

In June 2009, theFASB issued authoritative guidance eliminating the exemption for QSPEs,requiring a new approach for determining who should consolidatevariable-interest entities (“VIEs”), and changing when it is necessary toreassess who should consolidate VIEs. This guidance shall be effective as of the beginning of each reportingentity’s first annual reporting period that begins after November 15,2009, for interim periods within that first annual reporting period, and forinterim and annual reporting periods thereafter.  The adoption of this authoritative guidanceis not expected to have a material impact on the financial results of theCompany.

 

In October 2009, theFASB issued authoritative guidance revising the current accounting treatment tospecifically address how to determine whether an arrangement involving multipledeliverables contains more than one unit of accounting. This guidance isapplicable to revenue arrangements entered into or materially modified duringthe company’s first fiscal year that begins after June 15, 2010. Theguidance may be applied either prospectively from the beginning of the fiscalyear for new or materially modified arrangements or retrospectively. TheCompany is currently evaluating this authoritative guidance to determine anypotential impact that it may have on the financial results of the Company.

 

In October 2009, theFASB issued authoritative guidance changing the accounting model for revenuearrangements that include both tangible products and software elements.Tangible products containing software components and non-software componentsthat function together to deliver the tangible product’s essentialfunctionality, are no longer within the scope of the software revenue guidance.This guidance is applicable to revenue arrangements entered into or materiallymodified during the company’s first fiscal year that begins after June 15,2010. The guidance may be applied either prospectively from the beginning ofthe fiscal year for new or materially modified arrangements or retrospectively.The Company is currently evaluating this authoritative guidance to determineany potential impact that it may have on the financial results of the Company.

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

**Note 4.  Summary of Significant Accounting Policies**

 

*Operating Costs of Information and Analytics*

 

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

 

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

 

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

 

*Direct and Incremental Costs of Consulting and Services*

 

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

 

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

 

**Note 5.  Acquisitions**

 

The Company makesacquisitions in order to expand its products, services and geographicreach.  On January 1, 2009, theCompany adopted authoritative guidance which established principles andrequirements for how an acquirer recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, anynoncontrolling interest in the acquiree and the goodwill acquired.  The impact of the adoption of thisauthoritative guidance on the Company’s financial results will be dependent onthe terms and conditions of acquisitions consummated on or after the adoptiondate.

 

During the nine monthsended September 30, 2009, the Company did not complete any acquisitions.

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

During the ninemonths ended September 30, 2008, the Company completed four acquisitionsof Robinson and James Research Pty Limited (Australia), Fourth HurdleConsulting Limited (U.K.), Health Benchmarks, Inc. (U.S.) and RMBC PharmaLimited (Russia) at an aggregate cost of approximately $31,900 which wereaccounted for under the purchase method of accounting.  As such, the aggregate purchase price wasallocated on a preliminary basis to the assets acquired based on estimated fairvalues as of the closing date.  Thepurchase price allocations were finalized during the first quarter of 2009 andduring 2008. The Condensed Consolidated Financial Statements (Unaudited) includethe results of these acquired companies subsequent to the closing of theseacquisitions.  Had these acquisitionsoccurred as of January 1, 2008 or 2007, the impact on the Company’sresults of operations would not have been significant. Goodwill ofapproximately $22,200 was recorded in connection with these acquisitions, ofwhich $5,700 is deductible for tax purposes.

 

**Note 6.  Goodwill and Intangible Assets**

 

Goodwill and intangibleassets that have indefinite useful lives are not amortized and are tested atleast annually (or based on any triggering event) for impairment. The Companycompleted its annual impairment tests as of September 30, 2009 and 2008and was not required to recognize any goodwill impairment charges. During thenine months ended September 30, 2009, the Company’s goodwill increased by$35,999 mainly due to foreign currency translation adjustments. During the ninemonths ended September 30, 2008, the Company’s goodwill increased by$24,501 mainly due to the preliminary allocation of purchase price for theacquisitions completed during the nine months ended September 30, 2008(see Note 5).

 

Intangible assets thathave finite useful lives are amortized. All of the Company’s other acquiredintangibles are subject to amortization. Intangible asset amortization expensewas $4,347 and $13,231 during the three and nine months ended September 30,2009, respectively, and $4,814 and $14,303 during the three and nine monthsended September 30, 2008, respectively.  At September 30, 2009,intangible assets were primarily composed of customer relationships, databasesand trade names (principally included in other assets) and computersoftware.  The gross carrying amounts andrelated accumulated amortization of these intangibles were $188,397 and $111,866,respectively, at September 30, 2009 and $189,383 and $98,736,respectively, at December 31, 2008. These intangibles are amortized over periods ranging from two to twentyyears.  As of September 30, 2009,the weighted average amortization periods of the acquired intangibles by assetclass are listed in the following table:

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

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

Based on current estimated useful lives, amortizationexpense associated with intangible assets at September 30, 2009 isestimated to be approximately $4,060 for the remaining quarter in 2009.  Thereafter, annual amortization expenseassociated with intangible assets is estimated to be as follows:

 
| **Year Ended  December 31,** | ** ** | **Amortization  Expense** | ** ** |
|-----------------------------------|------------|---------------------------|------------|
| 2010                              |       | $                         | 13,299     |   |
| 2011                              |       | 11,963                    |       |
| 2012                              |       | 10,314                    |       |
| 2013                              |       | 10,036                    |       |
| 2014                              |       | 8,299                     |       |
| Thereafter                        |       | $                         | 18,560     |   |

 

**Note 7.  Contingencies**

 

The Company and its subsidiaries are involved in legaland tax proceedings, claims and litigation arising in the ordinary course ofbusiness. Management periodically assesses the Company’s liabilities andcontingencies in connection with these matters based upon the latestinformation available. For those matters where management currently believes itis probable that the Company will incur a loss and that the probable loss orrange of loss can be reasonably estimated, the Company has recorded reserves inthe Condensed Consolidated Financial Statements (Unaudited) based on its bestestimates of such loss. In other instances, because of the uncertaintiesrelated to either the probable outcome or the amount or range of loss,management is unable to make a reasonable estimate of a liability, if any.However, even in many instances where the Company has recorded a reserve, theCompany is unable to predict with certainty the final outcome of the matter orwhether resolution of the matter will materially affect the Company’s resultsof operations, financial position or cash flows. As additional informationbecomes available, the Company adjusts its assessment and estimates of suchliabilities accordingly.

 

The Company routinely enters into agreements with itssuppliers to acquire data and with its customers to sell data, all in thenormal course of business. In these agreements, the Company sometimes agrees toindemnify and hold harmless the other party for any damages such other partymay suffer as a result of potential intellectual property infringement andother claims related to the use of the data. These indemnities typically haveterms of approximately two years. The Company has not accrued a liability withrespect to these matters, as the exposure is considered remote.

 

Based on its review of the latest informationavailable, in the opinion of management, the ultimate liability of the Companyin connection with pending tax and legal proceedings, claims and litigationwill not have a material effect on the Company’s results of operations, cashflows or financial position, with the possible exception of the mattersdescribed below.

 

*D&B Legacy and Related Tax Matters*

 

**Sharing Disputes.** In 1996, the company then known as TheDun & Bradstreet Corporation (“D&B”) and now known as R.H.Donnelley Corporation (“Donnelley”) separated into three public 

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

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 VNUN.V. (“NMR”).  The agreements effectingthe 1996 Spin-Off allocated tax-related liability with respect to certain priorbusiness transactions between D&B and Cognizant.  The D&B portion of such liability is nowshared 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”).

 

The underlying tax controversies with the InternalRevenue Service (“IRS”) have substantially all been resolved and the Companypaid to the IRS the amounts that it believed were due and owing.  In the first quarter of 2006, Donnelleyindicated that it disputed the amounts contributed by the Company toward theresolution of these matters based on the Donnelley Parties’ interpretation ofthe allocation of liability under the 1996 Spin-Off agreements. In August 2006,the Donnelley Parties commenced arbitration regarding one of these disputes(referred to herein as the “Dutch Partnership Dispute”).  The Dutch Partnership Dispute was resolvedduring the third quarter of 2008 when the parties consented to the entry of aconsent award by the arbitration panel. Pursuant to the terms of the consent award, in the third quarter of2008, the Company made a payment of $4,600 ($3,100 net of tax benefit) and anadditional interest and cost payment of $2,600 ($1,700 net of tax benefit) tothe Donnelley Parties.  The remainingdisputes were resolved during the second quarter of 2009 by agreement among theparties.  Pursuant to the 2009 settlementagreement, the Company made a payment of $10,750 ($8,000 net of tax benefit) tothe Donnelley Parties in full satisfaction of its liability with respect to theremaining disputes (see Note 11).

 

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

 

In addition to these matters, the Company and itspredecessors have entered, and the Company continues to enter, into global taxplanning initiatives in the normal course of their businesses.  These activities are subject to review byapplicable tax authorities.  As a resultof the review process, uncertainties exist and it is possible that some ofthese matters could be resolved adversely to the Company.

 

*IMS Health Government Solutions VoluntaryDisclosure Program Participation*

 

The Company’s wholly-owned subsidiary, IMS GovernmentSolutions Inc., is primarily engaged in providing services and products undercontracts with the U.S. government.  U.S.government contracts are subject to extensive legal and regulatory requirementsand, from time to time, agencies of the U.S. government have the ability toinvestigate whether contractors’ operations are being 

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

conducted in accordance with such requirements.  U.S. government investigations, whetherrelating to these contracts or conducted for other reasons, could result inadministrative, civil or criminal liabilities, including repayments, fines orpenalties being imposed on us, or could lead to suspension or debarment fromfuture U.S. government contracting.  U.S.government investigations often take years to complete and may result in noadverse action against the Company.

 

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

 

*Other Contingencies*

 

**Contingent Consideration.** Under theterms of certain purchase agreementsrelated to acquisitions consummated in 2008 and prior, the Company may berequired to pay additional amounts as contingent consideration based on theachievement of certain performance related targets during 2009. Theseadditional payments will be recorded as either compensation expense orgoodwill.  The Company paid approximately$2,400 under these contingencies during 2009. Based on current estimates, theCompany expects that additional contingent consideration under these agreementsmay total approximately $3,200. It is expected that these contingencies will beresolved within a specified time period after the end of calendar year 2009.

 

15

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Table of Contents

 

**IMS HEALTH INCORPORATED**

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

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

 

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

 

The following table summarizesactivity of stock options for the periods indicated:

 
| ** **                                                       | ** ** | ** ** | ** ** | **Weighted**  | ** ** |
|------------------------------------------------------------------|------------|------------|------------|---------------|------------|
| ** **                                                       | ** ** | ** ** | ** ** | **Average**   | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | **Exercise**  | ** ** |
| ** **                                                       | ** ** | ** ** | ** ** | **Price Per** | ** ** |
| ** **                                                       | ** ** | **Shares** | ** ** | **Share**     | ** ** |
| Options  Outstanding, December 31, 2006                     |       | 21,396     |       | $             | 23.43      |   |
| Exercised                                                        |       | (6,299     | )          | $             | 22.72      |   |
| Forfeited                                                        |       | (200       | )          | $             | 24.14      |   |
| Cancelled                                                        |       | (371       | )          | $             | 27.61      |   |
| Options  Outstanding, December 31, 2007                     |       | 14,526     |       | $             | 23.62      |   |
| Granted                                                          |       | 1,159      |       | $             | 22.58      |   |
| Exercised                                                        |       | (277       | )          | $             | 19.91      |   |
| Forfeited                                                        |       | (88        | )          | $             | 23.86      |   |
| Cancelled                                                        |       | (2,141     | )          | $             | 25.51      |   |
| **Options Outstanding, December 31, 2008**                  | ** ** | **13,179** | ** ** | **$**         | **23.29**  | ** ** |
| **Granted**                                                      | ** ** | **1,795**  | ** ** | **$**         | **13.43**  | ** ** |
| **Forfeited**                                                    | ** ** | **(87**    | **)**      | **$**         | **17.50**  | ** ** |
| **Cancelled**                                                    | ** ** | **(3,323** | **)**      | **$**         | **26.68**  | ** ** |
| **Options Outstanding, September 30, 2009**                 | ** ** | **11,564** | ** ** | **$**         | **20.83**  | ** ** |
| **Options Vested or Expected to Vest,  September 30, 2009** | ** ** | **11,349** | ** ** | **$**         | **20.92**  | ** ** |
| **Exercisable, September 30, 2009**                         | ** ** | **9,092**  | ** ** | **$**         | **22.06**  | ** ** |

 

Thefollowing table summarizes activity of restricted stock units (“RSUs”) withservice conditions:

 
| ** **                                               | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                               | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                                               | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                               | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 31, 2006                        |       | 1,558      |       | $              | 25.04      |   |
| Granted                                                  |       | 1,219      |       | $              | 29.64      |   |
| Vested                                                   |       | (296       | )          | $              | 26.06      |   |
| Forfeited                                                |       | (148       | )          | $              | 28.09      |   |
| Unvested,  December 31, 2007                        |       | 2,333      |       | $              | 27.16      |   |
| Granted                                                  |       | 1,356      |       | $              | 22.24      |   |
| Vested                                                   |       | (569       | )          | $              | 27.45      |   |
| Forfeited                                                |       | (348       | )          | $              | 26.74      |   |
| **Unvested, December 31, 2008**                     | ** ** | **2,772**  | ** ** | **$**          | **24.75**  | ** ** |
| **Granted**                                              | ** ** | **2,100**  | ** ** | **$**          | **13.43**  | ** ** |
| **Vested**                                               | ** ** | **(870**   | **)**      | **$**          | **25.65**  | ** ** |
| **Forfeited**                                            | ** ** | **(183**   | **)**      | **$**          | **23.29**  | ** ** |
| **Unvested, September 30, 2009**                    | ** ** | **3,819**  | ** ** | **$**          | **18.39**  | ** ** |
| **Vested or Expected to Vest, September 30,  2009** | ** ** | **3,452**  | ** ** | **$**          | **18.51**  | ** ** |

 

16

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Tableof Contents

 

**IMS HEALTH INCORPORATED**

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

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

 

The following table summarizes activity of RSUs withperformance conditions:

 
| ** **                                               | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|----------------------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                                               | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                                               | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                               | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 31, 2006                        |       | 613        |       | $              | 24.20      |   |
| Granted                                                  |       | 402        |       | $              | 14.72      |   |
| Vested                                                   |       | (84        | )          | $              | 18.65      |   |
| Forfeited                                                |       | (6         | )          | $              | 27.00      |   |
| Unvested,  December 31, 2007                        |       | 925        |       | $              | 20.56      |   |
| Granted                                                  |       | 357        |       | $              | 12.97      |   |
| Vested                                                   |       | (109       | )          | $              | 23.86      |   |
| Forfeited                                                |       | (12        | )          | $              | 27.26      |   |
| **Unvested, December 31, 2008**                     | ** ** | **1,161**  |       | $              | **17.84**  |   |
| **Granted**                                              | ** ** | **675**    | ** ** | **$**          | **13.78**  | ** ** |
| **Vested**                                               | ** ** | **(536**   | **)**      | **$**          | **19.91**  | ** ** |
| **Forfeited**                                            | ** ** | **(40**    | **)**      | **$**          | **14.63**  | ** ** |
| **Unvested, September 30, 2009**                    | ** ** | **1,260**  | ** ** | **$**          | **15.82**  | ** ** |
| **Vested or Expected to Vest, September 30,  2009** | ** ** | **1,176**  | ** ** | **$**          | **15.08**  | ** ** |

 

The followingtable summarizes activity of non-employee director deferred stock granted inlieu of board meeting fees:

 
| ** **                               | ** ** | ** ** | ** ** | **Weighted**   | ** ** |
|------------------------------------------|------------|------------|------------|----------------|------------|
| ** **                               | ** ** | ** ** | ** ** | **Average**    | ** ** |
| ** **                               | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                               | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Outstanding,  December 31, 2006     |       | 33         |       | $              | 22.49      |   |
| Granted                                  |       | 5          |       | $              | 29.50      |   |
| Outstanding,  December 31, 2007     |       | 38         |       | $              | 23.37      |   |
| Granted                                  |       | 6          |       | $              | 19.71      |   |
| **Outstanding, December 31, 2008**  | ** ** | **44**     | ** ** | **$**          | **22.81**  | ** ** |
| **Granted**                              | ** ** | **6**      | ** ** | **$**          | **13.80**  | ** ** |
| **Issued**                               | ** ** | **(14**    | **)**      | **$**          | **21.68**  | ** ** |
| **Outstanding, September 30, 2009** | ** ** | **36**     | ** ** | **$**          | **21.71**  | ** ** |

 

Thefollowing table summarizes the components and classification of stock-basedcompensation expense for the periods indicated:

 

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**IMS HEALTH INCORPORATED**

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

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

 
| ** **                                         | ** ** | **Three Months Ended** | ** ** | **Nine Months Ended**  | ** ** |
|----------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                         | ** ** | **September 30,** | ** ** | **September 30,** | ** ** |
| ** **                                         | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Stock Options                                      | ** ** | **$**                  | **1,190**  |                   | $          | 424 | ** ** | **$** | **2,369** |   | $ | 3,641 |   |
| RSUs                                               | ** ** | **8,554**              |       | 5,401                  | ** ** | **22,981** |   | 18,413 |   |
| Employee  Stock Purchase Plan                      | ** ** | **—**             |       | —                 | ** ** | **—** |   | (2 | ) |
| Total  Stock-Based Compensation Expense            | ** ** | **$**                  | **9,744**  |                   | $          | 5,825 | ** ** | **$** | **25,350** |   | $ | 22,052 |   |
|                                               |       |                   |       |                   |       |   |   |   |   |
| Operating  Costs of I&A                        | ** ** | **$**                  | **669**    |                   | $          | 679 | ** ** | **$** | **1,906** |   | $ | 2,300 |   |
| Direct  and Incremental Costs of C&S           | ** ** | **1,194**              |       | 948                    | ** ** | **3,348** |   | 2,659 |   |
| Selling  and Administrative Expenses               | ** ** | **6,843**              |       | 4,198                  | ** ** | **19,058** |   | 17,093 |   |
| Severance,  Impairment and Other Charges (Note 15) | ** ** | **1,038**              |       | —                 | ** ** | **1,038** |   | — |   |
| Total  Stock-Based Compensation Expense            | ** ** | **$**                  | **9,744**  |                   | $          | 5,825 | ** ** | **$** | **25,350** |   | $ | 22,052 |   |
|                                               |       |                   |       |                   |       |   |   |   |   |
| Tax Benefit on  Stock-Based Compensation Expense   | ** ** | **$**                  | **3,055**  |                   | $          | 1,911 | ** ** | **$** | **8,009** |   | $ | 7,038 |   |
| ** **                                         | ** ** | ** **             | ** ** | ** **             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Capitalized Stock-Based  Compensation Expense      | ** ** | **$**                  | **52**     |                   | $          | 49 | ** ** | **$** | **135** |   | $ | 155 |   |

 

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

** **

**Note 9. Financial Instruments**

** **

On January 1, 2009,the Company adopted authoritative guidance which requires enhanced disclosuresabout an entity’s derivative and hedging activities as provided below. As thisauthoritative guidance requires only additional disclosures, the adoption of itdid not have an impact on the Company’s financial results.

 

***Foreign Exchange Risk Management***

** **

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

 

It is the Company’spolicy to enter into foreign currency transactions only to the extent necessaryto meet its objectives as stated above. The Company does not enter into foreigncurrency transactions

 

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**IMS HEALTH INCORPORATED**

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

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

 

for investment orspeculative purposes. The principal currencies hedged are the Euro, theJapanese Yen, the British Pound, the Swiss Franc and the Canadian Dollar.

 

The impact of foreign exchange riskmanagement activities on pre-tax income for the three and nine months ended September 30,2009 were net losses of $7,694 and net gains of $1,727, respectively, and netlosses of $2,934 and $27,662 for the three and nine months ended September 30,2008, respectively.

 

At September 30,2009, the Company had assets of approximately $528,182 and liabilities ofapproximately $542,835 in foreign exchange forward contracts outstanding withvarious expiration dates through September 2010 relating to non-US Dollarnet income, non-U.S. Dollar anticipated royalties and non-functional currencyassets and liabilities (see below). Foreign exchange forward contracts arerecorded at estimated fair value. The estimated fair values of the forwardcontracts are based on quoted market prices.

 

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

 

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

 
| ** **                                             | ** ** | **Fair Value of Derivative Instruments (****1)** | ** **  |
|--------------------------------------------------------|------------|--------------------------------------------------|-------------|
| ** **                                             | ** ** | **Asset Derivatives**                            | ** **  | **Liability Derivatives** | ** ** |
| ** **                                             | ** ** | **As of  September 30,  2009**              | ** **  | **As of  December 31,  2008** | ** ** | **As of  September 30,  2009** | ** ** | **As of  December 31,  2008** | ** ** |
| **Derivatives  designated as hedging instruments**     | ** ** | ** **                                       |        |   | ** ** | ** ** |   |   |   |
| Foreign Exchange Contracts                             | ** ** | **$**                                            | **180,589** |   | $ | 172,113 | ** ** | **$** | **192,191** |   | $ | 179,110 |   |
| **Derivatives not  designated as hedging instruments** | ** ** | ** **                                       |        |   | ** ** | ** ** |   |   |   |
| Foreign Exchange Contracts                             | ** ** | **347,593**                                      |        | 236,977 | ** ** | **350,644** |   | 238,023 |   |
| Total Derivatives                                      | ** ** | **$**                                            | **528,182** |   | $ | 409,090 | ** ** | **$** | **542,835** |   | $ | 417,133 |   |

 

----

*(1) The net amounts of thesederivatives are included in Current Assets and Current Liabilities in theCondensed Consolidated Statements of Financial Position (Unaudited).*

 

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**IMS HEALTH INCORPORATED**

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

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

 

 
| **Effect  of Derivatives on Financial Performance for the Three Months Ended  September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|
| **Derivatives in Cash  Flow Hedging**                                                              | ** ** | **Amount of  Gain/(Loss)  Recognized in OCI  on Derivatives** | ** ** | **Location of Gain/(Loss)  Reclassified from OCI** | ** ** | **Amount of  Gain/(Loss) from  OCI into Income** | ** ** |
| **Relationships**                                                                                  | ** ** | **2009** | ** ** | **2008** | ** ** | **into Income** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                               | ** ** | ** ** | ** ** |   |   |   | ** ** | ** ** | ** ** |   |   |
| Foreign Exchange Contracts                                                                         | ** ** | **$** | **(10,200** | **)** | $ | 1,500 |   | Other Income  (Expense), Net | ** ** | **$** | **(700** | **)** | $ | (3,600 | ) |
|                                                                                                    |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| **Effect of Derivatives on Financial  Performance for the Nine Months Ended September 30,** | ** ** |
|--------------------------------------------------------------------------------------------------|------------|
| **Derivatives in Cash  Flow Hedging**                                                            | ** ** | **Amount of  Gain/(Loss)  Recognized in OCI  on Derivatives** | ** ** | **Location of Gain/(Loss)  Reclassified from OCI** | ** ** | **Amount of  Gain/(Loss) from  OCI into Income** | ** ** |
| **Relationships**                                                                                | ** ** | **2009** | ** ** | **2008** | ** ** | **into Income** | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                                                                             | ** ** | ** ** | ** ** |   |   |   | ** ** | ** ** |   |   |   |
| Foreign Exchange Contracts                                                                       | ** ** | **$** | **(3,900** | **)** | $ | (6,100 | ) | Other Income  (Expense), Net | ** ** | **$** | **700** |   | $ | (11,800 | ) |
|                                                                                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

*FairValue Disclosures*

 

At September 30,2009, the Company’s financial instruments included cash, cash equivalents, andreceivables, accounts payable and long-term debt. At September 30, 2009,the fair values of cash, cash equivalents, receivables and accounts payableapproximated carrying values due to the short-term nature of these instruments.At September 30, 2009, the fair value of long-term debt approximatedcarrying value.

 

Effective January 1,2008, the Company adopted authoritative guidance which established athree-level hierarchy for disclosure of fair value measurements as follows:

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

 

The following tablesummarizes assets and liabilities measured at fair value on a recurring basisat the dates indicated:

 
| ** **      | ** ** | **Basis of Fair Value Measurements** | ** ** |
|-----------------|------------|--------------------------------------|------------|
| ** **      | ** ** | **September 30, 2009**          | ** ** |
| ** **      | ** ** | **Level 1**                          | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Assets**      |       |                                 |       |   |   |   |   |   |   |
| Derivatives (1) |       | $                                    | —     |   | $ | 528,182 |   | $ | — |   | $ | 528,182 |   |
|            |       |                                 |       |   |   |   |   |   |   |
| **Liabilities** |       |                                 |       |   |   |   |   |   |   |
| Derivatives (1) |       | $                                    | —     |   | $ | 542,835 |   | $ | — |   | $ | 542,835 |   |

 

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**IMS HEALTH INCORPORATED**

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

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

 
|            |   | **December 31, 2008** |   |
|-----------------|--------|----------------------------|--------|
| **Assets**      |   |                       |   |   |   |   |   |   |   |
| Derivatives (1) |   | $                          | — |   | $ | 409,090 |   | $ | — |   | $ | 409,090 |   |
|            |   |                       |   |   |   |   |   |   |   |
| **Liabilities** |   |                       |   |   |   |   |   |   |   |
| Derivatives (1) |   | $                          | — |   | $ | 417,133 |   | $ | — |   | $ | 417,133 |   |

 

----

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

 

*CreditConcentrations*

 

The Company continuallymonitors its positions with, and the credit quality of, the financialinstitutions which are counterparties to its financial instruments and does notanticipate non-performance by the counterparties. The Company would not realizea material loss as of September 30, 2009 in the event of non-performanceby any one counterparty.  In general, theCompany enters into transactions only with financial institution counterpartiesthat have a credit rating of A or better. In addition, the Company limits theamount of credit exposure with any one institution.

 

The Company maintains accounts receivable balances ($309,136 and$382,776, net of allowances, at September 30, 2009 and December 31,2008, respectively), principally from customers in the pharmaceutical industry.The Company’s trade receivables do not represent significant concentrations ofcredit risk at September 30, 2009 due to the credit worthiness of itscustomers and their dispersion across many geographic areas.

 

*Linesof Credit*

 

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

 
| ** **                                                                                                        | ** ** | **2009**    | ** **    | **2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|----------|------------|
| 5.58%  Private Placement Notes, principal payment of $105,000 due January 2015                               | ** ** | **$**       | **105,000**   |     | $          | 105,000 |   |
| 5.99%  Private Placement Notes, principal payment of $135,000 due January 2018                               | ** ** | **135,000** |          | 135,000  |       |
| 5.55%  Private Placement Notes, principal payment of $150,000 due April 2016                                 | ** ** | **150,000** |          | 150,000  |       |
| 1.70%  Private Placement Notes, principal payment of 34,395,000 Japanese Yen due  January 2013               | ** ** | **385,164** |          | 381,304  |       |
| Revolving  Credit Facility:                                                                                       | ** ** | ** **  |          |     |       |
| Japanese  Yen denominated borrowings at average floating rates of approximately 0.78%                             | ** ** | **360,686** |          | 435,895  |       |
| U.S.  Dollar denominated borrowings at average floating rates of approximately  0.65%                             | ** ** | **159,000** |          | 147,000  |       |
| Bank  Term Loan, principal payment of $50,000 due June 2011 at average  floating rate of approximately 0.59% | ** ** | **50,000**  |          | 50,000   |       |
| Total  Long-Term Debt                                                                                             | ** ** | **$**       | **1,344,850** |     | $          | 1,404,199 |   |

 

In February 2008, the Company closed a private placementtransaction pursuant to which it issued $105,000 of seven-year debt at a fixedrate of 5.58%, and $135,000 of ten-year debt at a fixed rate of 5.99% toseveral highly rated insurance companies. The Company used the proceeds for share

 

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**IMS HEALTH INCORPORATED**

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

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

 

repurchases (see Note 12) and to refinance existing debt.

 

In July 2006, the Company entered into a $1,000,000 revolvingcredit facility with a syndicate of 12 banks (“Revolving Credit Facility”)replacing its existing $700,000 facility. The terms of the Revolving Credit Facility extended the maturity of thefacility in its entirety to a term of five years, maturing July 2011,reduced the borrowing margins, and increased subsidiary borrowing limits.  Total borrowings under the Revolving CreditFacility were $519,686 and $582,895 at September 30, 2009 and December 31,2008, respectively, all of which were classified as long-term.  The Company defines long-term lines as thosewhere the lines are non-cancellable for more than 365 days from the balancesheet date by the financial institutions except for specified, objectivelymeasurable violations of the provisions of the agreement.  In general, rates for borrowing under theRevolving Credit Facility are LIBOR plus 40 basis points and can vary based onthe Company’s Debt to EBITDA ratio.  Theweighted average interest rates for the Company’s lines were 0.74% and 1.36% atSeptember 30, 2009 and December 31, 2008, respectively.  In addition, the Company is required to pay acommitment fee on any unused portion of the facilities of 0.01%.  At September 30, 2009, the Company hadapproximately $480,314 available under existing bank credit facilities.

 

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

 

InApril 2006, the Company closed a private placement transaction pursuant towhich it issued $150,000 of ten-year notes to two highly rated insurancecompanies at a fixed rate of 5.55%.  TheCompany used the proceeds to refinance existing debt of $150,000 drawn under ashort term credit agreement with a bank in January 2006.

 

InJanuary 2006, the Company closed a private placement transaction pursuantto which its 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%. The Company used the proceeds to refinanceexisting debt in Japan.

 

TheCompany’s financing arrangements provide for certain covenants and events ofdefault customary for similar instruments, including in the case of its mainbank arrangements, the private placement transactions, and the term loan,covenants to maintain specific ratios of consolidated total indebtedness toEBITDA and of EBITDA to certain fixed charges. At September 30, 2009, the Company was in compliance with thesefinancial debt covenants.

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

**Note 10.  Pensionand Postretirement Benefits**

** **

The following tableprovides the Company’s expense associated with pension and postretirementbenefits.  For a complete description ofthe Company’s pension and postretirement benefits, refer to Note 10 of theCompany’s 2008 Annual 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  September 30,**           | ** ** | **2009**             | ** ** | **2008**           | ** ** | **2009** | ** ** | **2008** | ** ** |
| Service cost                                         | ** ** | **$**                | **3,338**  |               | $          | 3,761 | ** ** | **$** | — |   | $ | — |   |
| Interest cost                                        | ** ** | **4,834**            |       | 5,094              | ** ** | **180** |   | 191 |   |
| Expected return on plan assets                       | ** ** | **(6,181**           | **)**      | (7,765             | )          | — |   | — |   |
| Amortization of prior service (credit) cost          | ** ** | **(28**              | **)**      | 2                  | ** ** | **(41** | **)** | (123 | ) |
| Amortization of net loss                             | ** ** | **2,329**            |       | 782                | ** ** | **206** |   | 155 |   |
| Curtailment charge                                   |       | —               |       | —             |       | — |   | 292 |   |
| Net periodic benefit cost                            | ** ** | **$**                | **4,292**  |               | $          | 1,874 | ** ** | **$** | **345** |   | $ | 515 |   |

** **
| **Components of Net Periodic  Benefit Cost for the** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|------------------------------------------------------|------------|----------------------|------------|--------------------|------------|
| **Nine Months Ended  September 30,**            | ** ** | **2009**             | ** ** | **2008**           | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                           |       |                 | ** ** | ** **         |       |   |   |   |   |
| Service cost                                         | ** ** | **$**                | **10,059** |               | $          | 12,376 | ** ** | **$** | — |   | $ | — |   |
| Interest cost                                        | ** ** | **14,278**           |       | 15,374             | ** ** | **540** |   | 575 |   |
| Expected return on plan assets                       | ** ** | **(18,111**          | **)**      | (23,623            | )          | — |   | — |   |
| Amortization of prior service (credit) cost          | ** ** | **(86**              | **)**      | 14                 | ** ** | **(123** | **)** | (129 | ) |
| Amortization of net loss                             | ** ** | **7,057**            |       | 2,046              | ** ** | **492** |   | 446 |   |
| Curtailment charge                                   |       | —               |       | —             |       | — |   | 292 |   |
| Settlement credit                                    | ** ** | **(8**               | **)**      | —             |       | — |   | — |   |
| Net periodic benefit cost                            | ** ** | **$**                | **13,189** |               | $          | 6,187 | ** ** | **$** | **909** |   | $ | 1,184 |   |

 

**Note 11.  Income Taxes**

 

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

 

For the three monthsended September 30, 2009, the Company’s effective tax rate was reduced bythe expiration of certain statutes of limitation (tax benefits of $14,100). Forthe nine months ended September 30, 2009, the Company’s effective tax ratewas reduced as a result of the expiration of certain statutes of limitation(tax benefits of $14,100), the reorganization of certain subsidiaries whichresulted in a foreign exchange loss recognized for tax purposes (tax benefit of$63,200), the settlement of a certain state tax matter (tax benefit of$16,300), the resolution of certain legacy tax matters (tax benefit of $9,500)(see Note 7, “Sharing Disputes.”) and the repayment of a certain intercompanyloan which resulted in a foreign exchange loss recognized for tax purposes (taxbenefit of $6,100).  For the three monthsended September 30, 2008, the Company’s effective rate was reduced by theresolution of a certain legacy tax matter (tax benefit

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

of $5,900).  Forthe nine months ended September 30, 2008, the Company’s effective tax ratewas reduced by the resolution of a certain legacy tax matter (tax benefit of$5,900), by the result of audit settlements with taxing authorities (taxbenefit of $10,300), and the result of filing an advance pricing agreement (“APA”)between two taxing jurisdictions (tax benefit of $4,900).  The APA ensures conformity between thejurisdictions’ taxing authorities regarding the treatment of certainintercompany transactions, thereby allowing the Company to record acorresponding tax benefit.  Also duringthis period, the Company recorded tax expense for tax positions related tonon-US transactions offset by a benefit related to the expiration of certainstatutes of limitation (net tax expense of $4,300).

 

For the three and ninemonths ended September 30, 2009, the Company recorded $5,300 and $12,500,respectively, of tax expense related to unrecognized tax benefits that ifrecognized, would favorably affect the effective tax rate.  Interest and penalties of $800 and $3,300,respectively, are included in these amounts. For the three and nine monthsended September 30, 2008, the Company recorded $5,200 and $15,200,respectively, of tax expense related to unrecognized tax benefits including$2,500 and $7,800, respectively, of interest and penalties.

 

The Company filesnumerous consolidated and separate income tax returns in U.S. (federal andstate) and non-U.S. jurisdictions.  The Company isno longer subject to U.S. federal income tax examination by tax authorities foryears before 2006. The Company is no longer subject to state and local incometax examination by tax authorities for years before 1997.  Further, with few exceptions, the Company isno longer subject to examination by tax authorities in its material non-U.S.jurisdictions prior to 2004.  It isreasonably possible that within the next twelve months the Company couldrealize $26,700 of unrecognized tax benefits as a result of the expiration of certainstatutes of limitation.

 

**Note 12.  IMS Health Capital Stock**

** **

The Company’s share repurchase program hasbeen developed to buy opportunistically, when the Company believes that itsshare price provides it with an attractive use of its cash flow and debtcapacity.

 

On December 18, 2007, the Board ofDirectors authorized a stock repurchase program to buy up to 20,000 shares. Asof September 30, 2009, 9,505 shares remained available for repurchaseunder the December 2007 program.

 

During the nine months ended September 30,2009, the Company did not repurchase any shares of outstanding Common Stockunder this program.

 

During the nine months ended September 30,2008, the Company repurchased 10,055 shares of outstanding Common Stock underthis program at a total cost of $230,433.

 

These share repurchases positively impactedthe Company’s diluted earnings per share by $0.01 and $0.03 for the three andnine months ended September 30, 2008, respectively.

 

Shares acquired through the Company’srepurchase programs described above are open-market purchases or privatelynegotiated transactions in compliance with SEC Rule 10b-18.

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

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

 

**Note 13. Noncontrolling Interests**

** **

On January 1,2009, the Company adopted authoritative guidance which established accountingand reporting standards pertaining to ownership interests in subsidiaries heldby parties other than the parent, the amount of net income attributable to theparent and to the noncontrolling interests, changes in a parent’s ownershipinterests, and the valuation of any retained noncontrolling equity investmentwhen a subsidiary is deconsolidated. This guidance also established disclosure requirements that identify anddistinguish between the interests of the parent and the interests of thenoncontrolling owners.  The adoption ofthis authoritative guidance resulted in the reclassification of amountspreviously referred to as minority interests and currently referred to asnoncontrolling interests, from mezzanine equity (between Total Liabilities andShareholders’ Deficit) to a separate component of Shareholders’ Deficit in theCompany’s Condensed Consolidated Statements of Financial Position(Unaudited).  Additionally, net incomeattributable to noncontrolling interests, which previously was included inOther expense, net on a pretax basis, is shown separately from net incomeattributable to the Company in the Company’s Condensed Consolidated Statementsof Income (Unaudited).  The adoption ofthis authoritative guidance did not have a material impact on the Company’sfinancial results.

 

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

 
| ** **                                                        | ** ** | **Three Months Ended  September 30,** | ** ** | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                        | ** ** | **2009**                                   | ** ** | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| Noncontrolling  interests, beginning of period                    | ** ** | **$**                                      | **1,462**  |                                      | $          | 1,984 | ** ** | **$** | **1,894** |   | $ | 1,444 |   |
| Income  attributable to noncontrolling interests                  | ** ** | **41**                                     |       | 302                                       | ** ** | **106** |   | 770 |   |
| Translation  adjustments attributable to noncontrolling interests | ** ** | **52**                                     |       | (348                                      | )          | **(445** | **)** | (276 | ) |
| Noncontrolling  interests, end of period                          | ** ** | **$**                                      | **1,555**  |                                      | $          | 1,938 | ** ** | **$** | **1,555** |   | $ | 1,938 |   |

 

In July 2006, theCompany, together with two of its wholly-owned subsidiaries, entered into anAmended and Restated Agreement of Limited Liability Company of IMS HealthLicensing Associates, L.L.C. (the “Amended LLC Agreement”).  The Amended LLC Agreement governed therelationship between the Company, its subsidiaries and two third-partyinvestors with respect to their interests in IMS Health Licensing Associates,L.L.C. (the “LLC”).  The LLC is aseparate and distinct legal entity that is in the business of licensingdatabase assets and computer software. The Company is the sole managing member of the LLC.  From 1997 until June 30, 2009, theCompany

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

and/or its subsidiaries,or their predecessors, had contributed assets to, and held a controllinginterest (approximately 93% at June 30, 2009) in the LLC, and thethird-party investors had contributed $100,000 to, and held a noncontrollinginterest (approximately 7% at June 30, 2009) in the LLC.  Pursuant to the terms of the Amended LLCAgreement, on May 6, 2009, the third-party investors elected to have theirnoncontrolling interests in the LLC liquidated or purchased by the Company orits designee.  On June 30, 2009, awholly-owned subsidiary of the Company purchased the third-party investors’noncontrolling interests in the LLC at a cost of $100,970, which the Companyfinanced through a combination of cash on-hand and borrowings under itsrevolving credit facility. Following the purchase of the noncontrollinginterests, the Company, together with its wholly-owned subsidiaries, hold 100%of the membership interest in the LLC. These third-party investor contributions qualified as redeemablenoncontrolling interests as their redemption was not solely within the controlof the Company.  As such, theseredeemable noncontrolling interests were presented in mezzanine equity in theCompany’s Condensed Consolidated Statements of Financial Position(Unaudited).  Net income related to theseredeemable noncontrolling interests amounted to $1,888 for the nine monthsended September 30, 2009 and $1,099 and $3,298, respectively, for thethree and nine months ended September 30, 2008 and is included in netincome attributable to noncontrolling interests in the Company’s CondensedConsolidated Statements of Income (Unaudited).

 

**Note 14.  Comprehensive Income**

 

The following table sets forth the components ofcomprehensive (loss) income, net of income tax expense:

 
| ** **                                                  | ** ** | **Three Months Ended  September 30,** | ** **  | **Nine Months Ended  September 30,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------|-------------|-------------------------------------------|------------|
| ** **                                                  | ** ** | **2009**                                   | ** **  | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Net (loss) income**                                       | ** ** | **$**                                      | **(9,259**  | **)**                                     | $          | 77,313 | ** ** | **$** | **188,911** |   | $ | 216,849 |   |
| Other  comprehensive (loss) income, net of tax:             | ** ** | ** **                                 |        |                                      | ** ** | ** ** |   |   |   |
| Foreign  currency translation (losses) gains                | ** ** | **(19,265**                                | **)**       | (59,725                                   | )          | **19,586** |   | (45,749 | ) |
| Amortization  of postretirement and postemployment balances | ** ** | **4,316**                                  |        | (251                                      | )          | **6,061** |   | 1,010 |   |
| Total  other comprehensive (loss) income, net of tax        | ** ** | **(14,949**                                | **)**       | (59,976                                   | )          | **25,647** |   | (44,739 | ) |
|                                                        | ** ** | ** **                                 |        |                                      | ** ** | ** ** |   |   |   |
| Comprehensive  (loss) income                                | ** ** | **(24,208**                                | **)**       | 17,337                                    | ** ** | **214,558** |   | 172,110 |   |
| Less  comprehensive (loss) income attributable to:          | ** ** | ** **                                 |        |                                      | ** ** | ** ** |   |   |   |
| Noncontrolling  interests in permanent equity               | ** ** | **124**                                    |        | (45                                       | )          | **(339** | **)** | 494 |   |
| Redeemable  noncontrolling interests in mezzanine equity    |       | —                                     |        | 1,099                                     | ** ** | **1,888** |   | 3,298 |   |
| Comprehensive  (loss) income attributable to IMS Health     | ** ** | **$**                                      | **(24,332** | **)**                                     | $          | 16,283 | ** ** | **$** | **213,009** |   | $ | 168,318 |   |

 

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

** **

Inresponse to accelerating healthcare marketplace dynamics compounded by asustained economic downturn, during the third quarter of 2009, the Companycommitted to a streamlining program (the “Plan”) designed to eliminateapproximately 850 positions in all areas of the Company’s business and in allregions in which the Company operates; however, the majority of actions areplanned for the Company’s Europe, Middle East and Africa (“EMEA”) region. As aresult of the Company’s plans to

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

reduceand consolidate the number of operating units, the Plan further includescharges for certain real estate lease impairments along with relatedaccelerated depreciation.

 

Duringthe third quarter of 2009 the Company recorded $104,301 in Severance,impairment and other charges and $2,024 in accelerated Depreciation and otheramortization.

 

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

 

Theactions under the Plan were intended to: 1) streamline the Company’s EMEAregion organization, including right-sizing the headquarters function, reducingand consolidating the number of operating units across the region, andimproving the productivity of production and development activities; 2)leverage the foundational investments in process improvements the Company hasmade to reduce costs and improve productivity in its Sales, Finance, HumanResources and Customer Delivery and Development organizations; 3) reducecapacity and align the size of the Sales and Management Consulting teams inareas of reduced client demand; and 4) continue to build and invest inhigh-value, strategic growth areas, which include extending the Company’scapabilities in specialty and patient-centered insights, in serving payers andgovernments, and in emerging markets for pharmaceuticals.

 

TheCompany currently estimates that the total charge under the Plan will be in therange of $110,000 to $112,000 in 2009 for severance, impairment and othercharges and accelerated depreciation and amortization. The balance is expectedto be recorded in during the fourth quarter of 2009 as the Company exitscertain real estate facilities.

 

Thecash portion is estimated to be in the range of $106,000 to $108,000 and willbe funded from cash generated from operations. Employee termination actionsunder the Plan are expected to be completed by the end of the third quarter of2010.

 
| ** **                          | ** ** | **Severance** | ** ** | **Facility** | ** ** | **Non-Cash**     | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------|------------|--------------|------------|------------------|------------|-----------------|------------|------------|------------|
| ** **                          | ** ** | **Related**   | ** ** | **Exit**     | ** ** | **Compensation** | ** ** | **Translation** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Reserves**  | ** ** | **Charges**  | ** ** | **Charges**      | ** ** | **Adjustments** | ** ** | **Total**  | ** ** |
| Charge at  August 31, 2009     |       | $             | 100,653    |         | $          | 2,610            |       | $               | 1,038      |       | $          | — |   | $ | 104,301 |   |
| 2009 utilization                    |       | (1,097        | )          | —       |       | (1,038           | )          | —          |       | (2,135     | )          |
| Currency  translation adjustments   |       | —        |       | —       |       | —           |       | 1,240           |       | 1,240      |       |
| Balance at  September 30, 2009 |       | $             | 99,556     |         | $          | 2,610            |       | $               | —     |       | $          | 1,240 |   | $ | 103,406 |   |

 

The Company currently expects that cashoutlays will be applied against the $103,406 balance remaining in the 2009third quarter charge at September 30, 2009 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|----------------------------------|------------|-------------|------------|
| 2009                             |       | $           | 23,308     |   |
| 2010                             |       | 76,306      |       |
| 2011                             |       | 1,744       |       |
| 2012                             |       | 361         |       |
| 2013                             |       | 268         |       |
| Thereafter                       |       | 1,419       |       |
| Total                            |       | $           | 103,406    |   |

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

During the second quarterof 2009, the Company recorded $25,428 in charges as a component of operatingincome.  Of this amount, $17,210 relatedto non-cash impairment charges for the write-down of certain capitalizedsoftware assets to their net realizable values in the Company’s Americas andEMEA regions.  The write-downs were theresult of the regular review of the Company’s capitalized software assets.  The remaining $8,218 was for suppliercontract-related charges for which the Company will not realize any futureeconomic benefit.

 

During the fourth quarter of 2008, the Company recorded $9,408 ofnon-cash impairment charges as a component of operating income related to thewrite-off of certain capitalized software assets in its EMEA and AsiaPacific regions.  This was the result ofthe discontinuation of certain IMS products at the end of 2008.

 

During the fourth quarter of 2007, the Company committed to a restructuringplan designed to eliminate approximately 1,070 positions worldwide inproduction and development, sales, marketing, consulting and services andadministration.  The plan also includedthe write-down of two impaired computer software assets and related contractpayments to be incurred with no future economic benefit based on the Company’sdecision to abandon certain products in its EMEA region.  As a result, the Company recorded $88,690 ofSeverance, impairment and other charges as a component of operating income inthe fourth quarter of 2007.  Theseverance benefits were calculated pursuant to the terms of establishedemployee protection plans, in accordance with local statutory minimumrequirements or individual employee contracts, as applicable.

 

These charges were designed to strengthen client-facing operationsworldwide, increase the Company’s operating efficiencies and streamline itscost structure.  Some of the initiativesincluded in this plan are designed to better align the Company’s resources tohelp clients manage for change in a challenging climate.

 

The severance and contract payments portion of the fourth quarter 2007charge was approximately $75,043 and will all be settled in cash. Terminationactions under the plan have been completed.

 
| ** **                          | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                          | ** ** | **Related**   | ** ** | **Related**  | ** ** | **Write-** | ** ** | **Translation** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Reserves**  | ** ** | **Reserves** | ** ** | **Downs**  | ** ** | **Adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007   |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                    |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                    |       | (48,645       | )          | (2,150       | )          | —     |       | —          |       | (50,795    | )          |
| 2009 utilization                    |       | (15,859       | )          | (817         | )          | —     |       | —          |       | (16,676    | )          |
| Currency  translation adjustments   |       | —        |       | —       |       | —     |       | (1,806          | )          | (1,806     | )          |
| Balance at  September 30, 2009 |       | $             | 7,079      |         | $          | 493        |       | $               | —     |       | $          | (1,806 | ) | $ | 5,766 |   |

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 

The Company currently expects that cashoutlays will be applied against the $5,766 balance remaining in the 2007 fourthquarter charge at September 30, 2009 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|----------------------------------|------------|-------------|------------|
| 2009                             |       | $           | 4,914      |   |
| 2010                             |       | 717         |       |
| 2011                             |       | 135         |       |
| Total                            |       | $           | 5,766      |   |

 

**Note 16.  Operations by Business Segment**

** **

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

 

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

 

**GeographicFinancial Information:**

 

The following representsselected geographic information for the regions in which the Company operatesfor the three and nine months ended September 30, 2009 and 2008.

 
| ** **                                      | ** ** | **Americas  (1)** | ** **  | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate & Other** | ** **  | **Total  IMS** | ** ** |
|-------------------------------------------------|------------|-------------------|-------------|---------------|------------|-----------------------|------------|--------------------------------|-------------|----------------|------------|
| **Three months ended September 30, 2009:** |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating Revenue (4)                           | ** ** | **$**             | **239,807** | ** **    | **$**      | **213,925**           | ** ** | **$**                          | **87,039**  | ** **     | **$**      | **—** | ** ** | **$** | **540,771** | ** ** |
| Operating  Income (Loss) (5)                    | ** ** | **$**             | **68,801**  | ** **    | **$**      | **22,991**            | ** ** | **$**                          | **30,017**  | ** **     | **$**      | **(127,353** | **)** | **$** | **(5,544** | **)** |
| **Nine months ended September 30, 2009:**  | ** ** | ** **        | ** **  | ** **    | ** ** | ** **            | ** ** | ** **                     | ** **  | ** **     | ** ** |
| Operating  Revenue (4)                          | ** ** | **$**             | **708,628** | ** **    | **$**      | **630,487**           | ** ** | **$**                          | **251,440** | ** **     | **$**      | **—** | ** ** | **$** | **1,590,555** | ** ** |
| Operating  Income (Loss) (5)                    | ** ** | **$**             | **199,582** | ** **    | **$**      | **67,638**            | ** ** | **$**                          | **88,681**  | ** **     | **$**      | **(191,293** | **)** | **$** | **164,608** | ** ** |
| **Three months ended September 30, 2008:** |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating Revenue (4)                           |       | $                 | 251,332     |          | $          | 243,219               |       | $                              | 79,164      |           | $          | — |   | $ | 573,715 |   |
| Operating  Income (Loss) (5)                    |       | $                 | 75,275      |          | $          | 34,276                |       | $                              | 27,266      |           | $          | (12,841 | ) | $ | 123,976 |   |
| **Nine months ended September 30, 2008:**  |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating  Revenue (4)                          |       | $                 | 760,783     |          | $          | 744,513               |       | $                              | 243,308     |           | $          | — |   | $ | 1,748,604 |   |
| Operating  Income (Loss) (5)                    |       | $                 | 236,866     |          | $          | 83,122                |       | $                              | 89,782      |           | $          | (38,035 | ) | $ | 371,735 |   |

 

----

**Notes to Geographic FinancialInformation:**

 
| *(1)* | * * | *Americas includes the United  States, Canada and Latin America.* |
|-------|----------|-------------------------------------------------------------------|

 

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**IMSHEALTH INCORPORATED**

**NOTESTO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

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

 
| *(2)* | * * | *EMEA includes countries in  Europe, the Middle East and Africa.*                                                                                                                                                                                                                                                                                                                                                                       |
|-------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(3)* | * * | *Asia Pacific includes Japan,  Australia and other countries in the Asia Pacific region.*                                                                                                                                                                                                                                                                                                                                               |
| *(4)* | * * | *Operating Revenue relates to  external customers and is primarily based on the location of the customer.  The Operating Revenue for the geographic regions includes the impact of  foreign exchange in converting results into U.S. dollars.*                                                                                                                                                                                          |
| *(5)* | * * | *Operating Income for the three  geographic regions does not reflect the allocation of certain expenses (including  severance, impairment and other charges) that are maintained in Corporate and  Other and as such, is not a true measure of the respective regions’  profitability. The Operating Income amounts for the geographic segments  include the impact of foreign exchange in converting results into U.S.  dollars.* |

 

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

 
| ** **                               | ** ** | **Three Months Ended  September 30,** | ** **  | **Nine Months Ended  September 30,** | ** ** |
|------------------------------------------|------------|--------------------------------------------|-------------|-------------------------------------------|------------|
| ** **                               | ** ** | **2009**                                   | ** **  | **2008**                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
| Commercial  Effectiveness                | ** ** | **$**                                      | **269,996** |                                      | $          | 279,816 | ** ** | **$** | **793,019** |   | $ | 866,598 |   |
| Product &  Portfolio Management | ** ** | **168,842**                                |        | 174,640                                   | ** ** | **502,846** |   | 544,861 |   |
| New  Business Areas                      | ** ** | **101,933**                                |        | 119,259                                   | ** ** | **294,690** |   | 337,145 |   |
| Operating  Revenue                       | ** ** | **$**                                      | **540,771** |                                      | $          | 573,715 | ** ** | **$** | **1,590,555** |   | $ | 1,748,604 |   |

 

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

 

On October 20, 2009,the Company announced that it is exploring a variety of strategic alternatives.The Company further stated that as part of the process, the Board of Directors hasformed a committee, which has retained a financial advisor. The Company hasalso retained its own financial advisor. There can be no assurance that theexploration of strategic alternatives will result in a transaction.

 

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

 

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

 

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

 

***Executive Summary***

*** ***

***Our Business***

*** ***

IMS Health Incorporated (“IMS,”“we,” “us” or “our”) is the leading global provider of market intelligence tothe pharmaceutical and healthcare industries. We offer leading-edge marketintelligence products and services that are integral to our clients’ day-to-dayoperations, including product and portfolio management capabilities; commercialeffectiveness innovations; managed care and consumer health offerings; andconsulting and services solutions that improve productivity and the delivery ofquality healthcare worldwide. Our information products are developed to meetclient needs by using data secured from a worldwide network of suppliers inmore than 100 countries. Our business lines are:

 

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

 

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

 

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

 

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

 

Weoperate in more than 100 countries.

 

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

 

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

 

**Performance Overview**

 

Operating revenuedeclined 5.7% to $540,771 in the third quarter of 2009 as compared to $573,715in the third quarter of 2008 and declined 9.0% to $1,590,555 in the nine monthsended September 30, 2009 as compared to $1,748,604 in the nine monthsended September 30, 2008 as a result of revenue declines in all three ofour business lines.  Our operating incomedeclined $129,520 to an operating loss of $5,544 in the third quarter of 2009as compared to $123,976 of operating income in the third quarter of 2008 due to$104,301 of severance, impairment and other charges and the related $2,024non-cash charge for accelerated depreciation and amortization, the decrease inour operating revenue and an increase in our selling and administrativeexpenses, partially offset by decreases in our operating costs, as discussedbelow.

 

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Our operatingincome declined $207,127 to $164,608 in the nine months ended September 30,2009 as compared to $371,735 in the nine months ended September 30, 2008due to the decrease in our operating revenue, $129,729 of severance, impairmentand other charges and the related $2,024 non-cash charge for accelerateddepreciation and amortization, partially offset by decreases in our operatingcosts and selling and administrative expenses, as discussed below.  Our net income attributable to IMS declined$85,212 to a net loss of $9,300 for the third quarter of 2009 as compared tonet income of $75,912 for the third quarter of 2008 due to the decrease inoperating income and an increase in the non-operating loss, net items discussedbelow, partially offset by certain tax items as discussed in Note 11 of theCondensed Consolidated Financial Statements (Unaudited).  Our net income attributable to IMS declined$25,865 to $186,917 for the nine months ended September 30, 2009 ascompared to $212,782 for the nine months ended September 30, 2008 due tothe decrease in operating income, partially offset by a decrease in thenon-operating loss, net items discussed below and certain tax items asdiscussed in Note 11 of the Condensed Consolidated Financial Statements(Unaudited).  Our diluted earnings pershare of Common Stock decreased to a loss of $0.05 for the third quarter of2009 as compared to income of $0.41 for the third quarter of 2008 and decreasedto income of $1.02 for the nine months ended September 30, 2009 ascompared to $1.16 for the nine months ended September 30, 2008.

 

**Resultsof Operations**

 

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

 

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

 

*References to selling andadministrative expenses, operating income and operating margin excludingseverance, impairment and other charges, the non-cash charge for accelerateddepreciation and amortization and the 2008 Government Solutions charge.*We discuss below what our selling andadministrative expenses, operating income and operating margin for the threeand nine months ended September 30, 2009 and 2008 would have been had wenot recorded severance, impairment and other charges, the non-cash charge foraccelerated depreciation and amortization and the 2008 Government Solutionscharge. Because we did not record similar charges in the prior periods, webelieve providing these non-GAAP measures is useful to investors as itfacilitates comparisons across the periods presented and more clearly indicatestrends. Management uses these non-GAAP measures in its global decision-making,including developing budgets and managing expenditures.

 

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**Summary of Operating Results**

 
| ** **                                   | ** ** | ** **                                | ** **  | ** ** | ** ** | **% Variance** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|-------------|------------|------------|----------------|------------|
| ** **                                   | ** ** | **Three Months Ended September 30,** | ** **  | **2009**   | ** ** |
| ** **                                   | ** ** | **2009**                                  | ** **  | **2008**   | ** ** | **vs 2008**    | ** ** |
| Information  and analytics revenue (I&A) | ** ** | **$**                                     | **425,197** |       | $          | 445,654        |       | (4.6 | )% |
| Consulting  and services revenue (C&S)   | ** ** | **115,574**                               |        | 128,061    |       | (9.8           | )%         |
| Operating  Revenue                           | ** ** | **540,771**                               |        | 573,715    |       | (5.7           | )%         |
|                                         | ** ** | ** **                                |        |       |       |           |       |
| Operating  costs of I&A                  | ** ** | **181,974**                               |        | 190,139    |       | 4.3            | %          |
| Direct  and incremental costs of C&S     | ** ** | **58,774**                                |        | 62,185     |       | 5.5            | %          |
| External-use  software amortization          | ** ** | **9,823**                                 |        | 12,291     |       | 20.1           | %          |
| Selling  and administrative expenses         | ** ** | **166,885**                               |        | 161,878    |       | (3.1           | )%         |
| Depreciation  and other amortization         | ** ** | **24,558**                                |        | 23,246     |       | (5.6           | )%         |
| Severance,  impairment and other charges     | ** ** | **104,301**                               |        | —     |       | —         |       |
| Operating  Income                            | ** ** | **$**                                     | **(5,544**  | **)**      | $          | 123,976        |       | (104.5 | )% |

* *
| ** **                                   | ** ** | ** **                               | ** **    | ** ** | ** ** | **% Variance** | ** ** |
|----------------------------------------------|------------|------------------------------------------|---------------|------------|------------|----------------|------------|
| ** **                                   | ** ** | **Nine Months Ended September 30,** | ** **    | **2009**   | ** ** |
| ** **                                   | ** ** | **2009**                                 | ** **    | **2008**   | ** ** | **vs 2008**    | ** ** |
| Information  and analytics revenue (I&A) | ** ** | **$**                                    | **1,253,885** |       | $          | 1,355,281      |       | (7.5 | )% |
| Consulting  and services revenue (C&S)   | ** ** | **336,670**                              |          | 393,323    |       | (14.4          | )%         |
| Operating  Revenue                           | ** ** | **1,590,555**                            |          | 1,748,604  |       | (9.0           | )%         |
|                                         | ** ** | ** **                               |          |       |       |           |       |
| Operating  costs of I&A                  | ** ** | **528,213**                              |          | 576,514    |       | 8.4            | %          |
| Direct  and incremental costs of C&S     | ** ** | **176,931**                              |          | 202,641    |       | 12.7           | %          |
| External-use  software amortization          | ** ** | **30,464**                               |          | 38,048     |       | 19.9           | %          |
| Selling  and administrative expenses         | ** ** | **490,211**                              |          | 493,010    |       | 0.6            | %          |
| Depreciation  and other amortization         | ** ** | **70,399**                               |          | 66,656     |       | (5.6           | )%         |
| Severance,  impairment and other charges     | ** ** | **129,729**                              |          | —     |       | —         |       |
| Operating  Income                            | ** ** | **$**                                    | **164,608**   |       | $          | 371,735        |       | (55.7 | )% |

 

***Operating Income***

 

Our operatingincome for the third quarter of 2009 declined $129,520 to an operating loss of$5,544 from $123,976 of operating income in the third quarter of 2008.  This was due to $104,301 of severance,impairment and other charges and the related $2,024 non-cash charge foraccelerated depreciation and amortization (see Note 15 to our CondensedConsolidated Financial Statements (Unaudited)), the decrease in our operatingrevenue and an increase in our selling and administrative expenses, partiallyoffset by decreases in our operating costs driven by decreased cost of data andtight controls on hiring.  Our operatingincome decreased $133,643 or 115.3% in constant dollar terms. Absent the impactof severance, impairment and other charges and the related non-cash charge foraccelerated depreciation and amortization and the 2008 Government Solutionscharge of $3,748 (see Note 7 to our Condensed Consolidated Financial Statements(Unaudited)), non-GAAP operating income would have decreased 21.1% at reportedrates and 27.8% in constant dollar terms (see “Reconciliation of U.S. GAAPMeasures to Non-GAAP Measures” at the end of this Item 2).  Our operating income for the first ninemonths of 2009 declined $207,127 to $164,608 from $371,735 in the first ninemonths of 2008.  This was due to the decreasein our operating 

 

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revenue, $129,729of severance, impairment and other charges and the related $2,024 non-cashcharge for accelerated depreciation and amortization, partially offset bydecreases in our operating costs and selling and administrative expenses drivenby decreased cost of data and tight controls on hiring.  Our operating income decreased $218,021 or63.7% in constant dollar terms.  Absentthe impact of severance, impairment and other charges and the related non-cashcharge for accelerated depreciation and amortization and the 2008 GovernmentSolutions charge of $3,748, non-GAAP operating income would have decreased21.1% at reported rates and 27.0% in constant dollar terms (see “Reconciliationof U.S. GAAP Measures to Non-GAAP Measures” at the end of this Item 2).

 

***OperatingRevenue***

 

Our operating revenue forthe third quarter of 2009 declined 5.7% to $540,771 from $573,715 in the thirdquarter of 2008. On a constant dollar basis, operating revenue declined4.1%.  Operating revenue for the firstnine months of 2009 declined 9.0% to $1,590,555 from $1,748,604 in the firstnine months of 2008. On a constant dollar basis, operating revenue declined4.7%.  On a constant dollar basis,acquisitions completed within the prior twelve months contributed approximately0.4 percentage points and 0.6 percentage points of revenue growth for the thirdquarter and first nine months of 2009, respectively, partially offsetting ouroperating revenue decline for these same periods.  The decrease in our operating revenueresulted from revenue declines in all three of our business lines, togetherwith the effect of approximately $11,000 and $82,000 of currency translationfor the third quarter and first nine months of 2009, respectively, as comparedto the third quarter and first nine months of 2008.

 

**Summaryof Operating Revenue**

 
| ** **                               | ** ** | ** **                                | ** **  | ** **       | ** ** | **% Variance** | ** ** |
|------------------------------------------|------------|-------------------------------------------|-------------|------------------|------------|----------------|------------|
| ** **                               | ** ** | ** **                                | ** **  | **2009 vs 2008** | ** ** |
| ** **                               | ** ** | **Three Months Ended September 30,** | ** **  | **Reported**     | ** ** | **Constant**   | ** ** |
| ** **                               | ** ** | **2009**                                  | ** **  | **2008**         | ** ** | **Rates**      | ** ** | **Dollar** | ** ** |
| Commercial  Effectiveness                | ** ** | **$**                                     | **269,996** |             | $          | 279,816        |       | (3.5 | )% | (2.6 | )% |
| Product &  Portfolio Management | ** ** | **168,842**                               |        | 174,640          |       | (3.3           | )%         | (1.6 | )% |
| New  Business Areas                      | ** ** | **101,933**                               |        | 119,259          |       | (14.5          | )%         | (11.2 | )% |
| Operating  Revenue                       | ** ** | **$**                                     | **540,771** |             | $          | 573,715        |       | (5.7 | )% | (4.1 | )% |

 
| ** **                               | ** ** | ** **                               | ** **    | ** **       | ** ** | **% Variance** | ** ** |
|------------------------------------------|------------|------------------------------------------|---------------|------------------|------------|----------------|------------|
| ** **                               | ** ** | ** **                               | ** **    | **2009 vs 2008** | ** ** |
| ** **                               | ** ** | **Nine Months Ended September 30,** | ** **    | **Reported**     | ** ** | **Constant**   | ** ** |
| ** **                               | ** ** | **2009**                                 | ** **    | **2008**         | ** ** | **Rates**      | ** ** | **Dollar** | ** ** |
| Commercial  Effectiveness                | ** ** | **$**                                    | **793,019**   |             | $          | 866,598        |       | (8.5 | )% | (4.7 | )% |
| Product &  Portfolio Management | ** ** | **502,846**                              |          | 544,861          |       | (7.7           | )%         | (3.2 | )% |
| New  Business Areas                      | ** ** | **294,690**                              |          | 337,145          |       | (12.6          | )%         | (6.9 | )% |
| Operating  Revenue                       | ** ** | **$**                                    | **1,590,555** |             | $          | 1,748,604      |       | (9.0 | )% | (4.7 | )% |

 

·      *Commercial Effectiveness:* EMEA contributed approximately two-thirdsand the Americas contributed more than one-third to the constant dollar revenuedecline for the third quarter of 2009, slightly offset by revenue growth inAsia Pacific.  Each of EMEA and theAmericas contributed approximately one-half to the constant dollar revenuedecline for the first nine months of 2009, 

 

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slightly offset byrevenue growth in Asia Pacific.

 

·      *Product & Portfolio Management:* The Americas contributed more thantwo-thirds and EMEA contributed more than one-quarter to the constant dollarrevenue decline for the third quarter of 2009, slightly offset by revenuegrowth in Asia Pacific.  Each of EMEA andthe Americas contributed approximately one-half to the constant dollar revenuedecline for the first nine months of 2009.

 

·      *New Business Areas:* EMEA contributed approximately three-quarters and theAmericas contributed approximately one-quarter to the constant dollar revenuedecline for the third quarter of 2009, slightly offset by revenue growth inAsia Pacific.  Each of EMEA and theAmericas contributed approximately one-half to the constant dollar revenuedecline for the first nine months of 2009.

 

Consulting and services (“C&S”)revenue, as included in the business lines above, was $115,574 in the thirdquarter of 2009, down 9.8% from $128,061 in the third quarter of 2008 (down7.5% on a constant dollar basis). C&S revenue was $336,670 in the firstnine months of 2009, down 14.4% from $393,323 in the first nine months of 2008(down 9.8% on a constant dollar basis).

 

***OperatingCosts of Information and Analytics***

 

Operating costs ofinformation and analytics (“I&A”) include costs of data, data processingand collection and costs attributable to personnel involved in production, datamanagement and delivery of our I&A offerings.

 

Our operating costs ofI&A declined 4.3% to $181,974 in the third quarter of 2009 from $190,139 inthe third quarter of 2008 and declined 8.4% to $528,213 in the first ninemonths of 2009 from $576,514 in the first nine months of 2008.

 

·      *Foreign Currency Translation*: The effect of foreign currencytranslation decreased our operating costs of I&A by approximately $6,000 and$36,000 for the third quarter and first nine months of 2009, respectively, ascompared to the third quarter and first nine months of 2008.

 

Excluding theeffect of foreign currency translation, our operating costs of I&A declined1.2% and 2.3% in the third quarter and first nine months of 2009, respectively,as compared to the third quarter and first nine months of 2008.

 

·      *Data*: Data costs decreased by approximately $2,000 and$12,000 in the third quarter and first nine months of 2009, respectively, ascompared to the third quarter and first nine months of 2008.

 

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

 

Direct and incrementalcosts of C&S include the costs of consulting staff directly involved withdelivering revenue-generating engagements, related accommodations and the costsof primary market research data purchased specifically for certain individualC&S engagements.  Direct andincremental costs of C&S do not include an allocation of direct costs ofdata that are included within I&A.

 

Our direct andincremental costs of C&S declined 5.5% to $58,774 in the third quarter of2009 from $62,185 in the third quarter of 2008 and declined 12.7% to $176,931in the first nine months of 2009 from 

 

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$202,641 in the firstnine months of 2008.

 

·      *Foreign Currency Translation*: The effect of foreign currencytranslation decreased our direct and incremental costs of C&S byapproximately $4,000 and $16,000 for the third quarter and first nine months of2009, respectively, as compared to the third quarter and first nine months of2008.

 

Excluding the effect offoreign currency translation, our direct and incremental costs of C&Sincreased 0.5% in the third quarter of 2009 as compared to the third quarter of2008 and declined 5.2% in the first nine months of 2009 as compared to thefirst nine months of 2008.

 

C&S costs in thethird quarter of 2009 were comparable to the third quarter of 2008.  C&S costs decreased by approximately$10,000 in the first nine months of 2009 as compared to the first nine monthsof 2008, due to decreased labor cost.

 

***External-UseSoftware Amortization***

 

Our external-use software amortizationcharges represent the amortization associated with capitalized software to besold, leased, or otherwise marketed.  Ourexternal-use software amortization charges declined 20.1% to $9,823 in thethird quarter of 2009 from $12,291 in the third quarter of 2008 and declined19.9% to $30,464 in the first nine months of 2009 from $38,048 in the firstnine months of 2008. This was due to decreased software amortization associatedwith assets that were fully amortized or written-down to their net realizablevalues.

 

***Sellingand Administrative Expenses***

 

Our selling andadministrative expenses consist primarily of the expenses attributable tosales, marketing, and administration, including human resources, legal,management and finance.  Our selling andadministrative expenses increased 3.1% to $166,885 in the third quarter of 2009from $161,878 in the third quarter of 2008 and declined 0.6% to $490,211 in thefirst nine months of 2009 from $493,010 in the first nine months of 2008.  Absent the 2008 Government Solutions chargeof $3,748 (see Note 7 to our Condensed Consolidated Financial Statements(Unaudited)), our non-GAAP selling and administrative expenses would have grown5.5% and 0.2% in the third quarter and first nine months of 2009 as compared tothe third quarter and first nine months of 2008 (see “Reconciliation of U.S.GAAP Measures to Non-GAAP Measures” at the end of this Item 2).

 

·      *Foreign Currency Translation*: The effect of foreign currencytranslation decreased our selling and administrative expenses by approximately$7,000 and $41,000 for the third quarter and first nine months of 2009,respectively, as compared to the third quarter and first nine months of 2008.

 

Excluding the effect offoreign currency translation and the Government Solutions charge, our non-GAAPselling and administrative expenses grew 10.4% and 9.1% in third quarter andfirst nine months of 2009, respectively, as compared to the third quarter andfirst nine months of 2008.

 

·      *Sales and Marketing*: Sales and marketing expenses decreased $2,000 and$4,000 in the third quarter and first nine months of 2009 as compared to thethird quarter and first nine months of 2008.

 

·      *Consulting and Services*: C&S expenses remained relatively flat in the third quarter of 2009as compared to the third quarter of 2008. C&S expenses increased $16,000 in the first nine months of 

 

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2009 as compared to thefirst nine months of 2008.  Absent the2008 Government Solutions charge, C&S expenses would have increased byapproximately $4,000 in the third quarter of 2009 as compared to the third quarterof 2008 and increased by approximately $20,000 in the first nine months of 2009as compared to the first nine months of 2008.

 

·      *Administrative and Other*: Other expenses increased $13,000 in the third quarter of 2009 ascompared to the third quarter of 2008 and increased $26,000 in the first ninemonths of 2009 as compared to the first nine months of 2008.

 

***Depreciationand Other Amortization***

 

Our depreciation andother amortization charges increased 5.6% to $24,558 in the third quarter of2009 from $23,246 in the third quarter of 2008, and 5.6% to $70,399 in thefirst nine months of 2009 from $66,656 in the first nine months of 2008, due to$2,024 of accelerated depreciation and amortization recorded in the threemonths ended September 30, 2009 primarily related to exited facilities aspart of the streamlining program noted under Severance, impairment and othercharges below.

 

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

 

During the third quarterof 2009, we recorded $104,301 in charges as a component of operating income foremployee termination benefits and facility exit costs as a result of thestreamlining program announced by the Company in July 2009 in response toaccelerating healthcare marketplace dynamics compounded by a sustained economicdownturn. During the second quarter of 2009, we recorded $25,428 in charges asa component of operating income related to non-cash impairment charges for thewrite-down of certain capitalized software assets to their net realizablevalues in our Americas and EMEA regions and for supplier contract-relatedcharges for which we will not realize any future economic benefit. See Note 15to our Condensed Consolidated Financial Statements (Unaudited).

 

***Trendsin our Operations***

 

Our operatingmargin for the third quarter of 2009 was (1.0)% as compared to 21.6% in thethird quarter of 2008.  Our operatingmargin for the first nine months of 2009 was 10.3% as compared to 21.3% in thefirst nine months of 2008. Margins were negatively impacted by revenue declinesand the severance, impairment and other charges and related accelerateddepreciation and amortization noted above, partially offset by decreased costsof panel and decreased sales and marketing costs. Excluding the severance,impairment and other charges and related accelerated depreciation andamortization noted above, our non-GAAP operating margin for both the three andnine months ended September 30, 2009 would have been 18.6% (see “Reconciliationof U.S. GAAP Measures to Non-GAAP Measures” at the end of this Item 2).

 

We have several offerings in the U.S. thatutilize prescriber-identifiable information. Over the past several years, there have been a number of statelegislative initiatives seeking to impose restrictions on the commercial use ofsuch information. To date, three states, New Hampshire, Vermont and Maine, havepassed laws placing certain restrictions on the license, use or transfer ofprescriber-identifiable information for commercial purposes. Collectively,these three states represent approximately one percent of prescription activityin the U.S. and therefore the impact of these laws on our business, financialcondition and results of operations is not expected to be material. Foradditional information regarding the status of the laws passed in the threestates noted above and related legislative developments in other jurisdictions,see Part II. Item 1A. Risk Factors.

 

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***Non-OperatingLoss, Net***

 

Our non-operating loss,net, increased to $17,189 in the third quarter of 2009 from $11,614 in thethird quarter of 2008 and decreased to $24,818 in the first nine months of 2009from $54,053 in the first nine months of 2008. This was due to the following factors:

 

·      *Interest Expense, net*: Net interest expense was $8,778 and$25,825 for the third quarter and first nine months of 2009, respectively, ascompared to $9,012 and $26,670 for the third quarter and first nine months of2008.  This improvement was due to lowerdebt levels and lower borrowing costs in the third quarter and first ninemonths of 2009 as compared to the third quarter and first nine months of 2008.

 

·      *Gains (Losses) from Investments, net*: In the third quarter of 2009, we incurred a loss of $618 related to thewrite down for other-than-temporary declines in the value of certaininvestments.  In the third quarter of2008, gains from investments of $379 were the result of the sale of marketablesecurities.

 

·      *Other Income (Expense), net*:***Other income,net, declined by $4,812 in the third quarter of 2009 as compared to the thirdquarter of 2008.  This was a result ofnet foreign exchange losses of $7,694 in the third quarter of 2009 as comparedto net foreign exchange losses of $2,934 in the third quarter of 2008. Otherincome, net, grew by $29,350 in the first nine months of 2009 as compared tothe first nine months of 2008.  This wasa result of net foreign exchange gains of $1,727 in the first nine months of2009 as compared to net foreign exchange losses of $27,662 in the first ninemonths of 2008.*

 

***Taxes***

 

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

 

For the three months endedSeptember 30, 2009, our effective tax rate was reduced by the expirationof certain statutes of limitation (tax benefits of $14,100).  For the nine months ended September 30,2009, our effective tax rate was reduced as a result of the expiration of certainstatutes of limitation (tax benefits of $14,100), the reorganization of certainsubsidiaries which resulted in a foreign exchange loss recognized for taxpurposes (tax benefit of $63,200), the settlement of a certain state tax matter(tax benefit of $16,300), the resolution of certain legacy tax matters (taxbenefit of $9,500) (see Note 7 to our Condensed Consolidated FinancialStatements (Unaudited),“Sharing Disputes.”) and the repayment of a certainintercompany loan which resulted in a foreign exchange loss recognized for taxpurposes (tax benefit of $6,100).  Forthe three months ended September 30, 2008, our effective rate was reducedby the resolution of a certain legacy tax matter (tax benefit of $5,900).  For the nine months ended September 30,2008, our effective tax rate was reduced by the resolution of a certain legacytax matter (tax benefit of $5,900), by the result of audit settlements withtaxing authorities (tax benefit of $10,300), and the result of filing anadvance pricing agreement (“APA”) between two taxing jurisdictions (tax benefitof $4,900).  The APA ensures conformitybetween the jurisdictions’ taxing authorities regarding the treatment ofcertain intercompany transactions, thereby allowing us to record acorresponding tax benefit.  Also duringthis period, we recorded tax expense for tax positions related to non-UStransactions offset by a benefit related to the expiration of certain statutesof limitation (net tax expense of $4,300).

 

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For the three and ninemonths ended September 30, 2009, we recorded $5,300 and $12,500,respectively, of tax expense related to unrecognized tax benefits that ifrecognized, would favorably affect the effective tax rate.  Interest and penalties of $800 and $3,300,respectively, are included in these amounts. For the three and nine monthsended September 30, 2008, we recorded $5,200 and $15,200, respectively, oftax expense related to unrecognized tax benefits including $2,500 and $7,800,respectively, of interest and penalties.

 

We file numerousconsolidated and separate income tax returns in U.S. (federal and state) andnon-U.S. jurisdictions.  We are no longersubject to U.S. federal income tax examination by tax authorities for yearsbefore 2006. We are no longer subject to state and local income tax examinationby tax authorities for years before 1997. Further, with few exceptions, we areno longer subject to examination by tax authorities in its material non-U.S.jurisdictions prior to 2004.  It isreasonably possible that within the next twelve months we could realize $26,700of unrecognized tax benefits as a result of the expiration of certain statutesof limitation.

 

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

 

***NetIncome Attributable to Noncontrolling Interests***

 

On January 1,2009, we adopted authoritative guidance which established accounting andreporting standards pertaining to ownership interests in subsidiaries held byparties other than the parent, the amount of net income attributable to theparent and to the noncontrolling interests, changes in a parent’s ownershipinterests, and the valuation of any retained noncontrolling equity investmentwhen a subsidiary is deconsolidated.  Asa result of the adoption of this authoritative guidance, net incomeattributable to noncontrolling interests, which previously was included inOther expense, net on a pretax basis, is shown separately from net incomeattributable to us in our Condensed Consolidated Statements of Income(Unaudited).  Net Income Attributable to Noncontrolling Interestsdecreased to $41 and $1,994 in the third quarter and first nine months of 2009,respectively, from $1,401 and $4,067 in the third quarter and first nine monthsof 2008, respectively, due to the liquidation of third-party investors’noncontrolling interests in IMS Health Licensing Associates, L.L.C. in secondquarter of 2009. See Note 13 to our Condensed Consolidated Financial Statements(Unaudited).

 

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## **Table of Contents**

 

## **OperatingResults by Geographic Region**

## ** **

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

 
| ** **                                      | ** ** | **Americas  (1)** | ** **  | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate & Other** | ** **  | **Total  IMS** | ** ** |
|-------------------------------------------------|------------|-------------------|-------------|---------------|------------|-----------------------|------------|--------------------------------|-------------|----------------|------------|
| **Three months ended September 30, 2009:** |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating  Revenue (4)                          | ** ** | **$**             | **239,807** | ** **    | **$**      | **213,925**           | ** ** | **$**                          | **87,039**  | ** **     | **$**      | **—** | ** ** | **$** | **540,771** | ** ** |
| Operating  Income (Loss) (5)                    | ** ** | **$**             | **68,801**  | ** **    | **$**      | **22,991**            | ** ** | **$**                          | **30,017**  | ** **     | **$**      | **(127,353** | **)** | **$** | **(5,544** | **)** |
| **Nine months ended September 30, 2009:**  | ** ** | ** **        | ** **  | ** **    | ** ** | ** **            | ** ** | ** **                     | ** **  | ** **     | ** ** |
| Operating  Revenue (4)                          | ** ** | **$**             | **708,628** | ** **    | **$**      | **630,487**           | ** ** | **$**                          | **251,440** | ** **     | **$**      | **—** | ** ** | **$** | **1,590,555** | ** ** |
| Operating  Income (Loss) (5)                    | ** ** | **$**             | **199,582** | ** **    | **$**      | **67,638**            | ** ** | **$**                          | **88,681**  | ** **     | **$**      | **(191,293** | **)** | **$** | **164,608** | ** ** |
| **Three months ended September 30, 2008:** |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating  Revenue (4)                          |       | $                 | 251,332     |          | $          | 243,219               |       | $                              | 79,164      |           | $          | — |   | $ | 573,715 |   |
| Operating  Income (Loss) (5)                    |       | $                 | 75,275      |          | $          | 34,276                |       | $                              | 27,266      |           | $          | (12,841 | ) | $ | 123,976 |   |
| **Nine months ended September 30, 2008:**  |       |              |        |          |       |                  |       |                           |        |           |       |
| Operating  Revenue (4)                          |       | $                 | 760,783     |          | $          | 744,513               |       | $                              | 243,308     |           | $          | — |   | $ | 1,748,604 |   |
| Operating  Income (Loss) (5)                    |       | $                 | 236,866     |          | $          | 83,122                |       | $                              | 89,782      |           | $          | (38,035 | ) | $ | 371,735 |   |

 

----

**Notes to Geographic FinancialInformation:**

 
| *(1)* | * * | *Americas includes the United  States, Canada and Latin America.*                                                                                                                                                                                                                                                                                                                                                                       |
|-------|----------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| *(2)* | * * | *EMEA includes countries in  Europe, the Middle East and Africa.*                                                                                                                                                                                                                                                                                                                                                                       |
| *(3)* | * * | *Asia Pacific includes Japan,  Australia and other countries in the Asia Pacific region.*                                                                                                                                                                                                                                                                                                                                               |
| *(4)* | * * | *Operating Revenue relates to  external customers and is primarily based on the location of the customer.  The Operating Revenue for the geographic regions includes the impact of  foreign exchange in converting results into U.S. dollars.*                                                                                                                                                                                          |
| *(5)* | * * | *Operating Income for the three  geographic regions does not reflect the allocation of certain expenses  (including severance, impairment and other charges) that are maintained in  Corporate and Other and as such, is not a true measure of the respective  regions’ profitability. The Operating Income amounts for the geographic segments  include the impact of foreign exchange in converting results into U.S.  dollars.* |

 

 

***Americas Region***

 

Operating revenuedeclined 4.6% and 6.9% in the Americas region in the third quarter and firstnine months of 2009 as compared to the third quarter and first nine months of2008, respectively.  Excluding the effectof foreign currency translations, operating revenue declined 3.4% and 4.9% inthe third quarter and first nine months of 2009 as compared to the third quarterand first nine months of 2008, respectively. This was driven approximately one-third by Commercial Effectiveness andmore than one-third by New Business Areas for the third quarter of 2009.  The revenue decline in the first nine monthsof 2009 was driven approximately one-half by Commercial Effectiveness and morethan one-quarter by New Business Areas.

 

Operating income in theAmericas region declined 8.6% and 15.7% in the third quarter and first ninemonths of 2009 as compared to the third quarter and first nine months of 2008,respectively.  The operating incomedecline reflected revenue declines in the region partially offset by decreasesin operating expenses of $5,000 and $15,000 in the third quarter and first ninemonths of 2009, respectively.  Excludingthe effect of foreign currency translations, operating income decreased 7.6%and 14.2% in the third quarter and first nine months of 2009 as compared to thethird quarter and first nine months of 2008, respectively.

 

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***EMEARegion***

 

Operating revenuedecreased in the EMEA region by 12.0% and 15.3% in the third quarter and firstnine months of 2009 as compared to the third quarter and first nine months of2008, respectively.  Excluding the effectof foreign currency translations, operating revenue declined 7.3% and 6.2% inthe third quarter and first nine months of 2009 as compared to the thirdquarter and first nine months of 2008, respectively.  The revenue decline in the third quarter of2009 was driven approximately one-third by Commercial Effectiveness andapproximately two-thirds by New Business Areas. The revenue decline in thefirst nine months of 2009 was driven more than one-half by CommercialEffectiveness and more than one-quarter by New Business Areas.

 

Operating income in theEMEA region declined 32.9% and 18.6% in the third quarter and first nine monthsof 2009 as compared to the third quarter and first nine months of 2008, respectively.  The operating income decline reflectedrevenue declines in the region partially offset by decreases in operatingexpenses of $18,000 and $99,000 in the third quarter and first nine months of2009, respectively.  Excluding the effectof foreign currency translations, operating income decreased 52.4% and 43.0% inthe third quarter and first nine months of 2009 as compared to the thirdquarter and first nine months of 2008, respectively.

 

***Asia Pacific Region***

 

Operatingrevenue in the Asia Pacific region increased 9.9% and 3.3% in the third quarter and first nine months of2009 as compared to the third quarter and first nine months of 2008. Excluding the effect of foreign currency translations, operating revenueincreased 3.3% and 0.6% in the third quarter and first nine months of2009 as compared to the third quarter and first nine months of 2008,respectively.  The revenue growth in the thirdquarter of 2009 was driven about equally by all three of our businesslines.  The revenue growth in the first ninemonths of 2009 was driven approximately two-thirds by Commercial Effectivenessand more than one-third by New Business Areas, partially offset by revenuedecline in the Product & Portfolio Management business line.

 

Operatingincome in the Asia Pacific region grew by 10.1% in the third quarter of 2009 ascompared to the third quarter of 2008 and declined 1.2% in the first nine months of 2009 as compared tothe first nine months of 2008.  Operating income grew in the thirdquarter of 2009 as a result of revenue growth in the region partially offset byincreases in operating expenses of $5,000. In the first nine months of 2009, the operating income decline reflectedrevenue growth in the region more than offset by increases in operatingexpenses of $9,000.  Excluding the effectof foreign currency translations, operating income grew 1.1% in the thirdquarter of 2009 as compared to the third quarter of 2008 and decreased by 5.5%in the first nine months of 2009 as compared to the first nine months of 2008.

 

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

### ** **

We operate globally,deriving a significant portion of our operating income from non-U.S.operations.  As a result, fluctuations inthe value of foreign currencies in which we transact business relative to theU.S. dollar may increase the volatility of U.S. dollar operating results.  We enter into foreign currency forwardcontracts to partially offset the effect of currency fluctuations. Foreigncurrency translation increased the U.S. dollar revenue decline by approximately1.6 and 4.3 percentage points in the third quarter and first nine months of2009, respectively, while the impact on the operating income decline was anapproximate decrease of 10.8 and 8.0 percentage points in the third quarter andfirst nine months of 2009, respectively. In 2008, foreign currency translationincreased U.S. dollar revenue growth by 

 

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approximately 3.9 and 6.0percentage points in the third quarter and first nine months of 2008,respectively, while the impact on operating income growth was an approximateincrease of 4.8 and 7.4 percentage points in the third quarter and first ninemonths of 2008, respectively.

 

Non-U.S. monetary assets aremaintained in currencies other than the U.S. dollar, principally the Euro, theJapanese Yen and the Swiss Franc.  Wheremonetary assets are held in the functional currency of the local entity,changes in the value of these currencies relative to the U.S. dollar arereflected in Cumulative translation adjustment in the Condensed ConsolidatedStatements of Financial Position (Unaudited). The effect of exchange rate changes during the first nine months of 2009increased the U.S. dollar amount of Cash and cash equivalents by $10,438. Theeffect of exchange rate changes during the first nine months of 2008 decreasedthe US dollar amount of cash and cash equivalents by $3,162.

 

***Liquidityand Capital Resources***

*** ***

Our cash and cashequivalents increased $86,029 to $301,711 at September 30, 2009 comparedto $215,682 at December 31, 2008. The increase reflects cash provided by operating activities of $347,534and an increase of $10,438 due to the effect of exchange rate changes,partially offset by cash used in investing and financing activities of $79,653and $192,290, respectively.

 

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

 

·   development of software to be usedin our new products and capital expenditures to expand and upgrade ourinformation technology capabilities and to build or acquire facilities to houseour business (we currently expect to spend approximately $110,000 to $120,000over the next twelve months for software development and capital expenditures);

 

·   acquisitions (see Note 5 to ourCondensed Consolidated Financial Statements (Unaudited));

 

·   dividends to our shareholders (weexpect that dividends will be $0.12 per share or approximately $22,000 over thenext twelve months);

 

·   payments of approximately $116,000related to our restructuring plans and our second quarter 2009 suppliercontract-related charge, of which approximately $110,000 is expected to be paidover the next twelve months (see Note 15 to our Condensed ConsolidatedFinancial Statements (Unaudited));

 

·   pension and other postretirementbenefit plan contributions (we currently expect contributions to U.S. andnon-U.S. pension and other postretirement benefit plans to total approximately$10,600 in 2009) (see Note 10 to our Condensed Consolidated FinancialStatements (Unaudited) for information regarding our pension and postretirementbenefit plan expense); and

 

·   share repurchases (see Note 12 toour Condensed Consolidated Financial Statements (Unaudited)).

 

Net cash providedby operating activities amounted to $347,534 for the nine months ended September 30,2009, which represented an increase of $94,972 compared to cash provided byoperating activities during the comparable period in 2008. The increase relatesto higher accrued severance, impairment and other balances (See Note 15 to ourCondensed Consolidated Financial Statements (Unaudited)), lower accountsreceivable balances, the lower funding of prepaid expenses and other 

 

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current assets,higher deferred revenue balances and the lower funding of accrued expenses andother current liabilities, partially offset by lower accrued taxes and lowernet income during the nine months ended September 30, 2009.  The decrease in accounts receivable wasdriven by a decrease in DSO (days sales outstanding), which was ten days lowerin the third quarter of 2009 as compared to the prior year comparable quarter.The decrease in DSO was the result of improved collections and receivablesmanagement and lower revenue.

 

Net cash used ininvesting activities amounted to $79,653 for the nine months ended September 30,2009, a decrease in cash used of $56,554 over the comparable period in2008.  The decrease relates to lowerpayments for acquisitions and lower capital expenditures, partially offset byhigher additions to computer software during the nine months ended September 30,2009 as compared to the prior year comparable period.

 

Net cash used infinancing activities amounted to $192,290 for the nine months ended September 30,2009, an increase of $90,036 compared to cash used in financing activitiesduring the comparable period in 2008. This increase was due to lower net borrowings of debt, the purchase ofthird-party ownership interests in IMS Health Licensing Associates, L.L.C. (seeNote 13 to our Condensed Consolidated Financial Statements (Unaudited)), lowerproceeds from the exercise of stock options and a decrease in cash overdrafts,partially offset by lower purchases of treasury stock during the nine monthsended September 30, 2009 as compared to the prior year comparable period.

 

Our financingactivities include cash dividends we paid of $0.03 per share quarterly, whichamounted to $16,151 and $16,626 during the nine months ended September 30,2009 and 2008, respectively.  Thepayments and level of cash dividends made by us are subject to the discretionof our Board of Directors.  Any futuredividends, other than the $0.03 per share dividend for the fourth quarter of2009, which was declared by our Board of Directors in October 2009, willbe based on, and affected by, a number of factors, including our operatingresults and financial requirements.

 

**Capital and Credit Markets**

 

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

 

*Liquidityin the Capital and Credit Markets*

 

We fund ourliquidity needs for capital investment, working capital, and other financialcommitments through cash flow from continuing operations and our diversifiedcredit facility ($480,314 in aggregate commitment available as of September 30,2009). While not significant to us to date, contraction in capital and creditmarkets may result in increased borrowing costs in the future.

 

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*Credit Concentrations*

 

We continuallymonitor our positions with, and the credit quality of, the financialinstitutions which are counterparties to our financial instruments and do notanticipate non-performance by the counterparties.  We would not have realized a material lossduring the quarter ended September 30, 2009 in the event ofnon-performance by any one counterparty. In general, we enter into transactions only with financial institutioncounterparties that have a credit rating of A or better.  In addition, we limit the amount of creditexposure with any one institution. Particularly in light of the current credit environment, management willcontinue to monitor the status of these counterparties and will take action, asappropriate, to further manage its counterparty credit risk.

 

We maintainaccounts receivable balances ($309,136 and $382,776, net of allowances, at September 30,2009 and December 31, 2008, respectively), principally from customers inthe pharmaceutical industry.  Our tradereceivables do not represent significant concentrations of credit risk at September 30,2009 due to the credit worthiness of our customers and their dispersion acrossmany geographic areas.

 

**Taxand Other Contingencies**

 

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

 

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

 

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

 

**Stock Repurchase Programs**

 

Our share repurchase program has beendeveloped to buy opportunistically, when we believe that our share priceprovides us with an attractive use of our cash flow and debt capacity.

 

On December 18, 2007, the Board ofDirectors authorized a stock repurchase program to buy up to 20,000 shares. Asof September 30, 2009, 9,505 shares remained available for repurchaseunder the December 2007 program.

 

During the nine months ended September 30,2009, we did not repurchase any shares of outstanding Common Stock under thisprogram.

 

During the nine months ended September 30,2008, we repurchased 10,055 shares of outstanding Common Stock under thisprogram at a total cost of $230,433.

 

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These share repurchases positively impactedour diluted earnings per share by $0.01 and $0.03 for the three and nine monthsended September 30, 2008, respectively.

 

Shares acquired through our repurchaseprograms described above are open-market purchases or privately negotiatedtransactions in compliance with SEC Rule 10b-18.

 

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

 

**Borrowings**

 

In recent years, we haveincreased debt levels to balance appropriately the objective of generating anattractive cost of capital with providing us a reasonable amount of financialflexibility.  At September 30, 2009,our debt totaled $1,344,850, and management does not believe that this level ofdebt poses a material risk to us due to the following factors:

 

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

 

·      at September 30, 2009, we had$301,711 in worldwide cash and cash equivalents;

 

·      at September 30, 2009, we had$480,314 of unused debt capacity under our existing bank credit facilities; and

 

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

 

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

 
| ** **                                                                                                        | ** ** | **2009**    | ** **    | **2008** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|----------|------------|
| 5.58%  Private Placement Notes, principal payment of $105,000 due January 2015                               | ** ** | **$**       | **105,000**   |     | $          | 105,000 |   |
| 5.99%  Private Placement Notes, principal payment of $135,000 due January 2018                               | ** ** | **135,000** |          | 135,000  |       |
| 5.55%  Private Placement Notes, principal payment of $150,000 due April 2016                                 | ** ** | **150,000** |          | 150,000  |       |
| 1.70%  Private Placement Note, principal payment of 34,395,000 Japanese Yen due  January 2013                | ** ** | **385,164** |          | 381,304  |       |
| Revolving  Credit Facility:                                                                                       | ** ** | ** **  |          |     |       |
| Japanese  Yen denominated borrowings at average floating rates of approximately 0.78%                             | ** ** | **360,686** |          | 435,895  |       |
| U.S.  Dollar denominated borrowings at average floating rates of approximately  0.65%                             | ** ** | **159,000** |          | 147,000  |       |
| Bank  Term Loan, principal payment of $50,000 due June 2011 at average  floating rate of approximately 0.59% | ** ** | **50,000**  |          | 50,000   |       |
| Total  Long-Term Debt                                                                                             | ** ** | **$**       | **1,344,850** |     | $          | 1,404,199 |   |

 

In February 2008, we closed a private placement transactionpursuant to which we issued $105,000 of seven-year debt at a fixed rate of5.58%, and $135,000 of ten-year debt at a fixed rate of 5.99% to several 

 

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highly rated insurance companies. We used theproceeds for share repurchases (see Note 12 to our Condensed ConsolidatedFinancial Statements (Unaudited)) and to refinance existing debt.

 

In July 2006, we entered into a $1,000,000 revolving creditfacility with a syndicate of 12 banks (“Revolving Credit Facility”) replacingour existing $700,000 facility.  Theterms of the Revolving Credit Facility extended the maturity of the facility inits entirety to a term of five years, maturing July 2011, reduced theborrowing margins, and increased subsidiary borrowing limits.  Total borrowings under the Revolving CreditFacility were $519,686 and $582,895 at September 30, 2009 and December 31,2008, respectively, all of which were classified as long-term.  We define long-term lines as those where thelines are non-cancellable for more than 365 days from the balance sheet date bythe financial institutions except for specified, objectively measurableviolations of the provisions of the agreement. In general, rates for borrowing under the Revolving Credit Facility areLIBOR plus 40 basis points and can vary based on our Debt to EBITDA ratio. Theweighted average interest rates for our lines were 0.74% and 1.36% at September 30,2009 and December 31, 2008, respectively. In addition, we are required to pay a commitment fee on any unusedportion of the facilities of 0.01%. At September 30, 2009, we hadapproximately $480,314 available under existing bank credit facilities.

 

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

 

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

 

In January 2006, we closed a private placement transactionpursuant to which our Japanese subsidiary issued 34,395,000 Japanese Yenseven-year debt (equal to $300,000 at date of issuance) to several highly ratedinsurance companies at a fixed rate of 1.70%. We used the proceeds to refinance existing debt in Japan.

 

Our financing arrangements provide for certain covenants and events ofdefault customary for similar instruments, including in the case of our mainbank arrangements, the private placement transactions, and the term loan,covenants to maintain specific ratios of consolidated total indebtedness toEBITDA and of EBITDA to certain fixed charges. At September 30, 2009, we were in compliance with these financialdebt covenants.

 

**Severance, Impairment and OtherCharges**

 

In response to accelerating healthcare marketplacedynamics compounded by a sustained economic downturn, during the third quarterof 2009, we committed to a streamlining program (the “Plan”) designed toeliminate approximately 850 positions in all areas of our business and in allregions in which we operate; however, the majority of actions are planned forour Europe, Middle East and Africa (“EMEA”) region. As a result of our Plan toreduce and consolidate the number of operating units, the Plan further includescharges for certain real estate lease impairments along with relatedaccelerated depreciation.

 

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Duringthe third quarter of 2009 we recorded $104,301 in Severance, impairment andother charges and $2,024 in accelerated Depreciation and other amortization.

 

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

 

Theactions under the Plan were intended to: 1) streamline our EMEA regionorganization, including right-sizing the headquarters function, reducing andconsolidating the number of operating units across the region, and improvingthe productivity of production and development activities; 2) leverage thefoundational investments in process improvements we have made to reduce costsand improve productivity in our Sales, Finance, Human Resources and CustomerDelivery and Development organizations; 3) reduce capacity and align the sizeof the Sales and Management Consulting teams in areas of reduced client demand;and 4) continue to build and invest in high-value, strategic growth areas, whichinclude extending our capabilities in specialty and patient-centered insights,in serving payers and governments, and in emerging markets for pharmaceuticals.

 

Wecurrently estimate that the total charge under the Plan will be in the range of$110,000 to $112,000 in 2009 for severance, impairment and other charges andaccelerated depreciation and amortization. The balance is expected to berecorded during the fourth quarter of 2009 as we exit certain real estatefacilities. The cash portion is estimated to be in the range of $106,000 to$108,000 and will be funded from cash generated from operations. Employeetermination actions under the Plan are expected to be completed by the end ofthe third quarter of 2010.

 
| ** **                          | ** ** | **Severance** | ** ** | **Facility** | ** ** | **Non-Cash**     | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------|------------|--------------|------------|------------------|------------|-----------------|------------|------------|------------|
| ** **                          | ** ** | **Related**   | ** ** | **Exit**     | ** ** | **Compensation** | ** ** | **Translation** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Reserves**  | ** ** | **Charges**  | ** ** | **Charges**      | ** ** | **Adjustments** | ** ** | **Total**  | ** ** |
| Charge at  August 31, 2009     |       | $             | 100,653    |         | $          | 2,610            |       | $               | 1,038      |       | $          | — |   | $ | 104,301 |   |
| 2009 utilization                    |       | (1,097        | )          | —       |       | (1,038           | )          | —          |       | (2,135     | )          |
| Currency  translation adjustments   |       | —        |       | —       |       | —           |       | 1,240           |       | 1,240      |       |
| Balance at  September 30, 2009 |       | $             | 99,556     |         | $          | 2,610            |       | $               | —     |       | $          | 1,240 |   | $ | 103,406 |   |

 

We currently expect that cash outlays will beapplied against the $103,406 balance remaining in the 2009 third quarter chargeat September 30, 2009 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|----------------------------------|------------|-------------|------------|
| 2009                             |       | $           | 23,308     |   |
| 2010                             |       | 76,306      |       |
| 2011                             |       | 1,744       |       |
| 2012                             |       | 361         |       |
| 2013                             |       | 268         |       |
| Thereafter                       |       | 1,419       |       |
| Total                            |       | $           | 103,406    |   |

 

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During the secondquarter of 2009, we recorded $25,428 in charges as a component of operatingincome.  Of this amount, $17,210 relatedto non-cash impairment charges for the write-down of certain capitalized softwareassets to their net realizable values in our Americas and EMEA regions.  The write-downs were the result of theregular review of our capitalized software assets.  The remaining $8,218 was for suppliercontract-related charges for which we will not realize any future economicbenefit.

 

During the fourth quarter of 2008, we recorded $9,408 of non-cashimpairment charges as a component of operating income related to the write-offof certain capitalized software assets in our EMEA and Asia Pacific regions.  This was the result of the discontinuationof certain IMS products at the end of 2008.

 

During the fourth quarter of 2007, we committed to a restructuring plandesigned to eliminate approximately 1,070 positions worldwide in production anddevelopment, sales, marketing, consulting and services and administration.  The plan also included the write-down of twoimpaired computer software assets and related contract payments to be incurred withno future economic benefit based on our decision to abandon certain products inour EMEA region.  As a result, werecorded $88,690 of Severance, impairment and other charges as a component ofoperating income in the fourth quarter of 2007. The severance benefits were calculated pursuant to the terms ofestablished employee protection plans, in accordance with local statutoryminimum requirements or individual employee contracts, as applicable.

 

These charges were designed to strengthen client-facing operationsworldwide, increase our operating efficiencies and streamline our coststructure.  Some of the initiativesincluded in this plan are designed to better align our resources to helpclients manage for change in a challenging climate.

 

The severance and contract payments portion of the charge wasapproximately $75,043 and will all be settled in cash. Termination actionsunder the plan have been completed.

 
| ** **                          | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-------------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                          | ** ** | **Related**   | ** ** | **Related**  | ** ** | **Write-** | ** ** | **Translation** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Reserves**  | ** ** | **Reserves** | ** ** | **Downs**  | ** ** | **Adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007   |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                    |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                    |       | (48,645       | )          | (2,150       | )          | —     |       | —          |       | (50,795    | )          |
| 2009 utilization                    |       | (15,859       | )          | (817         | )          | —     |       | —          |       | (16,676    | )          |
| Currency  translation adjustments   |       | —        |       | —       |       | —     |       | (1,806          | )          | (1,806     | )          |
| Balance at  September 30, 2009 |       | $             | 7,079      |         | $          | 493        |       | $               | —     |       | $          | (1,806 | ) | $ | 5,766 |   |

 

We currently expect that cash outlays will beapplied against the $5,766 balance remaining in the 2007 fourth quarter chargeat September 30, 2009 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|----------------------------------|------------|-------------|------------|
| 2009                             |       | $           | 4,914      |   |
| 2010                             |       | 717         |       |
| 2011                             |       | 135         |       |
| Total                            |       | $           | 5,766      |   |

 

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**Recently Issued AccountingStandards**

 

In June 2009, the FinancialAccounting Standards Board (“FASB”) issued authoritative guidance codifying generallyaccepted accounting principles in the U.S. (“GAAP”).  This guidance was effective for financialstatements issued for interim and annual periods ending after September 15,2009.  The adoption of this authoritativeguidance did not have a material impact on our financial results.

 

InSeptember 2006, the FASB issued authoritative guidance defining fairvalue, establishing a framework for measuring fair value under GAAP, and expandingdisclosures about fair value measurements.This guidance was effective for financial statements issued for fiscalyears beginning after November 15, 2007, and interim periods within thosefiscal years.  The adoption of this authoritative guidance did not have amaterial impact on our financialresults.  In February 2008, theFASB issued authoritative guidance which delayed the effective date of itspreviously issued fair value guidance for one year for certain non-financialassets and liabilities and removed certain leasing transactions from itsscope.  The adoption of this authoritative guidance did not have amaterial impact on our financialresults.

 

In December 2008, theFASB issued authoritative guidance on an employer’s disclosures about planassets of a defined benefit pension or other postretirement plan.  This guidance is effective for fiscal yearsending after December 15, 2009, with earlier application permitted. Uponinitial application, the provisions of this guidance are not required forearlier periods that are presented for comparative purposes.  We are currently evaluating the newdisclosure requirements under this authoritative guidance.

 

In April 2009, the FASBissued authoritative guidance on determining fair values when there is noactive market or where the price inputs being used represent distressedsales.  It also reaffirmed what previousguidance had stated is the objective of fair value measurement—to reflect howmuch an asset would be sold for in an orderly transaction (as opposed to adistressed or forced transaction) at the date of the financial statements undercurrent market conditions.  This guidancewas effective for interim and annual periods ending after September 15,2009.  The adoption of this authoritativeguidance did not have a material impact on our financial results.

 

In April 2009, the FASBissued authoritative guidance which required disclosures about fair value offinancial instruments for interim reporting periods of publicly tradedcompanies as well as in annual financial statements. This standard alsorequired those disclosures in summarized financial information at interimreporting periods.  This guidance waseffective for interim reporting periods ending after September 15,2009.  The adoption of this authoritativeguidance did not have a material impact on our financial results.

 

InMay 2009, the FASB issued authoritative guidance establishing generalstandards of accounting for and disclosures of events that occur after thebalance sheet date but before financial statements are issued or are availableto be issued.  This guidance waseffective for interim or annual financial periods ending after September, 15,2009.  The adoption of this authoritativeguidance did not have a material impact on our financial results.

 

In June 2009, theFASB issued authoritative guidance eliminating the concept of qualifyingspecial-purpose entities (“QSPEs”), changing the requirements for derecognizingfinancial assets and requiring additional disclosures about transfers offinancial assets, including securitization transactions, and an

 

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entity’s continuinginvolvement in and exposure to the risks related to transferred financialassets.  This guidance must be applied asof the beginning of each reporting entity’s first annual reporting period thatbegins after November 15, 2009, for interim periods within that firstannual reporting period and for interim and annual reporting periodsthereafter. The adoption of this authoritative guidance is not expected to havea material impact on our financial results.

 

In June 2009, theFASB issued authoritative guidance eliminating the exemption for QSPEs,requiring a new approach for determining who should consolidate variable-interestentities (“VIEs”), and changing when it is necessary to reassess who shouldconsolidate VIEs.  This guidance shall beeffective as of the beginning of each reporting entity’s first annual reportingperiod that begins after November 15, 2009, for interim periods withinthat first annual reporting period, and for interim and annual reportingperiods thereafter.  The adoption of thisauthoritative guidance is not expected to have a material impact on ourfinancial results.

 

In October 2009, theFASB issued authoritative guidance revising the current accounting treatment tospecifically address how to determine whether an arrangement involving multipledeliverables contains more than one unit of accounting. This guidance isapplicable to revenue arrangements entered into or materially modified duringthe company’s first fiscal year that begins after June 15, 2010. Theguidance may be applied either prospectively from the beginning of the fiscalyear for new or materially modified arrangements or retrospectively. We arecurrently evaluating this authoritative guidance to determine any potentialimpact that it may have on our financial results.

 

In October 2009, theFASB issued authoritative guidance changing the accounting model for revenuearrangements that include both tangible products and software elements.Tangible products containing software components and non-software componentsthat function together to deliver the tangible product’s essentialfunctionality, are no longer within the scope of the software revenue guidance.This guidance is applicable to revenue arrangements entered into or materiallymodified during the company’s first fiscal year that begins after June 15,2010. The guidance may be applied either prospectively from the beginning ofthe fiscal year for new or materially modified arrangements or retrospectively.We are currently evaluating this authoritative guidance to determine anypotential impact that it may have on our financial results.

 

**Reconciliation of U.S. GAAPMeasures to Non-GAAP Measures (a)**

** **
| ** **                                   | ** ** | **Three Months Ended********September 30,** | ** **  | **Nine Months Ended********September 30,** | ** ** |
|----------------------------------------------|------------|--------------------------------------------------|-------------|-------------------------------------------------|------------|
| ** **                                   | ** ** | **2009**                                         | ** **  | **2008**                                        | ** ** | **2009** | ** ** | **2008** | ** ** |
| Selling and administrative expenses          | ** ** | **$**                                            | **166,885** |                                            | $          | 161,878 | ** ** | **$** | **490,211** |   | $ | 493,010 |   |
| Non-GAAP adjustment                          | ** ** | **—**                                       |        | (3,748                                          | )(b)       | **—** |   | (3,748 | )(b) |
| Non-GAAP Selling and administrative expenses | ** ** | **$**                                            | **166,885** |                                            | $          | 158,130 | ** ** | **$** | **490,211** |   | $ | 489,262 |   |
|                                         |       |                                             |        |                                            |       |   |   |   |   |
| Operating (Loss) Income                      | ** ** | **$**                                            | **(5,544**  | **)**                                           | $          | 123,976 | ** ** | **$** | **164,608** |   | $ | 371,735 |   |
| Non-GAAP adjustment                          | ** ** | **—**                                       |        | 3,748                                           | (b)        | **—** |   | 3,748 | (b) |
| Non-GAAP adjustment                          | ** ** | **2,024**                                        | **(c)**     | —                                          | ** ** | **2,024** | **(c)** | — |   |
| Non-GAAP adjustment                          | ** ** | **104,301**                                      | **(c)**     | —                                          | ** ** | **104,301** | **(c)** | — |   |
| Non-GAAP adjustment                          | ** ** | **—**                                       |        | —                                          | ** ** | **25,428** | **(d)** | — |   |
| Non-GAAP Operating Income                    | ** ** | **$**                                            | **100,781** |                                            | $          | 127,724 | ** ** | **$** | **296,361** |   | $ | 375,483 |   |

 

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*(a)*          “Non-GAAP” measures differ from “U.S. GAAP” measures for each yearpresented by amounts that are detailed above. Non-GAAP measures are used by management for the purposes of globalbusiness decision-making, including developing budgets and managingexpenditures.  Non-GAAP measures excludecertain U.S. GAAP measures to the extent that management believes exclusionwill facilitate comparisons across periods and more clearly indicatetrends.  Although we disclose Non-GAAPmeasures in order to give investors a view of our business as seen bymanagement, these Non-GAAP measures are not prepared specifically forinvestors, are not prepared under a comprehensive set of accounting rules, andare not a replacement for the more comprehensive information for investors includedin our U.S. GAAP financial statements. Our Non-GAAP measures differ in significant respects from U.S. GAAP andare likely to differ from the Non-GAAP measures used by other companies.

* *

(b)         Represents expense incurred of $3,748 recorded in 2008 related to ourGovernment Solutions subsidiary (see Note 7 to our Condensed ConsolidatedFinancial Statements (Unaudited)). This subsidiary had discovered potentialnoncompliance with various contract clauses and requirements under its GeneralServices Administration Contract which was awarded in 2002 to its predecessorcompany, Synchronous Knowledge Inc. (Synchronous Knowledge Inc. was acquired byIMS in May 2005).  Upon discovery ofthe potential noncompliance, we began remediation efforts, promptly disclosedthe potential noncompliance to the U.S. government, and were accepted into theDepartment of Defense Voluntary Disclosure Program.  We filed our Voluntary Disclosure ProgramReport (“Disclosure Report”) on August 29, 2008.  Based on our findings as disclosed in theDisclosure Report, we recorded a reserve of approximately $3,748 for thismatter in the third quarter of 2008.  Weare currently unable to determine the outcome of this matter pending theresolution of the Voluntary Disclosure Program process and our ultimateliability arising from this matter could exceed our current reserve.  For geographical reporting purposes, thissubsidiary is included in our Americas region.

 

(c)          Represents $104,301 of severance, impairment and othercharges recorded in the third quarter of 2009 for employee termination benefitsand facility exit costs as a result of the streamlining program we announced inJuly 2009 in response to accelerating healthcare marketplace dynamicscompounded by a sustained economic downturn. Additionally, we recorded $2,024 of accelerated depreciation andamortization charges primarily related to exited facilities which are includedin Depreciation and other amortization. See Note 15 to our Condensed Consolidated Financial Statements(Unaudited).  Severance, impairment andother charges were also recorded in 2000, 2001, 2003, 2004 and 2007 and therecan be no assurances that such charges will not be recorded in the future.

 

(d)         Represents $25,428 of impairment and other chargesrecord in the second quarter of 2009 for supplier contract-related charges tobe incurred with no future economic benefit and the write-down of certaincapitalized software assets to their net realizable values (see Note 15 to ourCondensed Consolidated Financial Statements (Unaudited)). Severance, impairmentand other charges were also recorded in 2000, 2001, 2003, 2004, and 2007 andthere can be no assurances that such charges will not be recorded in the future.

 

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

*** ***

This Quarterly Report on Form 10-Q,as well as information included in oral statements or other written statementsmade or to be made by us, contain statements that, in our opinion, mayconstitute “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 on Form 10-Qand include, but are not limited to, all statements relating to plans forfuture growth 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:

 

·                          uncertaintiesassociated with the outcome of our exploration of strategic alternativesdiscussed in Note 17 to our Condensed Consolidated Financial Statements(Unaudited);

 

·                          risksassociated with operating on a global basis, including fluctuations in thevalue of foreign currencies relative to the U.S. dollar, and the ability tosuccessfully hedge such risks—we derived approximately 64% of our operatingrevenue in 2008 from non-U.S. operations;

 

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

 

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

 

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

 

·                          uncertaintiesassociated with completion of our restructuring plans discussed in Note 15 toour Condensed Consolidated Financial Statements (Unaudited) and under “Severance,Impairment and Other Charges” in Part I. Item 2. Management’s Discussionand Analysis of Financial Condition and Results of Operations, and the impactof the restructuring activities on our business and financial results, includingthe timing of the activities and the associated costs and the ability toachieve projected cost savings;

 

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

 

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

 

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

 

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

 

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

 

·                          ourability to successfully maintain historic effective tax rates;

 

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

 

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

 

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

 

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

 

Consequently, all of theforward-looking statements we make in this document are qualified by theinformation contained herein, including, but not limited to, the informationcontained under this heading, “Risk Factors” and our Condensed ConsolidatedFinancial Statements (Unaudited) and notes thereto for the three and ninemonths ended September 30, 2009 and by the material set forth under theheadings “Business” and “Risk Factors” in our Annual Report on Form 10-Kfor the year ended December 31, 2008. We are under no obligation to publicly release any revision to anyforward-looking statement contained or incorporated herein to reflect anyfuture events or occurrences.

 

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

 

There has been nosignificant change in our exposure to market risk during the three and ninemonths ended September 30, 2009. For a discussion of our exposure to market risk, refer to Item 7A,Quantitative and Qualitative Disclosures About Market Risk, in our 2008 AnnualReport on Form 10-K.

 

**Item 4.Controls and Procedures**

 

(a)          Evaluation of Disclosure Controls and Procedures

 

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

 

The Company’s ChiefExecutive Officer and Chief Financial Officer have evaluated the effectivenessof the Company’s disclosure controls and procedures (as such term is defined inRules 13a-14c and 15d-14c under the Exchange Act) as of September 30,2009 (the “Evaluation Date”). Based on such evaluation, such officers haveconcluded that, as of the Evaluation Date, the Company’s disclosure controlsand procedures are effective to ensure that information required to bedisclosed by the Company in the reports that the Company files or submits underthe Exchange Act is recorded, processed, summarized and reported within thetime periods specified in the SEC’s rules and forms and to ensure thatinformation required to be disclosed by the Company in the reports that theCompany files or submits under the Exchange Act is accumulated and communicatedto the Company’s management, including its principal executive and principalfinancial officers, or persons performing similar functions, as appropriate toallow timely decisions regarding required disclosure.

 

(b)         Changes in Internal Controlover Financial Reporting

 

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

 

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**PART II. OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

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

 

**Item1A. Risk Factors**

 

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

 

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

 

We provide several product and serviceofferings to clients in the U.S. that involve the license, use and transfer ofprescriber-identifiable information for commercial purposes.  New Hampshire, Vermont and Maine have passedlaws placing certain restrictions on the license, use or transfer of suchinformation for commercial purposes.  Wechallenged all three laws in Federal court, asking the courts to declare theselaws unconstitutional.

 

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

 

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

 

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

 

These three states collectively representapproximately one percent of prescription activity in the United States, so thepotential financial impact of these laws on our business, financial conditionand results of operations is not expected to be material.  However, there have been a significant numberof state legislative initiatives over the past several years that seek toimpose similar restrictions on the commercial use of prescriber-identifiableinformation. During 2009, these initiatives were introduced in 23 states. Theywere unsuccessful in 20 states and no further legislative action is expected inthe 

 

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remaining three states. We are unable topredict whether and in what form these initiatives will continue or whetheradditional states or the Federal government will seek to enact similar or morerestrictive legislation or regulation of such information.  In addition, while we will continue to seekto adapt our products and service offerings (including consulting and servicesofferings) to comply with the requirements of these laws, there can be noassurance that our efforts to adapt our offerings will be successful andprovide the same financial contribution to us. There can also be no assurance that these kinds of legislativeinitiatives will not adversely affect our ability to generate or assemble dataor to develop or market current or future offerings, which could, over time,result in a material adverse impact on our revenues, net income and earningsper share.

 

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

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

 

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

 

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**Item 6.  Exhibits**

 

(a)       Exhibits

 
| **Exhibit  Number** | ** ** | **Description of Exhibits**                                                                      |
|---------------------|------------|--------------------------------------------------------------------------------------------------|
|                |       |                                                                                             |
| 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: October 30,  2009 |   | Leslye G. Katz                                     |
|                         |   | Senior Vice President  and Chief Financial Officer |
|                         |   | (principal financial  officer)                     |
|                         |   |                                               |
|                         |   |                                               |
|                         |   | /s/ Harshan Bhangdia                               |
| Date: October 30,  2009 |   | Harshan Bhangdia                                   |
|                         |   | Vice President,  Controller                        |
|                         |   | (principal accounting  officer)                    |

 

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# **EXHIBITINDEX**

 
| **Exhibit  Number** | ** ** | **Description of Exhibits**                                                                      |
|---------------------|------------|--------------------------------------------------------------------------------------------------|
|                |       |                                                                                             |
| 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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