** **

**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**WASHINGTON, D.C. 20549**

 

**FORM 10-Q**

 

| **(Mark One)** |                                                                                                    |
|----------------|---------------------------------------------------------------------------------------------------------|
| **x**          | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
| ** **     | ** **                                                                                              |
|           | **For the quarterly period ended March 31,  2008**                                                 |
|           | ** **                                                                                              |
| **OR**         |
| ** **     |
| **o**          | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
| ** **     | ** **                                                                                              |
| ** **     | **For the transition period from       to    **                 |

 

**Commission File Number:****001-14049**

 

 

**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 is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company. See definitions of “large accelerated filer,” “acceleratedfiler,” and "smaller reporting 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 |
| (Do not check if a  smaller reporting company) |   |                         |

 

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 March 31, 2008, there were181,336,798 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 March 31, 2008 and  December 31, 2007 | 3            |
|                                                                                                           |         |
| Condensed  Consolidated Statements of Income Three Months Ended March 31, 2008 and  2007                  | 4            |
|                                                                                                           |         |
| Condensed  Consolidated Statements of Cash Flows Three Months Ended March 31, 2008  and 2007              | 5            |
|                                                                                                           |         |
| Notes  to Condensed Consolidated Financial Statements                                                          | 6-25         |
|                                                                                                           |         |
| **Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations**        | 26 – 42 |
| ** **                                                                                                     |         |
| **Item 3. Quantitative and Qualitative Disclosures About  Market Risk**                                        | 43           |
| ** **                                                                                                     |         |
| **Item 4. Controls and Procedures**                                                                            | 43           |
| ** **                                                                                                     |         |
| ** **                                                                                                     |         |
|  **PART II. OTHER  INFORMATION**                                                                     | ** **   |
|                                                                                                           | ** **   |
| **Item  1. Legal Proceedings**                                                                                 | 44           |
| ** **                                                                                                     | ** **   |
| **Item  1A. Risk Factors**                                                                                     | 44 – 49 |
|                                                                                                           |         |
| **Item 2. Unregistered  Sales of Equity Securities and Use of Proceeds**                                       | 50           |
|                                                                                                           |         |
| **Item 6. Exhibits**                                                                                           | 51           |
|                                                                                                           |         |
| **SIGNATURES**                                                                                                 | 52           |
| ** **                                                                                                     | ** **   |
| **EXHIBITS**                                                                                                   | 53           |

** **

2

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**PART I. FINANCIAL INFORMATION**

**Item 1. FINANCIAL STATEMENTS**

 

**IMSHEALTH INCORPORATED**

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

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

 
| ** **                                                                                                               | ** ** | **As of March 31,  2008** | ** **    | **As of December 31,  2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------|---------------|-----------------------------------|------------|
| **Assets:**                                                                                                              |       |                           |          |                              |       |
| **Current  Assets:**                                                                                                     | ** ** | ** **                     | ** **    | ** **                        | ** ** |
| Cash and cash  equivalents                                                                                               | ** ** | **$**                          | **215,795**   |                              | $          | 218,249 |   |
| Accounts  receivable, net of allowances of $7,790 and $8,980 in 2008 and 2007, respectively                              | ** ** | **488,383**                    |          | 415,926                           |       |
| Other current  assets                                                                                                    | ** ** | **232,986**                    |          | 205,998                           |       |
| **Total  Current Assets**                                                                                                | ** ** | **937,164**                    |          | 840,173                           |       |
| Securities and  other investments                                                                                        | ** ** | **6,018**                      |          | 5,415                             |       |
| Property, plant  and equipment, net of accumulated depreciation of $212,712 and $201,122 in  2008 and 2007, respectively | ** ** | **191,671**                    |          | 188,877                           |       |
| Computer  software                                                                                                       | ** ** | **271,307**                    |          | 269,032                           |       |
| Goodwill (Note  6)                                                                                                       | ** ** | **684,108**                    |          | 651,709                           |       |
| Other assets                                                                                                             | ** ** | **307,049**                    |          | 288,998                           |       |
| **Total  Assets**                                                                                                        | ** ** | **$**                          | **2,397,317** |                              | $          | 2,244,204 |   |
| ** **                                                                                                               | ** ** | ** **                     |          |                              |       |
| **Liabilities,  Minority Interests and Shareholders’ Deficit:**                                                     |       |                           |          |                              |       |
| **Current  Liabilities:**                                                                                                |       |                           |          |                              |       |
| Accounts payable                                                                                                         | ** ** | **$**                          | **137,430**   |                              | $          | 117,488 |   |
| Accrued and  other current liabilities                                                                                   | ** ** | **319,793**                    |          | 333,534                           |       |
| Accrued income  taxes                                                                                                    | ** ** | **80,634**                     |          | 61,791                            |       |
| Short-term  deferred tax liability                                                                                       | ** ** | **8,379**                      |          | 7,415                             |       |
| Deferred  revenues                                                                                                       | ** ** | **109,406**                    |          | 114,316                           |       |
| **Total  Current Liabilities**                                                                                           | ** ** | **655,642**                    |          | 634,544                           |       |
| Postretirement  and postemployment benefits                                                                              | ** ** | **79,851**                     |          | 79,992                            |       |
| Long-term debt  (Note 9)                                                                                                 | ** ** | **1,567,326**                  |          | 1,203,209                         |       |
| Other  liabilities                                                                                                       | ** ** | **255,912**                    |          | 265,330                           |       |
| **Total  Liabilities**                                                                                                   | ** ** | **$**                          | **2,558,731** |                              | $          | 2,183,075 |   |
| ** **                                                                                                               | ** ** | ** **                     |          |                              |       |
| **Commitments  and Contingencies (Note 7)**                                                                              | ** ** | ** **                     | ** **    | ** **                        | ** ** |
| **Minority  Interests**                                                                                                  | ** ** | **$**                          | **101,980**   |                              | $          | 101,444 |   |
| ** **                                                                                                               | ** ** | ** **                     | ** **    | ** **                        | ** ** |
| **Shareholders’  Deficit:**                                                                                         |       |                           |          |                              |       |
| Common Stock,  par value $.01, authorized 800,000 shares; issued 335,045 shares in 2008 and  2007, respectively          | ** ** | **$**                          | **3,350**     |                              | $          | 3,350 |   |
| Capital in  excess of par                                                                                                | ** ** | **540,906**                    |          | 535,500                           |       |
| Retained  earnings                                                                                                       | ** ** | **2,824,947**                  |          | 2,771,278                         |       |
| Treasury stock,  at cost, 153,709 and 143,818 shares in 2008 and 2007, respectively                                      | ** ** | **(3,582,630**                 | **)**         | (3,355,790                        | )          |
| Cumulative  translation adjustment                                                                                       | ** ** | **6,080**                      |          | 61,924                            |       |
| Unamortized  postretirement and postemployment balances (SFAS No. 158)                                              | ** ** | **(56,054**                    | **)**         | (56,584                           | )          |
| Unrealized gain  on changes in fair value of cash flow hedges, net of tax                                                | ** ** | **7**                          |          | 7                                 |       |
| **Total  Shareholders’ Deficit**                                                                                    | ** ** | **$**                          | **(263,394**  | **)**                             | $          | (40,315 | ) |
| **Total  Liabilities, Minority Interests and Shareholders’ Deficit**                                                | ** ** | **$**                          | **2,397,317** |                              | $          | 2,244,204 |   |

## ** **

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

## ** **

3

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## **IMS HEALTH INCORPORATED**

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

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

* *
| ** **                                                                                               | ** ** | **Three Months Ended  March 31,** | ** **  |
|----------------------------------------------------------------------------------------------------------|------------|----------------------------------------|-------------|
| ** **                                                                                               | ** ** | **2008**                               | ** **  | **2007** | ** ** |
| ** **                                                                                               | ** ** | ** **                             | ** **  | ** ** | ** ** |
| Information and  analytics revenue                                                                       | ** ** | **$**                                  | **456,187** |   | $ | 408,161 |   |
| Consulting and  services revenue                                                                         | ** ** | **117,993**                            |        | 102,188 |   |
| **Operating  Revenue**                                                                                   | ** ** | **574,180**                            |        | 510,349 |   |
|                                                                                                     |       |                                   |        |   |   |
| Operating costs  of information and analytics                                                            | ** ** | **193,286**                            |        | 170,650 |   |
| Direct and  incremental costs of consulting and services                                                 | ** ** | **68,062**                             |        | 58,476 |   |
| External-use  software amortization                                                                      | ** ** | **12,714**                             |        | 11,245 |   |
| Selling and  administrative expenses                                                                     | ** ** | **162,692**                            |        | 139,764 |   |
| Depreciation and  other amortization                                                                     | ** ** | **21,044**                             |        | 19,151 |   |
| **Operating  Income**                                                                                    | ** ** | **116,382**                            |        | 111,063 |   |
| Interest income                                                                                          | ** ** | **2,592**                              |        | 1,798 |   |
| Interest expense                                                                                         | ** ** | **(11,263**                            | **)**       | (8,556 | ) |
| Losses from  investments, net                                                                            | ** ** | **—**                             |        | (211 | ) |
| Other expense,  net                                                                                      | ** ** | **(20,849**                            | **)**       | (2,778 | ) |
| **Non-Operating  Loss, Net**                                                                             | ** ** | **(29,520**                            | **)**       | (9,747 | ) |
| Income before  provision for income taxes                                                                | ** ** | **86,862**                             |        | 101,316 |   |
| Provision for  income taxes (Note 11)                                                                    | ** ** | **(27,687**                            | **)**       | (15,747 | ) |
| **Net  Income**                                                                                          | ** ** | **$**                                  | **59,175**  |   | $ | 85,569 |   |
|                                                                                                     |       |                                   |        |   |   |
| **Basic  Earnings Per Share of Common Stock**                                                            | ** ** | **$**                                  | **0.32**    |   | $ | 0.44 |   |
| **Diluted  Earnings Per Share of Common Stock**                                                          | ** ** | **$**                                  | **0.32**    |   | $ | 0.43 |   |
| ** **                                                                                               | ** ** | ** **                             |        |   |   |
| Weighted average  number of shares outstanding – Basic                                              | ** ** | **185,036**                            |        | 196,639 |   |
| Dilutive effect  of shares issuable as of period-end under stock-based compensation plans and  other     | ** ** | **1,259**                              |        | 3,751 |   |
| Adjustment of  shares outstanding applicable to exercised and cancelled stock options during  the period | ** ** | **9**                                  |        | 374 |   |
| **Weighted  Average Number of Shares Outstanding – Diluted**                                        | ** ** | **186,304**                            |        | 200,764 |   |

 

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

 

4

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**IMSHEALTH INCORPORATED**

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

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

 
| ** **                                                                                        | ** ** | **Three Months Ended March 31,** | ** **  |
|---------------------------------------------------------------------------------------------------|------------|---------------------------------------|-------------|
| ** **                                                                                        | ** ** | **2008**                              | ** **  | **2007** | ** ** |
| **Cash Flows  from Operating Activities:**                                                        |       |                                  |        |   |   |
| Net income                                                                                        | ** ** | **$**                                 | **59,175**  |   | $ | 85,569 |   |
| **Adjustments  to reconcile net income to net cash (used in) provided by operating  activities:** | ** ** | ** **                            | ** **  | ** ** | ** ** |
| Depreciation and  amortization                                                                    | ** ** | **33,758**                            |        | 30,396 |   |
| Bad debt expense                                                                                  | ** ** | **803**                               |        | 275 |   |
| Deferred income  taxes                                                                            | ** ** | **1,304**                             |        | (9,726 | ) |
| Losses from  investments, net                                                                     |       | —                                |        | 211 |   |
| Minority  interests in net income of consolidated companies                                       | ** ** | **2,227**                             |        | 1,898 |   |
| Non-cash  stock-based compensation charges                                                        | ** ** | **7,391**                             |        | 10,510 |   |
| Net tax benefit  on stock-based compensation                                                      | ** ** | **44**                                |        | 3,542 |   |
| Excess tax  benefits from stock-based compensation                                                | ** ** | **(41**                               | **)**       | (1,659 | ) |
| Change in assets  and liabilities, excluding effects from acquisitions and dispositions:          |       |                                  |        |   |   |
| Net increase in  accounts receivable                                                              | ** ** | **(76,355**                           | **)**       | (35,484 | ) |
| Net (increase)  decrease in work-in-process inventory                                             | ** ** | **(4,780**                            | **)**       | 1,217 |   |
| Net increase in  prepaid expenses and other current assets                                        | ** ** | **(22,544**                           | **)**       | (25,496 | ) |
| Net increase in  accounts payable                                                                 | ** ** | **4,468**                             |        | 12,053 |   |
| Net decrease in  accrued and other current liabilities                                            | ** ** | **(6,012**                            | **)**       | (46,185 | ) |
| Net decrease in  accrued severance, impairment and other charges                                  | ** ** | **(13,665**                           | **)**       | (1,564 | ) |
| Net decrease in  deferred revenues                                                                | ** ** | **(5,362**                            | **)**       | (14,200 | ) |
| Net increase in  accrued income taxes                                                             | ** ** | **21,713**                            |        | 5,843 |   |
| Net decrease in  pension assets (net of liabilities)                                              | ** ** | **1,312**                             |        | 1,236 |   |
| Net (increase)  decrease in other long-term assets (net of long-term liabilities)                 | ** ** | **(4,171**                            | **)**       | 1,155 |   |
| **Net  Cash (Used in) Provided by Operating Activities**                                          | ** ** | **(735**                              | **)**       | 19,591 |   |
| **Cash  Flows Used in Investing Activities:**                                                     |       |                                  |        |   |   |
| Capital  expenditures                                                                             | ** ** | **(6,414**                            | **)**       | (13,940 | ) |
| Additions to  computer software                                                                   | ** ** | **(17,132**                           | **)**       | (19,891 | ) |
| Proceeds from  sale of capital asset, net                                                         | ** ** | **1,392**                             |        | — |   |
| Payments for  acquisitions of businesses, net of cash acquired                                    | ** ** | **(6,156**                            | **)**       | (13,453 | ) |
| Funding of  venture capital investments                                                           | ** ** | **(600**                              | **)**       | — |   |
| Other investing  activities, net                                                                  | ** ** | **(1,030**                            | **)**       | (3,995 | ) |
| **Net  Cash Used in Investing Activities**                                                        | ** ** | **(29,940**                           | **)**       | (51,279 | ) |
| **Cash  Flows Provided by Financing Activities:**                                                 |       |                                  |        |   |   |
| Net increase in  revolving credit facility and other                                              | ** ** | **164,117**                           |        | 178,463 |   |
| Proceeds from  private placement notes                                                            | ** ** | **240,000**                           |        | — |   |
| Repayment of  private placement notes                                                             | ** ** | **(150,000**                          | **)**       | — |   |
| Payments for  purchase of treasury stock                                                          | ** ** | **(229,340**                          | **)**       | (170,000 | ) |
| Proceeds from  exercise of stock options                                                          | ** ** | **1,069**                             |        | 34,632 |   |
| Excess tax  benefits from stock-based compensation                                                | ** ** | **41**                                |        | 1,659 |   |
| Dividends paid                                                                                    | ** ** | **(5,507**                            | **)**       | (5,952 | ) |
| Proceeds from  employee stock purchase plan and other                                             | ** ** | **(25**                               | **)**       | 66 |   |
| Increase  (decrease) in cash overdrafts                                                           | ** ** | **1,648**                             |        | (2,196 | ) |
| Payments to  minority interests and other financing activities                                    | ** ** | **(1,690**                            | **)**       | (1,691 | ) |
| **Net  Cash Provided by Financing Activities**                                                    | ** ** | **20,313**                            |        | 34,981 |   |
| Effect of  Exchange Rate Changes on Cash and Cash Equivalents                                     | ** ** | **7,908**                             |        | 1,838 |   |
| **(Decrease)  Increase in Cash and Cash Equivalents**                                             | ** ** | **(2,454**                            | **)**       | 5,131 |   |
| **Cash  and Cash Equivalents, Beginning of Period**                                               | ** ** | **218,249**                           |        | 157,346 |   |
| **Cash  and Cash Equivalents, End of Period**                                                     | ** ** | **$**                                 | **215,795** |   | $ | 162,477 |   |

 

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

** **

**5**

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** **

**IMS HEALTH INCORPORATED**

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

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

** **

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

** **

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

 

**Note 2.  Basisof Presentation**

** **

IMS 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 the Company’s clients’ day-to-dayoperations, including portfolio optimization capabilities; launch and brandmanagement solutions; sales force effectiveness innovations; managed marketsand consumer health offerings; and consulting and services solutions thatimprove ROI and the delivery of quality healthcare worldwide. The Company’sinformation products are developed to meet client needs by using data securedfrom a worldwide network of suppliers in more than 100 countries. Keyinformation products include:

 

·                  SalesForce Effectiveness to optimize sales force productivity and territorymanagement;

 

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

 

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

 

Withinthese key information products, the Company provides consulting and servicesthat use in-house capabilities and methodologies to assist pharmaceuticalclients in analyzing and evaluating market trends, strategies and tactics, andto help in the development and implementation of customized softwareapplications and data warehouse tools.

# ** **

6

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** **

The Company operates in more than 100 countries.

 

The Company is managed on a global business modelwith global leaders for the majority of its critical business processes andaccordingly has one reportable segment (see Note 15).

 

**Note 3.  Summaryof Recent Accounting Pronouncements**

 

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

 

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

 

InDecember 2007, the FASB issued SFAS No. 141R, “Business Combinations.”  This statement establishes principles andrequirements for how an acquirer recognizes and measures in its financialstatements the identifiable assets acquired, the liabilities assumed, anynoncontrolling interest in the acquiree and the goodwill acquired.  This statement also establishes disclosurerequirements to enable the evaluation of the nature and financial effects ofthe business combination.  This statementis effective for fiscal years beginning after December 15, 2008.  The Company is currently evaluating thisstatement to determine any potential impact that it may have on its financialresults.

 

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

 

7

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owners.  This statement is effective for fiscal yearsbeginning on or after December 15, 2008. The Company is currentlyevaluating this statement to determine any potential impact that it may have onits financial results.

 

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

 

**Note 4.  Summaryof Significant Accounting Policies**

 

*Operating Costs of Information and Analytics*

 

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

 

One of the Company’s majorexpenditures is the cost for the data it receives from suppliers.  After receipt of the raw data and prior tothe data being available for use in any part of its business, the Company isrequired to transform the raw data into useful information through a series ofcomprehensive processes.  These processesinvolve significant employee costs and data processing costs.

 

Costs associated with theCompany’s data purchases are deferred within work-in-process inventory andrecognized as expense as the corresponding data product revenue is recognizedby the Company, generally over a thirty to sixty day period.

 

*Direct and Incremental Costs of Consulting and Services*

 

Direct and incremental costsof consulting and services (“C&S”) include the costs of the Company’sconsulting staff directly involved with delivering revenue generatingengagements, related accommodations and the costs of primary market researchdata purchased specifically for certain individual C&S engagements.  Although the Company’s data is used inmultiple customer solutions across different offerings within both I&A andC&S, the Company does not have a meaningful way to allocate the direct costof the data between I&A and C&S revenues.  As such, the direct and incremental costs ofC&S do not reflect the total costs incurred to deliver its C&Srevenues.

 

8

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

 

**Note 5. Acquisitions**

 

The Company makesacquisitions in order to expand its products, services and geographic reach.During the three months ended March 31, 2008, the Company completed oneacquisition of Robinson and James Research Pty Limited (Australia) at a cost ofapproximately $4,700 which was accounted for under the purchase method ofaccounting.  As such, the aggregatepurchase price has been allocated on a preliminary basis to the assets acquiredbased on estimated fair values as of the closing date.  The purchase price allocations will befinalized after the completion of the valuation of certain assets andliabilities.  Any adjustments resultingfrom the finalization of the purchase price allocations are not expected tohave a material impact on the Company’s results of operations.  The Condensed Consolidated FinancialStatements (Unaudited) include the results of this acquired company subsequentto the closing of the acquisition.  Hadthis acquisition occurred as of January 1, 2008 or 2007, the impact on theCompany’s results of operations would not have been significant. Goodwill ofapproximately $3,000 was recorded in connection with this acquisition, none ofwhich is deductible for tax purposes.

 

During the three monthsended March 31, 2007, the Company completed one acquisition of ValueMedicsResearch, LLC (U.S.) at a cost of approximately $9,800 which was accounted forunder the purchase method of accounting. As such, the aggregate purchase price had been allocated on apreliminary basis to the assets acquired based on estimated fair values as ofthe closing date.  The Company finalizedthe purchase price allocation for this acquisition during 2007 which did nothave a material impact on the Company’s results of operations.  The Condensed Consolidated FinancialStatements (Unaudited) include the results of this acquired company subsequentto the closing of the acquisition.  Hadthis acquisition occurred as of January 1, 2007 or 2006, the impact on theCompany’s results of operations would not have been significant.  Goodwill of approximately $6,200 was recordedin connection with this acquisition. There is approximately $8,500 of tax deductible goodwill.

 

**Note 6. Goodwill and Intangible Assets**

 

During the three months ended March 31, 2008, the Company’sgoodwill increased by $32,399 due to foreign currency translation adjustmentsand the preliminary allocation of purchase price for the acquisition completedduring the three months ended March 31, 2008 (see Note 5).  During the three months ended March 31,2007, the Company’s goodwill increased by $13,883 due to foreign currencytranslation adjustments and the preliminary allocation of purchase price forthe acquisition completed during the three months ended March 31, 2007(see Note 5).

 

All of the Company’s other acquired intangibles aresubject to amortization.  Intangible asset amortization expense was $4,721and $4,655 during the three months ended March 31, 2008 and 2007,respectively.  At March 31, 2008, intangible assets were primarilycomposed of customer relationships, databases and trade names (principallyincluded in Other assets) and computer 

 

9

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software.  The gross carryingamounts and related accumulated amortization of these intangibles were $178,502and $84,285, respectively, at March 31, 2008 and $176,330 and $79,598,respectively, at December 31, 2007. These intangibles are amortized over periods ranging from two to fifteenyears.  As of March 31, 2008, theweighted average amortization periods of the acquired intangibles by assetclass are listed in the following table:

 
| **Intangible Asset Type** | ** ** | **Weighted Average  Amortization Period (Years)** |
|-------------------------------------|------------|------------------------------------------------------------------|
| Customer Relationships              |       | 10.1                                                             |
| Computer Software and Algorithms    |       | 7.0                                                              |
| Databases                           |       | 4.7                                                              |
| Trade Names                         |       | 4.3                                                              |
| Other                               |       | 3.5                                                              |
| Weighted average                    |       | 9.0                                                              |

 

Based on currentestimated useful lives, amortization expense associated with intangible assetsat March 31, 2008 is estimated to be approximately $4,549 for each of theremaining three quarters in 2008. Thereafter, annual amortization expense associated with intangibleassets is estimated to be as follows:

 
| **Year Ended  December 31,** | ** ** | **Amortization  Expense** | ** ** |
|----------------------------------------|------------|---------------------------|------------|
| 2009                                   |       | $                         | 15,906     |   |
| 2010                                   |       | 11,812                    |       |
| 2011                                   |       | 10,192                    |       |
| 2012                                   |       | 8,588                     |       |
| 2013                                   |       | 8,540                     |       |
| Thereafter                             |       | $                         | 25,529     |   |

 

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

 

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

 

10

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The Company routinely entersinto agreements with its suppliers to acquire data and with its customers to sell data, all in the normalcourse 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.

 

In connection with theagreements governing the relationship among the Company and two of itssubsidiaries and two third-party investors with respect to IMS Health LicensingAssociates, L.L.C. (the “LLC Agreements”), the Company also entered into aguaranty agreement. Under the terms of this guaranty agreement, the Companyguarantees in favor of the third-party investors the performance of the Company’ssubsidiaries under the LLC Agreements and agrees to indemnify and hold harmlessthe third-party investors against damages, including specified delay damages,the third-party investors may suffer as a result of failures to perform underthe LLC Agreements by the Company and its subsidiaries.

 

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

 

*D&B Legacy and Related Tax Matters*

 

*SharingDisputes. *In 1996 the company then known as The Dun &Bradstreet Corporation (“D&B”) and now known as R.H. Donnelley Corporation(“Donnelley”) separated into three public companies by spinning off ACNielsenCorporation (“ACNielsen”) and the company then known as Cognizant Corporation (“Cognizant”)(the “1996 Spin-Off”).  Cognizant is nowknown as Nielsen Media Research, Inc., a subsidiary of The NielsenCompany, formerly known as VNU N.V. (“NMR”). The agreements effecting the 1996 Spin-Off allocated tax-relatedliability with respect to certain prior business transactions (the “Legacy TaxControversies”) between D&B and Cognizant. The D&B portion of such liability is now shared among Donnelley andcertain of its former affiliates (the “Donnelley Parties”), and the Cognizantportion of such liability is shared between NMR and the Company pursuant to theagreements effecting Cognizant’s spin-off of the Company in 1998 (the “1998Spin-Off”).

 

The underlying taxcontroversies with the Internal Revenue Service (“IRS”) have substantially allbeen resolved and the Company paid to the IRS the amounts that it believed weredue and owing.  In the first quarter of2006, Donnelley indicated that it disputed the amounts contributed by theCompany toward the resolution of these matters based on the Donnelley Parties’interpretation of the allocation of liability under the 1996 Spin-Offagreements.  The Donnelley Parties on theone hand, and NMR and the Company, on the other hand, have attempted to resolvethese disputes through negotiation.  The1996 Spin-Off agreements provide that if the parties cannot reach agreementthrough negotiation they must arbitrate the disputes.  The Company intends to vigorously defenditself with respect to such disputes.  Asof March 31, 2008, the Company had a reserve of approximately $22,200(liability and interest, net of tax benefit) for these matters.

 

11

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On August 14, 2006, theDonnelley Parties commenced arbitration regarding one of these disputes(referred to herein as the “Dutch Partnership Dispute”) by filing a Notice ofArbitration and Statement of Claim (the “Donnelley Statement”) with theAmerican Arbitration Association International Center for Dispute Resolution(the “AAA”).  In the Donnelley Statement,the Donnelley Parties claim that the Company and NMR collectively oweapproximately an additional $10,800 with respect to the Dutch PartnershipDispute; (if determined liable, the Company’s share of this amount would beapproximately $5,400).  On October 16,2006, the Company and NMR filed a Statement of Defense denying all claims madeby the Donnelley Parties in the Donnelley Statement.   In October 2007, a hearing on themerits of the parties’ claims took place before an AAA arbitration panel, andon December 6, 2007, the panel issued a Partial Award.  In the Partial Award, the panel directed theparties to attempt to agree on the allocation of liability between the partiesfor the tax controversy underlying the Dutch Partnership Dispute, in accordancewith principles set out in the Partial Award. The parties were unable to reach agreement and each submitted to the AAAarbitration panel their own calculation of the allocation of liability.  The calculation submitted by the DonnelleyParties shows an underpayment by each of the Company and NMR of approximately$6,800.  The Donnelley Parties have alsoclaimed interest, the costs of the arbitration proceeding and their attorneys’fees, in an aggregate amount of approximately $5,800, of which the Company’sshare would be approximately $2,900.  TheCompany and NMR dispute the Donnelley Parties’ computation and additionalclaims and have submitted their own calculation of the allocation ofliability.  This calculation shows acurrent underpayment by each of the Company and NMR of approximately $2,500,but also shows potential pending adjustments to such amount in favor of each ofthe Company and NMR of approximately $4,800. These pending adjustments are contingent upon the IRS’s disposition ofcertain pending refund claims made by Donnelley.  The Company and NMR have also claimedinterest, the costs of the arbitration proceeding and their attorneys’fees.  Further arbitration proceedings toresolve these disputes are likely, and the Company continues to believe itsreserve for this matter is adequate.

 

*ThePartnership (Tax Year 1997)*.  The IRS is seeking to reallocate certain itemsof partnership income and expense as well as disallow certain items ofpartnership expense with respect to a partnership now substantially owned bythe Company (the “Partnership”) on the Partnership’s 1997 tax return.  During 1997, the Partnership wassubstantially owned by Cognizant, but liability for this matter was allocatedto the Company pursuant to the agreements effecting the 1998 Spin-Off.  The Company has filed a formal protest relatingto the proposed assessment for 1997 with the IRS Office of Appeals.  The Company is attempting to resolve thismatter in the administrative appeals process before proceeding to litigation ifnecessary. If the IRS were to ultimately prevail in its position, the Company’sliability (tax and interest, net of tax benefit) with respect to tax year 1997would be approximately $21,800, which amount the Company had reserved incurrent accrued income taxes payable at March 31, 2008.

 

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

 

12

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*OtherContingencies*

 

*Contingent Consideration*.  Under the terms of certain purchaseagreements related to acquisitions made since 2002, the Company may be requiredto pay additional amounts as contingent consideration based on the achievementof certain performance related targets during 2008 and 2009.  Substantially all of these additionalpayments will be recorded as goodwill in accordance with Emerging Issues TaskForce (“EITF”) No. 95-8, “Accounting for Contingent Consideration Paid tothe Shareholders of an Acquired Enterprise in a Purchase Business Combination.”  As of March 31, 2008, approximately$67,100 had been earned under these contingencies since 2002.  The Company paid $500 under thesecontingencies during the three months ended March 31, 2008.  Based on current estimates, the Companyexpects that additional contingent consideration under these agreements maytotal approximately $4,100.  It isexpected that these contingencies will be resolved within a specified timeperiod after the end of each respective calendar year for 2008 and 2009.

 

**Note 8.  Stock-BasedCompensation**

 

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

 
| ** **                                                   | ** ** | ** ** | ** ** | **Weighted**       | ** ** |
|--------------------------------------------------------------|------------|------------|------------|--------------------|------------|
| ** **                                                   | ** ** | ** ** | ** ** | **Average**        | ** ** |
| ** **                                                   | ** ** | ** ** | ** ** | **Exercise**       | ** ** |
| ** **                                                   | ** ** | ** ** | ** ** | **Price Per** | ** ** |
| ** **                                                   | ** ** | **Shares** | ** ** | **Share**          | ** ** |
| Options  Outstanding, December 31, 2005                 |       | 29,984     |       | $                  | 22.91      |   |
| Granted                                                      |       | 11         |       | $                  | 24.54      |   |
| Exercised                                                    |       | (6,161     | )          | $                  | 19.36      |   |
| Forfeited                                                    |       | (699       | )          | $                  | 23.58      |   |
| Cancelled                                                    |       | (1,739     | )          | $                  | 28.93      |   |
| Options  Outstanding, December 31, 2006                 |       | 21,396     |       | $                  | 23.43      |   |
| Granted                                                      |       | —     |       | —             |       |
| Exercised                                                    |       | (6,299     | )          | $                  | 22.72      |   |
| Forfeited                                                    |       | (200       | )          | $                  | 24.14      |   |
| Cancelled                                                    |       | (371       | )          | $                  | 27.61      |   |
| **Options  Outstanding, December 31, 2007**             | ** ** | **14,526** | ** ** | **$**              | **23.62**  | ** ** |
| **Granted**                                                  | ** ** | **—** | ** ** | **—**         | ** ** |
| **Exercised**                                                | ** ** | **(55**    | **)**      | **$**              | **19.65**  | ** ** |
| **Forfeited**                                                | ** ** | **(23**    | **)**      | **$**              | **24.21**  | ** ** |
| **Cancelled**                                                | ** ** | **(62**    | **)**      | **$**              | **24.76**  | ** ** |
| **Options  Outstanding, March 31, 2008**                | ** ** | **14,386** | ** ** | **$**              | **23.63**  | ** ** |
| **Options  Vested or Expected to Vest, March 31, 2008** | ** ** | **14,353** | ** ** | **$**              | **23.62**  | ** ** |
| **Exercisable,  March 31, 2008**                        | ** ** | **13,151** | ** ** | **$**              | **23.58**  | ** ** |

 

13

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

 
| ** **                                           | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|------------------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                           | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 31, 2005                    |       | 444        |       | $                   | 20.30      |   |
| Granted                                              |       | 1,386      |       | $                   | 26.12      |   |
| Vested                                               |       | (217       | )          | $                   | 22.03      |   |
| Forfeited                                            |       | (55        | )          | $                   | 25.79      |   |
| Unvested,  December 31, 2006                    |       | 1,558      |       | $                   | 25.04      |   |
| Granted                                              |       | 1,219      |       | $                   | 29.64      |   |
| Vested                                               |       | (296       | )          | $                   | 26.06      |   |
| Forfeited                                            |       | (148       | )          | $                   | 28.09      |   |
| **Unvested,  December 31, 2007**                | ** ** | **2,333**  | ** ** | **$**               | **27.16**  | ** ** |
| **Granted**                                          | ** ** | **10**     | ** ** | **$**               | **24.35**  | ** ** |
| **Vested**                                           | ** ** | **(20**    | **)**      | **$**               | **23.85**  | ** ** |
| **Forfeited**                                        | ** ** | **(40**    | **)**      | **$**               | **27.85**  | ** ** |
| **Unvested,  March 31, 2008**                   | ** ** | **2,283**  | ** ** | **$**               | **27.17**  | ** ** |
| **Vested  or Expected to Vest, March 31, 2008** | ** ** | **2,093**  | ** ** | **$**               | **27.08**  | ** ** |

 

Thefollowing table summarizes activity of RSUs with performance conditions:

 
| ** **                                           | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|------------------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                                           | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                                           | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                                           | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Unvested,  December 31, 2005                    |       | 375        |       | $                   | 21.12      |   |
| Granted                                              |       | 154        |       | $                   | 24.53      |   |
| Vested                                               |       | (181       | )          | $                   | 21.76      |   |
| Forfeited                                            |       | (28        | )          | $                   | 24.08      |   |
| Unvested,  December 31, 2006                    |       | 320        |       | $                   | 22.14      |   |
| Granted                                              |       | 123        |       | $                   | 29.16      |   |
| Vested                                               |       | (84        | )          | $                   | 18.65      |   |
| Forfeited                                            |       | (6         | )          | $                   | 27.00      |   |
| **Unvested,  December 31, 2007**                | ** ** | **353**    | ** ** | **$**               | **25.34**  | ** ** |
| **Granted**                                          | ** ** | **115**    | ** ** | **$**               | **24.35**  | ** ** |
| **Vested**                                           | ** ** | **(61**    | **)**      | **$**               | **24.00**  | ** ** |
| **Forfeited**                                        | ** ** | **(1**     | **)**      | **$**               | **29.16**  | ** ** |
| **Unvested,  March 31, 2008**                   | ** ** | **406**    | ** ** | **$**               | **25.25**  | ** ** |
| **Vested  or Expected to Vest, March 31, 2008** | ** ** | **396**    | ** ** | **$**               | **25.23**  | ** ** |

 

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

 
| ** **                               | ** ** | ** ** | ** ** | **Weighted**        | ** ** |
|------------------------------------------|------------|------------|------------|---------------------|------------|
| ** **                               | ** ** | ** ** | ** ** | **Average**         | ** ** |
| ** **                               | ** ** | ** ** | ** ** | **Grant Date** | ** ** |
| ** **                               | ** ** | **Shares** | ** ** | **Fair Value** | ** ** |
| Outstanding,  December 31, 2005     |       | 30         |       | $                   | 22.12      |   |
| Granted                                  |       | 3          |       | $                   | 26.13      |   |
| Outstanding,  December 31, 2006     |       | 33         |       | $                   | 22.49      |   |
| Granted                                  |       | 5          |       | $                   | 29.50      |   |
| **Outstanding,  December 31, 2007** | ** ** | **38**     | ** ** | **$**               | **23.37**  | ** ** |
| **Granted**                              | ** ** | **1**      | ** ** | **$**               | **23.99**  | ** ** |
| **Outstanding,  March 31, 2008**    | ** ** | **39**     | ** ** | **$**               | **23.39**  | ** ** |

 

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

 
| **For the Three Months Ended March 31,** | ** ** | **2008**   | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|----------|------------|
| Stock Options                                                          | ** ** | **$**      | **2,018**  |     | $          | 5,516 |   |
| RSUs                                                                   | ** ** | **5,375**  |       | 4,767    |       |
| Employee Stock  Purchase Plan                                          | ** ** | **(2**     | **)**      | 227      |       |
| Total  Stock-Based Compensation Expense                                | ** ** | **$**      | **7,391**  |     | $          | 10,510 |   |
|                                                                   |       |       |       |     |       |
| Operating Costs  of I&A                                            | ** ** | **$**      | **776**    |     | $          | 982 |   |
| Direct and  Incremental Costs of C&S                               | ** ** | **708**    |       | 874      |       |
| Selling and  Administrative Expenses                                   | ** ** | **5,907**  |       | 8,654    |       |
| Total  Stock-Based Compensation Expense                                | ** ** | **$**      | **7,391**  |     | $          | 10,510 |   |
|                                                                   | ** ** | ** ** |       |     |       |
| Tax Benefit on  Stock-Based Compensation Expense                       | ** ** | **$**      | **2,400**  |     | $          | 3,220 |   |
|                                                                   | ** ** | ** ** |       |     |       |
| Capitalized  Stock-Based Compensation Expense                          | ** ** | **$**      | **41**     |     | $          | 76 |   |

 

For a complete description of the Company’s StockIncentive Plans and its accounting policies regarding stock-based compensation,refer to Notes 2 and 11 of the Company’s 2007 Annual Report on Form 10-Kas filed with the SEC.

 

**Note 9. Financial Instruments**

 

*Foreign Exchange Risk Management*

 

The Companytransacts business in more than 100 countries and is subject to risksassociated with changing foreign exchange rates. The Company’s objective is toreduce earnings and cash flow 

 

15

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volatility associated with foreign exchange rate changes. Accordingly,the Company enters into foreign currency forward contracts to minimize theimpact of foreign exchange movements on net income, non-U.S. Dollar anticipatedroyalties, and on the value of non-functional currency assets and liabilities.

 

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

 

The impact of foreign exchange risk managementactivities on pre-tax income for the three months ended March 31, 2008 and2007 was a net loss of $18,598 and a net loss of $836, respectively.  In addition, at March 31, 2008, theCompany had assets of approximately $800,015 and liabilities of $829,125 inforeign exchange forward contracts outstanding with various expiration datesthrough February 2009 relating to non-U.S. Dollar anticipated royaltiesand non-functional currency assets and liabilities (see below). Foreignexchange forward contracts are recorded at estimated fair value. The estimatedfair values of the forward contracts are based on quoted market prices.

 

Unrealized and realized gains and losses on thecontracts hedging net income and non-functional currency assets and liabilitiesdo not qualify for hedge accounting in accordance with SFAS No. 133, “Accountingfor Derivative Instruments and Hedging Activities,” as amended by SFAS No. 138,“Accounting for Certain Derivative Instruments and Certain Hedging Activities,”and SFAS No. 149, “Amendment of Statement 133 on Derivative Instrumentsand Hedging Activities,” (collectively, “SFAS No. 133”), and therefore arenot deferred and are included in the Consolidated Statements of Income in Otherincome (expense), net.

 

Unrealized gains and losses on the contracts hedgingnon-U.S. Dollar anticipated royalties qualify for hedge accounting under SFAS No. 133and are therefore deferred and included in OCI “Other Comprehensive Income.”

 

*FairValue Disclosures*

 

At March 31, 2008, the Company’s financialinstruments included cash, cash equivalents, receivables, accounts payable andlong-term debt. At March 31, 2008, the fair values of cash, cashequivalents, receivables and accounts payable approximated carrying values dueto the short-term nature of these instruments. At March 31, 2008, the fairvalue of long-term debt approximated carrying value.

 

Effective January 1, 2008, the Company adoptedSFAS No. 157, “Fair Value Measurements,” (see Note 3).  SFAS No. 157 establishes a three-levelhierarchy for disclosure of fair value measurements as follows:

 
|   | Level 1 – |   | Quoted prices in active  markets for identical assets or liabilities. |
|--------|----------------|--------|-----------------------------------------------------------------------|

 

16

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|   | 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 March 31, 2008:

 
| ** **      | ** ** | **Basis of Fair Value Measurements** | ** ** |
|-----------------|------------|----------------------------------------------------------|------------|
| ** **      | ** ** | **Level 1**                                         | ** ** | **Level 2** | ** ** | **Level 3** | ** ** | **Total** | ** ** |
| **Assets**      |       |                                                     |       |   |   |   |   |   |   |
| Derivatives (1) |       | —                                                   |       | $ | 800,015 |   | — |   | $ | 800,015 |   |
|            |       |                                                     |       |   |   |   |   |   |   |
| **Liabilities** |       |                                                     |       |   |   |   |   |   |   |
| Derivatives (1) |       | —                                                   |       | $ | 829,125 |   | — |   | $ | 829,125 |   |
|            |       |                                                     |       |   |   |   |   |   |   |

 

----

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

 

*CreditConcentrations*

 

The Company continuallymonitors its positions with, and the credit quality of, the financialinstitutions which are counterparties to its financial instruments and does notanticipate non-performance by the counterparties. The Company would not realizea material loss as of March 31, 2008 in the event of non-performance byany 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 maintainsaccounts receivable balances ($488,383 and $415,926, net of allowances, at March 31,2008 and December 31, 2007, respectively), principally from customers inthe pharmaceutical industry. The Company’s trade receivables do not representsignificant concentrations of credit risk at March 31, 2008 due to thehigh quality of its customers and their dispersion across many geographicareas.

 

17

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*Linesof Credit*

 

The following table summarizes the Company’s long-termdebt at March 31, 2008 and December 31, 2007:

 
| ** **                                                                                                               | ** ** | **2008**    | ** **    | **2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|----------|------------|
| 4.6% Private  Placement Note, principal payment of $150,000 due January 2008, net of  interest rate swaps of $(981) | ** ** | **$**       | **—**    |     | $          | 149,019 |   |
| 5.58% Private  Placement Notes, principal payment of $105,000 due January 2015                                      | ** ** | **105,000** | ** **    | —   | ** ** |
| 5.99% Private  Placement Notes, principal payment of $135,000 due January 2018                                      | ** ** | **135,000** | ** **    | —   | ** ** |
| 5.55% Private  Placement Notes, principal payment of $150,000 due April 2016                                        | ** ** | **150,000** |          | 150,000  |       |
| 1.70% Private  Placement Note, principal payment of 34,395,000 Japanese Yen due  January 2013                       | ** ** | **346,991** |          | 300,787  |       |
| Revolving Credit  Facility:                                                                                              |       |        |          |     |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 1.31%                                    | ** ** | **425,924** |          | 397,973  |       |
| Swiss Franc  denominated borrowings at average floating rates of approximately 3.09%                                     | ** ** | **45,194**  |          | 54,730   |       |
| U.S. Dollar  denominated borrowings at average floating rates of approximately 3.28%                                     | ** ** | **309,217** |          | 100,700  |       |
| Bank Term Loan,  principal payment of $50,000 due June 2009 at average floating rate of  approximately 2.96%        | ** ** | **50,000**  |          | 50,000   |       |
| Total Long-Term  Debt                                                                                                    | ** ** | **$**       | **1,567,326** |     | $          | 1,203,209 |   |

 

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 repurchases (see Note 12) and torefinance existing debt.

 

In July 2006, the Company entered into a$1,000,000 revolving credit facility with a syndicate of 12 banks (“RevolvingCredit Facility”) replacing its existing $700,000 facility.  The terms of the Revolving Credit Facilityextended the maturity of the facility in its entirety to a term of five years,maturing July 2011, reduced the borrowing margins, and increasedsubsidiary borrowing limits.  Totalborrowings under the Revolving Credit Facility were $780,335 and $553,403 at March 31,2008 and December 31, 2007, respectively, all of which were classified aslong-term.  The Company defines long-termlines as those where the lines are non-cancellable for more than 365 days fromthe balance sheet date by the financial institutions except for specified,objectively measurable violations of the provisions of the agreement.  In general, rates for borrowing under theRevolving Credit Facility are LIBOR plus 40 basis points and can vary based onthe Company’s Debt to EBITDA ratio.  Theweighted average interest rates for the Company’s lines were 2.19% and 2.16% atMarch 31, 2008 and December 31, 2007, respectively.  In addition, the Company is required to pay acommitment fee on any unused portion of the facilities of 0.01%.  At March 31, 2008, the Company hadapproximately $219,665 available under its existing bank credit facilities.

 

In June 2006, the Company closed a $50,000 three-year term loanwith a bank.  The term loan allows theCompany to borrow at a floating rate with a lower borrowing margin than theCompany’s revolving credit facility, and provides the Company with an option toextend the term up to an additional two years. The Company used the proceeds to refinance existing debt borrowed underthe 

 

18

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revolving credit facility.

 

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

 

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

 

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

 

The Company’s financing arrangements provide for certain covenants andevents of default customary for similar instruments, including in the case ofits main bank arrangements, the private placement transactions, and the termloan, covenants to maintain specific ratios of consolidated total indebtednessto EBITDA and of EBITDA to certain fixed charges.  At March 31, 2008, the Company was incompliance with these financial debt covenants.

 

**Note10.  Pension and Postretirement Benefits**

 

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

 

19

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| **Components of Net Periodic Benefit Cost for the  Three Months Ended March 31,** | ** ** | **Pension Benefits** | ** ** | **Other Benefits** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------------|------------|-------------------------|------------|
| ** **                                                                                                                               | **2008**   | ** **                | **2007**   | ** **              | **2008**   | ** ** | **2007** | ** ** |
| Service cost                                                                                                                             | ** ** | **$**                     | **4,305**  |                    | $          | 4,096 | ** ** | **$** | **—** |   | $ | 6 |   |
| Interest cost                                                                                                                            | ** ** | **5,100**                 |       | 4,582                   | ** ** | **192** |   | 177 |   |
| Expected return  on plan assets                                                                                                          | ** ** | **(7,932**                | **)**      | (7,280                  | )          | — |   | — |   |
| Amortization of  prior service cost (credit)                                                                                             | ** ** | **6**                     |       | 4                       | ** ** | **(3** | **)** | (9 | ) |
| Amortization of  transition obligation (asset)                                                                                           | ** ** | **1**                     |       | (1                      | )          | — |   | — |   |
| Amortization of  net loss                                                                                                                | ** ** | **632**                   |       | 1,095                   | ** ** | **145** |   | 108 |   |
| Net periodic  benefit cost                                                                                                               | ** ** | **$**                     | **2,112**  |                    | $          | 2,496 | ** ** | **$** | **334** |   | $ | 282 |   |

 

**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 March 31, 2008, the Company’s effective tax rate was reducedprimarily as a result of the filing of an advance pricing agreement (“APA”)between two taxing jurisdictions (approximately $4,900 net, $5,100 gross).  The APA ensures conformity between thejurisdictions’ taxing authorities regarding the treatment of certainintercompany transactions, thereby allowing the Company to record acorresponding tax benefit.  For the threemonths ended March 31, 2007, the Company’s effective tax rate was reducedprimarily due to a favorable non-U.S. audit settlement for tax years 1998through 2002 (approximately $16,500) and a reorganization of certain non-U.S.subsidiaries (approximately $4,400).

 

The Company filesnumerous consolidated and separate income tax returns in U.S. (federal andstate) and non-U.S. jurisdictions.  Forthe three months ended March 31, 2008, the Company recorded approximately$4,800 of tax expense related to uncertain tax positions that if recognized,would favorably affect the effective tax rate. Included in this amount is approximately $2,700 of interest andpenalties. For the three months ended March 31, 2007, the Company recordedapproximately $3,700 of tax expense related to uncertain tax positionsincluding approximately $1,800 of interest and penalties. With few exceptions,the Company is no longer subject to U.S. federal income tax examinations forthe years before 2004 and is no longer subject to state and local income taxexamination by tax authorities for years before 1997.  As well, with few exceptions, the Company isno longer subject to examination by tax authorities in its material non-U.S.jurisdictions prior to 2003.  It isreasonably possible that within the next twelve months the Company couldrealize approximately $14,600 of unrecognized benefits; $9,700 as a result ofthe termination of a non-U.S. agreement and $4,900 as a result of theexpiration of certain statutes of limitation.

 

The IRS is currentlyauditing the Company’s 2004 and 2005 federal income tax returns.  It is reasonably possible that this audit mayconclude within the next twelve months. To date, no material adjustments have been proposed as a result of thisaudit.  At this time, it is notreasonably possible to estimate the impact of the resolution of this audit onthe Company’s financial statements.

 

20

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**Note 12.  IMSHealth Capital Stock**

 

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

 

On December 18, 2007, the Board of Directors authorized a stockrepurchase program to buy up to 20,000 shares. As of March 31, 2008, 10,000 shares remained available forrepurchase under the December 2007 program.

 

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

 

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

 

During the three months ended March 31, 2008, the Companyrepurchased 10,000 shares of outstanding Common Stock under these programs at atotal cost of $229,336.

 

During the three months ended March 31, 2007, the Companyrepurchased approximately 6,135 shares of outstanding Common Stock under theseprograms at a total cost of approximately $176,000.  These purchases were made pursuant to anaccelerated share repurchase program (“ASR”). As part of the ASR, the Company simultaneously entered into a forwardcontract for the final settlement of the ASR transaction which was indexed tothe price of the Company’s Common Stock. The ASR agreement provided for the final settlement amount to be in theCompany’s Common Stock if the Company were to owe an amount to the bank, or ineither cash or additional shares of the Company’s Common Stock, at the Company’ssole discretion, if the bank were to owe an amount to the Company.  As the agreement required the Company to delivershares to the bank for final settlement, the forward contract element qualifiedfor permanent equity classification and the fair value of the forward contract,which was zero at the contract’s inception, was recorded in equity inaccordance with the provisions of EITF 00-19, “Accounting for DerivativeFinancial Instruments Indexed to, and Potentially Settled In, a Company’s OwnStock.”  Subsequent changes in the fairvalue of the forward contract were not recorded as the Company continued toclassify the forward contract as equity. Upon completion of the ASR in April 2007, the Company was requiredto pay approximately $6,000 in shares, and therefore issued 203 treasuryshares, as full settlement of its obligation under the ASR.  The total cost of the ASR was approximately$176,000 or $28.68 per share.  TheCompany funded the ASR through its existing bank credit facilities (see Note9).

 

These share repurchases positively impacted the Company’s dilutedearnings per share by less than $0.01 for the three months ended March 31,2008 and 2007.

 

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

 

21

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

 

**Note 13. Comprehensive Income**

** **

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

 
| ** **                                | ** ** | **Three Months Ended  March 31,** | ** ** |
|-------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                | ** ** | **2008**                                         | ** ** | **2007** | ** ** |
| **Net  Income**                           | ** ** | **$**                                            | **59,175** |   | $ | 85,569 |   |
| Other  comprehensive loss:                |       |                                             |       |   |   |
| Unrealized  losses on:                    |       |                                             |       |   |   |
| Available-for-sale  equity securities     |       | —                                           |       | (83 | ) |
| Tax benefit on  above                     |       | —                                           |       | 29 |   |
| Change in  unrealized loss on investments |       | —                                           |       | (54 | ) |
| Foreign currency  translation losses      | ** ** | **(55,844**                                      | **)**      | (4,773 | ) |
| Amortization of  SFAS 158 service cost    | ** ** | **530**                                          |       | 1,251 |   |
| Total other  comprehensive loss           | ** ** | **(55,314**                                      | **)**      | (3,576 | ) |
| **Comprehensive  Income**                 | ** ** | **$**                                            | **3,861**  |   | $ | 81,993 |   |

 

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

 

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

 

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

 

The severance and contractpayments portion of the charge was approximately $75,043 and will all besettled in cash.  The Company expectsthat all termination actions under the plan will be completed by the end of2008.

 

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** **
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | **translation** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007 |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                  |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                  |       | (12,825       | )          | (774         | )          | —     |       | —          |       | (13,599    | )          |
| Currency  translation adjustments |       | —        |       | —       |       | —     |       | 2,637           |       | 2,637      |       |
| Balance at  March 31, 2008   |       | $             | 58,758     |         | $          | 2,686      |       | $               | —     |       | $          | 2,637 |   | $ | 64,081 |   |

 

Thecompany currently expects that cash outlays will be applied against the $64,081balance remaining in the 2007 fourth quarter charge at March 31, 2008 asfollows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 48,624     |   |
| 2009                                       |       | 14,092      |       |
| 2010                                       |       | 1,178       |       |
| 2011                                       |       | 187         |       |
| Total                                      |       | $           | 64,081     |   |

 

During the fourth quarter of2001, the Company completed the assessment of its Competitive Fitness Program.This program was designed to streamline operations, increase productivity andimprove client service. In connection with this program, the Company recorded$94,616 of Severance, impairment and other charges during the fourth quarter of2001 as a component of operating income. As of March 31, 2008, approximately $1,302 remains to be utilizedfrom 2008 to 2013 related to severance payments.

 

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

 
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at December 31,  2001 |       | $             | 39,652     |         | $          | 26,324     |       | $          | 28,640     |   | $ | 94,616 |   |
| 2001 – 2005  utilization     |       | (37,070       | )          | (22,315      | )          | (29,602    | )          | (88,987    | )          |
| 2006 utilization                  |       | (264          | )          | (1,887       | )          | —     |       | (2,151     | )          |
| 2007 utilization                  |       | (263          | )          | (1,208       | )          | —     |       | (1,471     | )          |
| 2007 reversals                    |       | —        |       | (640         | )          | —     |       | (640       | )          |
| 2008 utilization                  |       | (65           | )          | —       |       | —     |       | (65        | )          |
| Adjustments                       |       | (688          | )          | (274         | )          | 962        |       | —     |       |
| Balance at  March 31, 2008   |       | $             | 1,302      |         | $          | —     |       | $          | —     |   | $ | 1,302 |   |

 

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TheCompany currently expects that the $1,302 balance remaining in the 2001 fourthquarter charge will be utilized as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 197        |   |
| 2009                                       |       | 262         |       |
| 2010                                       |       | 262         |       |
| 2011                                       |       | 262         |       |
| 2012                                       |       | 262         |       |
| Thereafter                                 |       | 57          |       |
| Total                                      |       | $           | 1,302      |   |

 

**Note 15. Operations by Business Segment**

 

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

 

The Company maintainsregional geographic management to facilitate local execution of its globalstrategies.  However, the Companymaintains global leaders for the majority ofits critical business processes; and the most significant performanceevaluations and resource allocations made by the Company’s chief operatingdecision makers are made on a global basis. As such, the Company has concluded that it maintains one operating andreportable segment.

 

**GeographicFinancial Information:**

 

The following represents selected geographic information for theregions in which the Company operates as of and for the three months ended March 31,2008 and 2007.

 
| ** **                                   | ** ** | **Americas (1)** | ** **  | **EMEA (2)** | ** ** | **Asia Pacific (3)** | ** ** | **Corporate &  Other** | ** ** | **Total**  | ** ** |
|----------------------------------------------|------------|-----------------------|-------------|-------------------|------------|--------------------------------|------------|---------------------------------|------------|------------|------------|
| **Three  months ended March 31, 2008:** |       |                  |        |              |       |                           |       |                            |       |       |       |
| Operating Revenue (4)                        | ** ** | **$**                 | **252,430** | ** **        | **$**      | **240,870**                    | ** ** | **$**                           | **80,880** | ** ** | **—** | ** ** | **$** | **574,180** | ** ** |
| Operating Income  (Loss) (5)                 | ** ** | **$**                 | **79,142**  | ** **        | **$**      | **17,220**                     | ** ** | **$**                           | **30,564** | ** ** | **$**      | **(10,544** | **)** | **$** | **116,382** | ** ** |
| **Three  months ended March 31, 2007:** |       |                  |        |              |       |                           |       |                            |       |       |       |
| Operating Revenue (4)                        |       | $                     | 231,276     |              | $          | 210,346                        |       | $                               | 68,727     |       | —     |   | $ | 510,349 |   |
| Operating Income  (Loss) (5)                 |       | $                     | 75,985      |              | $          | 23,429                         |       | $                               | 26,279     |       | $          | (14,630 | ) | $ | 111,063 |   |

 

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**Notes to Geographic FinancialInformation:**

 

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

 

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

 

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

 

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

 

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

 

A summary of theCompany’s operating revenue by product line for the three months ended March 31,2008 and 2007 is presented below:

 
| ** **                 | ** ** | **Three Months Ended  March 31,** | ** **  |
|----------------------------|------------|--------------------------------------------------|-------------|
| ** **                 | ** ** | **2008**                                         | ** **  | **2007** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                            | **265,560** |   | $ | 233,032 |   |
| Portfolio  Optimization    | ** ** | **166,319**                                      |        | 156,198 |   |
| Launch, Brand  and Other   | ** ** | **142,301**                                      |        | 121,119 |   |
| Operating  Revenue         | ** ** | **$**                                            | **574,180** |   | $ | 510,349 |   |

 

**Note 16. Subsequent Events**

 

**During April 2008, the Company completed theacquisitions of Fourth Hurdle Consulting Limited (U.K.) and Health Benchmarks, Inc.(U.S.) for an aggregate cost of approximately $19,400.  These acquisitions will be accounted forunder the purchase method of accounting and the respective purchase prices willbe allocated to the assets acquired and the liabilities assumed based onestimated fair values as of the closing dates. Had these acquisitions occurred as of January 1, 2008 or 2007, theimpact on the Company’s results of operations would not have been significant.**

 

25

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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***

 

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

 

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

 

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

 

·      Launch, Brand Management and Other tosupport client needs relative to market segmentation and positioning, lifecycle management for prescription and consumer health products and healtheconomics and outcomes research offerings.

 

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

 

Weoperate in more than 100 countries.

 

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

 

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

 

**Performance Overview**

 

Our operatingrevenue grew 12.5% to $574,180 in the first quarter of 2008 as compared to$510,349 in the first quarter of 2007. The operating revenue increase was a result of growth in all three ofour business lines.  Our operating incomegrew 4.8% to $116,382 in the first quarter of 2008 as compared to $111,063 inthe first quarter of 2007.  The operatingincome growth was a result of increased operating revenues offset by increasesin operating costs, selling and administrative expenses and depreciation andamortization, as discussed below. Our net income was $59,175 for the firstquarter of 2008 as compared to $85,569 for the first quarter of 2007, due tothe Non-Operating Loss, net items discussed below and 

 

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certain tax itemsas discussed in Note 11 of the Condensed Consolidated Financial Statements(Unaudited).  Our diluted earnings pershare of Common Stock decreased to $0.32 for the first quarter of 2008 ascompared to $0.43 for the first quarter of 2007.

 

**Resultsof Operations**

 

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

 

*References to constant dollarresults and results excluding the effect of foreign currency translations. *We report results in U.S.dollars, but we do business on a global basis. Exchange rate fluctuations affect the rate at which we translate foreignrevenues and expenses into U.S. dollars and have important effects on ourresults.  In order to illustrate theseeffects, the discussion of our business in this report sometimes describes themagnitude of changes in constant dollar terms or results excluding the effectof foreign currency translations.  We believethis information facilitates a comparative view of business growth.  In the first three months of 2008, the U.S.dollar was generally weaker against other currencies as compared to the firstthree months of 2007.  As a result,growth at constant dollar exchange rates was lower than growth at actualcurrency exchange rates.  See “HowExchange Rates Affect Our Results” below and the discussion of “Market Risk” inthe Management Discussion and Analysis section of our annual report on Form 10-Kfor the year ended December 31, 2007 for a more complete discussionregarding the impact of foreign currency translation on our business.

 

**Summary of Operating Results**

 
| ** **                                   | ** ** | **Three Months Ended March 31,** | ** **  | **% Variance** | ** ** |
|----------------------------------------------|------------|------------------------------------------------------|-------------|---------------------|------------|
| ** **                                   | ** ** | ** **                                           | ** **  | ** **          | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | **2008**                                             | ** **  | **2007**            | ** ** | **vs 2007** | ** ** |
| Information and  analytics revenue (I&A) | ** ** | **$**                                                | **456,187** |                | $          | 408,161 |   | 11.8 | % |
| Consulting and  services revenue (C&S)   |       | **117,993**                                          | ** **  | 102,188             |       | 15.5 | % |
| Operating  Revenue                           |       | **574,180**                                          | ** **  | 510,349             |       | 12.5 | % |
|                                         |       | ** **                                           |        |                |       |   |   |
| Operating costs  of I&A                  |       | **193,286**                                          | ** **  | 170,650             |       | 13.3 | % |
| Direct and  incremental costs of C&S     |       | **68,062**                                           | ** **  | 58,476              |       | 16.4 | % |
| External-use  software amortization          | ** ** | **12,714**                                           |        | 11,245              |       | 13.1 | % |
| Selling and  administrative expenses         | ** ** | **162,692**                                          |        | 139,764             |       | 16.4 | % |
| Depreciation and  other amortization         | ** ** | **21,044**                                           |        | 19,151              |       | 9.9 | % |
| Operating Income                             | ** ** | **$**                                                | **116,382** |                | $          | 111,063 |   | 4.8 | % |

 

***Operating Income***

 

Our operating income forthe first quarter of 2008 grew 4.8% to $116,382 from $111,063 in the firstquarter of 2007.  This was due to theincrease in our operating revenue, offset by increases in our operating costs andselling and administrative expenses driven by acquisitions, increased cost ofdata, increased sales and marketing expenses and investments in consulting andservices capabilities.  Our operatingincome decreased 2.9% in constant dollar terms.

 

27

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***Operating Revenue***

 

Our operating revenue for the first quarter of 2008grew 12.5% to $574,180 from $510,349 in the first quarter of 2007. On aconstant dollar basis, operating revenue growth was 5.7%.  On a constant dollar basis, acquisitionscompleted within the prior twelve months contributed approximately 1.7percentage points to our operating revenue growth for the first quarter of2008.  The increase in our operatingrevenue resulted from growth in revenue in all three of our business lines, togetherwith the effect of approximately $36,000 of currency translation for the firstquarter of 2008.  On a constant dollarbasis, all business lines grew.

 

**Summary of Operating Revenue**

** **
| ** **                 | ** ** | ** **                                           | ** **  | ** **                 | ** ** | **% Variance** | ** ** |
|----------------------------|------------|------------------------------------------------------|-------------|----------------------------|------------|---------------------|------------|
| ** **                 | ** ** | **Three months ended March 31,** | ** **  | **2008 vs 2007** | ** ** |
| ** **                 | ** ** | **2008**                                             | ** **  | **2007**                   | ** ** | **Reported  Rates** | ** ** | **Constant  Dollar** | ** ** |
| Sales Force  Effectiveness | ** ** | **$**                                                | **265,560** |                       | $          | 233,032             |       | 14.0 | % | 6.6 | % |
| Portfolio  Optimization    | ** ** | **166,319**                                          |        | 156,198                    |       | 6.5                 | %          | 0.4 | % |
| Launch, Brand  and Other   | ** ** | **142,301**                                          |        | 121,119                    |       | 17.5                | %          | 10.9 | % |
| Operating  Revenue         | ** ** | **$**                                                | **574,180** |                       | $          | 510,349             |       | 12.5 | % | 5.7 | % |

 

·                  *Sales Force Effectiveness:*EMEA contributed one-half and the Americas contributed more than one-third tothe revenue growth for the first quarter of 2008.

 

·                  *Portfolio Optimization:*Both the Americas and Asia Pacific contributed approximately one-half to thegrowth during the first quarter of 2008.

 

·                  *Launch, Brand Managementand Other:* Both the Americas and EMEA contributed approximatelyone-half to the growth during the first quarter of 2008.

 

Consulting and services (“C&S”)revenue, as included in the business lines above, was $117,993 in the firstquarter of 2008, up 15.5% from $102,188 in the first quarter of 2007 (up 8.6%on a constant dollar basis).  Slightlyless than two-thirds of the C&S revenue growth for the first quarter of2008 was attributable to acquisitions completed during the prior twelve months.

 

***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 the Company’s I&A offerings.  Our operating costs of I&A grew 13.3% to$193,286 in the first quarter of 2008 from $170,650 in the first quarter of2007.

 

·                  *Foreign CurrencyTranslation*: The effect of foreign currency translation increasedour operating costs of I&A by approximately $12,000 for the first quarterof 2008 as compared to 2007.

 

Excludingthe effect of foreign currency translation, our operating costs of I&A grew6.2% in the first quarter of 2008 as compared to the first quarter of 2007.

 

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·                  *Data*: Datacosts increased by approximately $9,000 in the first quarter of 2008, comparedto 2007.

 

·                  *Production, ClientServices and Other*: Production, client services and other costsincreased by approximately $2,000 in the first quarter of 2008 as compared tothe first quarter of 2007.

 

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

 

Direct andincremental costs of C&S include the costs of consulting staff directlyinvolved with delivering revenue-generating engagements, related accommodationsand the costs of primary market research data purchased specifically forcertain individual C&S engagements. Direct and incremental costs of C&S do not include an allocation ofdirect costs of data that are included within I&A.  Our direct and incremental costs of C&Sgrew 16.4% to $68,062 in the first quarter of 2008 from $58,476 in the firstquarter of 2007.

 

·                  *Foreign Currency Translation*: The effect of foreign currencytranslation increased our direct and incremental costs of C&S byapproximately $4,000 for the first quarter of 2008 as compared to 2007.

 

Excluding the effect of foreign currency translation,our direct and incremental costs of C&S grew 9.4% in the first quarter of2008 as compared to the first quarter of 2007.

 

·                  C&S costs increased by approximately$6,000 in the first quarter of 2008 as compared to 2007 due to increased labor,accommodations and primary market research data expense, all directlyrelated  to C&S revenue growth.

 

***External-UseSoftware Amortization***

 

Our external-use softwareamortization charges represent the amortization associated with software wecapitalized under the provisions of Statement of Financial Accounting Standards(“SFAS”) No. 86, “Accounting for the Costs of Computer Software to beSold, Leased, or Otherwise Marketed.” Our external-use software amortizationcharges grew 13.1% to $12,714 in the first quarter of 2008 from $11,245 in thefirst quarter of 2007 due to increased software amortization associated withnew products.

 

***Sellingand Administrative Expenses***

 

Our selling andadministrative expenses consist primarily of the expenses attributable tosales, marketing, and administration, including human resources, legal,management and finance.  Our selling andadministrative expenses grew 16.4% in the first quarter of 2008, to $162,692from $139,764 in the first quarter of 2007.

 

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

 

Excluding theeffect of foreign currency translation, our selling and administrative expensesgrew 10.2% in the first quarter of 2008 as compared to the first quarter of2007 to support revenue growth.

 

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·                  *Sales and Marketing*: Sales and marketing expense increasedby approximately $3,000 in the first quarter of 2008 compared to 2007.

 

·                  *Consulting*: Consulting and services expenses increased by approximately $8,000 inthe first quarter of 2008 compared to 2007.

 

·                  *Administrative and Other*: Other expenses increased by approximately $3,000 in the first quarter of2008 compared to 2007.

 

***Depreciationand Other Amortization***

 

Ourdepreciation and other amortization charges increased 9.9% to $21,044 in thefirst quarter of 2008 from $19,151 in the first quarter of 2007 due toincreased internal-use software amortization.

 

***Trendsin our Operating Margins***

 

Ouroperating margin for the first quarter of 2008 was 20.3%, as compared to 21.8%in the first quarter of 2007.  Marginswere negatively impacted by increased cost of data and our continuinginvestments in new products and consulting and services capabilities.

 

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

 

***Non-OperatingLoss, net***

 

Our non-operatingloss, net increased to a loss of $29,520 in the first quarter of 2008 from aloss of $9,747 in the first quarter of 2007. This was due to the following factors:

 

·                  *Interest Expense, net*: Net interest expense was $8,671 forthe first quarter of 2008 compared with $6,758 for the first quarter of 2007,due to higher debt levels in the first quarter of 2008 compared with the firstquarter of 2007.

 

·                  *Losses from Investments, net*: Losses from investments of$211 during the first quarter of 2007 were a result of management fees relatedto our Enterprise Portfolio.

 

·                  *Other Expense, net*:Other expense, net, grew by $18,071 in the first quarter of 2008, as comparedto the first quarter of 2007. This expense is a result of net foreign exchangelosses of $18,598 in the first quarter of 2008 compared with net foreignexchange losses of $836 in the first quarter of 2007.

 

***Taxes***

 

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

 

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For the three monthsended March 31, 2008, our effective tax rate was reduced primarily as aresult of the filing of an advance pricing agreement (“APA”) between two taxingjurisdictions (approximately $4,900 net, $5,100 gross). The APA ensuresconformity between the jurisdictions’ taxing authorities regarding thetreatment of certain intercompany transactions, thereby allowing us to record acorresponding tax benefit.  For the threemonths ended March 31, 2007, our effective tax rate was reduced primarilydue to a favorable non-U.S. audit settlement for tax years 1998 through 2002(approximately $16,500) and a reorganization of certain non-U.S.subsidiaries  (approximately $4,400).

 

We file numerousconsolidated and separate income tax returns in U.S. (federal and state) andnon-U.S. jurisdictions.  For the threemonths ended March 31, 2008, we recorded approximately $4,800 of taxexpense related to uncertain tax positions that if recognized, would favorablyaffect the effective tax rate.  Includedin this amount is approximately $2,700 of interest and penalties. For the threemonths ended March 31, 2007, we recorded approximately $3,700 of taxexpense related to uncertain tax positions including approximately $1,800 ofinterest and penalties. With few exceptions, we are no longer subject to U.S.federal income tax examinations for the years before 2004 and are no longersubject to state and local income tax examination by tax authorities for yearsbefore 1997.  As well, with fewexceptions, we are no longer subject to examination by tax authorities in ourmaterial non-U.S. jurisdictions prior to 2003. It is reasonably possible that within the next twelve months we couldrealize approximately $14,600 of unrecognized benefits; $9,700 as a result ofthe termination of a non-U.S. agreement and $4,900 as a result of theexpiration of certain statutes of limitation.

 

The Internal RevenueService (“IRS”) is currently auditing our 2004 and 2005 federal income taxreturns.  It is reasonably possible thatthis audit may conclude within the next twelve months.  To date, no material adjustments have beenproposed as a result of this audit.  Atthis time, it is not reasonably possible to estimate the impact of theresolution of this audit on our financial statements.

 

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

 

## **OperatingResults by Geographic Region**

## ** **

The following represents selected geographicinformation for the regions in which we operate for the three months ended March 31,2008 and 2007:

 
| ** **                                   | ** ** | **Americas  (1)** | ** ** | **EMEA  (2)** | ** ** | **Asia Pacific  (3)** | ** ** | **Corporate &  Other** | ** ** | **Total  IMS** | ** ** |
|----------------------------------------------|------------|-------------------|------------|---------------|------------|----------------------------|------------|---------------------------------|------------|----------------|------------|
| **Three  months ended March 31, 2008:** |       |              |       |          |       |                       |       |                            |       |           |       |
| Operating Revenue (4)                        |       | $                 | 252,430    |          | $          | 240,870                    |       | $                               | 80,880     |           | —     |   | $ | 574,180 |   |
| Operating Income  (Loss) (5)                 |       | $                 | 79,142     |          | $          | 17,220                     |       | $                               | 30,564     |           | $          | (10,544 | ) | $ | 116,382 |   |
| **Three  months ended March 31, 2007:** |       |              |       |          |       |                       |       |                            |       |           |       |
| Operating Revenue (4)                        |       | $                 | 231,276    |          | $          | 210,346                    |       | $                               | 68,727     |           | —     |   | $ | 510,349 |   |
| Operating Income  (Loss) (5)                 |       | $                 | 75,985     |          | $          | 23,429                     |       | $                               | 26,279     |           | $          | (14,630 | ) | $ | 111,063 |   |

 

----

**Notes toGeographic Financial Information:**

 

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

 

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

 

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

 

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

 

*(5)**                               TheOperating Income for the geographic segments includes the impact of foreignexchange in converting results into U.S. dollars.*

 

***Americas Region***

 

Operatingrevenue growth in the Americas region was 9.1% in the first quarter of 2008compared to the first quarter of 2007. Excluding the effect of foreign currency translations, operating revenuegrew 7.3% in the first quarter of 2008. This was driven approximately one-half by Launch, Brand and Otherbusiness lines, one-third by Sales Force Effectiveness, and approximately one-quarterby Portfolio Optimization for the first quarter of 2008.

 

Operatingincome in the Americas region grew 4.2% in the first quarter of 2008 ascompared to the first quarter of 2007. The operating income growth reflected revenue growth in the regionoffset by increases in operating expenses of $18,000 in the first quarter of2008.  Excluding the effect of foreigncurrency translations, operating income grew by 2.5% in the first quarter of2008.

 

***EMEARegion***

 

Operatingrevenue increased in the EMEA region by 14.5% in the first quarter of 2008 ascompared to the first quarter of 2007. Excluding the effect of foreign currency translations, operating revenuegrew 3.5% in the first quarter of 2008. The revenue growth in the first quarter of 2008 was driven approximatelyone-half by both the Sales Force Effectiveness and Launch, Brand and Otherbusiness lines.

 

Operatingincome in the EMEA region declined by 26.5% in the first quarter of 2008 ascompared to the first quarter of 2007. The operating income decline reflected revenue growth in the regionwhich was more than offset by increases in operating expenses of $37,000 in thefirst quarter of 2008.  Growth in dataand C&S expense drove the increase in operating expenses.  Excluding the effect of foreign currencytranslations, operating income declined by 46.8% in the first quarter of 2008.

 

***Asia Pacific Region***

 

Operating revenue in the Asia Pacific region increased17.7% in the first quarter of 2008 as compared to the first quarter of2007.  Excluding the effect of foreigncurrency translations, operating revenue grew 7.2% in the first quarter of2008.  The revenue growth in thefirst quarter of 2008 was driven two-thirds by Portfolio Optimization andapproximately one-third by Sales Force Effectiveness.

 

Operatingincome in the Asia Pacific region increased by 16.3% in the first quarter of2008 as compared to the first quarter of 2007. The operating income growth reflected revenue growth in theregion offset by increases in operating expenses of $8,000 in the first quarterof 2008.  Excluding the effect of foreigncurrency translations, operating income increased by 4.7% in the first quarterof 2008.

 

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

### ** **

Weoperate globally, deriving a significant portion of our operating income fromnon-U.S. operations. As a result, fluctuations in the value of foreigncurrencies relative to the U.S. dollar may increase the volatility of U.S.dollar operating results. We enter into foreign currency forward contracts topartially offset the effect of currency fluctuations. In 2008, foreign currencytranslation increased U.S. dollar revenue growth by approximately 6.8percentage points in the first quarter of 2008, while the impact on operatingincome growth was an approximate increase of 7.7 percentage points in the firstquarter of 2008.

 

Non-U.S.monetary assets are maintained in currencies other than the U.S. dollar,principally the Euro, the Japanese Yen and the Swiss Franc. Where monetaryassets are held in the functional currency of the local entity, changes in thevalue of these currencies relative to the U.S. dollar are charged or creditedto Cumulative translation adjustment in the Consolidated Statements ofShareholders’ Equity. The effect of exchange rate changes during the firstquarter of 2008 increased the U.S. dollar amount of Cash and cash equivalentsby $7,908.  The effect of exchange ratechanges during the first quarter of 2007 increased the U.S. dollar amount ofCash and cash equivalents by $1,838.

 

Venezuela imposedcurrency exchange restrictions in February 2003, and subsequently adjustedits official exchange rates in February 2004 and once again in March 2005.  At March 31, 2008, IMS AG, our Swissoperating subsidiary, maintained a cash balance of approximately 52,217Venezuelan Bolívars (“Bolívars”), or approximately $24,300.  Maintaining this cash balance in anon-functional currency requires that we mark-to-market the cash balance ateach reporting date with the difference reflected as a gain or loss in thestatement of income.  We currently havelimited ability to exchange or liquidate this Bolívar balance.  We have recognized exchange losses on theBolívar balance in the past, resulting from changes in the official U.S. Dollarto Bolivar exchange rate.  It is notpossible for us to predict the extent to which we may be affected by futurechanges in exchange rates and exchange controls imposed by the local government.  However, based on a hypothetical 10% decreasein the value of the Bolívar against the U.S. dollar, we would be required torecord a pre-tax loss of approximately $2,200.

 

***Liquidity and Capital Resources***

*** ***

Our cash and cashequivalents decreased $2,454 during the first quarter of 2008 to $215,795 at March 31,2008 compared to $218,249 at December 31, 2007.  The decrease reflects cash used in operatingand investing activities of $735 and $29,940, respectively, partially offset bycash provided by financing activities of $20,313 and a $7,908 increase due tothe effect of exchange rate changes.

 

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

 

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

 

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

 

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

 

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

 

·                  paymentsfor tax-related matters, including the D&B Legacy Tax Matters discussedfurther in Note 7 to our Condensed Consolidated Financial Statements(Unaudited).  Payments for certain of theD&B Legacy Tax Matters could be up to approximately $35,200 in 2008; and

 

·                  pensionand other postretirement benefit plan contributions (we currently expectcontributions to U.S. and non-U.S. pension and other postretirement benefitplans to total approximately $13,900 in 2008).

 

Net cash used inoperating activities amounted to $735 for the three months ended March 31,2008, which represented a decrease of $20,326 from cash provided over thecomparable period in 2007.  The decreaserelates to lower net income, higher accounts receivable balances due toincreased revenues and higher severance and other payments related to ourfourth quarter 2007 restructuring plan (see Note 14 of Notes to CondensedConsolidated Financial Statements (Unaudited)), partially offset by the lowerfunding of accrued expenses and other current liabilities during the threemonths ended March 31, 2008.  DSO(days sales outstanding) in the first quarter of 2008 was approximately 6 dayshigher than the prior year comparable quarter. We have plans in place to improve our DSO performance over the comingquarters to be more in line with historical levels.

 

Net cash used ininvesting activities amounted to $29,940 for the three months ended March 31,2008, a decrease in cash used of $21,339 over the comparable period in2007.  The decrease relates to lowercapital expenditures, computer software additions and payments for acquisitionsduring the three months ended March 31, 2008.

 

Net cash providedby financing activities amounted to $20,313 for the three months ended March 31,2008, a decrease of $14,668 over the comparable period in 2007.  This decrease in cash provided was due tohigher purchases of our stock and lower proceeds from the exercise of employeestock options, partially offset by higher debt levels during the three monthsended March 31, 2008.

 

Our financingactivities include cash dividends we paid of $0.03 per share quarterly, whichamounted to $5,507 and $5,952 during the three months ended March 31, 2008and 2007, respectively.  The payments andlevel of cash dividends made by us are subject to the discretion of our Boardof Directors.  Any future dividends,other than the $0.03 per share dividend for the second quarter of 2008, whichwas declared by our Board of Directors in April 2008, will be based on,and affected by, a number of factors, including our operating results and financialrequirements.

 

**Tax and 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 March 31, 2008.

 

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

 

Management believes that we have made appropriate arrangements inrespect of the future effect on us of these known tax and othercontingencies.  Management also believes that the amount of cash availableto us from our operations, together with cash from financing, will besufficient for us to pay any known tax and other contingencies as they become duewithout materially affecting our ability to conduct our operationsand invest in the growth of our business.

 

**Stock Repurchase Programs**

 

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

 

On December 18, 2007, the Board of Directorsauthorized a stock repurchase program to buy up to 20,000 shares.  As of March 31, 2008, 10,000 sharesremained available for repurchase under the December 2007 program.

 

On December 19, 2006, the Board of Directorsauthorized a stock repurchase program to buy up to 10,000 shares. This programwas completed in November 2007 at a total cost of $287,072.

 

On January 25, 2006, the Board of Directorsauthorized a stock repurchase program to buy up to 30,000 shares. This programwas completed in May 2007 at a total cost of $799,906.

 

During the three months ended March 31, 2008,we repurchased 10,000 shares of outstanding Common Stock under these programsat a total cost of $229,336.

 

During the three months ended March 31,2007, we repurchased approximately 6,135 shares of outstanding Common Stockunder these programs at a total cost of approximately $176,000.  These purchases were made pursuant to an acceleratedshare repurchase program (“ASR”).  Aspart of the ASR, we simultaneously entered into a forward contract for thefinal settlement of the ASR transaction which was indexed to the price of ourCommon Stock.  The ASR agreement providedfor the final settlement amount to be in our Common Stock if we were to owe anamount to the bank, or in either cash or additional shares of our Common Stock,at our sole discretion, if the bank were to owe an amount to us.  As the agreement required us to deliver sharesto the bank for final settlement, the forward contract element qualified forpermanent equity classification and the fair value of the forward contract,which was zero at the contract’s inception, was recorded in equity inaccordance with the provisions of Emerging Issues Task Force (“EITF”) 00-19, “Accountingfor Derivative Financial Instruments Indexed to, and Potentially Settled In, aCompany’s Own Stock.”  Subsequent changesin the fair value of the forward contract were not recorded as we continued toclassify the forward contract as equity. Upon completion of the ASR in April 2007, we were required to payapproximately $6,000 in shares, and therefore issued 203 treasury shares, asfull settlement of our obligation under the ASR.  The total cost of the ASR was approximately$176,000 or $28.68 per share.  We fundedthe ASR through our existing bank credit facilities (see Note 9 to ourCondensed Consolidated Financial Statements (Unaudited)).

 

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These share repurchases positively impacted ourdiluted earnings per share by less than $0.01 for the three months ended March 31,2008 and 2007.

 

Shares acquired through our repurchase programsdescribed above are open-market purchases or privately negotiated transactionsin compliance with SEC Rule 10b-18, with the exception of purchasespursuant to the 2007 ASR.

 

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

 

**Borrowings**

 

In recent years, we have increased debt levels to balance appropriatelythe objective of generating an attractive cost of capital with providing us areasonable amount of financial flexibility. At March 31, 2008, our debt totaled $1,567,326, and management doesnot believe that this level of debt poses a material risk to us due to thefollowing factors:

 

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

 

·                  atMarch 31, 2008, we had $215,795 in worldwide cash and cash equivalents;

 

·                  atMarch 31, 2008, we had $219,665 of unused debt capacity under our existingbank credit facilities; and

 

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

 

The following table summarizes our long-term debt at March 31,2008 and December 31, 2007:

 
| ** **                                                                                                               | ** ** | **2008**    | ** **    | **2007**   | ** ** |
|--------------------------------------------------------------------------------------------------------------------------|------------|-------------|---------------|------------|------------|
| 4.6% Private  Placement Note, principal payment of $150,000 due January 2008, net of  interest rate swaps of $(981) | ** ** | **$**       | **—**    |       | $          | 149,019 |   |
| 5.58% Private  Placement Notes, principal payment of $105,000 due January 2015                                      | ** ** | **105,000** | ** **    | **—** | ** ** |
| 5.99% Private  Placement Notes, principal payment of $135,000 due January 2018                                      | ** ** | **135,000** | ** **    | **—** | ** ** |
| 5.55% Private  Placement Notes, principal payment of $150,000 due April 2016                                        | ** ** | **150,000** |          | 150,000    |       |
| 1.70% Private  Placement Note, principal payment of 34,395,000 Japanese Yen due  January 2013                       | ** ** | **346,991** |          | 300,787    |       |
| Revolving Credit  Facility:                                                                                              |       |        |          |       |       |
| Japanese Yen  denominated borrowings at average floating rates of approximately 1.31%                                    | ** ** | **425,924** |          | 397,973    |       |
| Swiss Franc  denominated borrowings at average floating rates of approximately 3.09%                                     | ** ** | **45,194**  |          | 54,730     |       |
| U.S. Dollar  denominated borrowings at average floating rates of approximately 3.28%                                     | ** ** | **309,217** |          | 100,700    |       |
| Bank Term Loan,  principal payment of $50,000 due June 2009 at average floating rate of  approximately 2.96%        | ** ** | **50,000**  |          | 50,000     |       |
| Total Long-Term  Debt                                                                                                    | ** ** | **$**       | **1,567,326** |       | $          | 1,203,209 |   |

 

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In February 2008, we closed a private placementtransaction pursuant to which we 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. We used the proceeds for share repurchases (see Note 12 to our CondensedConsolidated Financial Statements (Unaudited)) and to refinance existing debt.

 

In July 2006, we entered into a $1,000,000revolving credit facility with a syndicate of 12 banks (“Revolving CreditFacility”) replacing our existing $700,000 facility.  The terms of the Revolving Credit Facilityextended the maturity of the facility in its entirety to a term of five years,maturing July 2011, reduced the borrowing margins, and increasedsubsidiary borrowing limits.  Totalborrowings under the Revolving Credit Facility were $780,335 and $553,403 at March 31,2008 and December 31, 2007, respectively, all of which were classified aslong-term.  We define long-term lines asthose where the lines are non-cancellable for more than 365 days from thebalance sheet date by the financial institutions except for specified,objectively measurable violations of the provisions of the agreement.  In general, rates for borrowing under theRevolving Credit Facility are LIBOR plus 40 basis points and can vary based onour Debt to EBITDA ratio.  The weightedaverage interest rates for our lines were 2.19% and 2.16% at March 31,2008 and December 31, 2007, respectively. In addition, we are required to pay a commitment fee on any unusedportion of the facilities of 0.01%.  At March 31,2008, we had approximately $219,665 available under our existing bank creditfacilities.

 

In June 2006, we closed a $50,000 three-yearterm loan with a bank.  The term loanallows us to borrow at a floating rate with a lower borrowing margin than ourrevolving credit facility, and provides us with an option to extend the term upto an additional two years.  We used theproceeds to refinance existing debt borrowed under the revolving creditfacility.

 

In April 2006, we closed a private placementtransaction pursuant to which we issued $150,000 of ten-year notes to twohighly rated insurance companies at a fixed rate of 5.55%.  We used the proceeds to refinance existingdebt of $150,000 drawn under a short term credit agreement with a bank in January 2006.

 

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

 

In January 2003, we closed a private placementtransaction pursuant to which we issued $150,000 of five-year debt to severalhighly rated insurance companies at a fixed rate of 4.60%.  We used the proceeds to pay down existing short-termdebt.  We also swapped $100,000 of ourfixed rate debt to floating rate based on six-month LIBOR plus a margin ofapproximately 107 basis points.  Weaccounted for these swaps as fair value hedges under the provisions of SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities.”  We determined the fair values based onestimated prices quoted by financial institutions.  The fair values of these swaps were $(981) asof December 31, 2007.  These notesand the related swaps matured and were paid off in January 2008.  Although these notes were due within 365 daysat December 31, 2007, we classified the notes as long-term at December 31,2007 in compliance with SFAS No. 6, “Classification of Short-TermObligations Expected to be Refinanced,” as we had the ability and intent torefinance these notes with another long-term debt arrangement.

 

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Our financing arrangements provide for certaincovenants and events of default customary for similar instruments, including inthe case of our main bank arrangements, the private placement transactions, andthe term loan, covenants to maintain specific ratios of consolidated totalindebtedness to EBITDA and of EBITDA to certain fixed charges.  At March 31, 2008, we were in compliancewith these financial debt covenants.

 

**Severance, Impairment and Other Charges**

 

In response to healthcare marketplace dynamics,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 incurredwith no future economic benefit based on our decision to abandon certainproducts in our EMEA region.  As aresult, we recorded $88,690 of Severance, impairment and other charges as acomponent of operating income in the fourth quarter of 2007.  The severance benefits were calculatedpursuant to the terms of established employee protection plans, in accordancewith local statutory minimum requirements or individual employee contracts, asapplicable.

 

These charges were designed to strengthenclient-facing operations worldwide, increase our operating efficiencies andstreamline our cost structure.  Some ofthe initiatives included in this plan are designed to better align ourresources to help clients manage for change in a challenging climate.

 

The severance and contract payments portion of thecharge was approximately $75,043 and will all be settled in cash.  We expect that all termination actions underthe plan will be completed by the end of 2008.

 
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | **Currency**    | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|-----------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | **translation** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **adjustments** | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2007 |       | $             | 71,583     |         | $          | 3,460      |       | $               | 13,647     |       | $          | — |   | $ | 88,690 |   |
| 2007 utilization                  |       | —        |       | —       |       | (13,647    | )          | —          |       | (13,647    | )          |
| 2008 utilization                  |       | (12,825       | )          | (774         | )          | —     |       | —          |       | (13,599    | )          |
| Currency  translation adjustments |       | —        |       | —       |       | —     |       | 2,637           |       | 2,637      |       |
| Balance at  March 31, 2008   |       | $             | 58,758     |         | $          | 2,686      |       | $               | —     |       | $          | 2,637 |   | $ | 64,081 |   |

 

 We currentlyexpect that cash outlays will be applied against the $64,081 balance remainingin the 2007 fourth quarter charge at March 31, 2008 as follows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 48,624     |   |
| 2009                                       |       | 14,092      |       |
| 2010                                       |       | 1,178       |       |
| 2011                                       |       | 187         |       |
| Total                                      |       | $           | 64,081     |   |

 

During the fourth quarter of 2001, we completed theassessment of our Competitive Fitness

 

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Program. This program was designed to streamline operations, increaseproductivity and improve client service. In connection with this program, werecorded $94,616 of Severance, impairment and other charges during the fourthquarter of 2001 as a component of operating income.  As of March 31, 2008, approximately$1,302 remains to be utilized from 2008 to 2013 related to severance payments.

 

In the first quarter of 2007, we reversed $640 ofcontract-related reserves from the fourth quarter 2001 charge due primarily tothe termination and settlement of exit related costs for an impairedlease.  These amounts were reversedagainst Selling and administrative expenses in the Condensed ConsolidatedStatements of Income (Unaudited).

 
| ** **                        | ** ** | **Severance** | ** ** | **Contract** | ** ** | **Asset**  | ** ** | ** ** | ** ** |
|-----------------------------------|------------|---------------|------------|--------------|------------|------------|------------|------------|------------|
| ** **                        | ** ** | **related**   | ** ** | **related**  | ** ** | **write-** | ** ** | ** ** | ** ** |
| ** **                        | ** ** | **reserves**  | ** ** | **reserves** | ** ** | **downs**  | ** ** | **Total**  | ** ** |
| Charge at  December 31, 2001 |       | $             | 39,652     |         | $          | 26,324     |       | $          | 28,640     |   | $ | 94,616 |   |
| 2001 – 2005  utilization     |       | (37,070       | )          | (22,315      | )          | (29,602    | )          | (88,987    | )          |
| 2006 utilization                  |       | (264          | )          | (1,887       | )          | —     |       | (2,151     | )          |
| 2007 utilization                  |       | (263          | )          | (1,208       | )          | —     |       | (1,471     | )          |
| 2007 reversals                    |       | —        |       | (640         | )          | —     |       | (640       | )          |
| 2008 utilization                  |       | (65           | )          | —       |       | —     |       | (65        | )          |
| Adjustments                       |       | (688          | )          | (274         | )          | 962        |       | —     |       |
| Balance at  March 31, 2008   |       | $             | 1,302      |         | $          | —     |       | $          | —     |   | $ | 1,302 |   |

 

We currently expect that the$1,302 balance remaining in the 2001 fourth quarter charge will be utilized asfollows:

 
| **Year Ended December 31,** | ** ** | **Outlays** | ** ** |
|--------------------------------------------|------------|-------------|------------|
| 2008                                       |       | $           | 197        |   |
| 2009                                       |       | 262         |       |
| 2010                                       |       | 262         |       |
| 2011                                       |       | 262         |       |
| 2012                                       |       | 262         |       |
| Thereafter                                 |       | 57          |       |
| Total                                      |       | $           | 1,302      |   |

 

**Recently Issued AccountingStandards**

 

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

 

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In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities–Includingan amendment of FASB Statement No. 115.” This statement permits entitiesto choose to measure many financial instruments and certain other items at fairvalue.  Entities shall report unrealizedgains and losses on items for which the fair value option has been elected inearnings at each subsequent reporting date. This statement is effective as of the beginning of an entity’s firstfiscal year that begins after November 15, 2007.  The adoption of SFAS No. 159, effective January 1,2008, did not have a material impact on our financial position, results ofoperations or cash flows as we did not elect the fair value measurement optionfor any additional financial instruments or other items.

 

In December 2007, the FASB issued SFAS No. 141R,“Business Combinations.”  This statementestablishes principles and requirements for how an acquirer recognizes andmeasures in its financial statements the identifiable assets acquired, theliabilities assumed, any noncontrolling interest in the acquiree and thegoodwill acquired.  This statement alsoestablishes disclosure requirements to enable the evaluation of the nature andfinancial effects of the business combination. This statement is effective for fiscal years beginning after December 15,2008.  We are currently evaluating thisstatement to determine any potential impact that it may have on our financialresults.

 

In December 2007, the FASB issued SFAS No. 160,“Noncontrolling Interests in Consolidated Financial Statements - an Amendmentof ARB No. 51.” This statement establishes accounting and reportingstandards pertaining to ownership interests in subsidiaries held by partiesother than the parent, the amount of net income attributable to the parent andto the noncontrolling interest, changes in a parent’s ownership interest, andthe valuation of any retained noncontrolling equity investment when asubsidiary is deconsolidated. This statement also establishes disclosurerequirements that identify and distinguish between the interests of the parentand the interests of the noncontrolling owners. This statement is effective forfiscal years beginning on or after December 15, 2008. We are currentlyevaluating this statement to determine any potential impact that it may have onour financial results.

 

In March 2008, the FASB issued SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities—an amendmentof FASB Statement No. 133.”  Thisstatement requires enhanced disclosures about an entity’s derivative andhedging activities and thereby improves the transparency of financialreporting.  Entities will be required toprovide enhanced disclosures about (a) how and why an entity usesderivative instruments, (b) how derivative instruments and related hedgeditems are accounted for under SFAS No. 133, “Accounting forDerivative Instruments and Hedging Activities,” and its related interpretations,and (c) how derivative instruments and related hedged items affect anentity’s financial position, financial performance, and cash flows.  Thisstatement is effective for financial statements issued for fiscal years andinterim periods beginning after November 15, 2008, with early applicationencouraged.  This statement encourages,but does not require, comparative disclosures for earlier periods at initialadoption.  We are currently evaluating this statement to determine any potentialimpact that it may have on our financial results.

 

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

*** ***

This Quarterly Report on Form 10-Q, aswell 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,”

 

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“project,” “estimate,” “will,” “may,” “should,”“future,” “predicts,” “potential,” “continue” and similar expressions identifythese forward-looking statements, which appear in a number of places in thisQuarterly Report and include, but are not limited to, all statements relatingto plans for future growth and other business development activities as well ascapital expenditures, financing sources, dividends and the effects ofregulation and competition, foreign currency conversion and all otherstatements regarding our intent, plans, beliefs or expectations or those of ourdirectors or officers.  Investors arecautioned that such forward-looking statements are not assurances for futureperformance or events and involve risks and uncertainties that could causeactual results and developments to differ materially from those covered in suchforward-looking statements.  These risksand uncertainties include, but are not limited to:

 

·                          risks associated with operating on aglobal basis, including fluctuations in the value of foreign currenciesrelative to the U.S. dollar, and the ability to successfully hedge suchrisks—we derived approximately 63% of our operating revenue in 2007 from non-U.S.operations;

 

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

 

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

 

·              tothe extent we seek growth through acquisitions, alliances or joint ventures,the ability to identify, consummate and integrate acquisitions, alliances andjoint ventures on satisfactory terms;

 

·              ourability to develop new or advanced technologies, including sophisticated informationsystems, software and other technology used to deliver our products andservices and to do so on a timely and cost-effective basis, and the exposure tothe risk of obsolescence or incompatibility of these technologies with those ofour customers or suppliers; our ability to maintain effective security measuresfor our computer and communications systems; and failures or delays in theoperation of our computer or communications systems;

 

·                          our ability to successfully maintainhistoric effective tax rates;

 

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

 

·              competition,particularly in the markets for pharmaceutical information;

 

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

 

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

 

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

 

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

 

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

 

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

 

Consequently,all of the forward-looking statements we make in this document are qualified bythe information contained herein, including, but not limited to, theinformation contained under this heading, “Risk Factors” and our CondensedConsolidated Financial Statements (Unaudited) and notes thereto for the threemonths ended March 31, 2008 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, 2007. 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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**Item 3. Quantitative and Qualitative Disclosures About Market Risk**

 

There has been nosignificant change in our exposure to market risk during the three months endedMarch 31, 2008. For a discussion of our exposure to market risk, refer to Item7A, Quantitative and Qualitative Disclosures About Market Risk, in our 2007Annual Report on Form 10-K.

 

**Item 4.Controls and Procedures**

 

(a)          Evaluationof Disclosure Controls and Procedures

 

The Company maintainsdisclosure controls and procedures that are designed to ensure that informationrequired to be disclosed in the reports that the Company files or submits tothe SEC under the Securities Exchange Act of 1934, as amended (the “ExchangeAct”), is recorded, processed, summarized and reported within the time periodsspecified in the SEC’s rules and forms, and that such information isaccumulated and communicated to the Company’s management, including itsprincipal executive and principal financial officers, or persons performingsimilar functions, as appropriate, to allow timely decisions regarding requireddisclosure. In designing and evaluating the disclosure controls and procedures,management recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurance of achieving thedesired control objectives, as the Company’s disclosure controls and proceduresare designed to do. Thus, management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

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 March 31,2008 (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 Control over Financial Reporting

 

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

 

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**PART II. OTHER INFORMATION**

 

**Item 1. Legal Proceedings**

 

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

 

**Item 1A.Risk Factors**

 

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

 

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

 

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

 

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

 

Dataprotection and privacy laws affect our collection, use, storage and transfer ofpersonally identifiable information both abroad and in the United States.Compliance with such laws may require investment or may dictate that we notoffer certain types of products and services. Failure to comply with such lawsmay result in, among other things, civil and criminal liability, negativepublicity, data being blocked from use and liability under contractualwarranties.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  costs of customizing services for foreignclients;

 

·                  reduced protection for intellectual propertyrights in some countries;

 

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

 

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·                  exposure to local economic conditions; and

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  obtaining patentprotection for our technology, products and services;

 

·                  defending ourpatents, copyrights and other intellectual property;

 

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·                  preserving ourtrade secrets and maintaining the security of our know-how; and

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                  an outbreak of SARS, avian influenza (BirdFlu) or other epidemic, the fear of such an epidemic, and responses to andresults of such an epidemic or fear thereof, including but not limited toeffects, domestically and/or internationally, on us, our personnel andfacilities, our customers and suppliers, financial markets and general economicconditions.

 

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

 

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

 

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

 

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

 
| **Period**                | ** ** | **Total Number  of Shares  Purchased (1)** | ** ** | **Average  Price Paid  per Share** | ** ** | **Total Number of Shares  Purchased Under  Publicly Announced  Programs** | ** ** | **Maximum Number of  Shares that May Yet Be  Purchased Under the  Programs (2)** | ** ** |
|---------------------------|------------|-----------------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|
|                      |       |                                                      |       |                                         |       |                                                                                               |       |                                                                                                                          |       |
| January 1-31,  2008  |       | 4,870,000                                                 |       | $                                            | 21.78      |                                                                                               | 4,870,000  |                                                                                                                          | 15,130,000 |   |
| February 1-29,  2008 |       | 5,130,000                                                 |       | 24.03                                        |       | 5,130,000                                                                                          |       | 10,000,000                                                                                                                    |       |
| March 1-31,  2008    |       | —                                                    |       | —                                       |       | —                                                                                             |       | 10,000,000                                                                                                                    |       |
| **Total**                 |       | 10,000,000                                                |       | $                                            | 22.93      |                                                                                               | 10,000,000 |                                                                                                                          | 10,000,000 |   |

 

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(1)          All shares were repurchased through the Company’s publicly announcedstock repurchase programs.

 

(2)          In December 2007, the Board of Directors authorized a stockrepurchase program to buy up to 20,000,000 shares. As of March 31, 2008,10,000,000 shares remained available for repurchase under the December 2007program. Unless terminated earlier by resolution of our Board of Directors,this program will expire when we have repurchased all shares authorized forrepurchase thereunder.  See Note 12 ofour Notes to Condensed Consolidated Financial Statements (Unaudited) forfurther details.

 

50

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**Item 6. Exhibits**

 

(a)         Exhibits

 
| **Exhibit  Number** | ** ** | **Description  of Exhibits**                                                                     |
|---------------------|------------|--------------------------------------------------------------------------------------------------|
| 10.1                |       | Form of  Employees’ Stock Appreciation Rights Agreements.                              |
|                |       |                                                                                             |
| 31.1                |       | CEO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a).                                |
|                |       |                                                                                             |
| 31.2                |       | CFO 302 Certification  pursuant to Rule 13a-14(a)/15d-14(a).                                |
|                |       |                                                                                             |
| 32.1                |       | Joint CEO/CFO  Certification Required Under Section 906 of the Sarbanes-Oxley Act of  2002. |

 

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**SIGNATURES**

 

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

 

 
|                   |   | IMS Health Incorporated               |
|------------------------|--------|---------------------------------------|
|                   |   |                                  |
|                   |   |                                  |
|                   |   |                                  |
|                   | By:    |  /s/ Leslye G.  Katz             |
| Date: May 1, 2008 |   |  Leslye G. Katz                  |
|                   |   |  Senior Vice  President and      |
|                   |   |  Chief Financial  Officer        |
|                   |   |  (principal  financial officer)  |
|                   |   |                                  |
|                   |   |                                  |
|                   |   |  /s/ Harshan  Bhangdia           |
| Date: May 1, 2008 |   |  Harshan Bhangdia                |
|                   |   |  Vice President,  Controller     |
|                   |   |  (principal  accounting officer) |

 

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# **EXHIBIT INDEX**

 
| **Exhibit  Number** | ** ** | **Description  of Exhibits**                                                                     |
|---------------------|------------|--------------------------------------------------------------------------------------------------|
| 10.1                |       | Form of  Employees’ Stock Appreciation Rights Agreements.                              |
|                |       |                                                                                             |
| 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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