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 September 30, 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
Common Stock, at September 30, 1999
par value $.01 per share 307,927,288
<PAGE>
IMS HEALTH INCORPORATED
INDEX TO FORM 10-Q
PART I. FINANCIAL INFORMATION
PAGE(S)
-------
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Income
Three Months Ended September 30, 1999 and 1998 3
Nine Months Ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Comprehensive Income
Three Months Ended September 30, 1999 and 1998 5
Nine Months Ended September 30, 1999 and 1998 5
Condensed Consolidated Statements of Financial Position
September 30, 1999 and December 31, 1998 6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 7
Notes to Condensed Consolidated Financial Statements 9-21
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 22-35
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 36
SIGNATURES 37
2
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
-------------------------------
<S> <C> <C>
Operating Revenue $348,409 $283,606
Operating Costs 131,298 112,364
Selling and Administrative Expenses 94,865 87,468
Depreciation and Amortization 26,288 25,102
Direct Acquisition Integration Costs 0 43,019
Acquired In-Process Research and Development 0 10,900
- - ----------------------------------------------------------------------------------------------------------------
Operating Income 95,958 4,753
- - ----------------------------------------------------------------------------------------------------------------
Interest Income 2,591 7,241
Interest Expense (2,138) (335)
Gains from Dispositions--Net 4,313 12,047
Other Expense--Net (3,221) (3,441)
- - ----------------------------------------------------------------------------------------------------------------
Non-Operating Income--Net 1,545 15,512
- - ----------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 97,503 20,265
Provision for Income Taxes (27,263) (5,479)
- - ----------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 70,240 14,786
Income from Discontinued Operations, Net of Income Taxes of $931 and $7,261
for 1999 and 1998, respectively 1,384 10,169
- - ----------------------------------------------------------------------------------------------------------------
Net Income $ 71,624 $ 24,955
- - ----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock:
Income from Continuing Operations $0.23 $0.05
Income from Discontinued Operations 0.00 0.03
- - ----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock $0.23 $0.08
- - ----------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock:
Income from Continuing Operations $0.22 $0.04
Income from Discontinued Operations 0.00 0.03
- - ----------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock $0.22 $0.07
- - ----------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Basic 311,159,000 328,102,000
Dilutive Effect of Shares Issuable as of Period-End Under Stock Option Plans 6,185,000 8,110,000
Adjustment of Shares Applicable to Exercised Stock Options 328,000 1,468,000
- - ----------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted 317,672,000 337,680,000
- - ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The third quarter of 1998 for the IMS operating units includes the
three months ended August 31, 1998. (See Note 2. Basis of Presentation).
3
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1999 1998
-------------------------------
<S> <C> <C>
Operating Revenue $994,303 $795,070
Operating Costs 412,659 391,819
Selling and Administrative Expenses 293,047 244,560
Depreciation and Amortization 75,174 68,303
Direct Acquisition Integration Costs 0 48,019
Acquired In-Process Research and Development 0 32,800
- - ----------------------------------------------------------------------------------------------------------------------------
Operating Income 213,423 9,569
- - ----------------------------------------------------------------------------------------------------------------------------
Interest Income 6,371 16,110
Interest Expense (4,672) (747)
Gain on Sale of Subsidiary Stock 0 12,777
Gains from Dispositions--Net 20,590 22,462
Other Expense--Net (11,457) (8,688)
- - ----------------------------------------------------------------------------------------------------------------------------
Non-Operating Income--Net 10,832 41,914
- - ----------------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 224,255 51,483
Provision for Income Taxes (64,048) (26,703)
- - ----------------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 160,207 24,780
Income from Discontinued Operations, Net of Income Taxes of $12,635 and $38,780
for 1999 and 1998, respectively 25,695 82,902
- - ----------------------------------------------------------------------------------------------------------------------------
Net Income $185,902 $107,682
- - ----------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock:
Income from Continuing Operations $0.51 $0.08
Income from Discontinued Operations 0.08 0.25
- - ----------------------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock $0.59 $0.33
- - ----------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock:
Income from Continuing Operations $0.50 $0.07
Income from Discontinued Operations 0.08 0.25
- - ----------------------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock $0.58 $0.32
- - ----------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Basic 314,431,000 326,474,000
Dilutive Effect of Shares Issuable as of Period-End Under Stock Option Plans 6,810,000 6,432,000
Adjustment of Shares Applicable to Exercised Stock Options 565,000 4,220,000
- - ----------------------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted 321,806,000 337,126,000
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The Statement of Income at September 30, 1998 for the IMS operating
units includes the nine months ended August 31, 1998. (See Note 2. Basis of
Presentation).
4
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
1999 1998
----------------------
<S> <C> <C>
Net Income $ 71,624 $ 24,955
Other Comprehensive Income, Net of Tax:
Foreign Currency Translation Adjustments Gains 10,301 175
Unrealized Gains/(Losses) on Securities:
Unrealized Holding Gains/(Losses) on Securities Arising During the Period:
Other (Net of Tax Benefit of $502 for 1998) 4 (1,329)
Gartner (Net of Tax Expense at $10,195 for 1999) 18,934 --
Less: Reclassification Adjustment for Gains included in Net Income (Net of Tax
Expense of $1,410 and $2,302 for 1999 and 1998, respectively) (3,738) (6,100)
- - ---------------------------------------------------------------------------------------------------------------------
Net Change in Unrealized Gains (Losses) on Investments 15,200 (7,429)
- - ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Income (Loss), Net of Tax 25,501 (7,254)
- - ---------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 97,125 $ 17,701
- - ---------------------------------------------------------------------------------------------------------------------
<CAPTION>
Nine Months Ended
September 30,
1999 1998
--------- ---------
<S> <C> <C>
Net Income $ 185,902 $ 107,682
Other Comprehensive Income, Net of Tax:
Foreign Currency Translation Adjustments Losses (21,133) (9,421)
Unrealized Gains/(Losses) on Securities:
Unrealized Holding Gains/(Losses) on Securities Arising During the Period:
Other (Net of Tax Benefit of $710 and $2,440 for 1999 and 1998,
respectively) (1,880) (6,464)
Gartner (Net of Tax Expense at $10,195 for 1999) 18,934 --
Less: Reclassification Adjustment for Gains included in Net Income (Net of Tax
Expense of $4,212 and $1,557 for 1999 and 1998, respectively) (11,161) (4,126)
- - ---------------------------------------------------------------------------------------------------------------------
Net Change in Unrealized Gains (Losses) on Investments 5,893 (10,590)
- - ---------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Loss, Net of Tax (15,240) (20,011)
- - ---------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 170,662 $ 87,671
- - ---------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The Statement of Comprehensive Income at September 30, 1998 for the
IMS operating units includes the three and nine months ended August 31, 1998,
respectively. (See Note 2. Basis of Presentation).
In the third quarter and first nine months of 1999, Unrealized Holding Gains
include $18,934 of unrealized gains, net of $10,195 of tax expense, related to
the Company's Gartner Group holdings, classified in Net Assets from Discontinued
Operations. (See Note 2. Basis of Presentation).
The Company has significant investments outside of the U.S. 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 offsetting impact of the Company's hedging program. (See
Note 8. Financial Instruments with Off-Balance Sheet Risk).
5
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)
(Dollar amounts in thousands, except per share data)
September 30, December 31,
1999 1998
----------------------------
Assets:
Current Assets:
Cash and Cash Equivalents $ 230,714 $ 206,390
Accounts Receivable-Net 246,991 324,219
Other Current Assets 106,236 103,868
Net Assets from Discontinued Operations 100,356 240,708
- - --------------------------------------------------------------------------------
Total Current Assets 684,297 875,185
- - --------------------------------------------------------------------------------
Securities and Other Investments 82,455 106,276
Property, Plant and Equipment-Net 170,550 179,151
Other Assets-Net:
Computer Software 174,989 168,994
Goodwill 344,123 363,841
Other Assets 23,915 25,928
- - --------------------------------------------------------------------------------
Total Other Assets-Net 543,027 558,763
- - --------------------------------------------------------------------------------
Total Assets $1,480,329 $1,719,375
- - --------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Current Liabilities:
Short Term Debt $ 168,834 $ 39,169
Accounts Payable 48,197 51,715
Accrued and Other Current Liabilities 222,353 298,625
Accrued Income Taxes 81,900 32,537
Deferred Revenues 102,349 128,272
- - --------------------------------------------------------------------------------
Total Current Liabilities 623,633 550,318
- - --------------------------------------------------------------------------------
Post-retirement and Post-employment Benefits 27,943 27,577
Minority Interests 120,628 116,225
Other Liabilities 191,634 199,985
- - --------------------------------------------------------------------------------
Total Liabilities 963,838 894,105
- - --------------------------------------------------------------------------------
Shareholder's Equity:
Common Stock, Par Value $.01,
Authorized 800,000,000 Shares:
Issued 335,045,390 Shares in September 1999
and December 1998 respectively 3,350 3,350
Capital in Excess of Par 732,088 732,014
Retained Earnings 720,413 686,653
Treasury Stock, at Cost, 27,118,102 and
16,303,690 Shares at September 1999 and
December 1998, respectively (866,753) (535,971)
Cumulative Translation Adjustment (101,873) (84,149)
Unrealized Gains on Gartner Group 18,934 0
Unrealized Gains on Investments 10,332 23,373
- - --------------------------------------------------------------------------------
Total Shareholders' Equity 516,491 825,270
- - --------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $1,480,329 $1,719,375
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The Financial Position at December 31,1998 includes the IMS
operating units as of November 30,1998. (See Note 2. Basis of Presentation).
6
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 185,902 $ 107,682
Less Income from Discontinued Operations (25,695) (82,902)
- - ------------------------------------------------------------------------------------------------------
Income from Continuing Operations 160,207 24,780
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Depreciation and Amortization 75,174 68,303
Gains from Sale of Investments, Net (20,590) (22,462)
Write-off of Purchased In-Process Research and Development 0 32,800
Direct Acquisition Integration Costs 0 48,019
Benefit Payments (10,469) (2,748)
Net Decrease in Accounts Receivable 24,414 29,790
Net (Decrease)/Increase in Deferred Revenues (16,583) 14,161
Gain from Sale of Subsidiary Stock 0 (12,777)
Minority Interests 4,189 7,012
Deferred Income Taxes (2,338) 1,118
Net increase in Accrued Income Taxes 46,006 3,999
Other Working Capital Items (28,252) (36,436)
- - ------------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 231,758 155,559
- - ------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Proceeds from Sale of Investments 46,759 42,432
Acquisition and Integration Payments (28,248) 0
Payments for Acquisition of Businesses (3,100) (2,938)
Cash of Companies Acquired in Stock Purchases 0 11,895
Capital Expenditures (23,243) (20,375)
Additions to Software (44,496) (45,428)
Net Increase in Other Investments (16,500) (20,705)
Other Investing Activities - Net 8,355 4,369
- - ------------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (60,473) (30,750)
- - ------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Payments for Purchase of Treasury Stock (359,859) (510,867)
Proceeds from Exercise of Stock Options 22,669 61,638
Proceeds from the Sale and Issuance of Subsidiary Stock 0 27,128
Dividends Paid (18,923) (14,805)
Proceeds from Employee Stock Purchase Plan 3,514 3,403
Proceeds from Debt Assumed by Nielsen Media Research 0 300,000
Short-Term Borrowings 243,443 35,165
Short-Term Debt Repayments (113,306) 0
Other Financing Activities - Net (213) (1,877)
- - ------------------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (222,675) (100,215)
- - ------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Equivalents (7,827) (7,618)
Effect of the elimination of the one-month reporting lag 30,664 0
Cash Flow from Discontinued Operations 52,877 (17,173)
- - ------------------------------------------------------------------------------------------------------
Increase/(Decrease) in Cash and Cash Equivalents 24,324 (197)
Cash and Cash Equivalents, Beginning of Period 206,390 312,442
- - ------------------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 230,714 $ 312,245
- - ------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited). The Statement of Cash Flows for the nine month period ended
September 30, 1998 for the IMS operating units includes the nine months ended
August 31, 1998. (See Note 2. Basis of Presentation).
7
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
1999 1998
-------- --------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid during the Period for Interest $ 4,731 $ 747
Cash Paid during the Period for Income Taxes $ 57,478 $ 65,313
Cash received from Income Tax Refunds $ 42,449 $ 6,832
Non-Cash Investing Activities:
Stock Issued in Connection with Acquisitions -- $243,854
Dividend of Gartner Shares $134,259 --
</TABLE>
See accompanying notes to the Condensed Consolidated Financial Statements
(unaudited).
8
<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 consolidated 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 to 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"), which subsequently changed
its name to Nielsen Media Research, Inc. ("NMR"), to Cognizant's shareholders on
June 30, 1998 (the "Distribution"). The condensed consolidated financial
statements of the Company have been reclassified to reflect NMR as a
discontinued operation for periods up to and including June 30, 1998.
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 LLC ("Enterprises") and a controlling
interest (approximately 61% of shares outstanding) in Cognizant Technology
Solutions Corporation ("CTS").
On July 26, 1999, having received the approval of Gartner Group Inc. ("Gartner")
shareholders and the Boards of Directors of both the Company and Gartner, the
Company completed a spin-off of the majority of its equity investment in Gartner
to IMS Health shareholders (the "Gartner Spin-Off"). The distribution consisted
of 0.1302 shares of Gartner Class B Common Stock for each share of the Company's
Common Stock outstanding on the July 17, 1999 record date and totaled 40.7
million Gartner Class B shares. The condensed consolidated financial statements
of the Company have been reclassified for all periods presented to reflect the
Gartner equity investment as a discontinued operation. (See Note 3. Investment
in Gartner Group Stock).
9
<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)
A summary of Gartner and Nielsen Media Research as discontinued operations is as
follows:
Results of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------- -------------------------
1999 1998 1999 1998
------------------------- -------------------------
<S> <C> <C> <C> <C>
Operating Revenue - Nielsen Media Research $ -- $ -- $ -- $ 193,996
Income Before Provision for Income Taxes -
Nielsen Media Research -- -- -- 57,980
Equity Income and SAB 51 Gains ($1,459 and
$14,838 for the three and nine month periods in
1998, respectively) Before Provision for Income
Taxes - Gartner 2,315 17,430 38,330 63,702
------------------------- -------------------------
Provision for Income Taxes - Nielsen Media Research -- -- -- (15,887)
Provision for Income Taxes - Gartner (931) (7,261) (12,635) (22,893)
Income from Discontinued Operations $ 1,384 $ 10,169 $ 25,695 $ 82,902
========================= =========================
</TABLE>
Elimination of one-month reporting lag in IMS operating entities
Effective in the first quarter of 1999, IMS operating units which previously
reported on a fiscal year ended November 30 revised their reporting period to
conform to the Company's fiscal year ended December 31. The 1998 third quarter
and year-to-date results for the IMS operating units include the three and nine
months ended August 31. The $1,040 of net income related to the results of the
IMS operating units for the period December 1 through December 31, 1998 was
recorded as an addition to Retained Earnings. In addition, December 1998
included a $3,409 credit that was recorded as a cumulative translation
adjustment. The following table presents IMS operating units condensed
consolidated financial information for the one month ended December 31, 1998.
One Month Ended
December 31, 1998
--------------------------------------------------------------------------
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 IMS Health Share $ 0.003
10
<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)
The following table presents IMS operating units cash flow information for the
one month ended December 31, 1998:
One Month Ended
December 31, 1998
--------------------------------------------------------------------------
Net Cash Provided by Operating Activities $ 30,852
Net Cash Used in Investing Activities (3,645)
Net Cash 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 Group Stock
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 was structured as a tax-free
distribution of Gartner stock to IMS Health shareholders and the Company
received a favorable ruling from the Internal Revenue Service ("IRS").
On July 16, IMS Health and Gartner Board of Directors approved the final plan,
terms and conditions governing the spin-off of the Company's investment in
Gartner Group. Accordingly, pursuant to Accounting Principles Board No. 30,
"Reporting the results of Operations - Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occuring Events and
Transactions", the condensed consolidated financial statements of the Company
have been reclassified to reflect Gartner equity investment as a discontinued
operation for all periods presented.
Gartner declared a special cash dividend which was paid on July 23, 1999 to
holders of record on July 16, 1999. IMS Health's portion of the dividend was
$52,877, net of taxes, and is included as Cash from Discontinued Operations in
the Condensed Consolidated Statements of Cash Flow.
On July 16, 1999, the Company's Board of Directors declared a dividend of all
Gartner Class B Shares, which was distributed on July 26, 1999 to holders of the
Company's Common Stock of record as of July 17, 1999. The tax-free distribution
consisted of 0.1302 Gartner Class B Shares for each outstanding share of the
Company's Common Stock (the "Gartner Distribution"). The net assets of the
Gartner discontinued operations at December 31, 1998 were $240,708. Income from
discontinued operations for the nine month period ended September 30, 1999 was
$25,695, net of taxes of $12,635. The allocated value of the Gartner Class B
Shares distributed was $132,104 and was recorded as a reduction of net assets of
discontinued operations and Dividend of Gartner Shares. The allocated
11
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 3. Investment in Gartner Group Stock (continued)
value was calculated from the original cost of the shares and the proportional
allocation of the earnings from past periods, less the net dividend received on
the shares prior to the Distribution.
The Company's remaining investment in Gartner consists of 6,909,457 Gartner
Class A Shares and warrants to purchase a further 599,400 Gartner Class A Shares
(at a cost basis of $81,422). The Company expects to monetize the remaining
position in Gartner. Accordingly, the net assets from discontinued operations
are included in current assets. The Company's Gartner Class A shares have been
accounted for as "available for sale" securities under SFAS No. 115 "Accounting
for Certain Investments in Debt and Equity Securities". The unrealized gain as
of the date of the Gartner Distribution (based on a per share price of $22.75 on
Gartner Stock) was $51,716 (net of taxes of $27,847), and was recorded as Other
Comprehensive Income and included as a component of equity. Subsequent changes
in the per share price of Gartner Stock from the date of the Gartner
Distribution to September 30, 1999 (based on a per share price of $16.00 on
Gartner Stock) generated an unrealized loss of $32,782 (net of taxes of
$17,652), which was also recorded as Other Comprehensive Income and included as
a component of equity. Upon sale of these securities, the unrealized gain
related to those securities measured based on the value of Gartner shares as of
the date of the Gartner Distribution will be recognized in Discontinued
Operations. Gains or losses in the fair value subsequent to the date of the
Gartner Distribution will be recognized in Continuing Operations as shares are
sold.
Holders of options to purchase the Company's stock did not receive shares in the
Gartner Distribution. Consequently, options granted under the Company's plans
were adjusted to recognize the effect of the Gartner Distribution. The options,
as adjusted, represented as increase in the number of shares issuable when
exercised but had the same ratio of the exercise price to the market value per
share, the same aggregate difference between market value and exercise price and
the same vesting provisions, option periods and other terms and conditions as
the options prior to the adjustment. The option adustment was performed in
accordance with the provisions of EITF90-9. Accordingly, no compensation charge
was required for this options adjustment.
Note 4. Dispositions
During the third quarter of 1999, the Company recorded $4,313 of pre-tax net
gains due primarily to the sale of Enterprises investments in TSI International
Software Ltd. and Pegasus Systems Inc. Pre-tax cash received from dispositions
in the quarter amounted to $7,602.
Year-to-date the Company has recorded $20,590 of pre-tax net gains due primarily
to the sale of Super Systems Japan kk ("SSJ") and Enterprises investments in
edata resources Inc., Oacis Healthcare Inc., Pegasus Systems Inc. and TSI
International Software Ltd. Pre-tax cash received year-to-date as a result of
dispositions was $46,759.
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. In
connection with the acquisition, the Company recorded goodwill of $3,100.
12
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 5. Acquisitions (continued)
Walsh Acquisition
On June 24, 1998, Cognizant acquired Walsh International, Inc. ("Walsh"). The
final purchase price was $193,748, including $167,148 of Cognizant common stock,
$9,521 for Cognizant stock options issued and $17,079 of direct acquisition and
integration costs.
Walsh shareholders received 6,454,600 shares of Cognizant common stock, issued
from treasury stock, with a market value of $167,148. The original estimate of
direct acquisition and integration costs consisted of severance ($4,876), lease
terminations ($2,569) and other direct acquisition and integration costs
($9,634). These acquisition and integration costs were incurred as a direct
result of the plan to exit certain activities as part of the overall integration
effort (such as severance costs related to Walsh employees) and certain
contractual costs (such as Walsh leases). Incurred acquisition and integration
costs to date are within original projections. The Company incurred higher-than
anticipated severance costs and restructured acquired Walsh leases at a cost
lower than originally anticipated and, as a result, reduced the remaining
liability for acquisition and integration costs and goodwill by $890.
Approximately $155,667 (originally $156,557) 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.
PMSI Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. assets of Pharmaceutical
Marketing Services Inc. ("PMSI"). The final purchase price was $103,291,
consisting of IMS Health common stock ($75,292), IMS Health stock options issued
($5,415) and direct acquisition and integration costs ($22,584).
PMSI received 2,395,926 shares of IMS Health common stock, issued from treasury
stock, with a market value of $75,292. The original estimate of direct
acquisition and integration costs consisted of severance ($3,794), lease
terminations ($1,623), contract cancellation ($10,935), and other direct
acquisition and integration costs ($6,232). The acquisition and integration
costs 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.
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 the Walsh acquisition and $10,900 in the third quarter of 1998 related to the
PMSI acquisition. At the date of the respective acquisitions, the development of
the IPR&D projects had not reached technological feasibility and had no
alternative future uses. Accordingly, these costs were expensed as of the
respective acquisition dates.
13
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 5. Acquisitions (continued)
In accordance with Securities and Exchange Commission guidance, the amount
allocated to IPR&D reflects the relative value and contribution of the acquired
IPR&D. Consideration was given to the projects' stage of completion, the
complexity of the work completed to date, the difficulty of completing the
remaining development, the costs already incurred and the projected cost to
complete the projects.
In addition, the Company allocated $29,000 in the Walsh businesses and $7,700 in
the PMSI businesses to existing core technology, representing computer software
that is currently in use. Such amounts are being amortized over 5 years.
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 was based primarily on estimates of fair values by an
independent appraisal firm. The initial allocations, prior to the $890
adjustment to Walsh goodwill referred to above, were:
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 evaluated then-existing IMS
Health product offerings. Based on this strategic assessment, the Company
abandoned certain then- existing IMS Health software products. Accordingly, the
Company recognized 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.
Note 6. Minority Interests
The Company consolidates the assets, liabilities, results of operations and cash
flows of businesses in which it maintains a controlling interest. Third parties'
ownership interests are reflected as a minority interest on the Company's
financial statements. 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 minority ownership interests. The Company and its subsidiaries maintain a
controlling (85%) interest in the partnership. The Company also has a
controlling interest in CTS (approximately 61% of the outstanding shares
representing approximately 94.1 % of the voting power) and the related minority
interest at September 30, 1999 was $15,900.
14
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 7. Contingencies
The Company and its subsidiaries are involved in legal proceedings and claims
litigation arising in the ordinary course of business. In addition, the Company
enters into global tax planning and financing strategies and initiatives in the
normal course of business which are subject to review by the tax authorities. In
the opinion of management, the outcome of such current legal proceedings and
claims litigation and tax matters, if decided adversely, could have a material
effect on quarterly or annual operating results, cash flows or consolidated
financial position when resolved in a future period. The Company has established
reserves for specific liabilities in connection with these proceedings,
litigations and tax matters to the extent the Company currently deems them to be
probable and estimatable. Management does not expect the ultimate resolution of
the foregoing will have a material effect on its financial condition, results of
operations, or cash flows.
In addition, the Company is subject to certain other contingencies not arising
in the ordinary course of business as 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.
In 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 1996 distribution by The Dun &
Bradstreet Corporation ("D&B") of shares
15
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 7. Contingencies (continued)
of Cognizant and ACNielsen Corporation ("ACNielsen"; the parent company of A.C.
Nielsen Company), D&B, ACNielsen 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.
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.
IMS Health and Nielsen Media Research are jointly and severally liable to D&B
and ACNielsen for Cognizant's obligations under the terms of the Distribution
Agreement dated October 28, 1996 among D&B, Cognizant and ACNielsen (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
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, including those described herein, to be shared if
certain amounts are exceeded, including certain liabilities to D&B that may
arise in connection with the 1996 Distribution Agreement.
16
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 7. Contingencies (continued)
Cognizant and D&B entered into global tax planning initiatives in the normal
course of their business. These activities are subject to review by the 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 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 $444,000 for taxes and accrued interest, net of
tax benefit, as of September 30, 1999. Under the terms of the 1996 Distribution
Agreement, the Company is liable to pay half of such taxes and interest, net of
tax benefit, 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 Distribution Agreement dated as of June 30,
1998 between IMS Health and Nielsen Media Research. The Company estimates that
its share of the liability, were the IRS to prevail, would be approximately
$142,000. This liability is included in Other Liabilities.
Management does not believe that these matters will have a material adverse
effect on the Company's consolidated financial position or operating results
when they are resolved in future periods. However, should the IRS issue
assessment notices, 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. At September 30, 1999, the Company has
committed short-term borrowing arrangements with several banks to provide up to
$350,000 of borrowings.
In connection with the Gartner Spin-Off, the Company and Gartner entered into a
Distribution Agreement and an Agreement and Plan of Merger (the "1999
Distribution Agreements"). Pursuant to the 1999 Distribution Agreements, Gartner
has agreed to indemnify the Company and its stockholders for additional taxes
which may become payable as a result of certain actions that may be taken by
Gartner that adversely affect the tax-free treatment of the Gartner Spin-Off.
However, the Company may become obligated for certain tax liabilities in the
event the Gartner Spin-Off is deemed to be a taxable transaction as a result of
certain Gartner share transactions that may be undertaken following the Gartner
Spin-Off. In the opinion of management, it is highly unlikely that any such
liabilities will be incurred by the Company.
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, to protect the value of a portion of foreign currency
revenues and non-functional currency assets and liabilities, the Company enters
into hedge
17
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 8. Financial Instruments with Off-Balance-Sheet Risk (continued)
agreements which change in value as foreign exchange rates change. By policy,
the Company maintains hedge coverage between minimum and maximum percentages of
its anticipated foreign exchange exposures over the next twelve months, in
amounts intended to protect operating income from the effect on revenues of
fluctuations in currency exchange rates.
It is the Company's policy to enter into foreign currency hedging 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. The Company also uses forward contracts to hedge
non-functional currency assets and liabilities. The currencies hedged are
primarily the Euro, the Japanese yen and the Swiss franc. 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 due to fluctuations in currency exchange rates. Gains
and losses on contracts hedging non-functional currency assets and liabilities
are not deferred and are included in other expense--net. At September 30, 1999,
the notional amounts of committed foreign currency revenues and non-functional
currency assets and liabilities hedged were $64,266 and $56,226 respectively.
Note 9. Summary of Recent Accounting Pronouncements
In March 1998, the American Institute of Certified Public Accountants (the
"AICPA") issued Statement of Position ("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, including when capitalization of such costs
should commence. SOP 98-1 applies to costs incurred after its adoption,
including costs for internal use software projects that are in progress at the
time of the adoption. The implementation of SOP 98-1, as of January 1, 1999, did
not have a material effect on the Company's financial statements.
In April 1998, the AICPA issued 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 implementation of SOP 98-5, as of January
1, 1999, did not have a material effect on the Company's financial statements.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 requires that all derivative
instruments be recorded on the balance sheet at their fair value. In July 1999,
the Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standard ("SFAS") No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective date of SFAS No.133- an amendment
of FASB Statement No. 133". Citing concerns about companies' ability to modify
their information systems in time to apply SFAS 133, the FASB delayed its
effective date for one year, to fiscal years beginning after June 15, 2000
(January 1, 2001 for the Company). Management continues to evaluate the effects
of SFAS No.133 on the Company's financial statements.
18
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 10. Operations by Business 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, a leading provider of automated sales
support technologies to the pharmaceutical industry. The Walsh and PMSI
businesses acquired in 1998 have been integrated into the IMS segment
operations. Effective in the first quarter of 1999, the IMS segment's operating
units revised their reporting period to conform to the Company's fiscal year
ended December 31 (the "Calendarization"). (See Note 2. Basis of Presentation)
The Emerging Markets segment 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 businesses. In 1998, it included SSJ, a marketer of
financial application software products to the Japanese market, which was
divested in the first quarter of 1999.
CTS delivers life cycle software development and maintenance technology
consulting services through the use of a seamless on-site and offshore project
teams. 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.
Historical results are restated to reflect Gartner and Nielsen Media Research as
discontinued operations. (See Note 2. Basis of Presentation). The Company
evaluates the performance of its operating segments based on revenue and
operating income.
19
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 10. Operations by Business Segment (continued)
<TABLE>
<CAPTION>
Periods Ended September 30, 1999
- - -------------------------------------------------------------------------------------------------------------------
Emerging
Three Months: IMS Markets CTS Total
--------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue (1) $317,086 $ 12,246 $ 19,077 $348,409
Segment Operating Income 99,418 2,465 4,169 106,052
General Corporate Expenses (2) (10,094)
Interest Income (3) 2,264 327 2,591
Interest Expense (4)
Non-Operating Income/(Expense):
Gains from Dispositions 4,313 4,313
Other Expense - Net (5,359)
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 97,503
Provision for Income Taxes (27,263)
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 70,240
Income from Discontinued Operations, Net of Income Taxes (5) 1,384
- - -------------------------------------------------------------------------------------------------------------------
Net Income $71,624
- - -------------------------------------------------------------------------------------------------------------------
Nine Months:
Operating Revenue (1) $905,719 $ 34,472 $ 54,112 $994,303
Segment Operating Income 230,139 4,685 12,109 246,933
General Corporate Expenses (2) (33,510)
Interest Income (3) 5,249 853 6,102
Interest Expense (4) (753) (753)
Non-Operating Income/(Expense):
Gains from Dispositions 20,590 20,590
Other Expense - Net (15,107)
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 224,255
Provision for Income Taxes (64,048)
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 160,207
Income from Discontinued Operations, Net of Income Taxes (5) 25,695
- - -------------------------------------------------------------------------------------------------------------------
Net Income $185,902
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
(See Notes to Operations by Business Segments on next page)
20
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 10. Operations by Business Segment (continued)
<TABLE>
<CAPTION>
Periods Ended September 30, 1998
- - -------------------------------------------------------------------------------------------------------------------
Emerging
Three Months: IMS Markets CTS Total
--------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue (1) $257,411 $ 12,463 $ 13,732 $283,606
Segment Operating Income 8,922 1,149 2,453 12,524
General Corporate Expenses (2) (7,771)
Interest Income (3) 2,806 257 3,063
Interest Expense (4) (178) (178)
Non-Operating Income/(Expense):
Gains from Dispositions - Net 10,248 10,248
Other Expense - Net 2,379
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 20,265
Provision for Income Taxes (5,479)
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 14,786
Income from Discontinued Operations, Net of Income Taxes (5) 10,169
- - -------------------------------------------------------------------------------------------------------------------
Net Income $ 24,955
- - -------------------------------------------------------------------------------------------------------------------
Nine Months:
Operating Revenue (1) $730,234 $ 36,306 $ 28,530 $795,070
Segment Operating Income 63,034 1,048 5,141 69,223
General Corporate Expenses (2) (59,654)
Interest Income (3) 6,956 337 7,293
Interest Expense (4) (558) (558)
Non-Operating Income/(Expense):
Gains from Sale of Subsidiary Stock 12,777
Gains from Dispositions - Net 20,663
Other Expense - Net 1,739
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations Before Provision for Income Taxes 51,483
Provision for Income Taxes (26,703)
- - -------------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 24,780
Income from Discontinued Operations, Net of Income Taxes (5) 82,902
- - -------------------------------------------------------------------------------------------------------------------
Net Income $107,682
- - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes to Operations by Business Segments:
(1) Excludes intersegment sales in 1999 of $3,799 and $10,688 for the three and
nine month periods presented, respectively. Excludes intersegment sales in
1998 of $2,669 and $10,576 for the three and nine month periods presented,
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) General Corporate Expenses in 1999 include $2,000 and $9,500 related to the
Gartner Spin-Off for the three and nine month periods presented,
respectively. General Corporate Expenses in 1998 include one-time charges
of $35,025 related to the Distribution for the nine month period presented.
(3) Interest Income in 1999 excludes amounts recorded at Corporate of $269 for
the nine month period presented. Interest Income in 1998 excludes amounts
recorded at Corporate of $4,178 and $8,817 for the three and nine month
periods presented, respectively.
(4) Interest expense in 1999 excludes amounts recorded at Corporate of $2,138
and $3,919 for the three and nine month periods presented, respectively.
Interest expense in 1998 excludes amounts recorded at Corporate of $157 and
$189 for the three and nine month periods presented, respectively.
(5) Income from Discontinued Operations, Net of Income Taxes in 1999 includes
$1,384 and $25,695 related to Gartner for the three and nine month periods
presented, respectively. Income from Discontinued Operations, Net of Income
Taxes in 1998 includes $10,169 and $40,809 related to Gartner for the three
and nine month periods presented, respectively and $42,093 related to NMR
for the nine month period presented.
21
<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 discussion and analysis relates to IMS Health and should be read in
conjunction with the accompanying unaudited condensed consolidated financial
statements and related notes. 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 LLC
("Enterprises") and a controlling interest (approximately 61% of shares
outstanding) in Cognizant Technology Solutions Corporation ("CTS").
Forward-Looking Statements
This Quarterly Report on Form 10-Q as well as information included in oral
statements or other written statements made or to be made by IMS Health, contain
statements which, in the opinion of IMS Health, may constitute "forward-looking
statements" within the meaning of the Private Securities Litigation Reform Act
of 1995 (the "Litigation Reform Act"). These statements appear in a number of
places in this quarterly report and include, but are not limited to, all
statements relating to plans for future growth and other business development
activities as well as capital expenditures, financing sources, dividends and the
effects of regulation and competition, Y2K readiness and all other statements
regarding the intent, plans, beliefs or expectations of IMS Health or its
directors or officers. Stockholders are cautioned that such forward-looking
statements are not assurances for future performance or events and involve risks
and uncertainties that could cause actual results and developments to differ
materially from those covered in such forward-looking statements. These risks
and uncertainties include, but are not limited to, risks associated with
operating on a global basis, including fluctuations in the value of foreign
currencies relative to the U.S. dollar, and the ability to successfully hedge
such risks; to the extent IMS Health seeks growth through acquisition, the
ability to identify, consummate and integrate acquisitions on satisfactory
terms; the ability to develop new or advanced technologies and systems for their
businesses on schedule and on a cost-effective basis; the ability to
successfully achieve estimated effective tax rates and corporate overhead
levels; competition, particularly in the markets for pharmaceutical information;
regulatory and legislative initiatives, particularly in the area of medical
privacy; the ability to timely and cost-effectively resolve any problems
associated with the Y2K issue; the ability to obtain future financing on
satisfactory terms; deterioration in economic conditions, particularly in the
pharmaceutical, healthcare, or other industries in which customers may operate;
conditions in the securities markets which may effect the value or liquidity of
portfolio investments and management's estimates of lives of assets,
recoverability of assets, fair market value, estimates and liabilities and
accrued income tax benefits and liabilities. Consequently, all the
forward-looking statements contained in this Quarterly Report on Form 10-Q are
qualified by the information contained herein, including, but not limited to,
the information contained under this heading and the condensed consolidated
financial statements and notes thereto for the three and nine month periods
ended September 30, 1999. IMS Health is under no obligation to publicly release
any revision to any forward-looking statement contained or incorporated herein
to reflect any future events or occurrences.
22
<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)
Spin-Off of Equity 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 was structured as a tax-free
distribution of Gartner stock to IMS Health shareholders and the Company
received a favorable ruling from the Internal Revenue Service ("IRS") regarding
the tax-free nature of the proposed transaction.
On July 16, IMS Health and Gartner Board of Directors approved the final plan,
terms and conditions governing the spin-off of the Company's investment in
Gartner Group. Accordingly, pursuant to Accounting Principles Board No. 30,
"Reporting the results of Operations - Effects of Disposal of a Segment of a
Business and Extraordinary, Unusual and Infrequently Occuring Events and
Transactions", the condensed consolidated financial statements of the Company
have been reclassified to reflect Gartner equity investment as a discontinued
operation for all periods presented. The Gartner spin transaction is discussed
in more detail in Note 3. Investment in Gartner Group Stock.
23
<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
On June 24, 1998, Cognizant acquired Walsh International, Inc. ("Walsh"). (See
Note 5. Acquisitions). The severance costs included in the final purchase price
are related to approximately 80 terminated Walsh employees. The outstanding
employee separation costs are due to be paid in the fourth quarter of 1999 and
the first quarter of 2000. The Company incurred higher than anticipated
severance costs and restructured acquired Walsh leases at a cost lower than
originally anticipated. To reflect the net reduction in costs, the original
liability estimate, and goodwill, have been reduced by $890. The following table
displays the status of such activities:
<TABLE>
<CAPTION>
Original Liability Expenditures to September 30, 1999
Estimate Date Reclassifications Balance
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee Separation $ 4,876 $ (4,602) $ 1,278 $ 1,552
Lease Terminations 2,569 (256) (2,168) 145
Other Direct Costs 9,634 (9,634) 0 0
- - ---------------------------------------------------------------------------------------------------------
Total $ 17,079 $ (14,492) $ (890) $ 1,697
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
PMSI Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. assets of Pharmaceutical
Marketing Services Inc. ("PMSI"). (See Note 5. Acquisitions). The severance
costs included in the final purchase price are related to 63 terminated PMSI
employees. As of September 30, 1999, the severance costs and the costs of
terminating various leaseholdings were lower than originally anticipated.
However, the Company has incurred higher costs related to contract cancellations
and other costs such as legal fees. The following table displays the status of
such activities:
24
<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)
<TABLE>
<CAPTION>
Original Liability Expenditures to September 30, 1999
Estimate Date Reclassifications Balance
- - ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee Separation $ 3,794 $ (3,342) $ (11) $ 441
Lease Terminations 1,623 (774) (849) 0
Contract Cancellations 10,935 (5,345) 835 6,425
Other Direct Costs 6,232 (6,232) $ 25 25
- - ---------------------------------------------------------------------------------------------------------
Total $ 22,584 $ (15,693) $ 0 $ 6,891
- - ---------------------------------------------------------------------------------------------------------
</TABLE>
Purchase Price Allocation
In connection with the Walsh and the PMSI acquisition, the Company made
allocations of the purchase price to acquired in-process research and
development ("IPR&D"). (See Note 5. Acquisitions). Management continues to
support the IPR&D efforts that were underway at the time of the Walsh and PMSI
acquisitions. IMS Health is currently on target to begin realizing the estimated
benefits from these various projects through product introductions at various
launch dates through January 2000. There are currently no material variations
from the underlying projections and assumptions made at the time of the purchase
price allocations.
Operations
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 (the "Calendarization").
(See Note 2. Basis of Presentation)
Revenue for the third quarter of 1999 increased by 22.8% to $348,409 from
$283,606 for the third quarter of the prior year. Year-to-date revenue increased
25.1% to $994,303 from $795,070 for the comparable period a year ago. Adjusting
the quarter and year-to-date 1998 for the Calendarization and the sale of Super
Systems Japan kk ("SSJ"), revenue increased by 15.8% and 21.7%, respectively.
This increase reflected double-digit constant dollar revenue growth at IMS,
Erisco and CTS and is further described in the Results by Business Segment
discussion (below). The impact of a stronger U.S. dollar decreased reported
revenue by less than 0.5% for the quarter and year-to-date, including the impact
of the Company's hedging program.
Operating income for the third quarter of 1999 was $95,958, compared to $4,753
for the third quarter of the prior year. Operating results in the third quarter
of 1999 and 1998 include Year 2000 costs ("Y2K Costs") of $4,189 and $11,780,
respectively. Adjusting for Y2K Costs, 1999 charges related to the Gartner
Spin-Off ($2,000), the Calendarization ($11,724), the 1998 in-process research
and development write-off ($10,900) and the 1998 direct acquisition and
integration costs related to the PMSI acquisition ($43,019), operating income
for the third quarter of 1999 increased by 24.3%.
Year-to-date operating income was $213,423 compared with $9,569 for the
comparable period a year ago. Year-to-date operating results in 1999 and 1998
include Y2K Costs of $19,989 and $34,081, respectively. Adjusting for Y2K Costs,
1999 charges related to the Gartner Spin-Off ($9,500), the Calendarization
($26,631), 1998 charges related to the Distribution ($35,025), the 1998 research
and development write-off ($32,800) and 1998 direct acquisition and integration
costs ($48,019) related to the Walsh and PMSI acquisitions, year-to-date
operating income for 1999 increased by 30.5%.
25
<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)
Operations (continued)
Adjusted operating income growth in the 1999 third quarter and year-to-date
outpaced revenue growth due primarily to the Company's ability to leverage its
worldwide resources. The impact of a stronger U.S. dollar affected operating
income growth by less than 2% in the third quarter and less than 0.5%
year-to-date, including the impact of the Company's hedging program.
Non-operating income-net for the third quarter of 1999 was $1,545 compared with
$15,512 for the third quarter of the prior year. The decrease is due primarily
to reduced gains related to the sale of Enterprise investments ($4,823), reduced
interest income from lower cash balances ($4,650) and increased expense on short
term borrowings ($1,803).
Year-to-date non-operating income-net was $10,832 compared with $41,914 for the
comparable period a year ago. The decrease is due primarily to 1998 gains
related to the CTS IPO ($12,777), reduced gains related to the sale of
Enterprise investments ($1,872), reduced interest income on lower cash balances
($9,739) and increased interest expense on short term borrowings ($3,925).
The third quarter 1999 effective tax rate of 28.0% reflected a non-deductible
one-time charge of $2,000 related to the Gartner Spin-Off. The third quarter
1998 effective tax rate of 27.0% reflected the research and development
write-off related to the PMSI acquisition ($10,900), which did not give rise to
a tax benefit. The Company's effective tax rate is attributable to numerous tax
planning initiatives. For example, to consolidate certain of its international
operations, in 1999 and 1998 the Company engaged in certain non-U.S.
reorganizations which give rise to tax deductable non-U.S. intangible assets.
The Company's year-to-date effective tax rate of 28.6% reflected a
non-deductible one-time Gartner spin-related charge ($9,500). The 1998
year-to-date effective tax rate of 51.9% reflected non-deductible charges
related to the Distribution ($30,125), the research and development write-off
related to the Walsh and PMSI acquisitions ($32,800) and certain direct
acquisition and integration costs related to both acquisitions, which did not
give rise to a tax benefit.
Income from continuing operations in the third quarter of 1999 was $70,240,
compared with $14,786 in the third quarter of the prior year. Excluding the
after-tax impact of Y2K costs and net gains associated with investments from
both years, charges related to the 1999 Gartner Distribution, the 1998 CTS IPO
gain, 1998 direct acquisition and integration costs related to the PMSI
acquisition and the 1998 in-process research and development write-off, income
from continuing operations in the third quarter of 1999 increased 11.2%.
Further, adjusting the 1998 tax rate to mitigate the impact of the Gartner
Spin-Off on the Company's recurring tax rate of $27.4%, income from continuing
operations for the quarter increased to 16.3%.
Year-to-date income from continuing operations was $160,207 compared with
$24,780 for the comparable period ago. Excluding the after-tax impact of Y2K
costs and net gains associated with investments in both years, 1999 charges
related to the Gartner Spin-Off, the 1998 CTS IPO gain, 1998 charges related to
the Distribution, the 1998 in-process research and development write-off and
1998 direct acquisition and integration costs related to the Walsh and PMSI
acquisitions, year-to-date income from continuing operations increased 15.6%.
Further, adjusting the 1998 tax rate to mitigate the impact of the Gartner
Spin-Off on the Company's recurring tax rate of 27.4%, year-to-date income from
continuing operations increased 21.0%.
Income from discontinued operations, net of income taxes, in the third quarter
of 1999 was $1,384, compared with $10,169 in the third quarter of the prior
year. Income from discontinued operations net of income taxes represents Gartner
equity income through July 1999 and SAB 51 gains from Gartner in 1998.
26
<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)
Operations (continued)
Year-to-date income from discontinued operations, net of income taxes, was
$25,695, compared with $82,902 for the comparable period a year ago. Income from
discontinued operations net of income taxes represents Gartner equity income in
both years and SAB 51 gains from Gartner and six months of the results of
Nielsen Media Research in 1998.
Net income for the third quarter of 1999 was $71,624, an increase of 187.0% from
net income of $24,955 in the third quarter of the prior year. Year-to-date net
income increased 72.6% to $185,902 from $107,682 for the comparable period a
year ago.
Basic earnings per share in the third quarter of 1999 were $0.23 compared with
$.05 in the third quarter of the prior year. Excluding the impact of the
previously identified one-time items, at a continuing operations tax rate of
27.4% and 24.1% in 1999 and 1998, respectively, basic earnings per share from
continuing operations for the quarter increased 9.5%. Further, adjusting the
1998 tax rate to mitigate the impact of the Gartner Spin-Off on the Company's
recurring tax rate of 27.4% basic earnings per share for the quarter increased
21.1%.
Year-to-date basic earnings per share in 1999 were $0.51 compared with $.08 for
the comparable period a year ago. Excluding the impact of the previously
identified one-time items, at a continuing operations tax rate of 27.4% and
24.1% in 1999 and 1998, respectively, year-to-date basic earnings per share from
continuing operations increased 20.0%. Further, adjusting the 1998 tax rate to
mitigate the impact of the Gartner Spin-Off on the Company's recurring tax rate
of 27.4%, year-to-date basic earnings per share increased 25.6%.
Diluted earnings per share in the third quarter of 1999 were $0.22 compared with
$0.04 in the third quarter of the prior year. Excluding the impact of the
previously identified one-time items, at a continuing operations tax rate of
27.4% and 24.1% in 1999 and 1998, respectively, diluted earnings per share from
continuing operations for the quarter increased 15.0%. Further, adjusting the
1998 tax rate to mitigate the impact of the Gartner Spin-Off on the Company's
recurring tax rate of 27.4%, diluted earnings per share for the quarter
increased 21.1%.
Year-to-date diluted earnings per share in 1999 were $0.50 compared with diluted
earnings per share of $.07 for the comparable period a year ago. Excluding the
impact of the previously identified one-time items, at a continuing operations
tax rate of 27.4% and 24.1% in 1999 and 1998, respectively, year-to-date diluted
earnings per share from continuing operations increased 23.3%. Further,
adjusting the 1998 tax rate to mitigate the impact of the Gartner Spin-Off on
the Company's recurring tax rate of 27.4%, year-to-date diluted earnings per
share increased 26.2%
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, a leading provider of automated sales
support technologies to the pharmaceutical industries.
IMS Segment revenue for the third quarter of 1999 increased 23.2% to $317,086
from $257,411 in the third quarter of the prior year. Adjusting 1998 revenue for
the Calendarization
27
<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)
IMS Segment (continued)
revenue for the third quarter 1999 increased by 14%. Market Research Products
increased 10.6% to $108,737, Sales Management Products increased 17.8% to
$170,526 and Other Services increased 11.3% to $37,823. This growth was due
primarily to the strong performance of Sales Management Products and Services,
introduction of new products and expansion in existing markets.
Third quarter 1999 operating income increased to $99,418 from $8,922 in the
prior year. Excluding Y2K costs in both years, the Calendarization and the 1998
direct acquisition and integration costs related to the PMSI acquisition and the
1998 in-process research and development write-off, operating income for 1999
increased 20.3%. Adjusted operating income growth outpaced revenue growth due
primarily to the segment's ability to leverage its worldwide resources.
Year-to-date IMS Segment revenue increased 24.0% to $905,719 from $730,234 in
the prior year. Adjusting for the Calendarization revenue for the first nine
months of 1999 increased by 19%. Market Research Products increased 8.6% to
$301,874, Sales Management Products increased 25.6% to $496,091 and Other
Services increased 23.76% to $107,754. This growth was due primarily to the
strong performance of Sales Management Products and Services, introduction of
new products, expansion in existing markets and the impact of the Walsh and PMSI
acquisitions.
IMS Segment operating income for the first nine months of 1999 increased to
$230,139 from $63,034 in the first nine months of the prior year. Excluding Y2K
costs, the impact of the Calendarization, the 1998 direct acquisition and
integration costs related to the Walsh and PMSI acquisitions and the 1998
in-process research and development write-off, operating income for the first
nine months of 1999 increased 23.4%.
Emerging Markets Segment
The Emerging Markets segment 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 businesses. In 1998, this segment included SSJ, which
was divested in the first quarter of 1999.
Emerging Markets revenue for the third quarter of 1999 decreased 1.7% to $12,246
from $12,463 in the prior year. This decrease was due primarily to the absence
of revenues from SSJ during 1999. Excluding SSJ, Emerging Markets revenue for
the third quarter of 1999 increased by 22.4%. Operating income increased to
$2,465 in the third quarter from $1,149 in the third quarter of the prior year.
Excluding SSJ, operating income for the third quarter of 1999 increased 77.1%.
Emerging Markets revenue for the first nine months of 1999 decreased 5.1% to
$34,472 from $36,306 in the prior year. This decrease was due primarily to the
absence of revenues from SSJ during 1999. Excluding SSJ, year-to-date Emerging
Markets revenue increased by 20.7%. Year-to-date
28
<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)
Emerging Markets Segment (continued)
Emerging markets operating income increased to $4,685 from $1,048 for the
comparable period a year ago.
CTS Segment
CTS delivers life cycle software development and maintenance technology
consulting services 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, net of intersegment sales, increased to $19,077 in the third
quarter of 1999 from $13,732 in the prior year. The increase is due to
continuing strong demand for application development and maintenance, Euro
currency compliance services, the addition of new customers and further
penetration of its existing client base to generate new project work. Operating
income increased to $4,169 from $2,453 in the third quarter of the prior year.
Year-to-date CTS revenue net of intersegment sales, increased 89.7% to $54,112
from $28,530 in the prior year. Year-to-date CTS operating income increased
135.5% to $12,109 from $5,141 for the comparable period a year ago.
Condensed Consolidated Statement of Cash Flows
Net cash provided by operating activities totaled $231,758 for the nine months
ended September 30, 1999 compared with $155,559 in 1998. The $76,199 increase
was due primarily to increased income from continuing operations ($135,427) and
higher income tax accruals ($42,007), which were partially offset by lower
deferred revenues ($30,744) and the absence of the 1998 IPR&D write-off
($32,800) and direct acquisition and integration costs ($48,019). As a
consequence of accounting for the Calendarization through retained earnings, the
December 1998 cash flows from IMS operating units are not included in the
Company's net cash provided by operating activities for the nine months ended
September 30, 1999. During the month of December 1998, IMS generated $30,664 of
cash, including a significant decrease in accounts receivable ($35,353).
Net cash used in investing activities totaled $60,473 for the first nine months
of 1999 compared with $30,750 used during the comparable period in 1998. The
$29,723 increase was due primarily to 1999 acquisition and integration payments
($28,248) and 1998 cash from companies acquired ($11,895), partially offset by
lower expenditure on other investments ($4,205) and higher proceeds from sale of
investments ($4,327).
Net cash used in financing activities totaled $222,675 for the nine months ended
September 30, 1999 compared with $100,215 used in 1998. The increase of $122,460
was due primarily to 1998 proceeds received from debt assumed by Nielsen Media
Research ($300,000) and the CTS IPO ($27,128) and lower 1999 proceeds from the
exercise of stock options ($38,969), partially offset by lower purchases of
treasury stock ($151,008) and increased proceeds from short-term
29
<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)
Condensed Consolidated Statement of Cash Flows (continued)
debt ($94,972, net of repayments). Short-term borrowings have been used to
partially fund the Company's stock repurchase program.
Cash flow from discontinued operations was $52,877 for the first nine months of
1999 compared with an outflow of $17,173 in 1998. The Gartner dividend accounted
for all of the cash flow from discontinued operations in 1999 and Nielsen Media
Research discontinued operations accounted for all of the 1998 cash outflow from
discontinued operations.
The Company's cash, cash equivalents, marketable securities, cash generated from
operations and debt unutilized capacity are expected to be sufficient to meet
the Company's current long-term and short-term requirements including
operations, cash dividends, acquisitions, stock repurchase programs and other
contingencies.
Changes in Financial Position at September 30, 1999 Compared to December 31,
1998
Cash & Cash Equivalents increased to $230,714 at September 30, 1999 from
$206,390 at December, 1998 due primarily to cash generated from operating
activities ($231,758), the Gartner dividend ($52,877), proceeds from the
disposal of investments ($46,759) and cash provided by the IMS operating units
during December 1998 ($30,664), partially offset by payments for the purchase of
treasury stock ($359,859).
Accounts Receivable decreased to $246,991 at September 30, 1999, from $324,219
at December 31, 1998, due primarily to increased collections. Days sales
outstanding improved to 64 days at the end of the quarter compared to 100 days
as of December 31, 1998.
Net Assets of Discontinued Operations decreased to $100,356 at September 30,
1999, from $240,708 at December 31, 1998 reflecting primarily the Gartner
Spin-Off ($132,104) and special cash dividend ($52,877, net of taxes ),
partially offset by the after-tax equity income from Gartner ($25,695) and
unrealized gain in the Gartner shares. (See Note 3. Investment in Gartner Group
Stock)
Securities and Other Investments decreased to $82,455 at September 30, 1999,
from $106,276 at December 31, 1998, due primarily to the net reductions in the
Enterprise portfolio of investments arising from additions, disposals and
marking investments to market value.
Short Term Debt increased to $168,834 at September 30, 1999, from $39,169 at
December 31, 1998, due primarily to increased borrowings to partially fund the
Company's stock re-purchase program. The July receipt of the Gartner dividend
($52,877) was used to pay down short-term borrowing.
30
<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)
Changes in Financial Position at September 30, 1999 Compared to December 31,
1998 (continued)
During the third quarter, the Company purchased 5.1 million shares of
outstanding stock for a total cost of $137,208. The Company's third share
repurchase program was completed in October. On October 19, 1999, the Company's
Board of Directors authorized a fourth systematic stock repurchase program of up
to 16 million shares, which is underway.
As of November 12, 1999, the Company had U.S. short term debt of $226,700, an
increase since September 30, which reflects primarily the funding of the share
repurchases thus far in the fourth quarter.
Accrued Liabilities decreased to $222,353 at September 30, 1999, from $298,625
at December 31, 1998 due primarily to payments related to the PMSI and Walsh
accrued direct acquisition and integration costs and a lower level of accruals
for salaries, wages, bonuses and other compensation.
Accrued Taxes increased to $81,900 at September 30, 1999, from $32,537 at
December 31, 1998. The increase of $49,363 reflected a reduction of a tax
receivable included in accrued taxes relating to a tax refund from Germany
received during the quarter.
Deferred Revenue decreased to $102,349 at September 30, 1999, from $128,272 at
December 31, 1998 due primarily to the amortization of annual contracts billed
in advance at December 31, 1998 and the effect of the Calendarization.
Shareholders' Equity decreased to $516,491 at September 30, 1999, from $825,270
at December 31, 1998 due primarily to the purchase of treasury stock ($359,859),
the Gartner Spin-Off ($134,259), change in the cumulative translation adjustment
($21,133) and dividends paid ($18,923), partially offset by net income
($185,902), December equity changes ($4,449) and the change in unrealized gains
on investments ($5,893).
Year 2000
Many computer systems and software applications use two digits, rather than
four, to record years (for example "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"). Assessments of the potential effects of the Year 2000 issue vary
markedly among different companies, governments, consultants and economists
which results in the inability to predict what the actual impact may be.
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. The Task Force, in consultation
with operating personnel, evaluated whether conversion or replacement and
enhancement (i.e. "reengineering") was necessary. CTS was engaged to do work on
a significant portion of conversion and reengineering projects to allow most
internal staff members to focus on the core business. The Company has also used
outside services to assist in conversions, reengineering and the assessment of
progress of its Year 2000 program.
31
<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)
Year 2000 (continued)
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 to achieve substantial systems compliance by the
Year 2000. The reengineering projects followed the same procedures as are used
for new product development including customer requirements, development,
testing and rollout.
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 conversion 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 September 30, 1999, the Company has completed 99% of
Year 2000 conversions at central processing locations.
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. As an alternative to conversions and as a result of business
needs for individual products, the Company has decided to replace and enhance
certain non-compliant software. There are only two reengineered systems
remaining to be completed. Core development has been completed for these systems
and they are Y2K enabled. Only country-based customization for these products
remains, with implementation scheduled for the fourth quarter of 1999.
The data in these country-specific customization systems is offered as a
stand-alone product and also feed into other IMS products and services. In the
event there are delays in the rollout of any of these country-specific
reengineered systems, the Company believes the revenue impact will not be
material to the Company as a whole.
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 have been utilized to ensure Year 2000
compliance, including the replacement of localized systems with central systems
and the conversion of the local system. In some cases, specialized teams from
CTS were used to assist the local offices with all phases of their system
conversions and hardware compliance. At September 30, 1999, the Company has
completed 98% of Year 2000 conversions of local systems and personal computer
applications across the world.
32
<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)
Year 2000 (continued)
The Company's Year 2000 project incorporates administrative operations systems
and software such as accounts receivable, accounts payable, general ledger and
payroll. These systems are 99% compliant.
The Year 2000 readiness of the Company's customers varies, and the Company is
actively encouraging its customers to prepare their own systems for the
millennium. The Company continues to emphasize the importance for customers of
installing Y2K compliant versions and we anticipate 99% in production by
December 31, 1999. As data and services are often transmitted electronically, to
the extent that there are disruptions in the customer or the Company's internal
operations, the customer may not be able to make normal use of the Company's
products or services. Additional risk includes disruptions in critical services
on which the Company relies such as electricity, telephone systems and banking
services.
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. The Company
continues to audit central systems and local country conversions with the
assistance of CTS and outside consultants. To date over 95% of IMS Health
revenue has been audited for Year 2000 compliance. These audits will continue
throughout the world until Year 2000 with several sites revisited to ensure
continued compliance.
The Company engaged TRW to conduct an audit review of the Year 2000 program for
business critical and mission critical systems in sixteen locations. These
audits were conducted in the first half of 1999 and focused on survivability,
preparedness and due diligence in addressing the Year 2000 problem. Issues
identified as a result of these audits were initially responded to and necessary
actions as well as contingency planning will continue throughout the end of the
year.
The Company relies on tens of thousands of suppliers of electronic data in the
healthcare industry 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 of and to assess and
address risks associated with Year 2000 readiness by the Company's key data
suppliers.
The Company assesses risk regarding the readiness of its data suppliers through
the use of detailed questionnaires regarding Year 2000 conversion plans in order
to verify the supplier's ability to continue to deliver data. As a contingency,
statistically valid methods of data extrapolation have been 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 is 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. Some of the Company's data
suppliers could be disrupted due to Year
33
<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)
Year 2000 (continued)
2000 problems with their internal systems or circumstances beyond their control,
such as power outages. As these instances are out of the Company's direct
control, the magnitude of the risk depends on the speed in which the Company and
the supplier can mitigate the problem. The Company's most recent assessment
indicates that the primary risk continues to be with hospital information in
certain countries, which the Company believes will not have a material impact on
the consolidated revenues of the Company.
As year end approaches, the Company will continue to focus its Year 2000 efforts
on (i) the implementation of reengineered products and services; (ii) the
continued assessment of supplier readiness to address the Year 2000 conversion;
and (iii) finalizing contingency plans to address unanticipated issues.
The Company is establishing an operational command center to coordinate the
rollover from 1999 into 2000. For each area of the business, specific
individuals are responsible for the development and execution of recovery plans,
if deemed necessary.
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 $76,000 to $80,000. Through September
30, 1999, the Company has incurred $74,730 of which $44,922 was incurred in
1998. The Company expects to incur between $2,000 and $5,000 during the
remainder of 1999. These estimates do not include the costs of software and
systems that are being replaced or enhanced 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. Specific factors that may cause such
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 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.
The Year 2000 statements set forth above are designated as "Year 2000 Readiness
Disclosures" pursuant to the Year 2000 Information Readiness Disclosure Act
(P.L. 105-271).
34
<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)
Euro Conversion
On January 1, 1999, 11 member countries of the European Union established fixed
exchange 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 instituted plans for the introduction of the Euro and addressed the
related issues, including the conversion of information technology systems,
recalculating currency risk, recalibrating derivatives and other financial
instruments, continuity of contracts, taxation and accounting records, and the
increased price transparency resulting from the use of a single currency in
eleven participating countries which may affect the ability of some companies to
price products differently in the various European markets. The Company believes
that 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 will 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
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 systems in a timely manner and the
actions of governmental agencies or other third parties with respect to Euro
currency issues.
35
<PAGE>
IMS HEALTH INCORPORATED
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
10 Material Contracts
.1 First Amendment to the IMS Health Incorporated Savings Plan,
dated as of July 19, 1999.
.2 First Amendment to the IMS Health Incorporated Retirement Plan,
dated as of July 19, 1999.
.3 Amended and Restated 1998 IMS Health Incorporated Employees'
Stock Incentive Plan dated July 20, 1999.
.4.1 IMS Health Incorporated Executive Deferred Compensation Plan,
dated July 20, 1999
.4.2 Selected portions of the Prospectus Supplement, dated September
27, 1999 setting forth certain terms and conditions of the
Executive Deferred Compensation Plan for U.S. employees.
.4.3 Selected portions of the Private Placement Memorandum, dated
September 27, 1999 setting forth certain terms and conditions of
the Executive Deferred Compensation Plan for U.S. employees.
.5 Second Amendment to the IMS Health Incorporated Savings Plan,
dated as of September 1, 1999.
.6 First Amendment to the IMS Health Incorporated Supplemental
Executive Retirement Plan, dated September 1, 1999.
.7 First Amendment to the IMS Health Incorporated Retirement Excess
Plan, dated September 1, 1999.
.8 First Amendment to the IMS Health Incorporated Savings
Equalization Plan, dated September 1, 1999.
27 Financial Data Schedules
(b) Reports on 8-K:
There were no reports on Form 8-K filed during the quarter ended
September 30, 1999.
36
<PAGE>
IMS HEALTH INCORPORATED
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: November 15, 1999
37
Exhibit 10.1
FIRST AMENDMENT TO THE
IMS HEALTH INCORPORATED SAVINGS PLAN
EFFECTIVE AS OF JULY 19, 1999
1. Article I of the IMS Health Incorporated Savings Plan (the "Plan") is
hereby amended by deleting therefrom Section 1.11.
2. Article I of the Plan is hereby further amended by adding the
following new Section 1.60 to the end thereof, to read in its entirety as
follows:
"1.60 `PLAN ADMINISTRATOR' shall mean the Company, except that
any action authorized to be taken by the Plan Administrator
hereunder may also be taken by any committee or person(s) duly
authorized by the Board or the duly authorized delegees of such
duly authorized committee or person(s)."
3. The Plan is hereby further amended by deleting therefrom all
references to the term "Committee" and replacing therefor the term "Plan
Administrator."
4. Sections 12.1 and 12.2 of the Plan are hereby amended to read in
their entirety as follows:
"12.1 VOTING OF SHARES. Each Member shall have the right and
shall be afforded the opportunity to direct the manner in which
<PAGE>
whole shares of the common stock held in any Fund designated to
invest in securities of the Employer or Predecessor Employer (or
securities of any unrelated company that may be distributed with
respect to the securities of the Employer or Predecessor Employer
by reason of a spin-off or otherwise), and attributable to his or
her Account as of the Valuation Date coincident with or preceding
the record date shall be voted at all stockholders' meetings. The
Funding Agent shall confidentially receive and tally the
instructions from Members. The Funding Agent shall not disclose
such instructions to the Employer or the Plan Administrator or
any officer, director or Affiliate. Any stock for which a signed
voting direction instrument is not received from the Member, or
is not subject to being received, shall be voted by the Funding
Agent in the same proportion as the stock for which signed
voting-direction instruments are received as to the matter to be
voted upon.
12.2 TENDER OFFERS. A Member may direct the Funding Agent in
writing how to respond to a tender or exchange offer for any or
all whole securities held in any Fund designated to invest in
securities of the Employer (or securities of any unrelated
company that may be distributed with respect to the securities of
the Employer or Predecessor Employer by reason of a spin-off or
otherwise), and attributable to his or her Account as of the
Valuation Date preceding, or coincident with, the offer. A
Member's instructions hereunder shall be confidential and shall
not be disclosed to the Employer or the Plan Administrator. The
Plan Administrator shall notify each Member and timely distribute
or cause to be distributed to him or her such information as will
be distributed to securityholders in connection with any such
tender or exchange offer. The Funding Agent shall confidentially
receive instructions from Members and shall not disclose such
instructions to the Employer or the Plan Administrator. Upon
receipt of such instructions, the Funding Agent shall tender such
securities as and to the extent so instructed. If the Funding
Agent shall not receive instructions with respect to a Member
regarding any such tender or exchange offer for such shares of
stock (or shall receive instructions not to tender or exchange
such shares), the Funding Agent shall have no discretion in such
matter and shall take no action with respect thereto. Any shares
for which instructions are not subject to being received shall be
tendered by the Funding Agent only in the same proportion as the
stock for which instructions to tender are received. Any
securities received by the Funding Agent as a result of a tender
of securities shall be held, and any cash so received, shall be
invested in short-term investments for the Account of the Member
with respect to whom shares were tendered pending any
reinvestment by the Funding Agent consistent with the purpose of
the Plan."
-2-
<PAGE>
5. The Plan is hereby further amended by deleting therefrom subsection
(a)(10) of Section 13.1.
6. The Plan is hereby further amended by deleting therefrom Section
13.2.
7. Section 13.3 of the Plan is hereby amended to read in its entirety as
follows:
"13.3 INDEMNIFICATION. In each case in which a director, officer
or Employee of an Employer is or was serving at the request of
the Board as the Plan Administrator or as a member of a committee
authorized to act on behalf of the Plan Administrator, the
Employer, by the adoption of this Plan, indemnifies and holds
such person or the members of such committee (including their
delegees), jointly and severally, harmless from the effects and
consequences of their acts, omissions, and conduct in their
official capacities, except to the extent that the effects and
consequences result from their own willful misconduct or gross
negligence in the performance of their duties. The foregoing
right of indemnification will not be exclusive of other rights to
which each such individual may be entitled by any contract or
other instrument or as a matter of law."
8. Section 13.5 of the Plan is hereby amended by deleting the first
sentence thereof.
9. Section 15.1 of the Plan is hereby amended to read in its entirety as
follows:
"15.1 RIGHT TO AMEND THE PLAN. The Board has delegated to the
Employee Benefits Committee appointed by the Board the right at
-3-
<PAGE>
any time to amend the Plan, provided that any such amendment
could not significantly affect the cost of the Plan. If an
amendment could significantly affect the cost of the Plan, then
such amendment may only be adopted by the Board. Any amendment
adopted by the Employee Benefits Committee or the Board shall be
binding upon each Employer. Except as provided in Section 17.2,
no such amendment(s) shall have the effect of reverting to the
Employer the whole or any part of the principal or income for
purposes other than for the exclusive benefit of Members or
Beneficiaries at any time prior to the satisfaction of all the
liabilities under the Plan with respect to such persons. No
amendment shall reduce a Member's Account balance on the
effective date of the Plan amendment or eliminate an optional
form of benefit under the Plan with respect to the Member's
Account balance on the date of the amendment."
-4-
Exhibit 10.2
FIRST AMENDMENT TO THE
IMS HEALTH INCORPORATED RETIREMENT PLAN
EFFECTIVE AS OF JULY 19, 1999
1. Article I of the IMS Health Incorporated Retirement Plan (the
"Plan") is hereby amended by deleting therefrom Section 1.12.
2. Article I of the Plan is hereby further amended by adding the
following new Section 1.56 to the end thereof, to read in its entirety as
follows:
"1.56 'PLAN ADMINISTRATOR' shall mean the Company, except that
any action authorized to be taken by the Plan Administrator
hereunder may also be taken by any committee or person(s) duly
authorized by the Board or the duly authorized delegees of
such duly authorized committee or person(s)."
3. The Plan is hereby further amended by deleting therefrom all
references to the term "Committee" and replacing therefor the term "Plan
Administrator."
4. The Plan is hereby further amended by deleting therefrom subsection
(a)(10) of Section 10.1.
5. The Plan is hereby further amended by deleting therefrom Section
10.2.
<PAGE>
6. Section 10.3 of the Plan is hereby amended to read in its entirety
as follows:
"10.3 INDEMNIFICATION. In each case in which a director,
officer or Employee of an Employer is or was acting by
authority of the Board to carry out duties of the Plan
Administrator either individually or as a member of a
committee, the Employer, by the adoption of this Plan, shall
indemnify and hold such person or the members of such
committee (including their delegees), jointly and severally,
harmless from the effects and consequences of their acts,
omissions, and conduct in their official capacities, except to
the extent that the effects and consequences result from their
own willful misconduct or gross negligence in the performance
of their duties. The foregoing right of indemnification will
not be exclusive of other rights to which each such individual
may be entitled by any contract or other instrument or as a
matter of law."
7. Section 10.5 of the Plan is hereby amended by deleting the first
sentence thereof.
8. Section 12.1 of the Plan is hereby amended to read in its entirety
as follows:
"12.1 RIGHT TO AMEND THE PLAN. The Board has delegated to the
Employee Benefits Committee appointed by the Board the right
at any time to amend the Plan, provided that any such
amendment could not significantly affect the cost of the Plan.
If an amendment could significantly affect the cost of the
Plan, then such amendment may only be adopted by the Board.
Any amendment adopted by the Employee Benefits Committee or
the Board shall be binding upon each Employer. Except as
provided in Section 13.1 or 17.2, no such amendment(s) shall
have the effect of reverting to the Employer the whole or any
part of the principal or income for purposes other than for
the exclusive benefit of Members or Beneficiaries at any time
prior to the satisfaction of all the liabilities under the
Plan with respect to such persons. No amendment shall reduce a
Member's Accrued Benefit as of the effective date of the Plan
amendment or eliminate an optional form of benefit under the
Plan with respect to the Member's Accrued Benefit on the date
of the amendment."
-2-
Exhibit 10.3
1998 IMS HEALTH INCORPORATED
EMPLOYEES' STOCK INCENTIVE PLAN
(As amended and restated effective July 20, 1999)
1. PURPOSE OF THE PLAN
The purpose of the Plan is to aid the Company and its Subsidiaries in
securing and retaining employees of outstanding ability and to motivate such
employees to exert their best efforts on behalf of the Company and its
Subsidiaries by providing incentives through the granting of Awards. The Company
expects that it will benefit from the added interest which such employees will
have in the welfare of the Company as a result of their proprietary interest in
the Company's success.
2. DEFINITIONS
The following capitalized terms used in the Plan have the respective
meanings set forth in this Section:
(a) ACT: The Securities Exchange Act of 1934, as amended,
or any successor thereto.
(b) ANNUAL LIMIT: The limitation on the amount of certain
Awards intended to qualify as "performance-based
compensation" that may be granted to a given
Participant each year.
(c) AWARD: An Option, Stock Appreciation Right or Other
Stock-Based Award granted pursuant to the Plan.
(d) BENEFICIAL OWNER: As such term is defined in Rule
13d-3 under the Act (or any successor rule thereto).
(e) BOARD: The Board of Directors of the Company.
(f) CHANGE IN CONTROL: The occurrence of any of the
following events after Effective Date:
(i) any Person (other than the Company, any trustee or
other fiduciary holding securities under an
employee benefit plan of the Company, or any
company owned, directly or indirectly, by the
stockholders of the Company in substantially the
same proportions as their ownership of stock of the
Company), becomes the Beneficial Owner, directly or
indirectly, of securities of the Company
representing 20% or more of the combined voting
power of the Company's then-outstanding securities;
(ii) during any period of twenty-four months (not
including any period prior to the Effective Date),
individuals who at the
<PAGE>
beginning of such period constitute the Board, and
any new director (other than (A) a director
nominated by a Person who has entered into an
agreement with the Company to effect a transaction
described in Sections 2(f) (i), (iii) or (iv) of
the Plan, (B) a director nominated by any Person
(including the Company) who publicly announces an
intention to take or to consider taking actions
(including, but not limited to, an actual or
threatened proxy contest) which if consummated
would constitute a Change in Control or (C) a
director nominated by any Person who is the
Beneficial Owner, directly or indirectly, of
securities of the Company representing 10% or more
of the combined voting power of the Company's
securities) whose election by the Board or
nomination for election by the Company's
stockholders was approved in advance by a vote of
at least two-thirds (2/3) of the directors then
still in office who either were directors at the
beginning of the period or whose election or
nomination for election was previously so approved,
cease for any reason to constitute at least a
majority thereof;
(iii) the stockholders of the Company approve any
transaction or series of transactions under which
the Company is merged or consolidated with any
other company, other than a merger or consolidation
(A) which would result in the voting securities of
the Company outstanding immediately prior thereto
continuing to represent (either by remaining
outstanding or by being converted into voting
securities of the surviving entity) more than 66
2/3% of the combined voting power of the voting
securities of the Company or such surviving entity
outstanding immediately after such merger or
consolidation and (B) after which no Person holds
20% or more of the combined voting power of the
then-outstanding securities of the Company or such
surviving entity;
(iv) the stockholders of the Company approve a plan of
complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all
or substantially all of the Company's assets; or
(v) the Board determines that a Change in Control shall
be deemed to have occurred for purposes of the
Plan, provided that the Board may impose
limitations on the effects of a Change in Control
on any Award or otherwise if the Change in Control
has occurred under this Section 2(f)(v) and not
under other subsections of this Section 2(f).
(g) CODE: The Internal Revenue Code of 1986, as amended, or
any successor thereto.
2
<PAGE>
(h) COGNIZANT: Cognizant Corporation, a Delaware corporation.
(i) COMMITTEE: The Compensation and Benefits Committee of the
Board.
(j) COMPANY: IMS Health Incorporated, a Delaware corporation.
(k) DISABILITY: Inability of a Participant to perform the
services for the Company and its Subsidiaries required by
his or her employment with the Company due to any
medically determinable physical and/or mental incapacity
or disability which is permanent. The determination
whether a Participant has suffered a Disability shall be
made by the Committee based upon such evidence as it deems
necessary and appropriate. A Participant shall not be
considered disabled unless he or she furnishes such
medical or other evidence of the existence of the
Disability as the Committee, in its sole discretion, may
require.
(l) EFFECTIVE DATE: The date on which the Plan takes effect,
as defined pursuant to Section 17 of the Plan.
(m) FAIR MARKET VALUE: With respect to Shares, unless
otherwise determined by the Committee, on a given date,
the arithmetic mean of the high and low prices of the
Shares as reported on such date on the Composite Tape of
the principal national securities exchange on which such
Shares are listed or admitted to trading, or, if no
Composite Tape exists for such national securities
exchange on such date, then on the principal national
securities exchange on which such Shares are listed or
admitted to trading, or, if the Shares are not listed or
admitted on a national securities exchange, the arithmetic
mean of the per Share closing bid price and per Share
closing asked price on such date as quoted on the Nasdaq
System (or such market in which such prices are regularly
quoted), or, if there is no market on which the Shares are
regularly quoted, the Fair Market Value shall be the value
established by the Committee in good faith. If no sale of
Shares shall have been reported on such Composite Tape or
such national securities exchange on such date or quoted
on the Nasdaq System on such date, then the immediately
preceding date on which sales of the Shares have been so
reported or quoted shall be used.
(n) LSAR: A limited stock appreciation right granted pursuant
to Section 8(d) of the Plan.
(o) OTHER STOCK-BASED AWARDS: Awards granted pursuant to
Section 9 of the Plan.
(p) OPTION: A stock option granted pursuant to Section 7 of
the Plan.
3
<PAGE>
(q) OPTION PRICE: The purchase price per Share of an Option,
as determined pursuant to Section 7(a) of the Plan.
(r) PARTICIPANT: An individual who is selected by the
Committee to participate in the Plan pursuant to Section 5
of the Plan.
(s) PERFORMANCE-BASED AWARDS: Certain Other Stock-Based Awards
granted pursuant to Section 9(b) of the Plan.
(t) PERSON: As such term is used for purposes of Section 13(d)
or 14(d) of the Act (or any successor section thereto).
(u) PLAN: The 1998 IMS Health Incorporated Employees' Stock
Incentive Plan.
(v) RETIREMENT: Termination of employment with the Company or
a Subsidiary after such Participant has attained age 65 or
age 55 and five years of service with the Company. The
foregoing notwithstanding, in the case of Awards granted
under this Plan prior to July 21, 1999, the term
"Retirement" shall mean termination of employment after
the Participant has attained age 65 or with the prior
written consent of the Committee that a termination prior
to age 65 be treated as a Retirement, except that the
Committee (or other committee authorized by the Board) may
determine that the term Retirement as used in respect of
specified Awards granted prior to July 21, 1999 shall be
defined as set forth in the first sentence of this
definition.
(w) SHARES: Shares of common stock, par value $0.01 per Share,
of the Company.
(x) SPINOFF DATE: The date on which the Shares that are owned
by Cognizant are distributed to the holders of record of
shares of Cognizant.
(y) STOCK APPRECIATION RIGHT: A stock appreciation right
granted pursuant to Section 8 of the Plan.
(z) SUBSIDIARY: A subsidiary corporation, as defined in
Section 424(f) of the Code (or any successor section
thereto).
3. SHARES SUBJECT TO THE PLAN
(a) AGGREGATE SHARE LIMITATIONS. Subject to adjustment as provided in
Section 10(a), the total number of Shares which may be issued and/or delivered
under the Plan is 13,000,000 plus the number of Shares reserved for awards under
the IMS Health Incorporated Replacement Plan for Certain Employees Holding
Cognizant Corporation Equity-Based Awards (the "Replacement Plan") that are not
in fact issued
4
<PAGE>
or delivered in connection with such awards; provided however, that in no event
may more than 1,000,000 shares be issued as restricted stock or similar Awards.
The Shares may consist, in whole or in part, of authorized and unissued Shares
or treasury Shares. Shares subject to an Award under the Plan that is canceled,
expired, forfeited, settled in cash, or otherwise terminated without a delivery
of Shares to the Participant (or a Beneficiary), including the number of Shares
withheld or surrendered in payment of any exercise or purchase price of an Award
or taxes relating to an Award, will become available for Awards under the Plan,
and Shares shall be counted as issued or delivered under the Replacement Plan in
a manner consistent with the counting of Shares under this Section 3. In
addition, in the case of any Award granted in substitution for awards of a
company or business acquired by the Company or a Subsidiary, Shares issued or
issuable in connection with such substitute Award shall not be counted against
the number of Shares reserved under the Plan, but shall be deemed to be
available under the Plan by virtue of the Company's assumption of the plan or
arrangement of the acquired company or business.
(b) ANNUAL PER-PERSON LIMITATIONS. In each calendar year during any
part of which the Plan is in effect, a Participant may be granted Awards under
each of Section 7, Section 8, and Section 9(b) relating to up to the
Participant's Annual Limit (such Annual Limit to apply separately to each
Section). A Participant's Annual Limit, in any year during any part of which the
Participant is then eligible under the Plan, shall equal 1,000,000 shares plus
the amount of the Participant's unused Annual Limit as of the close of the
previous year, subject to adjustment as provided in Section 10(a).
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee, which may
delegate its duties and powers in whole or in part to any subcommittee thereof
consisting solely of at least two individuals who are each "non-employee
directors" within the meaning of Rule 16b-3 under the Act (or any successor rule
thereto) and "outside directors" within the meaning of Section 162(m) of the
Code (or any successor section thereto). The Committee is authorized to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, and to make any other determinations that it deems
necessary or desirable for the administration of the Plan. The Committee may
correct any defect or supply any omission or reconcile any inconsistency in the
Plan in the manner and to the extent the Committee deems necessary or desirable.
Any decision of the Committee in the interpretation and administration of the
Plan, as described herein, shall lie within its sole and absolute discretion and
shall be final, conclusive and binding on all parties concerned (including, but
not limited to, Participants and their beneficiaries or successors). The
Committee shall require payment of any amount it may determine to be necessary
to withhold for minimum statutory withholding requirements for federal, state,
local or other taxes as a result of the exercise or settlement of an Award.
Unless the Committee specifies otherwise, the Participant may elect to pay a
portion or all of such withholding taxes by (a) delivery in shares or (b) having
shares withheld by the Company from any shares that would have otherwise been
received by the Participant. No authority to withhold shares is conferred under
the Plan to the extent that, solely due to such authority, an Award would be
accounted for as a "variable" award under APB 25. The Committee may, in its
discretion, grant Awards either alone or in addition to, in tandem with, or in
substitution or exchange for, any other Award or any award granted under another
plan
5
<PAGE>
of the Company, any subsidiary, or any business entity to be acquired by the
Company or a subsidiary, or any other right of a Participant to receive payment
from the Company or any subsidiary. If the chief executive officer of the
Company is a member of the Board, the Board by specific resolution may
constitute such chief executive officer as a committee of one which shall have
the authority to grant Awards of up to an aggregate of 50,000 Shares in each
calendar year to each Participant who is not subject to the rules promulgated
under Section 16 of the Act (or any successor section thereto); PROVIDED,
HOWEVER, that such chief executive officer shall notify the Committee of any
such grants made pursuant to this Section 4.
(b) Without the prior approval of the Company's stockholders, Options
granted under the Plan will not be repriced, replaced or regranted through
cancellation, or by lowering the Option exercise price of a previously granted
Option.
5. ELIGIBILITY
Employees (but not members of the Committee or any person who serves
only as a director) of the Company and its Subsidiaries are eligible to be
granted Awards. In addition, any person who has been offered employment by the
Company or a Subsidiary is eligible to be granted Awards, provided that no such
person may receive any payment or exercise any right relating to an Award until
such person has commenced such employment. Participants shall be selected from
time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of Shares to be covered by the Awards granted to each Participant.
6. LIMITATIONS
No Award may be granted under the Plan after the tenth anniversary of
the Effective Date, but Awards theretofore granted may extend beyond that date.
7. TERMS AND CONDITIONS OF OPTIONS
Options granted under the Plan shall be, as determined by the
Committee, non-qualified, incentive or other stock options for federal income
tax purposes, as evidenced by the related Award agreements, and shall be subject
to the foregoing and the following terms and conditions and to such other terms
and conditions, not inconsistent therewith, as the Committee shall determine:
(a) OPTION PRICE. The Option Price per Share shall be determined by
the Committee, but shall not be less than 100% of the Fair Market Value of the
Shares on the date an Option is granted. The Committee may require the
Participant to pay a portion of the Option Price at the time of grant of the
option, with the remainder of the Option Price payable upon exercise of the
Option. Such prepayment of the Option Price shall be non-refundable except to
the extent set forth in a Participant's original option agreement.
(b) EXERCISABILITY. Options granted under the Plan shall be
exercisable at such time and upon such terms and conditions as may be determined
by
6
<PAGE>
the Committee, but in no event shall an Option be exercisable more than ten
years after the date it is granted.
(c) EXERCISE OF OPTIONS. Except as otherwise provided in the Plan or
in an Award agreement, an Option may be exercised for all, or from time to time
any part, of the Shares for which it is then exercisable. For purposes of
Section 7 of the Plan, the exercise date of an Option shall be the later of the
date a notice of exercise is received by the Company and, if applicable, (A) the
date payment is received by the Company pursuant to clauses (i), (ii) or (iii)
in the following sentence, or (B) the date of sale by a broker of all or a
portion of the Shares being purchased pursuant to clause (iv) in the following
sentence. Unless otherwise determined by the Committee, the Option Price for the
Shares as to which an Option is exercised shall be paid to the Company in full
not later than the time of exercise at the election of the Participant (i) in
cash, (ii) in Shares having a Fair Market Value equal to the aggregate unpaid
Option Price for the Shares being purchased and satisfying such other
requirements as may be imposed by the Committee, (iii) partly in cash and partly
in such Shares, or (iv) through the delivery of irrevocable instructions to a
broker to deliver promptly to the Company an amount equal to the aggregate
Option Price for the Shares being purchased. The Award agreement shall, unless
otherwise provided by the Committee, permit the Participant to elect, subject to
such terms and conditions as the Committee shall determine, to have the number
of Shares deliverable to the Participant as a result of the exercise reduced by
a number sufficient to pay the amount the Company determines to be necessary to
withhold for federal, state, local or other taxes as a result of the exercise of
the Option. No Participant shall have any rights to dividends or other rights of
a stockholder with respect to Shares subject to an Option until the Participant
has given written notice of exercise of the Option, paid in full for such Shares
and, if applicable, has satisfied any other conditions imposed by the Committee
pursuant to the Plan.
(d) RESTRICTIONS ON SHARES ISSUED UPON EXERCISE; OTHER CONDITIONS. If
and to the extent so determined by the Committee, Shares issued upon exercise of
an Option may be subject to limitations on transferability, risks of forfeiture,
deferral of delivery, or such other terms and conditions as the Committee may
impose, subject to Section 14(b). Such terms and conditions may include required
forfeiture of Options or gains realized upon exercise thereof, for a specified
period after exercise, in the event the Participant fails to comply with
conditions relating to non-competition, non-disclosure, non-solicitation or
non-interference with employees, suppliers, or customers, and non-disparagement
and other conditions specified by the Committee.
(e) EXERCISABILITY UPON TERMINATION OF EMPLOYMENT BY DEATH OR
DISABILITY. If a Participant's employment with the Company and its Subsidiaries
terminates by reason by death or Disability after the date of grant of an
Option, (i) the unexercised portion of such Option shall immediately vest in
full (i.e., become non-forfeitable) and (ii) such portion may thereafter be
exercised during the shorter of (A) the remaining stated term of the Option or
(B) five years after the date of death or Disability.
(f) EXERCISABILITY UPON TERMINATION OF EMPLOYMENT BY RETIREMENT. If a
Participant's employment with the Company and its Subsidiaries terminates by
reason of Retirement after the date of grant of an Option, the Participant's
unexercised Option may thereafter be exercised only during the period ending at
the earlier of five years after such Retirement or the stated expiration date of
such Option (the "Post-Retirement
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Exercise Period"), provided that such Option shall be exercisable during such
Post-Retirement Exercise Period only to the extent such Option was exercisable
at the time of such Retirement. The foregoing notwithstanding, (i) the Committee
may, in its sole discretion, accelerate the vesting of the unvested portion of
such Option held by a Participant upon such Participant's Retirement, in which
case such Option shall not be forfeited as provided herein but thereafter shall
become exercisable to the extent and at such times as such portion of the Option
would have become both vested and exercisable during the Post-Retirement
Exercise Period had the Participant's employment not been terminated, unless the
Committee specifies otherwise; and (ii), if a Participant dies within a period
of five years after such Retirement, the Participant's unexercised Option (to
the extent not previously forfeited) may thereafter be exercised during the
shorter of (i) the remaining stated term of the Option or (ii) the period that
is the longer of (A) five years after the date of such termination of employment
or (B) one year after the date of death.
(g) EFFECT OF OTHER TERMINATION OF EMPLOYMENT. If a Participant's
employment with the Company and its Subsidiaries terminates for any reason other
than death, Disability or Retirement after the date of grant of an Option as
described above, the Participant's unexercised Option may thereafter be
exercised during the period ending 90 days after the date of such termination of
employment, but only to the extent such Option was exercisable at the time of
such termination of employment, and in no event may such Option be exercised
after its stated expiration date. The foregoing notwithstanding, the Committee
may, in its sole discretion, accelerate the vesting of unvested Options held by
a Participant if such Participant is terminated from employment without "cause"
(as such term is defined by the Committee in its sole discretion) by the
Company.
8. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS
(a) GRANTS. The Committee also may grant (i) a Stock Appreciation
Right independent of an Option or (ii) a Stock Appreciation Right in connection
with an Option, or a portion thereof. A Stock Appreciation Right granted
pursuant to clause (ii) of the preceding sentence (A) may be granted at the time
the related Option is granted or at any time prior to the exercise or
cancellation of the related Option, (B) shall cover the same Shares covered by
an Option (or such lesser number of Shares as the Committee may determine) and
(C) shall be subject to the same terms and conditions as such Option except for
such additional limitations as are contemplated by this Section 8 (or such
additional limitations as may be included in an Award agreement).
(b) TERMS. The exercise price per Share of a Stock Appreciation Right
shall be an amount determined by the Committee but in no event shall such amount
be less than the greater of (i) the Fair Market Value of a Share on the date the
Stock Appreciation Right is granted or, in the case of a Stock Appreciation
Right granted in conjunction with an Option, or a portion thereof, the Option
Price of the related Option and (ii) an amount permitted by applicable laws,
rules, by-laws or policies of regulatory authorities or stock exchanges. Each
Stock Appreciation Right granted independent of an Option shall entitle a
Participant upon exercise to an amount equal to (i) the excess of (A) the Fair
Market Value on the exercise date of one Share over (B) the exercise price per
Share, times (ii) the number of Shares covered by the Stock Appreciation Right.
Each Stock Appreciation Right granted in conjunction with an Option, or a
portion
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thereof, shall entitle a Participant to surrender to the Company the unexercised
Option, or any portion thereof, and to receive from the Company in exchange
therefor an amount equal to (i) the excess of (A) the Fair Market Value on the
exercise date of one Share over (B) the Option Price per Share, times (ii) the
number of Shares covered by the Option, or portion thereof, which is
surrendered. The date a notice of exercise is received by the Company shall be
the exercise date. Payment shall be made in Shares or in cash, or partly in
Shares and partly in cash, valued at such Fair Market Value, all as shall be
determined by the Committee. Stock Appreciation Rights may be exercised from
time to time upon actual receipt by the Company of written notice of exercise
stating the number of Shares subject to an exercisable Option with respect to
which the Stock Appreciation Right is being exercised. No fractional Shares will
be issued in payment for Stock Appreciation Rights, but instead cash will be
paid for a fraction or, if the Committee should so determine, the number of
Shares will be rounded downward to the next whole Share.
(c) LIMITATIONS. The Committee may impose, in its discretion, such
conditions upon the exercisability or transferability of Stock Appreciation
Rights as it may deem fit.
(d) LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant LSARs
that are exercisable upon the occurrence of specified contingent events. Such
LSARs may provide for a different method of determining appreciation, may
specify that payment will be made only in cash and may provide that any related
Awards are not exercisable while such LSARs are exercisable. Unless the context
otherwise requires, whenever the term "Stock Appreciation Right" is used in the
Plan, such term shall include LSARs.
9. OTHER STOCK-BASED AWARDS
(a) GENERALLY. The Committee, in its sole discretion, may grant Awards
of Shares, Awards of restricted Shares and Awards that are valued in whole or in
part by reference to, or are otherwise based on the Fair Market Value of, Shares
("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in such
form, and dependent on such conditions, as the Committee shall determine,
including, without limitation, the right to receive one or more Shares (or the
equivalent cash value of such Shares) as an outright bonus or upon the
completion of a specified period of service, the occurrence of an event and/or
the attainment of performance objectives. Other Stock-Based Awards may be
granted alone or in addition to any other Awards granted under the Plan. Subject
to the provisions of the Plan, the Committee shall determine to whom and when
Other Stock-Based Awards will be made, the number of Shares to be awarded under
(or otherwise related to) such Other Stock-Based Awards; whether such Other
Stock-Based Awards shall be settled in cash, Shares or a combination of cash and
Shares; and all other terms and conditions of such Awards (including, without
limitation, the vesting provisions thereof). Cash awards, as an element of or
supplement to any other Award under the Plan, may also be granted pursuant to
this Section 9(a). In addition, the Committee is authorized to grant dividend
equivalents to a Participant, entitling the Participant to receive cash, Shares,
other Awards, or other property equal in value to dividends paid with respect to
a specified number of Shares, or other periodic payments. Dividend equivalents
may be awarded on a free-standing basis or in connection with another Award. The
Committee may provide that Dividend Equivalents
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<PAGE>
shall be paid or distributed when accrued or shall be deemed to have been
reinvested in additional Shares, Awards, or other investment vehicles, subject
to such restrictions on transferability and risks of forfeiture as the Committee
may specify.
(b) PERFORMANCE-BASED AWARDS. Notwithstanding anything to the contrary
herein, certain Other Stock-Based Awards granted under this Section 9 may be
granted in a manner which is deductible by the Company without limitation under
Section 162(m) of the Code (or any successor section thereto)
("Performance-Based Awards"). A Participant's Performance-Based Award shall be
determined based on the attainment of written performance goals approved by the
Committee for a performance period established by the Committee (i) while the
outcome for that performance period is substantially uncertain and (ii) no more
than 90 days after the commencement of the performance period to which the
performance goal relates or, if less, the number of days which is equal to 25
percent of the relevant performance period. The performance goals, which must be
objective, shall be based upon one or more of the following criteria: (i)
consolidated earnings before or after taxes (including earnings before interest,
taxes, depreciation and amortization); (ii) net income; (iii) operating income;
(iv) earnings per share; (v) book value per share; (vi) return on stockholders'
equity; (vii) expense management; (viii) return on investment; (ix) improvements
in capital structure; (x) profitability of an identifiable business unit or
product; (xi) maintenance or improvement of profit margins; (xii) stock price;
(xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow;
(xvii) working capital; (xviii) economic value added; (xix) return on assets;
(xx) total stockholder return (stock price appreciation plus dividends and
distributions); (xxi) operating management goals; (xxii) and execution of
pre-approved corporate strategy. The foregoing criteria may relate to the
Company, one or more of its Subsidiaries or one or more of its divisions or
units, or any combination of the foregoing, and may be applied on an absolute
basis and/or be relative to one or more peer group companies or indices, or any
combination thereof, all as the Committee shall determine. In addition, to the
degree consistent with Section 162(m) of the Code (or any successor section
thereto), the performance goals may be calculated without regard to
extraordinary items. In the case of a Performance-Based Award which is not
valued in a way in which the limitation set forth in the final sentence of
Section 3 would operate as an effective limitation satisfying Treasury
Regulation 1.162-27(e)(4), the maximum amount of a Performance-Based Award to
any Participant with respect to performance in a single fiscal year of the
Company shall be $5,000,000. The Committee shall determine whether, with respect
to a performance period, the applicable performance goals have been met with
respect to a given Participant and, if they have, to so certify and ascertain
the amount of the applicable Performance-Based Award. No Performance-Based
Awards will be paid for such performance period until such certification is made
by the Committee. The amount of the Performance-Based Award actually paid to a
given Participant may be less than the amount determined by the applicable
performance goal formula, at the discretion of the Committee. The amount of the
Performance-Based Award determined by the Committee for a performance period
shall be paid to the Participant at such time as determined by the Committee in
its sole discretion after the end of such performance period; provided, HOWEVER,
that a Participant may, if and to the extent permitted by the Committee and
consistent with the provisions of Section 162(m) of the Code, elect to defer
payment of a Performance-Based Award.
<PAGE>
10. ADJUSTMENTS UPON CERTAIN EVENTS
Notwithstanding any other provisions in the Plan to the contrary, the
following provisions shall apply to all Awards granted under the Plan:
(a) GENERALLY. In the event of any change in the outstanding Shares
after the Effective Date by reason of any Share dividend or split,
reorganization, recapitalization, merger, consolidation, spin-off, combination
or exchange of Shares of other corporate exchange, or any large, special, and
non-recurring distribution to Stockholders, the Committee in its sole discretion
and without liability to any person may make such substitution or adjustment, if
any, as it deems to be equitable, as to (i) the number or kind of Shares or
other securities issued or reserved for issuance pursuant to the Plan or
pursuant to outstanding Awards, (ii) the Option Price, (iii) the number and kind
of Shares by which annual per-person Award limitations are measured under
Section 3 hereof and/or (iv) any other affected terms of such Awards (including
making provision for the payment of cash, other Awards or other property in
respect of any outstanding Award). In addition, the Committee is authorized to
make adjustments in the terms and conditions of, and the criteria included in,
Awards in recognition of unusual or nonrecurring events (including, without
limitation, events described in the preceding sentence, as well as acquisitions
and dispositions of businesses and assets) affecting the Company, any subsidiary
or any business unit, or the financial statements of the Company or any
subsidiary, or in response to changes in applicable laws, regulations,
accounting principles, tax rates and regulations or business conditions or in
view of the Committee's assessment of the business strategy of the Company, any
subsidiary or business unit thereof, performance of comparable organizations,
economic and business conditions, personal performance of a Participant, and any
other circumstances deemed relevant; provided that no such adjustment shall be
authorized to be made if and to the extent that such authority or the making of
such adjustment would cause Options, Stock Appreciation Rights, or Performance
Awards granted under Section 9(b) hereof intended to qualify as
"performance-based compensation" under Code Section 162(m) and regulations
thereunder to otherwise fail to so qualify.
(b) CHANGE IN CONTROL. Except as otherwise provided in an Award
agreement, in the event of a Change in Control, the Committee in its sole
discretion and without liability to any person may take such actions, if any, as
it deems necessary or desirable with respect to any Award (including, without
limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount
in exchange for the cancellation of an Award and/or (iii) the requiring of the
issuance of substitute Awards that will substantially preserve the value, rights
and benefits of any affected Awards previously granted hereunder) as of the date
of the consummation of the Change in Control.
11. NO RIGHT TO EMPLOYMENT
The granting of an Award under the Plan shall impose no obligation on
the Company or any Subsidiary to continue the employment of a Participant and
shall not lessen or affect the Company's or Subsidiary's right to terminate the
employment of such Participant.
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12. SUCCESSORS AND ASSIGNS
The Plan shall be binding on all successors and assigns of the Company
and a Participant, including without limitation, the estate of such Participant
and the executor, administrator or trustee of such estate, or any receiver or
trustee in bankruptcy or representative of the Participant's creditors.
13. NONTRANSFERABILITY OF AWARDS
An Award shall not be transferable or assignable by the Participant
otherwise than by will or by the laws of descent and distribution. During the
lifetime of a Participant, an Award shall be exercisable only by such
Participant. An Award exercisable after the death of a Participant may be
exercised by the legatees, personal representatives or distributees of the
Participant. Notwithstanding anything to the contrary herein, the Committee, in
its sole discretion, shall have the authority to waive this Section 13 (or any
part thereof) to the extent that this Section 13 (or any part thereof) is not
required under the rules promulgated under any law, rule or regulation
applicable to the Company.
14. AMENDMENTS OR TERMINATION
(a) CHANGES TO THE PLAN. The Board may amend, alter or discontinue the
Plan, except that (i) any amendment or alteration shall be subject to the
approval of the Company's stockholders at or before the next annual meeting of
stockholders for which the record date is after the date of such Board action if
(x) such stockholder approval is required by any federal or state law or
regulation or the rules of any stock exchange or automated quotation system on
which the Shares may then be listed or quoted, and the Board may otherwise, in
its discretion, determine to submit amendments or alterations to stockholders
for approval or (y) such amendment or alteration would materially increase the
number of shares reserved for the purposes of the Plan, materially broaden the
employees or class of employees eligible to receive Awards under the Plan or
materially increase benefits accruing to employees participating in the Plan;
(ii) without the consent of a Participant, no amendment or alteration shall
materially impair any of the Participant's rights under an Award theretofore
granted to such Participant; and (iii) the Committee may amend or alter the Plan
in such manner as it deems necessary to permit the granting of Awards meeting
requirements of the Code or other applicable laws. Notwithstanding anything to
the contrary herein, the Board may not amend, alter or discontinue the
provisions relating to Section 10(b) of the Plan after the occurrence of a
Change in Control.
(b) CHANGES TO OUTSTANDING AWARDS. The Committee may waive any
conditions or rights under, or amend, alter, suspend, discontinue, or terminate
any Award theretofore granted and any Award agreement relating thereto, except
as otherwise provided in the Plan and except that the Committee may not amend or
alter an Award theretofore granted if such action would result in an Award
having terms that would not have been authorized or permitted for a new grant or
Award under the Plan; provided that, without the consent of an affected
Participant, no such Committee action may materially and adversely affect the
rights of such Participant under such Award. Other provisions of the Plan
notwithstanding, if any right under this Plan would cause a transaction to be
ineligible for pooling of interest accounting that would, but for the right
hereunder, be eligible for such accounting treatment, the Committee may modify
or adjust the right so that pooling of interest accounting shall be available,
including the
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substitution of Shares having a Fair Market Value equal to the cash otherwise
payable hereunder for the right which caused the transaction to be ineligible
for pooling of interest accounting.
15. INTERNATIONAL PARTICIPANTS
With respect to Participants who reside or work outside the United
States of America and either who are not (and who are not expected to be)
"covered employees" within the meaning of Section 162(m) of the Code or who are
granted Awards not intended to qualify as "performance-based compensation" under
Section 162(m), the Committee may, in its sole discretion, amend the terms of
the Plan or Awards with respect to such Participants in order to conform such
terms with local laws, regulations, or customs or otherwise to meet the
objectives of the Plan, and may, where appropriate, establish one or more
sub-plans to reflect such amended provisions.
16. NONEXCLUSIVITY OF THE PLAN
Neither the adoption of the Plan by the Board nor any submission of
the Plan, specific Plan terms, or amendments thereto to a vote of stockholders
of the Company shall be construed as creating any limitations on the power of
the Board to adopt such other compensatory arrangements as it may deem
desirable, including, without limitation, the granting of awards otherwise than
under the Plan, and such other arrangements may be either applicable generally
or only in specific cases.
17. CHOICE OF LAW
The Plan shall be governed by and construed in accordance with the
laws of the State of New York.
18. EFFECTIVENESS OF THE PLAN
The Plan shall be effective as of the Spinoff Date.
Exhibit 10.4.1
IMS HEALTH INCORPORATED
EXECUTIVE DEFERRED COMPENSATION PLAN
<PAGE>
IMS HEALTH INCORPORATED
- - --------------------------------------------------------------------------------
EXECUTIVE DEFERRED COMPENSATION PLAN
- - --------------------------------------------------------------------------------
PAGE
1. Purpose................................................................ 1
2. Definitions............................................................ 1
3. Administration......................................................... 2
4. Participation.......................................................... 3
5. Deferrals.............................................................. 3
6. Deferral Accounts...................................................... 4
7. Settlement of Deferral Accounts........................................ 6
8. Provisions Relating to Section 16 of the Exchange Act
and Section 162(m) of the Code......................................... 7
9. Statements............................................................. 7
10. Sources of Stock: Limitation on Amount of
Stock-Denominated Deferrals............................................ 7
11. Amendment/Termination.................................................. 8
12. General Provisions..................................................... 8
13. Effective Date......................................................... 9
<PAGE>
IMS HEALTH INCORPORATED
EXECUTIVE DEFERRED COMPENSATION PLAN
1. PURPOSE. The purpose of this Executive Deferred Compensation Plan (the
"Plan") is to provide to members of a select group of management or highly
compensated employees of IMS Health Incorporated (the "Company") and its
subsidiaries and/or its affiliates who are selected for participation in the
Plan a means to defer receipt of specified portions of compensation and to have
such deferred amounts treated as if invested in specified investment vehicles,
in order to enhance the competitiveness of the Company's executive compensation
program and, therefore, its ability to attract and retain qualified key
personnel necessary for the continued success and progress of the Company, and
to encourage such persons to retain a significant equity stake in the Company.
2. DEFINITIONS. In addition to the terms defined in Section 1 above, the
following terms used in the Plan shall have the meanings set forth below:
(a) "Administrator" shall mean the Compensation & Benefits Committee of
the Board of Directors or such other committee designated under Section 3(b), to
which the Board has delegated the authority to take action under the Plan.
(b) "Beneficiary" shall mean the person, persons, trust or trusts
entitled by will or the laws of descent and distribution to receive the benefits
specified under the Plan upon a Participant's death, provided that, if and to
the extent authorized by the Administrator, a Participant may be permitted to
designate a Beneficiary, in which case the "Beneficiary" instead will be the
person, persons, trust or trusts (if any are then surviving) which have been
designated by a Participant in his or her most recent written beneficiary
designation filed with the Administrator to receive the benefits specified under
the Plan upon such Participant's death. Unless otherwise determined by the
Administrator, a Participant's designation of a Beneficiary other than the
Participant's spouse shall be subject to the written consent of the spouse.
(c) "Board" or "Board of Directors" shall mean the Board of Directors
of the Company.
(d) "Cash Deferral" shall mean that portion of the assets of a
Participant's Deferral account which is attributable to cash based deferrals
made by Participant and investment results earned (or lost) thereon.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended.
References to any provision of the Code or regulation (including a proposed
regulation) thereunder shall include any successor provisions or regulations.
(f) "Deferral Account" shall mean the account or subaccount established
and maintained by the Company for specified deferrals by a Participant, as
described in Section 6. Deferral Accounts will be maintained solely as
bookkeeping entries by the Company to evidence unfunded obligations of the
Company.
(g) "Deferred Stock" shall mean a credit to the Participant's Deferral
Account representing the right to receive one share of Stock for each share of
Deferred Stock so credited, together with rights to dividend equivalents and
other rights and limitations specified in the Plan.
<PAGE>
(h) "Disability" shall mean a physical or mental impairment of
sufficient severity such that a Participant is both eligible for and in receipt
of benefits under the long-term disability provisions of the Company's benefit
plans.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended. References to any provision of the Exchange Act or rule thereunder
shall include any successor provisions or rules.
(j) "Participant" shall mean any employee of the Company or any
subsidiary or affiliate who is designated by the Administrator as eligible to
participate and who participates or makes an election to participate in the
Plan.
(k) "Retirement" shall mean a Participant's voluntary termination of
employment (i) at or after attaining age 65 or (ii) prior to attaining age 65 if
such termination is approved in advance as a Retirement by the Administrator.
(l) "Stock" shall mean the Company's Common Stock, $.01 par value, or
any other equity securities of the Company designated by the Administrator.
(m) "Trust" shall mean any trust or trusts established by the Company
as part of the Plan; PROVIDED, HOWEVER, that the assets of such trusts shall
remain subject to the claims of the general creditors of the Company.
(n) "Trustee" shall mean the trustee of a Trust.
(o) "Trust Agreement" shall mean the agreement entered into between the
Company and the Trustee to carry out the purposes of the Plan, as amended or
restated from time to time.
(p) "Valuation Date" shall mean the close of business on the last
business day of each calendar quarter or other periodic date specified by the
Administrator; PROVIDED, HOWEVER, that in the case of termination of employment
for reasons other than Retirement, death, or Disability, the Valuation Date
shall mean the close of business on the last business day of the year in which
employment terminates.
3. ADMINISTRATION.
(a) AUTHORITY. The Administrator (subject to the ability of the Board
of Directors to restrict the Administrator) shall administer the Plan in
accordance with its terms, and shall have all powers necessary to accomplish
such purpose, including the power and authority to construe and interpret the
Plan, to define the terms used herein, to prescribe, amend and rescind rules and
regulations, agreements, forms, and notices relating to the administration of
the Plan, to make all other determinations necessary or advisable for the
administration of the Plan, and to determine whether to terminate participation
of and accelerate distributions to Participants, including Participants who
engage in activities competitive with or not in the best interests of the
Company. Any actions of the Administrator with respect to the Plan and
determination in all matters referred to herein shall be conclusive and binding
for all purposes and upon all persons including the Company, the Administrator
and members of the committee serving as such, Participants and employees, and
their respective successors in interest (subject to the Board's authority to
oversee the Administrator). The Administrator may appoint agents and delegate
thereto powers and duties under the Plan, except as otherwise limited by the
Plan.
(b) ADMINISTRATOR. The Administrator shall consist of such number of
members as shall be determined by the Board, each of whom shall be appointed by,
shall remain in office at the will of, and may be removed, with or without
cause, by the Board of Directors, and any member of the Administrator may resign
at any time. The Administrator may delegate administrative and other functions
<PAGE>
under the Plan to officers or employees of the Company and its subsidiaries. No
member of the committee serving as Administrator shall be entitled to act on or
decide any matter relating solely to himself or herself or any of his or her
rights or benefits under the Plan. No bond or other security shall be required
in connection with the Plan of the Administrator or any member of the committee
serving as such in any jurisdiction.
(c) LIMITATION OF LIABILITY. Each member of the committee serving as
Administrator shall be entitled to, in good faith, rely or act upon any report
or other information furnished to him or her by any officer or other employee of
the Company or any subsidiary or affiliate, the Company's independent certified
public accountants, or any executive compensation consultant, legal counsel, or
other professional retained by the Company to assist in the administration of
the Plan. To the maximum extent permitted by law, no member of the committee
serving as Administrator, nor any person to whom ministerial duties have been
delegated under the Plan, shall be liable to any person for any action taken or
omitted in connection with the interpretation and administration of the Plan,
except for the willful misconduct or gross negligence of such member or person.
4. PARTICIPATION. The Administrator shall determine those employees of the
Company and its subsidiaries and/or affiliates, from among the senior executives
who qualify as a select group of management or highly compensated employees, who
will be eligible to participate in the Plan. Such persons shall be notified of
such eligibility by the Company's Executive Compensation Department, subject to
the direction of the Administrator.
5. DEFERRALS. To the extent authorized by the Administrator, a Participant
may elect to defer compensation or awards which may be in the form of cash,
Stock, Stock-denominated awards or other property to be received from the
Company or a subsidiary or affiliate, including salary, annual bonus awards,
long-term awards, shares issuable on stock option exercise and compensation
payable under other plans and programs, employment agreements or other
arrangements, or otherwise, as may be provided under the terms of such plans,
programs and arrangements or as designated by the Administrator.
Stock-denominated awards that the may authorize for deferral include (i) stock
unit awards such as Restricted Stock Units granted under the Company's
Employees' Stock Incentive Plan and (ii) the shares representing the profit upon
exercise of stock options granted under any Company plan, in circumstances in
which the option exercise price is paid by the surrender of previously acquired
shares. The foregoing notwithstanding, a Participant may defer, with respect to
a given year, receipt of only that portion of the Participant's salary, annual
bonus award, long-term award, shares issuable on stock option exercise and
compensation payable under other plans and programs, employment agreements or
other arrangements that exceeds the FICA maximum taxable wage base plus the
amount necessary to satisfy Medicare and all other payroll taxes (other than
Federal, state or local income tax withholding) imposed on the wages or
compensation of such Participant from the Company and its subsidiaries and
affiliates. In addition to such limitation, and any terms and conditions of
deferral set forth under plans, programs or arrangements from which receipt of
compensation or awards is deferred, the Administrator may impose limitations on
the amounts permitted to be deferred and other terms and conditions on deferrals
under the Plan. Any such limitations, and other terms and conditions of
deferral, shall be specified in documents setting forth terms and conditions of
deferrals under the Plan, rules relating to the Plan or election forms, other
forms, or instructions published by or at the direction of the Administrator.
The Administrator may permit awards and other amounts to be treated as deferrals
under the Plan, including deferrals that may be mandatory as determined by the
in its sole discretion or under the terms of another plan or arrangement of the
Company, for administrative convenience or otherwise to serve the purposes of
the Plan and such other plan or arrangement.
(a) ELECTIONS. Once an election form, properly completed, is received
by the Company, the elections of the Participant shall be irrevocable; PROVIDED,
HOWEVER, that the Administrator may in its discretion determine that elections
are revocable until the deadline specified for the filing of such election;
PROVIDED FURTHER, that the Administrator may, in its discretion, permit a
Participant to elect a further deferral of amounts credited to a Deferral
Account by filing a later election form; and PROVIDED, FURTHER,
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<PAGE>
that, unless otherwise approved by the Administrator, any election to further
defer amounts credited to a Deferral Account must be made at least one year
prior to the date such amounts would otherwise be payable.
(b) DATE OF ELECTION. An election to defer compensation or awards
hereunder must be received by the Administrator prior to the date specified by
or at the direction of the Administrator. Under no circumstances may a
Participant defer compensation or awards to which the Participant has attained,
at the time of deferral, a legally enforceable right to current receipt of such
compensation or awards.
6. DEFERRAL ACCOUNTS.
(a) ESTABLISHMENT; CREDITING OF AMOUNTS DEFERRED. One or more Deferral
Accounts will be established for each Participant, as determined by the
Administrator. The amount of compensation or awards deferred with respect to
each Deferral Account will be credited to such Account as of the date on which
such amounts would have been paid to the Participant but for the Participant's
election to defer receipt hereunder, unless otherwise determined by the
Administrator. With respect to any fractional shares of Stock or
Stock-denominated awards, the Administrator shall determine whether to credit
the Deferral Account with a fraction of a share, to pay cash in lieu of the
fractional share or carry forward such cash amount under the Plan, round to the
nearest whole share, round to the next whole share, or round down to eliminate
the fractional share or otherwise make provision for the fractional share. With
respect to Cash Deferrals, amounts of hypothetical income and appreciation and
depreciation in value of such account will be credited and debited to, or
otherwise reflected in, such Account from time to time. Unless otherwise
determined by the Administrator (including under Section 6(e)), Cash Deferrals
shall be deemed invested in a hypothetical investment as of the date of
deferral.
(b) INVESTMENT VEHICLES.
(i) Amounts credited as Deferred Stock to a Participant=s Deferral Account
(whether or not as a result of a Cash Deferral) may not be reallocated
or deemed reinvested in any other investment vehicle, but shall remain
as Deferred Stock until such time as the Deferral Account is settled in
accordance with Section 7.
(ii) Subject to the provisions of Sections 6(d) and 8, Cash Deferral amounts
shall be deemed to be invested, at the Participant's direction, in one
or more investment vehicles as may be specified from time to time by
the Administrator; PROVIDED, HOWEVER, that the Administrator may
expressly reserve the right to approve or disapprove any investment
direction given by a Participant. The Administrator may change or
discontinue any hypothetical investment vehicle available under the
Plan in its discretion; PROVIDED, HOWEVER, that each affected
Participant shall be given the opportunity, without limiting or
otherwise impairing any other right of such Participant regarding
changes in investment directions, to redirect the allocation of his or
her Cash Deferral amount deemed invested in the discontinued investment
vehicle among the other hypothetical investment vehicles, including any
replacement vehicle.
(c) DIVIDEND EQUIVALENTS AND ADJUSTMENTS. Deferred Stock credited to a
Participant's Deferral Account will be credited with Dividend Equivalents and
subject to adjustment as provided in this Section 6(c):
(i) CASH DIVIDENDS. If the Company declares and pays a cash dividend on
Stock, then a number of additional shares of Deferred Stock shall be
credited to a Participant's Deferral Account as of the payment date for
such dividend equal to (A) the number of shares of Deferred Stock
credited to the Deferral Account as of the record date for such
dividend, multiplied by (B) the amount of cash actually paid as a
dividend on each share at such
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payment date, divided by (C) the fair market value of a share of Stock
at such payment date.
(ii) NON-STOCK DIVIDENDS. If the Company declares and pays a dividend on
Stock in the form of property other than shares of Stock, then a number
of additional shares of Deferred Stock shall be credited to a
Participant=s Deferral Account as of the payment date for such dividend
equal to (A) the number of shares of Deferred Stock credited to the
Deferral Account as of the record date for such dividend, multiplied by
(B) the fair market value of any property other than shares actually
paid as a dividend on each share at such payment date, divided by (C)
the fair market value of a share of Stock on the day after such payment
date.
(iii) STOCK DIVIDENDS AND SPLITS. If the Company declares and pays a dividend
on Stock in the form of additional shares of Stock, or there occurs a
forward split of Stock, then a number of additional shares of Deferred
Stock shall be credited to Participant=s Deferral Account as of the
payment date for such dividend or forward Stock split equal to (A) the
number of shares of Deferred Stock credited to the Deferral Account as
of the record date for such dividend or split, multiplied by (B) the
number of additional shares actually paid as a dividend or issued in
such split in respect of each share of Stock.
(iv) MODIFICATIONS TO DIVIDEND EQUIVALENTS POLICY. Other provisions of this
Section 6(c) notwithstanding, the Administrator may modify the manner
of payment or crediting of Dividend Equivalents hereunder, in order to
coordinate the value of Deferral Accounts with any trust holding shares
established under Section 6(e), for administrative convenience, or for
any other reason.
(v) ADJUSTMENTS. The number of shares of Deferred Stock credited to the
Participant's Account may be adjusted by the Administrator in order to
prevent dilution or enlargement of Participants= rights with respect to
Deferred Stock, in the event of any unusual corporate transaction or
event which affects the value of Common Stock, provided that any such
adjustment shall be made taking into account any crediting of Deferred
Stock to the Participant under other provisions of this Section 6(c) in
connection with such transaction or event.
(d) ALLOCATION AND REALLOCATION OF HYPOTHETICAL INVESTMENTS. A
Participant may allocate the Cash Deferral portion of his or her Deferral
Account to one or more of the hypothetical investment vehicles authorized under
the Plan. Subject to Section 6(b)(i) and any rules established by the
Administrator, a Participant may reallocate such Cash Deferrals as of the
Valuation Date or other date specified by the Administrator at or following the
filing of Participant's election to one or more of such hypothetical investment
vehicles, by filing with the Administrator a notice in such form as may be
specified by the Administrator. The Administrator may, in its discretion,
restrict allocation into or reallocation by specified Participants into or out
of specified investment vehicles or specify minimum or maximum amounts that may
be allocated or reallocated by Participants.
(e) TRUSTS. The Administrator may, in its discretion, establish one or
more Trusts (including sub-accounts under such Trust(s)), and deposit therein
amounts of cash, Stock, or other property not exceeding the amount of the
Company's obligations with respect to a Participant's Deferral Account
established under this Section 6. In such case, the amounts of hypothetical
income and appreciation and depreciation in value of such Deferral Account shall
be equal to the actual income on, and appreciation and depreciation of, the
assets in such Trust(s). Other provisions of this Section 6 notwithstanding, the
timing of allocations and reallocations of assets in such a Deferral Account,
and the investment vehicles available with respect to the Cash Deferral portion
of the Deferral Account, may be varied to reflect the timing of actual
investments of the assets of such Trust(s) and the actual investments available
to such Trust(s).
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<PAGE>
(f) CASHLESS EXERCISE. If and to the extent permitted by the
Administrator, and subject to such terms and conditions as may be established by
the Administrator from time to time, a Participant may submit a request to the
Administrator to surrender (or constructively surrender) Deferred Stock
allocated to his or her Deferral Account to pay the purchase price of any stock
options of the Company granted to the Participant under another plan, program or
arrangement.
(g) RESTRICTIONS ON PARTICIPANT DIRECTION. The provisions of Section
6(b), 6(d), and 7(c) notwithstanding, the Administrator may restrict or prohibit
reallocations of amounts deemed invested in specified investment vehicles, and
subject such amounts to a risk of forfeiture and other restrictions, in order to
conform to restrictions applicable to Stock, a Stock-denominated award, or any
other award or amount deferred under the Plan and resulting in such deemed
investment, to comply with any applicable law or regulation, or for such other
purpose as the Administrator may determine is not inconsistent with the Plan.
7. SETTLEMENT OF DEFERRAL ACCOUNTS.
(a) FORM OF PAYMENT. The Company shall settle a Participant's Deferral
Account, and discharge all of its obligations to pay deferred compensation under
the Plan with respect to such Deferral Account, as follows:
(i) with respect to Cash Deferrals, payment of cash or, in the discretion
of the Administrator, by delivery of other liquid assets (including
Stock) having a fair market value equal to the Cash Deferral amount
credited to the Deferral Account; provided, however, that, to the
extent practicable, any assets delivered in settlement of Cash
Deferrals shall be of the same type or kind as the investment vehicle
in which those Cash Deferrals were deemed invested at the time of
settlement; or
(ii) with respect to Stock based deferral amounts, by delivery of shares of
Stock, including shares of Stock delivered out of the assets of the
Trust.
(b) FORFEITURES UNDER OTHER PLANS AND ARRANGEMENTS. To the extent that
Stock or any other award or amount (i) is deposited in a Trust pursuant to
Section 6 in connection with a deferral of Stock, a Stock-denominated award, or
any other award or amount under another plan, program, employment agreement or
other arrangement, or otherwise is deemed to be deferred under the Plan without
such a deposit, and (ii) is forfeited pursuant to the terms of such plan,
program, agreement or arrangement, the Participant shall not be entitled to the
value of such Stock and other property related thereto (including without
limitation, dividends and distributions thereon) or other award or amount, or
proceeds thereof. Any Stock or Stock-denominated awards, other property or other
award or amount (and proceeds thereof) forfeited shall be returned to the
Company.
(c) TIMING OF PAYMENTS. Payments in settlement of a Deferral Account
shall be made as soon as practicable after the date or dates (including upon the
occurrence of specified events), and in such number of installments, as may be
directed by the Participant in his or her election relating to such Deferral
Account, provided that, in the event of termination of employment for reasons
other than Retirement, death or Disability, a single lump sum payment in
settlement of any Deferral Account (including a Deferral Account with respect to
which one or more installment payments have previously been made) shall be made
as promptly as practicable following the next Valuation Date, unless otherwise
determined by the Administrator; provided further, that payments in settlement
of a Deferral Account will be made in accordance with Section 7(d) in the event
of a Change in Control; and provided further, that, unless otherwise determined
by the Administrator, payments in settlement of a Deferral Account will be made
in not more than ten installments and in no event later than ten years after the
Participant's termination of employment due to Retirement, death or Disability.
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<PAGE>
(d) CHANGE IN CONTROL. In the event of a "Change in Control," as
defined in this Section 7(d), the following provisions shall apply:
(i) All deferral periods will be automatically accelerated to end at the
time of the Change in Control, and each Deferral Account will be
settled within five business days after the end of the deferral period,
provided that the Administrator may accelerate this settlement (for all
or specified parts of a Deferral Account) in anticipation of a Change
in Control for any reason, subject to such conditions as the
Administrator may impose; and
(ii) If the Change in Control involves a transaction that is to be accounted
for as a pooling of interests, then, regardless of any other rights the
Participant may have hereunder, each Participant's rights hereunder
will be adjusted or restricted to the extent necessary to ensure that
such rights will not impair the pooling-of-interests accounting
treatment of the transaction.
For purposes of the Plan, the term "Change in Control" has the meaning defined
in any employment agreement or change-in-control severance agreement between the
Company and the Participant in effect at the time such event occurs or, if no
such agreement is in effect at the relevant date, the meaning as defined in the
Company's Employees' Stock Incentive Plan; provided, however, no transaction in
which the Participant is actively participating in a capacity other than as a
director, officer, employee or stockholder of the Company will constitute a
Change in Control for purposes of that Participant's deferral account.
(e) FINANCIAL EMERGENCY AND OTHER PAYMENTS. Other provisions of the
Plan (except Section 8) notwithstanding, if, upon the written application of a
Participant, the Administrator determines that the Participant has a financial
emergency of such a substantial nature, beyond the Participant's control, and as
to which the Participant lacks other readily available assets that could be used
to timely address the emergency, so that payment of amounts previously deferred
under the Plan is warranted, the Administrator may direct the payment to the
Participant of all or a portion of the balance of a Deferral Account and the
time and manner of such payment.
(f) VOLUNTARY WITHDRAWAL WITH 10% PENALTY. A Participant may
voluntarily withdraw all or a portion of his or her Deferral Account balance
upon 30 days' notice to the Administrator, subject to a penalty equal to 10% of
the amount withdrawn; provided, however, that the Participant shall have no
right to withdraw Deferred Stock under this Section 7(f) if the existence of
such right would result in "variable" accounting under APB 25 with respect any
Deferred Stock or if such withdrawal is otherwise not approved by the
Administrator. The amount of any penalty under this Section 7(f) will be
forfeited and paid over to the Company.
8. PROVISIONS RELATING TO SECTION 16 OF THE EXCHANGE ACT AND SECTION
162(M) OF THE CODE.
(a) AVOIDANCE OF LIABILITY UNDER SECTION 16. With respect to a
Participant who is then subject to the reporting requirements of Section 16(a)
of the Exchange Act, the Administrator shall implement transactions under the
Plan and administer the Plan in a manner that will ensure that each transaction
by such a Participant is exempt from liability under Rule 16b-3 or otherwise
will not result in liability under Section 16(b) of the Exchange Act.
(b) COMPLIANCE WITH CODE SECTION 162(M). It is the intent of the
Company that any compensation (including any award) deferred under the Plan by a
person who is, with respect to the year of payout, determined by the
Administrator likely to be a "covered employee" within the meaning of Code
Section 162(m) and regulations thereunder, shall not, as a result of deferral
hereunder, become compensation with respect to which the Company would not be
entitled to a tax deduction under Code Section 162(m). Accordingly, unless
otherwise determined by the Administrator, if any payment in
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<PAGE>
settlement of a Deferral Account would be subject to a loss of deductibility by
the Company at the a time of scheduled settlement hereunder, the terms of such
deferral shall be automatically modified to the extent necessary to ensure that
the compensation will be, at the time of settlement hereunder, fully deductible
by the Company.
9. STATEMENTS. The Administrator will furnish statements, at least once
each calendar year, to each Participant reflecting the amounts credited to a
Participant's Deferral Accounts, transactions therein since the date reported on
in the last previous statement, and other information deemed relevant by the
Administrator.
10. SOURCES OF STOCK: LIMITATION ON AMOUNT OF STOCK-DENOMINATED
DEFERRALS. Shares of Stock deliverable in settlement of Deferred Stock,
including shares deposited under the Plan in a Trust pursuant to Section 6 in
connection with a deferral of a Stock-denominated award granted or acquired
under another plan, program, employment agreement or other arrangement that
provides for the issuance of shares, shall be deemed to have originated, and
shall be counted against the number of shares reserved, under such other plan,
program or arrangement. Shares of Stock actually delivered in settlement of such
deferral shall be originally issued shares or treasury shares in accordance with
the terms of such other plan, program or arrangement. If the authorizes deemed
investments in Deferred Stock by Participants deferring cash, and any shares to
be deposited under the Plan in a Trust in connection with such deemed
investments in Deferred Stock or otherwise to be delivered in settlement of
Deferred Stock shall be solely treasury shares or shares acquired in the market
by or on behalf of the Trust. The shall reserve a specified number of shares of
Stock held in treasury by the Company for the delivery in connection with such
cash deferrals at the time it authorizes Deferred Stock as an investment vehicle
for Cash Deferrals.
11. AMENDMENT/TERMINATION. The Administrator may, with prospective or
retroactive effect, amend, alter, suspend, discontinue, or terminate the Plan at
any time without the consent of Participants, stockholders, or any other person;
PROVIDED, HOWEVER, that, without the consent of a Participant, no such action
shall materially and adversely affect the rights of such Participant with
respect to any rights to payment of amounts credited to such Participant's
Deferral Account. The foregoing notwithstanding, the Administrator may terminate
the Plan (in whole or in part) and distribute to Participants (in whole or in
part) the amounts credited to his or her Deferral Accounts, and reserves the
right to accelerate the settlement of any individual Participant's Deferral
Account (in whole or in part). The termination of the Plan, and any amendment or
alteration to the Plan that is beyond the scope of the authority or the
Administrator, shall be subject to the approval of the Board of Directors.
12. GENERAL PROVISIONS.
(a) LIMITS ON TRANSFER OF AWARDS. Other than by will or the laws of
descent and distribution, no right, title or interest of any kind in the Plan or
to a payment under the Plan shall be transferable or assignable by a Participant
or his or her Beneficiary, shall be subject to alienation, anticipation,
encumbrance, garnishment, attachment, levy, execution or other legal or
equitable process, nor shall be subject to the debts, contracts, liabilities or
engagements, or torts of any Participant or his or her Beneficiary. Any attempt
to alienate, sell, transfer, assign, pledge, garnish, attach or take any other
action subject to legal or equitable process or encumber or dispose of any
interest in the Plan shall be void.
(b) RECEIPT AND RELEASE. Payments (in any form) to any Participant or
Beneficiary in accordance with the provisions of the Plan shall, to the extent
thereof, be in full satisfaction of all claims for the compensation or awards
deferred and relating to the Deferral Account to which the payments relate
against the Company or any subsidiary or affiliate, and the Administrator may
require such Participant or Beneficiary, as a condition to such payments, to
execute a receipt and release to such effect. In the case of any payment under
the Plan of less than all amounts then credited to an account in the form of
Deferred
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<PAGE>
Stock, the amounts paid shall be deemed to relate to the Deferred Stock credited
to the account at the earliest time.
(c) UNFUNDED STATUS OF AWARDS; CREATION OF TRUSTS. The Plan is intended
to constitute an "unfunded" plan for deferred compensation and Participants
shall rely solely on the unsecured promise of the Company for payment hereunder.
With respect to any payment not yet made to a Participant under the Plan,
nothing contained in the Plan shall give a Participant any rights that are
greater than those of a general unsecured creditor of the Company; PROVIDED,
HOWEVER, that the Administrator may authorize the creation of Trusts, including
but not limited to the Trusts referred to in Section 6 hereof, or make other
arrangements to meet the Company's obligations under the Plan, which Trusts or
other arrangements shall be consistent with the "unfunded" status of the Plan
unless the Administrator otherwise determines with the consent of each affected
Participant.
(d) COMPLIANCE. A Participant in the Plan shall have no right to
receive payment (in any form) with respect to his or her Deferral Account until
legal and contractual obligations of the Company relating to establishment of
the Plan and the making of such payments shall have been complied with in full.
In addition, the Company shall impose such restrictions on Stock delivered to a
Participant hereunder and any other interest constituting a security as it may
deem advisable in order to comply with the Securities Act of 1933, as amended,
the requirements of the New York Stock Exchange or any other stock exchange or
automated quotation system upon which the Stock is then listed or quoted, any
state securities laws applicable to such a transfer, any provision of the
Company's Certificate of Incorporation or By-Laws, or any other law, regulation,
or binding contract to which the Company is a party.
(e) OTHER PARTICIPANT RIGHTS. No Participant shall have any of the
rights or privileges of a stockholder of the Company under the Plan, including
as a result of the crediting of Stock equivalents or other amounts to a Deferral
Account, or the creation of any Trust and deposit of such Stock therein, except
at such time as Stock may be actually delivered in settlement of a Deferral
Account. No provision of the Plan or transaction hereunder shall confer upon any
Participant any right to be employed by the Company or a subsidiary or
affiliate, or to interfere in any way with the right of the Company or a
subsidiary or affiliate to increase or decrease the amount of any compensation
payable to such Participant. Subject to the limitations set forth in Section
12(a) hereof, the Plan shall inure to the benefit of, and be binding upon, the
parties hereto and their successors and assigns.
(f) TAX WITHHOLDING. The Company and any subsidiary or affiliate shall
have the right to deduct from amounts otherwise payable by the Company or any
subsidiary or affiliate to the Participant, including compensation not subject
to deferral as well as amounts payably hereunder in settlement of the
Participant's Deferral Account, any sums that federal, state, local or foreign
tax law requires to be withheld with respect to the deferral of compensation
hereunder, transactions affecting the Participant's deferral account, and
payments in settlement of the Participant's Deferral Account, including FICA,
Medicare and other employment taxes. Shares may be withheld to satisfy such
obligations in any case where taxation would be imposed upon the delivery of
shares, except that shares issued or delivered under any plan, program,
employment agreement or other arrangement may be withheld only in accordance
with the terms of such plan, program, employment agreement or other arrangement
and any applicable rules, regulations, or resolutions thereunder.
(g) RIGHT OF SETOFF. The Company or any subsidiary may, to the extent
permitted by applicable law, deduct from and set off against any amounts the
Company or a subsidiary may owe to the Participant from time to time, including
amounts payable in connection with Participant's Deferral Account, owed as
wages, fringe benefits, or other compensation owed to the Participant, such
amounts as may be owed by the Participant to the Company, although the
Participant shall remain liable for any part of the Participant's payment
obligation not satisfied through such deduction and setoff. By electing to
participant in the Plan and defer compensation hereunder, the Participant agrees
to any deduction or setoff under this Section 12(g).
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<PAGE>
(h) GOVERNING LAW. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of New York, without giving effect to
principles of conflicts of laws, and applicable provisions of federal law.
(i) LIMITATION. A Participant and his or her Beneficiary shall assume
all risk in connection with any decrease in value of the Deferral Account and
neither the Company nor the Administrator shall be liable or responsible
therefor.
(j) CONSTRUCTION. The captions and numbers preceding the sections of
the Plan are included solely as a matter of convenience of reference and are not
to be taken as limiting or extending the meaning of any of the terms and
provisions of the Plan. Whenever appropriate, words used in the singular shall
include the plural or the plural may be read as the singular.
(k) SEVERABILITY. In the event that any provision of the Plan shall be
declared illegal or invalid for any reason, said illegality or invalidity shall
not affect the remaining provisions of the Plan but shall be fully severable,
and the Plan shall be construed and enforced as if said illegal or invalid
provision had never been inserted herein.
(l) STATUS. The establishment and maintenance of, or allocations and
credits to, the Deferral Account of any Participant shall not vest in any
Participant any right, title or interest in and to any Plan assets or benefits
except at the time or times and upon the terms and conditions and to the extent
expressly set forth in the Plan and in accordance with the terms of the Trust.
13. EFFECTIVE DATE. The Plan shall be effective as of July 20, 1999.
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Exhibit 10.4.2
IMS HEALTH INCORPORATED
IMS HEALTH INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN
and
IMS HEALTH INCORPORATED REPLACEMENT PLAN FOR CERTAIN EMPLOYEES
HOLDING COGNIZANT CORPORATION EQUITY-BASED AWARDS
PROSPECTUS SUPPLEMENT
(SELECTED PORTIONS)
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933
The date of this Prospectus Supplement is September 27, 1999
<PAGE>
2
IMS HEALTH INCORPORATED
200 Nyala Farms
Westport, CT 06880
IMS HEALTH INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN
and
IMS HEALTH INCORPORATED REPLACEMENT PLAN FOR CERTAIN EMPLOYEES
HOLDING COGNIZANT CORPORATION EQUITY-BASED AWARDS
PART II -- TERMS AND CONDITIONS OF DEFERRALS
DEFERRAL PLAN INCORPORATED BY REFERENCE AND APPLICABLE TO DEFERRALS.
All of the terms and conditions set forth in the Executive Deferred
Compensation Plan (the "Deferral Plan") apply to a participant's election to
defer restricted stock units ("RSUs") and shares that represent the "profit"
upon certain exercises of stock options ("Option Profit Shares") and the
resulting deferrals under the Deferral Plan. These terms are incorporated by
reference into the agreement that arises between the Company and the participant
as a result of any election to defer. If any term, condition, or disclosure in
this Prospectus Supplement is inconsistent with a Deferral Plan provision, the
Deferral Plan provision will govern.
STOCK-DENOMINATED COMPENSATION THAT MAY BE DEFERRED
The Compensation and Benefits Committee of the Board of Directors of the
Company (the "Committee") has authorized the deferral of compensation payable in
the form of Stock, specifically:
o Restricted stock units awarded under the Company's
Performance- Based Restricted Stock Program (these RSUs are
referred to as "PERS");
o Other awards of RSUs awarded under the Employees' Stock
Incentive Plan (the "ESIP") or the Replacement Plan for
Certain Employees Holding Cognizant Corporation Equity-Based
Awards (the "Replacement Plan"); and
o Option Profit Shares, which represent the pre-tax
"profit" realized on exercise of options in specified
circumstances, as described in more detail below.
Deferral of RSUs and Option Profit Shares under the Deferral Plan results
in the crediting to the participant's deferral account of a number of shares of
Deferred Stock equal to the number of RSUs or Option Profit Shares deferred.
Each share of Deferred Stock will be settled by delivery of one share of Stock.
<PAGE>
3
To defer receipt of shares in settlement of PERS or other RSUs, the
participant must file an election form specifying the PERS or RSUs to be
deferred at least six months in advance of the date the PERS or RSUs are
scheduled to be settled according to their original terms (see "--Deferral
Elections" below).
To defer receipt of Option Profit Shares otherwise issuable upon exercise
of a stock option, the participant must take the following steps:
o File an election form specifying the option and the
portion of the Option Profit Shares to be deferred at least
six months in advance of the option exercise (see
"--Deferral Elections" below);
o Not exercise the option during the six-month period
following the filing of the election, unless the participant
has ceased to be an employee of the Company and its
subsidiaries;
o Thereafter, exercise the option at a time the
participant remains an employee of the Company and its
subsidiaries; and
o Pay the exercise price of the option by surrendering
previously acquired shares, in a so-called "stock-for-stock"
exercise (Note: shares acquired under Company plans within
six months before the exercise generally cannot be
surrendered to pay the exercise price).
Upon completion of the foregoing steps, the participant will receive upon
exercise of the option, on a non-deferred basis, a number of shares equal to the
number surrendered to pay the exercise price. Instead of receiving other shares
that would be deliverable upon such exercise -- shares which would represent the
"profit" on the exercise -- the participant will be credited with a like number
of shares of Deferred Stock under the Deferral Plan.
The Company will make no matching contributions or other contributions to a
participant's account under the Deferral Plan, aside from the Company's
obligation to credit dividend equivalents and issue shares in settlement of the
Deferred Stock.
OTHER DEFERRED STOCK TERMS
Three special provisions apply to deferrals of Stock-denominated
compensation into Deferred Stock:
o Deferred Stock is the only investment vehicle into which
PERS, other RSUs, and Option Profit Shares may be deferred
(in contrast to cash deferrals under the Deferral Plan);
o Deferred Stock, once acquired, cannot be reallocated or
"switched" into any other investment vehicles, and will be
settled solely by delivery of actual shares of Stock (net of
applicable withholding); and
<PAGE>
4
o No shares of Stock will be held in any trust that may be
created pursuant to the Plan.
Participant Has No Shareholder Rights. Deferred Stock under the Deferral
Plan does not represent an actual investment in or ownership of Stock by the
participant. Thus, the participant cannot vote or direct the voting of Deferred
Stock, and has no right to actual dividends or distributions or payments to
shareholders upon liquidation.
Dividend Equivalents and Adjustments. Participants who are credited
Deferred Stock under the Deferral Plan are entitled to be credited "dividend
equivalents" on their Deferred Stock. Although the Committee retains discretion
to vary the form and manner in which dividend equivalents are credited or paid,
generally they will be credited as follows:
o If the Company declares and pays a cash dividend on
Common Stock, the participant's deferral account will be
credited with a number of additional shares of Deferred
Stock, as of the dividend payment date, equal to the number
of shares of Deferred Stock credited to the account as of
the record date for such dividend multiplied by the amount
of cash actually paid as a dividend on each outstanding
share of Stock, divided by the Fair Market Value of a share
of Stock at the dividend payment date.
o If the Company declares and pays a non-cash dividend on
Common Stock in the form of property other than shares of
Stock (for example, in a spin-off of a subsidiary), then the
participant's deferral account will be credited with a
number of additional shares of Deferred Stock as of the
dividend payment date equal to the number of shares of
Deferred Stock credited to the Account as of the record date
for such dividend multiplied by the Fair Market Value of
such property actually paid as a dividend on each
outstanding share of Stock divided by the Fair Market Value
of a share of Stock on the day after the dividend payment
date.
o If the Company declares and pays a dividend on Common
Stock in the form of additional shares of Stock, or there
occurs a forward split of Stock, then the participant's
deferral account will be credited with a number of
additional shares of Deferred Stock as of the payment date
for such dividend or forward split equal to the number of
shares of Deferred Stock credited to the account as of the
record date for such dividend or split multiplied by the
number of additional shares of Stock actually paid as a
dividend or issued in such split in respect of each
outstanding share.
In addition, Deferred Stock otherwise may be adjusted by the Committee to
prevent dilution or enlargement of a participant's rights in connection with any
other extraordinary corporate event that affects the value of the Common Stock
(taking into account any crediting of additional Deferred Stock under the above
rules).
<PAGE>
5
RISKS INHERENT IN DEFERRALS
Deferred Stock carries certain risks. Each share of Deferred Stock under
the Deferral Plan represents a right to receive one share of Stock upon
settlement. Obviously, there is a risk that the Stock will go down in value.
There is also a risk that the Company will be unwilling to issue Stock in
settlement, despite its contractual obligation to do so, and the risk that
financial constraints or legal obligations will impede or prohibit the Company
in delivering shares in settlement of Deferred Stock. Moreover, if the
participant did not elect to defer RSUs or Option Profit Shares, he or she could
instead sell shares of Stock acquired in respect of those awards and reinvest
the proceeds. In addition, since the Plan provides for an adjustment of
additional shares of Stock in the case of a non cash dividend payable other than
in Stock, a holder of Deferred Stock will not be able to participate in the
investment returns of any such property which is distributed. Electing deferral
as Deferred Stock represents an undiversified investment subject to all the
risks of an investment in the stock of one company. Moreover, in contrast to
other investment vehicles, Deferred Stock is illiquid, in that Deferred Stock
cannot be reallocated to other investment vehicles or sold until the deferral
period ends. Finally, a participant's financial security may be substantially
tied to the Company due to his or her employment by the Company and other
compensation linked to Company securities. Indeed, even apart from any deferral
in Deferred Stock, the Company's equity securities and options thereon may
represent the single biggest investment position held by the participant. For
such a participant, the lack of diversification and illiquidity of Deferred
Stock under the Deferral Plan may make it unsuitable as a long-term deferral of
Stock-denominated compensation under the Deferral Plan.
ELECTIONS RELATING TO DEFERRALS
Participants will be entitled to make two distinct types of elections
relating to deferrals of Stock-denominated compensation:
(1) Elections as to the amount of PERS, other RSUs, and Option Profit
Shares to defer; and
(2) Elections as to the time at which resulting Deferred Stock will be
settled. Elections, which further defer the settlement date (so-called
"second-look" elections) will be permitted in certain cases.
An election to defer PERS and RSUs must be filed at least six months before the
risk of forfeiture (vesting) of the award (a lesser period may be specified for
awards vesting before December 31, 1999). An election to defer Option Profit
Shares must be filed at least six months before the date the option is
exercised. Once an election to defer Option Profit Shares is filed, the
participant will not be permitted to exercise the option during the six-month
quiet period, unless the participant has ceased to be employed by the Company
and its subsidiaries or there has occurred a Change in Control or other event
that would have ended the deferral of Deferred Stock had it occurred before the
date of such event. These elections become irrevocable upon filing with the
Company. However, elections relating to deferrals of Option Profit Shares will
cease to be effective as to options not yet exercised at the time of termination
of employment.
<PAGE>
6
Elections as to the time at which deferrals will be settled are discussed
in the next part of this Prospectus Supplement, under the caption
"--Settlement--Timing and Form of Payment."
SETTLEMENT--TIMING AND FORM OF PAYMENT.
Permitted Elections as to Time of Settlement. The Deferral Plan permits
considerable flexibility in electing the time of settlement of a participant's
deferral account. The primary limitation on these elections is that not more
than ten installments may be elected, with the final installment payable not
later than ten years after termination of employment due to retirement, death or
disability (a "Qualifying Termination"). (The definition of the terms
"retirement" and "disability" is set forth below under the caption
"--Accelerated Settlement, Including Upon Non-Qualifying Termination.") A
participant may elect a payout in a lump-sum or installments, at a fixed date
which may be during employment or after a Qualifying Termination, or at dates
specified in relation to a Qualifying Termination. Generally, these elections
will apply to all deferred balances resulting from deferrals of amounts that
would have otherwise become payable in a given year. Deferrals are deemed to
occur at the date of vesting in the case of PERS and RSUs and at the "exercise
date" in the case of Stock Option Profit Shares.
Thus, for example, a participant could elect that all deferral account
balances resulting from deferrals in 2000 be settled (i) 100% on the first
anniversary of the participant's retirement or other Qualifying Termination,
(ii) 50% on the first business day in January 2006 and 50% on the first business
day in January 2010, or (iii) $50,000 per year on the first business day in
January 2006 through 2009 (to fund child education) and lump sum balance one
year after retirement. The participant also could elect different settlement
dates for year 2001 deferrals. Any payment which would otherwise be due on a
non-business day will be deferred to the next business day.
A participant generally must elect a time of settlement not later than the
time the original election to defer is filed. If no new election as to the time
of settlement is filed with a new deferral election, the participant's prior
election as to the time of settlement of prior deferrals will continue to be in
effect for any new deferrals. However, a payment election with respect to Option
Profit Shares shall apply to a specified option whenever exercised.
Election to Further Defer Settlement of Deferred Amounts. Elections, which
further defer the settlement date of existing deferral account balances (i.e.,
"second-look" elections) will be permitted in the following circumstances.
Unless otherwise determined by the Committee, such elections (i) may only be
filed while the participant remains employed by the Company or a subsidiary,
(ii) may only operate to further extend the deferral period, and not to
accelerate the end of the deferral period for any portion of the deferral
account balance, and (iii) must be filed at least one year before the date the
deferral period to be extended would otherwise end. Thus, for example, a
participant who has elected a lump sum payment of the entire deferral account
balance one year after termination could, immediately prior to a Qualifying
Termination, elect ten
<PAGE>
7
annual installment payments commencing on the first anniversary of the
Qualifying Termination.
Accelerated Settlement, Including Upon Non-Qualifying Termination.
Regardless of any elections as to the period of deferral, in the event of a
termination of employment that is not a Qualifying Termination, the
participant's deferral account will be settled as promptly as practicable
following such termination. Thus, if the participant terminates employment
voluntarily, or is terminated by the Company or a subsidiary with or without
cause -- assuming the termination does not qualify as a retirement or a
termination due to disability or death -- the participant will receive a lump
sum settlement of shares of Stock which generally will subject the participant
to federal income taxation of the amount distributed in the year of the
settlement.
For purposes of the Deferral Plan, the term "retirement" means a voluntary
termination of employment (i) at or after attaining age 65 or (ii) prior to
attaining age 65 if such termination is approved in advance by the Committee.
For purposes of the Deferral Plan, the term "disability" means a physical or
mental impairment of sufficient severity such that the participant is both
eligible for and in receipt of benefits under the long-term disability
provisions of the Company's benefit plans.
Settlement will be accelerated in the event of a Change in Control, as
discussed below under the caption "--Effect of Change in Control and Related
Transactions." In addition, the Committee may, in connection with a termination
of the Deferral Plan or otherwise, accelerate the settlement of the deferral
account of any or all participants.
Mandatory Deferrals. The Deferral Plan permits the Company to mandate
deferrals of awards under other compensation plans and arrangements, including
Stock-denominated awards, with those deferrals to be governed by Deferral Plan
terms and conditions. The authority to implement compensatory awards under other
Company plans with mandatory deferral periods is implicit in those other plans;
this provision simply allows the Deferral Plan to provide the framework for
conveniently administering any such deferrals. The Deferral Plan does not
authorize the Company to mandatorily defer compensation, such as salary, to
which a participant has a legally enforceable right, but it does permit the
Company to mandate deferral of compensation awarded as a bonus or as to which
the participant has agreed to permit deferrals in the discretion of the Company.
In this regard, in electing to defer compensation under the Deferral Plan,
the participant agrees that the Company may impose a mandatory deferral of
settlement of the deferred compensation to the extent necessary to ensure that
the settlement of the deferred compensation will not result in payment of
non-tax deductible compensation by the Company. Under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), compensation paid to a
person who is a "covered employee," which means the Company's Chief Executive
Officer and other of the most highly compensated executive officers for the
given year, is not deductible by the Company to the extent that the compensation
exceeds $1 million and is not qualified "performance-based" compensation
(subject to limited exceptions not here relevant). This mandatory deferral would
apply only to the extent that the participant has elected a settlement prior to
termination of employment, only as to deferrals that do not qualify as
"performance-based"
<PAGE>
8
compensation, and only to the extent that the settlement, when added to other
non-performance-based compensation paid to the participant in a given year or
which the Committee deems likely to be paid in a given year, will exceed $1
million. Such mandatory deferral would extend only to the earliest time that the
compensation could be paid without loss of a tax deduction by the Company under
Section 162(m).
Form of Payment Upon Settlement. Upon any settlement of the participant's
deferral account, he or she will receive delivery of one share of Stock in
settlement of each share of Deferred Stock. No fractional shares will be issued
and, whenever a settlement would otherwise require the payment of a fractional
share, the shares otherwise issuable will be rounded down to the nearest number
of full shares.
EFFECT OF CHANGE IN CONTROL AND RELATED TRANSACTIONS
Special rules apply to any Change in Control and related transactions. For
purposes of the Deferral Plan, a "Change in Control" has the meaning defined in
any employment agreement or change-in-control severance agreement between the
Company and the participant or, if no such agreement is in effect at the
relevant date, the meaning as defined in the Company's Employees' Stock
Incentive Plan. However, no transaction in which the participant is actively
participating in a capacity other than as a director, officer, employee or
stockholder of the Company will constitute a Change in Control for purposes of
that participant's deferral account.
Upon a Change in Control:
o All deferral periods will be automatically accelerated to end at
the time of the Change in Control and deferral accounts will be
settled within five business days thereafter, provided that the
Committee may accelerate this settlement (for all or specified parts
of a deferral account) in anticipation of a Change in Control for any
reason (including to permit the participant to participate in a
transaction related to but preceding the Change in Control), subject
to such conditions as the Committee may impose; and
o If the Change in Control involves a transaction that is to be
accounted for as a pooling of interests, regardless of any other
rights the participant may have under the Deferral Plan, the
participant's rights will be adjusted or restricted to the extent
necessary to ensure that such rights under the Deferral Plan will not
impair the pooling-of-interests accounting treatment of the
transaction.
WITHDRAWALS FOR FINANCIAL EMERGENCY
A participant may make a written application to the Committee seeking a
withdrawal of all or a portion of his or her deferral account to respond to a
financial emergency of the participant. The Committee may disapprove such a
withdrawal for any reason, and will consider approving such an application only
if the participant's financial emergency is of a substantial nature and beyond
the participant's control, and if the Participant lacks other readily available
assets that could be used to timely
<PAGE>
9
address the emergency, such that the payment to the participant of amounts
previously deferred under the Deferral Plan is warranted. Upon such an approval
of an emergency withdrawal, the Committee may specify the amount to be paid out
to the participant and the time and manner of such payment. It is expected that
withdrawals for financial emergencies will be approved only in highly unusual
circumstances, and not to permit participants to respond to financial
circumstances that could have been anticipated. Deferred Stock paid out in such
a withdrawal will be settled in the form of Stock.
RABBI TRUST
The Company intends but is not obligated to establish an irrevocable
grantor trust--generally referred to as a "rabbi trust" -- in connection with
the Deferral Plan. The Company does not, however, currently intend to deposit
shares in the trust in connection with Deferred Stock credited under the
Deferral Plan.
FICA/HI TAX OBLIGATIONS; TAX WITHHOLDING; SETOFFS
Under U.S. law, amounts deferred under the Deferral Plan generally are
subject to Social Security and Medicare withholding (FICA/HI) at the time of
deferral, although FICA/HI may apply earlier to PERS and RSUs if they vest and
become non-forfeitable prior to deferral under the Deferral Plan. A participant
who elects to defer under the Deferral Plan will have to meet FICA/HI
obligations out of other cash income, and must authorize the Company or a
subsidiary or affiliate to withhold other cash compensation to meet these
obligations. In other words, no part of the amount deferred will be used to
satisfy the FICA/HI obligations. Once deferred, any earnings or appreciation in
value of the deferral balance should not subject the participant to additional
FICA/HI obligations.
All withdrawals and payments in settlement of a participant's deferral
account are subject to withholding for U.S. federal, state and local income and
employment taxes. Similar income, employment and withholding taxes also may
apply to participants who are resident in foreign jurisdictions. These may apply
at the time of deferral, during any deferral period, or at the time of a
withdrawal or payment in settlement of the participant's account.
Moreover, any withdrawal or payment in settlement of a participant's
account may be reduced or retained by the Company and applied to the payment of
any deficit of the participant or other obligation of the participant to the
Company, the participant's employer, or any affiliate of the Company or such
employer. By deferring compensation and participating in the Deferral Plan, each
participant consents to the right of setoff of the Company, his or her employer,
and their affiliates.
NON-TRANSFERABILITY
A participant's deferral account balances, including Deferred Stock
credited thereto, rights to withdraw and rights to settlement of his or her
deferral account, and all other rights under the Deferral Plan are not
transferable except, in the event of the participant's death, by will or by the
laws of descent and distribution or to a beneficiary designated by the
participant in accordance with the Deferral Plan and any regulations adopted by
the Committee permitting such designation. Likewise, a participant's
<PAGE>
10
deferral account balances, rights to withdraw and rights to settlement of his or
her deferral account, and all other rights under the Deferral Plan are not
subject to alienation, pledge, encumbrance, attachment, garnishment, levy, or
other legal process.
RELIANCE ONLY ON WRITTEN DOCUMENTS; COPY OF DEFERRAL PLAN
The terms of the Deferral Plan are set forth in the Deferral Plan document,
any written rules, regulations, or forms approved by the Committee for use under
the Deferral Plan, and the portion of this Prospectus Supplement captioned "Part
II -- Terms and Conditions of Deferrals." No person is authorized to make any
representation or commitment to a participant or beneficiary that is
inconsistent with such written documents, and no statement regarding the
Deferral Plan should be relied on unless it is set forth in writing by the
Company. This Prospectus Supplement is intended only to provide a summary of
significant terms of the Deferral Plan, and it does not purport to be a complete
description of all terms of the Deferral Plan. This Prospectus Supplement is
qualified in its entirety by the Deferral Plan document.
A participant may obtain a copy of the Deferral Plan document, and other
information and documents regarding the ESIP, the Replacement Plan and the
Company, by contacting the Company's Executive Compensation Department at:
IMS Health Incorporated
660 W. Germantown Pike
Plymouth Meeting, PA 19462
(610) 832-5867
STATEMENTS TO PARTICIPANTS
The Company intends to provide a statement to each participant recording
transactions and balances in the participant's deferral account since the close
of the period covered in a previous statement not less frequently than annually.
1
IMS HEALTH INCORPORATED
200 Nyala Farms
Westport, CT 06880
MEMORANDUM
(Selected Portions)
TO: Executives Eligible to Participate in the IMS Health Incorporated
Executive Deferred Compensation Plan
FROM: IMS Health Incorporated
DATE: September 27 1999
RE: Cash Deferrals Under the Executive Deferred Compensation Plan: Terms and
Conditions and Related Information
PART II -- TERMS AND CONDITIONS OF DEFERRALS
PLAN INCORPORATED BY REFERENCE AND APPLICABLE TO DEFERRALS.
All of the terms and conditions set forth in the Executive Deferred
Compensation Plan (the "Plan") apply to a participant's election to defer and
the resulting deferrals under the Plan. These terms are incorporated by
reference into the agreement that arises between IMS Health Incorporated (the
"Company" or "IMS Health") and the participant as a result of any election to
defer. If any term, condition, or disclosure in this memorandum is inconsistent
with a Plan provision, the Plan provision will govern.
COMPENSATION THAT MAY BE DEFERRED; DEFERRAL LIMITS.
The Compensation and Benefits Committee of the Board of Directors of the
Company (the "Committee") has authorized the deferral of the following types of
compensation:
(1) Cash compensation otherwise payable in the form of:
o Salary; and
o Annual incentive awards; and
(2) Compensation payable in the form of the Company's Common Stock
("Stock"), specifically:
<PAGE>
2
o Restricted stock units awarded under the Company's
Performance-Based Restricted Stock Program (these restricted
stock units are referred to as "PERS");
o Other awards of restricted stock units awarded under any Company
plan; and
o Shares representing the pre-tax "profit" realized on exercise of
options in specified circumstances, as described in more detail
in the Stock Deferral Prospectus Supplement.
The Plan imposes limits on the amount of compensation that may be deferred.
Under these limits, a participant may defer compensation in a given year only to
the extent that it exceeds the social security wage base ($72,600 in 1999; the
amount for 2000 will be available in November) plus the amount necessary to
satisfy Medicare (1.45% of wages in excess of the social security wage base in
2000) and all other payroll taxes (other than income tax withholdings) imposed
on the participant's wages. For administrative convenience, this limit will be
applied to cash compensation (and not to Stock-denominated deferrals), so that,
regardless of a participant's deferral elections, salary and annual incentive
compensation at least equal to this minimum amount will be paid on a
non-deferred basis.
For purposes of this memorandum, a "deferral" refers to the time at which
compensation otherwise would have been payable to the participant, but for his
or her prior election to defer the compensation hereunder. Thus, the deferral
results from the participant's election to defer, but the election occurs
earlier in time than the deferral.
Certain participant rights and benefits under other Company plans are
determined based upon the amount of cash compensation paid to an employee. To
the extent practicable and consistent with laws and regulations governing
Company plans, a participant's cash compensation will be deemed to include
amounts of cash compensation deferred under the Plan and exclude payout of
amounts previously deferred so that participation in the Plan will not affect
the participant's rights and benefits under such other plans.
The Company will make no matching contributions or other contributions to a
participant's account under the Plan, aside from the Company's obligation to
pay, at settlement, the value of the deferral account as adjusted to reflect the
investment performance of the investment vehicle in which the deferral account
balance has been deemed invested.
INVESTMENT VEHICLES.
Choices of Investment Vehicles. The participant will be permitted to direct
the manner in which cash amounts deferred will be deemed to be invested (this
flexibility does not apply to Stock-denominated deferrals, which are deemed
solely invested in Deferred Stock). The list of investment vehicles from which a
participant may choose will be specified from time to time by the Company.
Deferrals will be "deemed" to be invested in these investment vehicles on a
hypothetical or "notional" basis -- as though the deferred amounts had been
invested in the investment vehicles and any earnings reinvested in such
investment vehicles. The Plan does not require that the Company actually make
such investments, although, as discussed below, the Company may make actual
investments in the investment vehicles in certain circumstances. See
"--Investment Vehicles--Measurement of Value Based on Trust Assets."
<PAGE>
3
Initially, the Company will make available, as investment vehicles for cash
deferrals, notional investments in the types of index fund investment vehicles
currently available under the Company's 401(k) Plan. The indexes upon which
these funds will be based are listed on the attached "Investment Directions Form
Under the Executive Deferred Compensation Plan." Information regarding the past
history of these indexes accompanies this memorandum. A notional version of the
IMS Stock fund under the 401(k) Plan is not an investment vehicle under the
Plan. Moreover, notional investment of cash deferrals in IMS Stock -- through
the Deferred Stock feature of the Plan -- is not an investment vehicle available
at this time. The financial services company which will sponsor and manage the
index funds to be investment vehicles under the Plan has not been finally
determined at the date of this memorandum.
The investment return of funds that attempt to replicate the results of
financial indexes may differ from the results charted by the index, due to a
variety of circumstances affecting the funds. One significant difference that
can result in funds underperforming the index on which they are based is that
the fund must buy and sell securities, incurring transaction costs, and the fund
will be reduced by the amount of management fees paid. There can be no assurance
that the index funds that will be available under the Plan as investment
vehicles can produce returns in the future that equal the results of the index
or equal the returns of the index funds currently available under the Company's
401(k) Plan.
The Company reserves the right to disapprove any investment direction given
by a participant, in which case the participant will be permitted to give an
alternative investment direction (subject to approval of the Company). In the
absence of an approved investment election, deferrals will be deemed invested in
the investment vehicle most closely approximating cash equivalents, unless
otherwise directed by the Committee.
Participant Has No Direct Interest in Investment Vehicles. As stated above,
cash deferrals under the Plan do not represent actual investments by the
participant in these investment vehicles. Rather, the investment vehicle is used
to measure the appreciation or depreciation of the amount deferred and earnings
and distributions thereon. Upon settlement of the deferral account, the Company
is obligated to pay an amount measured based on the investment vehicle.
Measurement of Value Based on Trust Assets. The Company is authorized under
the Plan to establish one or more grantor trusts -- commonly referred to as
"rabbi trusts" -- into which funds may be deposited to be used to purchase
assets that match the investment vehicles elected by participants. See "Part II
- - -- Rabbi Trust." Initially, the Company intends to establish and use such a
trust in connection with the Plan for deferrals other than those deemed invested
in Deferred Stock, although the Company is not obligated to continue this
practice. In such case, the time at which deferred cash amounts will be deemed
invested in those investment vehicles, including upon deferral of cash or
reallocation of previously deferred amounts, will be tied to the timing of the
parallel transactions by the trust, and the valuation of your deferral and any
earnings thereon or appreciation or loss of value thereof will be measured by
the value of the assets of the rabbi trust. This will simplify the
administration of the Plan and provide the Company with income that offsets any
additional expense relating to its deferred compensation obligation to
participants. Note that the use of a rabbi trust may result in delays, expected
not to exceed one or two business days, between the date of a cash deferral (the
date cash compensation otherwise would have been paid) and the date the Company
invests funds through the rabbi trust, and possibly similar delays when
participant's make other transactions permitted under the Plan affecting their
Deferral Accounts.
<PAGE>
4
Participant's Change in Choice of Investment Vehicles; Discontinued
Investment Vehicles. Once you have commenced participation in the Plan, you will
be able to change your investment directions for cash deferrals in two ways.
First, you may change the investment vehicles in which cash amounts deferred
after the date of your new election are deemed invested - i.e., a change in
investment directions covering future deferrals.
EXAMPLE: A participant elects in September 1999 to defer $30,000 of annual
incentive, if such amount would otherwise become payable in February 2000,
and directs that the deferred amount be deemed invested in a money market
fund. In January 2000, the participant files a new investment direction
directing that all subsequent cash deferrals be deemed invested in an
equity index fund. As a result of this new investment direction, the
February 2000 deferral of annual incentive (if it is paid) will be deemed
invested in the equity index fund.
You may also reallocate or "switch" the investment vehicles in which previously
deferred cash amounts are deemed invested. This "switching" election is a change
in investment directions affecting existing deferral account balances (prior
deferrals) but not affecting amounts deferred in the future.
Changes in investment directions that affect future deferral and
"switching" changes that affect prior deferred amounts will both be implemented
as promptly as administratively practicable. Initially, these changes will be
permitted no more frequently that once per month, but the Company may alter the
frequency of such changes to promote efficient administration of the Plan.
The investment vehicles available under the Plan may change from time to
time. In the event an investment vehicle you have previously elected is
discontinued, you will be given an opportunity to reallocate prior cash
deferrals allocated to that investment vehicle and to direct future deferrals to
an alternative investment vehicle. If you fail to give timely directions
regarding such a change, however, your deferral account balance in that
investment vehicle will be automatically reallocated, and your future deferrals
will be directed to the investment vehicle that most closely represents cash or
cash equivalents.
A deferral account balance deemed invested in an investment vehicle under
the Plan will be credited with amounts equivalent to dividends and distributions
on the specified investment vehicle. To the extent reasonably practicable, these
amounts will be deemed reinvested in the same investment vehicle. To the extent
the investment vehicle provides a dividend reinvestment plan, dividends may be
"reinvested" pursuant to such plan.
RISKS INHERENT IN PLAN DEFERRALS AND INVESTMENT VEHICLES
There are two distinct investment risks under the Plan. First is the risk
that the value of the amount deferred will go down or fail to go up at a rate
deemed satisfactory by the participant. Any such investment return is based on
the investment vehicle selected by the participant, into which amounts deferred
are deemed invested. Most of the investment vehicles, particularly those that
relate to equity securities, have a substantial risk that they will go down in
value based on market conditions and other factors. In such case, the
Participant may receive little or nothing upon settlement of his deferral
account under the Plan. The Company, the Committee, any trustee of a rabbi trust
relating to the Plan, and employees and agents of the Company make no
recommendation as to any of the investment vehicles and make no guarantee of the
performance of any of the investment vehicles. You are urged to
<PAGE>
5
consult with a financial advisor or other professional in determining whether to
defer compensation under the Plan and in selecting investment vehicles into
which amounts will be deferred or reallocated from time to time.
Second is the risk that the Company is unable or unwilling to pay amounts
to which the participant is entitled in settlement of his or her deferral
account. As stated above, the "notional" investment in a given investment
vehicle is used only to measure the value of the participant's deferral account.
Even if the participant has chosen an investment vehicle that has performed well
and appreciated in value, the participant still depends on the Company's
financial soundness and willingness to pay in order to receive payment in
settlement of the deferred compensation. In this regard, if and to the extent
that funds are deposited in the rabbi trust, the trustee will be obligated to
pay assets out in settlement of deferred compensation obligations under the
Plan, unless such assets become subject to claims of creditors of the Company.
ELECTIONS RELATING TO DEFERRALS.
Participants will be entitled to make elections that have three distinct
elements under the Plan:
(1) One element will specify the type and amount of cash compensation to
defer, including salary and annual incentive awards (note:
Stock-denominated deferrals of PERS, other restricted stock units, and
"profit shares" upon exercise of options are discussed in the
Prospectus Supplement dated September 27, 1999 (the "Stock Deferral
Prospectus Supplement"));
(2) In the case of cash deferrals, one element will specify the type of
investment vehicles in which the deferred amounts are deemed invested,
including (i) elections applicable to future deferrals and (ii)
"switching" elections reallocating existing deferral account balances;
and
(3) One element will specify the time at which deferrals will be settled.
Elections, which further defer the settlement date (so-called
"second-look" elections) will be permitted in certain cases.
With regard to the first element of elections, as to the type and amount of
compensation to defer, strict timing rules apply as to the time such elections
must be filed with the Company:
o Salary deferrals -- at least 15 days prior to the beginning of the
next calendar quarter, at which time the salary deferral will
commence;
o Annual incentive award deferrals -- no later than October 15, 1999 for
annual incentive awards potentially payable in January or February
2000 in respect of 1999 performance; after the Plan start-up year of
1999, these elections must be filed by the end of the third quarter of
the year for which the award will be payable (e.g., September 30, 2000
for annual incentive awards potentially payable in January or February
2001)
o PERS and other restricted stock units -- at least six months before
the date of vesting of the award, except that a filing by October 15,
1999 will be deemed timely for all restricted stock units vesting
thereafter during 1999
<PAGE>
6
o "Profit shares" acquired upon exercise of options -- at least six
months before the date the option is exercised
These elections become irrevocable upon filing with the Company.
With regard to the second element of the election, covering the type of
investment vehicles in which cash deferrals are deemed invested, an election
must be filed with (or prior to) the time any election to defer cash
compensation becomes effective. Rules as to the timing of filing a change in the
type of investment vehicles elected are discussed under the caption
"--Investment Vehicles--Participant's Change in Choice of Investment Vehicles;
Discontinued Investment Vehicles."
The third type of election, as to the time at which deferrals will be
settled, is discussed in the next part of the memorandum, under the caption
"--Settlement--Timing and Form of Payment."
SETTLEMENT--TIMING AND FORM OF PAYMENT.
Permitted Elections as to Time of Settlement. The Plan permits considerable
flexibility in electing the time of settlement of a participant's deferral
account. The primary limitation on these elections is that not more than ten
installments may be elected, with the final installment payable not later than
ten years after termination of employment due to retirement, death or disability
(a "Qualifying Termination"). (The definition of the terms "retirement" and
"disability" is set forth below under the caption "--Accelerated Settlement,
Including Upon Non-Qualifying Termination.") A participant may elect payout in a
lump-sum or installments, at a fixed date which may be during employment or
after a Qualifying Termination, or at dates specified in relation to a
Qualifying Termination. Generally, these elections will apply to all deferred
balances resulting from deferrals of amounts that would have otherwise become
payable in a given year.
Thus, for example, a participant could elect that all deferral account
balances resulting from deferrals in 2000 be settled (i) 100% on the first
anniversary of the participant's retirement or other Qualifying Termination,
(ii) 50% on the first business day in January 2006 and 50% on the first business
day in January 2010, or (iii) $50,000 per year on the first business day in
January 2006 through 2009 (to fund child education) and lump sum balance one
year after retirement. The participant could elect different settlement dates
for year 2001 deferrals. Any payment which otherwise would be due on a
non-business day will be deferred to the next business day.
A participant generally must elect a time of settlement not later than the
time the original election to defer is filed. If no new election as to the time
of settlement is filed with a new deferral election, the participant's prior
election as to the time of settlement of prior deferrals will continue to be in
effect for any new deferrals.
Election to Further Defer Settlement of Deferred Amounts. Elections which
further defer the settlement date of existing deferral account balances (i.e.,
"second-look" elections) will be permitted in the following circumstances.
Unless otherwise determined by the Committee, such elections (i) may only be
filed while the participant remains employed by the Company or a subsidiary,
(ii) may only operate to further extend the deferral period, and not to
accelerate the end of the deferral period for any portion of the deferral
account balance, and (iii) must be filed
<PAGE>
7
at least one year before the date the deferral period to be extended would
otherwise end. Thus, for example, a participant who has elected a lump sum
payment of the entire deferral account balance one year after termination could,
immediately prior to a Qualifying Termination, elect ten annual installment
payments commencing on the first anniversary of the Qualifying Termination.
Accelerated Settlement, Including Upon Non-Qualifying Termination.
Regardless of any elections as to the period of deferral, in the event of a
termination of employment that is not a Qualifying Termination, the
participant's deferral account will be settled as promptly as practicable
following such termination. Thus, if the participant terminates employment
voluntarily, or is terminated by the Company or a subsidiary with or without
cause -- assuming the termination does not qualify as a retirement or a
termination due to disability or death -- the participant will receive a lump
sum settlement which generally will subject the participant to federal income
taxation of the amount distributed in the year of the settlement.
For purposes of the Plan, the term "retirement" means a voluntary
termination of employment (i) at or after attaining age 65 or (ii) prior to
attaining age 65 if such termination is approved in advance by the Committee.
For purposes of the Plan, the term "disability" means a physical or mental
impairment of sufficient severity such that the participant is both eligible for
and in receipt of benefits under the long-term disability provisions of the
Company's benefit plans.
Settlement will be accelerated in the event of a Change in Control, as
discussed below under the caption "--Effect of Change in Control and Related
Transactions." In addition, the Committee may, in connection with a termination
of the Plan or otherwise, accelerate the settlement of the deferral account of
any or all participants.
Mandatory Deferrals. The Plan permits the Company to mandate deferrals of
awards under other compensation plans and arrangements, with those deferrals to
be governed by Plan terms and conditions. The authority to implement
compensatory awards under other plans with deferral periods is implicit in those
other plans; this provision simply allows the Plan to provide the framework for
conveniently administering any such deferrals. The Plan does not authorize the
Company to mandatorily defer compensation, such as salary, to which a
participant has a legally enforceable right, but it does permit the Company to
mandate deferral of compensation awarded as a bonus or as to which the
participant has agreed to permit deferrals in the discretion of the Company.
In this regard, in electing to defer compensation under the Plan, the
participant agrees that the Company may impose a mandatory deferral of
settlement of the deferred compensation to the extent necessary to ensure that
the settlement of the deferred compensation will not result in payment of
non-tax deductible compensation by the Company. Under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), compensation paid to a
person who is a "covered employee," which means the Company's Chief Executive
Officer and other four other most highly compensated executive officers for the
given year, is not deductible by the Company to the extent that the compensation
exceeds $1 million and is not qualified "performance-based" compensation
(subject to limited exceptions not here relevant). This mandatory deferral would
apply only to the extent that the participant has elected a settlement prior to
termination of employment, only as to deferrals that do not qualify as
"performance-based" compensation, and only to the extent that the settlement,
when added to other non-performance-based compensation paid to the participant
in a given year or which the Committee deems likely to be paid in such given
year, will exceed $1 million. Such
<PAGE>
8
mandatory deferral would extend only to the earliest time that the compensation
could be paid without loss of a tax deduction by the Company under Section
162(m).
With regard to "performance-based" compensation deferred under the Plan,
the Plan provides that (i) if the participant is likely to be a "covered
employee" in the year of settlement and (ii) if the compensation would lose its
status as "performance-based" compensation due to deferral or the operation of
any term of the Plan, then terms of the deferral will be automatically modified
to the extent necessary to ensure that the compensation would not, at
settlement, be disqualified as "performance-based compensation."
Form of Payment Upon Settlement. Upon any settlement of the participant's
deferral account, he or she will receive, with respect to cash deferrals,
payment of the value of his or her deferral account at the settlement date in
cash or, in the discretion of the Committee, delivery of other assets having a
fair market value equal to the amount otherwise payable in cash. It is the
intention of the Company that, if assets other than cash are to be delivered,
only assets that correspond in type and amount to the investment vehicles in
which the participant's deferral amounts are deemed invested immediately prior
to settlement will be delivered to the participant. Any such cash or property
may be delivered out of the rabbi trust relating to the Plan in settlement of
the Company's obligation. See "--Rabbi Trust."
EFFECT OF CHANGE IN CONTROL AND RELATED TRANSACTIONS
Special rules apply to any Change in Control and related transactions. For
purposes of the Plan, a "Change in Control" has the meaning defined in any
employment agreement or change-in-control severance agreement between the
Company and the participant or, if no such agreement is in effect at the
relevant date, the meaning as defined in the Company's Employees' Stock
Incentive Plan. However, no transaction in which the participant is actively
participating in a capacity other than as a director, officer, employee or
stockholder of the Company will constitute a Change in Control for purposes of
that participant's deferral account.
Upon a Change in Control:
o All deferral periods will be automatically accelerated to end at the
time of the Change in Control and deferral accounts will be settled
within five business days thereafter, provided that the Committee may
accelerate this settlement (for all or specified parts of a deferral
account) in anticipation of a Change in Control for any reason
(including to permit the participant to participate in a transaction
related to but preceding the Change in Control), subject to such
conditions as the Committee may impose.
WITHDRAWALS FOR FINANCIAL EMERGENCY
A participant may make a written application to the Committee seeking a
withdrawal of all or a portion of his or her deferral account to respond to a
financial emergency of the participant. The Committee may disapprove such a
withdrawal for any reason, and will consider approving such an application only
if the participant's financial emergency is of a substantial nature and beyond
the participant's control, and if the Participant lacks other readily available
assets that could be used to timely address the emergency, such that the payment
to the participant of amounts previously deferred under the Plan is warranted.
Upon such an approval of an emergency withdrawal, the Committee may specify the
amount to be paid out to the participant and the time and manner of such
payment. It is expected that withdrawals for
<PAGE>
9
financial emergencies will be approved only in highly unusual circumstances, and
not to permit participant's to respond to financial circumstances that could
have been anticipated.
VOLUNTARY WITHDRAWAL SUBJECT TO A 10% PENALTY
A participant may voluntarily withdraw all or a portion of his or her
deferral account balance upon 30 days' notice to the Committee, subject to a
penalty equal to 10% of the amount withdrawn. The amount of this penalty will be
forfeited and paid over to the Company.
NATURE OF DEFERRED COMPENSATION OBLIGATIONS UNDER THE PLAN
A participant's rights under the Plan are similar to those of an unsecured
creditor of the Company, but subject to certain additional limitations. The
obligations of the Company in respect of deferrals under the Plan, including any
earnings or appreciation relating to the deferrals, is to make payments to a
participant and his or her beneficiaries in accordance with the terms of the
Plan (the "Obligations"). The Obligations are unsecured general obligations of
the Company, and rank PARI PASSU with other unsecured and unsubordinated
indebtedness and other liabilities, including trade payables, of the Company
from time to time outstanding. The Obligations, which are denominated and
payable in United States dollars, are not convertible into another security of
the Company. The Obligations do not have the benefit of a negative pledge or any
other affirmative or negative covenant on the part of the Company. Accordingly,
the Company is subject to no limits in its ability to incur other liabilities
that would have priority over the Obligations in a bankruptcy. No trustee
(including any trustee of a rabbi trust, if one is created and used under the
Plan) has been or will be appointed having the authority to take action which
would provide any substantial protections to participants with respect to the
Obligations, and each participant is responsible for acting independently with
respect to, among other things, the giving of notices, responding to any
requests for consents, waivers or amendments pertaining to the Obligations,
enforcing agreements of the Company and taking action upon any default by the
Company. No specific events are defined as events of default with respect to the
Obligations. The deposit of any assets to a rabbi trust under the Plan will
provide no substantial assurance that the Company will not default in the
Obligations, and the Company will not otherwise segregate or set aside assets in
respect of the Obligations.
To the extent that the Company conducts operations through subsidiaries,
all of the assets of its subsidiaries will be used to satisfy the creditors of
the subsidiaries before any of such assets are available to the Company or its
creditors, including participants. The Company's subsidiaries have numerous
liabilities, and Plan participants have no protection from any restriction on
subsidiaries incurring additional liabilities. In addition, dividends, loans and
advances from certain subsidiaries to the Company may be restricted under debt
covenants or other regulations or contractual restrictions.
In addition, the restrictions on a participant's right to transfer or
encumber the Obligations, any risk of forfeiture of awards granted under other
Company plans but deferred under the Plan, and the inability of a participant to
negotiate the terms of the Obligations cause the rights of a participant to be,
in these respects, more restricted than those of other unsecured creditors of
the Company.
<PAGE>
10
RABBI TRUST
The Company intends, but is not obligated, to establish an irrevocable
grantor trust -- generally referred to as a "rabbi trust" -- for purposes of
measuring the performance of the investment vehicles relating to cash
compensation deferred under the Plan, to provide income to offset changes in the
amount of the Company's deferred compensation obligations resulting from
investment performance, and otherwise to facilitate the operation and
administration of the Plan. Such trust provides no substantial protection to
participants with regard to risks as to the creditworthiness of the Company,
because the assets of the trust will remain subject to claims of the creditors
of the Company. The Company may direct the trustee to pay cash or deliver assets
in kind to a participant in settlement of his or her deferral account.
FICA/HI TAX OBLIGATIONS; TAX WITHHOLDING; SETOFFS.
Under U.S. law, amounts deferred under the Plan generally are subject to
Social Security and Medicare withholding (FICA/HI) at the time of deferral. A
participant who elects to defer under the Plan will have to meet these
obligations out of other cash income, and must authorize the Company or a
subsidiary or affiliate to withhold other cash compensation to meet these
obligations. In other words, no part of the amount deferred will be used to
satisfy the FICA/HI obligations. Once deferred, any earnings or appreciation in
value of the deferral balance should not subject the participant to additional
FICA/HI obligations.
All withdrawals and payments in settlement of a participant's deferral
account are subject to withholding for U.S. federal, state and local income and
employment taxes. Similar income, employment and withholding taxes also may
apply to participants who are resident in foreign jurisdictions. These may apply
at the time of deferral, during any deferral period, or at the time of a
withdrawal or payment in settlement of the participant's account.
Moreover, any withdrawal or payment in settlement of a participant's
account may be reduced or retained by the Company and applied to the payment of
any deficit of the participant or other obligation of the participant to the
Company, the participant's employer, or any affiliate of the Company or such
employer. By deferring compensation and participating in the Plan, each
participant consents to the right of setoff of the Company, his or her employer,
and their affiliates.
NON-TRANSFERABILITY
A participant's account balances, rights to withdraw and rights to
settlement of his or her deferral account, and all other rights under the Plan
are not transferable except, in the event of the participant's death, by will or
by the laws of descent and distribution or to a beneficiary designated by the
participant in accordance with the Plan and any regulations adopted by the
Committee permitting such designation. Likewise, a participant's account
balances, rights to withdraw and rights to settlement of his or her deferral
account, and all other rights under the Plan are not subject to alienation,
pledge, encumbrance, attachment, garnishment, levy, or other legal process.
RELIANCE ONLY ON WRITTEN DOCUMENTS; COPY OF PLAN
The terms of the Plan are set forth in the Plan document, any written
rules, regulations, or forms approved by the Committee for use under the Plan,
and the portion of this memorandum captioned "Part II -- Terms and Conditions of
Deferrals." No person is authorized to make any representation or commitment to
a participant or beneficiary that is inconsistent
<PAGE>
11
with such written documents, and no statement regarding the Plan should be
relied on unless it is set forth in writing by the Company. This memorandum is
intended only to provide a summary of significant terms of the Plan document,
and it does not purport to be a complete description of all terms of the Plan.
This memorandum is qualified in its entirety by the Plan document.
A participant may obtain a copy of the Plan document by contacting the
Company's Executive Compensation Department at the address set forth below:
IMS Health Incorporated
660 W. Germantown Pike
Plymouth Meeting, PA 19462
(610) 832-5867
STATEMENTS TO PARTICIPANTS
The Company intends to provide a statement to each participant recording
transactions and balances in the participant's the Plan account since close of
the period covered in a previous statement not less frequently than annually.
Exhibit 10.5
SECOND AMENDMENT TO
IMS HEALTH INCORPORATED SAVINGS PLAN
Effective as of September 1, 1999
1. Article 1 of the IMS Health Incorporated Savings Plan (the "Plan") is
hereby amended by adding the following new Section 1.24a to read in its
entirety as follows:
"1.24a `Emron Plan' shall mean the Emron, Inc. 401(k) Savings & Investment
Plan."
2. Section 7.1(a) of the Plan is hereby amended by adding the following new
sentence to the end thereof:
"For a Member whose account balance under the Emron Plan was transferred to
this Plan, the value of such transferred account which is attributable to
his or her pre-tax contributions to the Emron Plan shall also be accounted
for in his or her Pre-tax Account."
3. Section 7.1(d) of the Plan is hereby amended by adding the following new
sentence to the end thereof:
"For a Member whose account balance under the Emron Plan was transferred to
this Plan, the value of such transferred account which is attributable to
employer contributions to the Emron Plan shall also be accounted for in his
or her Employer Account."
4. Section 7.1(e) of the Plan is hereby amended by adding the following new
sentence to the end thereof:
"For a Member whose account balance under the Emron Plan was transferred to
this Plan, the value of such transferred account which is attributable to a
promissory note due to a loan under the Emron Plan shall also be accounted
for in his or her Loan Account."
5. Section 9.1 of the Plan is hereby amended by adding the following new
subsection (e) to the end thereof to read in its entirety as follows:
"(e) A Member whose account balance under the Emron Plan was transferred to
this Plan may make a withdrawal of an amount up to the amounts so
transferred into his or her Employer Account, Pre-tax Account and Loan
Account at any time after attaining the age of 60."
6. Section 10.3 of the Plan is hereby amended by adding the following sentence
to the end of subsection (e) thereof:
"Notwithstanding the foregoing, a Member whose account balance under the
Emron Plan was transferred to this Plan shall not have a vested portion of
his or her Employer
<PAGE>
Account less than his or her nonforfeitable percentage of employer
contributions under the Emron Plan as of the date of such transfer."
7. Section 11.1 of the Plan is hereby amended by adding the following new
paragraph to the end thereof:
"Notwithstanding the foregoing, a Member whose account balance under the
Emron Plan was transferred to this Plan may elect to receive distribution
of an amount up to the amounts so transferred into his or her Employer
Account, Pre-tax Account and Loan Account under one or any combination of
the following methods: (1) by payment in a lump sum, or (2) by payment in
monthly, quarterly or annual installments over a fixed reasonable period of
time, not exceeding the life expectancy of the Member, or the joint life
and last survivor expectancy of the Member and his or her Beneficiary."
-2-
Exhibit 10.6
FIRST AMENDMENT TO THE
IMS HEALTH INCORPORATED
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
EFFECTIVE AS OF SEPTEMBER 1, 1999
1. Section 1.1 of the IMS Health Incorporated Supplemental Executive
Retirement Plan (the "Plan") is hereby amended to read in its entirety as
follows:
"1.1 "ACTUARIAL EQUIVALENT VALUE" shall mean a benefit of equivalent
value computed on the basis of the 1983 Group Annuity Mortality
Table and interest equal to the yield on 30-year Treasury Bonds
as of the last business day of the Plan Year prior to the year in
which the relevant calculation occurs; provided, however, that
for purposes of determining the Actuarial Equivalent Value of the
amount described in Section 1.23(a) for Members or Vested Former
Members who participated in the Predecessor to this Plan, the
foregoing assumptions or the assumptions used in the Predecessor
to this Plan shall be used, whichever produces the greater
benefit for the Member or the Vested Former Member."
2. Section 1.23(b) of the Plan is hereby amended to read in its entirety as
follows:
"(b) the retirement income payable to a Member or Vested Former Member
from any `excess benefit plan' as that term is defined in Section
3(36) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), any plan described in Section 201(2) of ERISA, and
any other contract, agreement or other arrangement providing a defined
pension benefit or defined contribution retirement benefit, in any
case, maintained or entered into with the Company or an Affiliated
Employer (excluding this Plan, any Basic Plan, any defined
contribution plan intended to meet the requirements of Code Section
401(a) and any elective plan of deferred compensation)."
<PAGE>
3. Section 1.25 of the Plan is hereby amended to read in its entirety as
follows:
"1.25 "PREDECESSOR TO THIS PLAN" shall mean the Supplemental Executive
Benefit Plan of The Dun & Bradstreet Corporation, as amended as of
December 21, 1994."
4. Section 1 of the Plan is hereby further amended by adding the following
new Section 1.32 to the end thereof to read in its entirety as follows:
"1.32 `PLAN ADMINISTRATOR' shall mean the Company, except that any
action authorized to be taken by the Plan Administrator hereunder may
also be taken by any committee or person(s) duly authorized by the
Board or the duly authorized delegees of such duly authorized
committee or person(s)."
5. The Plan is hereby further amended by deleting therefrom all references
to the term "Committee" and replacing therefor the term "Plan Administrator."
6. Section 7.1 of the Plan is hereby amended to read in its entirety as
follows:
"7.1 AMENDMENT; TERMINATION. The Board of Directors of the Company,
may, in its sole discretion, terminate, suspend or amend this Plan at
any time or from time to time, in whole or in part; provided, however,
that no termination, suspension or amendment of the Plan may adversely
affect (a) a Member's or Vested Former Member's benefit under the Paln
to which he or she is entitled hereunder,or, (b) a Vested Former
Member's right or the right of a Surviving Spouse to receive or to
continue to receive a benefit in accordance with the Plan, such
benefits or rights as in effect on the date immediately preceding the
date of such termination, suspension or amendment. Notwithstanding the
foregoing, the Employee Benefits Committee of the Company may amend
the Plan without the approval of the Board of Directors of the Company
with respect to amendments that such Committee determines do not have
a significant effect on the cost of the Plan."
-2-
Exhibit 10.7
FIRST AMENDMENT TO THE
IMS HEALTH INCORPORATED
RETIREMENT EXCESS PLAN
EFFECTIVE AS OF SEPTEMBER 1, 1999
1. Section VII(a) of the IMS Health Incorporated Retirement Excess Plan
(the "Plan") is hereby amended to read in its entirety as follows:
"(a) The Company shall be the plan administrator (the "Plan
Administrator") under the Plan and as such shall be responsible for
the administration of the Plan , except that any action authorized
to be taken by the Plan Administrator hereunder may also be taken by
any committee or person(s) duly authorized by the Board of Directors
of the Company or the duly authorized delegees of such duly
authorized committee or person(s). The Plan Administrator shall have
the authority to determine all questions arising in connection with
the Plan, to interpret the provisions of the Plan and construe all
of its terms, to adopt, amend, and rescind rules and regulations for
the administration of the Plan, and generally to conduct and
administer the Plan and to make all determinations in connection
with the Plan as may be necessary or advisable. All such actions of
the Plan Administrator shall be conclusive and binding upon all
participants and beneficiaries."
2. Section VII(b) of the Plan is hereby amended by deleting the first
sentence thereof, and replacing it with the following:
"(b) The Board of Directors of the Company may, in its sole
discretion, terminate, suspend or amend this Plan at any time or
from time to time, in whole or in part; PROVIDED, HOWEVER, that in
the event of termination, the rights of participants to their
accrued benefits hereunder shall be come nonforfeitable.
Notwithstanding the foregoing, the Employee Benefits Committee of
the Company may amend the Plan without the approval of the Board of
Directors
<PAGE>
of the Company with respect to amendments that such Committee
determines do not have a significant effect on the cost of the
Plan."
3. Section IV(a) of the Plan is hereby amended by deleting therefrom the
reference to the term "Committee" and replacing therefor the term "Plan
Administrator".
-2-
Exhibit 10.8
FIRST AMENDMENT TO THE
IMS HEALTH INCORPORATED
SAVINGS EQUALIZATION PLAN
EFFECTIVE AS OF SEPTEMBER 1, 1999
1. Section II of the IMS Health Incorporated Savings Equalization Plan
(the "Plan") is hereby amended to read in its entirety as follows:
"II. ADMINISTRATION OF THE PLAN. IMS Health Incorporated (the
"Corporation" or the "Company") shall administer the Plan , except
that any action authorized to be taken by the Company hereunder may
also be taken by any committee or person(s) duly authorized by the
Board of Directors of the Company or the duly authorized delegees of
such duly authorized committee or person(s). The Company shall have
full authority to determine all questions arising in connection with
the Plan, including interpreting its provisions and construing all
of its terms; may adopt procedural rules; and may employ and rely on
such legal counsel, such actuaries, such accountants and such agents
as it may deem advisable to assist in the administration of the
Plan. All of its rules, interpretations and decisions shall be
applied in a uniform manner to all participants similarly situated
and decisions of the Company shall be conclusive and binding on all
persons."
2. Section V of the Plan is hereby amended by adding the following
sentence to the end of the first paragraph thereof:
"Notwithstanding the foregoing, the Employee Benefits Committee of
the Corporation may amend the Plan without the approval of the Board
of Directors of the Corporation with respect to amendments that such
Committee determines do not have a significant effect on the cost of
the Plan."
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 230,714
<SECURITIES> 0
<RECEIVABLES> 246,991
<ALLOWANCES> 12,634
<INVENTORY> 35,362
<CURRENT-ASSETS> 583,941
<PP&E> 364,602
<DEPRECIATION> 194,052
<TOTAL-ASSETS> 1,480,329
<CURRENT-LIABILITIES> 623,633
<BONDS> 0
0
0
<COMMON> 3,350
<OTHER-SE> 513,141
<TOTAL-LIABILITY-AND-EQUITY> 1,480,329
<SALES> 0
<TOTAL-REVENUES> 994,303
<CGS> 0
<TOTAL-COSTS> 780,880
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,672
<INCOME-PRETAX> 224,255
<INCOME-TAX> 64,048
<INCOME-CONTINUING> 160,207
<DISCONTINUED> 25,695
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 185,902
<EPS-BASIC> .59
<EPS-DILUTED> .58
</TABLE>
