UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x                                 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2006

OR

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

For the transition period from          to           

Commission file number: 001-14049

IMS Health Incorporated

(Exact name of registrant as specified in its charter)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes x    No o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes o    No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

 

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

As of June 30, 2006, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the registrant was approximately $5,410 million based on the closing transaction price on the New York Stock Exchange Composite Tape.

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

 

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement for the Annual Meeting of Shareholders scheduled to be held on May 4, 2007, are incorporated into Part III of this Form 10-K.

Table of Contents

Section				Page
Part I
Item 1. Business					3
IMS					3
Our Products and Services					4
Our Data Suppliers					7
Our Customers					7
Our Competition					7
Our Intellectual Property					8
Our Employees					8
Available Information					8
Item 1A. Risk Factors					9
Item 1B. Unresolved Staff Comments					14
Item 2. Properties					14
Item 3. Legal Proceedings					14
Item 4. Submission of Matters to a Vote of Security Holders					16
Executive Officers of the Registrant					17
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities					20
Item 6. Selected Financial Data					21
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations					21
Item 7A. Quantitative and Qualitative Disclosures about Market Risk					45
Item 8. Financial Statements and Supplementary Data					46
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure					97
Item 9A. Controls and Procedures					97
Item 9B. Other Information					98
Part III
Item 10. Directors, Executive Officers and Corporate Governance					99
Item 11. Executive Compensation					99
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters					99
Item 13. Certain Relationships and Related Transactions, and Director Independence					101
Item 14. Principal Accountant Fees and Services					101
Part IV
Item 15. Exhibits and Financial Statement Schedules					102
Index to Consolidated Financial Statements and Financial Statement Schedule					104
Schedule II—Valuation and Qualifying Accounts					105
Index to Exhibits					106
Exhibit 21—IMS Health Incorporated Active Subsidiaries
Exhibit 23—Consent of Independent Registered Public Accounting Firm
Exhibit 31.1—CEO Section 302 Certification
Exhibit 31.2—CFO Section 302 Certification
Exhibit 32.1—Joint CEO/CFO Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

 

The Index to Exhibits is located on Pages 106 to 117

PART I

Except where the context indicates otherwise, when we use the terms “IMS,” “Company,” “we,” “us” and “our,” we mean IMS Health Incorporated and all subsidiaries consolidated in the financial statements contained or incorporated by reference herein.

Item 1.                        Business

IMS is the leading global provider of market intelligence to the pharmaceutical and healthcare industries. We offer leading-edge market intelligence products and services that are integral to our clients’ day-to-day operations, including portfolio optimization capabilities; launch and brand management solutions; sales force effectiveness innovations; managed care and consumer health offerings; and consulting and services solutions that improve ROI and the delivery of quality healthcare worldwide. Our information products are developed to meet our clients’ needs by using data secured from a worldwide network of suppliers in more than 100 counties. Our key information products include:

·       Sales Force Effectiveness to optimize sales force productivity and territory management;

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

·       Launch, Brand Management and Other to support client needs relative to market segmentation and positioning, life cycle management for prescription and consumer health pharmaceutical products and health economics and outcomes research offerings.

Within these key information products, we provide consulting and services that use in-house capabilities and methodologies to assist pharmaceutical clients in analyzing and evaluating market trends, strategies and tactics, and to help in the development and implementation of customized software applications and data warehouse tools.

IMS was incorporated under the laws of the State of Delaware in 1998 and we have operations in more than l00 countries. Until December 21, 2004, we also owned an approximately 25% equity interest in The TriZetto Group, Inc. (see Note 8 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K).

Segment financial information, including financial information about domestic and foreign generated revenue, is set forth in Note 19 to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Additional information regarding changes to and the development of our business is contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and in Notes 1, 2, 3, 4, 5, 8, 16 and 19 to the Consolidated Financial Statements in Part II, Items 7, 7A and 8 of this Annual Report on Form 10-K.

IMS

We provide critical business intelligence, including information, analytics and consulting services to the pharmaceutical and healthcare industries worldwide. Our market intelligence products and services serve our clients’ needs which we group into three broad areas: sales force effectiveness, portfolio optimization, and launch, brand management and other. We provide information services covering more than 100 countries and maintain offices in 76 countries on six continents, with approximately 63% of our total 2006 revenue generated outside the United States.

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OUR PRODUCTS AND SERVICES

SALES FORCE EFFECTIVENESS OFFERINGS.   Our Sales Force Effectiveness offerings represented approximately 47% of our worldwide revenue in 2006. Sales Force Effectiveness offerings provide our customers with innovative solutions to enhance market share and revenue potential using sub-national sales and prescription intelligence, easy-to-use access tools and an array of consulting services. Using a total solutions approach, IMS Sales Force Effectiveness drives smart business decisions, shapes sales management and marketing strategies, and supports critical sales tactics to maximize market position and overall performance. Offering actionable insight for markets worldwide, services within the Sales Force Effectiveness business area provide in-depth intelligence that support the planning, development and execution of critical business processes, including segmentation and targeting, sales force sizing and deployment, performance assessment and compensation, and territory management. The IMS Sales Force Effectiveness offerings provide the in-depth information, market intelligence and analysis that empower our customers’ sales managers and enhance the effectiveness of their sales teams.

Our principal Sales Force Effectiveness offerings are as follows:

·       Sales Territory Reporting Services.   Sales territory reporting is the principal sales management service that we offer to our pharmaceutical clients. Sales territory reports can be precisely tailored for each client and measure the sales of a client’s own products and those of competitors within specified geographical configurations. These reports are designed to provide marketing and sales managers with a reliable measurement of each salesperson’s activity and effectiveness in his or her sales territory. Our sales territory reporting services cover more than 29 countries and are used by our customers for applications such as sales-force compensation, resource allocation, territory alignment, market analyses and distribution management. We make reports available to clients in a variety of frequencies, such as on a weekly, monthly and quarterly basis. In the United States, sales territory reports from our DDDTM service allow pharmaceutical clients to track the flow of sales for their products and those of their competitors to various levels of geography and channels of distribution. Our DDD database contains data on sales of pharmaceutical products through all distribution channels, including direct sales by pharmaceutical manufacturers and indirect sales through drug wholesalers, mail service distributors, warehousing chains and other specialty distributors.

·       Prescription Tracking Reporting Services.   Our prescription tracking reporting services are designed to monitor prescription activity and to track the movement of pharmaceutical products out of retail channels. Prescription tracking services are used by pharmaceutical companies to facilitate product marketing at the prescriber level. In the United States, our Xponent® service monitors prescription activity from retail pharmacies, long-term care and mail service pharmacies using a patented statistical methodology to project the prescription activity of nearly 1.4 million individual prescribers on a weekly and monthly basis. Xponent is available in 6 European countries. The European Xponent database is built from prescription data collected from retail pharmacies and coding centers, which are linked to the geographical area in which the prescription was written. We also offer Early ViewTM, a sales optimization solution, providing weekly prescriber level activity, highlighting competitive prescribing trends for clients’ key prescribers directly to clients’ sales representatives electronically. IMS Healthcare Professional Spheres provide clients with timely and comprehensive information on 2.4 million healthcare professionals, including healthcare professionals’ names, addresses, organizational affiliations, license numbers and expiration dates and authorization statuses. IMS Healthcare Professional Spheres is used by our customers as the foundation upon which they build their Customer Master, an integral part of any successful data warehouse or CRM system.

·       Sales & Account Management and Other Consulting & Services.   Our Sales & Account Management practice focuses on helping customers assess the effectiveness of their sales strategies and better

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design and deploy their sales forces. Using evidence-based research, our offerings in this practice help clients better segment their customer base, determine the optimal size and structure of their sales force based on that segmentation, and design call plans that optimally deploy the various sales resources across channels to better meet their customers’ needs and increase their sales force effectiveness. Our Information Management practice helps clients organize, integrate, warehouse and analyze valuable data assets from multiple sources. We also provide Client Services within this business line. Along with product set-up, installation and implementation, Client Services provides customer training and a variety of ongoing, post-sales services.

PORTFOLIO OPTIMIZATION OFFERINGS.   Portfolio Optimization offerings represented approximately 29% of our worldwide revenue in 2006. IMS Portfolio Optimization provides customers with the intelligence and tools to identify and optimize pharmaceutical product portfolios, including currently marketed products and the new product pipeline. Providing a comprehensive range of offerings, Portfolio Optimization enables customers to evaluate, assess, understand, and implement strategies and tactics to improve bottom-line performance and set the course for the future. Integrating prescriptions, sales, disease/treatment, and industry intelligence, the Portfolio Optimization services provide a comprehensive picture of the worldwide market. From a national viewpoint down to regional and local level data, customers can complete a thorough market analysis, exploring all options to set the pace for brand leadership. Using in-depth business intelligence, analysis and forecasting, IMS offerings provide customers with the facts, interpretation and guidance to make the best portfolio optimization decisions.

Our principal Portfolio Optimization offerings include the following:

·       Pharmaceutical Audits.   These audits measure the sale of pharmaceutical products into pharmacies, supplemented in some countries by data collected from dispensing physicians, retail chains and discount stores. These audits contain data projected to national estimates, showing product sales by therapeutic class broken down by package size and dosage form. We publish pharmaceutical audits covering over 80 countries.

·       Medical Audits.   These audits are based on information collected from panels of practicing office-based physicians and contain projected national estimates of the number of consultations for each diagnosed disease with details of the therapy prescribed. These audits also analyze the use physicians make of individual drugs by listing the diseases for which they are prescribed, the potential therapeutic action the physician is expecting, other drugs prescribed at the same time, and estimates of the total number of drugs used for each disease. We publish medical audits covering 44 countries.

·       Hospital Audits.   These audits contain data projected to national and regional estimates and show the sale of pharmaceutical products to hospitals by therapeutic class. Related reports provide audits of laboratory diagnostic supplies, hospital supplies and hospital records. We publish hospital audits covering 49 countries.

·       Prescription Audits.   These audits analyze the rate at which drugs move out of the pharmacy and into the hands of the consumer, and measure both what is prescribed by physicians and what is actually dispensed at the pharmacy. We publish prescription audits covering 9 countries.

·       MIDAS® Services.   MIDAS is an on-line multinational integrated data analysis tool that harnesses our worldwide databases and is used by the pharmaceutical industry to assess and utilize global pharmaceutical information and trends in multiple markets. Our MIDAS Quantum offering gives clients on-line access to pharmaceutical, medical, promotional and chemical data that we compile. Using MIDAS Quantum, our clients are able to view information from the national databases compiled by us and produce statistical reports in the format required by the client. MIDAS contains information covering more than 70 countries.

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·       Other Portfolio Optimization Reports.   These include Market Research Publications including the Pharmaceutical World ReviewTM; personal care reports, which measure the sale of medical surgical device product purchases; and reports on bulk chemical shipments and molecules for research and development. We have developed, in certain countries, disease and treatment information at the patient level (in which information is not identifiable at the individual patient level) that gives participants in the healthcare industry new insights into the treatment of diseases. The availability, scope and frequency of the foregoing reports vary on a country-by-country basis.

·       Consulting & Services.   Consultants in our Management Consulting group, and particularly its Performance Management practice, develop and track key business metrics to assist clients on a wide range of strategic issues relating to Portfolio Optimization. As with our Sales Force Effectiveness business line, our Information Management consulting group helps clients organize, analyze and warehouse valuable data assets from multiple sources related to their portfolios. We also provide Client Services within this business line. Along with product set-up, installation, and implementation of our offerings, Client Services includes customer training and a variety of ongoing, post-sales services.

LAUNCH, BRAND MANAGEMENT AND OTHER OFFERINGS.   Launch, Brand Management and Other Offerings represented approximately 24% of our worldwide revenue in 2006. Launch and Brand Management offerings combine information, analytical tools, and consulting and services to address client needs relevant to each stage in the lifecycle of their pharmaceutical brands. The areas covered include: brand planning, which helps our clients with market assessment and forecasting, market segmentation and product positioning; pricing & market access, which helps our clients to effectively price and drive market access for their products as well as assess the health economics and real world health outcomes associated with products; promotion management, which helps our clients measure, assess effectiveness and optimize promotion investment, channel mix and messaging; and, performance management, which helps our clients measure diagnosis and optimization for new product launches.

Offerings under Launch and Brand business line include:

·       Promotional Audits.   Our promotional audits measure pharmaceutical promotion for a particular market, including sales-force promotion and journal and mail advertising, based on information received from panels of physicians and from monitoring medical journals and direct mail. In the United States, spending on direct-to-consumer advertising is also measured. IMS publishes promotional audit reports covering 25 countries. This evidential information is used to help clients improve the effectiveness of their promotional messages, mix and delivery.

·       Oncology Analyzer.   Our Oncology Analyzer collects longitudinal patient information regarding the diagnosis and treatment in the critical area of Oncology across major markets. This information helps clients and our consulting teams to understand markets, patient opportunities and treatment patterns to plan and execute successful strategies in Oncology.

·       Forecasting Portfolio.   Our forecasting portfolio includes multi-country forecasts of expected market performance by country and within therapy category. These offerings are closely aligned with forecasting services, which include consulting and training.

We also provide other products and services in the following areas:

·       Managed Care.   Our managed care offerings provide an array of information to quantify the effects of managed care on the pharmaceutical and healthcare industry. Managed care offerings are used by clients to assist in evaluating the impact of managed care on the pharmaceutical marketplace and in enhancing the performance of their products through

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better contracting strategies, formulary management and tracking, plan performance tracking and monitoring plan relationships with organizations, such as large medical groups, that may influence prescribing behavior. The types of reports include measurement of prescriptions at the plan level, formulary assessment and tracking, and tracking of prescription payment by type, such as cash, Medicaid or third-party payment. This service is available both in the United States and Canada. In addition, to address emerging Medicare needs in the United States, we make the following services available to our clients: strategic consulting, tactical consulting, rebate validation and performance evaluation.

·       Consumer Health.   Our consumer health services provide detailed product movement, market share and pricing information for over-the-counter, personal care, patient care and nutritional products. Consumer health offerings assist over-the-counter and pharmaceutical manufacturers in understanding consumer purchasing dynamics and promotional impact, examining and assessing segmentation and sales force management, strategic business planning, market opportunity and performance management. We publish reports on the global consumer health market, with audited information covering 30 countries, and provide related services. PharmaTrend, our tracking service for over-the-counter pharmaceutical products purchased by consumers, is available in 12 European countries.

·       Consulting & Services.   We provide evidence-based solutions that allow our clients to make informed business decisions. Such solutions include: Pricing & Market Access, formulating strategies for product pricing, reimbursement, and market access; Product & Portfolio Development, providing solutions for strategic issues for molecules greater than eighteen months prior to launch as well as the lifecycle management; and Promotion Management, assisting our clients in optimizing brand or franchise promotion spending and messaging.

OUR DATA SUPPLIERS

Over the past five decades, we generally have developed and maintained strong relationships with our data suppliers in each market in which we operate. We have historical connections with many of the relevant trade associations and professional associations, including for example, in the United States, where we have been designated as a database licensee by the American Medical Association (referred to in this document as AMA) for use and sublicensing of the AMA’s physician database. As the supply of pharmaceutical data is critical to our business, we devote significant human and financial resources to our data collection efforts.

OUR CUSTOMERS

Sales to the pharmaceutical industry accounted for substantially all of our revenue in 2006, 2005 and 2004. All major pharmaceutical and biotechnology companies are our customers, and many of these companies subscribe to reports and services in several countries. Our customer base is broad in scope and enables us to avoid dependence on any single customer. None of our customers accounted for more than 10% of our gross revenues in 2006, 2005 or 2004.

OUR COMPETITION

While no competitor provides the geographical reach or breadth of our services, we generally compete in the countries in which we operate with other information services companies, as well as with the in-house capabilities of our customers. Generally, competition has arisen on a country-by-country basis. In Europe, certain of our services compete with those offered by competitors such as Taylor Nelson in the United Kingdom, and Cegedim in France, Germany and the United Kingdom. In the United States,

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certain of our sales management services, including our sales territory and prescription tracking reports, compete with the offerings of various companies, particularly NDCHealth Corporation, which was acquired by Wolters Kluwer in 2005. Also, various companies compete with us in the United States with respect to our market research services, including Verispan, LLC. Our consulting and services businesses compete with various consulting firms around the world. Service, quality, coverage and speed of delivery of information services and products are the principal differentiators in our markets.

OUR INTELLECTUAL PROPERTY

We own and control a number of trade secrets, confidential information, trademarks, trade names, copyrights, patents, patent applications and other intellectual property rights which, in the aggregate, are of material importance to our business. We own two significant U.S. patents relating to our Xponent product, U.S. Patent Nos. 5,420,786 and 5,781,893, which will expire in 2012 and 2015, respectfully. We also have numerous trade secrets relating to data processing that are of material importance to our business. Management believes that the “IMS” name and related names, marks and logos are of material importance to us. We are licensed to use certain technology and other intellectual property rights owned and controlled by others, and similarly, other companies are licensed to use certain technology and other intellectual property rights owned and controlled by us. The technology and other intellectual property rights licensed by us are of importance to our business, although our management believes that our business, as a whole, is not dependent upon any one intellectual property or group of such properties.

The names of our products and services referred to in this document are trademarks, service marks, registered trademarks or registered service marks owned by or licensed to us.

OUR EMPLOYEES

We had approximately 7,400 employees worldwide as of December 31, 2006. Almost all of these employees are full-time. None of our U.S. employees are represented by a union. In Austria, Belgium, France, Germany, Italy, the Netherlands and Spain, we have Works Councils, which are a legal requirement in those countries. We also have a European Works Council, which is a requirement under European Union laws. Management considers its relations with our employees to be good and to have been maintained in a normal and customary manner.

AVAILABLE INFORMATION

We make available free of charge on or through our Internet website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”), as well as proxy statements, as soon as reasonably practicable after we electronically files such material with, or furnish it to, the U.S. Securities and Exchange Commission (“SEC”). Also posted on our website, and available in print upon the request of any shareholder to our Investor Relations Department, are our certificate of incorporation and by-laws, the charters for our Audit Committee, Human Resources Committee and Nominating and Governance Committee, our Corporate Governance Guidelines, our Policy on Business Conduct governing our directors, officers and employees, our Code of Ethics for Principal Executive Officer and Senior Financial Officers, our Guidelines for Determining Director Independence and our Policy and Procedures Governing Related-Person Transactions. Within the time period required by the SEC and the New York Stock Exchange (“NYSE”), we will post on our website any amendment to the Policy on Business Conduct or the Code of Ethics for Principal Executive Officer and Senior Financial Officers or any waiver of either such policy applicable to any of our senior financial officers, executive officers or directors. In addition, our website includes information concerning purchases and sales of our equity securities by our executive officers and directors, as well as disclosure relating to certain non-GAAP financial measures (as defined in the SEC’s Regulation G) that we make public orally, telephonically, by webcast, by broadcast or similar means. Our Internet address is

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http://www.IMSHEALTH.com and the information described above can be found in the Investors section of that website. Our Investor Relations Department can be contacted at IMS Health Incorporated, 901 Main Avenue, Norwalk, Connecticut 06851, Attn: Investor Relations: (203) 845-5200, e-mail: askir@imshealth.com.

Item 1A.                Risk Factors

In addition to the other information included or incorporated by reference into this Annual Report on Form 10-K, including the matters addressed under the caption “Forward-Looking Statements,” set forth below are some of the risks and uncertainties that, if they were to occur, could materially adversely affect our business or that could cause our actual results to differ materially from the results contemplated by the forward-looking statements contained in this report and other public statements we make.

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

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

Data protection laws may restrict our activities.

Data protection laws affect our collection, use, storage and transfer of personally identifiable information both abroad and in the United States. Compliance with such laws may require investment or may dictate that we not offer certain types of products and services. Failure to comply with such laws may result in, among other things, civil and criminal liability, negative publicity, data being blocked from use and liability under contractual warranties.

In addition, there is an increasing public concern regarding data protection issues and the number of jurisdictions with data protection laws has been slowly increasing. For example, there have been a number of legislative and regulatory initiatives in the U.S. and abroad in the area of access to medical data. These initiatives tend to seek to place restrictions on the use and disclosure of patient-identifiable information without consent and, in some cases, seek to extend restrictions to non-patient identifiable information, e.g. prescriber identifiable information, or to the process of anonymizing data. There are also some initiatives that seek to restrict access to this information to non-commercial uses. While most of the current initiatives should not impact our business, there can be no assurance that these initiatives or future initiatives will not adversely affect IMS’ ability to generate or assemble data or to develop or market current or future products or services.

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

We operate globally, deriving approximately 63% of our 2006 revenue from non-United States operations. As a result, fluctuations in the value of foreign currencies relative to the U.S. dollar increase the volatility of U.S. dollar-denominated operating results. Emerging markets currencies tend to be considerably less stable than those in established markets, which may further contribute to volatility in our U.S. dollar-denominated operating results.

As a result of devaluations and fluctuations in currency exchange rates or the imposition of limitations on conversion of foreign currencies into dollars, we are subject to currency translation exposure on the profits of our operations, in addition to economic exposure.

Our international operations present risks to our current businesses that could impede growth in the future.

International operations are subject to various risks that could adversely affect our business, including:

·       costs of customizing services for foreign clients;

·       reduced protection for intellectual property rights in some countries;

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

·       exposure to local economic conditions; and

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

We are involved in tax related matters that could have a material effect on us.

We (and our predecessors) have entered, and we continue to enter, into global tax planning initiatives in the normal course of business. These activities are subject to review by applicable tax authorities and courts. As a result of the review process, uncertainties exist and it is possible that some of these matters could be resolved adversely to us, including those tax related matters described in Part I, Item 3 of this Annual Report on Form 10-K. Moreover, there can be no assurance that we will be able to maintain our effective tax rate.

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

In the normal course of our business, we are involved in lawsuits, claims, audits and investigations, such as those described in Part I, Item 3 of this Annual Report on Form 10-K. The outcome of these matters could have a material adverse effect on our business, results of operation or financial condition. In addition, we may become subject to future lawsuits, claims, audits and investigations that could result in substantial costs and divert our attention and resources.

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

We operate in businesses that require sophisticated data collection and processing systems and software and other technology. Some of the technologies supporting the industries we serve are changing rapidly and we must continue to develop cost-effective technologies for data collection and processing to accommodate such changes. We also must continue to deliver data to our clients in forms that are easy to use while simultaneously providing clear answers to complex questions. There can be no guarantee that we

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will be able to develop new technologies for data collection, processing and delivery or that we will be able to do so as quickly or cost-effectively as our competition. Significant technological change could render our products and services obsolete.

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

Government imposed price restrictions on pharmaceutical companies could reduce demand for our products and services.

A number of countries in which we operate have enacted regulations limiting the prices pharmaceutical companies may charge for drugs. We believe that such cost containment measures will cause pharmaceutical companies to seek more effective means of marketing their products (which will benefit us in the medium and long-term). However, such governmental regulation may cause pharmaceutical companies to revise or reduce their marketing programs in the near term, which may in turn reduce the demand for certain of our products and services. This could result in decreased revenue, net income and earnings per share.

Our success will depend on our ability to protect our intellectual property rights.

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

·       obtaining patent protection for our technology, products and services;

·       defending our patents, copyrights and other intellectual property;

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

·       operating without infringing upon patents and proprietary rights held by third parties.

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

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

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

We may be unsuccessful in identifying acquisition candidates or evaluating the material risks involved in any acquisition.

An important aspect of our business strategy in the past has been growth through acquisitions or joint ventures and we may continue to acquire or make investments in complementary businesses, technologies, services or products. There can be no assurance that we will be able to continue to identify and consummate acquisitions or joint ventures on satisfactory terms. Moreover, every acquisition and joint venture entails some degree of uncertainty and risk. For example, we may be unsuccessful in identifying and evaluating business, legal or financial risks as part of the due diligence process associated with a transaction. In addition, some acquisitions will have contingent consideration components that may require us to pay additional amounts in the future in relation to future performance results of the acquired business. If we do not properly assess these risks, or if we fail to realize the benefits from one or more acquisitions, our business, results of operations and financial condition could be adversely affected.

We may be unsuccessful in integrating any acquired operations with our existing business.

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

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

Consolidation in the pharmaceutical industry could put pressure on the pricing of our information products and services, as the consolidated client seeks pricing concessions from us, and could limit available dollars for our products and services. In addition, when companies merge, the products and services they previously purchased separately are now purchased only once by the combined entity, leading to contract compression and loss of revenue. While we have experienced success in mitigating the revenue impact of any pricing pressure through effective negotiations and by providing services to individual businesses within a particular group, there can be no assurance as to the degree to which we will be able to continue to do so as consolidation continues.

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

Our success depends on the efficient and uninterrupted operation of our computer and communications systems. A failure of our network or data gathering procedures could impede the processing of data, delivery of databases and services, client orders and day-to-day management of our

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business and could result in the corruption or loss of data. While many of our operations have appropriate disaster recovery plans in place, we currently do not have full backup facilities everywhere in the world to provide redundant network capacity in the event of a system failure. Despite any precautions we may take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins and similar events at our various computer facilities could result in interruptions in the flow of data to our servers and from our servers to our clients. In addition, any failure by our computer environment to provide our required data communications capacity could result in interruptions in our service. In the event of a delay in the delivery of data, we could be required to transfer our data collection operations to an alternative provider of server hosting services. Such a transfer could result in significant delays in our ability to deliver our products and services to our clients. Additionally, significant delays in the planned delivery of system enhancements, improvements and inadequate performance of the systems once they are completed could damage our reputation and harm our business. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities, and acts of terrorism (particularly involving cities in which we have offices) could adversely affect our businesses. Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur.

Changes in tax laws or their application may adversely affect our reported results.

We operate in approximately 100 countries worldwide and our earnings are subject to taxation in many differing jurisdictions and at differing rates. We seek to organize our affairs in a tax efficient manner, taking account of the jurisdictions in which we operate. Tax laws that apply to our business may be amended by the relevant authorities, for example as a result of changes in fiscal circumstances or priorities. Such amendments, or their application to our business, may adversely affect our reported results.

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

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

Disruptions in commerce could adversely affect our business.

Commerce could be disrupted by various political, economic, world health or other conditions. Examples of such disruptions that could adversely affect our business include:

·       terrorist activity, the threat of such activity, and responses to and results of such activity and threats, including but not limited to effects, domestically and/or internationally, on us, our personnel and facilities, our customers and suppliers, financial markets and general economic conditions; and

·       an outbreak of SARS, avian influenza (Bird Flu) or other epidemic, the fear of such an epidemic, and responses to and results of such an epidemic or fear thereof, including but not limited to effects, domestically and/or internationally, on us, our personnel and facilities, our customers and suppliers, financial markets and general economic conditions.

If such disruptions result in cancellations of or reductions in customer orders or contribute to a general decrease in economic activity, or directly impact our marketing, production, financial and logistics functions, our results of operations and financial condition could be materially adversely affected.

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

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

Item 1B.               Unresolved Staff Comments

There are no unresolved written comments that were received from the SEC staff 180 days or more before the end of our 2006 fiscal year.

Item 2.                        Properties

Our executive offices are located at 901 Main Avenue, Norwalk, Connecticut in a leased property (approximately 35,000 square feet).

Our property is geographically distributed to meet our sales and operating requirements worldwide. Our properties and equipment are generally considered to be both suitable and adequate to meet current operating requirements and virtually all space is being utilized.

Our owned properties located within the United States include two facilities. These properties are located in Plymouth Meeting (approximately 212,000 square feet) and West Norriton, Pennsylvania (approximately 17,000 square feet).

Our active owned properties located outside the United States include: one property in each of Buenos Aires, Argentina (approximately 12,000 square feet); Brussels, Belgium (25,000 square feet); Santiago, Chile (approximately 4,000 square feet); Caracas, Venezuela (approximately 4,000 square feet); and London (approximately 102,000 square feet).

Our operations are also conducted from nineteen leased offices located throughout the United States and 101 leased offices in non-United States locations.

We own or lease a variety of computers and other equipment for our operational needs. We continue to upgrade and expand our computers and related equipment in order to increase efficiency, enhance reliability and provide the necessary base for business expansion.

Item 3.                        Legal Proceedings

We are involved in legal and tax proceedings, claims and litigation arising in the ordinary course of business. We periodically assess our liabilities and contingencies in connection with these matters based upon the latest information available. For those matters where we currently believe it is probable that we will incur a loss and that the probable loss or range of loss can be reasonably estimated, we have recorded reserves in the Consolidated Financial Statements based on our best estimates of such loss. In other instances, because of the uncertainties related to either the probable outcome or the amount or range of loss, we are unable to make a reasonable estimate of a liability, if any. However, even in many instances where we have recorded a reserve, we are unable to predict with certainty the final outcome of the matter or whether resolution of the matter will materially affect our results of operations, financial position or cash flows. As additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly.

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Based on our review of the latest information available, we believe our ultimate liability in connection with pending tax and legal proceedings, claims and litigation will not have a material effect on our results of operations, cash flows or financial position, with the possible exception of the matters described below.

LEGACY AND RELATED MATTERS

D&B Legacy and Related Tax Matters

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

The underlying tax controversies with the Internal Revenue Service (the “IRS”) have substantially all been resolved and the Company paid to the IRS the amounts that it believed were due and owing. In the first quarter of 2006, Donnelley indicated that it disputed the amounts contributed by the Company toward the resolution of these matters based on the Donnelley Parties’ interpretation of the allocation of liability under the 1996 Spin-Off agreements. The Donnelley Parties on the one hand, and NMR and the Company, on the other hand, have attempted to resolve these disputes through negotiation. The 1996 Spin-Off agreements provide that if the parties cannot reach agreement through negotiation they must arbitrate the disputes.

On August 14, 2006, the Donnelley Parties commenced arbitration regarding one of these disputes (referred to herein as the “Dutch Partnership Dispute”) by filing a Notice of Arbitration and Statement of Claim (the “Donnelley Statement”) with the American Arbitration Association International Center for Dispute Resolution (the “AAA”). In the Donnelley Statement, the Donnelley Parties claim that the Company and NMR collectively owe approximately an additional $10,800 with respect to the Dutch Partnership Dispute; (if determined liable, the Company’s share of this amount would be approximately $5,400 (tax and interest, net of federal income tax benefit)). On October 16, 2006, the Company and NMR filed a Statement of Defense denying all claims made by the Donnelley Parties in the Donnelley Statement. The parties are currently engaged in discovery in this arbitration.

The Company accrued approximately $24,900 for the Dutch Partnership Dispute and the remaining disputes in 2006. During  2006, the Company made payments with regard to one of the disputes of approximately $5,900 (including tax and interest, net of federal income tax benefit) related to certain 1995 and 1996 shared state and local legacy tax liabilities. As of December 31, 2006 the Company has a reserve of approximately $20,200 for the remainder of these matters. The Company intends to vigorously defend itself with respect to the Dutch Partnership Dispute and the remaining disputes.

The Partnership (Tax Year 1997).   The IRS is seeking to reallocate certain items of partnership income and expense as well as disallow certain items of partnership expense with respect to a partnership now substantially owned by the Company (the “Partnership”) on the Partnership’s 1997 tax return. During 1997, the Partnership was substantially owned by Cognizant, but liability for this matter was allocated to the Company pursuant to the agreements effecting the 1998 Spin-Off. The Company has filed a formal protest relating to the proposed assessment for 1997 with the IRS Office of Appeals. The Company is attempting to resolve this matter in the administrative appeals process before proceeding to litigation if necessary. If the IRS were to ultimately prevail in its position, the Company’s liability (tax and interest, net

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of tax benefit) with respect to tax year 1997 would be approximately $20,300, which amount the Company had reserved in current accrued income taxes payable at December 31, 2006.

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

Matters Before the Belgian Competition Service

Complaints were filed in 1998 and 1999 against the Company with the Belgian Competition Service (“BCS”) alleging abuse of a dominant position on the Belgian market. In October 1999 and 2000, the Chairman of the Belgian Competition Council (“BCC”) adopted interim measures against the Company, with which the Company complied. In December 2004, the Company received a formal statement of objections alleging that the Company had abused its dominant position on the Belgian market in violation of Article 82 of the EC Treaty and corresponding Belgian law. The Company submitted its comments to the statement of objections in writing to the BCC in February 2005.

In a separate matter, in October 2004, the BCS notified IMS of a request for information in connection with IMS’s acquisition in April 2004 of a competitor in the Belgian market, Source Informatics Belgium S.A. The BCS is investigating whether such acquisition may have violated Article 82 of the EC Treaty and corresponding Belgian law. The Company responded to the request for information in December 2004.

The Company intends to continue to vigorously defend itself in these matters before the Belgian competition authorities. Management of the Company is unable to predict at this time the final outcome of these matters or whether adverse resolutions thereof could materially affect the Company’s results of operations, cash flows or financial position in the period in which such adverse resolution occurs.

Item 4.                        Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders during the fourth quarter of our fiscal year ended December 31, 2006.

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EXECUTIVE OFFICERS OF THE REGISTRANT*

Officers are appointed by the Board of Directors to hold office until their respective successors are chosen and qualified. Listed below are the executive officers of IMS at February 13, 2007 and brief summaries of their business experience during the past five years.

Name				Title		Age
David R. Carlucci				Chairman, Chief Executive Officer and President**			52
Gilles V. J. Pajot				Executive Vice President and Chief Operating Officer			57
Bruce F. Boggs				Senior Vice President Global Marketing and External Affairs			54
Leslye G. Katz				Senior Vice President and Chief Financial Officer			52
Kevin S. McKay				Senior Vice President, Customer Delivery and Development			53
Robert H. Steinfeld				Senior Vice President, General Counsel and Corporate Secretary			52
Jeffrey J. Ford				Vice President and Treasurer			41
Marie B. Sonde				Vice President—Global Human Resources			42
John R. Walsh				Vice President—Corporate Development			52
Kevin C. Knightly				President, IMS Europe, Middle East and Africa (“EMEA”)			45
William J. Nelligan				President, IMS Americas			46

*                    Set forth as a separate item pursuant to Item 401(b) of the Securities and Exchange Commission’s Regulation S-K.

**             Member of the Board of Directors.

Mr. Carlucci was appointed Chairman, Chief Executive Officer and President of IMS in April, 2006, Chief Executive Officer and President in January, 2005 and President and Chief Operating Officer in October, 2002. Before joining IMS, Mr. Carlucci was General Manager, IBM Americas, which comprises all of IBM’s sales and distribution operations in the U.S., Canada and Latin America from January, 2000 until January, 2002. Prior to that, Mr. Carlucci held roles of increasing responsibility at IBM, including General Manager, IBM’s S/390 Division from January, 1998 to January, 2000; Chief Information Officer from February, 1997 to January, 1998; General Manager, IBM Printing Systems Company from July, 1995 to January, 1997; Vice President, systems, industries and services, Asia Pacific from January, 1993 to July, 1995; and Vice President, marketing and channel management, IBM Personal Computer Company—North America from February, 1990 to December, 1992. He joined IBM in 1976 as a Sales Representative.

Mr. Pajot was appointed Executive Vice President and Chief Operating Officer in January, 2007. Mr. Pajot was Executive Vice President and President, Global Business Management from January, 2006 until January, 2007. From November, 2000 until January, 2006, Mr. Pajot was Executive Vice President and President, IMS EMEA. He joined the Company as President of IMS EMEA Region in December, 1997. Previously, Mr. Pajot worked for 20 years with Pharmacia & Upjohn and its predecessor company, serving as Senior Vice President at Pharmacia & Upjohn from July, 1997 to December, 1997, with responsibility for global restructuring initiatives following the 1995 merger of Pharmacia & Upjohn. From November, 1995 to July, 1997, he was Senior Vice President of Pharmacia & Upjohn’s Europe, Middle East and Africa Region. Prior to that, he served as Executive Vice President, Worldwide Pharmacia AB from September, 1994 to November, 1995.

Mr. Boggs was appointed Senior Vice President Global Marketing and External Affairs in November, 2006. From January, 2004 to November, 2006, Mr. Boggs was Senior Vice President and President, IMS Americas. He joined IMS in August, 2002 as Senior Vice President of U.S. Sales. Before joining IMS, Mr. Boggs was General Manager for IBM’s Personal Systems Group—Americas, from September, 1998 to August, 2002. Prior to that, he held roles of increasing responsibility at IBM, including Director, Health and Public Sector Industries, General Manager of Healthcare for North America, and Corporate Director of Strategic Development. Mr. Boggs joined IBM in 1976 as a Marketing Representative.

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Ms. Katz was appointed Senior Vice President and Chief Financial Officer in January, 2007. She served as Vice President and Controller of IMS from October, 2001 to January, 2007. Prior to that, Ms. Katz served as Vice President and Chief Financial Officer of American Lawyer Media, Inc., a legal journalism and information company, from September, 1998 to July, 2001. She was Vice President and Treasurer of Cognizant Corporation from August, 1996 to August, 1998. Ms. Katz held a number of senior financial management positions at The Dun & Bradstreet Corporation from 1980 to 1996.

Mr. McKay was appointed Senior Vice President, Customer Delivery and Development in April, 2004. Mr. McKay joined IMS in September, 2003 as Senior Vice President, Business Transformation. Prior to joining IMS, Mr. McKay was Chief Executive Officer of Verticalnet, Inc., a provider of supply management software and services, from April, 2002 until December, 2002. From November, 2000 until April, 2002, Mr. McKay was Chief Executive Officer of Capita Technologies, a technology service provider. From August, 1998 until April, 2000, Mr. McKay was Chief Executive Officer of SAP America, Inc. Mr. McKay joined SAP America, Inc. in June, 1995 as Chief Financial Officer and served as Chief Financial Officer and Chief Operating Officer of that company from December, 1995, until August, 1998. Prior to joining SAP, Mr. McKay was Executive Vice President and Corporate Controller at Sony Electronics. Prior to joining Sony, Mr. McKay was employed by the accounting firm Price Waterhouse for approximately twelve years.

Mr. Steinfeld was appointed Senior Vice President, General Counsel and Corporate Secretary in November, 2000. He was appointed Vice President, Taxes in April, 1998, and named Senior Vice President, Tax and Corporate Development in August, 2000. Mr. Steinfeld joined Cognizant Corporation in February, 1997 as Director of Taxes. From September, 1993 to February, 1997, he was Vice President, Taxation at Ultramar Corporation, a multinational petroleum refining and marketing company. From 1991 to 1993, he served as Vice President, Taxes at GAF Corporation and its publicly traded subsidiary, International Specialty Products, Inc. Prior to that, Mr. Steinfeld was a Partner and Chairman of the Tax Department at the law firm of Webster & Sheffield.

Mr. Ford was appointed Vice President and Treasurer in February, 2004. Prior to that, from October, 2001 to February, 2004, he served as Vice President and Chief Financial Officer of the IMS EMEA Region. Mr. Ford joined IMS in July of 1999, as Assistant Controller of IMS. Prior to joining IMS, Mr. Ford served for twelve years at the accounting firm of PricewaterhouseCoopers serving in various positions of increasing management responsibility.

Ms. Sonde was appointed Vice President, Global Human Resources in July, 2003. Prior to that, from January, 2001 through July, 2003, she served as Vice President, Global Compensation and Benefits. From August, 2000 until January, 2001, she was Vice President, Global Executive Compensation and Benefits, and from July, 1998 through August, 2000, she was Director, Executive Compensation. Ms. Sonde joined Cognizant Corporation in 1996 and served as Director, Financial Planning until July, 1998. Prior to that, she served in various finance and accounting positions for The Dun and Bradstreet Corporation from 1987 through 1996.

Mr. Walsh has served as Vice President, Corporate Development since February, 2004. From February, 2003 until February, 2004, he served as Vice President, Corporate Development and Treasurer. From July, 2002 until February, 2003, Mr. Walsh served as Vice President and Treasurer and from November, 2001 until July, 2002, he served as Vice President—Investor Relations and Treasurer.  From July, 1998 until November, 2001, he served as Vice President—Investor Relations. Mr. Walsh joined Cognizant Corporation in April, 1997 as Director—Financial Planning. Prior to that he served in various capacities in Finance for MCI Communications Corporation from 1985 to 1997.

Mr. Knightly was appointed President, EMEA in January, 2006. From 2003 until January, 2006, he served as Senior Vice President, Marketing and Major Markets, EMEA. From 2001 to 2003, Mr. Knightly was Senior Vice President of Operations IMS Europe and from 1998 to 2001 he was Chief Financial

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Officer of IMS Europe. From 1994 until his transfer to Europe, Mr. Knightly served as Chief Financial Officer of IMS America. He joined IMS as Vice President Finance, Market Research Division of IMS America in 1991. Prior to that, Mr. Knightly held a number of senior financial management positions at The Dun & Bradstreet Corporation from 1988 to 1991.

Mr. Nelligan was appointed President, IMS Americas in November, 2006. From July, 2004 until November, 2006, Mr. Nelligan served as Senior Vice President, Strategic Partners, IMS Americas. Prior to that, Mr. Nelligan served as President, IMS Asia Pacific from December, 2001 until July, 2004. Mr. Nelligan joined IMS as Senior Vice President, Emerging Markets in September, 2000. Before joining IMS, Mr. Nelligan served as vice president of Wind Corporation, a global sourcing service provider in the hardware component marketplace from 1999 until 2000. Prior to that, he was a director of international business for Goodway Technologies, an industrial products manufacturer from 1997 until 1999. From 1989 to 1997, Mr. Nelligan held various sales and marketing and international business development positions with Medical Economics, Inc. a member of the Thomson Healthcare Information Group, an operating unit of Thomson Corporation.

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PART II

Item 5.                        Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

The principal market on which our Common Stock is traded is the NYSE. Information relating to the high and low sales prices per share of our Common Stock for each full quarterly period during 2005 and 2006 is set forth under the heading “IMS Health Common Stock Information” in Part II, Item 7 of this Annual Report on Form 10-K. As of February 15, 2007, there were 4,452 holders of record of our Common Stock.

Information relating to our payment of dividends during 2005 and 2006 is set forth under the heading “Dividends” in Part II, Item 7 of this Annual Report on Form 10-K.

The following table provides information about our purchase during the quarter ended December 31, 2006 of equity securities that are registered by us pursuant to Section 12 of the Exchange Act.

Period				Total Number of Shares Purchased				Average Price Paid per Share				Total Number of Shares Purchased Under Publicly Announced Programs				Maximum Number of Shares that May Yet Be Purchased Under the Programs(1)
October 1–31, 2006					—				—				—				6,443,700
November 1–30, 2006					—				—				—				6,443,700
December 1–31, 2006					—				—				—				16,443,700
Total					—				—				—				16,443,700

(1)          In January 2006, the Board of Directors authorized a stock repurchase program to buy up to 30,000,000 shares. As of December 31, 2006, 6,443,700 shares remained available for repurchase under the January 2006 program. Unless terminated earlier by resolution of our Board of Directors, this program will expire when we have repurchased all shares authorized for repurchase thereunder.

In December 2006, the Board of Directors authorized a stock repurchase program to buy up to 10,000,000 shares. As of December 31, 2006, 10,000,000 shares remained available for repurchase under the December 2006 program. Unless terminated earlier by resolution of our Board of Directors, this program will expire when we have repurchased all shares authorized for repurchase thereunder.

On January 29, 2007, we purchased 6,134,970 shares of our outstanding Common Stock pursuant to an accelerated share repurchase program.

Information relating to compensation plans under which our equity securities are authorized for issuance is set forth in Part III, Item 12 of this Annual Report on Form 10-K.

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PERFORMANCE GRAPH

IMS HEALTH INCORPORATED
Comparison of Cumulative Total Return to Shareholders
December 31, 2001 to December 29, 2006

Notes:

(1)             The Pharmaceutical Services Group consists of Cardinal Health, Covance, Dendrite International, and McKesson. NDCHealth is included through 12/31/2005. In January 2006, NDC was acquired by Per-Se who has agreed to be acquired by McKesson.

The cumulative total shareholder return graph and accompanying information set forth above is being furnished and shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of such section. The cumulative total shareholder return graph and accompanying information set forth above shall not be incorporated by reference into any registration statement or other document pursuant to the Securities Act of 1933, as amended.

Item 6.                        Selected Financial Data

The Selected Financial Data table is set forth in Part II, Item 8 of this Annual Report on Form 10-K.

Item 7.                        Management’s Discussion and Analysis of Financial Condition and Results of Operations

Dollars and shares in thousands, except per share data.

This discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and related notes.

Executive Summary

OUR BUSINESS

IMS Health Incorporated (“we,” “us” or “our”) is the leading global provider of market intelligence to the pharmaceutical and healthcare industries. We offer leading-edge market intelligence products and services that are integral to our clients’ day-to-day operations, including portfolio optimization capabilities;

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launch and brand management solutions; sales force effectiveness innovations; managed care and consumer health offerings; and consulting and services solutions that improve ROI and the delivery of quality healthcare worldwide. Our information products are developed to meet client needs by using data secured from a worldwide network of suppliers in more than 100 countries. Key information products include:

·       Sales Force Effectiveness to optimize sales force productivity and territory management;

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

·       Launch, Brand Management and Other to support client needs relative to market segmentation and positioning, life cycle management for prescription and consumer health pharmaceutical products and health economics and outcomes research offerings.

Within these business lines, we provide consulting and services that use in-house capabilities and methodologies to assist pharmaceutical clients in analyzing and evaluating market trends, strategies and tactics, and to help in the development and implementation of customized software applications and data warehouse tools.

We operate in more than 100 countries. Until December 21, 2004, we also owned approximately a 25% equity interest in the TriZetto Group, Inc. (“TriZetto”) (see Note 8 to the Consolidated Financial Statements).

We manage on a global business model with global leaders for the majority of our critical business processes and accordingly have one reportable segment.

We believe that important measures of our financial condition and results of operations include operating revenue, constant dollar revenue growth, operating income, constant dollar operating income growth, operating margin and cash flows.

PERFORMANCE OVERVIEW

Our 2006 operating revenues of $1,958,588 grew 11.6% from operating revenues of $1,754,791 in 2005. The increase in our operating revenue resulted from growth in revenue in all three of our business lines. Our operating income grew 5.6% to $444,186 in 2006 as compared to $420,820 in 2005. The growth in operating income was a result of increased operating revenues, partially offset by increases in operating costs, external-use software amortization, selling and administrative expenses and depreciation and other amortization, as discussed below.

Our net income was $315,511 in 2006 as compared to $284,091 in 2005, due to growth in Operating Income as well as the Non-Operating Income, net items discussed below and certain tax items as discussed in Note 13 of the Consolidated Financial Statements. Our fully diluted earnings per share of Common Stock was $1.53 for 2006, a $0.31 per share increase compared with 2005.

Results of Operations

RECLASSIFICATIONS.   Certain prior-year amounts have been reclassified to conform to the 2006 presentation.

REFERENCES TO CONSTANT DOLLAR RESULTS.   We report results in U.S. dollars but we do business on a global basis. Exchange rate fluctuations affect the rate at which we translate foreign revenues and expenses into U.S. dollars and have important effects on our results. In order to illustrate these effects, the discussion of our business in this report sometimes describes the magnitude of changes in constant dollar terms. We believe this information facilitates a comparative view of business growth. In 2006, the

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U.S. dollar was generally stronger against other currencies for the first half of the year and generally weaker in the second half of the year compared to 2005. As a result, growth at constant dollar exchange rates was generally lower than growth at actual currency exchange rates. See “How Exchange Rates Affect Our Results” below for a more complete discussion regarding the impact of foreign currency translation on our business.

 

Stock-Based Compensation Expense

Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment,” (“SFAS 123R”) was adopted on January 1, 2006, which now requires among other items, the recognition of stock option expense in the results of operations. The modified prospective transition method was elected; therefore, prior period results were not retrospectively adjusted. Prior to the adoption of SFAS 123R, stock-based compensation expense related to stock options was not recognized in the results of operations if the exercise price was at least equal to the market value of the Common Stock on the grant date, in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees,” (“APB 25”). As a result, the recognition of stock-based compensation expense was generally limited to the expense attributed to restricted stock units and stock option modifications. Historically, stock options have been granted to broad groups of employees on a discretionary basis. Beginning in fiscal 2006, employees are eligible to receive restricted stock units with a service condition of four years instead of stock options with a service condition of three years. Employees in more advanced leadership positions will continue to be eligible to receive restricted stock units which contain performance and service conditions.

As a result of adopting SFAS 123R on January 1, 2006, our income before income taxes and net income for the year ended December 31, 2006 are $39,753 lower and $27,804 lower, respectively,  than if we had continued to account for share-based compensation under APB 25. Basic and diluted earnings per share for the year ended December 31, 2006 were $1.56 and $1.53, respectively, but would have been $1.69 and $1.66, respectively, if we had not adopted SFAS 123R. Stock-based compensation expense was $42,778 before taxes during the year ended December 31, 2006 and $40,523 before taxes during the year ended December 31, 2005. Stock-based compensation expense recognized in the results of operations for the year ended December 31, 2006 was $2,255 higher than the pro forma  amount determined under the fair value-based method and disclosed in accordance with SFAS No. 123 “Accounting for Stock-Based Compensation” (“SFAS 123”), for the comparable prior year. This increase was primarily due to higher fair value amounts attributed to the more recent awards, acceleration of the vesting of restricted stock units and stock options of one employee in an advanced leadership position due to retirement, and an increase in restricted stock unit amortization expense due to the timing of our annual employee stock awards.

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OPERATING INCOME

Our operating income for 2006 increased 5.6% to $444,186 from $420,820 in 2005. The change was due to the increase in our operating revenue, partially offset by increases in our operating costs and selling and administrative expenses driven by increased cost of data, investments in consulting and services capabilities, the adoption of SFAS 123R and decreased merger costs, as discussed below. Excluding the effects of our adoption of SFAS 123R and merger costs, our non-GAAP operating income increased 11.7% on a reported basis and 11.5% in constant dollar terms.

Our operating income for 2005 increased 8.9% to $420,820 from $386,461 in 2004. The change was due to the increase in our operating revenue, partially offset by an increase in our operating costs and selling and administrative expenses driven by increased cost of data and investments in new products and consulting and services capabilities, as discussed below. Absent the impact of 2004 severance, impairment and other charges, and 2005 merger costs, our non-GAAP operating income increased by 3.6% at reported exchange rates and 4.1% in constant dollar terms.

OPERATING REVENUE

Revenue in 2005 reflects a reclassification between our three business lines to conform to the 2006 presentation.

Our operating revenue for 2006 grew 11.6% to $1,958,588 from $1,754,791 in 2005 and grew 11.8% in 2005 to $1,754,791 from $1,569,045 in 2004. On a constant dollar basis our operating revenue growth was 11.1% in 2006 and 11.7% in 2005. The increases in our operating revenue resulted from growth in revenue in all three of our business lines, together with the effect of currency translation. On a constant dollar basis, acquisitions completed in 2006 and 2005 contributed 2.3 percentage points of our operating revenue growth during 2006, while acquisitions completed in 2005 and 2004 contributed 4.0 percentage points of our operating revenue growth during 2005.

SUMMARY OF OPERATING REVENUE

 

·       Sales Force Effectiveness The Americas, EMEA and Asia Pacific regions contributed about equally to the revenue growth in 2006 and 2005.

·       Portfolio Optimization EMEA contributed about three-quarters of the growth during 2006. In 2005, EMEA contributed more than half while the Americas and Asia Pacific each contributed approximately one quarter to the growth.

·       Launch, Brand Management and other The Americas contributed three-quarters of the total growth in 2006. The Americas and EMEA both contributed about half to the growth in 2005.

Consulting and services revenue, as included in the business lines above, was $359,525 for 2006, up 30.0% from $276,653 in 2005 (approximately 29% on a constant dollar basis). Approximately one-third of

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the consulting and services revenue growth for 2006 was attributable to acquisitions completed in 2005 and 2006. Consulting and services revenue was $276,653 in 2005, up 50.4% from $183,945 in 2004 (approximately 51.4% on a constant dollar basis). Approximately two-thirds of the consulting and services growth for 2005 was attributable to acquisitions completed during 2004 and 2005.

OPERATING COSTS

Our operating costs include data processing costs, the costs of data collection and production, and costs attributable to personnel involved in production, data management and the processing and delivery of our consulting and services offerings. Our operating costs grew 11.9% to $849,659 in 2006 from $759,089 in 2005. In 2005, our operating costs grew 13.6% to $759,089 from $668,144 in 2004.

·       SFAS 123R: The effect of the adoption of SFAS 123R increased our operating costs by approximately $6,000 in 2006 as compared to 2005 (See Note 12 to our Consolidated Financial Statements).

·       Foreign Currency Translation: The effect of foreign currency translation increased our operating costs by approximately $4,000 in 2006 as compared to 2005. The effect of foreign currency translation increased our operating costs by approximately $2,000 for 2005 as compared to 2004.

Excluding the effect of SFAS 123R and the change due to foreign currency translation, our operating costs grew 10.5% in 2006 as compared to 2005. Excluding the effect of the change due to foreign currency translation, our operating costs grew 13.3% in 2005 compared to 2004.

·       Data: Data costs increased by approximately $32,000 in 2006 as compared to 2005 and increased by approximately $37,000 in 2005 as compared to 2004.

·       Consulting and Services:  Consulting and services costs increased by $28,000 in 2006 compared to 2005 and increased by $57,000 in 2005 compared to 2004.

·       Production, Client Services and Other:  Production, client services and other costs increased by approximately $20,000 in 2006 compared to 2005 and decreased by approximately $4,000 in 2005 compared to 2004.

EXTERNAL-USE SOFTWARE AMORTIZATION

Our external-use software amortization charges represent the amortization associated with software we capitalized under the provisions of SFAS No. 86, “Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed.”  Our external-use software amortization charges grew 10.6% in 2006 to $43,297 from $39,142 in 2005, and grew 8.1% in 2005 to $39,142 from $36,199 in 2004.

SELLING AND ADMINISTRATIVE EXPENSES

Our selling and administrative expenses consist primarily of the expenses attributable to sales, marketing and administration, including human resources, legal, management and finance. Our selling and administrative expenses grew 19.7% in 2006, to $541,645 from $452,331 in 2005. Our selling and administrative expenses grew 17.8% in 2005, to $452,331 from $384,016 in 2004.

·       SFAS 123R: The effect of the adoption of SFAS 123R increased our selling and administrative expenses by approximately $33,000 in 2006 as compared to 2005 (See Note 12 to our Consolidated Financial Statements).

·       Foreign Currency Translation: The effect of foreign currency translation increased our selling and administrative expenses by approximately $4,000 for 2006 as compared to 2005. Excluding the effect of the change in foreign currency translation, our selling and administrative expenses grew 11.4% in

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2006 compared to 2005. The effect of foreign currency translation increased our selling and administrative expenses by approximately $2,000 for 2005 as compared to 2004.

Excluding the effect of SFAS 123R and the change due to foreign currency translation, our selling and administrative expenses grew 11.4% in 2006 as compared to 2005. Excluding the effect of the change in foreign currency translation, our selling and administrative expenses grew 17.3% in 2005 compared to 2004.

·       Sales and Marketing: Sales and marketing expense increased by approximately $17,000 in 2006, compared to 2005 and increased by approximately $3,000 in 2005, compared to 2004.

·       Consulting and Services: Consulting and services expenses increased by approximately $28,000 in 2006, compared to 2005 and increased by approximately $22,000 in 2005, compared to 2004.

·       Administrative and Other: Administrative and other expenses increased by approximately $7,000 in 2006, compared to 2005 and increased by approximately $41,000 in 2005, compared to 2004.

DEPRECIATION AND OTHER AMORTIZATION

Our depreciation and other amortization charges increased 12.7% to $73,785 in 2006 from $65,481 in 2005, resulting from higher amortization of intangible assets recorded from acquisitions made during 2005 and 2006, and increased internal-use software amortization. Our depreciation and other amortization charges increased 14.2% to $65,481 in 2005 from $57,335 in 2004, resulting from higher amortization of intangible assets recorded from acquisitions made during 2004 and 2005, and increased internal-use software amortization.

SEVERANCE, IMPAIRMENT AND OTHER CHARGES

During the fourth quarter of 2004, we recorded a $36,890 pre-tax charge for severance, impairment and other charges, related to a plan to eliminate selected positions involved primarily in production and development. The charge consists of severance for approximately 600 employees. See Note 6 to the Consolidated Financial Statements.

MERGER COSTS

During 2005, we incurred merger costs of $17,928 for professional fees in connection with a proposed merger (which was ultimately terminated) with The Nielsen Company (“Nielsen”), formerly known as VNU N.V., a Dutch company. We incurred additional merger costs of $6,016 in 2006 for investment banker fees and expenses related to a payment received from Nielsen in accordance with the terms of the merger termination agreement (see Other Income (Expense), net below). See Note 17 to the Consolidated Financial Statements for a description of the events surrounding the terminated merger with Nielsen.

TRENDS IN OUR OPERATING MARGINS

Our operating margin for 2006 was 22.7%, as compared to 24.0% in 2005. The decrease in our operating margin is due to the adoption of SFAS 123R, partially offset by a $11,912 decrease in merger costs from 2005 to 2006. Excluding the effect of SFAS 123R in 2006 and merger costs in both 2006 and 2005, our non-GAAP operating margin would have remained constant at 25.0% in 2006 and 2005.

Our operating margin for 2005 was 24.0%, as compared to 24.6% in 2004. Excluding the 2005 merger costs and the 2004 charge for severance, impairment and other, our non-GAAP operating margin decreased from 27.0% in 2004 to 25.0% in 2005. The decrease in our operating margin was due to increased cost of data, continuing investments in new products and consulting and services capabilities, and operating income declines in Japan, primarily as a result of the costs incurred to ramp up sales of our new offerings.

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Recent acquisitions have also had an adverse effect on our operating margins due to the fact that some of the small businesses we have acquired have historically experienced lower operating margins than ours, and the revenue and cost synergies that we incorporate into our business plans are not all immediately realized. We also experience higher intangible amortization in the first years after completing an acquisition and may incur additional costs in integrating the acquired operations into ours, both of which tend to increase our costs and thus decrease our operating margins in the initial years of each completed acquisition.

NON-OPERATING INCOME (LOSS), NET

Our non-operating income, net decreased to a gain of $4,559 in 2006 from a net gain of $33,433 in 2005. Our non-operating income increased 19.5% to a net gain of $33,433 in 2005 from a net gain of $27,978 in 2004. The annual changes in non-operating income was due to the following factors:

·       Interest Expense, net: Net interest expense was $34,972 in 2006, compared with $12,715 in 2005, due to higher debt levels and higher interest rates. Net interest expense was $12,715 in 2005, compared with $11,680 in 2004, due to higher debt levels during the first half of the year and higher interest rates.

·       Gains from Investments, net: Gains from investments, net, amounted to a net gain of $2,250 in 2006 as compared to a net gain of $4,713 in 2005 and a net gain of $11,892 in 2004. The net gain in 2006 was primarily as a result of the sale of our investment in Allscripts Healthcare Solutions, Inc. The net gain in 2005 was due primarily to $1,690 of gains from the sale of investments, net of management fees and write-downs related to the assessment of other-than-temporary declines in the value of investments. In addition, we had gains from investments of $3,023 as a result of the divestiture of a 20% interest we had in a German company that was disposed of in connection with the acquisition of our remaining 50% interest in IHA.IMS Health GmbH (“IHA”).

·       Gain from Sale of TriZetto: On December 21, 2004, IMS and TriZetto entered into a share purchase agreement pursuant to which we sold to TriZetto all of the 12,142,857 shares of Common Stock, par value $0.001 per share, of TriZetto (“TriZetto Common Stock”) owned by us for an aggregate cash consideration of $81,964. We received $44,550 in December 2004 and the balance of $37,414 in January 2005. As such, the balance of $37,414 was included in Other current assets in our Consolidated Statements of Financial Position at December 31, 2004. As a result of the transaction, we recorded a pre-tax gain of $38,803 in 2004, and we no longer owned any shares of TriZetto Common Stock as of December 31, 2004. Prior to the sale of the TriZetto shares in December 2004, we had accounted for our investment in TriZetto under the equity method of accounting.

·       Other Income (Expense), net: Other income, net, decreased in 2006 to $37,281 from $41,435 in 2005, primarily due to foreign exchange losses of $6,074 in 2006 as compared to foreign exchange gains of $29,800 in 2005, partially offset by a $45,000 payment received in 2006 from Nielsen related to the terminated merger between IMS and Nielsen (see Note 17 to the Consolidated Financial Statements). Other income (expense), net, increased in 2005 to $41,435 from $(10,853) in 2004, primarily due to net foreign exchange gains of $29,800 in 2005, compared with net foreign exchange losses of $894 in 2004, and a reimbursement of $15,000 in 2005 from Nielsen for merger related costs incurred by us related to the terminated merger between IMS and Nielsen (see Note 17 to the Consolidated Financial Statements).

TAXES

Our effective tax rate was 29.7% in 2006, compared with 37.5% in 2005 and 31.2% in 2004. The effective tax rate for 2006 decreased compared to 2005 primarily due to a favorable U.S. partnership audit settlement of approximately $69,200 for the tax years 1998 through 2003 and a favorable U.S. corporate

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audit settlement of approximately $17,600 for the tax years 2000 through 2003.  The tax rate for 2006 was also impacted by approximately $27,650 of tax expense associated with a reorganization of certain non-U.S. subsidiaries, of which approximately $6,200 was incurred in the fourth quarter. Further, approximately $24,900 of tax expense was recorded in 2006 related to disputes between us and NMR, on the one hand, and Donnelley and certain of its former affiliates on the other hand, as to proper interpretation of, and allocation of tax liabilities under the 1996 Spin-Off agreements (See Note 16 to the Consolidated Financial Statements). The 2005 effective tax rate increased compared to 2004 primarily due to $40,600 of tax expense from the repatriation of $647,000 of foreign earnings back to the U.S. under the American Jobs Creation Act of 2004 (“AJCA”). This was partially offset by a favorable non-U.S. audit settlement of approximately $29,200. The effective tax rate in 2004 was decreased by approximately $15,100 primarily due to a favorable partial U.S. audit settlement.

For all periods presented, our effective tax rate was reduced as a result of global tax planning initiatives. While we intend to continue to seek global tax planning initiatives, there can be no assurance that we will be able to successfully identify and implement such initiatives to reduce or maintain our overall tax rate.

OPERATING RESULTS BY GEOGRAPHIC REGION

The following represents selected geographic information for the regions in which we operate as of and for the years ended December 31, 2006, 2005 and 2004.

		Americas(1)					EMEA(2)			Asia Pacific(3)			Corporate & Other			Total IMS
Year Ended December 31, 2006:
Operating Revenue(4)			$	880,669			$	812,876		$	265,043		—			$	1,958,588
Operating Income (Loss)(5)			$	305,823			$	121,337		$	110,566		$	(93,540	)	$	444,186
Total Assets			$	648,989			$	897,152		$	178,284		$	182,169		$	1,906,594
Year Ended December 31, 2005:
Operating Revenue(4)			$	779,855			$	735,348		$	239,588		—			$	1,754,791
Operating Income (Loss)(5)			$	292,195			$	107,553		$	106,170		$	(85,098	)	$	420,820
Total Assets			$	578,640			$	791,210		$	157,442		$	445,728		$	1,973,020
Year Ended December 31, 2004:
Operating Revenue(4)			$	707,471			$	654,336		$	207,238		—			$	1,569,045
Operating Income (Loss)(5)			$	278,822			$	105,510		$	107,714		$	(105,585	)	$	386,461
			$	434,001			$	1,020,115		$	158,206		$	278,384		$	1,890,706

Notes to Geographical Financial Information:

(1)          Americas includes the United States, Canada and Latin America. Americas included Operating Revenue in the United States of $716,880, $633,117, and $571,245 in 2006, 2005, and 2004, respectively, and Total Assets of $519,913, $476,320, and $330,479 in 2006, 2005, and 2004, respectively.

(2)          EMEA includes countries in Europe, the Middle East and Africa.

(3)          Asia Pacific includes Japan, Australia and other countries in the Asia Pacific region.

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

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(5)          Operating Income for the three geographic regions does not reflect the allocation of certain expenses that are maintained in Corporate and Other and as such, is not a true measure of the respective regions’ profitability. The Operating Income amounts for the geographic segments include the impact of foreign exchange in converting results into U.S. dollars. For the year ended December 31, 2004, Severance, impairment and other charges of $6,979, $26,908, and $2,132 for the Americas, EMEA, and Asia Pacific, respectively, are presented in Corporate and Other.

AMERICAS REGION

Operating revenue growth in the Americas region was 12.9% in 2006 compared to 2005 and 10.2% in 2005 versus 2004. Excluding the effect of foreign currency translations, operating revenue grew 12.1% in 2006 compared to 2005 and 9.3% in 2005 compared to 2004. The growth in 2006 and 2005 was driven more than one half by Launch, Brand Management and Other business line and one quarter by Sales Force Effectiveness.

Operating income growth in the Americas region was 4.7% in 2006 compared to 2005 and 4.8% in 2005 versus 2004. The operating income growth reflects revenue growth in the region and foreign currency translations, partially offset by the adoption of SFAS 123R. Excluding the effect of foreign currency translations, operating income grew by 3.9% in 2006 as compared to 2005. Excluding the effect of SFAS 123R, after adjusting for currency, operating income grew 7.7% in 2006 as compared to 2005.

EMEA REGION

Operating revenue growth in the EMEA region was 10.5% in 2006 compared to 2005 and 12.4% in 2005 versus 2004. Excluding the effect of foreign currency translations, operating revenue grew 9.2% in 2006 compared to 2005 and 13.1% in 2005 compared to 2004. The growth in 2006 was driven by Sales Force Effectiveness and Portfolio Optimization, equally. The growth in 2005 was driven by all three of our business lines about equally.

Operating income in the EMEA region increased by 12.8% in 2006 compared to 2005 and 1.9% in 2005 versus 2004. The operating income growth reflects revenue growth in the region and foreign currency translations, partially offset by the adoption of SFAS 123R. Excluding the effect of foreign currency translations, operating income grew by 11.0% in 2006 as compared to 2005. Excluding the effect of SFAS 123R, after adjusting for currency, operating income grew 22.0% in 2006 as compared to 2005.

ASIA PACIFIC REGION

Operating revenue in the Asia Pacific region grew by 10.6% in 2006 as compared to 2005 and 15.6% in 2005 versus 2004. Excluding the effect of foreign currency translations, operating revenue grew 13.5% in 2006 compared to 2005 and 15.5% in 2005 compared to 2004. The revenue growth in 2006 was driven about three quarters by Sales Force Effectiveness. The growth in 2005 was driven about three quarters by Sales Force Effectiveness and one quarter by Portfolio Optimization.

Operating income in the Asia Pacific region increased by 4.1% in 2006 as compared to 2005 and decreased by 1.4% in 2005 versus 2004. The operating income growth in 2006 reflects revenue growth in the region and foreign currency translations, partially offset by the adoption of SFAS 123R. The 2005 decline in operating income in the region was due to costs incurred to bring the new Japan products and services to market and acquisitions. Excluding the effect of foreign currency translations, operating income grew by 7.3% in 2006 as compared to 2005. Excluding the effect of SFAS 123R, after adjusting for currency, operating income grew 9.7% in 2006 as compared to 2005.

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How Exchange Rates Affect Our Results

We operate globally, deriving a significant portion of our operating income from non-U.S. operations. As a result, fluctuations in the value of foreign currencies relative to the U.S. dollar may increase the volatility of U.S. dollar operating results. We enter into foreign currency forward contracts to partially offset the effect of currency fluctuations. In 2006, foreign currency translation increased U.S. dollar revenue growth by approximately 0.5 percentage points, while the impact on operating income growth was an approximate increase of 0.2 percentage points. In 2005, foreign currency translation increased U.S. dollar revenue growth by approximately 0.1 percentage point, while the impact on operating income growth was an approximate decrease of 0.5 percentage point.

Non-U.S. monetary assets and liabilities are maintained in currencies other than the U.S. dollar, principally the Euro, the Japanese Yen and the Swiss Franc. Where monetary assets and liabilities are held in the functional currency of the local entity, changes in the value of these currencies relative to the U.S. dollar are charged or credited to Cumulative translation adjustment in the Consolidated Statements of Shareholders’ Equity. The effect of exchange rate changes during 2006 increased the U.S. dollar amount of Cash and cash equivalents by $5,110. The effect of exchange rate changes during 2005 decreased the U.S. dollar amount of Cash and cash equivalents by $14,254. The effect of exchange rate changes during 2004 increased the U.S. dollar amount of Cash and cash equivalents by $12,113.

Liquidity and Capital Resources

Cash and cash equivalents decreased by $205,597 during 2006 to $157,346 at December 31, 2006 compared to $362,943 at December 31, 2005. The decrease reflects cash used in investing activities of $162,619 and cash used in financing activities of $404,207, partially offset by cash provided by operating activities of $356,119 and an increase in cash and cash equivalents of $5,110 due to the effects of exchange rate changes.

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

·       development of software to be used in our new products and capital expenditures to expand and upgrade our information technology capabilities and to build or acquire facilities to house our growing business (we currently expect to spend approximately $115,000 to $125,000 during 2007 for software development and capital expenditures);

·       acquisitions (see Note 4 of the Consolidated Financial Statements);

·       share repurchases (see Note 15 of the Consolidated Financial Statements);

·       dividends to our shareholders (we expect 2007 dividends will be $0.12 per share or approximately $24,000);

·       payments for tax-related matters, including the D&B Legacy Tax Matters discussed further in Note 16 to our Consolidated Financial Statements. Payments for certain of the D&B Legacy Tax Matters could be up to approximately $32,900 in the 2007; and

·       pension and other postretirement benefit plan contributions (we currently expect contributions to U.S. and non-U.S. pension and other postretirement benefit plans to total approximately $8,000 in 2007) (see Note 11 of the Consolidated Financial Statements).

Net cash provided by operating activities amounted to $356,119 for the year ended December 31, 2006, an increase in cash provided of $46,967 over the comparable period in 2005. The increase relates to higher net income, lower funding of accounts payable, accrued and other current liabilities, and accrued severance, impairment and other charges, partially offset by the funding of accounts receivable, inventory,

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and prepaid and other current assets. Cash invested in accounts receivable was driven by the increase in revenues. Our DSO (days sales outstanding) was generally flat year over year.

Net cash used in investing activities amounted to $162,619 for the year ended December 31, 2006, a decrease in cash used of $105,197 over the comparable period in 2005. The decrease relates to lower payments for acquisitions (see Note 4 of the Consolidated Financial Statements) and capital expenditures in 2006 as compared to 2005, partially offset by proceeds from the sale of our investment in TriZetto during the first quarter of 2005 (see Note 8 of the Consolidated Financial Statements) and a reduction in short-term marketable security investments.

Net cash used in financing activities amounted to $404,207 for the year ended December 31, 2006, an increase in cash used of $295,165 over the comparable period in 2005. This increase was due to an increase of $633,900 in purchases of our stock and a decrease of $46,310 in proceeds from the exercise of stock options during 2006 as compared to 2005, partially offset by an increase of $384,511 in debt during 2006 as compared to 2005.

Financing activities include cash dividends paid of $0.12 per share annually ($0.03 per share quarterly) in 2006 and $0.08 per share annually ($0.02 per share quarterly) in 2005, which amounted to $24,337 and $18,405 during 2006 and 2005, respectively. The payments and level of cash dividends by IMS are subject to the discretion of the Board of Directors of IMS. Any future dividends, other than the $0.03 per share dividend for the first quarter of 2007, which was declared by the Board of Directors of IMS in February 2007, will be based on, and affected by, a number of factors, including the operating results and financial requirements of IMS.

Stock Repurchase Programs

Our share repurchase program has been developed to buy opportunistically, when we believe that our share price provides us with an attractive use of our cash flow and debt capacity. As of February 15, 2007, approximately 10,309 shares remained available for purchase under our repurchase programs.

On January 29, 2007, we purchased 6,135 shares of outstanding Common Stock at an initial cost of approximately $170,000 pursuant to an accelerated share repurchase program (“ASR”). The ASR agreement provides for the final settlement amount to be in stock if we were to owe an amount to the bank, or in either cash or additional shares of our Common Stock, at our sole discretion, if the bank were to owe an amount to us. The final settlement amount will increase or decrease based on our share price over the settlement period.  We funded the ASR through our existing bank credit facilities (see Note 20 to the Consolidated Financial Statements).

On December 19, 2006, the Board of Directors authorized a stock repurchase program to buy up to 10,000 shares. As of December 31, 2006, 10,000 shares remained available for repurchase under the December 2006 program.

On January 25, 2006, the Board of Directors authorized a stock repurchase program to buy up to
30,000 shares. As of December 31, 2006, 6,444 shares remained available for repurchase under the January 2006 program.

On November 16, 2005, the Board of Directors authorized a stock repurchase program to buy up to 10,000 shares. This program was completed in February 2006 at a total cost of $251,619.

On December 14, 2004, the Board of Directors authorized a stock repurchase program to buy up to 10,000 shares. This program was completed in January 2006 at a total cost of $242,680.

On February 10, 2004, the Board of Directors authorized a stock repurchase program to buy up to 10,000 shares. This program was completed in January 2005 at a total cost of $232,770.

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On April 15, 2003, the Board of Directors authorized a stock repurchase program to buy up to 10,000 shares. This program was completed in May 2004 at a total cost of $243,520.

During 2006, we repurchased approximately 33,931 shares of outstanding Common Stock under these programs at a total cost of $880,407, including the repurchase of 25,000 shares on January 30, 2006 pursuant to an ASR. During 2005, we repurchased approximately 10,213 shares of outstanding Common Stock under these programs at a total cost of $246,507. During 2004, we repurchased approximately 15,000 shares of outstanding Common Stock under these programs at a total cost of $362,659, including the repurchase of 4,600 shares on January 9, 2004 pursuant to a prior ASR. These share repurchases positively impacted our diluted earnings per share by $0.08, $0.02 and $0.03 for the years ended December 31, 2006, 2005 and 2004, respectively.

Shares acquired through our repurchase programs described above are open-market purchases or privately negotiated transactions in compliance with SEC Rule 10b-18, with the exception of purchases pursuant to the 2006 and 2007 ASR.

Debt

In recent years, we have increased debt levels to balance appropriately the objective of generating an attractive cost of capital with providing us a reasonable amount of financial flexibility. At December 31, 2006, our debt totaled $975,406, and management does not believe that this level of debt poses a material risk to us due to the following factors:

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

·       at December 31, 2006, we had $157,346 in worldwide cash and cash equivalents;

·       at December 31, 2006, we had $660,444 of unused debt capacity under our existing bank credit facilities; and

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

The following table summarizes our long-term debt at December 31:

		December 31, 2006					December 31, 2005
4.6% Private Placement Note, principal payment of $150,000 due January 2008, net of interest rate swaps of $(2,819) and $(2,710), respectively			$	147,181				$	147,290
5.55% Private Placement Notes, principal payment of $150,000 due April 2016			150,000					—
1.70% Private Placement Note, principal payment of 34,395,000 Japanese Yen due January 2013			288,670					—
Revolving Credit Facility:
Japanese Yen denominated borrowings at average floating rates of approximately 0.83%			249,097					371,924
Swiss Franc denominated borrowings at average floating rates of approximately 2.32%			59,258					92,217
U.S. Dollar denominated borrowings at average floating rates of approximately 6.50%			31,200					—
Bank Term Loan, principal payment of $50,000 due June, 2009 at average floating rate of approximately 5.60%			50,000					—
Total Long-Term Debt			$	975,406				$	611,431

 

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In July 2006, we entered into a $1,000,000 revolving credit facility with a syndicate of 12 banks (“Revolving Credit Facility”) replacing our existing $700,000 Amended and Restated Facility (see below). The terms of the Revolving Credit Facility extended the maturity of the facility in its entirety to a term of five years, maturing July 2011, reduced the borrowing margins, and increased subsidiary borrowing limits. Total borrowings under the Revolving Credit Facility were $339,555 and $464,141 at December 31, 2006 and December 31, 2005, respectively, all of which were classified as long-term. In April 2004, we entered into a $700,000 revolving credit facility with a syndicate of 12 banks (the “Unsecured Facility”). The Unsecured Facility replaced our lines of credit with several domestic and international banks. On March 9, 2005, we renegotiated with the syndicate of 12 banks to amend and restate the Unsecured Facility (the “Amended and Restated Facility”). The terms of the Amended and Restated Facility extended the maturity of the facility in its entirety to a term of five years, maturing March 2010, reduced the borrowing margins and increased subsidiary borrowing limits.

We define long-term lines as those where the lines are non-cancellable for more than 365 days from the balance sheet date by the financial institutions except for specified, objectively measurable violations of the provisions of the agreement. In general, rates for borrowing under the Revolving Credit Facility are LIBOR plus 30 basis points and can vary based on our Debt to EBITDA ratio. The weighted average interest rates for our lines were 1.61% and 0.62% at December 31, 2006 and December 31, 2005, respectively. In addition, we are required to pay a commitment fee on any unused portion of the facilities of 0.075%. At December 31, 2006, we had approximately $660,444 available under our existing bank credit facilities.

In June 2006, we closed a $50,000 three year term loan with a bank. The term loan allows us to borrow at a floating rate with a lower borrowing margin than our revolving credit facility, and provides us with an option to extend the term up to an additional two years. We used the proceeds to refinance existing debt borrowed under the revolving credit facility.

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

In January 2006, we closed a private placement transaction pursuant to which our Japanese subsidiary issued 34,395,000 Japanese Yen seven-year debt (equal to $300,000 at date of issuance) to several highly rated insurance companies at a fixed rate of 1.70%. We used the proceeds to refinance existing debt in Japan borrowed under our Amended and Restated Facility.

In January 2003, we closed a private placement transaction pursuant to which we issued $150,000 of five-year debt to several highly rated insurance companies at a fixed rate of 4.60%. We used the proceeds to pay down short-term debt. We also swapped $100,000 of our fixed rate debt to floating rate based on six-month LIBOR plus a margin of approximately 107 basis points. We accounted for these swaps as fair value hedges under the provisions of “SFAS” No. 133, “Accounting for Derivative Instruments and Hedging Activities.” We determined the fair values based on estimated prices quoted by financial institutions. The fair values of these swaps were $(2,819) and $(2,710) as of December 31, 2006 and December 31, 2005, respectively.

In March and April 2002, we entered into interest rate swaps on a portion of our variable rate debt portfolio. These swaps matured in March 2005 and April 2006. We accounted for the interest rate swaps as cash flow hedges and recorded any changes in fair value in Other Comprehensive Income. We determined the fair values based on estimated prices quoted by financial institutions. The fair values of these swaps were $(100) as of December 31, 2005.

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Our financing arrangements provide for certain covenants and events of default customary for similar instruments, including in the case of our main bank arrangements, the  private placement transactions, and the term loan, covenants to maintain specific ratios of consolidated total indebtedness to EBITDA and of EBITDA to certain fixed charges. At December 31, 2006, we were in compliance with these financial debt covenants.

Severance, Impairment and Other Charges

During the fourth quarter of 2004, we recorded $36,890 of Severance, impairment and other charges as a component of operating income. As a result of leveraging prior investments in technology and process improvements, we committed to a plan to eliminate selected positions involved primarily in production and development. The plan resulted in a charge for one-time termination benefits relating to a headcount reduction of approximately 600 employees located primarily in EMEA and the U.S. These severance benefits were calculated pursuant to the terms of established employee protection plans, in accordance with local statutory minimum requirements or individual employee contracts, as applicable. See Note 6 to the Consolidated Financial Statements.

All of the charge will be settled in cash. We paid approximately $12,220 during 2006 and the remaining accrual balance at December 31, 2006 was $166. All termination actions under this plan have been completed by the end of 2006.

		Severance related reserves
Charge at December 31, 2004		$	36,890
2004 utilization		(452		)
2005 utilization		(24,052		)
2006 utilization