<PAGE>
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, 2000
------------------
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
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(Exact name of registrant as specified in its charter)
Delaware 06-1506026
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(State of Incorporation) (I.R.S. Employer Identification No.)
200 Nyala Farms, Westport, CT 06880
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(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, 2000
------------- ---------------------
par value $.01 per share 293,656,644
<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, 2000 and 1999 3
Condensed Consolidated Statements of Income
Nine Months Ended September 30, 2000 and 1999 4
Condensed Consolidated Statements of Comprehensive Income
Three Months and Nine Months Ended September 30, 2000 and 1999 5
Condensed Consolidated Statements of Financial Position
September 30, 2000 and December 31, 1999 6
Condensed Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999 7-8
Notes to Condensed Consolidated Financial Statements 9-28
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 29-45
Item 3. Quantitative and Qualitative Disclosures About Market Risk 45
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 46
Item 6. Exhibits and Reports on Form 8-K 46
SIGNATURES 47
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item I. FINANCIAL STATEMENTS
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Operating Revenue $ 355,867 $ 348,409
Operating Costs 136,447 129,298
Selling and Administrative Expenses 95,475 94,865
Depreciation and Amortization 23,237 26,288
Spin and Related Costs* 31,254 2,000
Impairment Charge - Synavant* 115,453 --
-----------------------------------------------------------------------------------------------------------------
Operating (Loss) Income (45,999) 95,958
-----------------------------------------------------------------------------------------------------------------
Interest Income 997 2,591
Interest Expense (6,660) (2,138)
Loss on Gartner Shares Contributed to Synavant (See Note 3) (3,102) --
Gains from Dispositions--Net 6,201 4,313
Other Expense--Net (5,785) (3,221)
-----------------------------------------------------------------------------------------------------------------
Non-Operating (Expense) Income--Net (8,349) 1,545
-----------------------------------------------------------------------------------------------------------------
(Loss) Income Before Provision for Income Taxes (54,348) 97,503
Provision for Income Taxes (4,069) (27,263)
-----------------------------------------------------------------------------------------------------------------
(Loss) Income from Continuing Operations (58,417) 70,240
Income from Discontinued Operations, Net of Income Taxes of $1,198 and $931
for 2000 and 1999 respectively 2,226 1,384
-----------------------------------------------------------------------------------------------------------------
Net (Loss) Income $ (56,191) $ 71,624
-----------------------------------------------------------------------------------------------------------------
Basic (Loss) Earnings Per Share of Common Stock:
(Loss) Income from Continuing Operations $ (0.20) $ 0.23
Income from Discontinued Operations 0.01 0.00
-----------------------------------------------------------------------------------------------------------------
Basic (Loss) Earnings Per Share of Common Stock $ (0.19) $ 0.23
-----------------------------------------------------------------------------------------------------------------
Diluted (Loss) Earnings Per Share of Common Stock:
(Loss) Income from Continuing Operations $ (0.20) $ 0.22
Income from Discontinued Operations 0.01 0.00
-----------------------------------------------------------------------------------------------------------------
Diluted (Loss) Earnings Per Share of Common Stock $ (0.19) $ 0.22
-----------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding--Basic 295,749,000 311,159,000
Dilutive Effect of Shares Issuable as of Period-End Under Stock Option Plans -- 6,185,000
Adjustment of Shares Outstanding Applicable to Exercised/Cancelled Stock
Options During the Period -- 328,000
-----------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted 295,749,000 317,672,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the unaudited Condensed Consolidated Financial
Statements.
* As more fully described in Note 6 and Note 7 these costs relate directly to
Synavant, now a separate publicly traded company, or were a result of the
Synavant Spin. Note 14 "Operations by Business Segment" provides operating
results for the core IMS and CTS Segments.
Diluted net loss per share is computed in the same manner as basic net loss
per share since the company experienced a net loss for the quarter ended
September 30, 2000 and, therefore, including potential common shares would be
antidilutive. For the quarter ended September 30, 2000, the dilutive impact
on the weighted average number of shares outstanding would have been 1.9
million shares.
3
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Dollar amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
2000 1999
--------------------------------
<S> <C> <C>
Operating Revenue $ 1,077,791 $ 994,303
Operating Costs 420,625 403,159
Selling and Administrative Expenses 328,164 293,047
Depreciation and Amortization 73,140 75,174
Spin and Related Costs* 32,801 9,500
Impairment Charge - Synavant* 115,453 --
-----------------------------------------------------------------------------------------------------------------
Operating Income 107,608 213,423
-----------------------------------------------------------------------------------------------------------------
Interest Income 3,001 6,371
Interest Expense (10,027) (4,672)
Loss on Gartner Shares Contributed to Synavant (See Note 3) (3,102) --
Gains from Dispositions--Net 63,915 20,590
Other Expense--Net (19,458) (11,457)
-----------------------------------------------------------------------------------------------------------------
Non-Operating Income--Net 34,329 10,832
-----------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 141,937 224,255
Provision for Income Taxes (67,273) (64,048)
-----------------------------------------------------------------------------------------------------------------
Income from Continuing Operations 74,664 160,207
Income from Discontinued Operations, Net of Income Taxes of $1,198 and
$12,635 for 2000 and 1999 respectively 2,226 25,695
-----------------------------------------------------------------------------------------------------------------
Net Income $ 76,890 $ 185,902
-----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock:
Income from Continuing Operations $ 0.25 $ 0.51
Income from Discontinued Operations 0.01 0.08
-----------------------------------------------------------------------------------------------------------------
Basic Earnings Per Share of Common Stock $ 0.26 $ 0.59
-----------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock:
Income from Continuing Operations $ 0.25 $ 0.50
Income from Discontinued Operations 0.01 0.08
-----------------------------------------------------------------------------------------------------------------
Diluted Earnings Per Share of Common Stock $ 0.26 $ 0.58
-----------------------------------------------------------------------------------------------------------------
Weighted Average Number of Shares Outstanding--Basic 297,627,000 314,431,000
Dilutive Effect of Shares Issuable as of Period-End Under Stock Option Plans 1,937,000 6,810,000
Adjustment of Shares Outstanding Applicable to Exercised/Cancelled Stock
Options During the Period 218,000 565,000
-----------------------------------------------------------------------------------------------------------------
Average Number of Shares Outstanding--Diluted 299,782,000 321,806,000
-----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the unaudited Condensed Consolidated Financial
Statements.
* As more fully described in Note 6 and Note 7 these costs relate directly to
Synavant, now a separate publicly traded company, or were a result of the
Synavant Spin. Note 14 "Operations by Business Segment" provides operating
results for the core IMS and CTS Segments.
4
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------
2000 1999
------------------------
<S> <C> <C>
Net (Loss) Income $ (56,191) $ 71,624
Other Comprehensive Income, Net of Taxes:
Foreign Currency Translation Adjustments 4,590 10,301
Unrealized Gains/(Losses) on Securities:
Unrealized Holding Gains/(Losses) on Securities Arising During the Period:
Investments (Net of Tax Expense of $15,692 in 2000 (29,148) 4
Gartner Shares Held For Sale (Net of Tax (Benefit) Expense of ($889) and $10,195
for 2000 and 1999 respectively) (1,652) 18,934
Less: Reclassification Adjustment for Gains included in Net Income (Net of Tax
Expense of $1,895 for 2000 and $1,410 for 1999) (3,520) (3,738)
-----------------------------------------------------------------------------------------------------------------------
Change in Unrealized (Losses)/Gains on Investments, Net of Tax (34,320) 15,200
-----------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive (Loss)/Income, Net of Tax (29,730) 25,501
-----------------------------------------------------------------------------------------------------------------------
Comprehensive (Loss) Income $ (85,921) $ 97,125
=======================================================================================================================
<CAPTION>
Nine Months Ended
September 30,
------------------------
2000 1999
------------------------
<S> <C> <C>
Net (Loss) Income $ 76,890 $ 185,902
Other Comprehensive Income, Net of Taxes:
Foreign Currency Translation Adjustments (13,915) (21,133)
Unrealized Gains/(Losses) on Securities:
Unrealized Holding Gains/(Losses) on Securities Arising During the Period:
Investments (Net of Tax Expense/(Benefit) of $9,246 and ($710) for 2000 and 1999,
respectively) 29,736 (1,880)
Gartner Shares Held For Sale (Net of Tax Expense/(Benefit) of ($8,748) and
$10,195 for 2000 and 1999, respectively) (16,247) 18,934
Less: Reclassification Adjustment for Gains included in Net Income (Net of Tax
Expense of $9,675 and $4,212 for 2000 and 1999, respectively). (25,007) (11,161)
-----------------------------------------------------------------------------------------------------------------------
Change in Unrealized (Losses)/Gains on Investments, Net of Tax (11,518) 5,893
-----------------------------------------------------------------------------------------------------------------------
Total Other Comprehensive Loss, Net of Tax (25,433) (15,240)
-----------------------------------------------------------------------------------------------------------------------
Comprehensive Income $ 51,457 $ 170,662
=======================================================================================================================
</TABLE>
See accompanying Notes to the unaudited Condensed Consolidated Financial
Statements.
The Company has significant operations outside of the United States. 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 10 to the Condensed Consolidated Financial
Statements).
5
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------------------
<S> <C> <C>
Assets:
Current Assets:
Cash and Cash Equivalents $ 106,389 $ 115,875
Accounts Receivable-Net 221,260 284,679
Other Receivable (see Note 9) 41,136 --
Other Current Assets 109,568 109,908
Net Assets from Discontinued Operations (see Note 3) 81,060 96,988
------------------------------------------------------------------------------------------------
Total Current Assets 559,413 607,450
------------------------------------------------------------------------------------------------
Securities and Other Investments 155,693 127,415
Property, Plant and Equipment-Net 146,180 169,190
Other Assets-Net:
Computer Software 146,873 174,974
Goodwill 156,756 339,491
Other Assets 33,326 32,236
Note and Interest Receivable from Related Party (see Note 10) 3,062 --
------------------------------------------------------------------------------------------------
Total Other Assets-Net 340,017 546,701
------------------------------------------------------------------------------------------------
Total Assets $ 1,201,303 $ 1,450,756
------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity:
Current Liabilities:
Accounts Payable $ 32,920 $ 44,577
Accrued and Other Current Liabilities 189,466 196,375
Short Term Debt 339,232 134,663
Accrued Income Taxes 74,082 211,592
Deferred Revenues 90,668 136,196
------------------------------------------------------------------------------------------------
Total Current Liabilities 726,368 723,403
------------------------------------------------------------------------------------------------
Post-retirement and Post-employment Benefits 27,778 27,429
Other Liabilities 101,067 81,343
------------------------------------------------------------------------------------------------
Total Liabilities 855,213 832,175
------------------------------------------------------------------------------------------------
Commitments and Contingencies
Minority Interests 131,507 124,875
Shareholders' Equity:
Common Stock, Par Value $.01, Authorized 800,000,000 Shares;
Issued 335,045,390 Shares at September 30, 2000 and December 31, 1999,
respectively 3,350 3,350
Capital in Excess of Par 738,298 738,993
Retained Earnings 725,635 804,452
Treasury Stock, at Cost, 41,388,746 and 32,901,441 Shares at
September 30, 2000 and December 31, 1999, respectively (1,187,908) (1,013,730)
Cumulative Translation Adjustment (110,150) (96,235)
Unrealized (Loss)Gains on Gartner Group Holdings, net of tax (682) 15,565
Unrealized Gains on Investments, net of tax 46,040 41,311
------------------------------------------------------------------------------------------------
Total Shareholders' Equity 214,583 493,706
------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 1,201,303 $ 1,450,756
------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Notes to the unaudited Condensed Consolidated Financial
Statements
6
<PAGE>
IMS HEALTH INCORPORATED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollar amounts in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income $ 76,890 $ 185,902
Less Income from Discontinued Operations (2,226) (25,695)
---------------------------------------------------------------------------------------------
Income from Continuing Operations 74,664 160,207
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Impairment Charge - Synavant 115,453 --
Depreciation and Amortization 73,140 75,174
Gains from Sale of Investments, Net (63,915) (20,590)
Loss on Gartner Shares Contributed to Synavant 3,102 --
Benefit Payments (1,782) (10,469)
Net Decrease in Accounts Receivable 176 24,414
Net Decrease in Deferred Revenues (30,591) (16,583)
Minority Interests 10,868 4,189
Deferred Income Taxes 3,707 (2,338)
Net Increase in Accrued Income Taxes 36,868 46,006
Net Decrease in Accrued and Other Current Liabilities 17,680 (10,252)
Other Working Capital Items (3,831) (18,000)
---------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 235,539 231,758
---------------------------------------------------------------------------------------------
Cash Flows Used in Investing Activities:
Proceeds from Sale of Investments, Net 70,245 46,759
Acquisition and Integration Payments (4,796) (28,248)
Payments for Acquisition of Business -- (3,100)
Capital Expenditures (22,085) (23,243)
Additions to Computer Software (37,832) (44,496)
Net Increase in Other Investments (25,929) (16,500)
Other Investing Activities - Net (4,147) 8,355
---------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (24,544) (60,473)
---------------------------------------------------------------------------------------------
Cash Flows Used in Financing Activities:
Payments for Purchase of Treasury Stock (198,716) (359,859)
Proceeds from Exercise of Stock Options 19,590 22,669
Dividends Paid (17,866) (18,923)
Proceeds from Employee Stock Purchase Plan 1,766 3,514
Payment on D&B Tax Contingency (212,291) --
Short-Term Borrowings 251,122 243,443
Short-Term Debt Repayments (40,500) (113,306)
Synavant Dividend (19,438) --
Other Financing Activities - Net 13 (213)
---------------------------------------------------------------------------------------------
Net Cash Used in Financing Activities (216,320) (222,675)
---------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash Equivalents (4,161) (7,827)
Effect of Change in Year End of the IMS Operating Units -- 30,664
Cash Flow Provided By Discontinued Operations -- 52,877
---------------------------------------------------------------------------------------------
(Decrease) Increase in Cash and Cash Equivalents (9,486) 24,324
Cash and Cash Equivalents, Beginning of Period 115,875 206,390
---------------------------------------------------------------------------------------------
Cash and Cash Equivalents, End of Period $ 106,389 $ 230,714
---------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended September 30,
-------------------------------
2000 1999
-------------------------------
<S> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid during the Period for Interest $ 10,089 $ 4,731
Cash Paid during the Period for Income Taxes (Exclusive of
payment of D&B Tax Contingency- See Note 9 to the Condensed
Consolidated Financial Statements.) $ 37,160 $ 57,478
Cash Received from Income Tax Refunds $ 13,165 $ 42,449
Non-Cash Investing Activities:
Dividend of Gartner Shares -- $134,259
Synavant Dividend $118,403 --
</TABLE>
See accompanying Notes to the unaudited Condensed Consolidated Financial
Statements.
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 1999 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 2000 presentation.
Note 2. Basis of Presentation
IMS Health is the world's leading provider of information solutions to the
pharmaceutical and healthcare industries. IMS Health operates in over 100
countries.
At September 30, 2000, IMS Health consists of (a) the IMS segment ("IMS"), which
consists of the market information and decision support services business for
the pharmaceutical and healthcare industries conducted by IMS Health and various
subsidiaries; (b) a controlling interest in Cognizant Technology Solutions
Corporation ("CTS"), and (c) ERISCO Managed Care Technologies Inc., as the
primary component within the Transaction Business Segment. During the quarter
IMS Health also included the segment containing (i) the pharmaceutical industry
automated sales and marketing support business of IMS Health Strategic
Technologies, Inc. ("Strategic Technologies"), substantially all of IMS Health's
interactive and direct marketing business, including the business of
Clark-O'Neill, Inc. ("Clark-O'Neill"), and a majority stake in a foreign joint
venture (collectively, "Synavant") (ii) ERISCO Managed Care Technologies, Inc.
("Erisco") and (iii) three small non-strategic software businesses ((i), (ii)
and (iii), collectively, the "Transaction Businesses"). The Company spun off the
Synavant business in the quarter, divested ERISCO on October 3, 2000 and intends
to divest the remaining businesses in the Transaction Businesses Segment (See
Note 14). The Company's venture capital unit, Enterprises, is managed as a
corporate activity.
The Condensed Consolidated Financial Statements of the Company have been
reclassified for the periods presented to reflect the Gartner Group Inc.
("Gartner") equity investment as a discontinued operation (See Note 3).
Effective in the first quarter of 1999, IMS operating units which previously
reported on a fiscal year ending November 30 revised their reporting period to
conform to the Company's fiscal year ending December 31.
9
<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
On November 11, 1998, the Company announced that its Board of Directors had
approved a plan to spin-off substantially all of its equity ownership of Gartner
(the "Gartner Spin-Off"). As provided for under the Distribution Agreement,
entered into between Gartner and the Company, 40,689,648 Gartner Class A Shares
were converted into an equal number of Gartner Class B Shares. As a result of
the then proposed Gartner Spin-off, the Company at the time ceased recognition
of gains in accordance with Securities and Exchange Commission Staff Accounting
Bulletin 51 ("SAB 51") in the fourth quarter of 1998.
On July 16, 1999, subject to Gartner shareholder approval, the IMS Health and
Gartner Boards of Directors approved the final plan, terms and conditions
governing the Spin-off of the Company's investment in Gartner. Upon Gartner
shareholder approval, which was obtained on July 16, 1999, in accordance with
Accounting Principles Board Opinion No. 30, "Reporting the Results of
Operations - Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions",
the Financial Statements of the Company were reclassified to reflect the
Gartner equity investment as a discontinued operation for the periods
presented.
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 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"). The distribution consisted of 0.1302 Gartner Class B
Shares for each outstanding share of the Company's Common Stock (the "Gartner
Distribution").
The Company's remaining investment in Gartner at September 30, 2000 consists of
6,909,457 Gartner Class A Shares and warrants to purchase a further 599,400
Gartner Class A Shares (at an original cost basis of $81,422). Under the terms
of the IRS ruling, the Company must monetize the remaining position in Gartner
to maintain the tax-free nature of the Gartner Distribution. Accordingly, the
net assets from discontinued operations in the amount of $81,060 are included in
current assets at September 30, 2000. As the Company intends to dispose of these
remaining securities, the Company's Gartner Class A shares have been accounted
for as "available for sale" securities in accordance with the Financial
Accounting Standards Board Statement of Financial Accounting Standards ("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 the then
per share price of $22.75 on Gartner Stock, the price at the time of the Gartner
Distribution) was $49,353 (net of taxes of $27,847), and was recorded as Other
Comprehensive Income and included as a component of Shareholders' Equity.
Subsequent changes in the per share price of Gartner Stock from the date of the
Gartner Distribution to September 30, 2000 (based on a per share price of
$11.625 of Gartner Stock at September 30, 2000) generated an unrealized loss of
$49,353 since the date of the Gartner Distribution (net of taxes of $27,836),
which was also recorded as Other Comprehensive Income and included as a
component of Shareholders' Equity. Upon the sale or disposal of these
securities, the unrealized gain relating to those securities measured based on
the value of the Gartner shares as of the date of the Gartner Distribution will
be recognized in Discontinued Operations. The unrealized gains or losses in the
fair value
10
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
subsequent to the date of the Gartner Distribution will be recognized in
Continuing Operations as shares are sold. There were no sales of Gartner shares
during the nine months ended September 30, 2000. The Company has, however,
agreed to contribute 312,195 Gartner Class A Shares to Synavant as part of the
Synavant Spin-off described in Note 6. This contribution had a fair market value
of $4,000 at the date of the Synavant Spin-off, and resulted in a realized gain
of $3,424 which was recorded as income from discontinued operations (net of
applicable taxes of $1,198), to reflect the difference between the fair market
value at the date of the Gartner Spin-off (July 26,1999) and the book value; and
a loss for dispositions of $3,102 which was reflected in Loss on Gartner Shares
Contributed to Synavant to reflect the difference between the fair market value
at the date of the Gartner Spin-off (July 26,1999) and the date of the Synavant
Spin-off (August 31, 2000).
Note 4. Dispositions
During the third quarter of 2000, the Company recorded $6,201 of pre-tax net
gains primarily due to a partial sale of e-Credit to Internet Capital Group
Inc. and the sale of marketable investments in Verisign, Inc. Both Verisign
and e-Credit were part of the Enterprises portfolio. In addition, a loss of
$3,102 was recorded on the value of Gartner Group shares that will be
contributed to Synavant as part of the Synavant Spin-off. A gain of $2,226,
net taxes of $1,198 is recorded in discontinued operations for the same
distribution of Gartner shares to Synavant. (See Note 6).
During the first nine months of 2000, the Company recorded $63,915 of pre-tax
net gains due primarily to the sale of investments in American Cellular, Aspect
Development, Inc., Mercator Software, Inc., Viant Corporation and Verisign, Inc.
that were part of the Enterprises portfolio. Cash received, net of costs to
dispose, amounted to $70,245 in the nine months. These were in addition to the
Gartner Group share loss and gain noted above.
In the third quarter, senior management of GIC Gesellschaft fur
Informationstechnologie und Consulting GmbH, formerly a wholly-owned subsidiary
of IMS Health, and its newly-formed affiliated company, GIC Global Information
Technology and Consulting GmbH (collectively, "GIC") completed a management
buy-out of IMS Health's data processing center located in Frankfurt, Germany.
Under the terms of the purchase agreement, the aggregate purchase price of
$6,100 will be paid to IMS Health in monthly installments ending August 1, 2001
through the rendering of data processing and technology solution services by GIC
at no charge to IMS Health. These services and associated operating costs have
been specified under the terms of an outsourcing agreement entered into by IMS
Health and GIC. The Company recognized the fair value of the services received
and a pre-tax gain of approximately $1,600 in the third quarter in respect of
services rendered by GIC in that quarter. The gain on this transaction was
included in Operating Costs in the Company's consolidated statement of income.
The remaining portion of the gain (approximately $3,000) has been deferred and
will be recognized as services are rendered in accordance with the agreement.
The operating results of the Frankfurt data center were not material to the
Company's consolidated operating results in any of the periods presented.
Under the outsourcing agreement, GIC is obligated to render fully dedicated
mainframe processing and client/server services to IMS Health until such time as
these services are fully migrated to IMS Health's global computing center
located in Plymouth Meeting, Pennsylvania.
11
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
IMS Health intends to complete the migration of its mainframe computing systems
to its Plymouth Meeting facility by January 31, 2001 and its client/server
systems during 2001. IMS Health will also purchase certain other technology
solution services from GIC under the terms of the outsourcing agreement.
Note 5. Securities and Investments
Allscripts
On February 17, 2000, IMS Health announced an alliance with Allscripts, Inc.
("Allscripts") (NASDAQ:MDRX) to develop and market new Internet-based
information solutions for the pharmaceutical industry. In conjunction with the
agreement IMS Health made a private equity investment of $10,000 to acquire
214,794 shares of Allscripts common stock. IMS Health's investment in Allscripts
is carried at cost and is included in "Securities and Other Investments".
Other Investments
Amounts for Equity Securities are included in the Condensed Consolidated
Statements of Financial Position as Securities and Other Investments. Securities
and Other Investments include the Company's private equity investments in
venture capital partnerships. Such investments are carried at cost. During the
nine months ended September 30, 2000 the venture capital partnerships
distributed shares to the Company in US Interactive Inc. Verisign, Inc.,
Internet Capital Group and Internet Pictures Corporation. These were distributed
at historical cost and, upon distribution, these shares became available for
sale and have accordingly been marked to market.
Note 6. Spin-Off of Synavant Inc.
On August 31, 2000, IMS Health completed the Spin-off of Synavant Inc., its
wholly owned subsidiary, as an independent publicly traded company. Synavant is
a newly created Delaware corporation. Prior to the Spin-off, IMS Health
transferred to Synavant selected assets and liabilities held by IMS Health and
its subsidiaries related to the businesses that Synavant is expected to operate.
Synavant's businesses include the pharmaceutical industry automated sales and
marketing support businesses previously operated by IMS Health Strategic
Technologies Inc. and certain other foreign subsidiaries of IMS Health,
substantially all of IMS Health's interactive and direct marketing business,
including the business of Clark-O'Neill, Inc., a wholly owned subsidiary of IMS
Health, and a majority stake in a foreign joint venture.
IMS Health distributed (the "Distribution") to its shareholders of record as of
the close of business on July 28, 2000 all of the outstanding shares of common
stock, par value $0.01 per share, of Synavant (the "Synavant Common Stock"). The
Distribution was effected by means of a pro rata dividend to the IMS Health
shareholders of one share of Synavant Common Stock (together with the associated
preferred share purchase right) for every twenty shares of common stock, par
value $0.01 per share, of IMS Health (the "IMS Common Stock") held. In lieu of
fractional shares of Synavant Common Stock, each IMS Health shareholder received
a cash payment representing such holder's proportionate interest in the net
proceeds from the sale by the distribution agent for the Distribution of the
aggregate fractional shares of Synavant Common
12
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Stock. The Distribution has been accounted for as a tax-free pro-rata dividend
to IMS shareholders and charged to retained earnings based on the book value of
assets distributed to Synavant as at the date of the Distribution (August 31,
2000). The dividend charged to retained earnings totaled $137,841 and was
comprised of assets of $181,032 (including $43,175 of Accounts Receivable and
$58,450 of Goodwill) and liabilities of $43,191 (including $15,246 of Accrued
Liabilities and $9,170 of Deferred Revenue).
In connection with the Distribution, IMS Health and Synavant entered into a
Distribution Agreement (the "Distribution Agreement"), providing for, among
other things, certain corporate transactions required to effect the Distribution
and other arrangements between IMS Health and Synavant subsequent to the
Distribution. In particular, the Distribution Agreement defines the assets,
liabilities and contractual relationships which are being allocated to and
assumed by Synavant and those that will remain with IMS Health. This includes
IMS Health's agreement to indemnify Synavant with respect to certain contingent
liabilities.
On August 11, 2000 Synavant obtained a revolving line of credit from Sun Trust
Bank ($20,000) for working capital purposes. The line of credit is guaranteed by
The Company, and terminates the earlier of December 31 or ninety days from the
Distribution Date. Synavant expects to obtain an independent line of credit.
If this is not possible, the Company is obligated to provide credit support
through August 31, 2001 in assisting Synavant in obtaining a line of credit.
In addition to the Distribution Agreement, IMS Health and Synavant also entered
into other agreements governing the relationship between IMS Health and
Synavant. These include various Data Rights Agreements, a Tax Allocation
Agreement, an Employee Benefits Agreement, a Data and Telecommunications Service
Agreement, certain Sublease Arrangements, a Corporate Services Agreement, Shared
Transaction Services Agreements, an Information Service Agreement and certain
Credit Support Arrangements. After the date of the Distribution, there will be
individuals on the Boards of Directors of IMS Health and Synavant who will also
serve on the Board of Directors of the other company.
No consideration was payable by IMS Health shareholders for the shares of
Synavant Common Stock, nor were such shareholders required to surrender or
exchange shares of IMS Common Stock or take any action in order to receive the
shares of Synavant Common Stock. IMS has received an opinion from outside
counsel that the Distribution should qualify under Section 355 of the Internal
Revenue Code and be tax free to IMS Health and to IMS Health shareholders for
U.S. federal income tax purposes. As an opinion of counsel does not bind the
Internal Revenue Service or the courts, the IRS may challenge positions taken on
an opinion of counsel and could assert claims, which could be material in
amount, in connection with the Distribution. Outside counsel, however, is of the
opinion that if the matter were litigated as a result of an assertion by the IRS
that the Distribution should be taxable, the taxpayers should prevail.
If the Distribution were not to qualify as tax free under Section 355 of the
Internal Revenue Code, then, in general, a corporate tax would be payable by
the consolidated group, of which IMS Health is a common parent and Synavant
is a member, based on the difference between (x) the fair market value of the
Synavant Common Stock and (y) the adjusted basis of such Synavant Common
Stock. In addition, under the consolidated return rules, each member of the
consolidated group would be severally liable for such tax liability. IMS
Health estimates that the aggregate tax liability in this regard would be
approximately $100,000. Pursuant to the Tax Allocation
13
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Agreement, IMS Health will be liable for the resulting corporate tax, except as
provided in the Distribution Agreement. In the opinion of management and based
on the opinion of tax counsel this risk is not probable.
Historically, the Synavant Business was managed as part of the IMS Segment.
Effective with the decision to Spin-off Synavant, the business was managed as
part of the other transaction businesses and accordingly its results are
included in the Transaction Businesses Segment. Selected financial data for
Synavant is included in Note 14.
Additional information concerning Synavant and the Distribution is contained in
Synavant's registration Statement on Form 10/A (Amendment No. 3) (Commission
File No. 000-30822), which was declared effective by the Securities and Exchange
Commission on August 29, 2000.
In connection with the Spin-off of Synavant, the Company incurred $31,254 of
costs for the quarter ended September 30, 2000 ($32,801 for the 9 months).
These costs include $8,248 for expenses related to reductions in the IMS and
corporate administrative workforce (124 positions) resulting from
consolidation following the Synavant Spin-off. As at September 30, 2000, 31
employees under the ongoing employee protection program have left the company
for payments of $2,382. Additionally, a data processing agreement with a
third party for $5,200 will not be used by the Company as a result of the
Company's determination to streamline IMS's operations to focus on its core
business. In accordance with the settlement of this liability the Company has
paid $2,400 with a remaining balance to be paid (included within Accrued and
Other Current Liabilities), of $2,800 as of September 30, 2000. The remaining
Spin-off charges relate primarily to legal, professional and other direct
incremental costs.
Holders of options to purchase the Company's stock did not receive shares in the
Synavant Distribution. Consequently, options granted under the Company's plans
were adjusted to recognize the effect of the Synavant Distribution. The options,
as adjusted, represented an increase in the number of shares issuable when
exercised but maintained 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 adjustment was
performed in accordance with the provisions of Emerging Issues Task Force (EITF)
Statement Number 90-9. Accordingly, no compensation charge was required for this
option adjustment.
Note 7. Impairment Charge - Synavant
On July 14, 2000, Synavant entered into a 5-year strategic alliance with Siebel
Systems, Inc. ("Siebel"), a leading provider of eBusiness applications software.
Through the alliance, the companies intend to jointly develop, market and sell
pharmaceutical and healthcare related versions of Siebel's eBusiness software
applications.
As part of the strategic alliance, Synavant and Siebel entered into (1) a Value
Added Industry Remarketer Agreement (the "Reseller Agreement"), (2) a Siebel
Alliance Program Master Agreement (the "Alliance Agreement"), and (3) a license
of certain Siebel software for Synavant's internal use. Pursuant to the Reseller
Agreement, Siebel appointed Synavant as a non-exclusive distributor of certain
Siebel Licensed software. Under this arrangement, Synavant has
14
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
the right to distribute and sublicense Siebel software products to companies in
the life sciences industry worldwide in conjunction with Synavant's own
proprietary software and services. As part of the arrangement, Siebel and
Synavant share in the sublicensing and maintenance fees generated from the
licensing of the Siebel software. Under the terms of the agreement, Synavant
will pay Siebel a license fee of $2.5 million.
Additionally, the Reseller Agreement limits the extent to which Synavant may
independently develop, integrate, market, license or distribute products that
are directly competitive with those packaged and promoted by Siebel. Synavant
may, however, continue to license and support its existing Cornerstone and
Premiere customers. The Reseller Agreement contemplates a five-year term for the
alliance, however the parties may, under certain circumstances, extend the
agreement for an additional two years on the same terms as the existing
agreement. It also contains certain provisions that would allow for early
termination in the event certain contractual requirements are not met.
The Alliance Agreement complements the Reseller Agreement and establishes a
framework for the joint marketing efforts by Synavant and Siebel to such life
sciences companies. Under this arrangement Synavant will be a Siebel Strategic
Software Partner throughout the world to serve the life sciences market.
Synavant will be permitted to use the Siebel logos and marks as part of the
joint marketing effort in its promotional materials.
Under the terms of the alliance, Synavant is contractually obligated to
discontinue the future enhancement and development of the Cornerstone and
Premiere products, but will continue to support users of these products under
current and future contracts. Management anticipates that these products will
eventually be phased out and replaced by a new generation of joint solution
offerings incorporating Siebel technology.
As a result of this transaction, Synavant management has concluded that
significant portions of its software (including acquired technology), and
enterprise-wide goodwill are not recoverable. Synavant has completed its
assessment of the financial impact of this transaction with respect to
determining the amount of the impairment to capitalized software and
enterprise-wide goodwill. Under its accounting policy for capitalized software,
Synavant performed a net realizable value analysis to determine the
recoverability of its capitalized software assets. This analysis resulted in a
write-down of its capitalized software asset balance of $14,553 in the period
ended September 30, 2000. Under its accounting policy for goodwill impairment,
Synavant completed a discounted cash flow analysis on an enterprise wide basis,
resulting in a write down of $100,900 of goodwill in the period ended September
30, 2000. The total impairment charge is shown on the income statement for
$115,453.
The impairment charge has been recorded in the results of IMS Health's
Transaction Businesses Segment. This charge is being recorded by IMS Health as a
result of the Siebel transaction being
15
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
effected prior to the Spin-off of Synavant. The impairment charge does not
affect the IMS Segment (See Note 14).
Note 8. Minority Interests
The Company consolidates the assets, liabilities, and results of operations and
cash flows of businesses and investments in which it has control. Third parties'
ownership interests are reflected as minority interests 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 (88%) interest in the partnership.
The Company also has a controlling interest in CTS (60.6% of the outstanding
shares representing approximately 93.9% of the voting power at September 30,
2000). The related minority interest included within the Condensed Consolidated
Statement of Financial Position at September 30, 2000 and December 31, 1999 was
$22,181 and $17,611, respectively. Selected unaudited financial data for CTS is
included in Note 14.
Note 9. Contingencies
The Company and its subsidiaries are involved in legal proceedings, claims
litigation and tax matters arising in the ordinary course of business. In the
opinion of management, the outcome of such current legal proceedings, claims
litigation and tax matters, if decided adversely, could have a material effect
on quarterly or annual operating results or cash flows when resolved in a future
period. However, in the opinion of management, these matters will not materially
affect the Company's consolidated financial position.
In addition, the Company is subject to certain other contingencies discussed
below:
Information Resources Litigation
On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the
United States District Court for the Southern District of New York, naming as
defendants The Dun and Bradstreet Corporation ("D&B"), A.C. Nielsen Company and
I.M.S. International Inc. (a predecessor of IMS Health) (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
16
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
agreement. IRI's complaint alleges damages in excess of $350,000, which amount
IRI has asked to be trebled under the antitrust laws. IRI also seeks punitive
damages in an unspecified amount.
On October 15, 1996, defendants moved for an order dismissing all claims in the
complaint. On May 6, 1997, the United States District Court for the Southern
District of New York issued a decision dismissing IRI's claim of attempted
monopolization in the United States, with leave to replead within sixty days.
The Court denied defendants' motion with respect to the remaining claims in the
complaint. On June 3, 1997, defendants filed an answer denying the material
allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim
alleging that IRI has made false and misleading statements about its services
and commercial activities. On July 7, 1997, IRI filed an amended and restated
complaint repleading its alleged claim of attempted monopolization in the United
States and realleging its other claims. On August 18, 1997, defendants moved for
an order dismissing the amended claims. On December 1, 1997, the court denied
the motion and, on December 16, 1997, defendants filed a supplemental answer
denying the remaining material allegations of the amended complaint. On December
22, 1999, defendants filed a motion for partial summary judgement seeking to
dismiss IRI's non-U.S. antitrust claims. On July 12, 2000, the court granted the
motion dismissing claims of injury suffered from activities in foreign markets
where IRI operated through subsidiaries or companies owned by joint ventures or
"relationships" with local companies. Discovery is continuing in this matter.
In light of the potentially significant liabilities which could arise from the
IRI Action and in order to facilitate the distribution by D&B of shares of
Cognizant Corporation ("Cognizant") and ACNielsen Corporation (the parent
company of A.C. Nielsen Company) in 1996, 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.
In 1998, IMS Health was spun-off from Cognizant (the "1998 Spin-Off") which then
changed its name to Nielsen Media Research, Inc. ("NMR"). IMS Health and NMR 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
17
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Distribution Agreement"). In connection with the 1998 Spin-Off, IMS Health and
NMR agreed that, as between themselves, IMS Health will assume 75%, and NMR 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. NMR's
aggregate liability to IMS Health for payments in respect of the IRI Action and
certain other contingent liabilities shall not exceed $125,000.
Management of the Company is unable to predict at this time the final outcome of
this matter or whether the resolution of this matter could materially affect the
Company's results of operations, cash flows or financial position.
Other Contingencies
The Company, Cognizant and D&B have entered, and the Company continues to enter,
into global tax planning initiatives in the normal course of their business.
These activities are subject to review by tax authorities. As a result of the
review process, uncertainties exist and it is possible that some of these
matters could be resolved adversely to the Company, Cognizant or D&B.
The Company has been informed by D&B that the IRS is challenging D&B's
utilization of certain capital losses during 1989 and 1990. D&B has advised
the Company that it filed an amended tax return for these periods which
reflects $561,582 of tax and interest due. Under the terms of the 1996
Distribution Agreement, the Company is liable to pay half of such taxes and
interest owed to the IRS to the extent that D&B total liabilities exceed
$137,000. In May 2000, D&B paid $349,291 of this amount, and the Company paid
$212,291, which the Company funded through short-term borrowings. The
payments were made to the IRS to stop further interest from accruing. A
portion (approximately $41,000) of the Company's obligation will in turn be
shared with NMR under the Distribution Agreement between those companies
dated June 30, 1998 (the "1998 Distribution Agreement"). NMR is not obligated
to pay its share to the Company until January 2, 2001. Accordingly, the
receivable has been accounted for as a short-term asset. D&B received a
formal assessment for the additional tax from the IRS during the second
quarter of 2000. D&B has advised the Company that, notwithstanding the filing
and payment, it intends to contest the assessment and would also contest the
assessment of amounts, if any, in excess of the amounts paid. The Company
estimates that its share of the liability that was paid is approximately
$140,000 net of income tax benefit on interest (approximately $31,300) and
NMR's contribution obligations (approximately $41,000).
The Company is the subject of complaints filed with the European Commission
(the "Commission") pursuant to Article 3 of Council Regulation No. 17 of
1972. The EC complaints allege that the Company has engaged in certain
commercial practices that violate Articles 81 and 82 of the EC Treaty. The
Company has responded to the complaints denying the allegations contained
therein and has provided information to the Commission pursuant to formal
information requests.
18
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
On October 19, 2000, the Commission initiated formal proceedings against the
Company through the adoption of a statement of objections. A statement of
objections is a preliminary document that does not represent the Commission's
final view on the practices at issue. Under Commission procedures, the Company
will have full rights of defense, including access to the Commission's files,
the right to answer the statement of objections in writing and produce evidence
of its own, and may request the opportunity to present its defense at an oral
hearing. The Commission may impose fines against the Company. If such a decision
is rendered against the Company, it could appeal that decision before the
European Court of First Instance.
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
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 not probable that any such
significant liabilities will be incurred by the Company.
As described in Note 6, IMS Health and Synavant entered into a Distribution
Agreement. In connection with the Distribution, Synavant will be jointly and
severally liable to the other parties in the prior Distribution Agreements for
the liabilities relating to certain tax matters as well as those relating to the
IRI Action. Under the Distribution Agreement, as between IMS Health and
Synavant, it is expected that each will bear a prescribed portion of IMS
Health's share of these liabilities (net of the liability borne by NMR) up to a
maximum liability of $9,000 for Synavant.
The Company intends to vigorously defend these matters. The Company is unable to
predict at this time the final outcome of these matters or whether the
resolution of these matters could materially affect the Company's results of
operations, cash flows, or financial position.
Note 10. Financial Instruments
Foreign Exchange Risk Management
The Company transacts business in virtually every part of the world and is
subject to risks associated with changing foreign exchange rates. The Company's
objective is to reduce earnings and cash flow volatility associated with foreign
exchange rates to allow management to focus its attention on its core business
activities. Accordingly, the Company enters into various contracts which change
in value as foreign exchange rates change to protect the value of a portion of
committed foreign currency revenues and non-functional currency assets and
liabilities. The Company's policy is to maintain hedge coverage between minimum
and maximum percentages of its foreign exchange exposures over the next twelve
months, in amounts intended to protect operating income from the effect of
fluctuations in foreign 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 does not enter into foreign currency
transactions for investment or speculative purposes.
19
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
The Company uses foreign currency forward contracts to hedge committed foreign
currency denominated revenues. The principal currencies hedged are the Japanese
yen, the Euro and the Swiss franc. The Company also uses foreign currency
forward contracts to hedge non-functional currency assets and liabilities.
Gains and losses on contracts hedging committed foreign currency revenues are
deferred until such revenues are recognized and offset changes in the value of
such revenues. Gains and losses on contracts hedging non-functional currency
assets and liabilities are not deferred and are included in other income/expense
- net. At September 30, 2000, the notional amounts of committed foreign currency
revenues and non-functional currency assets and liabilities hedged were $57,370
and $117,371 respectively.
Note Receivable - (related party)
At January 3, 2000, the Company held a related party note receivable
totalling $3,558 from Victoria R. Fash, its President and Chief Executive
Officer and a Director. On January 12, 2000, $632 was repaid in cash leaving
a principal amount of $2,926. The loan accrues interest at an annual rate of
6.21% with principal and accrued interest due on December 31, 2008 with
earlier payment permitted, accelerated payment required, and the loan
forgiven under certain circumstances. The loan is collateralized by 81,260
shares of the Company's Common Stock. The balance outstanding at September
30, 2000 was $3,062. Cash used, net of repayment, for this loan is included
in Other Investing Activities - Net on the Condensed Consolidated Statement
of Cash Flows.
Credit Concentrations
The Company continually monitors its positions with, and the credit quality of,
the financial institutions which are counterparties to its financial instruments
and does not anticipate non-performance by counterparties. The Company would not
realize a material loss as of September 30, 2000, in the event of
non-performance by any one counterparty. The Company enters into transactions
only with financial institution counterparties which have a credit rating of A
or better. In addition, the Company limits the amount of credit exposure with
any one institution.
The Company maintains accounts receivable balances ($221,260 and $284,679 net of
allowances for doubtful accounts, at September 30, 2000, and December 31, 1999,
respectively) principally from customers in the pharmaceutical industry. The
Company's trade receivables do not represent significant concentrations of
credit risk at September 30, 2000 due to the high quality of its customers and
their dispersion across many geographic areas.
Short-Term Borrowings / Lines of Credit
Borrowings under short-term lines of credit were $339,232 and $134,663 at
September 30, 2000 and December 31, 1999 respectively. The borrowings were taken
out mainly to support the Company's share repurchase program and more recently
to fund the D&B tax payment further described in Note 9. The borrowings are
repayable within 364 days from inception and have maturity dates through
December 14, 2000. The weighted average rates of interest for the
20
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
borrowings were 7.0% and 0.9% at September 30, 2000 and December 31, 1999,
respectively. There are no significant debt covenants associated with the
Company's short-term borrowings.
The Company had unused available lines of credit of $175,270 and $273,273 at
September 30, 2000 and December 31, 1999 respectively. In general, the terms
of these lines of credit give the Company the option to borrow at an interest
rate equal to LIBOR plus 37.5 basis points and can be withdrawn by the banks
under certain conditions. The commitment fee associated with the unused lines
of credit is 22.5 basis points per year, increased to 28.85 basis points if
the facilities are less than 50% utilized. At September 30, 2000 the
Company's Total Current Liabilities exceed its Total Current Assets. Based on
estimated future cash flows from operations, the ability to monetize
Enterprise investments upon distribution from Venture capital partnerships,
the investment in Cognizant Technology Solutions as well as the Company's
ability to obtain additional lines of credit and debt, the Company believes
it will have sufficient cash and other resources to fund its short and long
term business plans, including its current short term obligations, its stock
repurchase program and its operations.
Note 11. Income Tax
To consolidate certain of its international operations in 1999 the Company
engaged in certain non-U.S. reorganizations which gave rise to tax deductible
non-U.S. intangible assets. In 2000, the effective tax rate was higher than
in 1999 as a result of the non-deductible write down of Synavant goodwill, a
higher amount of Enterprise's investment gains which have been taxed at an
overall rate of 35%, and the costs incurred as result of the Spin-off of
Synavant, a portion of which is non-deductible, offset by the recognition of
certain German trade tax benefits (approximately $19,400), the recognition of
the benefit of certain net operating losses (NOL's) due to the implementation
of global tax planning strategies (approximately $3,400) and the reversal of
previously accrued tax liabilities (approximately $3,000).
The German trade tax benefits of $19,400 result from a favorable final German
court decision rendered in the third quarter of 2000 which permitted the
utilization of certain pre-existing tax benefits. This benefit will offset a
fourth quarter charge resulting from new legislation discussed below. The
global tax planning strategies which permitted the recognition of the benefit
of the NOL's were developed and implemented during the first quarter of 2000.
These NOL's had previously been reserved with a full valuation allowance. The
reversal of previously accrued tax liabilities resulted from the true-up of
state and local tax returns and the favorable resolution of audits in certain
foreign tax jurisdictions recognized during the first quarter.
The impact of the German legislation that has been enacted reduces the German
Corporate tax rate from 40% to 25%. This legislation was signed into law on
October 23, 2000. Pursuant to current accounting regulations, the Company must
recognize the impact of such tax law changes in the fiscal quarter in which such
laws are enacted; as a result such tax law change will be treated as a fourth
quarter event for accounting purposes. The impact of the new legislation to the
Company will be a reduction in the net deferred income tax assets of
approximately $17,500, to be recorded as a charge to income tax expense. This
will be more than offset by the German trade tax benefit of $19,400 recorded in
the third quarter.
While the Company intends to continue to seek global tax planning initiatives,
there can be no assurance that the Company will be able to successfully
implement such initiatives.
Note 12. IMS Health Capital Stock
On July 19, 2000 the Board of Directors authorized a stock repurchase program to
buy up 40 million shares, marking the fifth consecutive repurchase program the
Company has implemented.
21
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Shares acquired through the repurchase program will be open-market purchases in
compliance with Securities and Exchange Commission Rule 10b-18.
During the first nine months of 2000, the Company repurchased 9,858,750 shares
of outstanding common stock at a total cost of $198,716. The shares were
repurchased under the stock repurchase program approved by the Board of
Directors on October 19, 1999, which authorized the repurchase of up to 16
million of the Company's outstanding common stock. As of September 30, 2000,
approximately 15.3 million shares had been repurchased since the inception of
the October 1999 repurchase program at a total cost of $335,000. The remaining
shares authorized under this program were purchased in October 2000.
Note 13. Summary of Recent Accounting Pronouncements
In December 1999 the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No 101 "Revenue Recognition in Financial Statements" ("SAB
No 101"). SAB No 101 summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. On June 26, 2000, the SEC staff issued SAB 101B to provide
registrants with additional time to implement guidance contained in SAB 101. SAB
101B delays the implementation date of SAB No 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
believes its revenue recognition policies are compliant with the SEC staff's
views.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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 FASB issued 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 does not believe that adoption of this
statement will have a material impact on the Company's financial statements.
22
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 14. Operations by Business Segment
Historical results are reclassified to reflect Gartner as a discontinued
operation (See Note 3).
Operating segments are defined as components of an enterprise about which
financial information is available that is evaluated on a regular basis by the
chief operating decision maker, or decision making groups, in deciding how to
allocate resources to an individual segment and in assessing performance of the
segment. The Company, operating globally in more than 100 countries, is managed
by way of and delivers information, software and related services principally
through the strategic business segments referenced below.
The chief operating decision-makers evaluate the performance and allocate
resources based on revenue and operating income. All intersegment transactions
are excluded from management's analysis of operations by business segment.
Effective beginning the quarter ended June 30, 2000 the Company has realigned
its business segments to reflect the change in management approach which has
arisen as a result of the then planned divestitures of Synavant and Erisco
and the pending divestiture of non-strategic software companies. This change
will allow focus on the core business. Historical segmental information has
been reclassified to give effect to the new segment grouping. The revised
segments are as follows:
1. The IMS Segment consists of IMS, a leading global provider of market
information, sales management and decision-support services to the
pharmaceutical and healthcare industries. Historically, this segment
included Synavant and three small non-strategic software companies that
are now included in the Transaction Businesses Segment.
2. The CTS Segment delivers full life cycle solutions to complex software
development problems and maintenance problems that companies face as they
transition to eBusiness. These services are delivered through the use of a
seamless on-site and offshore consulting project team. The Company's
primary service offerings include application development and integration,
application management, re-engineering and mass change.
3. The Transaction Businesses Segment includes Synavant, which serves the
pharmaceutical industry by developing and selling pharmaceutical
relationship management solutions that support sales and marketing
decision making; Erisco, a leading supplier of software-based
administrative and analytical solutions to the managed care industry and
three small non-strategic software companies. As indicated in Note 6, the
Company has spun-off the Synavant business. The Company also intends to
divest other small non-strategic software businesses. As indicated in Note
15, the Company sold Erisco to TriZetto and entered into a strategic
alliance with TriZetto on October 3, 2000. Historically, Erisco was
managed as part of the Emerging Markets Segment; whereas, Synavant was
managed as part of the core IMS Health business. The remaining piece of
the historical Emerging Markets Segment is Enterprises, the Company's
venture capital unit focused on investments in emerging businesses.
Enterprises is now being managed within general corporate activities.
23
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Periods Ended September 30, 2000
-----------------------------------------------------------------------------------------------------------------------
Three Months: IMS CTS Transaction Total
Businesses
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue (1),(2),(7) $ 282,074 $ 33,376 $ 40,417 $ 355,867
Segment Operating Income (loss) (1), (3) 109,316 7,078 (124,121) (7,727)
General Corporate Expenses (3) (38,272)
Interest Income 264 733 997
Interest Expense (5) (165) (66) (231)
Non-OperatingIncome/(Expense):
Gains from Dispositions - Net 6,201
Loss on Gartner Shares Contributed to
Synavant (3,102)
Other Expense - Net (5) (12,214)
-----------------------------------------------------------------------------------------------------------------------
Loss Before Provision for Income Taxes (54,348)
Provision for Income Taxes (4,069)
Income from Discontinued
Operations, Net of Income Taxes (6) 2,226
-----------------------------------------------------------------------------------------------------------------------
Net Income $ (56,191)
-----------------------------------------------------------------------------------------------------------------------
Nine Months:
Operating Revenue (1),(2),(7) $ 822,546 $ 85,029 $ 170,216 $ 1,077,791
Segment Operating Income (1), (3) 277,636 18,243 (132,015) 163,864
General Corporate Expenses (3) (56,256)
Interest Income 1,178 1,780 43 3,001
Interest Expense (5) (835) (139) (974)
Non-Operating Income/(Expense):
Gains from Dispositions - Net 63,915
Loss on Gartner Shares Contributed to
Synavant (3,102)
Other Expense - Net (5) (28,511)
-----------------------------------------------------------------------------------------------------------------------
Income Before Provision for Income Taxes 141,937
Provision for Income Taxes (67,273)
Income from Discontinued Operations, Net of
Income Taxes (6) 2,226
-----------------------------------------------------------------------------------------------------------------------
Net Income $ 76,890
-----------------------------------------------------------------------------------------------------------------------
Total Identifiable Assets at September 30, 2000 (8) $ 731,870 $ 95,380 $ 36,682 $ 863,932
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The IMS and CTS segment combined total revenues were $315,450 and $907,575 for
the three and nine-month periods ended September 30, 2000. The combined
operating incomes, after corporate expenses (net of Spin and Related Costs -
$31,254 and $32,801 for the three and nine months) and excluding one-time
technology acceleration costs ($2,836 for the three and nine months) and other
non-recurring costs ($2,094 for the three and nine months) totaled $114,306 and
$277,354 for the three and nine-month periods ended September 30, 2000. These
results reflect those of the core recurring IMS business as further described in
the Management Discussion and Analysis and Quarterly Earnings Press Release.
24
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Periods Ended September 30, 1999
-------------------------------------------------------------------------------------------------------------------------
-------------------------------------------------------------------------------------------------------------------------
Three Months: IMS CTS Transaction Total
Businesses
-------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenue (1), (2) $259,814 $19,077 $ 69,518 $ 348,409
Segment Operating Income (1), (3) 97,044 4,169 4,839 106,052
General Corporate Expenses (3) (10,094)
Interest Income 2,264 327 2,591
Interest Expense (5) --
Non-Operating Income/(Expense):
Gains from Dispositions - Net 4,313
Other Expense - Net (4), (5) (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 (6) 1,384
-------------------------------------------------------------------------------------------------------------------------
Net Income $ 71,624
-------------------------------------------------------------------------------------------------------------------------
Nine Months:
Operating Revenue (1),(2) 743,634 54,112 196,557 $ 994,303
Segment Operating Income (1), (3) 223,815 12,109 11,009 246,933
General Corporate Expenses (3) (33,510)
Interest Income (4) 5,249 853 6,102
Interest Expense (5) (753) (753)
Non-Operating Income/(Expense):
Gains from Dispositions - Net 20,590
Other Expense - Net (4), (5) (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 (6) 25,695
-------------------------------------------------------------------------------------------------------------------------
Net Income $ 185,902
-------------------------------------------------------------------------------------------------------------------------
Total Identifiable Assets at September 30,
1999 (8) $749,791 $61,047 $307,573 $ 1,118,411
-------------------------------------------------------------------------------------------------------------------------
</TABLE>
The IMS and CTS segment combined total revenues of $278,891 and $797,746 for the
three and nine-month periods ended September 30, 1999. The combined operating
incomes for the IMS and CTS Segments, after corporate expenses (net of Spin and
Related Costs $2,000 and $9,500) and excluding year 2000 remediation costs
($4,155 and $19,963), total $97,274 and $231,877 for the three and nine-month
periods ended September 30, 1999. These results reflect those of the core
recurring IMS business as further described in the Management Discussion and
Analysis and Quarterly Earnings Press Release.
25
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Notes to Operations by Business Segments:
(1) The IMS and CTS segment combined total revenues of $315,450 and $907,575
for the three and nine-month periods ended in 2000 compared to $278,891
and $797,746 for the comparable periods of 1999. The combined operating
incomes after corporate expenses (net of Spin and Related Costs) and
excluding Year 2000 remediation costs, other non-recurring costs and
technology acceleration costs, total $114,306 and $277,354 for the three
and nine-month periods ended in 2000 compared to $97,274 and $231,877 for
the same periods of 1999. These results reflect those of the core
recurring IMS business as further described in the Management Discussion
and Analysis and Quarterly Earnings Press Release.
(2) Operating revenue excludes intersegment sales in 2000 of $3,731 and
$10,949 for the three and nine-months presented, respectively. Operating
revenue in 1999 excludes intersegment sales of $3,799 and $10,688 for the
three and nine-months presented, respectively. These sales, primarily from
CTS to IMS, are recognized as the service is performed.
(3) General Corporate Expenses in 2000 includes $31,254 and $32,801
incremental Synavant Spin and Related Costs for the three and nine-months
periods presented, respectively. In 1999 comparable expenses include
$2,000 and $9,500 incremental Gartner Spin-off costs in the three and
nine-months, respectively. See Note 6 for a discussion of the Spin and
Related Costs.
(4) Interest income in 1999 excludes amounts recorded at corporate of $269 for
the nine-month period presented. This amount have been included in Other
Expenses-Net.
(5) Interest expense in 2000 excludes amounts recorded at Corporate of $6,429
and $9,053 for the three and nine-month periods presented, respectively.
Interest expense in 1999 excludes amounts recorded at corporate of $2,138
and $3,919 for the three and nine-month periods presented, respectively.
These amounts have been included in Other Expenses-Net.
(6) Income from Discontinued Operations, Net of Income Taxes relates to
Gartner. Taxes for both the three and nine-month periods ended September
30, 2000 were $1,198. Taxes for the three and nine-month periods were $931
and $12,635 respectively in 1999.
(7) The Transaction Businesses Segment includes Synavant up to the Spin-off
date of August 31, 2000. Accordingly, the Segment Includes for the
Synavant Businesses revenues of approximately $26,700 and $119,700 and
operating losses of ($122,600) and ($132,000), respectively for the three
and nine-months ended September 30, 2000. A significant part of residual
revenues and results of operations relate to the Erisco business.
(8) Total assets include Net Assets of Discontinued Operations of $81,060 and
$100,356 as of September 30, 2000 and September 30, 1999, respectively.
Assets of $256,311 and $261,562 as of September 30, 2000 and September 30,
1999, respectively, include Cash and Cash Equivalents, Investments, and
Property, Plant and Equipment not identified with business segments and
represent the reconciling items between total identifiable assets and net
assets of discontinued operations and the Company's total assets.
26
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Note 15. Subsequent Events
Disposal of Erisco
On October 3, 2000, Elbejay Acquisition Corp. ("Merger Sub"), a Delaware
corporation and a wholly owned subsidiary of the TriZetto Group, Inc.
("TriZetto"), a Delaware corporation, was merged (the "Merger") with and into
ERISCO Managed Care Technologies, Inc ("Erisco"), a New York corporation and a
wholly owned subsidiary of IMS Health pursuant to the Agreement and Plan of
Reorganization dated as of May 16, 2000 (the "Merger Agreement"), by and among
TriZetto, Merger Sub, IMS Health, and Erisco. The Merger effectuated IMS's sale
of Erisco to TriZetto. In consideration of the Merger, TriZetto issued
12,142,857 shares of common stock, par value $.001 per share (the "TriZetto
Common Stock), of TriZetto to IMS Health.
The transaction will be accounted for by IMS Health as a disposition of Erisco
in exchange for the acquisition of an approximately 36% interest in TriZetto.
The gross proceeds received by IMS Health, based on the closing share price of
TriZetto Common Stock on the Nasdaq National Market on October 2, 2000 ($15.125
per share), were approximately $183,700. (See Note 14).
As contemplated by the Merger Agreement, TriZetto's board of directors appointed
IMS Health's director-nominee, Victoria R. Fash, President and Chief Executive
Officer of IMS Health, to the TriZetto Board of Directors.
Additionally, as contemplated by the Merger Agreement, IMS Health and TriZetto
entered into a Stockholder Agreement and a Registration Rights Agreement in the
forms attached as exhibits to the Merger Agreement, and a Transitional Services
Agreement, Data Rights Agreement, and HealthWeb License Agreement in accordance
with the principal terms set forth in the Merger Agreement.
The Stockholder Agreement imposes certain restrictions on IMS Health. These
restrictions include, without limitation: (i) a standstill provision restricting
IMS Health from, among other things, acquiring additional shares of TriZetto
Common Stock until the earlier of the fourth anniversary of the Closing Date, or
the date on which a Change of Control (as defined in the Stockholder Agreement)
of TriZetto shall have occurred or TriZetto shall have publicly announced its
willingness to consider a transaction that would constitute a Change of Control;
(ii) a share transfer restriction that limits transfers of TriZetto Common Stock
measured as of the Closing Date, the date on which IMS Health beneficially owns
less than 10% of the outstanding TriZetto Common Stock measured as of the
Closing Date, or the date on which a Change of Control of TriZetto shall have
occurred; (iii) a right of first refusal for TriZetto on transfers by IMS Health
of more than 10% of the outstanding TriZetto Common Stock measured as of the
time of the transfer commencing upon the termination of the share transfer
restriction period and continuing until the date on which IMS Health
beneficially owns less than 10% of the outstanding TriZetto Common Stock
measured as of the Closing Date (unless a Change of Control of TriZetto shall
have occurred); and (iv) a right of first offer for TriZetto on any transfer of
TriZetto Common Stock by IMS Health commencing upon the termination the share
transfer restriction period and continuing until the date on which IMS Health
beneficially owns less than 10% of the outstanding TriZetto Common Stock
measured as of the Closing Date. The
27
<PAGE>
IMS HEALTH INCORPORATED
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (Unaudited)
(Dollar amounts in thousands, except per share data)
Stockholder Agreement also grants IMS Health, for so long as IMS Health
beneficially owns more than 10% of the outstanding TriZetto Common Stock
measured as of the Closing Date, (i) the right to designate one director-nominee
to the TriZetto Board of Directors and (ii) consent rights regarding certain
transaction by TriZetto, subject in each case, to earlier termination of such
rights upon the occurrence of certain events.
Pursuant to the Registration Rights Agreement, IMS was granted registration
rights in respect of the shares of TriZetto Common Stock issued to IMS in
connection with the sale of Erisco.
Additionally, pursuant to Section 6.14 of the Merger Agreement, TriZetto has
adopted a Stockholder Protection Rights Agreement as set forth more fully in the
Merger Agreement.
IMS will account for its ownership interest in TriZetto on an equity basis,
recording its share of the TriZetto operating results and the amortization of
the goodwill and other acquired intangibles. The allocation of the TriZetto
purchase price has not yet been fully determined. IMS will separately disclose
IMS core operations and its equity investment in TriZetto.
In connection with the transaction, IMS paid $32,000 of cash to TriZetto which
was funded by short-term debt.
IMS will record its equity investment in TriZetto of approximately $130,000 in
the fourth quarter of 2000. The equity investment will reflect IMS's residual
approximately 36% interest in the net assets of Erisco, and it's proportionate
share of the tangible and intangible assets and the liabilities of TriZetto and
goodwill. Management is currently evaluating the net assets acquired, including
all intangibles and their respective amortization periods (with preliminary
estimates from 5 to 7 years), however, the allocation of the purchase price has
not yet been completed. The actual values attributable to goodwill and other
intangibles will be based on consideration received less disposition costs and
the fair values of IMS's proportionate interest in the tangible assets and
liabilities of TriZetto on the date of acquisition. It is currently expected
that underlying intangible assets will be a significant portion of the
investment in TriZetto and the amortization of such intangibles will be
reflected in the future earnings of IMS. No assurance can be given that the
actual value of the intangibles arising or the amortization periods will not be
more or less than the amount or periods currently contemplated.
IMS expects to record a significant gain on the sale of ERISCO. Approximately
$10,000 of costs associated with this transaction have been deferred on the
Condensed Consolidated Statement of Financial Position and are included
within Other Current Assets. These costs will be expensed against the gain in
the fourth quarter.
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)
This discussion and analysis should be read in conjunction with the accompanying
Condensed unaudited Consolidated Financial Statements and related notes.
IMS Health is the world's leading provider of information solutions to the
pharmaceutical and healthcare industries. IMS Health operates in over 100
countries and its key products and services include:
o Market research for prescription and over-the-counter pharmaceutical
products;
o Sales management information to optimize sales force productivity; and
o IT application development, integration and management services.
At September 30, 2000, IMS Health consisted of (a) the IMS segment ("IMS"),
which consists of sales management information services and market research
business for the pharmaceutical and healthcare industries conducted by IMS and
various subsidiaries; (b) a controlling interest in Cognizant Technology
Solutions Corporation ("CTS") and (c) ERISCO Managed Care Technologies Inc. as
the primary component within the Transaction Business Segment. During the
quarter IMS Health also included the segment containing (i) the pharmaceutical
industry automated sales and marketing support business of IMS Health Strategic
Technologies, Inc. ("Strategic Technologies"), substantially all of IMS Health's
interactive and direct marketing business, including the business of
Clark-O'Neill, Inc. ("Clark-O'Neill"), and a majority stake in a foreign joint
venture (collectively the "Synavant Business"), (ii) ERISCO Managed Care
Technologies, Inc. ("Erisco"), and (iii) three small non-strategic software
businesses ((i), (ii) and (iii), collectively the "Transaction Businesses").
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 Gartner Spin-off
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 the periods presented to
reflect the Gartner equity investment as a discontinued operation. On July 23,
1999, in connection with the Gartner Spin-off, Gartner paid a special cash
dividend. IMS Health's portion of the dividend was $52,877, net of taxes. The
Company's remaining investment in Gartner at September 30, 2000 consists of
6,597,262 Gartner Class A shares and warrants to purchase a further 599,400
Gartner Class A shares. The carrying value of the Gartner investment, after
taxes, was $81,060 at September 30, 2000. (See Note 3 to the Condensed
Consolidated Financial Statements). As part of the Spin-off of Synavant, 312,195
shares ($4,000 fair market value) of Gartner Class A shares will be distributed
to Synavant.
On August 31, 2000 IMS Health spun-off Synavant (See Note 6 and Note 14 to the
Condensed Consolidated Financial Statements). On October 3, 2000 the Company
sold Erisco to The TriZetto Group, Inc. in exchange for an equity interest in
Trizetto and entered into a technology and data alliance. See Note 15 to the
Condensed Consolidated Financial Statements. These transactions, together with
the planned divestitures of small non strategic software businesses
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)
will result in a company concentrated on IMS's core data business of providing
market information and decision support services to the pharmaceutical industry,
together with the CTS Segment.
The technology and data alliance between IMS Health and TriZetto will (a)
accelerate implementation of the Company's internet strategy through TriZetto's
HealthWeb technology; and (b) facilitate developments of new products. IMS
Health will own approximately 36% of Trizetto's common stock after the
transaction and will account for its share of Trizetto on an equity basis.
Acquisition
On August 5, 1998, IMS Health acquired certain non-U.S. assets of Pharmaceutical
Marketing Services Inc. ("PMSI") for $103,921, consisting of IMS Health common
stock, IMS Health stock options issued and accrued acquisition and integration
costs in the amount of $22,584. The Company recognized approximately $116,775 of
goodwill related to the acquisition, which is being amortized on a straight-line
basis over 15 years. The severance costs, relating to the termination of 63 PMSI
employees, the costs of terminating various leaseholdings and costs associated
with contract cancellations were less than originally anticipated. However, the
Company's other direct costs recognized as a result of the acquisition, such as
direct legal fees and a pre-acquisition contingency in the amount of $1,500 were
greater than originally estimated. The following table provides the activities
since the acquisition with respect to these liabilities:
<TABLE>
<CAPTION>
Original Liability Expenditures Reclassifications/ September 30,
Estimate to Date Adjustments 2000 Balance
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Employee Separation $ 3,794 $ (3,689) $ (105) $ --
Lease Terminations 1,623 (774) (849) --
Contract Cancellations 10,935 (7,999) (834) 2,102
Other Direct Costs 6,232 (8,011) 3,288 1,509
-----------------------------------------------------------------------------------------
Total $ 22,584 $(20,473) $ 1,500 $ 3,611
-----------------------------------------------------------------------------------------
</TABLE>
In Process Research and Development
Since the acquisition of PMSI and Walsh International Inc., both in 1998, the in
process research and development products (IPR&D) that were underway at the time
of the acquisitions have reached technological feasibility at the level of cost
anticipated in the original valuations.
Revenues and profitability of the PMSI products subsequent to their release have
been in line with the original expectations incorporated within the calculation
of the IPR&D charges. As a direct result of the Siebel transaction one remaining
Walsh project has been discontinued.
Synavant Strategic Alliance
On July 14, 2000 Synavant entered into a strategic alliance with Siebel, a
leading provider of eBusiness applications software (see Note 7 to the Condensed
Consolidated Financial Statements). As a result of this transaction, Synavant
has assessed the financial impact of this
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)
transaction with respect to determining the amount of any impairment to the
capitalised software and enterprise-wide goodwill. This impairment loss is
$115,453 accounted for in the quarter ended September 30, 2000.
Data Centers
During the third quarter IMS announced the formation of a global data processing
hub in Plymouth Meeting, Pennsylvania. One of the world's largest computer
centers, handling 26 terabytes of data, the hub will provide the technology
foundation for the Company's global data processing and new Internet-based
products. In the quarter, the Company has incurred $2,836 of technology
acceleration costs in connection with the development of such products.
In Frankfurt, Germany, GIC Gesellschaft fur Informationstechnologie und
Consulting GmbH (GIC) was formed through a management buyout, providing
outsourcing services to IMS Health. This transaction and disclosure relates to
the gains more fully described in Note 4 to the Condensed Consolidated Financial
Statements.
Three Months Ended September 30, 2000 compared with Three Months Ended September
30, 1999.
Operations
Revenue for the third quarter of 2000 increased by 2.1% to $355,867 from
$348,409 in the third quarter of the prior year. This growth is primarily
attributable to the IMS and CTS Segment; partially offset by the inclusion of
only two months of Synavant revenues in 2000 versus three months in 1999 due to
the Spin-off, compounded by the decline in Synavant revenues as well as the
translation impact of a generally stronger US dollar.
IMS Health revenue, excluding the Transaction Businesses Segment, increased by
13.1% to $315,450 in 2000 from $278,891 for the third quarter of the prior year.
On a constant dollar basis revenue growth was 16.5% in the third quarter. This
increase in revenue is primarily due to the continued rollout of Xponent in
Europe, an increasing client base for the Japanese weekly data services,
increased sales of Xponent in North America resulting from the strength in the
pharmaceutical industry and growth at CTS.
Operating costs for the Company include internal computer costs, the cost of
data collection and production and costs attributable to personnel involved in
production, data management and the processing and delivery of the Company's
services. The Company's operating costs increased by 5.5% to $136,447 in 2000
from $129,298 in the third quarter of the prior year primarily due to increases
in CTS and IMS partially offset by the Synavant Spin-off in the quarter.
IMS Health operating costs, excluding the Transaction Businesses Segment and
excluding Year 2000 remediation ($4,155) in 1999 and technology acceleration
costs ($2,836) in 2000, increased by 19.2% to $110,439 from $92,637 for the
comparable quarter of 1999. This increase
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)
is attributable to an increased number of technical professionals at CTS to
meet the increased demand for services and an increase in the IMS Segment to
support higher revenues.
Selling and administrative expenses consist primarily of the costs
attributable to selling and administrative personnel, promotion,
communications, management, finance, administration and occupancy. The
Company's selling and administrative expenses increased during the third
quarter of 2000 by 0.6% to $95,475 from $94,865 in the third quarter of the
prior year.
IMS Health selling and administrative expenses, excluding the Transaction
Businesses Segment, and one time costs of $2,094 in the third quarter of
2000, increased during the third quarter by 3.3% from $70,656 to $73,040. The
increase was due to continued investment in CTS sales and administrative
functions and infrastructure.
In connection with the Spin-off of Synavant, the Company incurred $31,254 of
costs for the quarter ended September 30, 2000 ($32,801 for the 9 months).
These costs include $8,248 for expenses related to reductions in the IMS and
corporate administrative workforce (124 positions) resulting from
consolidation following the Synavant Spin-off. As at September 30, 2000, 31
employees under the ongoing employee protection program have left the company
for payments of $2,382. Additionally, a data processing agreement with a
third party for $5,200 will not be used by the Company as a result of the
Company's determination to streamline IMS's operations to focus on its core
business. In accordance with the settlement of this liability the Company has
paid $2,400 with a remaining balance to be paid (included within Accrued and
Other Current Liabilities), of $2,800 as of September 30, 2000. The remaining
Spin-off charges relate primarily to legal, professional and other direct
incremental costs.
In 1999 the $2,000 of Spin and Related Costs reflect direct incremental costs
associated with the Gartner Spin-off.
In connection with the Siebel transaction more fully described in Note 7 to
the Condensed Consolidated Financial Statements, Synavant has assessed the
impairment of it's computer software (including acquired technology),
goodwill and other intangible assets and change in intangible asset lives.
This impairment does not impact the IMS segment. As a result of this
transaction, Synavant has recorded an impairment charge in the third quarter
of $14,553 on computer software and $100,900 on goodwill. The Company is
required to record this impairment loss due to the Siebel alliance which was
signed prior to the Spin-off.
Operating loss for the third quarter of 2000 of $45,999 versus income of $95,958
in the third quarter of the prior year was primarily a result of the Synavant
impairment charge, the one-time spin and related costs and a decline in the
Synavant business, partially offset by growth in the IMS and CTS Segments.
IMS Health operating income, excluding the Transaction Businesses Segment, the
Synavant Spin and Related Costs and the non-recurring costs mentioned above,
increased by 17.5% in 2000 to $114,306 from $97,274 in the third quarter of the
prior year. This growth is primarily due to the revenue growth in North America,
Europe, Japan and CTS and the slower growth in operating
32
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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)
and selling and administrative expenses. Operating income growth outpaced
revenue growth primarily due to the Company's ability to leverage its world-wide
resources.
Net interest expense was $5,663 in the third quarter of 2000 compared with net
interest income of $453 in the third quarter of the prior year. This increase in
expense is due to a higher level of short term borrowings to fund the Company's
stock repurchase program and payment of the D&B tax contingency described in
Note 9 to the Condensed Consolidated Financial Statements.
The Loss on Gartner Shares Contributed to Synavant ($3,102) reflects the
decline in the fair market value of 312,195 Gartner shares to be contributed
to Synavant as part of the Spin-off agreements. These shares had a fair
market value of $4,000 at the date of the Spin-off, compared with $7,102 on
the date of the Gartner Spin-off (July 26,1999). A gain on these shares is
recognized in discontinued operations.
Gains from Dispositions, Net, were $6,201 in the third quarter of 2000,
compared to $4,313 in the third quarter of the prior year. In the third
quarter of 2000, the Company's gains are primarily due to the partial sale of
e-Credit to Internet Capital Group Inc, and from the sale of marketable
investments in Verisign Inc. Both Verisign Inc. and e-Credit were part of the
Enterprises portfolio.
Other Expense, Net, increased in the third quarter to $5,785 from $3,221 in the
third quarter of the prior year. This increase is primarily due to non-recurring
expenses in 2000 as well as higher CTS minority interest expense.
In 2000, the effective tax rate was higher than in 1999 as a result of the
non-deductible write down of Synavant goodwill, a higher amount of
Enterprise's investment gains which have been taxed at an overall rate of 35%
and the costs incurred as result of the Spin-off of Synavant, (a portion of
which is non-deductible), offset by the recognition of certain German trade
tax benefits (approximately $19,400). This is more fully described in Note 11
to the Condensed Consolidated Financial Statements.
Loss from continuing operations in the third quarter of 2000 was $58,417 versus
income of $70,240 in the third quarter of the prior year, the loss being a
result of the Spin and Related Costs and Impairment Charge - Synavant incurred
during the quarter; partially offset by strong operating income growth in the
IMS and CTS Segments.
IMS Health income from continuing operations, excluding the Transaction
Businesses Segment, Spin and Related Costs, other non-recurring items, net
disposition gains and loss on Gartner shares, described above and using a
normalized tax rate of 32% (without regard to discrete items), increased
10.6% in the third quarter of 2000 to $71,077. This increase is due primarily
to the improved operating income from the IMS and CTS Segments, described in
the results by business segment.
Income from discontinued operations in the third quarter of 2000 was $2,226, net
of taxes of $1,198, reflecting a gain on the Gartner Group shares to be
contributed to Synavant as part of the Spin-off. (See Note 3 to the Condensed
Consolidated Financial Statements). Income from
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)
discontinued operations in the third quarter of 1999 was $1,384, net of income
taxes of $931. This represents Gartner equity income prior to the Gartner
Spin-off.
The Company recorded a net loss for the third quarter of 2000 of $56,191
compared with net income of $71,624 in the third quarter of the prior year. The
loss is primarily a result of the Synavant impairment charge and related
Spin-off costs, offset in part by strong operating growth in the IMS and CTS
segments.
IMS Health net income, excluding the Transaction Businesses Segment, the Spin
and Related Costs and the one time costs and disposition gains previously
identified and using a normalized tax rate of 32% increased by 10.6% to
$71,077 in the third quarter of 2000, compared to $64,264 in the comparable
quarter of 1999 due primarily to the increased operating income of the IMS
and CTS segments.
Basic loss per share from continuing operations in the third quarter of 2000
was $0.20 versus earnings of $0.23 in the third quarter of the prior year.
The loss was driven by the Synavant impairment charge and related Spin-off
cost, which reduced earnings per share by approximately $0.45, net of taxes.
Diluted loss per share from continuing operations in the third quarter of 2000
was $0.20 compared with earnings of $0.22 in the third quarter of the prior
year.
IMS Health diluted earnings per share, excluding the Transaction Businesses
Segment, the Spin and Related Costs, non-recurring costs and dispositions gains
described above and using a normalized tax rate of 32% increased in 2000 by 20%
to $0.24 compared with $0.20 in the third quarter of the prior year.
Results by Business Segment
IMS Segment
The IMS Segment consists of IMS, the world's leading provider of information
solutions to the pharmaceutical and healthcare industries. Key products and
services integral to customer day-to-day operations include market research for
prescription and over-the-counter pharmaceutical products and sales management
information to optimize sales force productivity. Historically, this segment
included the Synavant Business and three non-strategic software companies that
are now included in the Transaction Businesses Segment.
IMS Segment revenue for the third quarter increased 8.6% (12.2% on a constant
dollar basis) to $282,074 from $259,814 in the third quarter of the prior
year. Sales Management revenue increased 14.9% to $168,562, Market Research
revenue increased 2.6% to $103,213, and Other Services revenue decreased
17.8% to $10,299. Sales Management revenue growth is primarily due to Xponent
in the United States and Europe and also to the weekly data product launched
at the end of 1999 in Japan. Other Services revenue includes consultancy
services which are ad hoc and less predictable in nature. This quarterly
decrease is due to the timing of such ad hoc revenues and on a year to date
basis Other Service revenue has increased by 5.6%. Sales Management, Market
Research and other service revenue growths have been adversely impacted by
foreign exchange movements for the quarter ended September 30, 2000.
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)
IMS Segment operating income for the third quarter increased 12.6% to $109,316
from $97,044 in the prior year. Excluding Year 2000 remediation costs in 1999
and technology acceleration and other non-recurring costs in 2000, third quarter
operating income increased 12.9% to $114,246 from $101,199 in the prior year.
Adjusted operating income growth outpaced revenue growth due primarily to the
segment's ability to leverage its established worldwide resources.
Transaction Businesses Segment
Transaction Businesses revenue for the third quarter of 2000 decreased 41.9%
to $40,417 from $69,518 in the comparable period of the prior year. This was
primarily due to the inclusion of only two months of Synavant revenue in 2000
versus three months in 1999. An increase in Erisco revenues (software
licenses and services) was offset by lower interactive marketing volumes and
lower Strategic Technologies' software fees, and the impact of adverse
foreign currency movements.
The Transaction Business Segment reported an operating loss for the quarter of
$124,121 compared to an operating income of $4,839 in the comparable period of
the prior year. This is primarily due to the Synavant impairment charge of
$115,453.
CTS Segment
CTS revenue for the quarter, net of intersegment sales, increased 75.0% to
$33,376 from $19,077 in the comparable period of the prior year. CTS operating
income for the period increased 69.8% to $7,078 in 2000 from $4,169 in the
comparable period of the prior year. The increase resulted primarily from an
increase in application development and integration, application management,
re-engineering and other services partially offset by a decrease in Year 2000
compliance services.
Nine Months Ended September 30, 2000 Versus Nine Months Ended September 30, 1999
Operations
Revenue for the nine-month period increased by 8.4% in 2000 to $1,077,791 from
$994,303 for the comparable period a year ago. The increase is primarily due to
the continued rollout of Xponent in Europe, an increasing client base for the
Japanese weekly data services, increased sales of existing products in North
America and IMS's emerging markets and growth at CTS. This is partially offset
by the inclusion of only eight months of Synavant revenues in 2000 versus nine
months in 1999 due to the Spin-off, compounded by the decline in Synavant
revenues, as well as by the translation impact of a generally stronger U.S
dollar.
IMS Health revenue for the first nine months of 2000, excluding the Transaction
Businesses Segment, increased 13.8%, to $907,575 from $797,746. On a constant
dollar basis this revenue growth was 16.3%. This increase is primarily due to
the continued rollout of Xponent in Europe, an increasing client base for the
Japanese weekly data services, increased sales of Xponent in North America
helped by the strength in the pharmaceutical industry and growth at CTS .
Operating costs for the nine-month period increased by 4.3% in 2000 to $420,625
from $403,159 for the comparable period of the prior year. The increase was
primarily due to the increased
35
<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)
direct costs to support the increase in demand for services, as well as
investment in a number of internet initiatives, including i-squared; partially
offset by the absence of Year 2000 remediation costs in 2000 compared with
$19,963 in 1999.
IMS Health operating costs, excluding the Transaction Businesses Segment,
operating costs, Year 2000 remediation costs in 1999 of $19,963, and technology
acceleration costs in 2000 of $2,836, increased by 12.5% to $332,320.
Selling and administrative expenses increased during the nine-month period by
12.0% to $328,164 in 2000 from $293,047 for the comparable period in the prior
year. This increase is due to increased service costs for the installed user
client base of Strategic Technologies, as well as investment in CTS
infrastructures and in global and U.S. sales and marketing functions.
IMS Health selling and administrative expenses, excluding the Transaction
Businesses Segment costs, and the non recurring costs of $2,094, increased
during the nine-month period by 12.5% to $246,721. The increase in such expenses
was due to investment in CTS infrastructures and in global and U.S. sales and
marketing functions.
In connection with the Spin-off of Synavant, the Company incurred $31,254 of
costs for the quarter ended September 30, 2000 ($32,801 for the 9 months).
These costs include $8,248 for expenses related to reductions in the IMS and
corporate administrative workforce (124 positions) resulting from
consolidation following the Synavant Spin-off. As at September 30, 2000, 31
employees under the ongoing employee protection program have left the company
for payments of $2,382. Additionally, a data processing agreement with a
third party for $5,200 will not be used by the Company as a result of the
Company's determination to streamline IMS's operations to focus on its core
business. In accordance with the settlement of this liability the Company has
paid $2,400 with a remaining balance to be paid (included within Accrued and
Other Current Liabilities), of $2,800 as of September 30, 2000. The remaining
Spin-off charges relate primarily to legal, professional and other direct
incremental costs.
In 1999 the $9,500 of Spin and Related Costs reflect direct incremental costs
associated with the Gartner Spin-off.
In connection with the Siebel transaction more fully described in Note 7 to the
Condensed Consolidated Financial Statements, Synavant has assessed the
impairment of its computer software (including acquired technology), its
goodwill and other intangible assets and change in intangible asset lives. As a
result of this transaction an impairment charge has been recorded in quarter
three of $14,553 for computer software and $100,900 for goodwill. The Company
is required to record this impairment loss due to the Siebel alliance which
was signed prior to the Spin-off.
Operating income for the nine-month period decreased to $107,608 in 2000 from
$213,423 for the comparable period in the prior year due primarily to the
Synavant impairment charge and Synavant Spin costs; partially off-set by growth
in the IMS and CTS Segments.
36
<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 Health operating income, excluding the Transaction Businesses Segment and
the non- recurring costs described above, increased by 19.6% to $277,354 in 2000
from $231,877 in the nine months of 2000 compared to the comparable period of
the prior year.
Net interest expense for the nine-month period increased to $7,026 in 2000
compared to a net interest income of $1,699 in the comparable period of the
prior year. This increase in interest expense is due to an increase in the level
of short term borrowings ($204,569) to fund the Company's stock repurchase
program and payment of the D& B tax contingency.
The Loss on Gartner Shares Contributed to Synavant ($3,102) reflects the decline
in the fair market value of 312,195 Gartner Shares to be contributed to Synavant
as part of the Spin-off agreements. These shares had a fair market value of
$4,000 at the date of the Spin-off, compared with $7,102 on the date of the
Gartner Spin-off (July 26,1999).
Gains from Dispositions, Net, for the nine-month period increased to $63,915
from $20,590 in the prior year as a result of higher gains from the sale of
Enterprises investments. (See Note 4 to the Condensed Consolidated Financial
Statements).
Other expense, net, for the nine-month period increased to $19,458 from $11,457
in the comparable period of the prior year. This increase is due primarily to
non-capitalizable acquisition costs and other non-recurring expenses and to
higher CTS minority interest expense.
The effective tax rate for the nine-month period was 47% compared to 29% for
the same period in the prior year. To consolidate certain of its
international operations in 1999 the Company engaged in certain non-U.S.
reorganizations which gave rise to tax deductible non-U.S. intangible assets.
In 2000, the effective tax rate was higher than in 1999 as a result of the
non-deductible write down of Synavant goodwill, a higher amount of
Enterprise's investment gains which have been taxed at an overall rate of 35%
and the cost incurred as result of the Spin-off of Synavant, a portion of
which are non-deductible, offset by the recognition of certain German trade
tax benefits (approximately $19,400), the recognition of the benefit of
certain net operating losses (NOL's) due to the implementation of global tax
planning strategies (approximately $3,400) and the reversal of previously
accrued tax liabilities (approximately $3,000).
The German trade tax benefits of $19,400 result from a favorable final German
court decision rendered in the third quarter of 2000 which permitted the
utilization of certain pre-existing tax benefits. The global tax planning
strategies which permitted the recognition of the benefit of the NOL's were
developed and implemented during the first quarter of 2000. These NOL's had
previously been reserved with a full valuation allowance. The reversal of
previously accrued tax liabilities resulted from the true-up of state and local
tax returns and the favorable resolution of audits in certain foreign tax
jurisdictions recognized during the first quarter. This benefit will offset a
fourth quarter charge resulting from new German legislation discussed below.
The impact of the German legislation that has been enacted reduces the German
Corporate tax rate from 40% to 25%. This legislation was signed into law on
October 23, 2000. Pursuant to current accounting regulations, the Company must
recognize the impact of such tax law changes in the fiscal quarter in which such
laws are enacted; as a result such tax law change will be
37
<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)
treated as a fourth quarter event for accounting purposes. The impact to the
Company will be a reduction in the net deferred income tax assets of
approximately $17,500, which will be recorded in the fourth quarter, more than
offset by the German trade tax benefit discussed above.
While the Company intends to continue to seek global tax planning initiatives,
there can be no assurance that the Company will be able to successfully
implement such initiatives.
Income from continuing operations for the nine-month period was $74,664 in 2000
compared with $160,207 for the comparable period of the prior year. This
decrease is primarily due to the Synavant impairment charge and Spin-off costs
in 2000; partially off-set by higher operating income in the IMS and CTS
Segments.
IMS Health income from continuing operations, excluding the Transaction
Businesses Segment and the non-recurring items and disposition gains and loss on
Gartner shares contributed to Synavant described above and applying a normalized
tax rate of 32%, increased 16% for the reasons described above.
Income from discontinued operations for the first nine-months of 2000 was
$2,226, net of taxes of $1,198 reflecting the recognition of an unrealized gain
on the Gartner Group shares contributed to Synavant as part of the Spin-off.
(See Note 3 to the Condensed Consolidated Financial Statements).
Income from discontinued operations, net of income taxes of $12,635 for the
nine-month period in 1999, was $25,695. This represents Gartner equity income.
Net income for the nine months was $76,890 in 2000 compared to $185,902 for the
comparable period in the prior year. This decrease is primarily due to the
Synavant impairment charge and Spin-off costs in 2000; partially offset by
higher operating income in the IMS and CTS Segments.
IMS Health net income, excluding the Transaction Businesses Segment and other
one time items and gains and losses described above and applying a normalized
tax rate of 32% increased 16.2%. This increase is primarily due to growth in the
IMS and CTS segments operating income described above.
Basic earnings per share from continuing operations for the nine month period
are $0.25 in 2000 compared to $0.51 for the comparable period of the prior year.
Diluted earnings per share for the nine month period are $0.26 versus $0.58 for
the comparable period of the prior year.
IMS Health diluted earnings per share, excluding the Transaction Businesses
Segment and other one time items described above, gains and losses and a
normalized tax rate of 32% increased for the nine-month period by 26% to $0.59
in 2000 from $0.47 for the comparable period of the prior year.
38
<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)
Results by Business Segment
IMS Segment
IMS Segment revenue for the first nine months of the year increased 10.6% to
$822,546 in 2000 from $743,634 in the prior year. Excluding the impact of
foreign currency translation, revenue grew 13.3%. Sales Management revenue
increased 15% to $489,921, Market Research revenue increased 4.7% to $301,462,
and Other revenue increased 5.6% to $31,163. Sales Management revenue growth was
due to the strong growth of Xponent in the U.S. and Europe as well as the weekly
data product in Japan.
IMS Segment operating income for the nine-month period increased 24.0% to
$277,636 in 2000 from $223,815 in the comparable period of the prior year.
Excluding Year 2000 remediation costs in 1999 and technology acceleration costs
and other one time costs in 2000, operating income for the first nine months
increased 15.9% to $282,566.
Transaction Businesses Segment
Transaction Businesses Segment revenue for the first nine months of 2000
decreased 13.4% to $170,216 from $196,557 in the comparable period of the
prior year. This was primarily due to the inclusion of only eight months of
Synavant revenue in 2000 versus nine months in 1999. An increase in Erisco
revenues (software licenses and services) was partially offset by a decline
in Strategic Technologies' sales force automation license revenues, lower
interactive marketing revenues and the impact of a stronger US dollar.
The Transaction Businesses Segment reported an operating loss for the first nine
months of 2000 of $132,015 compared to an operating income of $11,009 in the
comparable period of the prior year. This is primarily due to the Synavant
impairment charge and the impact of the reduced revenues explained above on
operating income.
CTS Segment
CTS revenue for the nine-month period, net of intersegment sales, increased
57.1% to $85,029 from $54,112 in the comparable period of the prior year. CTS
operating income for the nine- month period increased 50.6% to $18,243 in 2000
from $12,109 in the comparable period of the prior year. The increase resulted
primarily from an increase in application development and integration,
application management, re-engineering and other services partially offset by a
decrease in Year 2000 compliance services.
Condensed Consolidated Statement of Cash Flows
Net Cash Provided by Operating Activities totaled $235,539 for the nine months
ended September 30, 2000, compared with net cash provided of $231,758 for the
comparable period in 1999. The change was due primarily to lower net income
($109,012) and unfavorable movements in Accounts Receivable ($24,238) and
Deferred Revenues ($14,008), which were offset by the impact of the Synavant
impairment ($115,453) and the change in Accrued & Other Current Liabilities
($27,932) and a reduction in Benefit Payments ($8,687). Excluding the
39
<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)
Transaction Businesses, for the nine months ended September 30, 2000
Depreciation and Amortization was $51,076, the net increase in Accounts
Receivable was $4,786, the net decrease in Deferred Revenue was $33,989, the Net
Decrease in Accrued and Other Current Liabilities was $9,389, and Other Working
Capital Items were $2,814.
Net Cash Used in Investing Activities totaled $24,544 for the nine months ended
September 30, 2000 compared with a usage of $60,473 for the comparable period in
1999. The decrease was primarily due to higher Proceeds from Sale of
Investments, Net ($23,486), a reduction in Acquisition and Integration payments
($23,452), and a decrease in Capital Expenditures and Additions to Computer
Software ($7,822), offset by an increase in the Net Increase in Other
Investments and Other Investing Activities - Net ($21,931). Excluding the
Transaction Businesses, for the nine months ended September 30, 2000 Capital
Expenditures were $18,694, and Additions to Deferred Software were $32,557.
Net Cash Used in Financing Activities totaled $216,320 for the nine months ended
September 30, 2000 compared with a usage of $222,675 for the comparable period
in 1999. The improvement was primarily due to a reduction in Payments for
Purchase of Treasury Stock ($161,143) and net Short Term Borrowings ($80,485),
offset by the Payment of the D&B Tax Contingency ($212,291) and the Synavant
Dividend ($19,438).
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 end of December 31. The impact of this
change in year end of the IMS reporting units resulted in an additional $30,664
of cash and cash equivalents in the nine months ended September 30, 1999.
Financing Activities include cash dividends paid of $17,866 and $18,923 for the
nine months ended September 30, 2000 and 1999 respectively. Dividends paid per
share were $0.02 for the quarters ended September 30, 2000, June 30, 2000 and
March 31, 2000.
The Company has been informed by D&B that the IRS is challenging D&B's
utilization of certain capital losses during 1989 and 1990. D&B has advised
the Company that it filed an amended tax return for these periods which
reflects $561,582 of tax and interest due. Under the terms of the 1996
Distribution Agreement, the Company is liable to pay half of such taxes and
interest owed to the IRS to the extent that D&B total liabilities exceed
$137,000. In May 2000, D&B paid $349,291 of this amount, and the Company paid
$212,291, which the Company funded through short-term borrowings. The
payments were made to the IRS to stop further interest from accruing. A
portion (approximately $41,000) of the Company's obligation will in turn be
shared with NMR under the Distribution Agreement between those companies
dated June 30, 1998 (the "1998 Distribution Agreement"). NMR is not obligated
to pay its share to the Company until January 2, 2001. Accordingly, the
receivable has been accounted for as a short-term asset. D&B received a
formal assessment for the additional tax from the IRS during the second
quarter of 2000. D&B has advised the Company that, notwithstanding the filing
and payment, it intends to contest the assessment and would also contest the
assessment of amounts, if any, in excess of the amounts paid. The Company
estimates that its share of the liability that
40
<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)
was paid is approximately $140,000 net of income tax benefit on interest
(approximately $31,300) and NMR's contribution obligations (approximately
$41,000).
At September 30, 2000 the Company's Total Current Liabilities exceed its
Total Current Assets. Based on estimated future cash flows from operations,
the ability to monetize Enterprise investments upon distribution from Venture
capital partnerships, the investment in Cognizant Technology Solutions as
well as the Company's ability to obtain additional lines of credit and debt,
the Company believes it will have sufficient cash and other resources to fund
its short and long term business plans, including its current short term
obligations, its stock repurchase program and its operations.
During the first nine months of 2000, the Company repurchased 9,858,750 shares
of outstanding common stock at a total cost of $198,716. The shares were
repurchased under the stock repurchase program approved by the Board of
Directors on October 19, 1999, which authorized the repurchase of up to 16
million of the Company's outstanding common stock. As of September 30, 2000,
approximately 15.3 million shares had been repurchased since the inception of
the October 1999 repurchase program at a total cost of $335,000. The remaining
shares authorized under this program were purchased in October 2000.
On July 19, 2000 the Board of Directors authorized a stock repurchase program to
buy up to 40 million shares, marking the fifth consecutive repurchase program
the Company has implemented. Shares acquired through the repurchase program will
be open-market purchases in compliance with Securities and Exchange Commission
Rule 10b-18. Through September 30, 2000 the Company has acquired 20% of its
initial capitalization.
Changes in Financial Position at September 30, 2000 Compared to December 31,
1999
CASH & CASH EQUIVALENTS decreased to $106,389 at September 30, 2000, from
$115,875 at December 31, 1999 (which includes $52,836 and $42,641 of CTS' cash
and cash equivalents at September 30, 2000 and December 31, 1999, respectively),
due primarily to improved working capital management.
ACCOUNTS RECEIVABLE - NET decreased to $221,260 from $284,679, primarily due to
the receivables transferred to the Transaction Businesses ($43,195), the
Company's continuing emphasis on collections and the impact of foreign exchange;
partially offset by higher billings resulting from strong revenue growth.
OTHER RECEIVABLE increased to $41,136 at September 30, 2000 from $0 at December
31, 1999 to reflect the Nielsen Media Research (NMR) share of the D&B tax
contingency (see Note 9 to the Condensed Consolidated Financial Statements).
NET ASSETS FROM DISCONTINUED OPERATIONS declined to $81,060 on September 30,
2000 from $96,988 at year-end 1999 due to a decline in the value of the
Company's investment in Gartner, which resulted from a lower market price of
Gartner shares (See Note 3 to the Condensed Consolidated Financial Statements).
SECURITIES AND OTHER INVESTMENTS increased to $155,693 at September 30, 2000,
from $127,415 at December 31, 1999, due primarily to the distribution of certain
investments, which the Company previously held at cost, from the venture capital
fund partnerships to the Company. These
41
<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)
investments are marked to market as of September 30, 2000. In addition, the
Company made an investment of $10,000 in Allscripts which is held at cost. (See
Note 5 to the Condensed Consolidated Financial Statements). These increases were
partially offset by dispositions.
PROPERTY, PLANT AND EQUIPMENT - NET decreased to $146,180 from $169,190 due
primarily to the Synavant Spin-off ($16,294) and the translation impact of a
generally-stronger U.S. dollar ($7,315).
COMPUTER SOFTWARE was $146,873 on September 30, 2000, compared with $174,974 at
year-end 1999. The reduction was primarily due to the Synavant Spin-off
($13,479), amortization ($31,910), the impaired software charge ($14,553) and
the translation impact of a generally-stronger U.S. dollar, partially offset by
investment in deferred software ($37,832).
GOODWILL declined to $156,756 on September 30, 2000 from $339,491 at year-end
1999. The decrease was primarily due to the Synavant Spin-off ($58,168), an
impairment charge ($100,900) and amortization ($16,736).
ACCOUNTS PAYABLE decreased to $32,920 on September 30, 2000, from $44,577 at
year-end 1999 principally due to the Synavant Spin-off ($6,696) and the
translation impact of a generally-stronger U.S. dollar ($6,125).
ACCRUED AND OTHER CURRENT LIABILITIES decreased to $189,466 at September 30,
2000, from $196,375 at December 31, 1999 due primarily to payments of accruals
for salaries, wages, bonuses and other compensation and payments related to PMSI
direct acquisition and integration costs. An increase for Spin and Related Cost
accruals is offset by the Spin of the Synavant liabilities.
SHORT TERM DEBT increased to $339,232 at September 30, 2000, from $134,663 at
December 31, 1999, due primarily to the payment of the D&B tax contingency
($212,291) and the funding of the Company's share repurchase program ($198,716),
partially offset by Net Cash Provided by Operating Activities ($235,539).
ACCRUED INCOME TAXES decreased to $74,082 at September 30, 2000, from $211,592
at December 31, 1999. The decrease reflects net taxes paid less taxes accrued
in the nine-month period.
DEFERRED REVENUES decreased to $90,668 at September 30, 2000, from $136,196 at
December 31, 1999 due primarily to the amortization of annual subscription,
maintenance and support contracts billed in advance at December 31, 1999
($29,840) and to the Synavant Spin-off ($9,170).
OTHER LIABILITIES increased to $101,067 on September 30, 2000, from $81,343 at
year end 1999 primarily due to an increase in the Long Term Deferred Tax
Liability.
SHAREHOLDERS' EQUITY decreased to $214,583 at September 30, 2000 from $493,706
at December 31, 1999 primarily due to the Synavant Spin-off ($137,841) and share
repurchases ($198,716), partially offset by net income ($76,890).
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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)
Summary of Recent Accounting Pronouncements
In December 1999 the Securities and Exchange Commission ("SEC") issued Staff
Accounting Bulletin No 101 "Revenue Recognition in Financial Statements" ("SAB
No 101"). SAB No 101 summarizes certain of the SEC staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. On June 26, 2000, the SEC staff issued SAB 101B to provide
registrants with additional time to implement guidance contained in SAB 101. SAB
101B delays the implementation date of SAB No 101 until no later than the fourth
fiscal quarter of fiscal years beginning after December 15, 1999. The Company
believes its revenue recognition policies are compliant with the SEC staff's
views.
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("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 FASB issued 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 does not believe that adoption of this
statement will have a material impact on the Company's financial statements.
Euro Conversion
On January 1, 1999, 11 member countries of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency ("Euro"). The transition period for the introduction of the Euro
is between January 1, 1999 and January 1, 2002.
The Company 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
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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)
currency in eleven participating countries which may affect the ability of some
companies to price products differently in 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.
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, Euro conversion 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 acquisitions,
alliances or joint ventures, the ability to identify, consummate and integrate
acquisitions, alliances and ventures on satisfactory terms; the ability to
develop new or advanced technologies, systems and products for their businesses
on time and on a cost-effective basis including but not limited to those that
use or are related to the Internet; the ability to successfully maintain
historic effective tax rates and to achieve estimated corporate overhead levels;
competition, particularly in the markets for pharmaceutical information;
regulatory, legislative and enforcement initiatives, particularly in the area of
medical privacy and tax; the ability to timely and cost-effectively resolve any
problems associated with the Euro currency 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; consolidation in the pharmaceutical industry and the
other industries in which IMS Health's customers 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; and; failure of third parties to convert their
information technology systems to the Euro currency in a timely manner and
actions of government agencies and other third parties with respect to Euro
currency issues. 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 period ended September 30, 2000 and by the material
set forth under the headings "Business" and "Factors that May Affect Future
Results" in the Company's Annual Report on Form 10-K for the year ended December
31, 1999. IMS Health is under no obligation
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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)
to publicly release any revision to any forward-looking statement contained or
incorporated herein to reflect any future events or occurrences.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information in response to this Item is set forth in "Note 10. Financial
Instruments" of Notes to Condensed Consolidated Financial Statements on pages
19-21.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Information in response to this Item is set forth in "Note 9. Contingencies" of
Notes to Condensed Consolidated Financial Statements on pages 16 through 19
hereof.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
Instruments Defining Rights of Security Holders
(4.1) Amendment No. 2 to the Rights Agreement, dated as of July 18, 2000,
between IMS Health Incorporated and First Chicago Trust Company of
New York
Material Contracts
10.1 IMS Health Incorporated U.S Executive Retirement Plan dated as of
July 25, 2000
27 Financial Data Schedules
(b) Reports on 8-K:
The following reports on Form 8-K were filed during the quarter ended
September 30, 2000:
A report on Form 8 K was filed on September 15, 2000 to present under Item 2,
Acquisition or Disposition of Assets, a description of the Company's Spin-off of
Synavant Inc. (the "Synavant Spin-off"); under Item 5, Other Events, the status
of the Company's anticipated disposition of ERISCO Managed Care Technologies,
Inc. to The TriZetto Group, Inc., and two smaller dispositions, and under Item
7, Financial Statements, Pro Forma Financial Information and Exhibits, Pro Forma
Financial Information regarding the Synavant Spin-off.
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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/ James C. Malone
------------------------------------
Date: November 13, 2000 James C. Malone
Chief Financial Officer
/s/ Wendy J. Timmins
------------------------------------
Date: November 13, 2000 Wendy J. Timmins
Vice President-Finance & Controller
(Principal Accounting Officer)
47
