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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
---------
FORM 10-Q
---------
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( ) 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 registrant as specified in its charter)
DELAWARE 06-1506026
- - - - - - - - - - - - - ------------------------ ------------------------------------
(State of Incorporation) (I.R.S. Employer Identification No.)
200 NYALA FARMS, WESTPORT, CT 06880
- - - - - - - - - - - - - ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (203) 222-4200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
TITLE OF CLASS SHARES OUTSTANDING
------------------------ AT MARCH 31, 1999
Common Stock, ------------------
par value $.01 per share 316,802,756
================================================================================
<PAGE>
IMS HEALTH INCORPORATED
INDEX TO FORM 10-Q
PAGE(S)
PART I. FINANCIAL INFORMATION -------
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Condensed Consolidated Statements of Income
Three Months Ended March 31, 1999 and 1998 .............. 3
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended March 31, 1999 and 1998 .............. 4
Condensed Consolidated Statements of Financial Position
March 31, 1999 and December 31, 1998 .................... 5
Condensed Consolidated Statements of Cash Flows
Three Months Ended March 31, 1999 and 1998 .............. 6
Notes to Condensed Consolidated Financial Statements ...... 7-14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ..................... 15-24
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ....... 25
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .......................... 26
SIGNATURES ............................................................. 27
2
<PAGE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED
MARCH 31,
--------------------------
1999 1998
--------- --------
<S> <C> <C>
OPERATING REVENUE ............................................ $313,242 $240,968
Operating Costs .............................................. 162,733 125,693
Selling and Administrative Expenses .......................... 70,029 74,853
Depreciation and Amortization ................................ 25,770 21,694
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
OPERATING INCOME ............................................. 54,710 18,728
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Interest Income .............................................. 1,799 4,098
Interest Expense ............................................. (258) (200)
Gartner Equity Income ........................................ 18,862 15,574
Gain from Sale of Gartner Stock (SAB 51) ..................... 0 7,987
Gains from Dispositions--Net ................................. 7,977 10,415
Other Expense--Net ........................................... (3,907) (2,770)
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
NON-OPERATING INCOME--NET .................................... 24,473 35,104
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Income from Continuing Operations,
Before Provision for Income Taxes .......................... 79,183 53,832
Provision for Income Taxes ................................... (21,696) (14,750)
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Income from Continuing Operations ............................ 57,487 39,082
Income from Discontinued Operations,
Net of Income Taxes of $7,927 for March 31, 1998 ........... 0 21,005
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
NET INCOME ................................................... $ 57,487 $ 60,087
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Earnings Per Share of Common Stock Basic
Income from Continuing Operations .......................... $ 0.18 $ 0.12
Income from Discontinued Operations ........................ 0.00 0.06
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
BASIC EARNINGS PER SHARE ..................................... $ 0.18 $ 0.18
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Diluted
Income from Continuing Operations .......................... $ 0.18 $ 0.12
Income from Discontinued Operations ........................ 0.00 0.06
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE ................................... $ 0.18 $ 0.18
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Basic .................. 317,866,000 324,812,000
Dilutive Effect of Shares Issuable as of
Period-End Under Stock Option Plans ........................ 7,933,000 8,552,000
Adjustment of Shares Applicable to Exercised
Stock Options and Restricted Stock during the period ....... 520,000 1,200,000
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted ................ 326,319,000 334,564,000
- - - - - - - - - - - - - ----------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements
(unaudited). The first quarter of 1999 for the IMS operating units includes
the three months ended March 31, 1999. The first quarter of 1998 for the
IMS operating units includes the three months ended February 28, 1998.
(See Note 2 to the Condensed Consolidated Financial Statements).
3
<PAGE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED
MARCH 31,
--------------------
1999 1998
--------------------
<S> <C> <C>
Net Income ........................................................ $57,487 $ 60,087
Other Comprehensive Income, Net of Tax:
Foreign Currency Translation Adjustments
Gains/(Losses) ................................................ (20,888) 903
Unrealized Gains/(Losses) on Securities:
Unrealized Holding Gains/(Losses) Arising During the
Period (Net of Tax Benefit/(Expense) of $805 and ($27)
for March 31, 1999 and 1998, respectively)..................... (2,132) 71
Less: Reclassification Adjustment for Gains included in
Net Income (Net of Tax Benefit of $2,802 and $2,910
for March 31, 1999 and 1998, respectively) ...................... (7,423) (7,710)
--------------------
Net Unrealized Losses ............................................. (9,555) (7,639)
--------------------
Other Comprehensive Loss .......................................... (30,443) (6,736)
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------
Comprehensive Income .............................................. $27,044 $ 53,351
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements
(unaudited). The first quarter 1999 for the IMS operating units includes the
three months ended March 31, 1999. The first quarter 1998 for the IMS operating
units includes the three months ended February 28, 1998. (See Note 2 to the
Condensed Consolidated Financial Statements).
* The Company has significant investments in non-U.S. countries. Therefore,
changes in the value of foreign currencies affect the Company's condensed
consolidated financial statements when translated into U.S. dollars. The
currency translation adjustment excludes the impact of the Company's hedging
program. (See Note 8 to the Condensed Consolidated Financial Statements).
4
<PAGE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
MARCH 31, DECEMBER 31,
1999 1998
---------- ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents ...................... $ 136,931 $ 206,390
Accounts Receivable-Net ........................ 311,554 324,219
Other Current Assets ........................... 103,570 103,868
- - - - - - - - - - - - - --------------------------------------------------------------------------------
Total Current Assets ........................... 552,055 634,477
- - - - - - - - - - - - - --------------------------------------------------------------------------------
INVESTMENT IN GARTNER GROUP .................... 265,591 252,852
SECURITIES AND OTHER INVESTMENTS ............... 95,019 106,276
PROPERTY, PLANT AND EQUIPMENT-NET .............. 171,888 179,151
OTHER ASSETS-NET
Computer Software ............................ 161,995 168,994
Goodwill ..................................... 357,606 363,841
Other Assets ................................. 24,428 25,928
- - - - - - - - - - - - - --------------------------------------------------------------------------------
Total Other Assets-Net ..................... 544,029 558,763
- - - - - - - - - - - - - --------------------------------------------------------------------------------
TOTAL ASSETS ................................... $1,628,582 $1,731,519
- - - - - - - - - - - - - --------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts and Notes Payable ................... $ 100,224 $ 90,884
Accrued and Other Current Liabilities ........ 249,831 298,625
Accrued Income Taxes ......................... 32,535 32,537
Deferred Revenues ............................ 124,517 128,272
- - - - - - - - - - - - - --------------------------------------------------------------------------------
Total Current Liabilities ...................... 507,107 550,318
- - - - - - - - - - - - - --------------------------------------------------------------------------------
POST-RETIREMENT AND POST-EMPLOYMENT BENEFITS ... 28,989 27,577
DEFERRED INCOME TAXES .......................... 24,666 30,322
MINORITY INTERESTS ............................. 117,002 116,225
OTHER LIABILITIES .............................. 180,064 181,807
- - - - - - - - - - - - - --------------------------------------------------------------------------------
TOTAL LIABILITIES .............................. 857,828 906,249
- - - - - - - - - - - - - --------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY ..................... 770,754 825,270
- - - - - - - - - - - - - --------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ..... $1,628,582 $1,731,519
- - - - - - - - - - - - - --------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the condensed consolidated financial statements
(unaudited). The first quarter 1999 for the IMS operating units includes the
three months ended March 31, 1999. (See Note 2 to the Condensed Consolidated
Financial Statements).
5
<PAGE>
IMS HEALTH INCORPORATED
(ACCOUNTING SUCCESSOR TO COGNIZANT CORPORATION)
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLAR AMOUNTS IN THOUSANDS)
THREE MONTHS ENDED MARCH 31,
----------------------------
1999 1998
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income ................................................. $ 57,487 $ 60,087
Less Income from Discontinued Operations ................... 0 (21,005)
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
Income from Continuing Operations .......................... 57,487 39,082
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization ............................ 25,770 21,694
Gains from Sale of Investments, Net ...................... (7,977) (10,415)
Benefit Payments ......................................... (6,968) (1,391)
Net (Increase) Decrease in Accounts Receivable ........... (34,170) 1,543
Net Increase in Deferred Revenue ......................... 2,691 2,176
Equity Income, Net of Taxes .............................. (12,739) (9,181)
Gain from Sale of Gartner Stock (SAB 51) ................. 0 (7,987)
Minority Interests Income ................................ 3,202 2,146
Deferred Income Taxes .................................... (4,251) 1,973
Net Increase (Decrease) in Accrued Income Taxes .......... 3,061 (9,722)
Net (Increase) in Other Working Capital Items ............ (19,035) (16,011)
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
Net Cash Provided by Operating Activities .................. 7,071 13,907
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from Sale of Businesses and Investments ........... 16,282 23,165
Acquisition and Integration Payments ....................... (11,180) 0
Payments for Acquisitions of Businesses .................... (3,100) (2,938)
Capital Expenditures ....................................... (8,545) (5,972)
Additions to Software ...................................... (13,517) (17,162)
Increase in Other Investments-Net .......................... (9,719) (6,877)
Other ...................................................... 2,509 (1,529)
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
Net Cash Used in Investing Activities ...................... (27,270) (11,313)
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments for Purchase of Treasury Stock .................... (95,354) 0
Proceeds from Exercise of Stock Options .................... 13,524 17,833
Dividends Paid ............................................. (6,354) (4,900)
Proceeds from Employee Stock Purchase Plan ................. 1,983 2,733
Short-Term Borrowings ...................................... 45,540 0
Short-Term Debt Repayments ................................. (38,431) 0
Other ...................................................... 171 (3)
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
Net Cash (Used in) Provided by Financing Activities ........ (78,921) 15,663
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
Effect of Exchange Rate Changes on Cash and Equivalents .... (1,003) 126
EFFECT OF IMS SEGMENT ACCELERATED REPORTING (DECEMBER 1998). 30,664 0
Cash Flow from Discontinued Operations ..................... 0 9,422
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
(Decrease) Increase in Cash and Cash Equivalents ........... (69,459) 27,805
Cash and Cash Equivalents, Beginning of Period ............. 206,390 312,442
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
Cash and Cash Equivalents, End of Period ................... $136,931 $340,247
- - - - - - - - - - - - - ------------------------------------------------------------ -------- --------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid during the Period for Interest ................... $ 340 $ 200
Cash Paid during the Period for Income Taxes ............... $ 21,295 $ 22,385
Non-Cash Investing Activities
Stock Issued in Connection with Acquisitions ....... $ 0 $ 1,412
</TABLE>
See accompanying notes to the condensed consolidated financial statements
(unaudited). The first quarter 1999 for the IMS operating units includes the
three months ended March 31, 1999. The first quarter 1998 for the IMS operating
units includes the three months ended February 28, 1998. (See Note 2 to the
Condensed Consolidated Financial Statements).
6
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 1. INTERIM CONSOLIDATED FINANCIAL STATEMENTS
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and Article 10 of Regulation S-X under the Securities and
Exchange Act of 1934, as amended. The condensed financial statements and related
notes should be read in conjunction with the consolidated financial statements
and related notes of IMS Health Incorporated (the "Company" or "IMS Health") in
the 1998 Annual Report on Form 10-K. Accordingly, the accompanying condensed
consolidated financial statements do not include all the information and notes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments of a normal recurring
nature considered necessary for a fair presentation of financial position,
results of operations and cash flows for the periods presented have been
included. Certain prior-period amounts have been reclassified to conform with
the 1999 presentation.
NOTE 2. BASIS OF PRESENTATION
This document relates to IMS Health. The Common Stock of IMS Health was
distributed by Cognizant Corporation ("Cognizant") to its shareholders on June
30, 1998 (the "Distribution"). Simultaneously with the Distribution, Cognizant
changed its name to Nielsen Media Research, Inc. ("Nielsen Media Research").
Notwithstanding the legal form of the Distribution, whereby Cognizant spun off
IMS Health, for accounting purposes the transaction is accounted for as if
Cognizant spun off Nielsen Media Research and IMS Health has been deemed the
"accounting successor" to Cognizant. IMS Health consists of the market
information and decision support services business for the pharmaceutical and
healthcare industries conducted by IMS Health and various subsidiaries ("IMS")
including IMS Health Strategic Technologies, Inc. ("Strategic Technologies"),
ERISCO Managed Care Technologies, Inc. ("Erisco"), Enterprise Associates, Inc.
("Enterprises") and a 61.7% interest in Cognizant Technology Solutions
Corporation ("CTS"). The Company also has an equity investment in Gartner Group,
Inc. ("Gartner") which is the subject of a pending tax-free spin-off (See Note 3
to the Condensed Consolidated Financial Statements).
Prior to the Distribution, Cognizant and IMS Health entered into certain
agreements that govern the relationship between Nielsen Media Research and IMS
Health and provide for the allocation of tax, employee benefits and certain
other liabilities and obligations arising from periods prior to the
Distribution. Among other things, the agreements set forth principles to be
applied in allocating certain Distribution-related costs and specify portions of
contingent liabilities to be shared if certain amounts are exceeded including
certain liabilities to The Dun & Bradstreet Corporation ("D&B") that may arise
in connection with Cognizant's 1996 spin-off from D&B.
Pursuant to Accounting Principles Board ("APB") No. 30, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the
condensed consolidated financial statements of the Company have been
reclassified to reflect Nielsen Media Research as discontinued operations for
periods up to and including June 30, 1998 and reflect the Distribution which
occurred on June 30, 1998.
7
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 2. BASIS OF PRESENTATION -- (CONTINUED)
Summarized data for Nielsen Media Research as a discontinued operations is as
follows:
RESULTS OF OPERATIONS (Unaudited)
Three Months Ended
March 31,
--------------------
1999 1998
------- --------
Operating Revenue ............................... $ -- $ 96,064
Income Before Provision for Income Taxes ........ -- 28,932
------- --------
Income from Discontinued Operations, Net of
Income Taxes .................................. $ -- $ 21,005
======= ========
Elimination of one month reporting lag in IMS operating entities
Effective in the first quarter of 1999, IMS operating units that previously
reported on a fiscal year ended November 30, revised their reporting period to
conform to the Company's fiscal year ended December 31. This revision was made
to reflect the results of operations and financial position of these operating
units on a more timely basis, consistent with business performance, and to
increase operating efficiency. The Company has improved its internal financial
systems and work processes, so that the Company now has the capability to
rapidly collect, consolidate and report information. The $1,040 of net income
related to the results of these operating units for the period December 1
through December 31, 1998 has been reflected as a direct benefit to Retained
Earnings. In addition, the cumulative translation adjustment for this period was
a credit of $3,409. The following table presents certain selected condensed
consolidated financial information of the IMS operating units for the one month
ended December 31, 1998. The first quarter 1999 results for the IMS operating
units includes January, February and March and for the first quarter 1998,
December, January and February.
ONE MONTH ENDED
DECEMBER 31, 1998
(UNAUDITED)
-----------------
Revenue .................................... $ 71,754
Operating Income ........................... 1,137
Income Before Provision for Income Taxes ... 1,432
Provision for Income Taxes ................. (392)
--------
Net Income ................................. $ 1,040
========
Earnings Per Share ......................... $ 0.003
========
The following table presents selected cash flow information for the one month
ended December 31, 1998:
ONE MONTH ENDED
DECEMBER 31, 1998
(UNAUDITED)
-----------------
Net Cash Provided by Operating Activities .. $ 30,852
Net Cash Used in Investing Activities ...... (3,645)
Net Cash (Used in) Provided by Financing
Activities ............................... 2,276
Effect of Exchange Rate Changes on Cash
and Cash Equivalents ..................... 1,181
--------
Increase in Cash and Cash Equivalents ...... $ 30,664
========
NOTE 3. INVESTMENT IN GARTNER
On November 11, 1998 the Company announced that its Board of Directors had
approved a plan, subject to numerous conditions, to spin-off substantially all
of its equity ownership of Gartner. The transaction is structured as a tax-free
distribution of Gartner stock to IMS Health shareholders. On April 14, 1999 the
Company received a favorable ruling from the Internal Revenue Service ("IRS")
regarding the tax-free nature of the proposed transaction. On May 12, 1999 a
proxy statement for the announced spin-off was filed with the Securities and
Exchange Commission ("SEC"). Upon SEC
8
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
NOTE 3. INVESTMENT IN GARTNER -- (CONTINUED)
Clearance, the proxy statement will be publicly available and distributed to
Gartner shareholders and a special meeting of Gartner shareholders will be held.
The transaction still remains subject to final approval by the Company's and
Gartner's Boards of Directors, approval by Gartner shareholders and various
regulatory approvals.
At March 31, 1999, the Company owned approximately 47 million shares of Gartner.
Prior to the proposed spin-off transaction, 40.1 million of these shares will be
exchanged for new Class B Common Stock of Gartner. The Class B Stock will be
entitled to elect 80% of Gartner's Board of Directors, but will otherwise be
identical to existing Class A Common Stock. The exchange will be part of a
Gartner recapitalization and requires approval by Gartner shareholders. The
Class B shares will be distributed to the Company's shareholders in a tax-free
distribution. The Company intends to monetize its remaining position in Gartner
as quickly as is feasible after the spin-off. This includes 6.9 million shares
of Class A Common Stock and warrants to purchase a further 599,400 shares. As a
result of the proposed tax-free spin-off of Gartner, the Company has not
recognized gains corresponding to the net increase in the value of its
underlying investment in Gartner for the first quarter of 1999. This is in
accordance with Staff Accounting Bulletin 51 ("SAB 51").
NOTE 4. DISPOSITIONS
During the first quarter of 1999, the Company recorded $7,977 of pre-tax net
gains. This reflects primarily the sale of its investments in Oasis, Pegasus,
Aspect, Internet Securities, and Super Systems Japan ("SSJ"). In addition,
operating units of the PMSI Company, acquired in the third quarter of 1998, were
divested in December 1998. The units included a publishing and conference
operating division in Japan. Cash received during the quarter as a result of
dispositions was $16,282.
NOTE 5. ACQUISITIONS
During the first quarter of 1999 the Company acquired 100% of the stock of
PharmaFELAX Kft., a pharmaceutical information company based in Hungary. The
Company recorded associated goodwill of $3,100. In 1998 the Company acquired
Walsh and PMSI. See the IMS Health 1998 Annual Report on Form 10-K and the Walsh
and PMSI acquisition section of the MD&A included in this first quarter 1999
10-Q filing.
NOTE 6. INVESTMENT PARTNERSHIP
Two of the Company's subsidiaries have contributed assets to, and participate
in, a limited partnership. One subsidiary serves as general partner, and all
other partners hold limited partnership interests. The partnership, which is a
separate and distinct legal entity, is in the business of licensing database
assets and computer software. In the second quarter of 1997, third-party
investors contributed $100,000 to the partnership in exchange for limited
partnership interests. For financial reporting purposes, the assets,
liabilities, results of operations and cash flows of the partnership are
included in the Company's consolidated financial statements because the Company
and its subsidiaries maintain a controlling (85%) interest in the partnership.
The third-parties' investments in this partnership are reflected as a minority
interest.
NOTE 7. CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
litigation and tax matters arising in the ordinary course of business. In the
opinion of management, the outcome of such current legal proceedings, claims
litigation and tax matters, if decided adversely, could have a material effect
on quarterly or annual operating results or cash flows when resolved in a future
period. However, in
9
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
NOTE 7. CONTINGENCIES -- (CONTINUED)
the opinion of management, these matters will not materially affect the
Company's consolidated financial position.
In addition the Company is subject to certain other contingencies discussed
below:
Information Resources Litigation
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the
United States District Court for the Southern District of New York, naming as
defendants D&B, A.C. Nielsen Company and IMS (the "IRI Action").
The complaint alleges various violations of the United States antitrust laws,
including alleged violations of Sections 1 and 2 of the Sherman Act. The
complaint also alleges a claim of tortious interference with a contract and a
claim of tortious interference with a prospective business relationship. These
latter claims relate to the acquisition by defendants of Survey Research Group
Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI
when it agreed to be acquired by defendants and that the defendants induced SRG
to breach that agreement.
IRI's complaint alleges damages in excess of $350,000, which amount IRI has
asked to be trebled under the antitrust laws. IRI also seeks punitive damages in
an unspecified amount.
On October 15, 1996, defendants moved for an order dismissing all claims in the
complaint. On May 6, 1997 the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI has made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an amended and restated
complaint repleading its alleged claim of attempted monopolization in the United
States and realleging its other claims. On August 18, 1997, defendants moved for
an order dismissing the amended claims. On December 1, 1997, the court denied
the motion and, on December 16, 1997, defendants filed a supplemental answer
denying the remaining material allegations of the amended complaint. Discovery
is continuing in this matter.
In light of the potentially significant liabilities which could arise from the
IRI Action and in order to facilitate the distribution by D&B of shares of
Cognizant and ACNielsen in 1996, D&B, ACNielsen Corporation ("ACNielsen"; the
parent company of A.C. Nielsen Company) and Cognizant entered into an Indemnity
and Joint Defense Agreement pursuant to which they agreed (i) to certain
arrangements allocating liabilities that may arise out of or in connection with
the IRI Action, and (ii) to conduct a joint defense of such action. In
particular, the Indemnity and Joint Defense Agreement provides that ACNielsen
will assume exclusive liability for liabilities up to a maximum amount to be
calculated at the time such liabilities, if any, become payable (" the ACN
Maximum Amount") and that Cognizant and D&B will share liability equally for any
amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be
determined by an investment banking firm as the maximum amount which ACNielsen
will be able to pay after giving effect to (i) any plan submitted by such
investment bank which is designed to maximize the claims paying ability of
ACNielsen without impairing the investment banking firm's ability to deliver a
viability opinion (but which will not require any action requiring shareholder
approval), and (ii) payment of related fees and expenses.
10
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
NOTE 7. CONTINGENCIES -- (CONTINUED)
Information Resources Litigation -- (continued)
For these purposes, financial viability means the ability of ACNielsen, after
giving effect to such plan, the payment of related fees and expenses and the
payment of the ACN Maximum Amount, to pay its debts as they become due and to
finance the current and anticipated operating and capital requirements of its
business, as reconstituted by such plan, for two years from the date any such
plan is expected to be implemented.
Under the terms of the Distribution Agreement dated October 28, 1996 among D&B,
Cognizant and ACNielsen (the "1996 Distribution Agreement"), as a condition to
the Distribution, IMS Health and Nielsen Media Research are required to
undertake to be a jointly and severally liable to D&B and ACNielsen for
Cognizant's obligations under the 1996 Distribution Agreement. IMS Health and
Nielsen Media Research have agreed that, as between themselves, IMS Health will
assume 75%, and Nielsen Media Research will assume 25%, of any payments to be
made in respect of the IRI Action under the Indemnity and Joint Defense
Agreement or otherwise, including any legal fees and expenses related thereto
incurred in 1999 or thereafter. IMS Health agreed to be fully responsible for
any legal fees and expenses incurred during 1998. Nielsen Media Research's
aggregate liability to IMS Health for payments in respect of the IRI Action and
certain other contingent liabilities shall not exceed $125,000.
Management of the Company is unable to predict at this time the final outcome of
this matter or whether the resolution of this matter could materially affect the
Company's results of operations, cash flows or financial position.
Other Contingencies
The Company, Cognizant and D&B have entered into global tax planning initiatives
in the normal course of business. These activities are subject to review by tax
authorities. As a result of the review process, uncertainties exist and it is
possible that some of these matters could be resolved adversely to the Company,
Cognizant or D&B.
The Company has been informed by D&B that the IRS is currently reviewing D&B's
utilization of certain capital losses during 1989 and 1990. While D&B has not
received an assessment with respect to these transactions, it understands that
the IRS will challenge D&B's position. The Company has estimated that D&B's
total cash liability to the IRS, if an assessment were to be made and the IRS
prevail, would be approximately $430,000 for taxes and accrued interest net of
tax benefit as of March 31, 1999. Under the terms of the 1996 Distribution
Agreement, the Company is liable to pay half of such taxes and interest owed to
the IRS to the extent that D&B's total liabilities exceed $137,000. A portion of
the Company's liability would in turn be shared with Nielsen Media Research
under the 1998 Distribution Agreement between IMS Health and Nielsen Media
Research. The Company estimates that its share of the liability, were the IRS to
prevail, would be approximately $137,000. This liability is included in other
liabilities. The Company has accrued its anticipated share of the probable
liability to D&B under the 1996 Distribution Agreement. Accordingly, management
does not believe that this matter will have a material adverse effect on the
Company's consolidated financial position or operating results when it is
resolved in a future period. However, should the IRS issue an assessment notice,
payment of the Company's share could have a material adverse effect on cash
flows in the period in which it is made. The Company believes that it has more
than sufficient funds available from operating cash flows and committed bank
lines to cover any such payment without a material effect on its liquidity or
its financial condition.
11
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
NOTE 8. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company transacts business in virtually every part of the world and is
subject to risks associated with foreign exchange rates. The Company's objective
is to reduce earnings and cash flow volatility associated with foreign exchange
rates to allow management to focus its attention on its core business
activities. Accordingly the Company enters into various contracts which change
in value as foreign exchange rates change to protect the value of a portion of
foreign currency revenues and non-functional currency assets and liabilities. By
policy, the Company maintains hedge coverage between minimum and maximum
percentages of its anticipated foreign exchange exposures over the next year.
It is the Company's policy to enter into foreign currency transactions only to
the extent necessary to meet its objectives as stated above. The Company uses a
variety of financial instruments, primarily forward contracts and purchased
currency options, to hedge committed and anticipated foreign currency
denominated revenues, respectively. The principal currencies hedged are the
Euro, the Japanese yen and Swiss franc. The Company also uses forward contracts
to hedge non-functional currency assets and liabilities. The Company does not
enter into foreign currency transactions for speculative purposes.
Gains and losses on contracts hedging anticipated and committed foreign currency
revenues are deferred until such revenues are recognized, and offset changes in
the value of such revenues. Gains and losses on contracts hedging non-functional
currency assets and liabilities are not deferred and are included in income in
other income/expense--net. At March 31, 1999, the notional amount hedged was
$175,957. In addition, at March 31, 1999, IMS had approximately $104,607 in
foreign exchange forward contracts outstanding with various expiration dates
through April 1999 hedging non-functional currency and liabilities.
NOTE 9. ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS
In March 1998, the AICPA issued SOP 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained For Internal Use." SOP 98-1 provides guidance on
costs to be capitalized and when capitalization of such costs should commence.
SOP 98-1 applies to costs incurred after adoption, including costs for software
projects that are in progress at the time of the adoption. The Company has
evaluated the impact of this SOP on its financial position and results of
operations. The implementation of SOP 98-1 effective January 1, 1999 did not
have a material effect on the Company's financial statements.
In April 1998, AICPA issues SOP 98-5, "Accounting For The Costs of Start-up
Activities." SOP 98-5 requires all costs of start-up activities to be expensed
as incurred. SOP 98-5 is effective for financial statements for the years
beginning after December 15, 1998. The Company has evaluated the impact of this
SOP on its financial position and results of operations. The implementation of
SOP 98-5 effective January 1, 1999 did not have a material effect on the
Company's financial statements.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities". SFAS No. 133 is effective for all fiscal
quarters for all fiscal years beginning after June 15, 1999 (January 1, 2000 for
the Company). SFAS No. 133 requires that all derivative instruments be recorded
on the balance sheet at their fair value. Changes in the fair value of
derivatives are recorded each period in current earnings or other comprehensive
income, depending on whether a derivative is designated as part of a hedge
transaction and, if it is, the type of hedge transaction. For fair-value hedge
transactions in which the Company is hedging changes in an asset's, liability's,
or
12
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
NOTE 9. ADOPTION OF STATEMENTS OF FINANCIAL ACCOUNTING STANDARDS -- (CONTINUED)
firm commitment's fair value, changes in the fair value of the derivative
instrument will generally be offset in the income statement by changes in the
hedged item's fair value. For cash-flow hedge transactions, in which the Company
is hedging the variability of cash flows related to a variable-rate asset,
liability, or a forecasted transaction, changes in the fair value of the
derivative instrument will be reported in other comprehensive income. The gains
and losses on the derivative instrument that are reported in other comprehensive
income will be reclassified as earnings in the periods in which earnings are
impacted by the variability of the cash flows of the hedged item. The
ineffective portion of all hedges will be recognized in current period earnings.
Management continues to evaluate the effects of this change on the Company's
financial statements.
NOTE 10. OPERATIONS BY BUSINESS SEGMENT
Historical results are restated to reflect Nielsen Media Research as a
discontinued operation (See Note 2 to the Condensed Consolidated Financial
Statements).
The IMS segment consists of IMS, the leading global provider of market
information and decision-support services to the pharmaceutical and healthcare
industries, and Strategic Technologies, an operating unit of IMS Health and the
leading provider of automated sales support technologies to the pharmaceutical
industries. In 1999, the IMS segment includes the Walsh and PMSI businesses
acquired during 1998, which have been integrated into the IMS operations.
Effective in the first quarter, IMS operating units that previously reported on
a fiscal year ended November 30, changed their reporting period to conform to
the Company's fiscal year ended December 31 (the "Calendarization") (See Note 2
to the Condensed Consolidated Financial Statements).
Emerging Markets segment principally includes Erisco, a leading supplier of
software-based administrative and analytical solutions to the managed care
industry, and Enterprises, the Company's venture capital unit focused on
investments in emerging healthcare businesses. In 1998, it also included Super
Systems Japan, a marketer of financial application software products to the
Japanese market which was divested in 1999.
CTS delivers full life cycle software development and maintenance technology
consulting services to its customers through the use of a seamless on-site and
offshore project team. These services include application development and
maintenance services, Year 2000 and Eurocurrency compliance services, testing
and quality assurance services and re-hosting and re-engineering services.
Gartner is the world's leading independent provider of research and analysis on
the computer hardware, software, communications and related information
technology industries.
The Company evaluates the performance of its operating segments based on revenue
and operating income.
13
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (UNAUDITED)
DOLLAR AMOUNTS IN THOUSANDS
NOTE 10. OPERATIONS BY BUSINESS SEGMENT -- (CONTINUED)
<TABLE>
<CAPTION>
Period Ended March 31, 1999 Three Months
-------------------------------------------------
Emerging
IMS Markets CTS (1) Gartner Total
-------- ---------- ------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenue ............................. $285,501 $10,606 $17,135 $313,242
Segment Operating Income ...................... 57,548 895 4,070 62,513
General Corporate Expenses (7,803)
Interest Income (2) ......................... 1,428 276 1,704
Interest Expense (3) ........................ (145) (145)
Non-Operating Income/(Expense)-- Net
Gartner Equity Income ....................... 18,862 18,862
Gains from Dispositions -- Net .............. 7,977 7,977
Other Expense -- Net ........................ (3,925)
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
Income from Continuing Operations Before
Provision for Income Taxes .................. 79,183
Provision for Income Taxes .................... (21,696)
==================================================================================================
Net Income .................................... $57,487
==================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Period Ended March 31, 1998 Three Months
-------------------------------------------------
Emerging
IMS Markets CTS (1) Gartner Total
-------- ---------- ------- -------- --------
<S> <C> <C> <C> <C>
Operating Revenue ............................. $223,401 $11,263 $ 6,304 $240,968
Segment Operating Income/(Loss) ............... 30,926 (204) 1,106 31,828
General Corporate Expenses (4) (13,100)
Interest Income (2) ......................... 2,060 32 2,092
Interest Expense (3) ........................ (184) (184)
Non-Operating Income -- Net
Gartner Equity Income ....................... 15,574 15,574
Gains from Dispositions -- Net .............. 10,415 10,415
Other Income -- Net ...................... 7,207
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
Income from Continuing Operations Before
Provision for Income Taxes .................. 53,832
Provision for Income Taxes .................... (14,750)
- - - - - - - - - - - - - --------------------------------------------------------------------------------------------------
Income from Continuing Operations ............. 39,082
Income from Discontinued Operations,
Net of Income Taxes ......................... 21,005
==================================================================================================
Net Income .................................... 60,087
==================================================================================================
</TABLE>
- - - - - - - - - - - - - ----------
Notes to Operations by Business Segments:
(1) Excludes intersegment sales in 1999 and 1998 of $3,291, and $3,734,
respectively. These sales, primarily from CTS to IMS, are accounted for on
a time and materials basis and recognized as the service is performed.
(2) Interest income exclude amounts recorded at corporate of $95 and $2,006 for
1999 and 1998, respectively.
(3) Interest expense exclude amounts recorded at corporate of $113 and $16 for
1999 and 1998, respectively.
(4) Corporate expenses include $4,900 of charges related to the Distribution.
14
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
This document relates to IMS Health and should be read in conjunction with the
accompanying condensed consolidated financial statements and related notes. The
Common Stock of IMS Health was distributed by Cognizant Corporation
("Cognizant") to its shareholders on June 30, 1998 (the "Distribution").
Simultaneously with the Distribution, Cognizant changed its name to Nielsen
Media Research, Inc. ("Nielsen Media Research"). Notwithstanding the legal form
of the Distribution, whereby Cognizant spun off IMS Health, for accounting
purposes the transaction is accounted for as if Cognizant spun off Nielsen Media
Research and IMS Health has been deemed the "accounting successor" to Cognizant.
IMS Health consists of the market information and decision support services
business for the pharmaceutical and healthcare industries conducted by IMS
Health and various subsidiaries ("IMS") including IMS Health Strategic
Technologies, Inc. ("Strategic Technologies"), ERISCO Managed Care Technologies,
Inc. ("Erisco"), Enterprise Associates, Inc. ("Enterprises"), and a 61.7%
interest in Cognizant Technology Solutions Corporation ("CTS"). The Company also
has an equity investment in Gartner Group, Inc. ("Gartner") which is the subject
of a pending tax-free spin-off (See Note 3 to the Condensed Consolidated
Financial Statements). During 1998 the Company acquired Walsh and PMSI (See Note
5 to the Condensed Consolidated Financial Statements).
Pursuant to Accounting Principles Board ("APB") No. 30, "Reporting the Results
of Operations--Reporting the Effects of Disposal of a Segment of a Business, and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the
condensed consolidated financial statements of the Company have been
reclassified to reflect Nielsen Media Research as discontinued operations for
periods up to and including June 30, 1998 and reflect the Distribution which
occurred on June 30, 1998.
Walsh Acquisition
On June 24, 1998, Cognizant acquired Walsh International, Inc. ("Walsh"). The
final purchase price of the acquisition was $193,748, including $167,148 of
common stock, $9,521 of stock options to be issued and $17,079 of accrued direct
acquisition and integration costs.
Under terms of the Walsh acquisition agreement, Walsh shareholders received
6,454,600 shares of Cognizant common stock issued from treasury stock,
consideration of $167,148. The direct acquisition and integration costs consist
of severance of $4,876, lease terminations of $2,569, and other direct
acquisition and integration costs of $9,634. These direct acquisition and
integration costs were incurred as a direct result of the plan to exit certain
activities as part of the overall integration effort (i.e., severance costs
related to Walsh employees) and certain contractual costs (i.e., Walsh leases).
To date incurred acquisition and integration costs are within original
projections. Approximately $156,557 has been recorded as the excess of the
purchase price over the fair value of identifiable net assets, also known as
goodwill, which will be amortized on a straight-line basis over 15 years.
The severance costs are related to 78 Walsh employees. As of March 31, 1999, the
Company made payments of $4,106, reducing the workforce by 71, and the remaining
terminations are anticipated to
15
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Walsh Acquisition -- (continued)
be completed by June 1999. The following table displays the activities since the
acquisition with respect to these liabilities:
Original
Liability Expenditures March 31, 1999
Estimate to Date Balance
---------- ------------ --------------
Employee Separation .......... $ 4,876 $ (4,106) $ 770
Lease Terminations ........... 2,569 (143) 2,426
Other Direct Costs ........... 9,634 (9,634) 0
-------- --------- ----------
Total ........................ $ 17,079 $ (13,883) $ 3,196
======== ========= ==========
PMSI Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. assets of Pharmaceutical
Marketing Services Inc. ("PMSI"). The final purchase price of the acquisition
was $103,291, consisting of $75,292 of common stock, $5,415 of stock options to
be issued and $22,584 of accrued direct acquisition and integration costs.
Under the terms of PMSI acquisition agreement, PMSI received 2,395,926 shares of
IMS Health common stock issued from treasury stock, consideration of
approximately $75,292. The direct acquisition and integration costs consist of
severance of $3,794, lease terminations of $1,623, contract cancellation of
$10,935, and other direct acquisition and integration costs of $6,232. These
direct acquisitions and integration costs are incremental to other costs and
were incurred as a direct result of the formal plan to exit certain activities
as part of the overall integration effort (such as severance costs related to
PMSI employees) and certain contractual cancellation costs (such as PMSI
contracts and leases). $115,275 was recorded as the excess of the purchase price
over the fair value of identifiable net assets (goodwill), which is being
amortized on a straight-line basis over 15 years.
The severance costs are related to 63 PMSI employees. As of March 31, 1999, the
Company made payments of $2,983, reducing the workforce by 47, and the remaining
terminations are anticipated to be completed by July 1999. The following table
displays the activities since the acquisition with respect to these liabilities:
Original
Liability Expenditures March 31, 1999
Estimate to Date Balance
--------------------------------------------------------------------------
Employee Separation $ 3,794 $ (2,983) $ 811
Lease Terminations 1,623 (534) 1,089
Contract Cancellations 10,935 (1,326) 9,609
Other Direct Costs 6,232 (5,791) 441
-------- --------- ----------
Total $ 22,584 $ (10,634) $11,950
======== ========= ==========
Purchase Price Allocation
In connection with both the Walsh and PMSI acquisitions, the Company made
allocations of the purchase price to acquired in-process research and
development ("IPR&D") amounting to $21,900 in the second quarter of 1998 related
to Walsh acquisition and $10,900 in the third quarter of 1998 related to PMSI
acquisition. At the date of the respective acquisitions, the development of the
IPR&D projects had not yet reached technological feasibility and had no
alternative future uses. Accordingly, these costs were expensed as of the
respective acquisition dates.
16
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Purchase Price Allocation -- (continued)
In accordance with recent SEC guidance in connection with acquisitions, the
amount allocated to IPR&D reflects the relative value and contribution of the
acquired IPR&D. Consideration was given to the project's stage of completion,
the complexity of the work completed to date, the difficulty of completing the
remaining development, costs already incurred and the projected cost to complete
the projects. In addition, the Company allocated $29,000 at Walsh and $7,700 at
PMSI to existing core technology, representing computer software that is
currently in use. Such amounts are being amortized over 5 years.
Management continues to support the IPR&D efforts that were underway at the time
of the acquisitions. IMS Health is on target to begin realizing the benefits
from these various projects through product introductions at launch dates
through January 2000. There are no material variations from the underlying
projections and assumptions made at the time of the purchase price allocations.
The allocation of the Company's aggregate purchase price to the tangible and
identifiable intangible assets acquired and liabilities assumed in connection
with these acquisitions were based primarily on estimates of fair values by an
independent appraisal firm. The allocation is summarized below:
Walsh PMSI Total
-------- --------- ---------
In-process R&D write-off $ 21,900 $ 10,900 32,800
Net liabilities assumed (5,009) (28,274) (33,283)
Software/ Core technology 29,000 7,700 36,700
Deferred taxes (8,700) (2,310) (11,010)
Goodwill 156,557 115,275 271,832
-------- --------- ---------
Total Purchase Price $193,748 $ 103,291 $ 297,039
======== ========= =========
In connection with the PMSI acquisition, the Company commenced an evaluation of
existing IMS Health product offerings. Based on this strategic assessment, the
Company decided to abandon certain existing IMS Health software products. The
impact of this decision was to recognize the impairment of certain computer
software assets ($36,300), the closure of certain IMS facilities ($800) and the
severance of some IMS employees ($5,600). This resulted in a one-time charge of
$43,019 recorded in the third quarter of 1998 as a component of operating
income.
Elimination of one month reporting lag in IMS operating entities
Effective in the first quarter of 1999, IMS operating units that previously
reported on a fiscal year ending November 30, changed their reporting period to
conform to the Company's fiscal year ending December 31 (the "Calendarization").
This change was made to reflect the results of operations and financial position
of these operating units on a more timely basis, consistent with business
performance, and to increase operating efficiency. The Company has improved its
internal financial systems and work processes so that the Company now has the
capability to rapidly collect, consolidate and report information. (See Note 2
to the Condensed Consolidated Financial Statements).
Operating Results
Revenue for the first quarter increased by 30.0% to $313,242 from $240,968 for
the first quarter of the prior year. Adjusting the first quarter 1998 for the
Calendarization, the sale of Super Systems Japan ("SSJ") and a PMSI publishing
and conference operating division in Japan, revenue for the first quarter of
1999 increased by 25.5%. This increase reflected double-digit reported and
constant dollar revenue growth at IMS, Erisco and CTS. The impact of a
17
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Operating Results --(continued)
stronger U.S. dollar decreased reported revenue by less than 1.0% in the first
quarter, including the impact of the Company's hedging program.
Operating income for the first quarter was $54,710, an increase of 192.1% from
operating income of $18,728 for the first quarter of the prior year. Operating
income in 1999 and 1998 includes Year 2000 costs of $7,877 and $9,972,
respectively. Adjusting for this item in both years and adjusting the first
quarter 1998 for charges related to the Distribution, the Calendarization, the
sale of SSJ, a PMSI publishing and conference operating division in Japan and
the impact of a stronger U.S. dollar, operating income for the first quarter of
1999 increased by 43.0%. Adjusted operating income growth outpaced revenue
growth primarily due to the Company's ability to leverage its worldwide
resources. The impact of a stronger U.S. dollar decreased adjusted operating
income growth by approximately 5.2% in the first quarter, including the impact
of the Company's hedging program.
Non-operating income-net for the first quarter was $24,473 compared with $35,104
for the first quarter of the prior year. This decrease primarily relates to the
absence of SAB 51 gains in the first quarter of 1999 due to the pending Gartner
spin-off. (See Note 3 to the Condensed Consolidated Financial Statements). The
decrease also reflects lower gains from dispositions recognized in the first
quarter of 1999. (See Note 4 to the Condensed Consolidated Financial
Statements).
The Company's effective tax rate for the first quarters of 1999 and 1998 was
unchanged, at 27.4% in both periods reflecting continued global tax strategies.
Income from continuing operations in the first quarter of 1999 was $57,487
compared with $39,082 in the first quarter of the prior year, an increase of
47.1%. Excluding the after-tax impact of the Year 2000 costs and gains from
dispositions in both years; and adjusting the first quarter 1998 for charges
related to the Distribution and the after tax impact of SAB 51 gains and the
Calendarization, income from continuing operations increased 22.4% to $58,888 in
1999.
Income from discontinued operations, net of income taxes, in the first quarter
of 1998 was $21,005, which represents the results of Nielsen Media Research.
The Company's net income for the first quarter of 1999 was $57,487, a decrease
of 4.3% from net income of $60,087 in the first quarter of the prior year. The
decrease reflects primarily the absence of discontinued operations included in
first quarter 1998 results. Adjusting for this and the items mentioned in income
from continuing operations, net income increased 22.4% in 1999.
Basic earnings per share from continuing operations in the first quarter of 1999
was $.18, an increase of 50.0% from earnings per share of $.12 in the first
quarter of the prior year. Excluding the after-tax impact of the previously
identified one-time items, basic earnings per share for the quarter increased
26.7%.
Diluted earnings per share from continuing operations in the first quarter of
1999 was $.18, an increase of 50.0% from earnings per share of $.12 in the first
quarter of the prior year. Excluding the after-tax impact of the previously
identified one-time items diluted earnings per share for the quarter increased
28.6%.
18
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Results by Business Segment
IMS Segment
The IMS segment consists of IMS, the leading global provider of market
information and decision-support services to the pharmaceutical and healthcare
industries, and Strategic Technologies, an operating unit of IMS Health and the
leading provider of automated sales support technologies to the pharmaceutical
industries.
Effective in the first quarter of 1999, IMS operating units that previously
reported on a fiscal year ended November 30, changed their reporting period to
conform to the Company's fiscal year ended December 31 (See Note 2 to the
Condensed Consolidated Financial Statements).
IMS segment revenue for the first quarter of 1999 increased 27.8% to $285,501
from $223,401 in the first quarter of the prior year. Adjusting 1998 revenue for
Calendarization and the impact of a stronger U.S. dollar, revenue for the first
quarter 1999 increased by 22.0%. This growth reflected the strong performance of
its sales management products and services, geographic expansion, the impact of
the Walsh and PMSI acquisitions and strong revenue growth at Strategic
Technologies. Operating income increased 86.1% to $57,548 in the first quarter
from $30,926 in the first quarter of the prior year. Excluding Year 2000 costs
and the Calendarization, operating income for the first quarter of 1999
increased 25.8%. Adjusted operating income growth outpaced revenue growth
primarily due to the segment's ability to leverage its worldwide resources.
Emerging Markets Segment
The Emerging Markets segment consists primarily of Erisco, a leading supplier of
software-based administrative and analytical solutions to the managed care
industry, and Enterprises, the Company's venture capital unit focused on
investments in emerging healthcare businesses.
Emerging Markets revenue for the first quarter of 1999 decreased 5.8% to $10,606
from $11,263 in the first quarter of the prior year. This decrease was due
primarily to the absence of revenues from SSJ during 1999. Excluding SSJ,
Emerging Markets revenue for the first quarter of 1999 increased 19.5%, due to
the strong market acceptance of Erisco's core products. Operating income
increased to $895 in the first quarter from an operating loss of $204 in the
first quarter of the prior year. Excluding SSJ, operating income for the first
quarter of 1999 increased 84.9%.
CTS Segment
CTS delivers full life cycle software development and maintenance technology
consulting services to its customers through the use of a seamless on-site and
offshore project team. These services include application development and
maintenance services, Year 2000 and Eurocurrency compliance services, testing
and quality assurance services and re-hosting and re-engineering services. CTS
revenue increased to $17,135 in the first quarter of 1999 from $6,304 in the
first quarter of the prior year. The increase is due to continuing strong demand
for application maintenance and development services and the addition of new
customers. Operating income increased to $4,070 from $1,106 in the first quarter
of the prior year.
19
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Condensed Consolidated Statement of Cash Flows
Three Months Ended March 31, 1999 and 1998
Net Cash provided by operating activities totaled $7,071 for the three months
ended March 31, 1999 compared with $13,907 for the comparable period in 1998.
The decrease of $6,836 principally reflects an increase in Accounts Receivable
compared with a decrease in 1998 ($35,713) offset by higher net income of
$18,405, higher depreciation and amortization of $4,076 and the absence of SAB
51 gains in 1999 compared to 1998 of $7,987. For the month of December 1998 IMS
operating units generated $30,664 of cash, including a decrease in accounts
receivable of $35,353. The increase in accounts receivable for the three month
period ended March 31, 1999 compared with the three month period ended March 31,
1998 is primarily attributable to the elimination of the one month lag in the
first quarter. December 1998, the stub period not included in the Company's
calendarized 1999 first quarter, was an excellent month for collections. The
absence of the strong cash flow of December 1998 in cash accounts receivable
line for the calendarized first quarter of 1999, negatively impacts the
comparison to the historical first quarter of 1998.
Net cash used in investing activities totaled ($27,270) for 1999 compared with
($11,313) for the comparable period in 1998. The decrease of $15,957 is
principally due to acquisition and integration payments ($11,180) and lower
proceeds from the sale of investments in 1999 as compared with 1998 ($6,883).
Net Cash (used in) / provided by financing activities totaled ($78,921) for the
three months ended March 31, 1999 compared with $15,663 for the comparable
period in 1998. The decrease in cash provided by financing activities of $94,584
was primarily due to $95,354 of payments for the purchase of treasury stock, as
part of an ongoing stock repurchase program, compared with none for the
comparable period in 1998. Short-term borrowings are used from time to time to
finance the Company's ongoing stock repurchase program.
Changes in Financial Position at March 31, 1999 Compared to December 31, 1998
CASH & CASH EQUIVALENTS decreased to $136,931 at March 31, 1999 from $206,390 at
December 31, 1998, primarily reflecting $95,354 of payments for the purchase of
treasury stock offset by $30,664 of cash provided by IMS operating units in
December 1998. (See Note 1 to the Condensed Consolidated Financial Statements).
ACCOUNTS RECEIVABLE decreased to $311,554 at March 31, 1999, from $324,219 at
December 31, 1998 due primarily to a decrease in trade receivables ($17,121) and
unbilled receivables ($5,305), partially offset by an increase in other
receivables related to the sale of SSJ.
INVESTMENT IN GARTNER GROUP increased to $265,591 at March 31, 1999, from
$252,852 at December 31, 1998, reflecting equity income-net of taxes ($12,739).
ACCRUED LIABILITIES decreased to $249,831 at March 31, 1999, from $298,625 at
December 31, 1998 resulting primarily from payments related to the PMSI and
Walsh direct acquisition and integration costs and the timing of accruals for
salaries, wages, bonuses and other compensation.
SHAREHOLDERS' EQUITY decreased to $770,754 at March 31, 1999, from $825,270 at
December 31, 1998, primarily reflecting the purchase of treasury stock
($95,354), change in cumulative translation adjustment ($20,888), change in
unrealized gains on investments ($9,555) and dividends paid ($6,354), partially
offset by net income ($57,487) and proceeds from stock option exercises
($13,524). Also effecting shareholder's equity is the $1,040 of net income
related to the results of the IMS operating units for the period December 1
through December 31, 1998 and the cumulative translation adjustment for this
period of $3,409. (See Note 2 to the Condensed Consolidated Financial
Statements).
20
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year 2000
Many existing computer systems and software applications use two digits, rather
than four, to record years, e.g., "98" instead of "1998". Unless modified, such
systems will not properly record or interpret years after 1999, which could lead
to business disruptions. This is known as the "Year 2000 issue" ("Year 2000").
The Company began to address the Year 2000 issue in 1996. In 1997, the Company
created a Year 2000 Task Force (the "Task Force") to manage overall risks and to
facilitate activities across the entire Company. CTS, a majority owned
subsidiary, is being used to convert the majority of the systems to allow most
internal staff members to focus on the core business. The Company has also used
outside services to assist in conversion and to assess the progress of its Year
2000 program. The Company has identified its Year 2000 areas of focus as systems
and software for the creation and delivery of its products and systems and
software for its internal administrative operations.
The Task Force developed a conversion methodology that included three phases:
analysis, coding and testing, and testing and implementation. The analysis phase
includes planning, inventory and impact analysis. The coding and testing phase
involves code changes, using conversion rules and criteria and unit testing,
verifying and documenting the results of the conversion. The testing and
implementation phase includes system test across platforms and verification of
data, an acceptance test within the user environment and implementation or
releasing the systems back into production. This conversion methodology has been
utilized throughout the Company and is being utilized to achieve systems
compliance by the Year 2000.
The creation of customer products relies on the receipt of data from external
data suppliers and the Company's ability to convert the data and deliver the
information to its customers. The consolidation of the data is principally
performed at central processing locations. The Company believes central systems
represent approximately 85% of its Year 2000 efforts. The Company operates
central processing facilities in Germany, England, the United States and Japan.
The systems at these sites contained the most lines of code required to undergo
conversion. At March 31, 1999, the Company has completed 98% of Year 2000
conversions at central processing locations. Compliance is expected to be
completed by the end of the second and third quarters in 1999.
IMS Health continues to enhance its existing product portfolio and continues to
launch new products. There is an ongoing effort to ensure this software is Year
2000 compliant. In addition, the Company has decided to replace certain
non-compliant software. These new product and replacement projects are on track
to be completed and deployed by the fourth quarter and continue to be under
close scrutiny by the Task Force. The Erisco systems are currently 99% compliant
while the systems related to recent acquisitions are on schedule for a third
quarter 1999 completion.
21
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year 2000 -- (continued)
The Company operates local offices in over 90 countries with about half of them
using systems for data collection, panel administration and customized local
requirements. Varied approaches are utilized to ensure Year 2000 compliance. In
some cases, specialized teams from CTS are being used to assist the local
offices with all phases of their system conversions and hardware compliance. At
March 31, 1999, the Company has completed 90% of Year 2000 conversions of local
systems and personal computer applications in the United States and Europe. The
rest of the world is at approximately 75% of completion. Year 2000 compliance is
expected to be acheived by the end of the second and third quarters in 1999.
The Company's Year 2000 project incorporates administrative operations systems
and software such as accounts receivable, payroll, accounts payable and the
general ledger systems. These systems are 99% compliant by the end of the first
quarter of 1999.
The Company developed an internal audit program that examines the testing and
effectiveness of controls, assesses the accuracy and completeness of inventories
and reviews the documentation for completeness and accuracy. As of the beginning
of the second quarter, audits and follow-up audits have occurred in the United
States, England, Japan and Germany. The company performs audits on the local
country conversions with the assistance of CTS and outside consultants. To date
approximately 80% of IMS Health revenue has been audited for Year 2000
compliance. These audits will continue throughout the world until Year 2000.
The Company relies on over 16,000 suppliers of electronic data and has been
proactive in working with these suppliers to determine their Year 2000 readiness
and ability to maintain data flow continuity. A program consisting of seminars,
visits, mailings and telephone calls continues to be administered to track the
status and assess and address risks associated with Year 2000 readiness for key
data suppliers.
In some instances, IMS Health receives data from governments and hospitals.
Continued receipt of their data will be a function of their readiness. Based on
information from the Company's data sources to date, it appears that the Year
2000 readiness information has been incomplete or progress to date has been
unsatisfactory in some areas. The Company assesses risk regarding the readiness
of data sources through testing and the use of a detailed questionnaire
regarding Year 2000 conversion plans in order
22
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Year 2000 -- (continued)
to verify the supplier's ability to continue to deliver data. As a contingency,
statistically valid methods of data extrapolation are being developed in the
event the supply of data from a limited number of suppliers is incomplete or
found to be unusable. Investigation of alternate sources are pursued when the
risk assessment determines the data source to have a high risk of impacting the
Company's ability to deliver products and services.
Throughout 1999 the Company's Year 2000 efforts will focus on (i) the testing
the critical components of the Company's systems; (ii) the continued assessment
of supplier and customer readiness to address the Year 2000 conversion and;
(iii) finalizing contingency plans to address unanticipated issues.
External and internal costs of addressing the Year 2000 issue are expensed as
incurred. It is currently estimated that the aggregate cost of the Company's
Year 2000 program will be approximately $75,000. Through March 31, 1999 the
Company has incurred $62,618 of which $44,922 was incurred in 1998. The Company
expects to incur between $12,000 and $17,000 in the remainder of 1999. These
estimates do not include the costs of software and systems that are being
replaced or upgraded in the normal course of business.
The cost of addressing the Year 2000 issue and the dates which the Company
currently expects to complete Year 2000 compliance are based on the current best
estimates of management, which are derived utilizing various assumptions
regarding the future events. There can be no guarantee that these estimates will
be achieved, and actual results may differ materially. Specific factors that may
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area of expertise, the
ability to locate and correct all relevant computer codes, and the success of
customers and suppliers in addressing the Year 2000 issue. The Company's plans
are dependent on the continuous operation of industries out of the Company's
direct control such as utilities and transportation.
The above expectations are subject to uncertainties. For example, if the Company
is unsuccessful in identifying or fixing all Year 2000 problems in its critical
operations, or effected by the inability of its data suppliers or major
customers to continue operations due to such a problem, the Company's results of
operations or financial condition could be materially impacted.
Euro Conversion
On January 1, 1999, 11 member countries of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency ("Euro"). The transition period for the introduction of the Euro
is between January 1, 1999 and January 1, 2002.
The Company has instituted plans to prepare for the introduction of the Euro and
has and is currently addressing the many issues involved with its introduction,
including the conversion of information technology systems, recalculating
currency risk, recalibrating derivatives and other financial instruments,
strategies concerning continuity of contracts, and impacts on the processes for
preparing taxation and accounting records, and the increased price transparency
resulting from the use of the single currency in the eleven participating
countries, which may affect the ability of the Company and other companies to
price products differently in the various European markets. Nevertheless,
23
<PAGE>
IMS HEALTH INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS -- (CONTINUED)
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Euro Conversion -- (continued)
differences in national market size, data collection requirements and specific
product specifications required due to the diverse market information needs in
the healthcare markets of Europe are expected to reduce the potential for price
harmonization in most of the Company's product ranges.
IMS Health's expectations regarding the Euro currency issue are forward-looking
statements that involve a number of risks and uncertainties that could cause the
actual results to differ materially from the projected results. Factors that may
cause these differences include, but are not limited to, the ability or
willingness of third parties to convert affected systems in a timely manner; the
ability of the Company to modify its systems and processes in a timely manner;
and the actions of governmental agencies or other third parties with respect to
Euro currency issues.
24
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of IMS Health Incorporated was held on March
19, 1999.
The following nominees for director named in the Proxy Statement dated February
26, 1999 were elected at the Meeting by the votes indicated.
For Withheld
----------------- ----------------
Victoria R. Fash 221,495,825 39,253,893
Robert Lanigan 221,573,850 39,175,868
H. Eugene Lockhart 221,656,907 39,092,811
The votes in favor of the election of the nominees represent at least 85% of the
shares present at the meeting.
Approval of the appointment of PricewaterhouseCoopers LLP as Independent Public
Accountants was approved by the following vote:
For Against Abstain
----------- ---------- ---------
Number of Shares 259,956,805 191,112 601,800
Approval of an amendment to the Company's Restated Certificate of Incorporation
to increase the number of authorized shares of the Company's common stock, par
value $0.01 per share, from 400,000,000 to 800,000,000 was approved by the
following vote:
For Against Abstain
----------- ---------- ---------
Number of Shares 247,366,737 12,247,344 1,135,638
The proposal to approve the IMS Health Employee Stock Incentive Plan was
approved by the following vote:
<TABLE>
<CAPTION>
For Against Abstain Broker
Non-Votes
----------- ---------- --------- ----------
<S> <C> <C> <C> <C>
Number of Shares 173,937,499 55,036,886 1,548,909 30,226,425
</TABLE>
The proposal to approve the IMS Health Executive Annual Incentive Plan was
approved by the following vote:
For Against Abstain
----------- ---------- ---------
Number of Shares 251,036,855 8,178,666 1,532,197
25
<PAGE>
IMS HEALTH INCORPORATED
PART II. OTHER INFORMATION --(CONTINUED)
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
3 Articles of Incorporation and By-laws
.1 Restated Certificate of Incorporation of IMS Health Incorporated
dated May 29, 1998.
.2 Certificate of Amendment of Restated Certificate of Incorporation
of IMS Health Incorporated dated March 22, 1999.
.3 Amended and Restated By-laws of Registrant (incorporated by
reference to Exhibit 3.2 to Registrant's Registration Statement
on Form 10 filed October 7, 1996, file number 001-12275).
27 Financial Data Schedules
(b) Reports on 8-K:
There were no reports on Form 8-K filed during the quarter ended March
31, 1999.
26
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IMS Health Incorporated
By: /s/ J. MICHAL CONAWAY
--------------------------------------------
J. Michal Conaway
Chief Financial Officer
By: /s/ JAMES C. MALONE
--------------------------------------------
James C. Malone
Senior Vice President - Finance & Controller
Date: May 17, 1999
27
RESTATED CERTIFICATE OF INCORPORATION
OF
IMS HEALTH INCORPORATED
The name of the corporation is IMS Health Incorporated, and the
original Certificate of Incorporation of the corporation was filed with the
Secretary of State of the State of Delaware on February 3, 1998. The original
Certificate of Incorporation of the corporation is hereby amended and restated
to read in its entirety as follows:
"FIRST: The name of the corporation is IMS Health Incorporated.
SECOND: The registered office of the corporation in the State of
Delaware is located at No. 1209 Orange Street, in the City of Wilmington,
County of New Castle; and the name of its registered agent at such address
is The Corporation Trust Company.
THIRD: The purposes of the corporation are to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
(1) FOURTH: The total number of shares of all classes of stock which the
corporation shall have authority to issue is 420,000,000, consisting of (1)
10,000,000 shares of Preferred Stock, par value $.01 per share ("Preferred
Stock"), (2) 400,000,000 shares of Common Stock, par value $.01 per share
("Common Stock"), and (3) 10,000,000 shares of Series Common Stock, par
value $.01 per share ("Series Common Stock"). The number of authorized
shares of any of the Preferred Stock, the Common Stock or the Series Common
Stock may be increased or decreased (but not below the number of shares
thereof then outstanding) by the affirmative vote of the holders of a
majority in voting power of the stock of the corporation entitled to vote
thereon irrespective of the provisions of Section 242(b)(2) of the General
Corporation Law of the State of Delaware (or any successor provision
thereto), and no vote of the holders of any of the Preferred Stock, the
Common Stock or the Series Common Stock voting separately as a class shall
be required therefor.
(2)
(3) (2) The Board of Directors is hereby expressly authorized, by
resolution or resolutions, to provide, out of the unissued shares of
Preferred Stock, for series of Preferred Stock and, with respect to each
such series, to fix the number of shares constituting such series and the
designation of such series, the voting powers (if any) of the shares of
such series, and the preferences and relative, participating, optional or
other special rights, if any, and any qualifications, limitations or
restrictions thereof, of the shares of such series. The powers, preferences
and relative, participating, optional and other special rights of each
series of Preferred Stock, and the qualifications, limitations or
restrictions thereof, if any, may differ from those of any and all other
series at any time outstanding.
(4)
(5) (3) The Board of Directors is hereby expressly authorized, by
resolution or resolutions, to provide, out of the unissued shares of Series
Common Stock, for series of Series Common Stock and, with respect to each
such series, to fix the number of shares
<PAGE>
2
constituting such series and the designation of such series, the voting
powers (if any) of the shares of such series, and the preferences and
relative, participating, optional or other special rights, if any, and any
qualifications, limitations or restrictions thereof, of the shares of such
series. The powers, preferences and relative, participating, optional and
other special rights of each series of Series Common Stock, and the
qualifications, limitations or restrictions thereof, if any, may differ
from those of any and all other series at any time outstanding.
(6)
(7) (4)(a) Each holder of Common Stock, as such, shall be entitled to
one vote for each share of Common Stock held of record by such holder on
all matters on which stockholders generally are entitled to vote; provided,
however, that, except as otherwise required by law, holders of Common
Stock, as such, shall not be entitled to vote on any amendment to this
Restated Certificate of Incorporation (including any certificate of
designations relating to any series of Preferred Stock or Series Common
Stock) that relates solely to the terms of one or more outstanding series
of Preferred Stock or Series Common Stock if the holders of such affected
series are entitled, either separately or together with the holders of one
or more other such series, to vote thereon pursuant to this Restated
Certificate of Incorporation (including any certificate of designations
relating to any series of Preferred Stock or Series Common Stock) or
pursuant to the General Corporation Law of the State of Delaware.
(8)
(9) (b) Except as otherwise required by law, holders of a series of
Preferred Stock or Series Common Stock, as such, shall be entitled only to
such voting rights, if any, as shall expressly be granted thereto by this
Restated Certificate of Incorporation (including any certificate of
designations relating to such series).
(10)
(11) (c) Subject to applicable law and the rights, if any, of the holders
of any outstanding series of Preferred Stock or Series Common Stock or any
class or series of stock having a preference over or the right to
participate with the Common Stock with respect to the payment of dividends,
dividends may be declared and paid on the Common Stock at such times and in
such amounts as the Board of Directors in its discretion shall determine.
(12)
(13) (d) Upon the dissolution, liquidation or winding up of the
corporation, subject to the rights, if any, of the holders of any
outstanding series of Preferred Stock or Series Common Stock or any class
or series of stock having a preference over or the right to participate
with the Common Stock with respect to the distribution of assets of the
corporation upon such dissolution, liquidation or winding up of the
corporation, the holders of the Common Stock, as such, shall be entitled to
receive the assets of the corporation available for distribution to its
stockholders ratably in proportion to the number of shares held by them.
(14)
(15) FIFTH: The Board of Directors shall be authorized to make, amend,
alter, change, add to or repeal the By-Laws of the corporation in any
manner not inconsistent with the laws of the State of Delaware, subject to
the power of the stockholders to amend, alter, change, add to or repeal the
By-Laws made by the Board of Directors. Notwithstanding anything contained
in this Restated Certificate of
<PAGE>
3
Incorporation to the contrary, the affirmative vote of the holders of at
least 80 percent in voting power of all the shares of the corporation
entitled to vote generally in the election of directors, voting together as
a single class, shall be required in order for the stockholders to alter,
amend or repeal any provision of the By-laws which is to the same effect as
Article Fifth, Article Seventh, and Article Eighth of this Restated
Certificate of Incorporation or to adopt any provision inconsistent
therewith.
(16)
(1)
(17) SIXTH: To the fullest extent permitted by the laws of the State of
Delaware:
(18)
(a) The corporation shall indemnify any person (and such person's heirs,
executors or administrators) who was or is a party or is threatened to be
made a party to any threatened, pending or completed action, suit or
proceeding (brought in the right of the corporation or otherwise), whether
civil, criminal, administrative or investigative, and whether formal or
informal, including appeals, by reason of the fact that such person is or
was a director or officer of the corporation or, while a director or
officer of the corporation, is or was serving at the request of the
corporation as a director, officer, partner, trustee, employee or agent of
another corporation, partnership, joint venture, trust, limited liability
company or other enterprise, for and against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such person or such heirs, executors or
administrators in connection with such action, suit or proceeding,
including appeals. Notwithstanding the preceding sentence, the corporation
shall be required to indemnify a person described in such sentence in
connection with any action, suit or proceeding (or part thereof) commenced
by such person only if the commencement of such action, suit or proceeding
(or part thereof) by such person was authorized by the Board of Directors
of the corporation. The corporation may indemnify any person (and such
person's heirs, executors or administrators) who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding (brought in the right of the corporation or
otherwise), whether civil, criminal, administrative or investigative, and
whether formal or informal, including appeals, by reason of the fact that
such person is or was an employee or agent of the corporation or is or was
serving at the request of the corporation as a director, officer, partner,
trustee, employee or agent of another corporation, partnership, joint
venture, trust, limited liability company or other enterprise, for and
against all expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by such person
or such heirs, executors or administrators in connection with such action,
suit or proceeding, including appeals.
(b)
(c) The corporation shall promptly pay expenses incurred by any person
described in the first sentence of subsection (a) of this Article Sixth,
Section (1) in defending any action, suit or proceeding in advance of the
final disposition of such action, suit or proceeding, including appeals,
upon presentation of appropriate documentation.
(d)
(e) The corporation may purchase and maintain insurance on behalf of any
person described in subsection (a) of this Article Sixth, Section (1)
against any liability
<PAGE>
4
asserted against such person, whether or not the corporation would have the
power to indemnify such person against such liability under the provisions
of this Article Sixth, Section (1) or otherwise.
(f)
(g) The provisions of this Article Sixth, Section (1) shall be
applicable to all actions, claims, suits or proceedings made or commenced
after the adoption hereof, whether arising from acts or omissions to act
occurring before or after its adoption. The provisions of this Article
Sixth, Section (1) shall be deemed to be a contract between the corporation
and each director or officer who serves in such capacity at any time while
this Article Sixth, Section (1) and the relevant provisions of the laws of
the State of Delaware and other applicable law, if any, are in effect, and
any repeal or modification hereof shall not affect any rights or
obligations then existing with respect to any state of facts or any action,
suit or proceeding then or theretofore existing, or any action, suit or
proceeding thereafter brought or threatened based in whole or in part on
any such state of facts. If any provision of this Article Sixth, Section
(1) shall be found to be invalid or limited in application by reason of any
law or regulation, it shall not affect the validity of the remaining
provisions hereof. The rights of indemnification provided in this Article
Sixth, Section (1) shall neither be exclusive of, nor be deemed in
limitation of, any rights to which an officer, director, employee or agent
may otherwise be entitled or permitted by contract, this Restated
Certificate of Incorporation, vote of stockholders or directors or
otherwise, or as a matter of law, both as to actions in such person's
official capacity and actions in any other capacity while holding such
office, it being the policy of the corporation that indemnification of any
person whom the corporation is obligated to indemnify pursuant to the first
sentence of subsection (a) of this Article Sixth, Section (1) shall be made
to the fullest extent permitted by law.
(h)
(i) For purposes of this Article Sixth, references to "other
enterprises" shall include employee benefit plans; references to "fines"
shall include any excise taxes assessed on a person with respect to an
employee benefit plan; and references to "serving at the request of the
corporation" shall include any service as a director, officer, employee or
agent of the corporation which imposes duties on, or involves services by,
such director, officer, employee, or agent with respect to an employee
benefit plan, its participants, or beneficiaries.
(j)
(19) A director of the corporation shall not be liable to the corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
director, except to the extent such exemption from liability or limitation
thereof is not permitted under the General Corporation Law of the State of
Delaware as the same exists or may hereafter be amended. Any amendment,
modification or repeal of the foregoing sentence shall not adversely affect
any right or protection of a director of the corporation hereunder in
respect of any act or omission occurring prior to the time of such
amendment, modification or repeal.
(20)
(1)
(21) SEVENTH: The business and affairs of the corporation shall be managed
by or under the direction of a Board of Directors consisting of not less
than three directors, the exact number of directors to be determined from
time to time by
<PAGE>
5
resolution adopted by affirmative vote of a majority of the Board of
Directors. The directors shall be divided into three classes designated
Class I, Class II and Class III. Each class shall consist, as nearly as
possible, of one-third of the total number of directors constituting the
entire Board of Directors. Class I directors shall be originally elected
for a term expiring at the succeeding annual meeting of stockholders, Class
II directors shall be originally elected for a term expiring at the second
succeeding annual meeting of stockholders, and Class III directors shall be
originally elected for a term expiring at the third succeeding annual
meeting of stockholders. At each succeeding annual meeting of stockholders
following 1998, successors to the class of directors whose term expires at
that annual meeting shall be elected for a term expiring at the third
succeeding annual meeting. If the number of directors is changed, any
increase or decrease shall be apportioned among the classes so as to
maintain the number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a newly created
directorship resulting from an increase in such class shall hold office for
a term that shall coincide with the remaining term of that class, but in no
case shall a decrease in the number of directors remove or shorten the term
of any incumbent director. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor
shall be elected and shall qualify, subject, however, to prior death,
resignation, retirement, disqualification or removal from office. Any newly
created directorship on the Board of Directors that results from an
increase in the number of directors and any vacancy occurring in the Board
of Directors shall be filled only by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director. If
any applicable provision of the General Corporation Law of the State of
Delaware expressly confers power on stockholders to fill such a
directorship at a special meeting of stockholders, such a directorship may
be filled at such meeting only by the affirmative vote of at least 80
percent of the voting power of all shares of the corporation entitled to
vote generally in the election of directors voting as a single class. Any
director elected to fill a vacancy not resulting from an increase in the
number of directors shall have the same remaining term as that of his
predecessor. Directors may be removed only for cause, and only by the
affirmative vote of at least 80 percent in voting power of all shares of
the corporation entitled to vote generally in the election of directors,
voting as a single class.
(22)
(23) Notwithstanding the foregoing, whenever the holders of any one or
more series of Preferred Stock or Series Common Stock issued by the
corporation shall have the right, voting separately as a series or
separately as a class with one or more such other series, to elect
directors at an annual or special meeting of stockholders, the election,
term of office, removal, filling of vacancies and other features of such
directorships shall be governed by the terms of this Restated Certificate
of Incorporation (including any certificate of designations relating to any
series of Preferred Stock or Series Common Stock) applicable thereto, and
such directors so elected shall not be divided into classes pursuant to
this Article Seventh unless expressly provided by such terms.
(24)
(25) EIGHTH: Any action required or permitted to be taken by the holders
of the Common Stock of the corporation must be effected at a duly called
annual or special meeting of such holders and may not be effected by any
consent in writing by such holders. Except as otherwise required by law and
subject to the rights of the holders of
<PAGE>
6
any series of Preferred Stock or Series Common Stock, special meetings of
stockholders of the corporation may be called only by the Chief Executive
Officer of the corporation or by the Board of Directors pursuant to a
resolution approved by the Board of Directors.
(26)
(27) NINTH: Notwithstanding anything contained in this Restated
Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80 percent in voting power of all the shares of the
corporation entitled to vote generally in the election of directors, voting
together as a single class, shall be required to alter, amend or repeal
Article Fifth, Article Seventh, Article Eighth or this Article Ninth or to
adopt any provision inconsistent therewith."
(28)
(1)
<PAGE>
7
IMS Health Incorporated does hereby further certify that this
Restated Certificate of Incorporation was duly adopted by the Board of Directors
and by unanimous written consent of the stockholders in accordance with the
provisions of Sections 228, 242 and 245 of the General Corporation Law of the
State of Delaware.
<PAGE>
8
IN WITNESS WHEREOF, IMS HEALTH INCORPORATED has caused its corporate
seal to be hereunto affixed and this certificate to be signed by Kenneth S.
Siegel, its Senior Vice President, General Counsel and Secretary, this 29th
day of May, 1998.
IMS HEALTH INCORPORATED
By: /s/Kenneth S. Siegel
-------------------------------
Name: Kenneth S. Siegel
Title: Senior Vice President,
General Counsel and
Secretary
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
IMS HEALTH INCORPORATED
********
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
********
IMS Health Incorporated, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (hereinafter
called the "Corporation"), DOES HEREBY CERTIFY that:
FIRST: The name of the Corporation is IMS Health Incorporated.
SECOND: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on February 3, 1998, as restated
by a Restated Certificate of Incorporation filed with the Secretary of State of
Delaware on May 29, 1998.
THIRD: That the Board of Directors of the Corporation, by resolution duly
adopted, declared it advisable that the Restated Certificate of Incorporation of
the Corporation as filed on May 29, 1998 be amended by amending Paragraph (1) of
Article FOURTH of the Restated Certificate of Incorporation to read in its
entirety as follows:
(1) The total number of shares of all classes of stock which the
corporation shall have the authority to issue is 820,000,000,
consisting of (a) 10,000,000 shares of Preferred Stock, par value $.01
per share ("Preferred Stock"), (b) 800,000,000 shares of Common Stock,
par value $.01 per share ("Common Stock"), and (c) 10,000,000 shares
of Series Common Stock, par value $.01 per share ("Series Common Stock
"). The number of authorized shares of any of the Preferred Stock, the
Common Stock or the Series Common Stock may be increased or decreased
(but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority in voting power of the
stock of the corporation entitled to vote thereon irrespective of the
provisions of Section 242(b)(2) of the General Corporation Law of the
State of Delaware (or any successor provision thereto), and no vote of
the holders of any of the Preferred Stock, the Common Stock or the
Series Common Stock voting separately as a class shall be required
therefor.
FOURTH: This amendment to the Restated Certificate of Incorporation was
duly adopted in accordance with Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, IMS Health Incorporated has caused this Certificate of
Amendment to be signed by Kenneth S. Siegel, its Senior Vice President, General
Counsel and Secretary, this 22nd day of March, 1999.
IMS HEALTH INCORPORATED
By: --------------------------------
Kenneth S. Siegel
Senior Vice President, General
Counsel and Secretary
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 136,931
<SECURITIES> 0
<RECEIVABLES> 311,554
<ALLOWANCES> 8,652
<INVENTORY> 33,089
<CURRENT-ASSETS> 552,055
<PP&E> 358,900
<DEPRECIATION> 187,012
<TOTAL-ASSETS> 1,628,582
<CURRENT-LIABILITIES> 507,107
<BONDS> 0
0
0
<COMMON> 3,350
<OTHER-SE> 787,404
<TOTAL-LIABILITY-AND-EQUITY> 1,628,582
<SALES> 0
<TOTAL-REVENUES> 313,242
<CGS> 0
<TOTAL-COSTS> 258,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> 79,183
<INCOME-TAX> 21,696
<INCOME-CONTINUING> 57,487
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 57,487
<EPS-PRIMARY> .18
<EPS-DILUTED> .18
</TABLE>
