-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FGV+zO14dmgHGCmGas9/rWfhJwDm34xLV2BmT1tW4N/GWLN1MoXCTao5jRY/obBU m/ss48WAgowqDUaGhwT0OQ== 0000912057-02-010789.txt : 20020415 0000912057-02-010789.hdr.sgml : 20020415 ACCESSION NUMBER: 0000912057-02-010789 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 20011231 FILED AS OF DATE: 20020321 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMS HEALTH INC CENTRAL INDEX KEY: 0001058083 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 061506026 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-14049 FILM NUMBER: 02580410 BUSINESS ADDRESS: STREET 1: 200 NYALA FARMS CITY: WESTPORT STATE: CT ZIP: 06880 BUSINESS PHONE: 2032224523 MAIL ADDRESS: STREET 1: 200 NYALA FARMS ROAD CITY: WESTPORT STATE: CT ZIP: 06880 10-K 1 a2068479z10-k.txt FORM 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K (MARK ONE) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________ COMMISSION FILE NUMBER 001-14049 ------------------------ IMS HEALTH INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 06-1506026 (State of incorporation) (IRS Employer Identification No.) 1499 POST ROAD, FAIRFIELD, CONNECTICUT 06430 (Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 319-4700 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED ------------------- --------------------- Common Stock, par value $.01 per share........ New York Stock Exchange Preferred Stock Purchase Rights............... New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE ------------------------ Indicate by check mark whether the registrant (1) has filed all reports required 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 / / 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. /X/ As of March 1, 2002, 290,910,303 shares of Common Stock of IMS Health Incorporated were outstanding and the aggregate market value of such Common Stock held by nonaffiliates (based upon its closing transaction price on the Composite Tape on such date) was approximately $5,881 million. This value was calculated by excluding all shares held by directors and executive officers of the Registrant but the Registrant does not concede that all such persons are "affiliates" of the Registrant for purposes of federal securities laws. (CONTINUED) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- DOCUMENTS INCORPORATED BY REFERENCE PART I Item 1 --Business "Management's Discussion and Analysis of Results of Operations and Financial Position" in the 2001 Annual Report to Shareholders. "Note 1. Basis of Presentation," "Note 4. Discontinued Operations--Investment in Gartner Stock," "Note 5. Acquisitions and Dispositions," "Note 7. Spin-Off of Synavant," "Note 12. Investments in Equity Investees' and Subsidiaries," "Note 16. Employee Stock Plans," "Note 21. Contingencies" and "Note 23. Operations by Business Segment" to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders. Item 3 --Legal Proceedings "Note 21. Contingencies" to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders. PART II Item 5 -- Market for the Registrant's Common "Management's Discussion and Analysis of Results of Equity and Related Shareholder Matters Operations and Financial Position" in the 2001 Annual Report to Shareholders. Item 6 --Selected Financial Data "Five-Year Selected Financial Data" in the 2001 Annual Report to Shareholders. Item 7 -- Management's Discussion and Analysis of "Management's Discussion and Analysis of Results of Financial Condition and Results of Operations and Financial Position" in the 2001 Annual Operations Report to Shareholders. Item 7A -- Quantitative and Qualitative Disclosure "Management's Discussion and Analysis of Results of About Market Risk Operations and Financial Position" and "Note 14. Financial Instruments" to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders. Item 8 -- Financial Statements and Supplementary Consolidated Financial Statements and Notes thereto Data in the 2001 Annual Report to Shareholders. PART III Item 10 -- Directors and Executive Officers of the Section entitled "Proposal No. 1: Election of Registrant Directors" in the Company's Definitive Proxy Statement (the "Proxy Statement") relating to its Annual Meeting of Shareholders to be held on May 3, 2002. Item 11 --Executive Compensation Section entitled "Compensation of Executive Officers" in the Proxy Statement. Item 12 -- Security Ownership of Certain Section entitled "Security Ownership of Management Beneficial Owners and Management and Others" in the Proxy Statement. Item 13 -- Certain Relationships and Related Not applicable. Transactions
------------------------ The Index to Exhibits is located on Pages 24 to 28 PART I As used in this report, except where the context indicates otherwise, the terms "Company" and "IMS" mean IMS Health Incorporated and all subsidiaries consolidated in the financial statements contained or incorporated by reference herein. ITEM 1. BUSINESS IMS was incorporated under the laws of the State of Delaware on February 3, 1998. The Company began operating as an independent publicly-held company on July 1, 1998 as a result of its spin-off (the "Cognizant Spin-Off") from Cognizant Corporation ("Cognizant"). Notwithstanding the legal form of the Cognizant Spin-Off, IMS was deemed the "accounting successor" to Cognizant. Immediately following the Cognizant Spin-Off, Cognizant changed its name to Nielsen Media Research, Inc. ("NMR"). Cognizant began operating as an independent publicly-held company on November 1, 1996 as a result of its spin-off (the "D&B Spin-Off") from the corporation now known as "R.H. Donnelley Corporation" and previously known as "The Dun & Bradstreet Corporation" ("Donnelley"). The corporate and financial characteristics of IMS have developed, in part, as a result of the D&B Spin-Off, the Cognizant Spin-Off and IMS's spin-off of Synavant, Inc. ("Synavant") in 2000, as well as IMS's relationships with the other parties to those transactions. The terms of those relationships are briefly described at the end of this Item 1 under the heading "Relationships between IMS and Synavant, IMS and NMR and among IMS, Donnelley and ACNielsen." IMS operates in more than 100 countries and consists of the following business segments: - The IMS Segment is a leading global provider of market information, sales management and decision-support services to the pharmaceutical and healthcare industries. Its key products include sales management information to optimize sales force productivity, marketing effectiveness research for prescription and over-the-counter pharmaceutical products, consulting and other services. The IMS Segment is managed on a global business model with global leaders for the majority of its critical business processes. In addition, the IMS Segment includes IMS's venture capital unit, Enterprise Associates, LLC ("Enterprises"), which is focused on investments in emerging businesses and IMS's 26.8% equity interest in The TriZetto Group, Inc. ("TriZetto"). - The Cognizant Technology Solutions Corporation ("CTS") Segment delivers full life-cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. These services are delivered through the use of a seamless on-site and offshore consulting project team. CTS's primary service offerings include application development and integration, application management and re-engineering services. CTS is a publicly-traded corporation, with its Class A common stock traded on the Nasdaq National Market. At December 31, 2001, IMS owned 11,290,900 shares of CTS's Class B common stock, which represented 58.3% of the total outstanding stock of CTS and 93.3% of the combined voting power of CTS's outstanding common stock. IMS accounts for CTS as a consolidated subsidiary. During the years ended December 31, 2000 and 1999, IMS also included: - The Transaction Businesses Segment, which consisted of: (a) Synavant, which serves the pharmaceutical industry by developing and selling pharmaceutical relationship management solutions that support sales and marketing decision-making; (b) Erisco Managed Care Technologies, Inc. ("Erisco"), a leading supplier of software-based administrative and analytical solutions to the managed care industry; and (c) three small non-strategic software businesses. IMS spun off the Synavant business on August 31, 2000 (the "Synavant Spin-Off") and sold Erisco to TriZetto and entered into a strategic alliance with TriZetto on October 3, 2000. IMS also divested or discontinued the other small non-strategic software businesses. Additional information regarding the Transaction Businesses Segment is contained in the "Management's Discussion and Analysis of Results of Operations and Financial Position" section, and in Note 23 to the Consolidated Financial Statements, of the 2001 Annual Report to Shareholders. 1 On July 26, 1999, IMS completed a spin-off of the majority of its equity investment in Gartner, Inc. ("Gartner", formerly known as "Gartner Group, Inc.") to IMS shareholders (the "Gartner Spin-Off"). The Consolidated Financial Statements of IMS have been reclassified for all periods presented to reflect the Gartner equity investment as a discontinued operation. During the third quarter of 2001, IMS sold its remaining investment in Gartner. Segment financial information, including financial information about domestic and foreign generated revenue, is included in Note 23 to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders. Additional information regarding changes to and the development of the business of IMS is contained in the "Management's Discussion and Analysis of Results of Operations and Financial Position" section, and in Notes 1, 4, 5, 7, 12, 16, 21 and 23 to the Consolidated Financial Statements, of the 2001 Annual Report to Shareholders. IMS SEGMENT The IMS Segment provides sales management and market research information services to the pharmaceutical and healthcare industries worldwide. The IMS Segment provides information services covering more than 100 countries and maintains offices in 76 countries on six continents, with 60% of total 2001 IMS Segment revenue generated outside the United States. 2001 IMS Segment revenue represented 88% of total consolidated revenue. IMS SERVICES Sales management services represented 62% of the IMS Segment's worldwide revenue in 2001. Sales management services include sales territory reports, prescription tracking reports and self-medication services. Sales management services are used principally by pharmaceutical manufacturers to measure and forecast the effectiveness and efficiency of sales representatives and to target the marketing and sales efforts of a client's sales force. They are also used by customers to compensate pharmaceutical sales forces. Sales management services are made available to clients and their sales representatives and management via hardcopy reports, CD-ROMs, software application tools, computer on-line services, web-based access and magnetic media for use in client computer systems and IMS's customized electronic workstations. IMS's data delivery systems help clients to maximize efficiency by aiding in the setting of sales targets and calculation of sales commissions; giving fast access to sales data and permitting more sophisticated analyses; improving call reporting; and improving communication between sales management and their sales forces. In the United States, IMS has several customized client decision support systems that allow a client to store large amounts of data at its own site and integrate its own internal sales and marketing data with IMS data and other external data. IMS's principal sales management services are as follows: - SALES TERRITORY REPORTING SERVICES. Sales territory reporting is the principal sales management service offered by IMS to its 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. XPLORER WEB-TM-, a web-based platform, enables decision makers easy and immediate measurement of activity by integrating unique sets of IMS customer-level prescription and sales intelligence, along with the client's proprietary segmentation, call plan, promotional activity and territory sales goals. IMS's sales territory reporting services cover 51 countries and are used for applications such as sales-force compensation, resource allocation, territory alignment, market analyses and distribution management. Reports are available to clients with a variety of frequencies such as: on a weekly, monthly and quarterly basis. In the United States, sales territory reports from IMS's DDD-TM- 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. The 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. In Japan, the IMS Segment offers WEEKLY GP PHARMA-TM-, which tracks sales of pharmaceuticals sold through pharmaceutical wholesalers to general practitioners and by pharmacies in Japan. 2 - PRESCRIPTION TRACKING REPORTING SERVICES. 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, the XPONENT-Registered Trademark- 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 1.2 million individual prescribers on a monthly basis. XPONENT is available in six 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, and where permissible under local data privacy laws, to individual prescribers. The IMS Segment also offers EarlyView-Registered Trademark-, a sales optimization solution, providing weekly prescriber-level activity, prescribing and competitive trends and alerts for client's key prescribers directly to clients' sales representatives electronically. - SELF-MEDICATION SERVICES. These services provide detailed product movement, market share and pricing information for over-the-counter personal care, patient care and nutritional products. The IMS Segment publishes self-medication reports covering 24 countries and provides related services. PHARMATREND-TM-, the IMS Segment's tracking service for over-the-counter pharmaceutical products, is available in 12 European countries. Market research services represented approximately 35% of the IMS Segment's worldwide revenue in 2001. The principal market research services are multinational integrated analytical tools, and syndicated pharmaceutical, medical, hospital, promotional and prescription audits. Market research services are utilized by clients for various strategic purposes, including analyzing market shares, therapeutic prescribing trends and price movements at the national and sub-national levels. The information reported in these services is generated or derived from data collected primarily from pharmaceutical manufacturers, pharmaceutical wholesalers, pharmacies, hospitals and doctors. Market research services are delivered to clients via hardcopy reports, CD-ROMs, software application tools, computer on-line services, and magnetic media for use in client computer systems and the IMS Segment's customized electronic workstations. The IMS Segment's principal market research services are as follows: - PHARMACEUTICAL AUDITS. These audits measure the sale of pharmaceutical products into pharmacies, supplemented in some countries by data collected from prescribing 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. IMS publishes pharmaceutical audits covering more than 90 countries. - MEDICAL AUDITS. These audits are based on information collected from panels of practicing 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. IMS publishes medical audits covering 51 countries. - HOSPITAL AUDITS. These audits contain data projected to national 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. IMS publishes hospital audits covering 39 countries. - PROMOTIONAL AUDITS. These 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. IMS publishes promotional reports covering 22 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. IMS publishes prescription audits covering 21 countries. - MIDAS-Registered Trademark- SERVICES. MIDAS is an on-line multinational integrated data analysis tool that harnesses IMS's worldwide databases and is used by the pharmaceutical industry to assess and utilize pharmaceutical information and trends in multiple markets. MIDAS gives clients on-line access to IMS-compiled 3 pharmaceutical, medical, promotional and chemical data. Using MIDAS, clients are able to view information from the national databases compiled by IMS and produce statistical reports in the format required by the client. MIDAS is available in 79 countries. - OTHER MARKET RESEARCH REPORTS. These include managed care reports, which offer an array of information to quantify the effects of managed care on the pharmaceutical and healthcare industry; Market Research Publications including the Pharmaceutical World Review; personal care reports, which measure the sale of healthcare accessories, wound care and dietetic aids; and reports on bulk chemical shipments and molecules for R&D. IMS has developed, in certain countries, disease and treatment information at the patient level (in which information is not identifiable to any individual patient) 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. The remaining 3% of the IMS Segment's 2001 revenue was derived primarily through professional consulting, and research and development services. IMS provides pharmaceutical and other clients with a range of value-added services that are used (i) to study specific issues and trends in the pharmaceutical marketplace and the healthcare industry, (ii) to manage sales and marketing, (iii) to evaluate the effectiveness of marketing programs, (iv) to analyze components of a product marketing program at any stage of its implementation, and (v) for consultancy in optimizing strategy, marketing programs and product commercialization. These services include: - PROFESSIONAL CONSULTING SERVICES. The IMS Segment's professional consulting services are provided to help clients analyze and evaluate market trends, strategies and tactics, and to assist in the development and implementation of customized software applications and data warehouse tools. In the United States, the IMS Segment's professional consulting services provide a wide range of custom market research, promotion optimization, promotion effectiveness, managed care and other advanced analytics services for the pharmaceutical and healthcare marketplace. The professional services consulting group also helps clients to design customized decision support systems based on a variety of cutting-edge technologies, for the purpose of leveraging the IMS Segment data more rapidly. Outside of the United States, consulting services are offered on a country-by-country basis. IMS DATA SUPPLIERS Over the past four decades, the IMS Segment has developed strong relationships with its data suppliers in each market in which it operates. As the supply of pharmaceutical data is critical to the IMS Segment's business, IMS devotes significant human and financial resources to its data collection efforts, and in many cases has historical connections with the trade associations and professional associations involved. In the United States, IMS has been designated as a database licensee by the American Medical Association ("AMA") for use and sublicensing of the AMA's physician database. IMS CUSTOMERS Sales to the pharmaceutical industry accounted for substantially all of the IMS Segment's revenue in 2001. All major pharmaceutical and biotechnology companies are customers of the IMS Segment, and many of the companies subscribe to reports and services in several countries. The IMS Segment's customer base is broad in scope and enables it to avoid dependence on any single customer. None of the IMS Segment's customers accounted for more than 10% of the Company's gross revenues in 2001. IMS COMPETITION While no competitor provides the geographical reach or breadth of the IMS Segment's services, the IMS Segment generally competes in the countries in which it operates with other information services companies, as well as the in-house capabilities of its customers. Generally, competition has arisen on a country-by-country basis. In Europe, certain of the IMS Segment's services compete with those offered by competitors such as Taylor Nelson in the United Kingdom, Cegedim in France, Germany and the United Kingdom, National Data Corporation in Germany and the United Kingdom, and AzyX Geopharma in Belgium, Germany, Poland and Portugal. In the United States, certain of 4 IMS's sales management services, including its sales territory and prescription tracking reports, compete with the offerings of various companies, particularly National Data Corporation. Also, various companies compete with the IMS Segment in the United States with respect to the IMS Segment's market research services. Service, quality, coverage and speed of delivery of information services and products are the principal differentiators in IMS's market. IMS FOREIGN OPERATIONS As indicated above, the IMS Segment and its subsidiaries engage in a significant portion of their business outside of the United States. The IMS Segment provides information services covering more than 100 countries and maintains offices in 76 countries on six continents, with 60% of total 2001 revenue and a significant portion of its operating income generated outside the United States. The IMS Segment's foreign operations are subject to the usual risks inherent in carrying on business outside of the United States, including fluctuation in relative currency values, possible nationalization, expropriation, price controls and other restrictive government actions. IMS believes that the risk of nationalization or expropriation is reduced because its products are software, services and information, rather than the production of products that require manufacturing facilities or the use of natural resources. IMS INTELLECTUAL PROPERTY The IMS Segment owns and controls a number of trade secrets, confidential information, trademarks, trade names, copyrights, patents and other intellectual property rights which, in the aggregate, are of material importance to its business. The IMS Segment owns two significant U.S. patents relating to its XPONENT product, U.S. Patent Nos. 5,420,786 and 5,781,893, each having a remaining life of twelve years. The IMS Segment also has numerous trade secrets relating to data processing that are of material importance to its business. Management believes that the "IMS" name and related names, marks and logos are of material importance to IMS. IMS is 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 IMS. The technology and other intellectual property rights licensed by IMS are of importance to its business, although management of IMS believes that IMS's business, as a whole, is not dependent upon any one intellectual property or group of such properties. The names of IMS's and its subsidiaries' products and services referred to herein are trademarks, service marks, registered trademarks or registered service marks owned by or licensed to IMS or one of its subsidiaries. IMS EMPLOYEES The IMS Segment had approximately 5,428 employees worldwide as of December 31, 2001. Almost all of these employees are full-time. None of the Company's U.S. employees are represented by a union. In Austria, Belgium, France, Germany, Italy, the Netherlands and Spain, the Company has Works Councils, which are a legal requirement in those countries. The Company also has a European Works Council, which is a requirement under European Union laws. Management considers its relations with its employees to be good and to have been maintained in a normal and customary manner. CORPORATE IMS currently maintains its corporate center in Fairfield, Connecticut. Other components of the IMS Segment are: - ENTERPRISES. Enterprises invests in venture capital funds that invest in emerging businesses, with an emphasis on information technology and the healthcare information industry. It has invested as a limited partner in Information Partners Capital Fund, Information Associates, L.P. and Information Associates II, L.P., all of which are venture capital limited partnerships. Enterprises also has a limited number of direct investments. - TRIZETTO. The Company owns 12,142,857 of the common shares of TriZetto, which it received as consideration for the sale of Erisco to TriZetto on October 3, 2000. IMS's ownership interest in TriZetto represented 26.8% of the outstanding shares of TriZetto as of December 31, 2001. TriZetto is a publicly-traded information technology and services company focused on the healthcare industry. TriZetto delivers proprietary and third- 5 party software on a licensed or hosted basis, as well as outsourcing and consulting services. TriZetto's target markets include health plans, benefits administrators and physician groups, according to publicly available information. As of December 31, 2001, TriZetto served approximately 540 customers representing more than 110 million health plan lives. TriZetto offers five categories of complementary products and services: hosted solutions, business services, enterprise software, e-business solutions and consulting services. Its hosted solutions provide proprietary enterprise software as well as third party applications on a monthly subscription fee basis. TriZetto also offers business services such as claims and enrollment processing and information technology department outsourcing. TriZetto's enterprise software offering include its Facets-Registered Trademark- and QicLink-TM- applications and its e-business solutions include its HealthWeb-Registered Trademark- Internet platform. In addition, TriZetto provides consulting services, including information technology assessment, software development and implementation services. IMS accounts for its ownership interest in TriZetto under the equity method. CTS SEGMENT The CTS Segment ("CTS") delivers high-quality, cost-effective, full life cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. These IT services are delivered through the use of a seamless on-site and offshore consulting project team. CTS's solutions include application development and integration, application management and re-engineering services. 2001 CTS Segment revenue (net of inter segment sales) represented 11.9% of total consolidated revenue. CTS provides professional services to its customers through an integrated business model. CTS's business model combines a technical and account management team located on-site at the customer location and eleven development centers located in India. To support this business model, CTS has recruited and trained a current staff of approximately 2,650 programmers in India. CTS has also put in place a well developed facilities, technology and communications infrastructure. By basing CTS's technical operations in India, CTS has access to a large pool of skilled, English-speaking IT and Internet technology professionals. Such IT and Internet technology professionals service customers on a cost basis significantly lower than in developed countries. The main elements of the CTS solution, which CTS believes differentiates it from other IT service providers, include the following: - ESTABLISHED AND SCALABLE PROPRIETARY PROCESSES. To facilitate a cost-effective, on-time delivery of high-quality projects integrating an on-site and offshore team, CTS has developed proprietary methodologies. Such methodologies are encapsulated in CTS's QVIEW software engineering process, which is available to all on-site and offshore programmers. CTS utilizes this ISO 9000 certified process to define and implement projects from the design, development and deployment stages through to ongoing application maintenance. For most projects, QVIEW is used to make an extensive front-end assessment. This assessment allows CTS to define the scope and risks of the project and subdivide the project into smaller phases with frequent deliverables and feedback from customers. CTS also utilizes its QVIEW process to detect, mitigate and correct possible quality defects and to establish appropriate contingencies for each project. - HIGHLY-SKILLED WORKFORCE. CTS has placed significant emphasis on recruiting and training its workforce of highly skilled professionals. Such professionals must be versed in CTS's processes and methodologies, particularly the QVIEW software engineering process. CTS has over 240 project managers and senior technical personnel on its worldwide staff, many of whom have significant work experience in the United States and Europe. CTS maintains programs and personnel, including an extensive campus recruiting program in India, to hire and train the best available technical professionals in both legacy systems and emerging technologies. CTS provides five months of combined classroom and on-the-job training to new hires. CTS provides additional training each year to continually enhance the business practices, tools, technology and consulting skills of its professional staff. - RESEARCH AND DEVELOPMENT AND COMPETENCY CENTERS. CTS has project experience and expertise across multiple architectures and technologies, and makes a substantial on-going investment in competency centers and research and development to keep abreast of the latest technology developments. Most of CTS's programmers are trained in multiple technologies and architectures. As a result, CTS is able to react to customers' needs and quickly redeploy programmers to new technologies. 6 - WELL-DEVELOPED INFRASTRUCTURE. CTS's extensive facilities, technology and communications infrastructure facilitates the seamless integration of its on-site and offshore workforces. This is accomplished by permitting team members in different locations to access common project information and to work directly on customer projects. By using the excess capacity of a customer's existing computing facilities during off-peak hours, CTS's offshore development centers can undertake additional projects without substantial customer investment in new hardware and software. In addition, for large projects with short time frames, CTS's offshore facilities allow for parallel processing of various development phases to accelerate delivery time. CTS SERVICES - APPLICATION DEVELOPMENT AND INTEGRATION. Define requirements, write specifications and design, develop, test and integrate software across multiple platforms including internet technologies. - APPLICATION MANAGEMENT. Support some or all of a customer's applications, ensuring that systems remain operational and responsive to changing user requirements, and to provide ongoing enhancement as required by the customer. - RE-ENGINEERING. Modify and test applications to enable systems to function in new operating environments. CTS uses its QVIEW software engineering process, its on-site and offshore delivery model and well-developed facilities, technology and communications infrastructure to deliver these services. For each of these services, CTS utilizes its QVIEW proprietary processes and methodologies to define the execution and delivery of the projects. CTS markets and sells its services directly through its professional staff, senior management and sales personnel. CTS CUSTOMERS A significant portion of the gross revenues reported by Cognizant Technology Solutions Corporation is derived from services performed for IMS. IMS eliminates these intercompany revenues in consolidation and excludes them from the reported CTS Segment results. The following discussion of CTS customers refers to the gross reported CTS results. CTS provides services through time and material ("T&M") and fixed bid contracts. The volume of work CTS performs for specific customers is likely to vary from year to year, and a significant customer in one year may not use CTS's services in a subsequent year. In 1999, IMS and First Data Corporation each accounted for more than 10.0% of CTS's revenue. In 2001 and 2000, IMS accounted for more than 10.0% of CTS's revenue. Presented below is additional information about CTS's customers.
2001 2000 1999 -------- -------- -------- Number of customers......................................... 100 90 57 Percent of revenues from top five customers................. 34.7% 39.5% 57.3% Percent of revenues from top ten customers.................. 53.0% 59.1% 75.3% Percent of revenues from IMS and current subsidiaries....... 10.6% 10.4% 16.7% Application development services as a percent of revenues... 42.9% 46.1% 32.3% Application maintenance services as a percent of revenues... 51.8% 47.0% 44.0% Fixed bid contracts as a percent of revenues................ 23.9% 15.1% 15.0% Year 2000 compliance services as a percentage of revenues... 0.0% 0.4% 15.6%
CTS COMPETITION The IT services market includes a large number of participants, is subject to rapid change and is intensely competitive. This market includes participants from a variety of market segments, including: - systems integration firms; - contract programming companies; - application software companies; 7 - Internet solutions providers; - the professional services groups of computer equipment companies; - facilities management and outsourcing companies; and - "Big Five" accounting firms. In certain markets in which CTS competes, there are no significant barriers to entry. Current and potential competitors may introduce new and more competitive services, make strategic acquisitions or establish cooperative relationships among themselves or with third parties. As a result, these competitors increase the ability of their services to address the needs of customers. Many of CTS's competitors have significantly greater financial, technical and marketing resources and greater name recognition than CTS. The principal competitive factors affecting the markets for CTS's services include: performance and reliability; quality of technical support, training and services; responsiveness to customer needs; reputation, experience and financial stability; and competitive pricing of services. CTS competes by offering: a well-developed recruiting, training and retention model; a successful service and delivery model; an excellent referral base; continual investment in process improvement and knowledge capture; investment in research and development; and continued focus on responsiveness to customer needs, quality of services, competitive prices, project management capabilities and technical expertise. In order to be successful in the future, CTS must continue to respond promptly and effectively to technological change and competitors' innovations. There can be no assurance that CTS will be able to compete successfully against current and future competitors. CTS's failure to successfully compete could have a material adverse effect upon its business, results of operations and financial condition. CTS INTELLECTUAL PROPERTY CTS's consulting business includes the co-development, with the customer, of software applications and other technology deliverables. These include written specifications and documentation in connection with specific customer engagements. CTS's future success depends in part on its ability to protect its intellectual property rights. CTS presently holds no patents or registered copyrights. CTS relies upon a combination of copyright and trade secret laws, non-disclosure and other contractual arrangements and various security measures to protect its intellectual property rights. India is a member of the Berne Convention, and has agreed to recognize protections on copyrights conferred under the laws of foreign countries, including the laws of the United States. CTS believes that laws, rules, regulations and treaties in effect in the United States and India are adequate to protect it from misappropriation or unauthorized use of CTS's copyrights. However, there can be no assurance that such laws will not change and, in particular, that the laws of India will not change in ways that may prevent or restrict the transfer of software components, libraries and toolsets from India to the United States. There can be no assurance that the steps taken by CTS to protect its intellectual property rights will be adequate to deter misappropriation of any of CTS's intellectual property, or that CTS will be able to detect unauthorized use and take appropriate steps to enforce CTS's rights. Pursuant to the License Agreement between CTS and IMS, all rights to the "Cognizant" name and certain related trade and service marks were transferred to CTS in July, 1998. CTS EMPLOYEES At December 31, 2001, CTS employed approximately 855 persons on a full-time basis in its North American headquarters and satellite offices and on-site North American customer locations. CTS also employed approximately 110 persons on a full-time basis in its European satellite offices and on-site European customer locations and approximately 2,960 persons on a full-time basis in its offshore software development centers in India. None of CTS's employees is subject to a collective bargaining arrangement. CTS considers its relations with employees to be good. For additional information regarding CTS, see CTS's Annual Report on Form 10-K for the year ended December 31, 2001 and its other filings with the Securities and Exchange Commission. 8 RELATIONSHIPS BETWEEN IMS AND SYNAVANT, IMS AND NMR AND AMONG IMS, DONNELLEY AND ACNIELSEN SYNAVANT SPIN-OFF Prior to the Synavant Spin-Off, IMS and Synavant entered into certain agreements governing their relationship subsequent to the Synavant Spin-Off and providing for the allocation of certain liabilities and obligations arising from periods prior to the Synavant Spin-Off, including those obligations and liabilities that arose in connection with the D&B Spin-Off. The following descriptions summarize certain terms of the most significant of such agreements, but are qualified by reference to the texts of such agreements, which are incorporated by reference to the Exhibits to this Form 10-K. SYNAVANT DISTRIBUTION AGREEMENT. IMS and Synavant entered into a Distribution Agreement (the "Synavant Distribution Agreement"), providing for, among other things, certain corporate transactions required to effect the Synavant Spin-Off and other arrangements between IMS and Synavant subsequent to the Distribution. In particular, the Synavant Distribution Agreement defines the assets, liabilities and contractual relationships which were allocated to and assumed by each of Synavant and IMS, with the effect that financial responsibility for (i) the liabilities arising out of or in connection with Synavant's businesses and certain other specified liabilities generally were allocated to Synavant and (ii) all other liabilities generally were allocated to IMS. Pursuant to the terms of the Distribution Agreement (the "D&B Distribution Agreement") among Cognizant, Donnelley and ACNielsen Corporation ("ACNielsen"), as a condition to the Synavant Spin-Off, Synavant was required to and did undertake to be jointly and severally liable to Donnelley and ACNielsen for any Cognizant liabilities arising thereunder. Further, the terms of the Distribution Agreement (the "Cognizant Distribution Agreement") between NMR and IMS, as a condition to the Synavant Spin-Off, Synavant was required to and did undertake to be jointly and severally liable to NMR for any IMS liabilities arising thereunder. The Synavant Distribution Agreement allocates between IMS and Synavant the financial responsibility for such liabilities arising under the D&B Distribution Agreement and the Cognizant Distribution Agreement, including contingent liabilities related to certain prior business transactions and certain on-going litigation. (See Notes 7 and 21 to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders). In addition to the Synavant Distribution Agreement, IMS and Synavant also entered into other agreements governing the relationship between IMS and Synavant. These include two Data Rights Agreements and a Tax Allocation Agreement, each of which is described below, as well as an Employee Benefits Agreement, a Data and Telecommunications Service Agreement, certain sublease arrangements, a Corporate Services Agreement, Shared Transaction Services Agreements, an Information Service Agreement and certain credit support arrangements. After the date of the Synavant Spin-Off (the "Synavant Spin-Off Date"), there were individuals on the Boards of Directors of IMS and Synavant who were also serving on the Board of Directors of the other company. SYNAVANT DATA RIGHTS AGREEMENTS. Pursuant to the Xponent Data License Agreement, IMS granted to Synavant a non-transferable and non-exclusive license to use IMS's Xponent data solely for the purpose of (i) selecting a list of doctors to whom its healthcare company clients can send proprietary materials, (ii) providing its single source sampling products to pharmaceutical clients, (iii) providing data to publishers of journals or other media for the purpose of determining advertising, and (iv) selecting doctors to whom its pharmaceutical clients can send certain drug samples. Pursuant to the Pharbase Cross License Agreement, Synavant granted to IMS a worldwide, perpetual, non-transferable and non-exclusive license to use all Synavant data (including Pharbase) in order to (i) update its prescriber databases, (ii) update its sales, prescription and market research databases, and (iii) create derivative works from such databases in connection with the delivery of services to its clients. IMS granted to Synavant a non-transferable and non-exclusive license to certain IMS data to be used solely to update its Pharbase database. Both parties agreed not to use certain data in products delivered to certain competitors of the other party. SYNAVANT TAX ALLOCATION AGREEMENT. IMS and Synavant entered into a Tax Allocation Agreement under which IMS agreed to pay any taxes, or receive any refunds or credits of taxes, shown as due on a U.S. federal, state or local income or franchise tax return for a taxable period beginning prior to August 31, 2000, the Synavant Spin-Off Date. All taxes other than U.S. federal, state and local income and franchise taxes will be the responsibility of Synavant if 9 they are attributable to the Synavant business and of IMS if they are attributable to all other businesses of IMS. For taxable periods beginning on or after Synavant Spin-Off Date, Synavant and IMS agreed to be responsible for their own taxes. COGNIZANT SPIN-OFF (1998) Prior to the Cognizant Spin-Off, IMS and Cognizant (now NMR) entered into certain agreements governing their relationship subsequent to the Cognizant Spin-Off and providing for the allocation of certain liabilities and obligations arising from periods prior to the Cognizant Spin-Off, including those obligations and liabilities that arose in connection with the D&B Spin-Off. The following descriptions summarize certain terms of the most significant of those agreements, but are qualified by reference to the texts of such agreements, which are incorporated by reference to the Exhibits to this Form 10-K. COGNIZANT DISTRIBUTION AGREEMENT. NMR and IMS entered into the Cognizant Distribution Agreement providing for, among other things, assumption of liabilities and cross indemnities designed to allocate generally, effective as of the date of the Cognizant Spin-Off, financial responsibility for (i) the liabilities arising out of or in connection with Cognizant's businesses (i.e. NMR) and certain other specified liabilities to NMR and (ii) all other liabilities to IMS. Pursuant to the terms of the D&B Distribution Agreement among Cognizant, Donnelley and ACNielsen, as a condition to the Cognizant Spin-Off, IMS and NMR were required to and did undertake to be jointly and severally liable to Donnelley and ACNielsen for any Cognizant liabilities arising thereunder. The Cognizant Distribution Agreement allocates between IMS and NMR the financial responsibility for such liabilities, including contingent liabilities related to certain prior business transactions and certain on-going litigation. (See Note 21 to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders). COGNIZANT TAX ALLOCATION AGREEMENT. NMR and IMS entered into a Tax Allocation Agreement under which IMS agreed to pay any taxes, or receive any refunds or credits of taxes, shown as due on a U.S. federal, state or local income or franchise tax return for a taxable period beginning prior to the date of the Cognizant Spin-Off. Any subsequent adjustment of such taxes will be allocated to IMS if such adjustment relates to IMS's business and to NMR if such adjustment relates to the NMR business, except that any adjustment of such taxes attributable to tax items or positions initially determined by NMR's corporate office will be allocated to IMS. All taxes other than U.S. federal, state and local income and franchise taxes will be the responsibility of IMS if they are attributable to IMS's business and of NMR if they are attributable to NMR's business. For taxable periods beginning on or after the date of the Cognizant Spin-Off, IMS and NMR will be responsible for their own taxes. D&B SPIN-OFF (1996) Prior to the D&B Spin-Off, Donnelley, Cognizant and ACNielsen entered into certain agreements governing their relationship subsequent to the D&B Spin-Off and providing for certain liabilities and obligations arising from periods prior to the D&B Spin-Off. The following descriptions summarize certain terms of the most significant of those agreements, but are qualified by reference to the texts of such agreements, which are incorporated by reference to the Exhibits to this Form 10-K. D&B DISTRIBUTION AGREEMENT. Donnelley, Cognizant and ACNielsen entered into the D&B Distribution Agreement providing for, among other things, assumptions of liabilities and cross indemnities designed generally to allocate to Donnelley, effective as of November 1, 1996, financial responsibility for all liabilities of Donnelley, except for certain liabilities arising out of or in connection with the businesses that became part of Cognizant or ACNielsen as a result of the D&B Spin-Off. Similarly, the D&B Distribution Agreement provided for the allocation generally to Donnelley of the financial responsibility for the liabilities arising out of or in connection with then-former businesses, including those formerly conducted by or associated with Cognizant or ACNielsen, provided that liabilities related to certain prior business transactions were allocated to Cognizant if such liabilities exceed certain specified amounts. (See Note 21 to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders). 10 D&B TAX ALLOCATION AGREEMENT. Donnelley, Cognizant and ACNielsen entered into a Tax Allocation Agreement (the "1996 Tax Allocation Agreement"). Except as otherwise provided in the D&B Distribution Agreement, the D&B Tax Allocation Agreement provided, among other things, that Donnelley must pay Donnelley's entire consolidated tax liability for the tax years that Cognizant and ACNielsen were included in Donnelley's consolidated Federal income tax return. For periods prior to the D&B Spin-Off, Donnelley is generally liable for state and local taxes measured by income or imposed in lieu of income taxes. The D&B Tax Allocation Agreement allocated liability to Donnelley, Cognizant and ACNielsen for their respective shares of other state and local taxes, as well as any foreign taxes attributable to periods prior to the D&B Spin-Off. INDEMNITY AND JOINT DEFENSE AGREEMENT ("IJDA"). Under the IJDA, ACNielsen assumed exclusive liability for the Information Resources Litigation, discussed in Note 21 to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders, up to a specified amount (the "ACN Maximum Amount"), which is to be calculated at the time such liabilities, if any, become payable, and that Cognizant and Donnelley will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount which ACNielsen is able to pay after giving effect to (i) any plan submitted by such investment bank which is designed to maximize the claims-paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion (but which will not require any action requiring shareholder approval) and (ii) payment of related fees and expenses. For these purposes, financial viability means the ability of ACNielsen, after giving effect to such plan, the payment of related fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as they become due and to finance the current and anticipated operating and capital requirements of its business, as reconstituted by such plan, for two years from the date any such plan is expected to be implemented. On February 19, 2001, ACNielsen announced that it merged with VNU N.V. Pursuant to the Indemnity and Joint Defense Agreement, VNU is to be included with ACNielsen for purposes of determining the ACN Maximum Amount. FACTORS THAT MAY AFFECT FUTURE RESULTS From time to time, information and statements provided by the Company may contain "forward-looking statements" as defined by the Private Securities Litigation Reform Act of 1995. The Company cautions shareholders and investors that actual results may differ materially from those projected or suggested in any forward-looking statement as a result of a wide variety of factors, including but not limited to the factors set forth below and under the caption "Forward Looking Statements" in the Company's 2001 Annual Report to Shareholders, which is incorporated herein by reference: - Results could be affected by the costs and other effects of litigation and other contingencies involving the Company. In particular, management of the Company is unable to predict at this time the final outcome of the Information Resources Litigation, the Matters before the European Commission and the Donnelley Tax Matters described in Note 21 to the Consolidated Financial Statements in the 2001 Annual Report to Shareholders, or whether the resolution of these matters could materially affect the Company's results of operations, cash flows or financial position. - The Company operates globally, deriving 54% of its $1,332,923 in revenue 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-denominated operating results. Emerging markets currencies tend to be considerably less stable than in established markets, which may further contribute to volatility in operating results. In addition, the Company is subject to the usual risks inherent in carrying on business in certain countries outside the United States, including possible nationalization, expropriation, price controls or other restrictive government actions. Management believes that the risk of nationalization or expropriation is reduced because its basic service is the delivery of information, rather than the production of products which require manufacturing facilities or use of natural resources. - The Company competes in businesses which demand or sell sophisticated information systems, software and other technology, including the technology utilized to deliver products and services. The types of systems which 11 the Company's businesses require or sell can be expected to be subject to refinements, some of which may be major, as such systems and underlying technologies are upgraded or advanced or new technologies are introduced. There can be no guarantee that as various systems and technologies become outdated, the Company will be able to replace them, to replace them as quickly as the Company's competition or develop and market new and better products and services and technology in the future on time and on a cost-effective basis. Further, there can be no guarantee regarding the degree and rate which customers will adopt new technologies or products that may result in the Company not achieving the benefits that might have been anticipated from such new technologies or products. - Currently, the Company's assets include a majority interest in CTS consisting of 11,290,900 shares of CTS Class B common stock, which represents 58.3% of the outstanding shares of all classes of CTS common stock (93.3% of the combined voting power of CTS's outstanding common stock) at December 31, 2001; and an equity investment in TriZetto consisting of 12,142,857 shares of TriZetto common stock, which represented 26.8% of the outstanding shares of TriZetto common stock at December 31, 2001, as well as, directly or through its investment in various limited partnerships, shares of various other companies, both public and private. Variations will occur in the market value of the Company's securities, and such variations may have an impact on the trading price of the Company's Common Stock. The results of operations of CTS and TriZetto may be subject to the various factors described in their respective reports filed with the SEC from time to time. Declines in the values of the Company's CTS and TriZetto investments, which the Company determines to be other than temporary, will have an impact on the Company's operating results in the period in which such determination is made. - A number of countries in which the Company operates have enacted regulations limiting the prices pharmaceutical companies may charge for drugs. The Company believes that such cost containment measures will cause pharmaceutical companies to seek more effective means of marketing their products (which will benefit the Company 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 the Company's products and services. - Certain of the data services provided by the Company relate to the diagnosis and treatment of disease, including prescription data. The use of anonymized patient-specific information is anticipated to be an increasingly important tool in the design, development and marketing of pharmaceuticals. Recently, there have been a number of regulatory and legislative initiatives in the area of medical privacy at the federal, state and foreign government levels. Most of these initiatives 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 or the process of anonymizing data. In addition, there are initiatives that seek to restrict access to this information to non-commercial uses. To protect privacy, no individual patient is identified in any IMS database (except in the limited circumstances where the advance express written consent of the patient has been obtained) so that many of these initiatives would not apply to the Company's business. However, there can be no assurance that these initiatives or future initiatives would not adversely affect the Company's ability to generate or assemble data or to develop or market current or future products or services. - The Company is directly subject to certain restrictions on the collection and use of data. Laws relating to the collection and use of data are evolving, as are contractual rights relating to such data. There can be no assurance that contractual restrictions, legislation or regulations will not, now or in the future, directly or indirectly restrict the analysis or dissemination of the type of information the Company gathers and therefore materially adversely affect its operations. - Suppliers of data may increase restrictions on the use of the data by the Company, or refuse to license the data to the Company. There can be no assurance that data suppliers will not impose additional contractual restrictions on the Company's use or access to data, or refuse to provide data, now or in the future, in a manner which could have a material adverse affect on the business of the Company or its operating results. 12 - The Company relies on a combination of trade secret, patent, copyright and trademark laws, contractual provisions, policies, practices, and technical measures to protect its proprietary rights in its products, services, databases and technologies. There can be no assurance that these protections will be adequate, or that the Company will adequately employ each and every one of these protections, or that the Company's competitors will not develop products, services, databases or technologies that are substantially equivalent or superior to the Company's products, services, databases or technologies. Although the Company believes that its 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 the Company in the future. Additionally, the Company may find it necessary to initiate litigation to protect the Company's trade secrets, to enforce its patent, copyright and trademark rights, and to determine the scope and validity of the proprietary rights of others. These types of litigation can be costly and time consuming. - The future success of the Company depends upon the contributions of its employees, including senior management and key personnel. The future success of the Company also depends on its continuing ability to attract and retain highly qualified technical and managerial personnel. Competition for such personnel is intense. Any difficulties with the foregoing could have a material adverse affect on the business of the Company or its operating results. - An important aspect of the Company's business strategy in the past has been growth through acquisitions or joint ventures, and, although the Company expects to continue to pursue acquisitions and joint ventures, there can be no assurance that management of the Company will be able to identify and consummate acquisitions or joint ventures on satisfactory terms. Furthermore, every acquisition or joint venture will entail some degree of uncertainty and risk and, even if consummated, may not produce the operating results or increases in value over time which were expected at the time of acquisition or joint venture. - The Company's results could be adversely affected by general or specific weakening of economic conditions, including weak economic conditions in the pharmaceutical, healthcare, information technology or other industries in which the Company's customers operate. 13 ITEM 2. PROPERTIES The principal properties of the Company as at December 31, 2001 are set forth below. The executive offices of the Company are located at 1499 Post Road, Fairfield, Connecticut in a leased property (approximately 15,000 square feet). Property of the Company is geographically distributed to meet sales and operating requirements worldwide. The properties and equipment of the Company are generally considered to be both suitable and adequate to meet current operating requirements and virtually all space is being utilized. IMS SEGMENT Owned properties located within the United States include three facilities. The properties are located in Totowa, New Jersey (approximately 130,000 square feet), and Plymouth Meeting (approximately 212,000 square feet) and West Norriton, Pennsylvania (approximately 17,000 square feet). 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 (approximate 4,000 square feet); Lisbon, Portugal (approximately 10,000 square feet); Caracas, Venezuela (approximately 4,000 square feet); and London (approximately 102,000 square feet) and Pinner, England (approximately 26,000 square feet). The operations of the IMS Segment are also conducted from nine leased offices located throughout the United States and ninety-six leased offices in non-United States locations. IMS owns or leases a variety of computers and other equipment for its operational needs. The Company continues to upgrade and expand its computers and related equipment in order to increase efficiency, enhance reliability and provide the necessary base for business expansion. CTS SEGMENT Headquartered in Teaneck, New Jersey, operations are conducted from seven leased office locations in the United States (aggregating approximately 49,000 square feet) and fourteen non-United States locations (aggregating approximately 373,000 square feet), which are primarily located in India. ITEM 3. LEGAL PROCEEDINGS Reference is made to "Note 21. Contingencies" of the Notes to the Consolidated Financial Statements on pages 43 to 47 of the 2001 Annual Report to Shareholders, which is incorporated herein by reference. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not applicable. 14 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 March 15, 2002 and brief summaries of their business experience during the past five years.
NAME TITLE AGE - ---- ----- -------- David M. Thomas................. Chairman, Chief Executive Officer and President** 52 Gilles V. J. Pajot.............. Executive Vice President and President, IMS European 52 Region** Gary W. Noon.................... President, IMS U.S. 48 Nancy E. Cooper................. Senior Vice President and Chief Financial Officer 48 Robert H. Steinfeld............. Senior Vice President, General Counsel and Corporate 48 Secretary John R. Walsh................... Vice President, Investor Relations and Acting Treasurer 47 Leslye G. Katz.................. Vice President and Controller 47 Murray L. Aitken................ Senior Vice President, IMS Global Consulting and Services 43
- ------------------------ * 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. Thomas was appointed Chairman, Chief Executive Officer and President of IMS in November, 2000. Prior to that, he was Senior Vice President/Group Executive at IBM, responsible for the global Personal Systems Group, from January, 1998 to September, 2000. Mr. Thomas also was a member of the IBM Corporate Executive Committee, which oversees all IBM operations worldwide. Joining IBM in 1972, Mr. Thomas held progressively responsible executive positions at the company, including General Manager, IBM North America from October, 1995 to January, 1996, and General Manager, Global Industries from January, 1996 to January, 1998. Mr. Pajot was appointed Executive Vice President of IMS in November, 2000. He joined the Company as President of IMS Europe 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 and 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. Noon was appointed President of IMS U.S. in November, 2000. Previously, he was Vice President, Global Marketing for Pfizer/Warner Lambert, a position he held since September, 1999. Mr. Noon was Founder and Managing Director of U.K.-based Practice Resource Systems (PRS) from April, 1996 to September, 1999, where he developed a clinical information system to integrate data across physician, pharmacy and hospital settings. From 1991 to 1995, Mr. Noon held a series of progressively responsible executive positions at GlaxoWellcome, including UK Integration Executive for the International Business & Commercial Development Task Force from March, 1995 to October, 1995 and Regional Director, Wellcome Pharmaceutical U.K. and Northern Europe from November, 1994 to March, 1995. Ms. Cooper was appointed Chief Financial Officer of IMS in December, 2001. Prior to that, she served as Chief Financial Officer at Reciprocal, Inc., a leading digital distribution infrastructure enabler, from July, 2000 to October, 2001. From September, 1998 to July, 2000, Ms. Cooper was Chief Financial Officer of Pitney Bowes Credit Corporation. She served as a Partner at General Atlantic Partners, a private equity firm focused on software and investments, from January to July, 1998. Prior to that, she spent 22 years at IBM in various positions of increasing responsibility, including Director of Financial Management Systems, Pricing and Financial Planning from 1982 to 1992, and Controller and Treasurer and Financial Director at IBM Credit Corporation from September, 1992 to January, 1995, Assistant Controller of IBM in 1996 and Chief Financial Officer of IBM Global Industries in 1997. 15 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 October, 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. Walsh was appointed Vice President, Investor Relations in July, 1998 and Acting Treasurer in November 2001. Previously, he was Director-Finance of Cognizant Corporation from April, 1997 to June, 1998. Prior to that he served in various capacities in Finance for MCI Communications Corporation from April, 1985 to April, 1997. Ms. Katz was appointed Vice President and Controller of IMS in October, 2001. 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 posts at Donnelley (then known as "The Dun & Bradstreet Corporation") from 1980 to 1996, including Senior Vice President and Chief Financial Officer of Reuben H. Donnelley from September, 1992 to July, 1996. Mr. Aitken was appointed Senior Vice President of Global Consulting and Services for IMS in June, 2001. Prior to that, he was a Principal in McKinsey & Co.'s Pharmaceutical and Medical Products Practice from July, 1997 to June, 2001. Joining McKinsey in 1987, he held progressively responsible positions with the firm in its Los Angeles and Seoul, South Korea operations, and was named a Principal and Partner in December, 1994. 16 PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Information in response to this Item is set forth under IMS Health Common Stock Information in the "Management's Discussion and Analysis of Results of Operations and Financial Position" on page 14 of the 2001 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA Selected financial data required by this Item is incorporated herein by reference to the information relating to the years 1997 through 2001 set forth in the "Five-Year Selected Financial Data" on page 51 of the 2001 Annual Report to Shareholders. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information in response to this Item is set forth in the "Management's Discussion and Analysis of Results of Operations and Financial Position" on pages 1 to 14 of the 2001 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Information in response to this Item is set forth under Market Risk in the "Management's Discussion and Analysis of Results of Operations and Financial Position" on pages 10 and 11 and in "Note 14. Financial Instruments" of Notes to Consolidated Financial Statements on pages 34 and 35 of the 2001 Annual Report to Shareholders, which information is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See Index to Consolidated Financial Statements and Schedule under Item 14 on page 19. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information in response to this Item will be set forth in the section entitled "Proposal No. 1: Election of Directors" in the Company's Definitive Proxy Statement (the "2002 Proxy Statement") relating to its Annual Meeting of Shareholders to be held on May 3, 2002, which information is incorporated herein by reference, except that "Executive Officers of the Registrant" on pages 15 and 16 of this report responds to Items 401(b) and (e) of the Securities and Exchange Commission's Regulation S-K with respect to the Company's executive officers. ITEM 11. EXECUTIVE COMPENSATION Information in response to this Item will be set forth in the section entitled "Compensation of Executive Officers" in the Company's 2002 Proxy Statement, which information is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information in response to this Item will be set forth in the section entitled "Security Ownership of Management and Others" in the Company's 2002 Proxy Statement, which information is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Not applicable. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) List of documents filed as part of this report. (1) Consolidated Financial Statements. See Index to Consolidated Financial Statements and Schedule on page 21. (2) Consolidated Financial Statement Schedule. See Index to Consolidated Financial Statements and Schedule on page 21. (3) Other Financial Information. Five-year Selected Financial Data. See Index to Consolidated Financial Statements and Schedule on page 21. (b) Reports on Form 8-K. A report on Form 8-K was filed on October 24, 2001 to present under Item 5, Other Events, disclosure of the appointment of Nancy E. Cooper as the Company's new Chief Financial Officer. (c) Exhibits. See Index to Exhibits on pages 24 to 28, which indicates which Exhibits are management contracts or compensatory plans required to be filed as Exhibits. Only responsive information appearing on pages 1 through 51 to Exhibit 13 is incorporated herein by reference, and no other information appearing in Exhibit 13 is or shall be deemed to be filed as part of this Form 10-K. (d) Financial Statement Schedule. See Index to Consolidated Financial Statements and Schedule on page 21. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. IMS HEALTH INCORPORATED (Registrant) By: /s/ DAVID M. THOMAS --------------------------------------------------- David M. Thomas CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
Date: March 20, 2002 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. /s/ DAVID M. THOMAS /s/ JOHN P. IMLAY, JR. - ------------------------------------------------- ------------------------------------------------- (David M. Thomas, (John P. Imlay, Jr., Director) Chairman, Chief Executive Officer, President and Director) (principal executive officer) /s/ NANCY E. COOPER /s/ ROBERT J. KAMERSCHEN - ------------------------------------------------- ------------------------------------------------- (Nancy E. Cooper, Senior Vice President (Robert J. Kamerschen, Director) and Chief Financial Officer) (principal financial officer) /s/ LESLYE G. KATZ /s/ ROBERT J. LANIGAN - ------------------------------------------------- ------------------------------------------------- (Leslye G. Katz, Vice President, Controller) (Robert J. Lanigan, Director) (principal accounting officer) /s/ CLIFFORD L. ALEXANDER, JR. /s/ H. EUGENE LOCKHART - ------------------------------------------------- ------------------------------------------------- (Clifford L. Alexander, Jr., Director) (H. Eugene Lockhart, Director) /s/ CONSTANTINE L. CLEMENTE /s/ GILLES V. J. PAJOT - ------------------------------------------------- ------------------------------------------------- (Constantine L. Clemente, Director) (Gilles V. J. Pajot, Executive Vice President and Director) /s/ KATHRYNE E. GIUSTI /s/ BERNARD PUCKETT - ------------------------------------------------- ------------------------------------------------- (Kathryne E. Giusti, Director) (Bernard Puckett, Director) /s/ WILLIAM C. VAN FAASEN - ------------------------------------------------- (William C. Van Faasen, Director)
Date: March 20, 2002 20 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE FINANCIAL STATEMENTS: The Company's Consolidated Financial Statements, the notes thereto and the related report thereon of PricewaterhouseCoopers LLP, independent accountants, as of December 31, 2001 and 2000 and for the years ended December 31, 2001, 2000, and 1999, appearing on pages 15 to 49 of the 2001 Annual Report to Shareholders, are incorporated by reference into this Annual Report on Form 10-K (see below). The additional financial data indicated below should be read in conjunction with such consolidated financial statements.
PAGE ------------------------------------------------- 2001 ANNUAL REPORT TO FORM 10-K SHAREHOLDERS ----------------------- ----------------------- Statement of Management's Responsibility for Financial Statements................................................ 15 Report of Independent Accountants........................... 15 As of December 31, 2001 and 2000: Consolidated Statements of Financial Position............. 16 For the years ended December 31, 2001, 2000 and 1999: Consolidated Statements of Income......................... 17 Consolidated Statements of Cash Flows..................... 18-19 Consolidated Statements of Shareholders' Equity........... 20-22 Notes to Consolidated Financial Statements.................. 23-49 Other Financial Information: Quarterly Financial Data (Unaudited) for the years ended December 31, 2001 and 2000................................ 50 Management's Discussion and Analysis of Results of Operations and Financial Position......................... 1-14 Business Segments is included in "Notes to Consolidated Financial Statements" Five-Year Selected Financial Data (Unaudited)............... 51 SCHEDULE: Report of Independent Accountants on Financial Statement Schedule.................................................. 22 II. Valuation and Qualifying Accounts for the years ended December 31, 2001, 2000, and 1999......................... 23 OTHER: IMS Health Incorporated and Subsidiaries (Exhibit 21)..... 29-31
Schedules other than the one listed above are omitted as not required or inapplicable or because the required information is provided in the consolidated financial statements, including the notes thereto. 21 REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE To the Board of Directors of IMS Health Incorporated: Our audits of the consolidated financial statements referred to in our report dated February 11, 2002, appearing in the 2001 Annual Report to Shareholders of IMS Health Incorporated (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in the index under Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. PricewaterhouseCoopers LLP New York, New York February 11, 2002 22 IMS HEALTH INCORPORATED AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999 (IN THOUSANDS)
COL. A COL. B COL. C COL. D COL. E - ---------------------------------------------- ------------ -------------------------- ---------- ---------- ADDITIONS -------------------------- BALANCE CHARGED TO CHARGED TO BALANCE AT BEGINNING OF COSTS AND OTHER END OF DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS PERIOD ----------- ------------ ---------- ---------- ---------- ---------- Allowance for doubtful accounts: For the Year Ended December 31, 2001........ $ 8,016 $ 3,930 $ 0 $ 2,686(a) $ 9,260 ======= ======= ======= ======= ======= For the Year Ended December 31, 2000........ $ 7,625 $ 3,378 $(1,601)(d) $ 1,386(a) $ 8,016 ======= ======= ======= ======= ======= For the Year Ended December 31, 1999........ $11,246 $ 108 $ 2,035 $ 5,764(a) $ 7,625 ======= ======= ======= ======= ======= Valuation allowance deferred income taxes: For the Year Ended December 31, 2001........ $11,718 $ 1,683(b) $ 0 $ 199 $13,202 ======= ======= ======= ======= ======= For the Year Ended December 31, 2000........ $23,325 $ 2,493(b) $ 0 $14,100(c) $11,718 ======= ======= ======= ======= ======= For the Year Ended December 31, 1999........ $21,239 $10,270 $ 0 $ 8,184 $23,325 ======= ======= ======= ======= =======
- ------------------------ NOTE: (a) The charge-off of uncollectible accounts for which a reserve was provided in prior periods. (b) Valuation allowances on assets related to additional NOLs created during the year where, based on available evidence, it is more likely than not that such assets will not be realized. (c) Includes valuation allowances related to the net operating losses ("NOLs") of Erisco and the Synavant Business, $204 and $2,276, respectively; the recognition of the benefit of certain NOLs due to the implementation of global tax planning strategies ($10,072), and the expiration and true-up of certain NOLs ($1,548). (d) Includes the allowance for doubtful accounts transferred to Synavant and Erisco in 2000. 23 INDEX TO EXHIBITS
REGULATION S-K EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 3 Articles of Incorporation and By-laws .1 Restated Certificate of Incorporation of IMS Health Incorporated dated May 29, 1998 (incorporated by reference to Exhibit 3.1 to Registrant's Registration Statement on Form 10 filed on June 12, 1998). .2 Certificate of Amendment of Restated Certificate of Incorporation of IMS Health Incorporated dated March 22, 1999 (incorporated by reference to Exhibit 3.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 filed on May 17, 1999). .3 Amended and Restated By-laws of IMS Health Incorporated (incorporated by reference to Exhibit 3.2 to Registrant's Registration Statement on Form 10 filed on June 12, 1998). 4 Instruments Defining Rights of Security Holders .1 Rights Agreement dated as of June 15, 1998 between IMS Health Incorporated and First Chicago Trust Company of New York (incorporated by reference to Exhibit 10.20 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999). .2 Amendment No. 1 to the Rights Agreement dated as of March 28, 2000 between IMS Health Incorporated and First Chicago Trust Company of New York (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000 filed on May 15, 2000). .3 Amendment No. 2 to the Rights Agreement dated as of July 18, 2000 between IMS Health Incorporated and First Chicago Trust Company of New York (incorporated by reference to Exhibit 4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000 filed on November 13, 2000). 10 Material Contracts .1 Distribution Agreement between Cognizant Corporation and IMS Health Incorporated, dated as of June 30, 1998 (incorporated by reference to the Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999). .2 Tax Allocation Agreement between Cognizant Corporation and IMS Health Incorporated, dated as of June 30, 1998 (incorporated by reference to the Exhibit 10.2 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999). .3 Employee Benefits Agreement between Cognizant Corporation and IMS Health Incorporated, dated as of June 30, 1998 (incorporated by reference to the Exhibit 10.3 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999). .4 Amended and Restated Transition Services Agreement among The Dun & Bradstreet Corporation, The New Dun & Bradstreet Corporation, Cognizant Corporation, IMS Health Incorporated, ACNielsen Corporation and Gartner, Inc. (p.k.a. Gartner Group Inc.), dated as of June 30, 1998 (incorporated by reference to the Exhibit 10.4 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999). .5 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive Plan, as amended on July 25, 2000 and restated to reflect such amendment (incorporated by reference to Exhibit 10.2 to the Registrant's Registration Statement on Form S-8 filed on January 16, 2001).* .6 1998 IMS Health Incorporated Non-Employee Directors' Deferred Compensation Plan (As amended and restated through December 18, 2001).*+ .7 1998 IMS Health Incorporated Employees' Stock Incentive Plan (As amended and restated effective October 16, 2001).*+
24
REGULATION S-K EXHIBIT NUMBER DESCRIPTION - -------------- ----------- .8 1998 IMS Health Incorporated Replacement Plan for Certain Employees Holding Cognizant Corporation Equity-Based Awards, as adopted effective July 1, 1998 (incorporated by reference to the Exhibit 10.8 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .9 1998 IMS Health Incorporated Replacement Plan for Certain Non-Employee Directors Holding Cognizant Corporation Equity-Based Awards, as adopted effective July 1, 1998 (incorporated by reference to the Exhibit 10.9 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .10 Form of Non-Employee Directors' Stock Option Agreement (incorporated by reference to the Exhibit 10.10 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .11 Form of Non-Employee Directors' Restricted Stock Agreement (incorporated by reference to the Exhibit 10.11 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .12 Form of Restricted Stock Unit Agreements (incorporated by reference to the Exhibit 10.12 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .13 Form of Stock Option Agreement (incorporated by reference to the Exhibit 10.13 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .14 Form of Purchased Option Agreement (incorporated by reference to the Exhibit 10.14 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .15 Forms of Change-in-Control Agreement for Certain Executives of IMS Health Incorporated.*+ .16 IMS Health Incorporated Employee Protection Plan, as adopted effective December 1, 1998 (incorporated by reference to the Exhibit 10.16 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .17 IMS Health Incorporated Executive Annual Incentive Plan, as adopted effective July 1, 1998 (incorporated by reference to the Exhibit 10.17 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .18 IMS Health Incorporated Supplemental Executive Retirement Plan (As amended and restated effective April 17, 2001).*+ .19 IMS Health Incorporated Retirement Excess Plan, as adopted effective July 1, 1998 (incorporated by reference to the Exhibit 10.19 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .20 IMS Health Incorporated Savings Equalization Plan, as adopted effective July 1, 1998 (incorporated by reference to Exhibit 10.21 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999).* .21 Amended and Restated Employment Agreement by and between IMS Health Incorporated and Robert E. Weissman, dated as of January 1, 2000 (incorporated by reference to Exhibit 10.22 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 17, 2000).* .22 Amended and Restated Employment Agreement by and between IMS Health Incorporated and Victoria R. Fash, dated as of January 1, 2000 (incorporated by reference to Exhibit 10.23 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 17, 2000).* .23 Undertaking of IMS Health Incorporated, dated June 30, 1998 (incorporated by reference to the Exhibit 10.25 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1998 filed on March 1, 1999). .23.1 Distribution Agreement among R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation, dated as of October 28, 1996 (incorporated by reference to Exhibit 10(x) to the Annual Report on Form 10-K of R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation) for the year ended December 31, 1996 filed on March 27, 1997).
25
REGULATION S-K EXHIBIT NUMBER DESCRIPTION - -------------- ----------- .23.2 Tax Allocation Agreement among R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation, dated as of October 28, 1996 (incorporated by reference to Exhibit 10(y) to the Annual Report on Form 10-K of R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation) for the year ended December 31, 1996 filed on March 27, 1997). .23.3 Employee Benefits Agreement among R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation, dated as of October 28, 1996 (incorporated by reference to Exhibit 10(z) to the Annual Report on Form 10-K of R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation) for the year ended December 31, 1996 filed on March 27, 1997). .23.4 Indemnity and Joint Defense Agreement among R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation), Cognizant Corporation and ACNielsen Corporation, dated as of October 28, 1996 (incorporated by reference to Exhibit 10(aa) to the Annual Report on Form 10-K of R.H. Donnelley Corporation (p.k.a. The Dun & Bradstreet Corporation) for the year ended December 31, 1996 filed on March 27, 1997). .24 Distribution Agreement between IMS Health Incorporated and Gartner, Inc. (p.k.a. Gartner Group Inc.), dated as of June 17, 1999 (incorporated by reference to Exhibit 10.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 filed on August 10, 1999). .25 Agreement and Plan of Merger among Gartner, Inc. (p.k.a. Gartner Group Inc.), IMS Health Incorporated and GRGI, Inc. dated as of June 17, 1999 (incorporated by reference to Exhibit 10.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 filed on August 10, 1999). .26 IMS Health Incorporated Executive Deferred Compensation Plan, dated July 20, 1999 (incorporated by reference to Exhibit 10.4.1 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed on November 15, 1999).* .26.1 Selected portions of the Prospectus Supplement, dated September 27, 1999 setting forth certain terms and conditions of the Executive Deferred Compensation Plan for U.S. employees (incorporated by reference to Exhibit 10.4.2 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed on November 15, 1999).* .26.2 Selected portions of the Private Placement Memorandum, dated September 27, 1999 setting forth certain terms and conditions of the Executive Deferred Compensation Plan for U.S. employees (incorporated by reference to Exhibit 10.4.3 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed on November 15, 1999).* .27 First Amendment to the IMS Health Incorporated Retirement Excess Plan, dated September 1, 1999 (incorporated by reference to Exhibit 10.7 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed on November 15, 1999).* .28 First Amendment to the IMS Health Incorporated Savings Equalization Plan, dated September 1, 1999 (incorporated by reference to Exhibit 10.8 to Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 filed on November 15, 1999).* .29 Second Amendment to the IMS Health Incorporated Savings Equalization Plan, dated October 1, 1999 (incorporated by reference to Exhibit 10.31 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 17, 2000).* .30 Second Amendment to the IMS Health Incorporate Retirement Excess Plan, dated October 1, 1999 (incorporated by reference to Exhibit 10.32 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 17, 2000).* .31 IMS Health European Deferred Compensation Plan, dated December 1, 1999 (incorporated by reference to Exhibit 10.31 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 17, 2000).*
26
REGULATION S-K EXHIBIT NUMBER DESCRIPTION - -------------- ----------- .32 Agreement and Plan of Reorganization, dated as of May 16, 2000, by and among The TriZetto Group, Inc., Elbejay Acquisition Corp., IMS Health Incorporated and Erisco Managed Care Technologies, Inc. (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K, filed May 17, 2000). .33 Stockholder Agreement, dated as of October 2, 2000, by and between The TriZetto Group, Inc. and IMS Health Incorporated (incorporated by reference to Exhibit C to the Registrant's Schedule 13D/A2 filed October 6, 2000). .34 Registration Rights Agreement, dated as of October 2, 2000, by and between The TriZetto Group, Inc. and IMS Health Incorporated (incorporated by reference to Exhibit D to the Registrant's Schedule 13D/A2 filed October 6, 2000). .35 Distribution Agreement between IMS Health Incorporated and Synavant Inc., dated August 31, 2000 (incorporated by reference to Exhibit 2.1 to the Registrant's Current Report on Form 8-K filed September 15, 2000). .36 Xponent Data License Agreement between IMS Health Incorporated and Synavant Inc. dated August 31, 2000 (incorporated by reference to Exhibit 2.2 to the Registrant's Current Report on Form 8-K filed September 15, 2000). .37 Cross License Agreement between IMS Health Incorporated and Synavant Inc. dated August 31, 2000 (incorporated by reference to Exhibit 2.3 to the Registrant's Current Report on Form 8-K filed September 15, 2000). .38 Tax Allocation Agreement between IMS Health Incorporated and Synavant Inc. dated August 31, 2000 (incorporated by reference to Exhibit 2.4 to the Registrant's Current Report on Form 8-K filed September 15, 2000). .39 Employee Benefits Agreement between IMS Health Incorporated and Synavant Inc. dated August 31, 2000 (incorporated by reference to Exhibit 2.5 to the Registrant's Current Report on Form 8-K filed September 15, 2000). .40 Credit Support Letter, dated July 25, 2000, between IMS Health Incorporated and Synavant Inc. (incorporated by reference to Exhibit 2.11 to the Registrant's Current Report on Form 8-K filed September 15, 2000). .41 IMS Health Incorporated U.S. Executive Retirement Plan (As amended and restated effective April 17, 2001).*+ .42 Amended and Restated Amendment dated as of January 15, 2001 to the Amended and Restated Employment Agreement by and between IMS Health Incorporated and Robert E. Weissman, dated as of January 1, 2000 (incorporated by reference to Exhibit 10.42 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).* .43 Amended and Restated Amendment dated as of January 15, 2001 to the Amended and Restated Employment Agreement by and between IMS Health Incorporated and Victoria R. Fash, dated as of January 1, 2000 (incorporated by reference to Exhibit 10.43 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).* .44 Amended and Restated Employment Agreement by and between IMS Health Incorporated and David M. Thomas effective as of November 14, 2000 (incorporated by reference to Exhibit 10.44 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).* .45 Employment Agreement by and between IMS Health Incorporated and Gilles Pajot effective as of November 14, 2000 (incorporated by reference to Exhibit 10.45 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).* .46 Employment Agreement by and between IMS Health Incorporated and James C. Malone effective as of November 14, 2000 (incorporated by reference to Exhibit 10.46 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).*
27
REGULATION S-K EXHIBIT NUMBER DESCRIPTION - -------------- ----------- .47 Employment Agreement by and between IMS Health Incorporated and Robert H. Steinfeld effective as of November 14, 2000 (incorporated by reference to Exhibit 10.47 to Registrant's Annual Report on Form 10-K for the year ended December 31, 2000 filed on March 30, 2001).* .48 1998 IMS Health Incorporated Employee Stock Purchase Plan (As amended and restated as of December 19, 2000).*+ .49 IMS Health Incorporated 2000 Stock Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant's Current Report of Form S-8 filed January 16, 2001).* .50 IMS Health Incorporated Long-Term Incentive Program (incorporated by reference to Exhibit 10.1 to the Registrant's Quarterly Report on Form 10Q for the quarter ending June 30, 2001).* .51 Rules of The IMS Health Incorporated 2001 Inland Revenue Approved Sub-Plan For United Kingdom Employees Adopted by the Company on October 16, 2001.+ 13 2001 Annual Report to Shareholders.+ 21 List of Active Subsidiaries as of December 31, 2001.+ 23 Consent of Independent Accountants.+
- -------------------------- * Management contract or compensatory plan or arrangement + Filed herewith 28 EX-10.6 3 a2068479zex-10_6.txt EXHIBIT 10.6 Exhibit 10.6 1998 IMS HEALTH INCORPORATED NON-EMPLOYEE DIRECTORS' DEFERRED COMPENSATION PLAN AS AMENDED AND RESTATED THROUGH DECEMBER 18, 2001 1. PURPOSE OF THE PLAN The purpose of the Plan is to enhance the Company's ability to attract and retain talented individuals to serve as members of the Board and to promote a greater alignment of interests between non-employee directors and the shareholders of the Company. 2. DEFINITIONS The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) Act: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) Annual Deferral Amount: As such term is defined in Section 5(a) of the Plan. (c) Award: A Deferred Share Unit, Stock Option or Deferred Cash granted pursuant to the Plan. (d) Beneficial Owner: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (e) Board: The Board of Directors of the Company. (f) Change in Control: The occurrence of any of the following events: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(f)(i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (g) Code: The Internal Revenue Code of 1986, as amended, or any successor thereto. (h) Cognizant: Cognizant Corporation, a Delaware corporation. (i) Committee: The Compensation and Benefits Committee of the Board. (j) Company: IMS Health Incorporated, a Delaware corporation. (k) Deferred Cash: A bookkeeping entry credited in accordance with an election made by a Participant pursuant to Section 5 of the Plan. (l) Deferred Share Unit: A bookkeeping entry, equivalent in value to one Share, credited in accordance with an election made by a Participant pursuant to Section 5 of the Plan. (m) Determination Date: As such term is defined in Section 6 of the Plan. (n) Effective Date: The date on which the Plan takes effect, as defined pursuant to Section 13 of the Plan. (o) Election Date: The date on which a Participant files an election with the Secretary of the Company pursuant to Section 5 of the Plan. (p) Fair Market Value: On a given date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the National Association of Securities Dealers Automated Quotation System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. (q) First Trading Date: The first date on which the Shares are traded regular way on the principal national securities exchange on which such Shares are listed or admitted to trading. (r) Participant: Any director of the Company who is not an employee of the Company or any Subsidiary of the Company (i) as of any Election Date and (ii) during any years of service covered by the election made on such Election Date. (s) Person: As such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto). (t) Plan: The 1998 IMS Health Incorporated Non-Employee Directors' Deferred Compensation Plan, as amended and restated. (u) Plan Interest Rate: The rate of interest per annum, as determined from time to time by the Company's Chief Financial Officer, in effect and applicable to Deferred Cash for a given year or other period specified by the Chief Financial Officer. The Chief Financial Officer will base the Plan Interest Rate upon the prime interest rate(s) then generally in effect, or upon such other prevailing interest rates or other factors deemed relevant by the Chief Financial Officer in his or her sole discretion, and will announce the Plan Interest Rate in advance of the period in which it will be in effect. (v) Shares: Shares of common stock, par value $0.01 per Share, of the Company. (w) Spinoff Date: The date on which the Shares that are owned by Cognizant are distributed to the holders of record of shares of Cognizant. (x) Stock Option: A non-qualified stock option granted in accordance with an election made by a Participant pursuant to Section 5 of the Plan. (y) Stock Option Value: The value assigned to a Stock Option to purchase one share, for purposes of determining the number of Shares to be subject to a Stock Option granted in lieu of payment of an Annual Deferral Amount (or specified portion thereof) under Section 5(c). The Stock Option Value shall be determined from time to time by the Committee, based on a reasonable valuation methodology selected by the Committee, and shall remain in effect until changed by the Committee. Initially and until changed by the Committee, the Stock Option Value shall be deemed to be one-third of the Fair market Value of one Share on the date the Stock Option is granted. (z) Subsidiary: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 3. ADMINISTRATION The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). The foregoing notwithstanding, the Board may exercise any power or perform any function of the Committee, in which case any applicable reference to "Committee" herein shall be deemed to refer to the Board. 4. ELIGIBILITY All Participants shall be eligible to participate under this Plan. 5. VOLUNTARY DEFERRAL OF CASH COMPENSATION A Participant may voluntarily elect to defer his or her cash compensation (including, but not limited to, annual retainer, board meeting fees, committee meeting fees and committee chairman fees) in the following manner: (a) METHOD OF ELECTION. In order to make a voluntary election pursuant to the Plan, the Participant must complete and deliver to the Secretary of the Company a written election, not later than 30 days after the date on which he or she commences service as a director of the Company or, in subsequent years, not later than the anniversary of the normal commencement date for such director's term (or such other deadline as may be specified by the Company, provided that such deadline shall be established so as to ensure effective tax deferral by the Participant), designating (i) the portion of his or her cash compensation for a year of service as a director that is to be deferred (the "Annual Deferral Amount") and (ii) the portion of the Annual Deferral Amount that is to be deferred into (A) Deferred Share Units and/or (B) Stock Options and/or (C) Deferred Cash. Such an election shall only be effective with respect to (i) the annual retainer and (ii) any other fees earned after the date of the election. Such election shall remain effective for all future years of service unless the Participant makes a new valid election in a subsequent year. (b) DEFERRED SHARE UNITS. If a Participant elects to defer his or her Annual Deferral Amount into Deferred Share Units, such Participant will have Deferred Share Units credited (as of each date on which his or her cash compensation would otherwise have been paid) to a Deferred Share Unit account maintained for him or her on the books of the Company. The number of Deferred Share Units (including fractional Deferred Share Units) to be credited shall be determined by dividing (i) the amount of cash compensation to be deferred into Deferred Share Units by (ii) the Fair Market Value of one Share on the date credited. Deferred Share Units shall be credited with dividend equivalents when dividends are paid on Shares, and such dividend equivalents shall be converted into additional Deferred Share Units based on the Fair Market Value of Shares on the date credited. Notwithstanding anything to the contrary in this Section 5(b), the Fair Market Value of one Share on any date prior to the First Trading Date shall be the Fair Market Value of one Share on the First Trading Date. (c) STOCK OPTIONS. If a Participant elects to defer his or her Annual Deferral Amount into Stock Options, such Participant will receive a grant of a Stock Option as of each date on which his or her cash compensation would otherwise have been paid. The number of Shares purchasable under the Option (rounded to the nearest whole Share) will be determined by dividing (i) the amount of cash compensation to be deferred into Stock Options by (ii) the Stock Option Value then in effect. The Stock Option (i) will have an exercise price per Share equal to 100% of the Fair Market Value of a Share at the date of grant, (ii) will have a stated expiration date of seven years after the date of grant, (iii) will be non-forfeitable, and (iv) will become exercisable on the first anniversary of the date of grant. The foregoing notwithstanding, the Stock Option will become exercisable immediately prior to a Change in Control or in the event of the termination of the Participant's service as a director due to death or disability. (d) DEFERRED CASH. If a Participant makes a voluntary election to defer his or her Annual Deferral Amount into Deferred Cash, such Participant will have Deferred Cash credited, as of each date on which his or her cash compensation would otherwise have been paid, to a Deferred Cash account maintained for him or her on the books of the Company. The amount of Deferred Cash to be credited shall equal the amount of cash compensation to be deferred into Deferred Cash. A Participant's account shall be credited with additional Deferred Cash equal to the amount of notional interest earned on the account, assuming that such interest is earned at the Plan Interest Rate and compounded on an annual basis. 6. TERMINATION OF BOARD SERVICE No later than the first business day of the calendar year immediately following the date on which a Participant terminates service with the Company (the "Determination Date"), the Participant shall receive (a) a lump sum payment in Shares equal in number to the Deferred Share Units credited to the Participant's Deferred Share Unit account (provided, however, that any fractional Shares shall be paid in cash based on the Fair Market Value of a Share as of the Determination Date) and (b) a lump sum payment in cash equal to the Deferred Cash credited to the Participant's Deferred Cash account. 7. NONTRANSFERABILITY OF AWARDS AND RIGHTS UNDER THE PLAN Awards and related rights under the Plan shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, Awards shall be payable only to or exercisable only by such Participant. Deferred Share Units and Deferred Cash payable after the death of a Participant may be paid to the legatees, personal representatives or distributees of the Participant, and a Stock Option may be transferred to and thereafter exercised by the legatees, personal representatives or distributees of the Participant after the Participant's death. The foregoing notwithstanding, the Committee may permit a transfer of Stock Options in connection with the Participant's estate planning, subject to such terms and conditions as the Committee may specify. 8. UNFUNDED PLAN Unless otherwise determined by the Committee, the Plan shall be unfunded. To the extent any individual holds any rights by virtue of an Award granted under the Plan, such rights (unless otherwise determined by the Committee) shall be no greater than the rights of an unsecured general creditor of the Company. 9. ADJUSTMENTS UPON CERTAIN EVENTS Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to Awards. (a) GENERALLY. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to stockholders of Shares other than regular cash dividends, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to any Deferred Share Units or Stock Options granted under the Plan. (b) CHANGE IN CONTROL. In the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Awards (including, without limitation, (i) the acceleration of Awards (not otherwise vested or exercisable upon the Change in Control), (ii) the payment of a cash amount in exchange for the cancellation of Awards and/or (iii) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control. 10. SUCCESSORS AND ASSIGNS The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors. 11. AMENDMENTS OR TERMINATION The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which would impair the rights of any Participant under any Awards theretofore granted without such Participant's consent. 12. CHOICE OF LAW The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 13. EFFECTIVENESS OF THE PLAN The Plan shall be effective as of the Spinoff Date. EX-10.7 4 a2068479zex-10_7.txt EXHIBIT 10.7 EXHIBIT 10.7 1998 IMS HEALTH INCORPORATED EMPLOYEES' STOCK INCENTIVE PLAN (As amended and restated effective October 16, 2001) 1. PURPOSE OF THE PLAN The purpose of the Plan is to aid the Company and its Subsidiaries in securing and retaining employees of outstanding ability and to motivate such employees to exert their best efforts on behalf of the Company and its Subsidiaries by providing incentives through the granting of Awards. The Company expects that it will benefit from the added interest which such employees will have in the welfare of the Company as a result of their proprietary interest in the Company's success. 2. DEFINITIONS The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) ACT: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) ANNUAL LIMIT: The limitation on the amount of certain Awards intended to qualify as "performance-based compensation" that may be granted to a given Participant each year. (c) AWARD: An Option, Stock Appreciation Right or Other Stock-Based Award granted pursuant to the Plan. (d) BENEFICIAL OWNER: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (e) BOARD: The Board of Directors of the Company. (f) CHANGE IN CONTROL: The occurrence of any of the following events after Effective Date: (i) any Person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(f) (i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board determines that a Change in Control shall be deemed to have occurred for purposes of the Plan, provided that the Board may impose limitations on the effects of a Change in Control on any Award or otherwise if the Change in Control has occurred under this Section 2(f)(v) and not under other subsections of this Section 2(f). (g) CODE: The Internal Revenue Code of 1986, as amended, or any successor thereto. (h) COGNIZANT: Cognizant Corporation, a Delaware corporation. (i) COMMITTEE: The Compensation and Benefits Committee of the Board. (j) COMPANY: IMS Health Incorporated, a Delaware corporation. 2 (k) DISABILITY: Inability of a Participant to perform the services for the Company and its Subsidiaries required by his or her employment with the Company due to any medically determinable physical and/or mental incapacity or disability which is permanent. The determination whether a Participant has suffered a Disability shall be made by the Committee based upon such evidence as it deems necessary and appropriate. A Participant shall not be considered disabled unless he or she furnishes such medical or other evidence of the existence of the Disability as the Committee, in its sole discretion, may require. (l) EFFECTIVE DATE: The date on which the Plan takes effect, as defined pursuant to Section 17 of the Plan. (m) FAIR MARKET VALUE: With respect to Shares, unless otherwise determined by the Committee, on a given date, the arithmetic mean of the high and low prices of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on such date, then on the principal national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic mean of the per Share closing bid price and per Share closing asked price on such date as quoted on the Nasdaq System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the Nasdaq System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. (n) LSAR: A limited stock appreciation right granted pursuant to Section 8(d) of the Plan. (o) OTHER STOCK-BASED AWARDS: Awards granted pursuant to Section 9 of the Plan. (p) OPTION: A stock option granted pursuant to Section 7 of the Plan. (q) OPTION PRICE: The purchase price per Share of an Option, as determined pursuant to Section 7(a) of the Plan. (r) PARTICIPANT: An individual who is selected by the Committee to participate in the Plan pursuant to Section 5 of the Plan. (s) PERFORMANCE-BASED AWARDS: Certain Other Stock-Based Awards granted pursuant to Section 9(b) of the Plan. (t) PERSON: As such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto). 3 (u) PLAN: The 1998 IMS Health Incorporated Employees' Stock Incentive Plan. (v) RETIREMENT: Termination of employment with the Company or a Subsidiary after such Participant has attained age 65 or age 55 and five years of service with the Company. The foregoing notwithstanding, the term "Retirement" shall mean any termination of employment with the prior written consent of the Committee that the termination be treated as a Retirement. (w) SHARES: Shares of common stock, par value $0.01 per Share, of the Company. (x) SPINOFF DATE: The date on which the Shares that are owned by Cognizant are distributed to the holders of record of shares of Cognizant. (y) STOCK APPRECIATION RIGHT: A stock appreciation right granted pursuant to Section 8 of the Plan. (z) SUBSIDIARY: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 3. SHARES SUBJECT TO THE PLAN (a) AGGREGATE SHARE LIMITATIONS. Subject to adjustment as provided in Section 10(a), the total number of Shares which may be issued and/or delivered under the Plan is 29,783,765 plus the number of Shares reserved for awards under the IMS Health Incorporated Replacement Plan for Certain Employees Holding Cognizant Corporation Equity-Based Awards (the "Replacement Plan") that are not in fact issued or delivered in connection with such awards; provided however, that in no event may more than 1,000,000 shares be issued as restricted stock or similar Awards. The Shares may consist, in whole or in part, of authorized and unissued Shares or treasury Shares. Shares subject to an Award under the Plan that is canceled, expired, forfeited, settled in cash, or otherwise terminated without a delivery of Shares to the Participant (or a Beneficiary), including the number of Shares withheld or surrendered in payment of any exercise or purchase price of an Award or taxes relating to an Award, will become available for Awards under the Plan, and Shares shall be counted as issued or delivered under the Replacement Plan in a manner consistent with the counting of Shares under this Section 3. In addition, in the case of any Award granted in substitution for awards of a company or business acquired by the Company or a Subsidiary, Shares issued or issuable in connection with such substitute Award shall not be counted against the number of Shares reserved under the Plan, but shall be deemed to be available under the Plan by virtue of the Company's assumption of the plan or arrangement of the acquired company or business. (b) ANNUAL PER-PERSON LIMITATIONS. In each calendar year during any part of which the Plan is in effect, a Participant may be granted Awards under each of Section 7, Section 8, and Section 9(b) relating to up to the Participant's Annual Limit (such Annual Limit to apply separately to each Section). A Participant's Annual Limit, in any year during any part of which the Participant is then eligible under the Plan, shall equal 1,000,000 shares plus the amount of the Participant's unused Annual Limit as of the close of the previous year, subject to adjustment as provided in Section 10(a). 4 4. ADMINISTRATION (a) The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are each "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto) and "outside directors" within the meaning of Section 162(m) of the Code (or any successor section thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). The Committee shall require payment of any amount it may determine to be necessary to withhold for minimum statutory withholding requirements for federal, state, local or other taxes as a result of the exercise or settlement of an Award. Unless the Committee specifies otherwise, the Participant may elect to pay a portion or all of such withholding taxes by (a) delivery in shares or (b) having shares withheld by the Company from any shares that would have otherwise been received by the Participant. No authority to withhold shares is conferred under the Plan to the extent that, solely due to such authority, an Award would be accounted for as a "variable" award under APB 25. The Committee may, in its discretion, grant Awards either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any subsidiary, or any business entity to be acquired by the Company or a subsidiary, or any other right of a Participant to receive payment from the Company or any subsidiary. The Committee may delegate to officers of the Company, or committees thereof, the authority to grant awards to the fullest extent permitted by Section 157 and other applicable provisions of the Delaware General Corporation Law, subject to such rules as the Committee may specify. In furtherance of this delegation of authority, if the chief executive officer of the Company is a member of the Board, the chief executive officer shall have the authority to grant Awards of up to an aggregate of 50,000 Shares (or such other amount as may be specified by the Committee) in each calendar year to each Participant who is not subject to the rules promulgated under Section 16 of the Act (or any successor section thereto); PROVIDED, HOWEVER, that such chief executive officer shall notify the Committee of any such grants made pursuant to delegated authority under this Section 4(a). (b) Without the prior approval of the Company's stockholders, Options granted under the Plan will not be repriced, replaced or regranted through cancellation, or by lowering the Option exercise price of a previously granted Option. 5. ELIGIBILITY Employees (but not members of the Committee or any person who serves only as a director) of the Company and its Subsidiaries are eligible to be granted Awards. In addition, any person who has been offered employment by the Company or a Subsidiary is eligible to be granted Awards, provided that no such person may receive any payment or exercise any right relating to an Award until such person has commenced such employment. Participants shall be selected from time to time by the Committee, in its sole discretion, from among those eligible, and the Committee shall determine, in its sole discretion, the number of Shares to be covered by the Awards granted to each Participant. 5 6. LIMITATIONS (a) In addition to any per-Participant limitation on the number of shares to be subject to awards that may be applicable under the 1998 ESIP or 2000 SIP or may otherwise be specified by this Committee, the maximum number of options or other awards that may be granted by all officers to whom authority has been delegated shall be 1 million shares in any one fiscal year under each such Plan plus the number of shares specifically approved for awards to be granted under delegated authority in that year, as specified in separate resolutions from time to time adopted by this Committee. (b) Only employees of the Corporation or a subsidiary of the Corporation may be granted awards pursuant to delegated authority, and other limitations on the persons to whom awards may be granted shall apply as specified by the Plan or the Committee. For this purpose, however, a person who, at the time of commencement of employment will become a director or executive officer of the Corporation and who will be granted awards at that time shall not be deemed to be subject to Section 16 for purposes of the delegation of authority under Section 4(a) of the 1998 ESIP. (c) Subject to the limitations specified in the Plans and any resolutions of the Committee, the officers to whom authority to grant awards under the Plans is delegated may determine the persons to receive the awards, the type of awards, the number of awards, and the date of grant of the awards. Such officers shall exercise no discretion over other terms of the awards. The exercise price of any option granted pursuant to delegated authority shall be 100% of Fair Market Value of the underlying shares at the date of grant, unless otherwise determined by this Committee. No cash consideration shall be payable for the grant or exercise of any restricted stock units or similar awards, except to the extent required by law or as otherwise determined by this Committee. Vesting terms, forfeiture terms, expiration dates, and other terms and conditions of any option or award granted pursuant to delegated authority shall be as specified in the applicable Plan and the form of option or award agreement in current use under the applicable Plan for an employee of the same employment or compensation level, unless otherwise determined by the Committee. (d) No grant of restricted stock may be made pursuant to delegated authority (restricted stock units may be granted, however). (e) No officer to whom authority has been delegated may participate in the grant of an option or award to himself or herself. (f) All other applicable limitations on delegated authority under Section 157(c) and other provisions of the DGCL shall apply to officers acting pursuant to delegated authority under the Plans. (g) No Award may be granted under the Plan after the tenth anniversary of the Effective Date, but Awards theretofore granted may extend beyond that date. 7. TERMS AND CONDITIONS OF OPTIONS Options granted under the Plan shall be, as determined by the Committee, non-qualified, incentive or other stock options for federal income tax purposes, as evidenced by the related Award agreements, and shall be subject to the foregoing and the following 6 terms and conditions and to such other terms and conditions, not inconsistent therewith, as the Committee shall determine: (a) OPTION PRICE. The Option Price per Share shall be determined by the Committee, but shall not be less than 100% of the Fair Market Value of the Shares on the date an Option is granted. The Committee may require the Participant to pay a portion of the Option Price at the time of grant of the option, with the remainder of the Option Price payable upon exercise of the Option. Such prepayment of the Option Price shall be non-refundable except to the extent set forth in a Participant's original option agreement. (b) EXERCISABILITY. Options granted under the Plan shall be exercisable at such time and upon such terms and conditions as may be determined by the Committee, but in no event shall an Option be exercisable more than ten years after the date it is granted. (c) EXERCISE OF OPTIONS. Except as otherwise provided in the Plan or in an Award agreement, an Option may be exercised for all, or from time to time any part, of the Shares for which it is then exercisable. For purposes of Section 7 of the Plan, the exercise date of an Option shall be the later of the date a notice of exercise is received by the Company and, if applicable, (A) the date payment is received by the Company pursuant to clauses (i), (ii) or (iii) in the following sentence, or (B) the date of sale by a broker of all or a portion of the Shares being purchased pursuant to clause (iv) in the following sentence. Unless otherwise determined by the Committee, the Option Price for the Shares as to which an Option is exercised shall be paid to the Company in full not later than the time of exercise at the election of the Participant (i) in cash, (ii) in Shares having a Fair Market Value equal to the aggregate unpaid Option Price for the Shares being purchased and satisfying such other requirements as may be imposed by the Committee, (iii) partly in cash and partly in such Shares, or (iv) through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Option Price for the Shares being purchased. The Award agreement shall, unless otherwise provided by the Committee, permit the Participant to elect, subject to such terms and conditions as the Committee shall determine, to have the number of Shares deliverable to the Participant as a result of the exercise reduced by a number sufficient to pay the amount the Company determines to be necessary to withhold for federal, state, local or other taxes as a result of the exercise of the Option. No Participant shall have any rights to dividends or other rights of a stockholder with respect to Shares subject to an Option until the Participant has given written notice of exercise of the Option, paid in full for such Shares and, if applicable, has satisfied any other conditions imposed by the Committee pursuant to the Plan. (d) RESTRICTIONS ON SHARES ISSUED UPON EXERCISE; OTHER CONDITIONS. If and to the extent so determined by the Committee, Shares issued upon exercise of an Option may be subject to limitations on transferability, risks of forfeiture, deferral of delivery, or such other terms and conditions as the Committee may impose, subject to Section 14(b). Such terms and conditions may include required forfeiture of Options or gains realized upon exercise thereof, for a specified period after exercise, in the event the Participant fails to comply with conditions relating to non-competition, non-disclosure, non-solicitation or non-interference with employees, suppliers, or customers, and non-disparagement and other conditions specified by the Committee. (e) EXERCISABILITY UPON TERMINATION OF EMPLOYMENT BY DEATH OR DISABILITY. If a Participant's employment with the Company and its Subsidiaries terminates by reason by death or Disability after the date of grant of an Option, (i) the unexercised portion of such Option shall immediately vest in full (i.e., become non-forfeitable) and (ii) such portion may 7 thereafter be exercised during the shorter of (A) the remaining stated term of the Option or (B) five years after the date of death or Disability. (f) EXERCISABILITY UPON TERMINATION OF EMPLOYMENT BY RETIREMENT. If a Participant's employment with the Company and its Subsidiaries terminates by reason of Retirement after the date of grant of an Option, the Participant's unexercised Option may thereafter be exercised only during the period ending at the earlier of five years after such Retirement or the stated expiration date of such Option (the "Post-Retirement Exercise Period"), provided that such Option shall be exercisable during such Post-Retirement Exercise Period only to the extent such Option was exercisable at the time of such Retirement. The foregoing notwithstanding, (i) the Committee may, in its sole discretion, accelerate the vesting of the unvested portion of such Option held by a Participant upon such Participant's Retirement, in which case such Option shall not be forfeited as provided herein but thereafter shall become exercisable to the extent and at such times as such portion of the Option would have become both vested and exercisable during the Post-Retirement Exercise Period had the Participant's employment not been terminated, unless the Committee specifies otherwise; and (ii), if a Participant dies within a period of five years after such Retirement, the Participant's unexercised Option (to the extent not previously forfeited) may thereafter be exercised during the shorter of (i) the remaining stated term of the Option or (ii) the period that is the longer of (A) five years after the date of such termination of employment or (B) one year after the date of death. (g) EFFECT OF OTHER TERMINATION OF EMPLOYMENT. If a Participant's employment with the Company and its Subsidiaries terminates for any reason other than death, Disability or Retirement after the date of grant of an Option as described above, the Participant's unexercised Option may thereafter be exercised during the period ending 90 days after the date of such termination of employment, but only to the extent such Option was exercisable at the time of such termination of employment, and in no event may such Option be exercised after its stated expiration date. The foregoing notwithstanding, the Committee may, in its sole discretion, accelerate the vesting of unvested Options held by a Participant or specify post-termination exercise periods longer than 90 days, but not extending past the Option's stated expriation date, provided that this authority shall not apply if such Participant is terminated from employment for "cause" (as such term is defined by the Committee in its sole discretion) by the Company. 8. TERMS AND CONDITIONS OF STOCK APPRECIATION RIGHTS (a) GRANTS. The Committee also may grant (i) a Stock Appreciation Right independent of an Option or (ii) a Stock Appreciation Right in connection with an Option, or a portion thereof. A Stock Appreciation Right granted pursuant to clause (ii) of the preceding sentence (A) may be granted at the time the related Option is granted or at any time prior to the exercise or cancellation of the related Option, (B) shall cover the same Shares covered by an Option (or such lesser number of Shares as the Committee may determine) and (C) shall be subject to the same terms and conditions as such Option except for such additional limitations as are contemplated by this Section 8 (or such additional limitations as may be included in an Award agreement). (b) TERMS. The exercise price per Share of a Stock Appreciation Right shall be an amount determined by the Committee but in no event shall such amount be less than the greater of (i) the Fair Market Value of a Share on the date the Stock Appreciation Right is granted or, in the case of a Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, the Option Price of the related Option and (ii) an amount 8 permitted by applicable laws, rules, by-laws or policies of regulatory authorities or stock exchanges. Each Stock Appreciation Right granted independent of an Option shall entitle a Participant upon exercise to an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the exercise price per Share, times (ii) the number of Shares covered by the Stock Appreciation Right. Each Stock Appreciation Right granted in conjunction with an Option, or a portion thereof, shall entitle a Participant to surrender to the Company the unexercised Option, or any portion thereof, and to receive from the Company in exchange therefor an amount equal to (i) the excess of (A) the Fair Market Value on the exercise date of one Share over (B) the Option Price per Share, times (ii) the number of Shares covered by the Option, or portion thereof, which is surrendered. The date a notice of exercise is received by the Company shall be the exercise date. Payment shall be made in Shares or in cash, or partly in Shares and partly in cash, valued at such Fair Market Value, all as shall be determined by the Committee. Stock Appreciation Rights may be exercised from time to time upon actual receipt by the Company of written notice of exercise stating the number of Shares subject to an exercisable Option with respect to which the Stock Appreciation Right is being exercised. No fractional Shares will be issued in payment for Stock Appreciation Rights, but instead cash will be paid for a fraction or, if the Committee should so determine, the number of Shares will be rounded downward to the next whole Share. (c) LIMITATIONS. The Committee may impose, in its discretion, such conditions upon the exercisability or transferability of Stock Appreciation Rights as it may deem fit. (d) LIMITED STOCK APPRECIATION RIGHTS. The Committee may grant LSARs that are exercisable upon the occurrence of specified contingent events. Such LSARs may provide for a different method of determining appreciation, may specify that payment will be made only in cash and may provide that any related Awards are not exercisable while such LSARs are exercisable. Unless the context otherwise requires, whenever the term "Stock Appreciation Right" is used in the Plan, such term shall include LSARs. 9. OTHER STOCK-BASED AWARDS (a) GENERALLY. The Committee, in its sole discretion, may grant Awards of Shares, Awards of restricted Shares and Awards that are valued in whole or in part by reference to, or are otherwise based on the Fair Market Value of, Shares ("Other Stock-Based Awards"). Such Other Stock-Based Awards shall be in such form, and dependent on such conditions, as the Committee shall determine, including, without limitation, the right to receive one or more Shares (or the equivalent cash value of such Shares) as an outright bonus or upon the completion of a specified period of service, the occurrence of an event and/or the attainment of performance objectives. Other Stock-Based Awards may be granted alone or in addition to any other Awards granted under the Plan. Subject to the provisions of the Plan, the Committee shall determine to whom and when Other Stock-Based Awards will be made, the number of Shares to be awarded under (or otherwise related to) such Other Stock-Based Awards; whether such Other Stock-Based Awards shall be settled in cash, Shares or a combination of cash and Shares; and all other terms and conditions of such Awards (including, without limitation, the vesting provisions thereof). Cash awards, as an element of or supplement to any other Award under the Plan, may also be granted pursuant to this Section 9(a). In addition, the Committee is authorized to grant dividend equivalents to a Participant, entitling the Participant to receive cash, Shares, other 9 Awards, or other property equal in value to dividends paid with respect to a specified number of Shares, or other periodic payments. Dividend equivalents may be awarded on a free-standing basis or in connection with another Award. The Committee may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Shares, Awards, or other investment vehicles, subject to such restrictions on transferability and risks of forfeiture as the Committee may specify. (b) PERFORMANCE-BASED AWARDS. Notwithstanding anything to the contrary herein, certain Other Stock-Based Awards granted under this Section 9 may be granted in a manner which is deductible by the Company without limitation under Section 162(m) of the Code (or any successor section thereto) ("Performance-Based Awards"). A Participant's Performance-Based Award shall be determined based on the attainment of written performance goals approved by the Committee for a performance period established by the Committee (i) while the outcome for that performance period is substantially uncertain and (ii) no more than 90 days after the commencement of the performance period to which the performance goal relates or, if less, the number of days which is equal to 25 percent of the relevant performance period. The performance goals, which must be objective, shall be based upon one or more of the following criteria: (i) consolidated earnings before or after taxes (including earnings before interest, taxes, depreciation and amortization); (ii) net income; (iii) operating income; (iv) earnings per share; (v) book value per share; (vi) return on stockholders' equity; (vii) expense management; (viii) return on investment; (ix) improvements in capital structure; (x) profitability of an identifiable business unit or product; (xi) maintenance or improvement of profit margins; (xii) stock price; (xiii) market share; (xiv) revenues or sales; (xv) costs; (xvi) cash flow; (xvii) working capital; (xviii) economic value added; (xix) return on assets; (xx) total stockholder return (stock price appreciation plus dividends and distributions); (xxi) operating management goals; (xxii) and execution of pre-approved corporate strategy. The foregoing criteria may relate to the Company, one or more of its Subsidiaries or one or more of its divisions or units, or any combination of the foregoing, and may be applied on an absolute basis and/or be relative to one or more peer group companies or indices, or any combination thereof, all as the Committee shall determine. In addition, to the degree consistent with Section 162(m) of the Code (or any successor section thereto), the performance goals may be calculated without regard to extraordinary items. In the case of a Performance-Based Award which is not valued in a way in which the limitation set forth in the final sentence of Section 3 would operate as an effective limitation satisfying Treasury Regulation 1.162-27(e)(4), the maximum amount of a Performance-Based Award to any Participant with respect to performance in a single fiscal year of the Company shall be $5,000,000. The Committee shall determine whether, with respect to a performance period, the applicable performance goals have been met with respect to a given Participant and, if they have, to so certify and ascertain the amount of the applicable Performance-Based Award. No Performance-Based Awards will be paid for such performance period until such certification is made by the Committee. The amount of the Performance-Based Award actually paid to a given Participant may be less than the amount determined by the applicable performance goal formula, at the discretion of the Committee. The amount of the Performance-Based Award determined by the Committee for a performance period shall be paid to the Participant at such time as determined by the Committee in its sole discretion after the end of such performance period; provided, HOWEVER, that a Participant may, if and to the extent permitted by the Committee and consistent with the provisions of Section 162(m) of the Code, elect to defer payment of a Performance-Based Award. 10 10. ADJUSTMENTS UPON CERTAIN EVENTS Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Awards granted under the Plan: (a) GENERALLY. In the event of any change in the outstanding Shares after the Effective Date by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares of other corporate exchange, or any large, special, and non-recurring distribution to Stockholders, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan or pursuant to outstanding Awards, (ii) the Option Price, (iii) the number and kind of Shares by which annual per-person Award limitations are measured under Section 3 hereof and/or (iv) any other affected terms of such Awards (including making provision for the payment of cash, other Awards or other property in respect of any outstanding Award). In addition, the Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards in recognition of unusual or nonrecurring events (including, without limitation, events described in the preceding sentence, as well as acquisitions and dispositions of businesses and assets) affecting the Company, any subsidiary or any business unit, or the financial statements of the Company or any subsidiary, or in response to changes in applicable laws, regulations, accounting principles, tax rates and regulations or business conditions or in view of the Committee's assessment of the business strategy of the Company, any subsidiary or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant; provided that no such adjustment shall be authorized to be made if and to the extent that such authority or the making of such adjustment would cause Options, Stock Appreciation Rights, or Performance Awards granted under Section 9(b) hereof intended to qualify as "performance-based compensation" under Code Section 162(m) and regulations thereunder to otherwise fail to so qualify. (b) CHANGE IN CONTROL. Except as otherwise provided in an Award agreement, in the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Award (including, without limitation, (i) the acceleration of an Award, (ii) the payment of a cash amount in exchange for the cancellation of an Award and/or (iii) the requiring of the issuance of substitute Awards that will substantially preserve the value, rights and benefits of any affected Awards previously granted hereunder) as of the date of the consummation of the Change in Control. 11. NO RIGHT TO EMPLOYMENT The granting of an Award under the Plan shall impose no obligation on the Company or any Subsidiary to continue the employment of a Participant and shall not lessen or affect the Company's or Subsidiary's right to terminate the employment of such Participant. 12. SUCCESSORS AND ASSIGNS The Plan shall be binding on all successors and assigns of the Company and a Participant, including without limitation, the estate of such Participant and the executor, administrator or trustee of such estate, or any receiver or trustee in bankruptcy or representative of the Participant's creditors. 11 13. NONTRANSFERABILITY OF AWARDS An Award shall not be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. During the lifetime of a Participant, an Award shall be exercisable only by such Participant. An Award exercisable after the death of a Participant may be exercised by the legatees, personal representatives or distributees of the Participant. Notwithstanding anything to the contrary herein, the Committee, in its sole discretion, shall have the authority to waive this Section 13 (or any part thereof) to the extent that this Section 13 (or any part thereof) is not required under the rules promulgated under any law, rule or regulation applicable to the Company. 14. AMENDMENTS OR TERMINATION (a) CHANGES TO THE PLAN. The Board may amend, alter or discontinue the Plan, except that (i) any amendment or alteration shall be subject to the approval of the Company's stockholders at or before the next annual meeting of stockholders for which the record date is after the date of such Board action if (x) such stockholder approval is required by any federal or state law or regulation or the rules of any stock exchange or automated quotation system on which the Shares may then be listed or quoted, and the Board may otherwise, in its discretion, determine to submit amendments or alterations to stockholders for approval or (y) such amendment or alteration would materially increase the number of shares reserved for the purposes of the Plan, materially broaden the employees or class of employees eligible to receive Awards under the Plan or materially increase benefits accruing to employees participating in the Plan; (ii) without the consent of a Participant, no amendment or alteration shall materially impair any of the Participant's rights under an Award theretofore granted to such Participant; and (iii) the Committee may amend or alter the Plan in such manner as it deems necessary to permit the granting of Awards meeting requirements of the Code or other applicable laws. Notwithstanding anything to the contrary herein, the Board may not amend, alter or discontinue the provisions relating to Section 10(b) of the Plan after the occurrence of a Change in Control. (b) CHANGES TO OUTSTANDING AWARDS. The Committee may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate any Award theretofore granted and any Award agreement relating thereto, except as otherwise provided in the Plan and except that the Committee may not amend or alter an Award theretofore granted if such action would result in an Award having terms that would not have been authorized or permitted for a new grant or Award under the Plan; provided that, without the consent of an affected Participant, no such Committee action may materially and adversely affect the rights of such Participant under such Award. Other provisions of the Plan notwithstanding, if any right under this Plan would cause a transaction to be ineligible for pooling of interest accounting that would, but for the right hereunder, be eligible for such accounting treatment, the Committee may modify or adjust the right so that pooling of interest accounting shall be available, including the substitution of Shares having a Fair Market Value equal to the cash otherwise payable hereunder for the right which caused the transaction to be ineligible for pooling of interest accounting. 15. INTERNATIONAL PARTICIPANTS With respect to Participants who reside or work outside the United States of America and either who are not (and who are not expected to be) "covered employees" within the meaning of Section 162(m) of the Code or who are granted Awards not intended to qualify as "performance-based compensation" under Section 162(m), the Committee may, in its sole discretion, amend the terms of the Plan or Awards with respect to such Participants in order to conform such terms with local laws, regulations, or customs or 12 otherwise to meet the objectives of the Plan, and may, where appropriate, establish one or more sub-plans to reflect such amended provisions. 16. NONEXCLUSIVITY OF THE PLAN Neither the adoption of the Plan by the Board nor any submission of the Plan, specific Plan terms, or amendments thereto to a vote of stockholders of the Company shall be construed as creating any limitations on the power of the Board to adopt such other compensatory arrangements as it may deem desirable, including, without limitation, the granting of awards otherwise than under the Plan, and such other arrangements may be either applicable generally or only in specific cases. 17. CHOICE OF LAW The Plan shall be governed by and construed in accordance with the laws of the State of New York. 18. EFFECTIVENESS OF THE PLAN The Plan shall be effective as of the Spinoff Date. 13 EX-10.15 5 a2068479zex-10_15.txt EXHIBIT 10.15 EXHIBIT 10.15 [IMS HEALTH LETTERHEAD] TIER-2 CHANGE-IN-CONTROL AGREEMENT FOR CERTAIN EXECUTIVES OF IMS HEALTH INCORPORATED Date PERSONAL AND CONFIDENTIAL [First_Name][Last_Name] [Job_Title] [Company] Dear [First_Name][Last_Name]: IMS Health Incorporated (the "Company") considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that the possibility of a change in ownership or control of the Company may result in the departure or distraction of such personnel to the detriment of the Company and its stockholders. As you are a skilled and dedicated executive with important management responsibilities and talents, the Company believes that its best interests will be served if you are encouraged to remain with the Company. The Company has determined that your ability to perform your responsibilities and utilize your talents for the benefit of the Company, and the Company's ability to retain you as an employee, will be significantly enhanced if you are provided with fair and reasonable protection from the risks of a change in ownership or control of the Company. Accordingly, in order to induce you to remain in the employ of the Company, you and the Company agree as follows: 1. TERM OF AGREEMENT. (a) GENERALLY. Except as provided in Section 1(b) hereof, (i) this Agreement shall be effective as of__________ and shall continue in effect through December 31, 2003, and (ii) commencing on January 1, 2004, and each January 1 thereafter, this Agreement shall be automatically extended for one additional year unless, not later than September 30th of the preceding year, either party to this Agreement gives notice to the other that the Agreement shall not be extended under this Section 1(a); PROVIDED, HOWEVER, that no such notice by the Company shall be effective if a Change in Control or Potential Change in Control (both as defined herein) shall have occurred prior to the date of such notice. (b) UPON A CHANGE IN CONTROL. If a Change in Control shall have occurred at any time during the period in which this Agreement is effective, this Agreement shall continue in effect for (i) the remainder of the month in which the Change in Control occurred and (ii) a term of 24 months beyond the month in which such Change in Control occurred (such entire period hereinafter referred to as the "Protected Period"). 2. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL. (a) A "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the effectiveness of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred. (b) A "Potential Change in Control" shall be deemed to have occurred if: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (c) EMPLOYEE COVENANTS. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control, you will remain in the employ of the 2 Company until the earliest of (i) a date which is 180 days from the occurrence of such Potential Change in Control, (ii) the termination of your employment by reason of Disability (as defined herein) or (iii) the date on which you first become entitled under this Agreement to receive the benefits provided in Section 3(b) hereof. (d) COMPANY COVENANT REGARDING POTENTIAL CHANGE IN CONTROL. In the event of a Potential Change in Control, the Company shall, not later than 15 days thereafter, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential obligations of the Company that would arise assuming consummation of a Change in Control and a subsequent termination of your employment under Section 3(b). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company. 3. TERMINATION. (a) TERMINATION BY THE COMPANY FOR CAUSE, BY YOU WITHOUT GOOD REASON, OR BY REASON OF DEATH OR DISABILITY. If during the Protected Period your employment by the Company is terminated by the Company for Cause, by you without Good Reason, or because of your death or Disability, the Company shall be relieved of its obligation to make any payments to you other than (i) its payment of amounts otherwise accrued and owing but not yet paid and (ii) any amounts payable under then-existing employee benefit programs at the time such amounts are due. (b) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY YOU FOR GOOD REASON. If during the Protected Period your employment by the Company is terminated by the Company without cause or by you for Good Reason, you shall be entitled to the compensation and benefits described in this Section 3(b). If your employment by the Company is terminated prior to a Change in Control at the request of a Person engaging in a transaction or series of transactions that would result in a Change in Control, the Protected Period shall commence upon the subsequent occurrence of a Change in Control, your actual termination shall be deemed a termination occurring during the Protected Period and covered by this Section 3(b), your Date of Termination shall be deemed to have occurred immediately following the Change in Control, and Notice of Termination shall be deemed to have been given by the Company immediately prior to your actual termination. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. The compensation and benefits provided under this Section 3(b) are as follows: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, no later than the fifth day following the Date of Termination, and you shall receive all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due. (ii) At the time specified in Section 3(d) hereof, the Company shall pay you, in lieu of any further salary, bonus or severance payments for periods subsequent to the Date of Termination, a lump sum amount in cash equal to three times the sum of: (A) the greater of (I) your annual base salary in effect immediately prior to the Change in Control of the Company or (II) your annual base salary in effect at the time Notice of Termination is given; and (B) the greater of (I) your annual target bonus for the year in which the Change in Control occurs or, (II) if no such target bonus has yet been determined for such year, your annual target bonus actually earned by you in the year immediately preceding the year in which the Change in Control occurs. (iii) At the time specified in Section 3(d) hereof, the Company shall pay to you, in lieu of amounts which may otherwise be payable to you under any bonus plan (a "Bonus 3 Plan"), an amount in cash equal to (A) your annual target bonus for the year in which the Change in Control occurs, multiplied by a fraction, (I) the numerator of which equals the number of full or partial days in such annual performance period during which you were employed by the Company and (II) the denominator of which is 365, and (B) the entire target bonus opportunity with respect to each performance period in progress under all other Bonus Plans in effect at the time of termination. Notwithstanding the foregoing, this Section 3(b)(iii) shall not apply with respect to any amounts which may otherwise be payable to you under the Company's Senior Executive Incentive Plan or any other Bonus Plan of the Company that applies primarily to "covered employees" within the meaning of Section 162(m) of the Code. (iv) The Company shall provide you with a cash allowance, at the time specified in Section 3(d) hereof, for outplacement and job search activities (including, but not limited to, office and secretarial expenses) in the amount of 20% of your annual base salary and annual target bonus taken into account under Section 3(b)(ii) hereof, PROVIDED THAT (A) such cash allowance shall not exceed $100,000 and (B) such cash allowance shall apply only to those costs or obligations that are incurred by you during the 36-month period following your termination of employment. (v) For a 36-month period following your termination of employment, the Company shall arrange to provide you with life and health insurance benefits no less favorable than those which you were receiving immediately prior to the Notice of Termination. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to any life and health insurance benefits actually received by you in connection with any subsequent employment (or self-employment) during the 36-month period following your termination. (vi) Starting at age 55, you shall receive retiree medical and life benefits from the Company. Such benefits shall be no less favorable than the benefits that you would have received had you, at the time Notice of Termination is given, both (A) attained age 55 and (B) retired from the Company. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to retiree medical and life benefits actually received by you in connection with any subsequent employment (or self-employment) following your termination. (c) EXCISE TAX. In the event you become entitled to any amounts payable in connection with a Change in Control (whether or not such amounts are payable pursuant to this Agreement) (the "Severance Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to you at the time specified in Section 3(d) hereof an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 3(c), shall be equal to the Total Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) any other payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by you such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments and (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying 4 Section 3(c)(i) hereof); and (iii) the value of any non-cash benefits or any deferred payments or benefit shall be determined by a nationally-recognized accounting firm selected by you in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company within ten days after the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. (d) TIME OF PAYMENT. The payments provided for in Sections 3(b)(ii), 3(b)(iii) and 3(c) hereof shall be made not later than the fifteenth day following the Date of Termination; PROVIDED, HOWEVER, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifteenth day after the demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section 3(b)(iv) hereof shall be made not later than the fifteenth day following the submission of each receipt to the Company evidencing costs or obligations incurred by you in connection with outplacement counseling and job search activities. (e) NOTICE. During the Protected Period, any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto. (f) CERTAIN DEFINITIONS. Except as otherwise indicated in this Agreement, all definitions in this Section 3(f) shall be applicable during the Protected Period only. (i) DISABILITY. "Disability" shall mean your absence from the full-time performance of your duties with the Company for six consecutive months as a result of your incapacity due to physical or mental illness or disability, and within 30 days after written Notice of Termination is thereafter given you shall not have returned to the full-time performance of your duties. (ii) CAUSE. "Cause" shall mean termination on account of (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or disability or any failure after the issuance of a Notice of Termination by you for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its subsidiaries, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the 5 Company, monetarily or otherwise. No act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) off the entire membership of the Board at a meeting of the Board (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, you were guilty of conduct set forth above in this Section 3(f)(ii) and specifying the particulars thereof in detail. (iii) GOOD REASON. "Good Reason" shall mean, without your express written consent, the occurrence upon or after a Change in Control of any of the following circumstances unless, in the case of Sections 3(f)(iii)(A), (E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (A) the assignment to you of any duties inconsistent with the position in the Company that you held immediately prior to the Change in Control, or an adverse alteration in the nature or status of your responsibilities or the conditions of your employment from those in effect immediately prior to such Change in Control; (B) a reduction by the Company in your annual base salary, any target bonus or perquisites as in effect immediately prior to the Change in Control or as the same may be increased from time to time except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company; (C) the relocation of the principle place of your employment to a location more than 50 miles from the location of such place of employment on the date of this Agreement; except for required travel on the Company's business to an extent substantially consistent with your business travel obligations prior to the Change in Control; (D) the failure by the Company to pay to you any portion of your compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (E) the failure by the Company to continue in effect any material compensation or benefit plan in which you participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change in Control; (F) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof; or (G) any purported termination of your employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(f)(iv) hereof (and, if applicable, the requirements of Section 3(f)(ii) hereof), which purported termination shall not be effective for purposes of this Agreement. (iv) NOTICE OF TERMINATION. "Notice of Termination" shall mean notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) DATE OF TERMINATION. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that 6 you shall not have returned to the full-time performance of your duties during such 30-day period) or (B) if your employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause, shall not be less than 30 days from the date such Notice of Termination is given and, in the case of a termination for Good Reason, shall not be less than 15 nor more than 60 days from the date such Notice of Termination is given). 4. MITIGATION. Except as provided in Section 3(b)(v) and (vi) hereof, you shall not be required to mitigate the amount of payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment or benefit provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. COSTS OF PROCEEDINGS. The Company shall pay all costs and expenses, including all attorneys' fees and disbursements, of the Company and, at least monthly, you in connection with any legal proceedings, whether or not instituted by the Company or you, relating to the interpretation or enforcement of any provision of this Agreement; PROVIDED THAT if you instituted the proceeding and a finding (no longer subject to appeal) is entered that you instituted the proceeding in bad faith, you shall pay all of your costs and expenses, including attorneys' fees and disbursements. The Company shall pay prejudgment interest on any money judgment obtained by you as a result of such proceeding, calculated at the prime rate of The Chase Manhattan Bank as in effect from time to time from the date that payment should have been made to you under this Agreement. 6. SUCCESSORS; BINDING AGREEMENT. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. In the event of your death, all amounts otherwise payable to you hereunder shall, unless otherwise provided herein, be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. NOTICE. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when (a) personally delivered or (b) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement; PROVIDED THAT all notice to the Company shall be directed to the attention of the Board with a copy to the General Counsel of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such 7 sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under this Agreement shall survive the expiration of this Agreement to the extent necessary to give effect to this Agreement. 9. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the term of this Agreement supersedes the provisions of all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereof with respect to the subject matter contained herein. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Notwithstanding anything to the contrary in this Agreement, the procedural provisions of this Agreement shall apply to all benefits payable as a result of a Change in Control (or other change in control) under any employee benefit plan, agreement, program, policy or arrangement of the Company. 8 If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which will then constitute our agreement on this subject. IMS HEALTH INCORPORATED By: _______________________________________ Chairman and Chief Executive Officer Agreed to this ____________________ day of ____________________________, 2001. - ----------------------------------- [First_Name][Last_Name] 9 [IMS HEALTH LETTERHEAD] TIER 3 CHANGE-IN-CONTROL AGREEMENT FOR CERTAIN EXECUTIVES OF IMS HEALTH INCORPORATED Date PERSONAL AND CONFIDENTIAL [First_Name][Last_Name] [Job_Title] [Company] Dear [First_Name][Last_Name]: IMS Health Incorporated (the "Company") considers it essential to the best interests of its stockholders to foster the continued employment of key management personnel. In this connection, the Board of Directors of the Company (the "Board") recognizes that the possibility of a change in ownership or control of the Company may result in the departure or distraction of such personnel to the detriment of the Company and its stockholders. As you are a skilled and dedicated executive with important management responsibilities and talents, the Company believes that its best interests will be served if you are encouraged to remain with the Company. The Company has determined that your ability to perform your responsibilities and utilize your talents for the benefit of the Company, and the Company's ability to retain you as an employee, will be significantly enhanced if you are provided with fair and reasonable protection from the risks of a change in ownership or control of the Company. Accordingly, in order to induce you to remain in the employ of the Company, you and the Company agree as follows: 1. TERM OF AGREEMENT. (a) GENERALLY. Except as provided in Section 1(b) hereof, (i) this Agreement shall be effective as of__________ and shall continue in effect through December 31, 2003, and (ii) commencing on January 1, 2004, and each January 1 thereafter, this Agreement shall be automatically extended for one additional year unless, not later than September 30th of the preceding year, either party to this Agreement gives notice to the other that the Agreement shall not be extended under this Section 1(a); PROVIDED, HOWEVER, that no such notice by the Company shall be effective if a Change in Control or Potential Change in Control (both as defined herein) shall have occurred prior to the date of such notice. (b) UPON A CHANGE IN CONTROL. If a Change in Control shall have occurred at any time during the period in which this Agreement is effective, this Agreement shall continue in effect for (i) the remainder of the month in which the Change in Control occurred and (ii) a term of 24 months beyond the month in which such Change in Control occurred (such entire period hereinafter referred to as the "Protected Period"). 2. CHANGE IN CONTROL; POTENTIAL CHANGE IN CONTROL. (a) A "Change in Control" shall be deemed to have occurred if, during the term of this Agreement: (i) any "Person," as such term is used for purposes of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the effectiveness of this Agreement), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections (2)(a)(i), (iii) or (iv) hereof, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (v) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Change in Control has occurred. (b) A "Potential Change in Control" shall be deemed to have occurred if: (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any Person (including the Company) publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (iii) the Board adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred. (c) EMPLOYEE COVENANTS. You agree that, subject to the terms and conditions of this Agreement, in the event of a Potential Change in Control, you will remain in the employ of the 2 Company until the earliest of (i) a date which is 180 days from the occurrence of such Potential Change in Control, (ii) the termination of your employment by reason of Disability (as defined herein) or (iii) the date on which you first become entitled under this Agreement to receive the benefits provided in Section 3(b) hereof. (d) COMPANY COVENANT REGARDING POTENTIAL CHANGE IN CONTROL. In the event of a Potential Change in Control, the Company shall, not later than 15 days thereafter, have established one or more rabbi trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential obligations of the Company that would arise assuming consummation of a Change in Control and a subsequent termination of your employment under Section 3(b). Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the event of insolvency or bankruptcy of the Company. 3. TERMINATION. (a) TERMINATION BY THE COMPANY FOR CAUSE, BY YOU WITHOUT GOOD REASON, OR BY REASON OF DEATH OR DISABILITY. If during the Protected Period your employment by the Company is terminated by the Company for Cause, by you without Good Reason, or because of your death or Disability, the Company shall be relieved of its obligation to make any payments to you other than (i) its payment of amounts otherwise accrued and owing but not yet paid and (ii) any amounts payable under then-existing employee benefit programs at the time such amounts are due. (b) TERMINATION BY THE COMPANY WITHOUT CAUSE OR BY YOU FOR GOOD REASON. If during the Protected Period your employment by the Company is terminated by the Company without cause or by you for Good Reason, you shall be entitled to the compensation and benefits described in this Section 3(b). If your employment by the Company is terminated prior to a Change in Control at the request of a Person engaging in a transaction or series of transactions that would result in a Change in Control, the Protected Period shall commence upon the subsequent occurrence of a Change in Control, your actual termination shall be deemed a termination occurring during the Protected Period and covered by this Section 3(b), your Date of Termination shall be deemed to have occurred immediately following the Change in Control, and Notice of Termination shall be deemed to have been given by the Company immediately prior to your actual termination. Your continued employment shall not constitute consent to, or a waiver of rights with respect to, any circumstances constituting Good Reason hereunder. The compensation and benefits provided under this Section 3(b) are as follows: (i) The Company shall pay you your full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, no later than the fifth day following the Date of Termination, and you shall receive all other amounts to which you are entitled under any compensation or benefit plan of the Company, at the time such payments are due. (ii) At the time specified in Section 3(d) hereof, the Company shall pay you, in lieu of any further salary, bonus or severance payments for periods subsequent to the Date of Termination, a lump sum amount in cash equal to two times the sum of: (A) the greater of (I) your annual base salary in effect immediately prior to the Change in Control of the Company or (II) your annual base salary in effect at the time Notice of Termination is given; and (B) the greater of (I) your annual target bonus for the year in which the Change in Control occurs or, (II) if no such target bonus has yet been determined for such year, your annual target bonus actually earned by you in the year immediately preceding the year in which the Change in Control occurs. (iii) At the time specified in Section 3(d) hereof, the Company shall pay to you, in lieu of amounts which may otherwise be payable to you under any bonus plan (a "Bonus 3 Plan"), an amount in cash equal to (A) your annual target bonus for the year in which the Change in Control occurs, multiplied by a fraction, (I) the numerator of which equals the number of full or partial days in such annual performance period during which you were employed by the Company and (II) the denominator of which is 365, and (B) the entire target bonus opportunity with respect to each performance period in progress under all other Bonus Plans in effect at the time of termination. Notwithstanding the foregoing, this Section 3(b)(iii) shall not apply with respect to any amounts which may otherwise be payable to you under the Company's Senior Executive Incentive Plan or any other Bonus Plan of the Company that applies primarily to "covered employees" within the meaning of Section 162(m) of the Code. (iv) The Company shall provide you with a cash allowance, at the time specified in Section 3(d) hereof, for outplacement and job search activities (including, but not limited to, office and secretarial expenses) in the amount of 20% of your annual base salary and annual target bonus taken into account under Section 3(b)(ii) hereof, PROVIDED THAT (A) such cash allowance shall not exceed $100,000 and (B) such cash allowance shall apply only to those costs or obligations that are incurred by you during the 36-month period following your termination of employment. (v) For a 24-month period following your termination of employment, the Company shall arrange to provide you with life and health insurance benefits no less favorable than those which you were receiving immediately prior to the Notice of Termination. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to any life and health insurance benefits actually received by you in connection with any subsequent employment (or self-employment) during the 24-month period following your termination. (vi) Starting at age 55, you shall receive retiree medical and life benefits from the Company. Such benefits shall be no less favorable than the benefits that you would have received had you, at the time Notice of Termination is given, both (A) attained age 55 and (B) retired from the Company. Notwithstanding the foregoing, any benefit described in the preceding sentence shall constitute secondary coverage with respect to retiree medical and life benefits actually received by you in connection with any subsequent employment (or self-employment) following your termination. (c) EXCISE TAX. In the event you become entitled to any amounts payable in connection with a Change in Control (whether or not such amounts are payable pursuant to this Agreement) (the "Severance Payments"), if any of such Severance Payments are subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code (or any similar federal, state or local tax that may hereafter be imposed), the Company shall pay to you at the time specified in Section 3(d) hereof an additional amount (the "Gross-Up Payment") such that the net amount retained by you, after deduction of any Excise Tax on the Total Payments (as hereinafter defined) and any federal, state and local income tax and Excise Tax upon the payment provided for by this Section 3(c), shall be equal to the Total Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax: (i) any other payments or benefits received or to be received by you in connection with a Change in Control or your termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Company, any Person whose actions result in a Change in Control or any Person affiliated with the Company or such Person) (which, together with the Severance Payments, constitute the "Total Payments") shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) of the Code shall be treated as subject to the Excise Tax, unless in the opinion of nationally-recognized tax counsel selected by you such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax; (ii) the amount of the Total Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Total Payments and (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) of the Code (after applying 4 Section 3(c)(i) hereof); and (iii) the value of any non-cash benefits or any deferred payments or benefit shall be determined by a nationally-recognized accounting firm selected by you in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, you shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of your residence on the Date of Termination, net of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of your employment, you shall repay to the Company within ten days after the time that the amount of such reduction in Excise Tax is finally determined the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by you if such repayment results in a reduction in Excise Tax and/or federal and state and local income tax deduction) plus interest on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of your employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Company shall make an additional gross-up payment in respect of such excess within ten days after the time that the amount of such excess is finally determined. (d) TIME OF PAYMENT. The payments provided for in Sections 3(b)(ii), 3(b)(iii) and 3(c) hereof shall be made not later than the fifteenth day following the Date of Termination; PROVIDED, HOWEVER, that if the amount of such payments cannot be finally determined on or before such day, the Company shall pay to you on such day an estimate, as determined in good faith by the Company, of the minimum amount of such payments and shall pay the remainder of such payments (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code) as soon as the amount thereof can be determined but in no event later than the thirtieth day after the Date of Termination. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Company to you, payable on the fifteenth day after the demand by the Company (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). The payments provided in Section 3(b)(iv) hereof shall be made not later than the fifteenth day following the submission of each receipt to the Company evidencing costs or obligations incurred by you in connection with outplacement counseling and job search activities. (e) NOTICE. During the Protected Period, any purported termination of your employment by the Company or by you shall be communicated by written Notice of Termination to the other party hereto. (f) CERTAIN DEFINITIONS. Except as otherwise indicated in this Agreement, all definitions in this Section 3(f) shall be applicable during the Protected Period only. (i) DISABILITY. "Disability" shall mean your absence from the full-time performance of your duties with the Company for six consecutive months as a result of your incapacity due to physical or mental illness or disability, and within 30 days after written Notice of Termination is thereafter given you shall not have returned to the full-time performance of your duties. (ii) CAUSE. "Cause" shall mean termination on account of (A) the willful and continued failure by you to substantially perform your duties with the Company (other than any such failure resulting from your incapacity due to physical or mental illness or disability or any failure after the issuance of a Notice of Termination by you for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its subsidiaries, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to you by the Board, which demand specifically identifies the manner in which the Board believes that you have not substantially performed your duties or (B) the willful engaging by you in conduct which is demonstrably and materially injurious to the 5 Company, monetarily or otherwise. No act, or failure to act, on your part shall be deemed "willful" unless done, or omitted to be done, by you not in good faith and without reasonable belief that your action or omission was in the best interest of the Company. Notwithstanding the foregoing, you shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to you a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) off the entire membership of the Board at a meeting of the Board (after reasonable notice to you and an opportunity for you, together with your counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, you were guilty of conduct set forth above in this Section 3(f)(ii) and specifying the particulars thereof in detail. (iii) GOOD REASON. "Good Reason" shall mean, without your express written consent, the occurrence upon or after a Change in Control of any of the following circumstances unless, in the case of Sections 3(f)(iii)(A), (E), (F) or (G) hereof, such circumstances are fully corrected prior to the Date of Termination specified in the Notice of Termination given in respect thereof: (A) the assignment to you of any duties inconsistent with the position in the Company that you held immediately prior to the Change in Control, or an adverse alteration in the nature or status of your responsibilities or the conditions of your employment from those in effect immediately prior to such Change in Control; (B) a reduction by the Company in your annual base salary, any target bonus or perquisites as in effect immediately prior to the Change in Control or as the same may be increased from time to time except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person in control of the Company; (C) the relocation of the principle place of your employment to a location more than 50 miles from the location of such place of employment on the date of this Agreement; except for required travel on the Company's business to an extent substantially consistent with your business travel obligations prior to the Change in Control; (D) the failure by the Company to pay to you any portion of your compensation or to pay to you any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (E) the failure by the Company to continue in effect any material compensation or benefit plan in which you participated immediately prior to the Change in Control, unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue your participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of your participation relative to other participants, as existed at the time of the Change in Control; (F) the failure of the Company to obtain a satisfactory agreement from any successor to assume and agree to perform this Agreement, as contemplated in Section 6 hereof; or (G) any purported termination of your employment that is not effected pursuant to a Notice of Termination satisfying the requirements of Section 3(f)(iv) hereof (and, if applicable, the requirements of Section 3(f)(ii) hereof), which purported termination shall not be effective for purposes of this Agreement. (iv) NOTICE OF TERMINATION. "Notice of Termination" shall mean notice indicating the specific termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of your employment under the provision so indicated. (v) DATE OF TERMINATION. "Date of Termination" shall mean (A) if your employment is terminated for Disability, 30 days after Notice of Termination is given (provided that 6 you shall not have returned to the full-time performance of your duties during such 30-day period) or (B) if your employment is terminated for any other reason, the date specified in the Notice of Termination (which, in the case of a termination for Cause, shall not be less than 30 days from the date such Notice of Termination is given and, in the case of a termination for Good Reason, shall not be less than 15 nor more than 60 days from the date such Notice of Termination is given). 4. MITIGATION. Except as provided in Section 3(b)(v) and (vi) hereof, you shall not be required to mitigate the amount of payment provided for under this Agreement by seeking other employment or otherwise, nor shall the amount of payment or benefit provided for under this Agreement be reduced by any compensation earned by you as the result of employment by another employer, by retirement benefits, by offset against any amount claimed to be owed by you to the Company, or otherwise. 5. COSTS OF PROCEEDINGS. The Company shall pay all costs and expenses, including all attorneys' fees and disbursements, of the Company and, at least monthly, you in connection with any legal proceedings, whether or not instituted by the Company or you, relating to the interpretation or enforcement of any provision of this Agreement; PROVIDED THAT if you instituted the proceeding and a finding (no longer subject to appeal) is entered that you instituted the proceeding in bad faith, you shall pay all of your costs and expenses, including attorneys' fees and disbursements. The Company shall pay prejudgment interest on any money judgment obtained by you as a result of such proceeding, calculated at the prime rate of The Chase Manhattan Bank as in effect from time to time from the date that payment should have been made to you under this Agreement. 6. SUCCESSORS; BINDING AGREEMENT. (a) The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. (b) This Agreement shall inure to the benefit of and be enforceable by you and your personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. In the event of your death, all amounts otherwise payable to you hereunder shall, unless otherwise provided herein, be paid in accordance with the terms of this Agreement to your devisee, legatee or other designee or, if there is no such designee, to your estate. 7. NOTICE. Notices and all other communications provided for in this Agreement shall be in writing and shall be deemed to have been duly given when (a) personally delivered or (b) mailed by United States certified or registered mail, return receipt requested, postage prepaid, addressed to the respective addresses set forth on the first page of this Agreement; PROVIDED THAT all notice to the Company shall be directed to the attention of the Board with a copy to the General Counsel of the Company, or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 8. MISCELLANEOUS. No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by you and such officer as may be designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the time or at any prior or subsequent time. The validity, interpretation, construction and performance of this Agreement shall be governed by the laws of the State of New York without regard to its conflicts of law principles. All references to sections of the Exchange Act or the Code shall be deemed also to refer to any successor provisions to such 7 sections. Any payments provided for hereunder shall be paid net of any applicable withholding required under federal, state or local law. The obligations of the Company under this Agreement shall survive the expiration of this Agreement to the extent necessary to give effect to this Agreement. 9. VALIDITY. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 10. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 11. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the parties hereto in respect of the subject matter contained herein and during the term of this Agreement supersedes the provisions of all prior agreements, promises, covenants, arrangements, communications, representations or warranties, whether oral or written, by any officer, employee or representative of any party hereof with respect to the subject matter contained herein. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter hereof have been made by either party which are not expressly set forth in this Agreement. Notwithstanding anything to the contrary in this Agreement, the procedural provisions of this Agreement shall apply to all benefits payable as a result of a Change in Control (or other change in control) under any employee benefit plan, agreement, program, policy or arrangement of the Company. 8 If this letter sets forth our agreement on the subject matter hereof, kindly sign and return to the Company the enclosed copy of this letter, which will then constitute our agreement on this subject. IMS HEALTH INCORPORATED By: _____________________________________ Chairman and Chief Executive Officer Agreed to this ____________________ day of ____________________________, 2001. - ----------------------------------- [First_Name][Last_Name] 9 EX-10.18 6 a2068479zex-10_18.txt EXHIBIT 10.18 EXHIBIT 10.18 IMS HEALTH INCORPORATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective April 17, 2001 TABLE OF CONTENTS PAGE INTRODUCTION.................................................................1 SECTION 1 - DEFINITIONS...................................................1 1.1 "Actuarial Equivalent Value".....................................1 1.2 "Affiliated Employer"............................................2 1.3 "Average Final Compensation".....................................2 1.4 "Basic Disability Plan"..........................................2 1.5 "Basic Disability Plan Benefit"..................................2 1.6 "Basic Plan".....................................................3 1.7 "Basic Plan Benefit".............................................3 1.8 "Board"..........................................................3 1.9 "Cause"..........................................................3 1.10 "Change in Control".............................................4 1.11 "Change in Control Agreement"....................................7 1.12 "Code"...........................................................7 1.13 "Company"........................................................7 1.14 "Compensation"...................................................7 1.15 "Covered Earnings"...............................................7 1.16 "Deferred Vested Benefit"........................................7 1.17 "Disability" or "Disabled".......................................8 1.18 "Disability Benefits"............................................8 1.19 "Effective Date".................................................8 1.20 "Former Member"..................................................8 1.21 "Good Reason"....................................................8 1.22 "Lump Sum Election".............................................10 1.23 "Member"........................................................10 1.24 "Other Disability Income".......................................10 1.25 "Other Retirement Income".......................................11 1.26 "Plan"..........................................................12 -i- TABLE OF CONTENTS (CONTINUED) PAGE 1.27 "Potential Change in Control"...................................12 1.28 "Predecessor to this Plan"......................................12 1.29 "Retirement"....................................................12 1.30 "Retirement Benefits"...........................................13 1.31 "Service".......................................................13 1.32 "Surviving Spouse"..............................................14 1.33 "Surviving Spouse's Benefits"...................................14 1.34 "Vested Former Member"..........................................14 1.35 "Plan Administrator"............................................14 SECTION 2 - PARTICIPATION.................................................15 2.1 Commencement of Participation...................................15 2.2 Termination of Participation....................................15 SECTION 3 - AMOUNT AND FORM OF BENEFITS...................................15 3.1 Retirement Benefits.............................................15 3.2 Deferred Vested Benefit.........................................17 3.3 Form of Payment.................................................19 3.4 Lump Sum Election...............................................21 3.5 Cessation of Benefits...........................................22 3.6 Notification of Cessation of Benefits...........................24 3.7 Repayment of Benefits Paid as Lump Sum..........................24 3.8 Change in Control...............................................25 SECTION 4 - DISABILITY BENEFITS...........................................27 4.1 Disability Benefits.............................................27 SECTION 5 - SURVIVING SPOUSE'S BENEFITS...................................28 5.1 Death Prior to Benefit Commencement.............................28 5.2 Death On or After Benefit Commencement..........................28 5.3 Commencement of Surviving Spouse's Benefit......................28 5.4 Lump Sum Payment................................................29 -ii- TABLE OF CONTENTS (CONTINUED) PAGE 5.5 Reduction.......................................................30 SECTION 6 - PLAN ADMINISTRATOR............................................30 6.1 Duties and Authority............................................30 6.2 Claims Procedure................................................30 SECTION 7 - MISCELLANEOUS.................................................31 7.1 Amendment; Termination..........................................31 7.2 No Employment Rights............................................32 7.3 Payout in Discretion of the Plan Administrator..................32 7.4 Unfunded Status.................................................32 7.5 Arbitration.....................................................33 7.6 No Alienation...................................................33 7.7 Withholding.....................................................34 7.8 Governing Law...................................................34 7.9 Successors......................................................34 7.10 Integration.....................................................34 -iii- IMS HEALTH INCORPORATED SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective April 17, 2001 INTRODUCTION Effective as of July 1, 1998, the IMS Health Incorporated Supplemental Executive Retirement Plan (the "Plan") was established to provide a means of ensuring the payment of a competitive level of retirement income and disability and survivor benefits, and thereby attract, retain and motivate a select group of executives of IMS Health Incorporated and its affiliated employers. This document represents a complete restatement of the Plan effective as of April 17, 2001. The provisions of this amendment and restatement of the Plan shall apply to Members of the Plan who have not retired or terminated employment with the Company as of April 17, 2001. The rights to benefits, if any, of any Former Member or Vested Former Member who retired or otherwise terminated employment before April 17, 2001, together with the amount of such benefits, shall continue to be governed by the provisions of the Plan in effect as of the date of such retirement or termination of employment. SECTION 1 - DEFINITIONS 1.1 "ACTUARIAL EQUIVALENT VALUE" shall mean a benefit of equivalent value computed on the basis of the 1983 Group Annuity Mortality Table and interest equal to the yield on 30-year Treasury Bonds as of the last business day of the Plan Year prior to the year in which the relevant calculation occurs; provided, however, that for purposes of determining the Actuarial Equivalent Value of the amount described in Section 1.25(a) for Members or Vested Former Members who participated in the Predecessor to this Plan, the foregoing assumptions or the assumptions used in the Predecessor to this Plan shall be used, whichever produces the greater benefit for the Member or the Vested Former Member. 1.2 "AFFILIATED EMPLOYER" shall mean an entity affiliated with the Company. 1.3 "AVERAGE FINAL COMPENSATION" shall mean a Member's average annual Compensation during the five consecutive 12-month periods in the last ten consecutive 12-month periods of his or her Service (or during the total number of consecutive 12-month periods if fewer than five), immediately prior to the month following the Member's termination of employment with the Company or an Affiliated Employer or, if earlier, removal from participation under this Plan, affording the highest such Average Final Compensation. If actual monthly Compensation for any month during the 120-month computational period is unavailable, Compensation for such month shall be determined by dividing the Member's annual rate of base pay in the month preceding such unavailable month by 12. 1.4 "BASIC DISABILITY PLAN" shall mean as to any Member the long-term disability plan of the Company or an Affiliated Employer pursuant to which long-term disability benefits are payable to such Member. 1.5 "BASIC DISABILITY PLAN BENEFIT" shall mean the amount of benefits payable to a Member from the Basic Disability Plan. -2- 1.6 "BASIC PLAN" shall mean as to any Member or Vested Former Member the defined benefit pension plan of the Company or an Affiliated Employer intended to meet the requirements of Code Section 401(a) pursuant to which retirement benefits are payable to such Member or Vested Former Member or to the Surviving Spouse or designated beneficiary of a deceased Member or Vested Former Member. 1.7 "BASIC PLAN BENEFIT" shall mean the amount of benefits payable from the Basic Plan to a Member or Vested Former Member. 1.8 "BOARD" shall mean the Board of Directors of IMS Health Incorporated, except that any action authorized to be taken by the Board hereunder may also be taken by a duly authorized committee of the Board or its duly authorized delegees. 1.9 "CAUSE". A Member shall not be deemed to have been terminated for "Cause" under this Plan unless such Member shall have been terminated for "Cause" under the terms of such Member's employment agreement with the Company, if any. If no such employment agreement containing a definition of "Cause" shall be in effect, for purposes of this Plan "Cause" shall mean a Member's: (a) willful and continued failure to substantially perform his or her duties (other than any such failure resulting from incapacity due to physical or mental illness or Disability or any failure after the issuance of a notice of termination by the Member for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its -3- Affiliated Employers, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to the Member by the Board, which demand specifically identifies the manner in which the Board believes that the Member has not substantially performed his or her duties; or (b) the willful engaging by the Member in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on the part of the Member shall be deemed "willful" unless done, or omitted to be done, by the Member not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Member shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Member a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board (after reasonable notice to the Member and an opportunity for the Member, together with the Member's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Member was guilty of conduct set forth above in this definition and specifying the particulars thereof in detail. 1.10 "CHANGE IN CONTROL". If a "Change in Control" shall have occurred or shall be deemed to have occurred under the terms of a Member's or Vested Former Member's Change in Control Agreement or employment agreement with the Company, if any, a "Change in -4- Control" shall be deemed to have occurred under this Plan, otherwise a "Change in Control" shall be deemed to have occurred if: (a) any "Person" as such term is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (b) during any period of 24 months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (i) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 1.10(a), (c), or (d) hereof, (ii) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control, or (iii) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination -5- for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (c) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (i) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, and (ii) after which no "Person" holds 20% or more of the combined voting power of the then outstanding securities of the Company or such surviving entity; (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (e) the Board adopts a resolution to the effect that, for purposes of this Plan, a Change in Control has occurred. -6- 1.11 "CHANGE IN CONTROL AGREEMENT" shall mean any written agreement in effect between any Member or Former Member or Vested Former Member and the Company or an Affiliated Employer pursuant to which benefits may be payable to such Member or Former Member or Vested Former Member in connection with a Change in Control. 1.12 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. 1.13 "COMPANY" shall mean IMS Health Incorporated. 1.14 "COMPENSATION" shall mean base salary, annual bonuses, commissions, overtime and shift pay, in each case prior to reductions for elective contributions under Sections 401(k) and 125 of the Code and deferred compensation under any nonqualified deferred compensation plan. Notwithstanding the foregoing, Compensation shall exclude severance pay (including, without limitation, severance pay under the Company's Employee Protection Plan), stay-on bonuses, long-term bonuses, retirement income, change-in-control payments, contingent payments, amounts paid under this Plan (other than Disability Benefits) or any other retirement plan or deferred compensation plan, income derived from stock options, stock appreciation rights and other equity-based compensation and other forms of special remuneration. 1.15 "COVERED EARNINGS" shall mean a Member's Compensation in the 12 months immediately preceding the onset of the Member's Disability. 1.16 "DEFERRED VESTED BENEFIT" shall mean the benefits described in Section 3.2(b) hereof -7- 1.17 "DISABILITY" OR "DISABLED" shall mean disability or disabled for purposes of the Basic Disability Plan. 1.18 "DISABILITY BENEFITS" shall mean the benefits provided as described in Section 4.1(b) hereof. 1.19 "EFFECTIVE DATE" shall mean July 1, 1998. The effective date of this amendment and restatement of the Plan shall mean April 17, 2001. 1.20 "FORMER MEMBER" shall mean (i) a Member whose employment with the Company or an Affiliated Employer terminates before he or she has completed five or more years of Service, or (ii) a Member who was removed from participation in the Plan, in accordance with Section 2.2 hereof, before he or she has completed five or more years of Service. 1.21 "GOOD REASON". If a Member shall have terminated employment for "Good Reason" under the terms of such Member's Change in Control Agreement or employment agreement with the Company, if any, such Member shall be deemed to have terminated employment for "Good Reason" under this Plan, otherwise "Good Reason" shall mean, without the Member's express written consent, the occurrence of any of the following circumstances unless, in the case of subsections (a), (b), (c) or (d) hereof, such circumstances are fully corrected prior to the date of termination specified in the notice of termination given in respect thereof: -8- (a) the assignment to the Member of any duties inconsistent with the Member's position in the Company, or an adverse alteration in the nature or status of the Member's responsibilities or the conditions of the Member's employment; (b) a reduction by the Company in the Member's annual base salary, target bonus or perquisites except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person, as such term is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, in control of the Company; (c) the relocation of the principal place of the Member's employment to a location more than 50 miles from the location of such place of employment; for this purpose, required travel on the Company's business will not constitute a relocation so long as the extent of such travel is substantially consistent with the Member's customary business travel obligations; (d) the failure by the Company to pay to the Member any portion of the Member's compensation or to pay to the Member any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (e) the failure by the Company to continue in effect any material compensation or benefit plan in which the Member participated unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with -9- respect to such plan, or the failure by the Company to continue the Member's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of the Member's participation relative to other participants; (f) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to fully assume the Company's obligations and to perform under this Plan, as contemplated in Section 7.9 hereof; (g) with respect to any Member who is a party to a Change in Control Agreement, any purported termination of such Member's employment that is not effected pursuant to the notice provisions, if any, in such Member's Change in Control Agreement. 1.22 "LUMP SUM ELECTION" shall mean an election to receive all or portion of the benefits payable hereunder in a lump sum pursuant to Section 3.4 hereof. 1.23 "MEMBER" shall mean an employee of the Company or an Affiliated Employer who becomes a participant in the Plan pursuant to Section 2, but excludes any Former Member or Vested Former Member. 1.24 "OTHER DISABILITY INCOME" shall mean (i) the disability insurance benefit that the Member is entitled to receive under the Federal Social Security Act while he or she is receiving the Basic Disability Plan Benefit and (ii) the disability income payable to a Member from -10- any supplemental executive disability plan of the Company or any Affiliated Employer or from any other contract, agreement or other arrangement with the Company or an Affiliated Employer (excluding any Basic Disability Plan). 1.25 "OTHER RETIREMENT INCOME" shall mean: (a) the Social Security retirement benefit that the Member or Former Member is entitled to receive under the Federal Social Security Act, assuming that for years prior to the Member's employment with the Company and for years following the Member's termination of employment with the Company until the Member attains age 62, the Member earned compensation so as to accrue the maximum Social Security benefits, and (b) the retirement income payable to a Member or Vested Former Member from any `excess benefit plan' as that term is defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any plan described in Section 201(2) of ERISA, and any other contract, agreement or other arrangement providing a defined pension benefit or defined contribution retirement benefit, in any case, maintained or entered into with the Company or an Affiliated Employer (excluding this Plan, any Basic Plan, any defined contribution plan intended to meet the requirements of Code Section 401(a) and any elective plan of deferred compensation). -11- 1.26 "PLAN" shall mean the IMS Health Incorporated Supplemental Executive Retirement Plan, as embodied herein, and any amendments thereto. 1.27 "POTENTIAL CHANGE IN CONTROL". If a "Potential Change in Control" shall have occurred or shall be deemed to have occurred under the terms of a Member's Change in Control Agreement or employment agreement with the Company, if any, or "Potential Change in Control" shall be deemed to have occurred under this Plan, otherwise a "Potential Change in Control" shall be deemed to have occurred if: (a) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (b) any Person (including the Company), as defined in Section 1.10(a) hereof, publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (c) the Board adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control has occurred. 1.28 "PREDECESSOR TO THIS PLAN" shall mean the Supplemental Executive Benefit Plan of The Dun & Bradstreet Corporation, as amended as of December 21, 1994. 1.29 "RETIREMENT" shall mean the termination of a Member's or Vested Former Member's employment with the Company or an Affiliated Employer other than by reason of death -12- or Disability (i) after reaching age 55 and completing five years of Service, or (ii) immediately following the cessation of the payment of Disability Benefits under the Plan to such Member or Vested Former Member while he or she is Disabled. In determining whether age 55 has been attained under clause (i) of this definition, there shall be included as years of age the number of additional years credited as "age" for purposes of the Plan to the Member or Vested Former Member under a then-effective employment agreement between the Company and such person. 1.30 "RETIREMENT BENEFITS" shall mean the benefits described in Section 3.1(b) hereof. 1.31 "SERVICE" shall mean a Member's service defined as Vesting Service in the Basic Plan, which is taken into account for vesting purposes thereunder (including any such service prior to the date such individual becomes a Member but not including any such service after participation hereunder terminates), except that (i) Service will also include service while the Member is receiving Disability Benefits under this Plan; (ii) if a Member was employed by a company acquired by the Company or an Affiliated Employer after the Effective Date, such Member's service with that company prior to the date of acquisition will not constitute Service hereunder; (iii) upon commencement of participation hereunder in accordance with Section 2.1 hereof, the CEO (as defined in such section) may limit any service otherwise to constitute Service hereunder with respect to periods prior to the date of participation in the Plan; and (iv) no service of a Former Member or Vested Former Member during any period after removal from participation under Section 2.2 shall constitute Service for purposes of the Plan. The foregoing notwithstanding, there shall be included as Service under the Plan the number of additional years (or other -13- additional period) credited as "service" for purposes of the Plan to the Member or Former Member or Vested Former Member under an employment agreement between the Company or an Affiliated Employer and such person in effect at the time of such person's termination of employment. 1.32 "SURVIVING SPOUSE" shall mean the spouse of a deceased Member or Vested Former Member to whom such Member or Vested Former Member is married under applicable state law immediately preceding such Member or Vested Former Member's death. 1.33 "SURVIVING SPOUSE'S BENEFITS" shall mean the benefits described in Section 5 hereof. 1.34 "VESTED FORMER MEMBER" shall mean (i) a Member whose employment with the Company or an Affiliated Employer terminates on or after the date on which he or she has completed five or more years of Service, or (ii) a Member who was removed from participation in the Plan, in accordance with Section 2.2 hereof, on or after the date on which he or she has completed five or more years of Service. 1.35 "PLAN ADMINISTRATOR" shall mean the Company, except that any action authorized to be taken by the Plan Administrator hereunder may also be taken by any committee or person(s) duly authorized by the Board or the duly authorized delegees of such duly authorized committee or person(s). -14- SECTION 2 - PARTICIPATION 2.1 COMMENCEMENT OF PARTICIPATION. The Chief Executive Officer ("CEO") of the Company and such other key executives of the Corporation and its Affiliated Employers as are designated by the CEO in writing and approved by the Plan Administrator shall participate in the Plan as of a date determined by the CEO. 2.2 TERMINATION OF PARTICIPATION. A Member's participation in the Plan shall terminate upon termination of his or her employment with the Company or any Affiliated Employer. Prior to termination of employment, a Member may be removed, upon written notice by the CEO as approved by the Plan Administrator, from further participation in the Plan. As of the date of termination or removal, no further benefits shall accrue to such individual hereunder. SECTION 3 - AMOUNT AND FORM OF BENEFITS 3.1 RETIREMENT BENEFITS. (a) ELIGIBILITY. Upon the Retirement of a Member or Vested Former Member from the Company or an Affiliated Employer, he or she shall be entitled to the Retirement Benefit described in Section 3.1(b) hereof, payable in the form specified in Section 3.3. -15- (b) AMOUNT. The Retirement Benefit of a Member or Vested Former Member shall be an annual benefit equal to the difference between (i) and the sum of (ii), (iii), (iv) and (v) where: (i) is 5% of his or her Average Final Compensation multiplied by the number of his or her years of Service not in excess of ten years, plus 2% of such Average Final Compensation multiplied by the number of his or her years of Service over ten but not in excess of 15 years; (ii) is the Basic Plan Benefit payable to the Member or Vested Former Member as of the date of his or her Retirement expressed in the form of an annual life annuity, or, if the Basic Plan Benefit becomes payable after the Member's or Vested Former Member's Retirement, the Actuarial Equivalent Value of the Basic Plan Benefit payable in the form of an annual life annuity as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the Basic Plan; (iii) is the Other Retirement Income payable to the Member or Vested Former Member as of the date of his or her Retirement expressed in the form of an annual life annuity, or, if the Other Retirement Income becomes payable after the Member's or Vested Former Member's Retirement, the Actuarial Equivalent Value of the Other Retirement Income payable in the form of an annual life annuity as of such date, regardless of whether such date -16- precedes the earliest possible payment date under the terms of the appropriate retirement arrangement; and (iv) is the annual benefit payable to the Member or Vested Former Member under the terms of the Predecessor to this Plan as of the date of his or her Retirement, expressed in the form of an annual life annuity, or, if the annual benefit payable under the Predecessor to this Plan becomes payable after the Member's or Vested Former Member's Retirement, the Actuarial Equivalent Value of the annual benefit payable under the Predecessor to this Plan, expressed in the form of an annual life annuity, payable as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the Predecessor to this Plan. 3.2 DEFERRED VESTED BENEFIT. (a) ELIGIBILITY. Each Member and Vested Former Member who has completed five or more years of Service and whose employment with the Company or an Affiliated Employer terminates prior to Retirement, for a reason other than Cause, death or Disability shall be entitled to the Deferred Vested Benefit described in Section 3.2(b) hereof, payable in the form specified in Section 3.3. (b) AMOUNT. The Deferred Vested Benefit of a Member or Vested Former Member who terminates and who meets the eligibility requirements of Section 3.2(a) shall -17- be an annual benefit equal to the difference between (i) and the sum of (ii), (iii), and (iv), where: (i) is 5% of his or her Average Final Compensation, multiplied by the number of his or her years of Service not in excess of ten (10), plus 2% of such Average Final Compensation multiplied by the number of his or her years of Service over ten but not in excess of 15 years; (ii) is the Basic Plan Benefit payable to the Member or Vested Former Member as of the date his or her Deferred Vested Benefit commences expressed in the form of an annual life annuity, or, if the Basic Plan Benefit becomes payable after the Member's or Vested Former Member's Deferred Vested Benefit commences, the Actuarial Equivalent Value of the Basic Plan Benefit payable in the form of an annual life annuity as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the Basic Plan; (iii) is the Other Retirement Income payable to the Member or Vested Former Member as of the date his or her Deferred Vested Benefit commences expressed in the form of an annual life annuity, or, if the Other Retirement Income becomes payable after the Member's or Vested Former Member's Deferred Vested Benefit commences, the Actuarial Equivalent Value of the Other Retirement Income payable in the form of an annual life annuity as of such date, regardless of whether such date precedes the earliest -18- possible payment date under the terms of the appropriate retirement arrangement; and (iv) is the annual benefit payable to the Member or Vested Former Member under the terms of the Predecessor to this Plan as of the date his or her Deferred Vested Benefit commences, expressed in the form of an annual life annuity, or, if the annual benefit payable under the Predecessor to this Plan becomes payable after the Member's or Vested Former Member's Deferred Vested Benefit commences, the Actuarial Equivalent Value of the annual benefit payable under the Predecessor to this Plan, expressed in the form of an annual life annuity, payable as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the Predecessor to this Plan. 3.3 FORM OF PAYMENT. (a) Except as provided under Section 3.3(b) or Section 3.3(c), the Retirement Benefit or Deferred Vested Benefit under this Plan, as the case may be, shall be payable in monthly installments in the form of a straight life annuity and without regard to any optional form of benefits elected under the Basic Plan. Payments shall commence on the first day of the calendar month coinciding with or next following (i) the Member's or Vested Former Member's Retirement, in the case of Retirement Benefits or (ii) the later of the date the Member or Vested Former -19- Member attains age 55 or terminates employment, in the case of Deferred Vested Benefits. (b) If a Member or Vested Former Member has made a Lump Sum Election pursuant to Section 3.4 and such Lump Sum Election becomes effective (i) prior to the date of such Member's or Vested Former Member's Retirement or termination of employment with the Company or an Affiliated Employer and (ii) while he or she was still a Member, the Retirement Benefit, or Deferred Vested Benefit under this Plan, as the case may be, shall be payable in the form or combination of forms of payment elected pursuant to such Lump Sum Election under Section 3.4 and without regard to any optional form of benefits elected under the Basic Plan. Any portion of the benefits hereunder payable in a lump sum shall be paid within 60 days following (i) the Member's or Vested Former Member's Retirement, in the case of Retirement Benefits or (ii) the later of the date the Member or Vested Former Member attains age 55 or terminates employment, in the case of Deferred Vested Benefits. (c) Notwithstanding any Lump Sum Election made (or not made) under Section 3.3, if the lump sum value, determined in the same manner as provided under Section 3.4(a), of a Member's or Vested Former Member's Retirement, or Deferred Vested Benefit is $10,000 or less at the time such benefit is payable under this Plan, such benefit shall be payable as a lump sum. -20- 3.4 LUMP SUM ELECTION. (a) A Member or Vested Former Member may elect to receive all, none, or a specified portion, as provided in Section 3.4(c), of his or her Retirement Benefit or Deferred Vested Benefit under the Plan as a lump sum and to receive any balance of such benefit in the form of an annuity; provided that any such Lump Sum Election shall be effective for purposes of this Plan only if the conditions of Section 3.4(b) are satisfied. A Member or Vested Former Member may elect a payment form different than the payment form previously elected by him or her under this Section 3.4(a) by filing a revised election form; provided that any such new election shall be effective only if the conditions of Section 3.4(b) are satisfied with respect to such new election. Any prior Lump Sum Election made by a Member that has satisfied the conditions of Section 3.4(b) shall remain effective for purposes of the Plan until such Member has made a new election satisfying the conditions of Section 3.4(b). The amount of any portion of a Member's or a Vested Former Member's Retirement Benefit or Deferred Vested Benefit payable as a lump sum under this Section 3.4 shall equal the present value of such portion of the benefit, and such present value shall be determined (i) based on a discount rate equal to 85% of the average of the 15-year non-callable U.S. Treasury bond yields as of the close of business on the last business day of each of the three months immediately preceding the date the annuity value is determined and (ii) using the 1983 Group Annuity Mortality Table. -21- (b) A Member's Election under Section 3.4(a) becomes effective only if all of the following conditions are satisfied: (i) such Member remains in the employment of the Company or an Affiliated Employer, as the case may be, for the full 12 calendar months immediately following the date of such election (the "Election Date"), except in the case of death or Disability of such Member (in which case Section 3.4 (d) shall apply) and (ii) such Member complies with the administrative procedures set forth by the Plan Administrator with respect to the making of a Lump Sum Election. (c) A Member making an election under Section 3.4(a) may specify the portion of his Retirement or Deferred Vested Benefit under the Plan to be received in a lump sum as follows: 0%, 25%, 50%, 75%, or 100%. (d) In the event a Member who has made an Election pursuant to Section 3.4(a) dies or becomes Disabled while employed by the Company or an Affiliated Employer and such death or total and permanent Disability occurs during the 12 calendar-month period immediately following the Election Date, the condition under Section 3.4(b)(i) shall be deemed satisfied with respect to such Member. 3.5 CESSATION OF BENEFITS. Subject to Section 3.8 hereof, no benefits or no further benefits, as the case may be, shall be paid to a Member, Vested Former Member or Surviving Spouse if the Member or Vested Former Member has: -22- (a) become a stockholder (unless such stock is listed on a national securities exchange or traded on a daily basis in the over-the-counter market and the Member's or Vested Former Member's ownership interest is not in excess of 2% of the company whose shares are being purchased), employee, officer, director or consultant of or to a company, or a member or an employee of or a consultant to a partnership or any other business or firm, which competes with any of the businesses identified in the Company's Employee Protection Plan, or such Member or Vested Former Member accepts any form of compensation from such competing entity; (b) been discharged from employment with the Company or any Affiliated Employer for Cause; (c) failed to retain in confidence any and all confidential information concerning the Company or any Affiliated Employer and its respective business which was known or became known to the Member or Vested Former Member, except as otherwise required by law and except information (i) ascertainable or obtained from public information, (ii) received by the Member or Vested Former Member at any time after the Member's or Vested Former Member's employment by the Company or any Affiliated Employer terminated, from a third party not employed by or otherwise affiliated with the Company or any Affiliated Employer, or (iii) which was or became known to the public by any means other than a breach of this Section 3.5; or -23- (d) made disparaging comments about the Company or any Affiliated Employer in any communications, written or oral, with any individual, company, government body or agency or any other entity whatsoever. For purposes hereof, "disparage" shall mean any communication, including, but not limited to, any statements, actions or insinuations, made either directly or through a third party, that would tend to lessen the standing or stature of the Company or any Affiliated Employer in the eyes of a customer, a prospective customer, a shareholder or a prospective shareholder. 3.6 NOTIFICATION OF CESSATION OF BENEFITS. Subject to Section 3.8 hereof, in any case described in Section 3.5, the Member, Vested Former Member or Surviving Spouse shall be given prior written notice that no benefits or no further benefits, as the case may be, will be paid to such Member, Vested Former Member or Surviving Spouse. Such written notice shall specify the particular act(s), or failures to act, and the basis on which the decision to cease paying his or her benefits has been made. 3.7 REPAYMENT OF BENEFITS PAID AS LUMP SUM. (a) Subject to Section 3.8 hereof, a Member or Vested Former Member who receives in a lump sum any portion of his or her Retirement Benefit or Deferred Vested Benefit pursuant to a Lump Sum Election, shall receive such lump sum portion of such Retirement Benefit or Deferred Vested Benefit subject to the condition that if such Member or Vested Former Member engages in any of the acts described in Section 3.5(a), then such Member or Vested Former Member shall, within 60 -24- days after written notice by the Company, repay to the Company the amount described in Section 3.7(b). (b) The amount described in this Section shall equal the amount of the Member's or Vested Former Member's lump sum benefit paid under this Plan to which such Member or Vested Former Member would not have been entitled, if such lump sum benefit had instead been payable in the form of an annuity under this Plan and such annuity payments were subject to the provisions of Section 3.5. 3.8 CHANGE IN CONTROL. (a) Anything in this Plan to the contrary notwithstanding: (i) Any Member, whose employment with the Company or an Affiliated Employer is involuntarily terminated by the Company or an Affiliated Employer at or within two years following a Change in Control for a reason other than Cause or whose employment is voluntarily terminated by the Member with Good Reason at or within two years following a Change in Control shall be deemed to have completed five years of Service for purposes of Section 3.2(a) hereof and shall be credited with three additional years of Service for purposes of calculating the benefits payable under Sections 3.1(b) or 3.2(b) hereof, as the case may be. Notwithstanding the provisions of Section 3.3 of this Plan to the contrary, payment of the Actuarial Equivalent Value of such benefits shall be made -25- in the form provided in Section 3.3 commencing on the first day of the calendar month coinciding with or next following such Member's termination of employment; provided, however, that such Actuarial Equivalent Value shall be determined by crediting such Member with three additional years of age and on the assumption that unreduced benefits are payable upon the Member's attainment of age 55. Moreover, for purposes of determining the Actuarial Equivalent Value of such benefits payable in the form of a lump sum, the interest and mortality factors specified in Section 3.4(a) shall apply. In addition, in the event that a Member's Service shall have been limited pursuant to Section 1.31(iii) to disregard Service prior to such Member's participation in the Plan, such limitation shall be eliminated in the event of such Member's termination of employment at or within two years following a Change in Control as provided above in this subsection (i). (ii) In the event of a Potential Change in Control or Change in Control, the Company shall, not later than 15 days thereafter, have established one or more so-called "rabbi" trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential benefits payable under the Plan at or following a Change in Control. Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the -26- event of insolvency or bankruptcy of the Company; provided, however, that if no Change in Control has occurred within two years after such Potential Change in Control, such rabbi trust(s) shall at the end of such two-year period become revocable and may thereafter be revoked by the Company. (iii) the provisions of Sections 3.5 through 3.7 shall be of no force or effect with respect to Members who Retire or terminate employment within a two-year period following a Change in Control. SECTION 4 - DISABILITY BENEFITS 4.1 DISABILITY BENEFITS. (a) ELIGIBILITY. A Member who is enrolled for the maximum disability insurance coverage available under the Basic Disability Plan and who has become Disabled shall be entitled to the Disability Benefit described in Section 4.1(b). (b) AMOUNT. The Disability Benefit of a Member entitled thereto shall be an annual benefit payable in monthly installments under this Plan during the same period as disability benefits are actually paid by the Basic Disability Plan, in an amount equal to 60% of the Member's Covered Earnings, offset by the Member's (i) Basic Disability Plan Benefit, (ii) Basic Plan Benefit, if the Basic Disability Plan Benefit does not already include an offset for such Basic Plan Benefit, and (iii) Other Disability Income. -27- SECTION 5 - SURVIVING SPOUSE'S BENEFITS 5.1 DEATH PRIOR TO BENEFIT COMMENCEMENT. Upon the death of a Member or Vested Former Member, prior to the commencement of his or her Retirement Benefit or Deferred Vested Benefit hereunder, any such Member shall be deemed to have completed five years of Service for purposes of Section 3.2(a) and his or her Surviving Spouse will be entitled to a Surviving Spouse's Benefit under this Plan equal to 50% of the Retirement or Deferred Vested Benefit that would have been provided from the Plan had the Member or Vested Member retired from or terminated employment with the Company or an Affiliated Employer on the date of death. 5.2 DEATH ON OR AFTER BENEFIT COMMENCEMENT. Upon the death of a Vested Former Member while he or she is receiving Retirement or Deferred Vested Benefits, his or her Surviving Spouse shall receive a Surviving Spouse's Benefit equal to 50% of the Benefit he or she was receiving at the time of death. Notwithstanding the foregoing, no benefit shall be payable under this Section 5.2 to the extent a Retirement Benefit or Deferred Vested Benefit was previously paid to a Member or Vested Former Member in the form of a lump sum. 5.3 COMMENCEMENT OF SURVIVING SPOUSE'S BENEFIT. Except as provided in Section 5.4, the Surviving Spouse's Benefit provided under Sections 5.1 or 5.2 will be payable monthly, commencing on the first day of the month coincident with or next following the date of the Member's or Vested Former Member's death, or if the Member or Vested Former Member had not attained age 55, on the date such Member or Vested Former Member -28- would have attained age 55 had he or she lived. Such benefits shall continue until the first day of the month in which the Surviving Spouse dies. 5.4 LUMP SUM PAYMENT. (a) If a Member or a Vested Former Member made an Election under Section 3.4 but such Member or Vested Former Member died prior to such lump sum payment, the Surviving Spouse's Benefit payable under Section 5.1 hereof will be payable in the form or combination of forms of payment so elected by such Member or Vested Former Member pursuant to such Lump Sum Election. The amount of any lump sum payment under the Plan shall be determined using the actuarial assumptions set forth in Section 3.4(a). (b) If the lump sum value, determined in the same manner as provided under Section 3.4(a), of a Surviving Spouse's Benefit is $10,000 or less at the time such Surviving Spouse's Benefit is payable under this Plan, such benefit shall be payable as a lump sum. (c) Any Surviving Spouse's Benefit which is payable as a lump sum shall be paid within 60 days after the date when any portion of such benefit payable in annuity form commences or would commence if any portion of such Surviving Spouse's Benefit were payable as an annuity as set forth in Section 5.3. -29- 5.5 REDUCTION. Notwithstanding the foregoing provisions of Section 5, the amount of a Surviving Spouse's Benefit shall be reduced by one percentage point for each year (where a half year or more is treated as a full year) in excess of ten years that the age of the Member or Vested Former Member exceeds the age of the Surviving Spouse. SECTION 6 - PLAN ADMINISTRATOR 6.1 DUTIES AND AUTHORITY. The Plan Administrator shall be responsible for the administration of the Plan and may delegate to any management committee, employee, director or agent its responsibility to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion; provided, that such delegation shall be subject to revocation at any time at the Plan Administrator's discretion. The Plan Administrator shall have the sole discretion to determine all questions arising in connection with the Plan, to interpret the provisions of the Plan and to construe all of its terms, to adopt, amend, and rescind rules and regulations for the administration of the Plan, and generally to conduct and administer the Plan and to make all determinations in connection with the Plan as may be necessary or advisable. All such actions of the Plan Administrator shall be conclusive and binding upon all Members, Former Members, Vested Former Members, Surviving Spouses and other persons. 6.2 CLAIMS PROCEDURE. A Member, Former Member or Vested Former Member or his or her authorized representative shall have 60 days after receipt of written notification of denial of a claim for benefits under the Plan to request a review of the denial by making written -30- request to the Plan Administrator and may review pertinent documents and submit issues and comments in writing within such 60-day period. Not later than 60 days after receipt of the request for review, the Plan Administrator shall render and furnish to the claimant a written decision, which shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by the Plan Administrator shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. SECTION 7 - MISCELLANEOUS 7.1 AMENDMENT; TERMINATION. The Board of Directors of the Company, may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of the Plan may adversely affect (a) a Member's or Vested Former Member's benefit under the Plan to which he or she is entitled hereunder, or, (b) a Vested Former Member's right or the right of a Surviving Spouse to receive or to continue to receive a benefit in accordance with the Plan, such benefits or rights as in effect on the date immediately preceding the date of such termination, suspension or amendment. Notwithstanding the foregoing, the Employee Benefits Committee of the Company may amend the Plan -31- without the approval of the Board of Directors of the Company with respect to amendments that such Committee determines do not have a significant effect on the cost of the Plan. 7.2 NO EMPLOYMENT RIGHTS. Nothing contained herein will confer upon any Member, Former Member or Vested Former Member the right to be retained in the service of the Company or any Affiliated Employee, nor will it interfere with the right of the Company or any Affiliated Employer to discharge or otherwise deal with Members, Former Members or Vested Former Members with respect to matters of employment. 7.3 PAYOUT IN DISCRETION OF THE PLAN ADMINISTRATOR. Notwithstanding anything herein to the contrary, at any time following the termination of service of the Member or Vested Former Member, the Plan Administrator may authorize, under uniform rules applicable to all Members, Vested Former Members and Surviving Spouses under the Plan, a lump sum distribution of a Member's, Vested Former Member's and/or Surviving Spouse's Retirement Benefit or Surviving Spouse's Benefit under the Plan in an amount equal to the Actuarial Equivalent Value of such Retirement Benefit or Surviving Spouse's Benefit, in full satisfaction of all present and future Plan liability with respect to such Member, Vested Former Member and/or Surviving Spouse, if the amount of such present value is less than $250,000. Such lump sum distribution may be made without the consent of the Member, Vested Former Member or Surviving Spouse. 7.4 UNFUNDED STATUS. Members and Vested Former Members shall have the status of general unsecured creditors of the Company, and this Plan constitutes a mere promise by the -32- Company to make benefit payments at the time or times required hereunder. It is the intention of the Company that this Plan be unfunded for tax purposes and for purposes of Title I of ERISA and any trust created by the Company and any assets held by such trust to assist the Company in meeting its obligations under the Plan shall meet the requirements necessary to retain such unfunded status. 7.5 ARBITRATION. Any dispute or controversy arising under or in connection with the Plan shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association in effect at the time of such arbitration. The Company shall pay the entire costs of any proceeding brought by a Member, Vested Former Member, Former Member, or Surviving Spouse hereunder, including the fees and expenses of counsel and pension experts engaged by such person, and such expenses shall be reimbursed promptly upon evidence that such expenses have been incurred without awaiting the outcome of the proceedings; provided however, that such costs and expenses shall be repaid to the Company by the recipient of same if it is finally determined by the arbitrators that the position taken by such person was entirely without merit. Failure of such person to prevail in any dispute or controversy shall not be the sole basis on which such determination shall be made. 7.6 NO ALIENATION. A Member's or Vested Former Member's right to benefit payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors or such Member or Vested Former Member or his or her Surviving Spouse. -33- 7.7 WITHHOLDING. The Company may withhold from any benefit under the Plan an amount sufficient to satisfy its tax withholding obligations. 7.8 GOVERNING LAW. The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state to the extent not preempted by federal law. 7.9 SUCCESSORS. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform the obligations of the Company under this Plan in the same manner and to the same extent that the Company would have been required to perform such obligations if no such succession had taken place and such assumption shall be an express condition to the consummation of any such purchase, merger, consolidation or other transaction. 7.10 INTEGRATION. In the event of any conflict or ambiguity between this Plan and the terms of any employment agreement between a Member and the Company or any Change in Control Agreement between a Member and the Company (this Plan and any such employment agreement or Change in Control Agreement being collectively referred to herein as the "arrangements"), such conflict or ambiguity shall be resolved in accordance with the terms of that arrangement which are most beneficial to the Member; provided, however, that no such resolution of any such conflict or ambiguity shall operate to cause the Member to receive duplicate payments or benefits under the arrangements. -34- EX-10.41 7 a2068479zex-10_41.txt EXHIBIT 10.41 EXHIBIT 10.41 IMS HEALTH INCORPORATED U.S. EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective April 17, 2001 TABLE OF CONTENTS PAGE INTRODUCTION.................................................................1 SECTION 1 - DEFINITIONS...................................................1 1.1 "Actuarial Equivalent Value".....................................1 1.2 "Affiliated Employer"............................................2 1.3 "Average Final Compensation".....................................2 1.4 "Basic Disability Plan"..........................................2 1.5 "Basic Disability Plan Benefit"..................................2 1.6 "Basic Plan".....................................................2 1.7 "Basic Plan Benefit".............................................3 1.8 "Board"..........................................................3 1.9 "Cause"..........................................................3 1.10 "Change in Control"..............................................4 1.11 "Change in Control Agreement"....................................6 1.12 "Code"...........................................................6 1.13 "Company"........................................................7 1.14 "Compensation"...................................................7 1.15 "Covered Earnings"...............................................7 1.16 "Deferred Vested Benefit"........................................7 1.17 "Disability" or "Disabled".......................................7 1.18 "Disability Benefits"............................................7 1.19 "Effective Date".................................................8 1.20 "Former Member"..................................................8 1.21 "Good Reason"....................................................8 1.22 "Lump Sum Election".............................................10 1.23 "Member"........................................................10 1.24 "Other Disability Income".......................................10 1.25 "Other Retirement Income".......................................11 1.26 "Plan"..........................................................11 1.27 "Potential Change in Control"...................................11 -i- TABLE OF CONTENTS (CONTINUED) PAGE 1.28 "Retire" or "Retirement".......................................12 1.29 "Retirement Benefits"...........................................12 1.30 "Service".......................................................12 1.31 "Surviving Spouse"..............................................13 1.32 "Surviving Spouse's Benefits"...................................13 1.33 "Vested Former Member"..........................................13 1.34 "Plan Administrator"............................................14 SECTION 2 - PARTICIPATION................................................14 2.1 Commencement of Participation...................................14 2.2 Termination of Participation....................................14 SECTION 3 - AMOUNT AND FORM OF BENEFITS..................................15 3.1 Retirement Benefits.............................................15 3.2 Deferred Vested Benefit.........................................16 3.3 Form of Payment.................................................18 3.4 Lump Sum Election...............................................20 3.5 Cessation of Benefits...........................................21 3.6 Notification of Cessation of Benefits...........................23 3.7 Repayment of Benefits Paid as Lump Sum..........................23 3.8 Change in Control...............................................24 SECTION 4 - DISABILITY BENEFITS..........................................26 4.1 Disability Benefits.............................................26 (a) Eligibility...............................................26 (b) Amount....................................................26 SECTION 5 - SURVIVING SPOUSE'S BENEFITS..................................27 5.1 Death Prior to Benefit Commencement.............................27 5.2 Death On or After Benefit Commencement..........................27 5.3 Commencement of Surviving Spouse's Benefit......................27 5.4 Lump Sum Payment................................................28 5.5 Reduction.......................................................29 -ii- TABLE OF CONTENTS (CONTINUED) PAGE SECTION 6 - PLAN ADMINISTRATOR...........................................29 6.1 Duties and Authority............................................29 6.2 Claims Procedure................................................29 SECTION 7 - MISCELLANEOUS................................................30 7.1 Amendment; Termination..........................................30 7.2 No Employment Rights............................................31 7.3 Payout in Discretion of the Plan Administrator..................31 7.4 Unfunded Status.................................................31 7.5 Arbitration.....................................................32 7.6 No Alienation...................................................32 7.7 Withholding.....................................................33 7.8 Governing Law...................................................33 7.9 Successors......................................................33 7.10 Integration.....................................................33 -iii- IMS HEALTH INCORPORATED U.S. EXECUTIVE RETIREMENT PLAN As Amended and Restated Effective April 17, 2001 INTRODUCTION Effective as of July 25, 2000, the IMS Health Incorporated U.S. Executive Retirement Plan (the "Plan") was established to provide a means of ensuring the payment of a competitive level of retirement income and disability and survivor benefits, and thereby attract, retain and motivate a select group of executives of IMS Health Incorporated and its affiliated employers. This document represents a complete restatement of the Plan effective as of April 17, 2001. The provisions of this amendment and restatement of the Plan shall apply to Members of the Plan who have not retired or terminated employment with the Company as of April 17, 2001. The rights to benefits, if any, of any Former Member or Vested Former Member who retired or otherwise terminated employment before April 17, 2001, together with the amount of such benefits, shall continue to be governed by the provisions of the Plan in effect as of the date of such retirement or termination of employment. SECTION 1 - DEFINITIONS 1.1 "ACTUARIAL EQUIVALENT VALUE" shall mean a benefit of equivalent value computed on the basis of the 1983 Group Annuity Mortality Table and interest equal to the yield on 30-year Treasury Bonds as of the last business day of the Plan Year prior to the year in which the relevant calculation occurs. 1.2 "AFFILIATED EMPLOYER" shall mean an entity affiliated with the Company. 1.3 "AVERAGE FINAL COMPENSATION" shall mean a Member's average annual Compensation during the five consecutive 12-month periods in the last ten consecutive 12-month periods of his or her Service (or during the total number of consecutive 12-month periods if fewer than five), immediately prior to the month following the Member's termination of employment with the Company or an Affiliated Employer or, if earlier, removal from participation under this Plan, affording the highest such Average Final Compensation. If actual monthly Compensation for any month during the 120-month computational period is unavailable, Compensation for such month shall be determined by dividing the Member's annual rate of base pay in the month preceding such unavailable month by 12. 1.4 "BASIC DISABILITY PLAN" shall mean as to any Member the long-term disability plan of the Company or an Affiliated Employer pursuant to which long-term disability benefits are payable to such Member. 1.5 "BASIC DISABILITY PLAN BENEFIT" shall mean the amount of benefits payable to a Member from the Basic Disability Plan. 1.6 "BASIC PLAN" shall mean as to any Member or Vested Former Member the defined benefit pension plan of the Company or an Affiliated Employer intended to meet the requirements of Code Section 401(a) pursuant to which retirement benefits are payable to such Member or Vested Former Member or to the Surviving Spouse or designated beneficiary of a deceased Member or Vested Former Member. -2- 1.7 "BASIC PLAN BENEFIT" shall mean the amount of benefits payable from the Basic Plan to a Member or Vested Former Member. 1.8 "BOARD" shall mean the Board of Directors of IMS Health Incorporated, except that any action authorized to be taken by the Board hereunder may also be taken by a duly authorized committee of the Board or its duly authorized delegees. 1.9 "CAUSE". A Member shall not be deemed to have been terminated for "Cause" under this Plan unless such Member shall have been terminated for "Cause" under the terms of such Member's employment agreement with the Company, if any. If no such employment agreement containing a definition of "Cause" shall be in effect, for purposes of this Plan "Cause" shall mean a Member's: (a) willful and continued failure to substantially perform his or her duties (other than any such failure resulting from incapacity due to physical or mental illness or Disability or any failure after the issuance of a notice of termination by the Member for Good Reason) which failure is demonstrably and materially damaging to the financial condition or reputation of the Company and/or its Affiliated Employers, and which failure continues more than 48 hours after a written demand for substantial performance is delivered to the Member by the Board, which demand specifically identifies the manner in which the Board believes that the Member has not substantially performed his or her duties; or -3- (b) the willful engaging by the Member in conduct which is demonstrably and materially injurious to the Company, monetarily or otherwise. No act, or failure to act, on the part of the Member shall be deemed "willful" unless done, or omitted to be done, by the Member not in good faith and without reasonable belief that his or her action or omission was in the best interest of the Company. Notwithstanding the foregoing, the Member shall not be deemed to have been terminated for Cause unless and until there shall have been delivered to the Member a copy of the resolution duly adopted by the affirmative vote of not less than three-quarters (3/4) of the entire membership of the Board at a meeting of the Board (after reasonable notice to the Member and an opportunity for the Member, together with the Member's counsel, to be heard before the Board) finding that, in the good faith opinion of the Board, the Member was guilty of conduct set forth above in this definition and specifying the particulars thereof in detail. 1.10 "CHANGE IN CONTROL". If a "Change in Control" shall have occurred or shall be deemed to have occurred under the terms of a Member's or Vested Former Member's Change in Control Agreement or employment agreement with the Company, if any, a "Change in Control" shall be deemed to have occurred under this Plan, otherwise a "Change in Control" shall be deemed to have occurred if: (a) any "Person" as such term is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") (other than the Company, any trustee or other fiduciary holding securities under an employee -4- benefit plan of the Company, or any company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the "Beneficial Owner" (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then outstanding securities; (b) during any period of 24 months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (i) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 1.10(a), (c), or (d) hereof, (ii) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control, or (iii) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; -5- (c) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (i) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation, and (ii) after which no "Person" holds 20% or more of the combined voting power of the then outstanding securities of the Company or such surviving entity; (d) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets; or (e) the Board adopts a resolution to the effect that, for purposes of this Plan, a Change in Control has occurred. 1.11 "CHANGE IN CONTROL AGREEMENT" shall mean any written agreement in effect between any Member or Former Member or Vested Former Member and the Company or an Affiliated Employer pursuant to which benefits may be payable to such Member or Former Member or Vested Former Member in connection with a Change in Control. 1.12 "CODE" shall mean the Internal Revenue Code of 1986, as amended from time to time. -6- 1.13 "COMPANY" shall mean IMS Health Incorporated. 1.14 "COMPENSATION" shall mean base salary, annual bonuses, commissions, overtime and shift pay, in each case prior to reductions for elective contributions under Sections 401(k) and 125 of the Code and deferred compensation under any nonqualified deferred compensation plan. Notwithstanding the foregoing, Compensation shall exclude severance pay (including, without limitation, severance pay under the Company's Employee Protection Plan), stay-on bonuses, long-term bonuses, retirement income, change-in-control payments, contingent payments, amounts paid under this Plan (other than Disability Benefits) or any other retirement plan or deferred compensation plan, income derived from stock options, stock appreciation rights and other equity-based compensation and other forms of special remuneration. 1.15 "COVERED EARNINGS" shall mean a Member's Compensation in the 12 months immediately preceding the onset of the Member's Disability. 1.16 "DEFERRED VESTED BENEFIT" shall mean the benefits described in Section 3.2(b) hereof. 1.17 "DISABILITY" OR "DISABLED" shall mean disability or disabled for purposes of the Basic Disability Plan. 1.18 "DISABILITY BENEFITS" shall mean the benefits provided as described in Section 4.1(b) hereof. -7- 1.19 "EFFECTIVE DATE" shall mean July 25, 2000. The effective date of this amendment and restatement of the Plan shall mean April 17, 2001. 1.20 "FORMER MEMBER" shall mean (i) a Member whose employment with the Company or an Affiliated Employer terminates with a Vested Percentage equal to 0%, or (ii) a Member who was removed from participation in the Plan, in accordance with Section 2.2 hereof, with a Vested Percentage equal to 0%. 1.21 "GOOD REASON". If a Member shall have terminated employment for "Good Reason" under the terms of such Member's Change in Control Agreement or employment agreement with the Company, if any, such Member shall be deemed to have terminated employment for "Good Reason" under this Plan, otherwise "Good Reason" shall mean, without the Member's express written consent, the occurrence of any of the following circumstances unless, in the case of subsections (a), (b), (c) or (d) hereof, such circumstances are fully corrected prior to the date of termination specified in the notice of termination given in respect thereof: (a) the assignment to the Member of any duties inconsistent with the Member's position in the Company, or an adverse alteration in the nature or status of the Member's responsibilities or the conditions of the Member's employment; (b) a reduction by the Company in the Member's annual base salary, target bonus or perquisites except for across-the-board perquisite reductions similarly affecting all senior executives of the Company and all senior executives of any Person, as such -8- term is used for purposes of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, in control of the Company; (c) the relocation of the principal place of the Member's employment to a location more than 50 miles from the location of such place of employment; for this purpose, required travel on the Company's business will not constitute a relocation so long as the extent of such travel is substantially consistent with the Member's customary business travel obligations; (d) the failure by the Company to pay to the Member any portion of the Member's compensation or to pay to the Member any portion of an installment of deferred compensation under any deferred compensation program of the Company within seven days of the date such compensation is due; (e) the failure by the Company to continue in effect any material compensation or benefit plan in which the Member participated unless an equitable arrangement (embodied in an ongoing substitute or alternative plan) has been made with respect to such plan, or the failure by the Company to continue the Member's participation therein (or in such substitute or alternative plan) on a basis not materially less favorable, both in terms of the amounts of benefits provided and the level of the Member's participation relative to other participants; -9- (f) the failure of the Company to obtain a satisfactory agreement from any successor to the Company to fully assume the Company's obligations and to perform under this Plan, as contemplated in Section 7.9 hereof; (g) with respect to any Member who is a party to a Change in Control Agreement, any purported termination of such Member's employment that is not effected pursuant to the notice provisions, if any, in such Member's Change in Control Agreement. 1.22 "LUMP SUM ELECTION" shall mean an election to receive all or portion of the benefits payable hereunder in a lump sum pursuant to Section 3.4 hereof. 1.23 "MEMBER" shall mean an employee of the Company or an Affiliated Employer who becomes a participant in the Plan pursuant to Section 2, but excludes any Former Member or Vested Former Member. 1.24 "OTHER DISABILITY INCOME" shall mean (i) the disability insurance benefit that the Member is entitled to receive under the Federal Social Security Act while he or she is receiving the Basic Disability Plan Benefit and (ii) the disability income payable to a Member from any supplemental executive disability plan of the Company or any Affiliated Employer or from any other contract, agreement or other arrangement with the Company or an Affiliated Employer (excluding any Basic Disability Plan). -10- 1.25 "OTHER RETIREMENT INCOME" shall mean the retirement income payable to a Member or Vested Former Member from any `excess benefit plan' as that term is defined in Section 3(36) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), any plan described in Section 201(2) of ERISA, and any other contract, agreement or other arrangement providing a defined pension benefit or defined contribution retirement benefit, in any case, maintained or entered into with the Company or an Affiliated Employer (excluding this Plan, any Basic Plan, any defined contribution plan intended to meet the requirements of Code Section 401(a) and any elective plan of deferred compensation). 1.26 "PLAN" shall mean the IMS Health Incorporated U.S. Executive Retirement Plan, as embodied herein, and any amendments thereto. 1.27 "POTENTIAL CHANGE IN CONTROL". If a "Potential Change in Control" shall have occurred or shall be deemed to have occurred under the terms of a Member's Change in Control Agreement or employment agreement with the Company, if any, a "Potential Change in Control" shall be deemed to have occurred under this Plan, otherwise a "Potential Change in Control" shall be deemed to have occurred if: (a) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; -11- (b) any Person (including the Company), as defined in Section 1.10(a) hereof, publicly announces an intention to take or to consider taking actions which if consummated would constitute a Change in Control; or (c) the Board adopts a resolution to the effect that, for purposes of this Plan, a Potential Change in Control has occurred. 1.28 "RETIRE" OR "RETIREMENT" shall mean the termination of a Member's or Vested Former Member's employment with the Company or an Affiliated Employer other than by reason of death or Disability (i) after reaching age 55 and completing one year of Service, or (ii) immediately following the cessation of the payment of Disability Benefits under the Plan to such Member or Vested Former Member while he or she is Disabled. In determining whether age 55 has been attained under clause (i) of this definition, there shall be included as years of age the number of additional years credited as "age" for purposes of the Plan to the Member or Vested Former Member under a then-effective employment agreement between the Company and such person. 1.29 "RETIREMENT BENEFITS" shall mean the benefits described in Section 3.1(b) hereof. 1.30 "SERVICE" shall mean a Member's service defined as Vesting Service in the Basic Plan, which is taken into account for vesting purposes thereunder (including any such service prior to the date such individual becomes a Member but not including any such service after participation hereunder terminates), except that (i) Service will also include service while the Member is receiving Disability Benefits under this Plan; (ii) if a Member was -12- employed by a company acquired by the Company or an Affiliated Employer after the Effective Date, such Member's service with that company prior to the date of acquisition will not constitute Service hereunder; (iii) upon commencement of participation hereunder in accordance with Section 2.1 hereof, the CEO (as defined in such section) may limit any service otherwise to constitute Service hereunder with respect to periods prior to the date of participation in the Plan; and (iv) no service of a Former Member or Vested Former Member during any period after removal from participation under Section 2.2 shall constitute Service for purposes of the Plan. The foregoing notwithstanding, there shall be included as Service under the Plan the number of additional years (or other additional period) credited as "service" for purposes of the Plan to the Member or Former Member or Vested Former Member under an employment agreement between the Company or an Affiliated Employer and such person in effect at the time of such person's termination of employment. 1.31 "SURVIVING SPOUSE" shall mean the spouse of a deceased Member or Vested Former Member to whom such Member or Vested Former Member is married under applicable state law immediately preceding such Member or Vested Former Member's death. 1.32 "SURVIVING SPOUSE'S BENEFITS" shall mean the benefits described in Section 5 hereof. 1.33 "VESTED FORMER MEMBER" shall mean (i) a Member whose employment with the Company or an Affiliated Employer terminates on or after the date on which his or her Vested Percentage is greater than 0%, or (ii) a Member who was removed from -13- participation in the Plan, in accordance with Section 2.2 hereof, on or after the date on which his or her Vested Percentage is greater than 0%. 1.34 "PLAN ADMINISTRATOR" shall mean the Company, except that any action authorized to be taken by the Plan Administrator hereunder may also be taken by any committee or person(s) duly authorized by the Board or the duly authorized delegees of such duly authorized committee or person(s). SECTION 2 - PARTICIPATION 2.1 COMMENCEMENT OF PARTICIPATION. Such key executives of the Corporation and its Affiliated Employers as are designated by the CEO in writing and approved by the Plan Administrator shall participate in the Plan as of a date determined by the CEO. 2.2 TERMINATION OF PARTICIPATION. A Member's participation in the Plan shall terminate upon termination of his or her employment with the Company or any Affiliated Employer. Prior to termination of employment, a Member may be removed, upon written notice by the CEO as approved by the Plan Administrator, from further participation in the Plan. As of the date of termination or removal, no further benefits shall accrue to such individual hereunder. -14- SECTION 3 - AMOUNT AND FORM OF BENEFITS 3.1 RETIREMENT BENEFITS. (a) ELIGIBILITY. Upon the Retirement of a Member or Vested Former Member from the Company or an Affiliated Employer, he or she shall be entitled to receive a percentage (the "Vested Percentage") of the Retirement Benefit described in Section 3.1(b) hereof, payable in the form specified in Section 3.3. Notwithstanding the provisions of Section 1.30 of the Plan to the contrary, solely for the purpose of determining the Vested Percentage under the following schedule, Service shall exclude any such service prior to the date the individual becomes a Member, except to the extent otherwise determined by the Chief Executive Officer of the Company, in his or her sole discretion.
IF THE MEMBER'S SERVICE IS: THE VESTED PERCENTAGE IS: --------------------------- ------------------------- Less than 1 year 0% At least 1 but less than 2 years 33% At least 2 but less than 3 years 67% 3 or more years 100%
(b) AMOUNT. The Retirement Benefit of a Member or Vested Former Member shall be an annual benefit equal to the difference between (i) and the sum of (ii) and (iii), where: (i) is 1.67% of his or her Average Final Compensation multiplied by the number of his or her years of Service not in excess of 36 years; -15- (ii) is the Basic Plan Benefit payable to the Member or Vested Former Member as of the date of his or her Retirement expressed in the form of an annual life annuity, or, if the Basic Plan Benefit becomes payable after the Member's or Vested Former Member's Retirement, the Actuarial Equivalent Value of the Basic Plan Benefit payable in the form of an annual life annuity as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the Basic Plan; (iii) is the Other Retirement Income payable to the Member or Vested Former Member as of the date of his or her Retirement expressed in the form of an annual life annuity, or, if the Other Retirement Income becomes payable after the Member's or Vested Former Member's Retirement, the Actuarial Equivalent Value of the Other Retirement Income payable in the form of an annual life annuity as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the appropriate retirement arrangement. 3.2 DEFERRED VESTED BENEFIT. (a) ELIGIBILITY. Each Member and Vested Former Member who has a Vested Percentage (as defined below) greater than 0% and whose employment with the Company or an Affiliated Employer terminates prior to Retirement, for a reason other than Cause, death or Disability, shall be entitled to receive a percentage (the -16- "Vested Percentage") of the Deferred Vested Benefit described in Section 3.2(b) hereof, payable in the form specified in Section 3.3. Notwithstanding the provisions of Section 1.30 of the Plan to the contrary, solely for the purpose of determining the Vested Percentage under the following schedule, Service shall exclude any such service prior to the date the individual becomes a Member, except to the extent otherwise determined by the Chief Executive Officer of the Company, in his or her sole discretion.
IF THE MEMBER'S SERVICE IS: THE VESTED PERCENTAGE IS: --------------------------- ------------------------- Less than 1 year 0% At least 1 but less than 2 years 33% At least 2 but less than 3 years 67% 3 or more years 100%
(b) AMOUNT. The Deferred Vested Benefit of a Member or Vested Former Member who terminates and who meets the eligibility requirements of Section 3.2(a) shall be an annual benefit equal to the difference between (i) and the sum of (ii) and (iii), where: (i) is 1.67% of his or her Average Final Compensation multiplied by the number of his or her years of Service not in excess of 36; (ii) is the Basic Plan Benefit payable to the Member or Vested Former Member as of the date his or her Deferred Vested Benefit commences expressed in the form of an annual life annuity, or, if the Basic Plan -17- Benefit becomes payable after the Member's or Vested Former Member's Deferred Vested Benefit commences, the Actuarial Equivalent Value of the Basic Plan Benefit payable in the form of an annual life annuity as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the Basic Plan; (iii) is the Other Retirement Income payable to the Member or Vested Former Member as of the date his or her Deferred Vested Benefit commences expressed in the form of an annual life annuity, or, if the Other Retirement Income becomes payable after the Member's or Vested Former Member's Deferred Vested Benefit commences, the Actuarial Equivalent Value of the Other Retirement Income payable in the form of an annual life annuity as of such date, regardless of whether such date precedes the earliest possible payment date under the terms of the appropriate retirement arrangement. 3.3 FORM OF PAYMENT. (a) Except as provided under Section 3.3(b) or Section 3.3(c), the Retirement Benefit or Deferred Vested Benefit under this Plan, as the case may be, shall be payable in monthly installments in the form of a straight life annuity and without regard to any optional form of benefits elected under the Basic Plan. Payments shall commence on the first day of the calendar month coinciding with or next following (i) the Member's or Vested Former Member's Retirement, in the case -18- of Retirement Benefits or (ii) the later of the date the Member or Vested Former Member attains age 55 or terminates employment, in the case of Deferred Vested Benefits. (b) If a Member or Vested Former Member has made a Lump Sum Election pursuant to Section 3.4 and such Lump Sum Election becomes effective (i) prior to the date of such Member's or Vested Former Member's Retirement or termination of employment with the Company or an Affiliated Employer and (ii) while he or she was still a Member, the Retirement Benefit, or Deferred Vested Benefit under this Plan, as the case may be, shall be payable in the form or combination of forms of payment elected pursuant to such Lump Sum Election under Section 3.4 and without regard to any optional form of benefits elected under the Basic Plan. Any portion of the benefits hereunder payable in a lump sum shall be paid within 60 days following (i) the Member's or Vested Former Member's Retirement, in the case of Retirement Benefits or (ii) the later of the date the Member or Vested Former Member attains age 55 or terminates employment, in the case of Deferred Vested Benefits. (c) Notwithstanding any Lump Sum Election made (or not made) under Section 3.3, if the lump sum value, determined in the same manner as provided under Section 3.4(a), of a Member's or Vested Former Member's Retirement, or Deferred Vested Benefit is $10,000 or less at the time such benefit is payable under this Plan, such benefit shall be payable as a lump sum. -19- 3.4 LUMP SUM ELECTION. (a) A Member or Vested Former Member may elect to receive all, none, or a specified portion, as provided in Section 3.4(c), of his or her Retirement Benefit or Deferred Vested Benefit under the Plan as a lump sum and to receive any balance of such benefit in the form of an annuity; provided that any such Lump Sum Election shall be effective for purposes of this Plan only if the conditions of Section 3.4(b) are satisfied. A Member or Vested Former Member may elect a payment form different than the payment form previously elected by him or her under this Section 3.4(a) by filing a revised election form; provided that any such new election shall be effective only if the conditions of Section 3.4(b) are satisfied with respect to such new election. Any prior Lump Sum Election made by a Member that has satisfied the conditions of Section 3.4(b) shall remain effective for purposes of the Plan until such Member has made a new election satisfying the conditions of Section 3.4(b). The amount of any portion of a Member's or a Vested Former Member's Retirement Benefit or Deferred Vested Benefit payable as a lump sum under this Section 3.4 shall equal the present value of such portion of the benefit, and such present value shall be determined (i) based on a discount rate equal to 85% of the average of the 15-year non-callable U.S. Treasury bond yields as of the close of business on the last business day of each of the three months immediately preceding the date the annuity value is determined and (ii) using the 1983 Group Annuity Mortality Table. -20- (b) A Member's Election under Section 3.4(a) becomes effective only if all of the following conditions are satisfied: (i) such Member remains in the employment of the Company or an Affiliated Employer, as the case may be, for the full 12 calendar months immediately following the date of such election (the "Election Date"), except in the case of death or Disability of such Member (in which case Section 3.4 (d) shall apply) and (ii) such Member complies with the administrative procedures set forth by the Plan Administrator with respect to the making of a Lump Sum Election. (c) A Member making an election under Section 3.4(a) may specify the portion of his Retirement or Deferred Vested Benefit under the Plan to be received in a lump sum as follows: 0%, 25%, 50%, 75%, or 100%. (d) In the event a Member who has made an Election pursuant to Section 3.4(a) dies or becomes Disabled while employed by the Company or an Affiliated Employer and such death or total and permanent Disability occurs during the 12 calendar-month period immediately following the Election Date, the condition under Section 3.4(b)(i) shall be deemed satisfied with respect to such Member. 3.5 CESSATION OF BENEFITS. Subject to Section 3.8 hereof, no benefits or no further benefits, as the case may be, shall be paid to a Member, Vested Former Member or Surviving Spouse if the Member or Vested Former Member has: -21- (a) become a stockholder (unless such stock is listed on a national securities exchange or traded on a daily basis in the over-the-counter market and the Member's or Vested Former Member's ownership interest is not in excess of 2% of the company whose shares are being purchased), employee, officer, director or consultant of or to a company, or a member or an employee of or a consultant to a partnership or any other business or firm, which competes with any of the businesses identified in the Company's Employee Protection Plan, or such Member or Vested Former Member accepts any form of compensation from such competing entity; (b) been discharged from employment with the Company or any Affiliated Employer for Cause; (c) failed to retain in confidence any and all confidential information concerning the Company or any Affiliated Employer and its respective business which was known or became known to the Member or Vested Former Member, except as otherwise required by law and except information (i) ascertainable or obtained from public information, (ii) received by the Member or Vested Former Member at any time after the Member's or Vested Former Member's employment by the Company or any Affiliated Employer terminated, from a third party not employed by or otherwise affiliated with the Company or any Affiliated Employer, or (iii) which was or became known to the public by any means other than a breach of this Section 3.5; or -22- (d) made disparaging comments about the Company or any Affiliated Employer in any communications, written or oral, with any individual, company, government body or agency or any other entity whatsoever. For purposes hereof, "disparage" shall mean any communication, including, but not limited to, any statements, actions or insinuations, made either directly or through a third party, that would tend to lessen the standing or stature of the Company or any Affiliated Employer in the eyes of a customer, a prospective customer, a shareholder or a prospective shareholder. 3.6 NOTIFICATION OF CESSATION OF BENEFITS. Subject to Section 3.8 hereof, in any case described in Section 3.5, the Member, Vested Former Member or Surviving Spouse shall be given prior written notice that no benefits or no further benefits, as the case may be, will be paid to such Member, Vested Former Member or Surviving Spouse. Such written notice shall specify the particular act(s), or failures to act, and the basis on which the decision to cease paying his or her benefits has been made. 3.7 REPAYMENT OF BENEFITS PAID AS LUMP SUM. (a) Subject to Section 3.8 hereof, a Member or Vested Former Member who receives in a lump sum any portion of his or her Retirement Benefit or Deferred Vested Benefit pursuant to a Lump Sum Election, shall receive such lump sum portion of such Retirement Benefit or Deferred Vested Benefit subject to the condition that if such Member or Vested Former Member engages in any of the acts described in Section 3.5(a), then such Member or Vested Former Member shall, within 60 -23- days after written notice by the Company, repay to the Company the amount described in Section 3.7(b). (b) The amount described in this Section shall equal the amount of the Member's or Vested Former Member's lump sum benefit paid under this Plan to which such Member or Vested Former Member would not have been entitled, if such lump sum benefit had instead been payable in the form of an annuity under this Plan and such annuity payments were subject to the provisions of Section 3.5. 3.8 CHANGE IN CONTROL. (a) Anything in this Plan to the contrary notwithstanding: (i) Any Member, whose employment with the Company or an Affiliated Employer is involuntarily terminated by the Company or an Affiliated Employer at or within two years following a Change in Control for a reason other than Cause or whose employment is voluntarily terminated by the Member with Good Reason at or within two years following a Change in Control shall be deemed to have completed three years of Service for purposes of Sections 3.1(a) and 3.2(a) hereof and shall be credited with three additional years of Service for purposes of calculating the benefits payable under Sections 3.1(b) or 3.2(b) hereof, as the case may be. Notwithstanding the provisions of Section 3.3 of this Plan to the contrary, payment of the Actuarial Equivalent Value of such benefits shall -24- be made in the form provided in Section 3.3 commencing on the first day of the calendar month coinciding with or next following such Member's termination of employment; provided, however, that such Actuarial Equivalent Value shall be determined by crediting such Member with three additional years of age and on the assumption that unreduced benefits are payable upon the Member's attainment of age 55. Moreover, for purposes of determining the Actuarial Equivalent Value of such benefits payable in the form of a lump sum, the interest and mortality factors specified in Section 3.4(a) shall apply. In addition, in the event that a Member's Service shall have been limited pursuant to Section 1.30(iii) to disregard Service prior to such Member's participation in the Plan, such limitation shall be eliminated in the event of such Member's termination of employment at or within two years following a Change in Control as provided above in this subsection (i). (ii) In the event of a Potential Change in Control or Change in Control, the Company shall, not later than 15 days thereafter, have established one or more so-called "rabbi" trusts and shall deposit therein cash in an amount sufficient to provide for full payment of all potential benefits payable under the Plan at or following a Change in Control. Such rabbi trust(s) shall be irrevocable and shall provide that the Company may not, directly or indirectly, use or recover any assets of the trust(s) until such time as all obligations which potentially could arise hereunder have been settled and paid in full, subject only to the claims of creditors of the Company in the -25- event of insolvency or bankruptcy of the Company; provided, however, that if no Change in Control has occurred within two years after such Potential Change in Control, such rabbi trust(s) shall at the end of such two-year period become revocable and may thereafter be revoked by the Company. (iii) the provisions of Sections 3.5 through 3.7 shall be of no force or effect with respect to Members who Retire or terminate employment within a two-year period following a Change in Control. SECTION 4 - DISABILITY BENEFITS 4.1 DISABILITY BENEFITS. (a) ELIGIBILITY. A Member who is enrolled for the maximum disability insurance coverage available under the Basic Disability Plan and who has become Disabled shall be entitled to the Disability Benefit described in Section 4.1(b). (b) AMOUNT. The Disability Benefit of a Member entitled thereto shall be an annual benefit payable in monthly installments under this Plan during the same period as disability benefits are actually paid by the Basic Disability Plan, in an amount equal to 60% of the Member's Covered Earnings, offset by the Member's (i) Basic Disability Plan Benefit, (ii) Basic Plan Benefit, if the Basic Disability Plan Benefit does not already include an offset for such Basic Plan Benefit, and (iii) Other Disability Income. -26- SECTION 5 - SURVIVING SPOUSE'S BENEFITS 5.1 DEATH PRIOR TO BENEFIT COMMENCEMENT. Upon the death of a Member or Vested Former Member, prior to the commencement of his or her Retirement Benefit or Deferred Vested Benefit hereunder, any such Member shall be deemed to have completed three years of Service for purposes of Section 3.1(a) and Section 3.2(a) and his or her Surviving Spouse will be entitled to a Surviving Spouse's Benefit under this Plan equal to 50% of the Retirement or Deferred Vested Benefit that would have been provided from the Plan had the Member or Vested Member retired from or terminated employment with the Company or an Affiliated Employer on the date of death. 5.2 DEATH ON OR AFTER BENEFIT COMMENCEMENT. Upon the death of a Vested Former Member while he or she is receiving Retirement or Deferred Vested Benefits, his or her Surviving Spouse shall receive a Surviving Spouse's Benefit equal to 50% of the Benefit he or she was receiving at the time of death. Notwithstanding the foregoing, no benefit shall be payable under this Section 5.2 to the extent a Retirement Benefit or Deferred Vested Benefit was previously paid to a Member or Vested Former Member in the form of a lump sum. 5.3 COMMENCEMENT OF SURVIVING SPOUSE'S BENEFIT. Except as provided in Section 5.4, the Surviving Spouse's Benefit provided under Sections 5.1 or 5.2 will be payable monthly, commencing on the first day of the month coincident with or next following the date of the Member's or Vested Former Member's death or, if the Member or Vested Former Member had not attained age 55, on the date such Member or Vested Former Member -27- would have attained age 55 had he or she lived. Such benefits shall continue until the first day of the month in which the Surviving Spouse dies. 5.4 LUMP SUM PAYMENT. (a) If a Member or a Vested Former Member made an Election under Section 3.4 but such Member or Vested Former Member died prior to such lump sum payment, the Surviving Spouse's Benefit payable under Section 5.1 hereof will be payable in the form or combination of forms of payment so elected by such Member or Vested Former Member pursuant to such Lump Sum Election. The amount of any lump sum payment under the Plan shall be determined using the actuarial assumptions set forth in Section 3.4(a). (b) If the lump sum value, determined in the same manner as provided under Section 3.4(a), of a Surviving Spouse's Benefit is $10,000 or less at the time such Surviving Spouse's Benefit is payable under this Plan, such benefit shall be payable as a lump sum. (c) Any Surviving Spouse's Benefit which is payable as a lump sum shall be paid within 60 days after the date when any portion of such benefit payable in annuity form commences or would commence if any portion of such Surviving Spouse's Benefit were payable as an annuity as set forth in Section 5.3. -28- 5.5 REDUCTION. Notwithstanding the foregoing provisions of Section 5, the amount of a Surviving Spouse's Benefit shall be reduced by one percentage point for each year (where a half year or more is treated as a full year) in excess of ten years that the age of the Member or Vested Former Member exceeds the age of the Surviving Spouse. SECTION 6 - PLAN ADMINISTRATOR 6.1 DUTIES AND AUTHORITY. The Plan Administrator shall be responsible for the administration of the Plan and may delegate to any management committee, employee, director or agent its responsibility to perform any act hereunder, including, without limitation, those matters involving the exercise of discretion; provided, that such delegation shall be subject to revocation at any time at the Plan Administrator's discretion. The Plan Administrator shall have the sole discretion to determine all questions arising in connection with the Plan, to interpret the provisions of the Plan and to construe all of its terms, to adopt, amend, and rescind rules and regulations for the administration of the Plan, and generally to conduct and administer the Plan and to make all determinations in connection with the Plan as may be necessary or advisable. All such actions of the Plan Administrator shall be conclusive and binding upon all Members, Former Members, Vested Former Members, Surviving Spouses and other persons. 6.2 CLAIMS PROCEDURE. A Member, Former Member or Vested Former Member or his or her authorized representative shall have 60 days after receipt of written notification of denial of a claim for benefits under the Plan to request a review of the denial by making written -29- request to the Plan Administrator and may review pertinent documents and submit issues and comments in writing within such 60-day period. Not later than 60 days after receipt of the request for review, the Plan Administrator shall render and furnish to the claimant a written decision, which shall make specific references to pertinent Plan provisions on which it is based. If special circumstances require an extension of time for processing, the decision shall be rendered as soon as possible, but not later than 120 days after receipt of the request for review, provided that written notice and explanation of the delay are given to the claimant prior to commencement of the extension. Such decision by the Plan Administrator shall not be subject to further review. If a decision on review is not furnished to a claimant within the specified time period, the claim shall be deemed to have been denied on review. SECTION 7 - MISCELLANEOUS 7.1 AMENDMENT; TERMINATION. The Board of Directors of the Company, may, in its sole discretion, terminate, suspend or amend this Plan at any time or from time to time, in whole or in part; provided, however, that no termination, suspension or amendment of the Plan may adversely affect (a) a Member's or Vested Former Member's benefit under the Plan to which he or she is entitled hereunder, or, (b) a Vested Former Member's right or the right of a Surviving Spouse to receive or to continue to receive a benefit in accordance with the Plan, such benefits or rights as in effect on the date immediately preceding the date of such termination, suspension or amendment. Notwithstanding the foregoing, the Employee Benefits Committee of the Company may amend the Plan -30- without the approval of the Board of Directors of the Company with respect to amendments that such Committee determines do not have a significant effect on the cost of the Plan. 7.2 NO EMPLOYMENT RIGHTS. Nothing contained herein will confer upon any Member, Former Member or Vested Former Member the right to be retained in the service of the Company or any Affiliated Employee, nor will it interfere with the right of the Company or any Affiliated Employer to discharge or otherwise deal with Members, Former Members or Vested Former Members with respect to matters of employment. 7.3 PAYOUT IN DISCRETION OF THE PLAN ADMINISTRATOR. Notwithstanding anything herein to the contrary, at any time following the termination of service of the Member or Vested Former Member, the Plan Administrator may authorize, under uniform rules applicable to all Members, Vested Former Members and Surviving Spouses under the Plan, a lump sum distribution of a Member's, Vested Former Member's and/or Surviving Spouse's Retirement Benefit or Surviving Spouse's Benefit under the Plan in an amount equal to the Actuarial Equivalent Value of such Retirement Benefit or Surviving Spouse's Benefit, in full satisfaction of all present and future Plan liability with respect to such Member, Vested Former Member and/or Surviving Spouse, if the amount of such present value is less than $250,000. Such lump sum distribution may be made without the consent of the Member, Vested Former Member or Surviving Spouse. 7.4 UNFUNDED STATUS. Members and Vested Former Members shall have the status of general unsecured creditors of the Company, and this Plan constitutes a mere promise by the -31- Company to make benefit payments at the time or times required hereunder. It is the intention of the Company that this Plan be unfunded for tax purposes and for purposes of Title I of ERISA and any trust created by the Company and any assets held by such trust to assist the Company in meeting its obligations under the Plan shall meet the requirements necessary to retain such unfunded status. 7.5 ARBITRATION. Any dispute or controversy arising under or in connection with the Plan shall be settled exclusively by arbitration in New York, New York in accordance with the rules of the American Arbitration Association in effect at the time of such arbitration. The Company shall pay the entire costs of any proceeding brought by a Member, Vested Former Member, Former Member, or Surviving Spouse hereunder, including the fees and expenses of counsel and pension experts engaged by such person, and such expenses shall be reimbursed promptly upon evidence that such expenses have been incurred without awaiting the outcome of the proceedings; provided however, that such costs and expenses shall be repaid to the Company by the recipient of same if it is finally determined by the arbitrators that the position taken by such person was entirely without merit. Failure of such person to prevail in any dispute or controversy shall not be the sole basis on which such determination shall be made. 7.6 NO ALIENATION. A Member's or Vested Former Member's right to benefit payments under the Plan shall not be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment or garnishment by creditors or such Member or Vested Former Member or his or her Surviving Spouse. -32- 7.7 WITHHOLDING. The Company may withhold from any benefit under the Plan an amount sufficient to satisfy its tax withholding obligations. 7.8 GOVERNING LAW. The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in such state to the extent not preempted by federal law. 7.9 SUCCESSORS. The Company shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to expressly assume and agree to perform the obligations of the Company under this Plan in the same manner and to the same extent that the Company would have been required to perform such obligations if no such succession had taken place and such assumption shall be an express condition to the consummation of any such purchase, merger, consolidation or other transaction. 7.10 INTEGRATION. In the event of any conflict or ambiguity between this Plan and the terms of any employment agreement between a Member and the Company or any Change in Control Agreement between a Member and the Company (this Plan and any such employment agreement or Change in Control Agreement being collectively referred to herein as the "arrangements"), such conflict or ambiguity shall be resolved in accordance with the terms of that arrangement which are most beneficial to the Member; provided, however, that no such resolution of any such conflict or ambiguity shall operate to cause the Member to receive duplicate payments or benefits under the arrangements. -33- EX-10.48 8 a2068479zex-10_48.txt EXHIBIT 10.48 EXHIBIT 10.48 1998 IMS HEALTH INCORPORATED EMPLOYEE STOCK PURCHASE PLAN (Amended and Restated as of December 19, 2000) 1. PURPOSE OF THE PLAN The purpose of the Plan is to give eligible employees of the Company and its Subsidiaries the ability to share in IMS Health's future success. The Company expects that it will benefit from the added interest which such employees will have in the welfare of the Company as a result of their increased equity interest in the Company's success. 2. DEFINITIONS The following capitalized terms used in the Plan have the respective meanings set forth in this Section: (a) ACT: The Securities Exchange Act of 1934, as amended, or any successor thereto. (b) BENEFICIAL OWNER: As such term is defined in Rule 13d-3 under the Act (or any successor rule thereto). (c) BOARD: The Board of Directors of the Company. (d) CHANGE IN CONTROL: The occurrence of any of the following events: (i) any person (other than the Company, any trustee or other fiduciary holding securities under an employee benefit plan of the Company, or any Company owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company), becomes the Beneficial Owner, directly or indirectly, of securities of the Company representing 20% or more of the combined voting power of the Company's then-outstanding securities; (ii) during any period of twenty-four months (not including any period prior to the Effective Date), individuals who at the beginning of such period constitute the Board, and any new director (other than (A) a director nominated by a Person who has entered into an agreement with the Company to effect a transaction described in Sections 2(d)(i), (iii) or (iv) of the Plan, (B) a director nominated by any Person (including the Company) who publicly announces an intention to take or to consider taking actions 1 (including, but not limited to, an actual or threatened proxy contest) which if consummated would constitute a Change in Control or (C) a director nominated by any Person who is the Beneficial Owner, directly or indirectly, of securities of the Company representing 10% or more of the combined voting power of the Company's securities) whose election by the Board or nomination for election by the Company's stockholders was approved in advance by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute at least a majority thereof; (iii) the stockholders of the Company approve any transaction or series of transactions under which the Company is merged or consolidated with any other company, other than a merger or consolidation (A) which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity) more than 66 2/3% of the combined voting power of the voting securities of the Company or such surviving entity outstanding immediately after such merger or consolidation and (B) after which no Person holds 20% or more of the combined voting power of the then-outstanding securities of the Company or such surviving entity; or (iv) the stockholders of the Company approve a plan of complete liquidation of the Company or an agreement for the sale or disposition by the Company of all or substantially all of the Company's assets. (e) CODE: The Internal Revenue Code of 1986, as amended, or any successor thereto. (f) COMMITTEE: The Compensation and Benefits Committee of the Board. (g) COMPANY: IMS Health Incorporated, a Delaware corporation. (h) COMPENSATION: Base salary, annual bonuses, commissions, overtime and shift pay, in each case prior to reductions for pre-tax contributions made to a plan or salary reduction contributions to a plan excludable from income under Section 125 of the Code. Notwithstanding the foregoing, Compensation shall exclude severance pay (including, without limitation, severance pay under The IMS Health Incorporated Employee Protection Plan), stay-on bonuses, long-term bonuses, retirement income, change-in-control payments, contingent payments, income derived from stock options, stock appreciation rights and other equity-based compensation and other forms of special remuneration. 2 (i) DISABILITY: Inability to engage in any substantial gainful activity by reason of a medically determinable physical or mental impairment which constitutes a permanent and total disability, as defined in Section 22(e)(3) of the Code (or any successor section thereto). The determination whether a Participant has suffered a Disability shall be made by the Committee based upon such evidence as it deems necessary and appropriate. A Participant shall not be considered disabled unless he or she furnishes such medical or other evidence of the existence of the Disability as the Committee, in its sole discretion, may require. (j) DISTRIBUTION: [Reserved]. (k) DISQUALIFYING DISPOSITION: As such term is defined in Section 10(f) of the Plan. (l) EFFECTIVE DATE: The date on which the Plan takes effect, as defined pursuant to Section 22 of the Plan. (m) FAIR MARKET VALUE: On a given date, the arithmetic average of the high and low prices of the Shares as reported on such date on the Composite Tape of the principal national securities exchange on which such Shares are listed or admitted to trading, or, if no Composite Tape exists for such national securities exchange on which such Shares are listed or admitted to trading, or, if the Shares are not listed or admitted on a national securities exchange, the arithmetic average of the per Share closing bid price and per Share closing asked price on such date as quoted on the National Association of Securities Dealers Automated Quotation System (or such market in which such prices are regularly quoted), or, if there is no market on which the Shares are regularly quoted, the Fair Market Value shall be the value established by the Committee in good faith. If no sale of Shares shall have been reported on such Composite Tape or such national securities exchange on such date or quoted on the National Association of Securities Dealers Automated Quotation System on such date, then the immediately preceding date on which sales of the Shares have been so reported or quoted shall be used. (n) MAXIMUM SHARE AMOUNT: Subject to Section 423 of the Code, the maximum number of Shares that a Participant may purchase on any given Purchase Date, as determined by the Committee in its sole discretion. (o) OFFERING DATE: The first date of an Offering Period. (p) OFFERING PERIOD: An offering period described in Section 5 of the Plan. (q) OPTION: A stock option granted pursuant to Section 8 of the Plan. 3 (r) PARTICIPANT: An individual who is eligible to participate in the Plan pursuant to Section 6 of the Plan. (s) PARTICIPATING SUBSIDIARY: A Subsidiary of the Company that is selected to participate in the Plan by the Committee in its sole discretion. (t) PAYROLL DEDUCTION ACCOUNT: An account to which payroll deductions of Participants are credited under Section 10(c) of the Plan. (u) PERSON: As such term is used for purposes of Section 13(d) or 14(d) of the Act (or any successor section thereto). (v) PLAN: The 1998 IMS Health Incorporated Employee Stock Purchase Plan (as amended and restated as of December 19, 2000). (w) PLAN BROKER: A stock brokerage or other financial services firm designated by the Committee in its sole discretion. (x) PURCHASE DATE: The last date of an Offering Period. (y) PURCHASE PRICE: The purchase price per Share, as determined pursuant to Section 9 of the Plan. (z) RETIREMENT: Termination of employment with the Company or a Subsidiary after such Participant has attained age 55 and five years of service with the Company; or, with the prior written consent of the Committee that such termination be treated as a Retirement hereunder, termination of employment under other circumstances. (aa) SHARES: Shares of common stock, par value $0.01 per Share, of the Company. (bb) SUBSIDIARY: A subsidiary corporation, as defined in Section 424(f) of the Code (or any successor section thereto). 3. SHARES SUBJECT TO THE PLAN The total number of Shares which may be issued under the Plan is 3,000,000. The Shares may consist, in whole or in part, of unissued Shares, treasury Shares or Shares purchased on the open market. The issuance of Shares pursuant to the Plan shall reduce the total number of Shares available under the Plan. 4 4. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Committee, which may delegate its duties and powers in whole or in part to any subcommittee thereof consisting solely of at least two individuals who are each "non-employee directors" within the meaning of Rule 16b-3 under the Act (or any successor rule thereto). The Committee is authorized to interpret the Plan, to establish, amend and rescind any rules and regulations relating to the Plan, and to make any other determinations that it deems necessary or desirable for the administration of the Plan. The Committee may correct any defect or supply any omission or reconcile any inconsistency in the Plan in the manner and to the extent the Committee deems necessary or desirable. Any decision of the Committee in the interpretation and administration of the Plan, as described herein, shall lie within its sole and absolute discretion and shall be final, conclusive and binding on all parties concerned (including, but not limited to, Participants and their beneficiaries or successors). Subject to Section 16 of the Act or other applicable law, the Committee may delegate its duties and powers under the Plan to such individuals as it designates in its sole discretion. 5. OFFERING PERIODS Offering Periods shall be of six-months duration and shall commence on January 1 and July 1 of each year. Notwithstanding the foregoing, the Committee may change the duration of any Offering Period in its sole discretion. 6. ELIGIBILITY Any individual who is an employee of the Company or of a Participating Subsidiary is eligible to participate in the Plan, except for the following employees: (a) employees whose customary employment is twenty (20) hours or less per week within the meaning of Section 423(b)(4)(B) of the Code, (b) employees whose customary employment is for not more than five (5) months in any calendar year within the meaning of Section 423(b)(4)(C) of the Code; and (c) employees who, if granted an option would immediately thereafter own stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the employer corporation or of its parent or Subsidiary corporation within the meaning of Section 423(b)(3) of the Code. For purposes of this Section 6(c) of the Plan, the rules of Section 424(d) of the Code shall apply in determining stock ownership of 5 an individual, and stock which the employee may purchase under outstanding options shall be treated as stock owned by the employee. 7. PARTICIPATION IN THE PLAN The Committee shall set forth procedures pursuant to which Participants my elect to participate in a given Offering Period under the Plan. Once a Participant elects to participate in an Offering Period, such employee shall automatically participate in all subsequent Offering Periods, unless the employee (a) makes a new election or (b) withdraws from an Offering Period or from the Plan pursuant to Section 11 of the Plan. 8. GRANT OF OPTION ON ENROLLMENT Each Participant who elects to participate in a given Offering Period shall be granted (as of the Offering Date) an Option to purchase (as of the Purchase Date) a number of Shares equal to the lesser of (i) the Maximum Share Amount or (ii) the number determined by dividing the amount accumulated in such employee's payroll deduction account during such Offering Period by the Purchase Price. 9. PURCHASE PRICE The Purchase Price at which a Share will be sold for a given Offering Period, as of the Purchase Date, shall be eighty-five percent (85%) of the lesser of: (a) the Fair Market Value of a Share on the Offering Date; or (b) the Fair Market Value of a Share on the Purchase Date. 10. PAYMENT OF PURCHASE PRICE; CHANGES IN PAYROLL DEDUCTIONS; ISSUANCE OF SHARES Subject to Sections 11 and 12 of the Plan: (a) Payroll deductions shall be made on each day that Participants are paid during an Offering Period with respect to all Participants who elect to participate in such Offering Period. The deductions shall be made as a percentage of the Participant's Compensation in one percent (1%) increments, from one percent (1%) to twenty percent (20%) of such Participant's Compensation, as elected by the Participant; provided however, that no Participant shall be permitted to purchase Shares under 6 this Plan (or under any other "employee stock purchase plan" within the meaning of Section 423(b) of the Code, of the Company or any of its Subsidiaries) with an aggregate Fair Market Value (as determined as of each Offering Date) in excess of $21,250 for any one calendar year within the meaning of Section 423(b)(8) of the Code. For a given Offering Period, payroll deductions shall commence on the Offering Date and shall end on the related Purchase Date, unless sooner altered or terminated as provided in the Plan. (b) A Participant shall not change the rate of payroll deductions once an Offering Period has commenced. The Committee shall specify procedures by which a Participant may increase or decrease the rate of payroll deductions for subsequent Offering Periods. (c) All payroll deductions made with respect to a Participant shall be credited to his or her Payroll Deduction Account under the Plan and shall be deposited with the general funds of the Company, and no interest shall accrue on the amounts credited to such Payroll Deduction Accounts. All payroll deductions received or held by the Company may be used by the Company for any corporate purpose, and the Company shall not be obligated to segregate such payroll deductions. A Participant may not make any separate cash payment into his or her Payroll Deduction Account, and payment for Shares purchased under the Plan may not be made in any form other than by payroll deduction. (d) On each Purchase Date, the Company shall apply all funds then in the Participant's Payroll Deduction Account to purchase Shares (in whole and/or fractional Shares, as the case may be) pursuant to the Option granted on the Offering Date. In the event that the number of Shares to be purchased by all Participants in one Offering Period exceeds the number or Shares then available for issuance under the Plan, (i) the Company shall make a pro rata allocation of the remaining Shares in as uniform a manner as shall be practicable and as the Committee shall determine to be equitable and (ii) all funds not used to purchase Shares on the Purchase Date shall be returned, without interest, to the Participant. (e) As soon as practicable following the end of each Offering Period, the number of Shares purchased by each Participant shall be deposited into an account established in the Participant's name with the Plan Broker. Unless otherwise permitted by the Committee in its sole discretion, dividends that are declared on the Shares held in such account shall be reinvested in whole or fractional Shares. (f) Once the holding period set forth in Section 423(a) of the Code has been satisfied with respect to a Participant's Shares, the Participant may (i) 7 keep his or her shares in the account established in the Participant's name with the Plan Broker, (ii) transfer his or her Shares to another brokerage account of Participant's choosing or (iii) request in writing that a stock certificate be issued to him or her with respect to the whole Shares in his or her Plan Broker account and that any fractional Shares remaining in such account be paid in cash to him or her. The Committee may require, in its sole discretion, that the Participant bear the cost of transferring such Shares or issuing certificates for such Shares. Any Participant who engages in a "Disqualifying Disposition" of his or her Shares within the meaning of Section 421(b) of the Code shall notify the Company of such Disqualifying Disposition in accordance with Section 20 of the Plan. (g) The Participant shall have no interest or voting right in the Shares covered by his or her Option until such Option is exercised. 11. WITHDRAWAL Each Participant may withdraw from an Offering Period or from the Plan under such terms and conditions as are established by the Committee in its sole discretion. Upon a Participant's withdrawal from an Offering Period or from the Plan, all accumulated payroll deductions in the Payroll Deduction Account shall be returned, without interest, to such Participant, and he or she shall not be entitled to any Shares on the Purchase Date or thereafter with respect to the Offering Period in effect at the time of such withdrawal. Such Participant shall be permitted to participate in subsequent Offering periods pursuant to such terms and conditions established by the Committee in its sole discretion. 12. TERMINATION OF EMPLOYMENT A Participant shall cease to participate in the Plan upon his or her termination of employment for any reason (including, but not limited to, Retirement, death or Disability). In such event, all payroll deductions credited to the Participant's Payroll Deduction Account shall be returned, without interest, to such Participant or to his or her designated beneficiary, as the case may be, and such Participant or beneficiary shall have no future rights in any unexercised Options under the Plan. 13. ADJUSTMENTS UPON CERTAIN EVENTS Notwithstanding any other provisions in the Plan to the contrary, the following provisions shall apply to all Options granted under the Plan: 8 (a) GENERALLY. In the event of any change in the outstanding Shares by reason of any Share dividend or split, reorganization, recapitalization, merger, consolidation, spin-off, combination or exchange of Shares or other corporate exchange, or any distribution to stockholders of Shares other than regular cash dividends, the Committee in its sole discretion and without liability to any person may make such substitution or adjustment, if any, as it deems to be equitable, as to (i) the number or kind of Shares or other securities issued or reserved for issuance pursuant to the Plan, (ii) the Purchase Price and/or (iii) any other affected terms of such Options. (b) CHANGE IN CONTROL. In the event of a Change in Control, the Committee in its sole discretion and without liability to any person may take such actions, if any, as it deems necessary or desirable with respect to any Option as of the date of the consummation of the Change in Control. 14. NONTRANSFERABILITY No Options granted under the Plan shall be transferable or assignable by the Participant otherwise than by will or by the laws of descent and distribution. 15. NO RIGHT TO EMPLOYMENT The granting of an Option under the Plan shall impose no obligation on the Company or any Subsidiary to continue the employment of a Participant and shall not lessen or affect the Company's or Subsidiary's right to terminate the employment of such Participant. 16. SECTION 423 OF THE CODE The Plan is intended to qualify as an "employee stock purchase plan" within the meaning of Section 423 of the Code or any successor section thereto. Accordingly, all Participants shall have the same rights and privileges under the Plan, subject to any exceptions that are permitted under Section 423(b)(5) of the Code. Any provision of the Plan that is inconsistent with Section 423 of the Code or any successor provision shall, without further act or amendment, be reformed to comply with the requirements of Section 423. This Section 16 shall take precedence over all other provisions in the Plan. 9 17. AMENDMENT OR TERMINATION OF THE PLAN The Plan shall continue until the earliest to occur of the following: (a) termination of the Plan by the Board, (b) issuance of all of the Shares reserved for issuance under the Plan, (c) June 30, 2008 or (d) failure to satisfy the conditions of Section 22 of the Plan. The Board may amend, alter or discontinue the Plan, but no amendment, alteration or discontinuation shall be made which, (a) without the approval of the stockholders of the Company, would (except as is provided in Section 13 of the Plan), increase the total number of Shares reserved for the purposes of the Plan or (b) without the consent of a Participant, would impair any of the rights or obligations under any Option theretofore granted to such Participant under the Plan; PROVIDED, HOWEVER, that the Committee may amend the Plan in such manner as it deems necessary to permit the granting of Options meeting the requirements of the Code or other applicable laws. 18. TAX WITHHOLDING The Participant's employer shall have the right to withhold from such Participant such withholding taxes as may be required by federal, state, local or other law, or to otherwise require the Participant to pay such withholding taxes. 19. INTERNATIONAL PARTICIPANTS With respect to Participants who reside or work outside the United States of America, the Committee may, in its sole discretion, amend the terms of the Plan or Awards with respect to such Participants in order to conform such terms to the requirements of local law. 20. NOTICES All notices and other communications hereunder shall be in writing and hand delivered or mailed by registered or certified mail (return receipt requested) or sent by any means of electronic message transmission with delivery confirmed (by voice or otherwise) to the parties at the following addresses (or at such other addresses for a party as shall be specified by like notice) and will be deemed given on the date on which such notice is received: IMS HEALTH Shared Business Services 861 Marcon Boulevard Allentown, PA 18109 Fax (610) 231- 8221 Phone (610) 231- 8220 e-mail address: payroll@imshealth.com 10 21. CHOICE OF LAW The Plan shall be governed by and construed in accordance with the laws of the State of New York applicable to contracts made and to be performed in the State of New York. 22. EFFECTIVENESS OF THE PLAN The Plan shall become effective on the date on which it is adopted by the Board (the "Effective Date"); provided, however, that the Plan must be approved within twelve (12) months after the Effective Date by the stockholders of the Company. The Company may commence payroll deductions on behalf of Participants pursuant to the Plan prior to such stockholder approval; provided, however, that the use of such payroll deductions to purchase Shares pursuant to the exercise of Options hereunder is contingent upon stockholder approval of the Plan. If stockholder approval of the Plan is not obtained prior to the first Purchase Date, the Plan shall terminate and all amounts withheld through payroll deduction or held in a Participant's Payroll Deduction Account shall be returned to such Participant, without interest. 11 EX-10.51 9 a2068479zex-10_51.txt EXHIBIT 10.51 EXHIBIT 10.51 RULES OF THE IMS HEALTH INCORPORATED 2001 INLAND REVENUE APPROVED SUB-PLAN FOR UNITED KINGDOM EMPLOYEES Adopted by the Company on: 16 October 2001 Approved by the Inland Revenue on: 22 October 2001 Inland Revenue reference no: X22069/IDA PRICEWATERHOUSECOOPERS HARMAN HOUSE, 1 GEORGE STREET, UXBRIDGE, MIDDLESEX UB8 1QQ TEL: 01895 273333 FAX: 01895 274777 REF: AM/CAM/5061 SCHEDULE RULES OF THE IMS HEALTH INCORPORATED 2001 INLAND REVENUE APPROVED SUB-PLAN FOR UNITED KINGDOM EMPLOYEES 1. GENERAL This schedule to the IMS Health Incorporated 2000 Stock Incentive Plan ("the Plan") sets out the rules of The IMS Health Incorporated 2001 Inland Revenue Approved Sub-Plan for United Kingdom employees ("the Sub-Plan"). 2. ESTABLISHMENT OF SUB-PLAN IMS Health Incorporated ("the Company") has established the Sub-Plan under Section 14 of the Plan, which authorises the Company to establish sub-plans to the Plan(1). 3. PURPOSE OF SUB-PLAN The purpose of the Sub-Plan is to enable the grant to, and subsequent exercise by, certain employees and certain directors in the United Kingdom, on a tax favoured basis, of options to acquire shares in the Company under the Plan. 4. INLAND REVENUE APPROVAL OF SUB-PLAN The Sub-Plan is intended to be approved by the Inland Revenue under Schedule 9 to ICTA 1988. 5. RULES OF SUB-PLAN The rules of the Plan, in their present form and as amended from time to time, shall, with the modifications set out in this schedule, form the rules of the Sub-Plan. In the event of any conflict between the rules of the Plan and this schedule, the schedule shall prevail. 6. RELATIONSHIP OF SUB-PLAN TO PLAN The Sub-Plan shall form part of the Plan and not a separate and independent plan. 7. INTERPRETATION In the Sub-Plan, unless the context otherwise requires, the following words and expressions have the following meanings: 1 ACQUIRING COMPANY a company which obtains Control of the Company in the circumstances referred to in rule 26; APPROVAL DATE the date on which the Sub-Plan is approved by the Inland Revenue under Schedule 9 to ICTA 1988; ASSOCIATED COMPANY The meaning given to that expression by section 187(2) of ICTA 1988;(2) CLOSE COMPANY The meaning given to that expression by section 414 of, and paragraph 8 of Schedule 9 to, ICTA 1988;(3) CONSORTIUM the meaning given to that word by section 187(7) of ICTA 1988;(4) CONTROL the meaning given to that word by section 840 of ICTA 1988 and "Controlled" shall be construed accordingly;(5) DATE OF GRANT the date on which an Option is granted to an Eligible Employee determined by the Committee or its delegate in accordance with Section 6 of the Plan; ELIGIBLE EMPLOYEE an individual who falls within Section 5 of the Plan and who is an employee of the Company or a company participating in the Sub-Plan as described in rule 8 and who does not have at the Date of Grant of an Option, and has not had during the preceding twelve months, a Material Interest in a Close Company which is the Company or a company which has Control of the Company or a member of a Consortium which owns the Company; EXPIRATION DATE the date on which an Option will ordinarily lapse if not exercised; ICTA 1988 the Income and Corporation Taxes Act 1988; INLAND REVENUE the UK Board of Inland Revenue; MARKET VALUE notwithstanding Section 2(k) of the Plan, (a) in the case of an Option granted under the Sub Plan: 2 (i) if at the relevant time the Shares are listed on the New York Stock Exchange(6) the mean between the highest and lowest reported sale prices of a Share on the New York Stock Exchange as reported on the Composite Tape for the Date of Grant of the Option; (ii) if paragraph (i) does not apply, the market value of a Share as determined in accordance with Part VIII of the Taxation of Chargeable Gains Act 1992(7) and agreed in advance with the Inland Revenue Shares Valuation Division on the Date of Grant of the Option or such earlier date or dates (not being more than thirty days before the Date of Grant) as may be agreed with the Inland Revenue; (b) in the case of an option granted under any other share option scheme, the market value of an ordinary share in the capital of the Company determined under the rules of such scheme for the purpose of the grant of the option; MATERIAL INTEREST the meaning given to that expression by section 187(3) of ICTA 1988;(8) NEW OPTION an option granted by way of exchange under rule 26.1; NEW SHARES the shares subject to a New Option referred to in rule 26.1; OPTION a subsisting right to acquire Shares granted under the Sub-Plan; ORDINARY SHARE CAPITAL the meaning given to that expression by section 832(1) of ICTA 1988; PARTICIPANT an employee who holds an Option or, where the context permits, his legal personal representatives; and STOCK OPTION AGREEMENT a written agreement between the Company and a Participant evidencing the terms and conditions of an individual Option grant. 3 Each Stock Option Agreement shall be subject to the terms and conditions of the Sub-Plan; and SUBSIDIARY the meaning given to that word in section 736 of the Companies Act 1985. In this schedule, unless the context otherwise requires: words and expressions not defined above have the same meanings as are given to them in the Plan; the rule headings are inserted for ease of reference only and do not affect their interpretation; a reference to a rule is a reference to a rule in this schedule; the singular includes the plural and vice-versa and the masculine includes the feminine; and a reference to a statutory provision is a reference to a United Kingdom statutory provision and includes any statutory modification, amendment or re-enactment thereof. 8. COMPANIES PARTICIPATING IN SUB-PLAN The companies participating in the Sub-Plan shall be the Company and any company Controlled by the Company which has been nominated by the Company to participate in the Sub-Plan. 9. SHARES USED IN SUB-PLAN The Shares shall form part of the Ordinary Share Capital of the Company and shall at all times comply with the requirements of paragraphs 10 to 14 of Schedule 9 to ICTA 1988. (9) 10. GRANT OF OPTIONS An Option shall be granted under and subject to the rules of the Plan as modified by this schedule. 11. IDENTIFICATION OF OPTIONS A Stock Option Agreement issued in respect of an Option shall expressly state that it is issued in respect of an Option. An option which is not so identified shall not constitute an Option. 4 12. CONTENTS OF STOCK OPTION AGREEMENT A Stock Option Agreement issued in respect of an Option shall be issued to the Participant as soon as practicable after the Date of Grant and shall state: that it is issued in respect of an Option; the Date of Grant of the Option; the number of Shares subject to the Option; the Option Price under the Option; the Expiration Date of an Option; any performance target or other condition imposed on the exercise of the Option; the date(s) on which the Option will ordinarily become exercisable; and the date(s) on which the Option will become exercisable in the event of a Change in Control under Section 9(b)(i) of the Plan. 13. EARLIEST DATE FOR GRANT OF OPTIONS An Option may not be granted earlier than the Approval Date. 14. PERSONS TO WHOM OPTIONS MAY BE GRANTED An Option may not be granted to an individual who is not an Eligible Employee at the Date of Grant. 15. OPTIONS NON TRANSFERABLE Notwithstanding Section 12 of the Plan, an Option shall be personal to the Eligible Employee to whom it is granted and, subject to rule 25, shall not be capable of being transferred, charged or otherwise alienated and shall lapse immediately if the Participant purports to transfer, charge or otherwise alienate the Option. 16. LIMIT ON NUMBER OF SHARES PLACED UNDER OPTION UNDER SUB-PLAN For the avoidance of doubt, Shares placed under Option under the Sub-Plan shall be taken into account for the purpose of Section 3 of the Plan. 17. INLAND REVENUE LIMIT ((POUND)30,000) An Option may not be granted to an Eligible Employee if the result of granting the Option would be that the aggregate Market Value of the shares subject to all outstanding options granted to him under the Sub-Plan or any other share option scheme established by the Company or an Associated Company and 5 approved by the Inland Revenue under Schedule 9 to ICTA 1988 (other than a savings related share option scheme) would exceed sterling (pound)30,000 or such other limit as may from time to time be specified in paragraph 28 of Schedule 9 to ICTA 1988.(10) For this purpose, the United Kingdom sterling equivalent of the Market Value of a share on any day shall be determined by taking the spot sterling/US dollar exchange rate for that day as shown in the Financial Times. If the grant of an Option would otherwise cause the limit in this rule 17 to be exceeded, it shall take effect as the grant of an Option under the Sub-Plan over the highest number of Shares which does not cause the limit to be exceeded. 18. OPTION PRICE UNDER OPTIONS Notwithstanding Section 6(a) of the Plan, the amount payable per Share on the exercise of an Option shall not be less than the Market Value of a Share on the Date of Grant and shall be stated on the Date of Grant. 19. PERFORMANCE TARGET OR OTHER CONDITION IMPOSED ON EXERCISE OF AN OPTION Any performance target or other condition imposed on the exercise of an Option under Section 6(b) of the Plan shall be: 19.1 objective; 19.2 such that, once satisfied, the exercise of the Option is not subject to the discretion of any person; and 19.3 stated on the Date of Grant. If an event occurs as a result of which the Plan Administrator considers that a performance target or other condition imposed on the exercise of an Option is no longer appropriate and substitutes, varies or waives under Sections 9(a) or 13(b) of the Plan the performance target or condition, such substitution, variation or waiver shall: 19.4 be reasonable in the circumstances; and 19.5 produce a fairer measure of performance and be neither materially more nor less difficult to satisfy. 20. EXERCISE OF OPTIONS BY LEAVERS 20.1 Notwithstanding Section 6(e) of the Plan, if a Participant ceases to be employed by the Company and its Subsidiaries before the Expiration Date of his Option by reason of Disability, he shall be entitled to exercise his Options in full at any time during the period ending on the earlier of: 20.1.1 five years after the date of Disability or 20.1.2 the Expiration Date of the Option and thereafter his Options, to the extent unexercised, shall lapse. 6 20.2 Notwithstanding Section 6(f) of the Plan, if a Participant ceases to be employed by the Company and its Subsidiaries before the Expiration Date of the Option by reason of Retirement, he shall be entitled to exercise his Options to the extent exercisable (unvested Options will be forfeited) at the time of such Retirement at any time during the period ending on the earlier of: 20.2.2 the Expiration Date of the Option, or 20.2.3 the later of: 20.2.3.1 five years after the date of Retirement; and 20.2.3.2 12 months from the date of his death and thereafter his Options, to the extent unexercised, shall lapse. 20.3 Notwithstanding Section 6(g) of the Plan, if a Participant ceases to be employed by the Company and its Subsidiaries for any reason other than those referred to in rules 20.1, 20.2 and 25, or by reason of his injury or redundancy the Committee may, at its discretion, allow him to exercise his Options to the extent exercisable at the time his employment ceases at any time during the period ending 90 days after the date of cessation of his employment. If not exercised, his Options shall immediately lapse. 21. LATEST DATE FOR EXERCISE OF OPTIONS Subject to rule 25, an Option may not be exercised more than ten years after the Date of Grant and to the extent not so exercised by that time the Option shall lapse immediately. 22. MATERIAL INTEREST An Option may not be exercised if the Participant then has, or has had within the preceding twelve months, a Material Interest in a Close Company which is the Company or which is a company which has Control of the Company or which is a member of a Consortium which owns the Company. 23. MANNER OF PAYMENT FOR SHARES ON EXERCISE OF OPTIONS The amount due on the exercise of an Option shall be paid in cash or by cheque or banker's draft and may be paid out of funds provided to the Participant on loan by a bank, broker or other person. Notwithstanding Sections 6(c)(ii) and 6(c)(iii) of the Plan, the amount may not be paid by the transfer to the Company of Shares or any other shares or securities. The date of exercise of an Option shall be the date on which the Company receives the amount due on the exercise of the Option. 7 24. ISSUE OR TRANSFER OF SHARES ON EXERCISE OF OPTIONS 24.1 Notwithstanding Sections 6(c) and 17 of the Plan and subject only to compliance by the Participant with the rules of the Sub-Plan and to any delay necessary to complete or obtain: 24.1.1 the listing of the Shares on any stock exchange on which Shares are then listed; and 24.1.2 such registration or other qualification of the Shares under any applicable law, rule or regulation as the Company determines is necessary or desirable the Company shall, as soon as reasonably practicable and in any event not later than thirty days after the date of exercise of an Option, issue or transfer to the Participant, or procure the issue or transfer to the Participant of, the number of Shares specified in the notice of exercise and shall deliver to the Participant, or procure the delivery to the Participant of, a Share Certificate in respect of such Shares or shall procure the electronic transfer of such shares to an account of the Participant. 24.2 The exercise shall be considered only conditional, until the Participant has made provision for the payment or withholding of any taxes required to be withheld in accordance with the applicable law of any foreign jurisdiction in respect of the exercise of the Option or the receipt of the Shares. 25. DEATH OF PARTICIPANT Notwithstanding Section 6(e) of the Plan and rule 20, if a Participant dies before the Expiration Date of the Option, his personal representatives shall be entitled to exercise his Options in full at any time during the twelve month period following his death even if the Option would have otherwise expired. If not so exercised, the Options shall lapse immediately. 26. CHANGE IN CONTROL OF COMPANY 26.1 EXCHANGE OF OPTIONS If a company ("Acquiring Company") obtains Control of the Company as a result of making: 26.1.1 a general offer to acquire the whole of the issued ordinary share capital of the Company which is made on a condition such that if it is satisfied the person making the offer will have Control of the Company; or 26.1.2 a general offer to acquire all the shares in the Company of the same class as the Shares a Participant may, at any time during the period set out in rule 26.2, by agreement with the Acquiring Company, release his Option in whole or in part 8 in consideration of the grant to him of a new option ("New Option") which is equivalent to the Option but which relates to shares ("New Shares") in: 26.1.3 the Acquiring Company; 26.1.4 a company which has Control of the Acquiring Company; or 26.1.5 a company which either is, or has Control of, a company which is a member of a Consortium which owns either the Acquiring Company or a company having Control of the Acquiring Company. 26.2 PERIOD ALLOWED FOR EXCHANGE OF OPTIONS The period referred to in rule 26.1 is the period of six months beginning with the time when the person making the offer has obtained Control of the Company and any condition subject to which the offer is made has been satisfied. 26.3 MEANING OF "EQUIVALENT" The New Option shall not be regarded for the purpose of this rule 26 as equivalent to the Option unless: 26.3.1 the New Shares satisfy the conditions in paragraphs 10 to 14 of Schedule 9 to ICTA 1988; and 26.3.2 save for any performance target or other condition imposed on the exercise of the Option, the New Option will be exercisable in the same manner as the Option and subject to the provisions of the Sub-Plan as it had effect immediately before the release of the Option; and 26.3.3 the total market value, immediately before the release of the Option, of the Shares which were subject to the Option is equal to the total market value, immediately after the grant of the New Option, of the New Shares (market value being determined for this purpose in accordance with Part VIII of the Taxation of Chargeable Gains Act 1992); and 26.3.4 the total amount payable by the Participant for the acquisition of the New Shares under the New Option is equal to the total amount that would have been payable by the Participant for the acquisition of the Shares under the Option. 26.4 DATE OF GRANT OF NEW OPTION The date of grant of the New Option shall be deemed to be the same as the Date of Grant of the Option. 9 26.5 APPLICATION OF SUB-PLAN TO NEW OPTION In the application of the Sub-Plan to the New Option, where appropriate, references to "Company" and "Shares" shall be read as if they were references to the company to whose shares the New Option relates and the New Shares, respectively, save that in the definition of "Committee" the reference to "Board" shall be read as if it were a reference to the Board of IMS Health Incorporated. 26.6 DISAPPLICATION OF SECTION 9 OF THE PLAN References in Section 9(b)(iii) of the Plan to substitution of Options with comparable awards, shall be disapplied for the purposes of the Sub-Plan to the extent that such substitution does not satisfy the requirements of Paragraph 15 of Schedule 9 to ICTA 1988. If an exchange of Options in accordance with this rule 26 is not possible, and a substitution under Section 9(b) of the Plan does not satisfy the requirements of paragraph 15 of Schedule 9 to ICTA 1988, the Option shall lapse on the termination of the corporate existence of the Company in connection with the Control transaction. 27. RIGHTS ATTACHING TO SHARES ISSUED ON EXERCISE OF OPTIONS Notwithstanding Section 6(d) of the Plan, all Shares issued on the exercise of an Option shall, as to any voting, dividend, transfer and other rights, including those arising on a liquidation of the Company, rank equally in all respects and as one class with the shares of the same class in issue at the date of such exercise save as regards any rights attaching to such shares by reference to a record date prior to the date of such exercise. 28. AMENDMENT OF SUB-PLAN Notwithstanding Sections 4(a) and 13(a) of the Plan, no amendment of the Sub-Plan, whether taking the form of an amendment of the Plan or this schedule, shall take effect until it has been approved by the Inland Revenue. 29. ADJUSTMENT OF OPTIONS Notwithstanding Sections 4(c), 9(a) and 13(b) of the Plan, any adjustment of an Option: 29.1 shall not be made unless the adjustment is permitted pursuant to paragraph 29(7) of Schedule 9 to ICTA 1988; and 29.2 shall not take effect until it has been approved by the Inland Revenue. 30. EXERCISE OF DISCRETION BY COMMITTEE In exercising any discretion which it may have under the Sub-Plan, the Committee shall act fairly and reasonably. 10 31. DISAPPLICATION OF CERTAIN PROVISIONS OF PLAN The provisions of the Plan dealing with: Stock Appreciation Rights; LSARs; and/or Other Stock-Based Awards shall not form part of, and no such rights may be granted under, the Sub-Plan. The following sections of the Plan shall be disapplied for the purposes of the Sub-Plan: the words "with the exception of certain non-US jurisdictions" in Section 6(b); the sentence in Section 6(c) "Unless otherwise provided by the Committee, the participant may elect, subject to such terms and conditions as the Committee shall determine, to have the number of Shares deliverable to the Participant as a result of the exercise reduced by a number sufficient to pay the amount the Company determines to be necessary to withhold for federal, state or other taxes as a result of the exercise of the Option."; Section 6(d); Sections 9(a)(iii) and 9(b)(ii) relating to the payment of cash on cancellation of Options; and Sections 16(a) and 16(b) relating to the payment of taxes in Shares or by the withholding of Shares that would have otherwise been received by the Participant. - -------- (1) The Company is the "grantor" as defined in paragraph 1 of Schedule 9 to ICTA 1988 because it has established the Sub-Plan. In most cases, it will also be the Company which grants options under the Sub-Plan, although this is not a requirement of UK tax legislation. (2) A company is treated as another's "associated company" at a given time if, at that time or at any other time within one year previously, one of the two has control of the other, or both are under the control of the same person or persons. A person is taken to have control of a company if he exercises, or is able to exercise or is entitled to acquire, direct or indirect control over the Company's affairs and, in particular, if he possesses or is entitled to acquire the greater part of the Company's issued share capital or the voting power in the company. UK tax legislation contains two definitions of control: the definition of control here is different from that in paragraph 5 below. (3) A close company is a company which is under the control (as defined in paragraph 5 below) of five or fewer participators (eg shareholders) or of any number of participators who are directors. There are attributed to a participator all the rights and powers (eg shares, voting power) of, inter alia, a company which he controls or of an "associate" (eg relative) of his. Ordinarily, a company is excluded from being a close company if it is non UK resident or 35% of the voting power in the company is held by 11 - -------------------------------------------------------------------------------- the public and its shares have been listed, and the subject of dealings, on a recognised stock exchange within the preceding 12 months. However, for the purpose of the material interest test (see paragraph 8 below), this exclusion does not apply with the result that the normal definition of a "close company" is extended. (4) A company is a member of a consortium owning another company if it is one of a number of companies which between them beneficially own not less than three-quarters of the other company's ordinary share capital and each of which beneficially owns not less than one-twentieth of that capital. (5) Control means the power of a person to secure: (a) by means of the holding of shares or the possession of voting power in or in relation to that or any other body corporate; or (b) by virtue of any powers conferred by the articles of association or other document regulating that or any other body corporate that the affairs of the first-mentioned body corporate are conducted in accordance with the wishes of that person. (6) The expression "recognised stock exchange" is defined in section 841 of ICTA 1988. "Recognised stock exchange" means the London Stock Exchange Limited and any stock exchange outside the UK which has been designated by the Inland Revenue as a recognised stock exchange. This includes, inter alia, the New York Stock Exchange, NASDAQ and any exchange registered with the US Securities and Exchange Commission as a national securities exchange. However, clearance is required from the Shares Valuation Division before the NASDAQ price may be used to determine the market price of a NASDAQ listed share. (7) Market value in this context means the price which the shares used in the scheme might reasonably be expected to fetch on a sale in the open market (section 272 Taxation of Chargeable Gains Act 1992 ("TCGA 1992"). In making this determination, it is assumed that there is available to any prospective purchaser of the shares all the information which a prudent prospective purchaser of the shares might reasonably require if he were proposing to purchase the shares from a willing vendor by private treaty and at arm's length. (8) A person has a material interest in a company if he, either on his own or with one or more associates, or if any associate of his with or without such other associates: (a) is the beneficial owner of, or able, directly or through the medium of other companies, or by any other indirect means to control, more than 10 per cent of the ordinary share capital of the company; or (b) where the company is a close company, possesses, or is entitled to acquire, such rights as would, in the event of the winding-up of the company or in any other circumstances, give an entitlement to receive more than 10 per cent of the assets which would then be available for distribution among the participators. (9) The shares used in the scheme must be: (a) ordinary shares; (b) fully paid up; (c) not redeemable; and (d) save for certain limited exceptions, not subject to any restrictions which do not apply to all shares of the same class. 12 - -------------------------------------------------------------------------------- The shares used in the scheme must be: (a) of a class listed on a recognised stock exchange; or (b) shares in a company which is not under the control of another company; or (c) shares in a company which is under the control of another company (other than a company which is, or would if resident in the UK be, a close company) whose shares are listed on a recognised stock exchange. The shares used in the scheme form part of the ordinary share capital of: (a) the grantor (ie the company which has established the scheme); or (b) a company which has control of the grantor; or (c) a company which either is, or has control of, a company which is a member of a consortium owning either the grantor or a company having control of the grantor. Where the company whose shares are to be used in a scheme has more than one class of ordinary share, the majority of the issued shares of the same class as those which are to be used must be either employee control shares (see below) or: (a) must not be held by persons (including trustees holding shares on behalf of such persons) who acquired their shares in pursuance of a right conferred on them or opportunity offered to them as directors or employees of any company, and not in pursuance of an offer to the public; and (b) if the shares are not listed on a recognised stock exchange and the company is under the control of another company whose shares are so listed, must not be held by companies which have control of the company whose shares are in question or of which that company is an associated company. Shares are employee control shares if: (a) the persons holding them are, by virtue of their holding of shares of that class, together able to control the company; and (b) those persons are, or have been, employees or directors of the company or of another company which is under the control of the company. (10) UK tax legislation imposes a limit (currently (pound)30,000) on the "value" of the outstanding options which may be held by an individual participant in an Inland Revenue approved executive share option scheme. The (pound)30,000 limit is calculated by reference to the market value of the shares at the date of grant of the relevant option and is not recalculated for any changes in the share value during the life of the option. When an option is exercised, the shares in respect of which the option is exercised drop out of the account for the purpose of the (pound)30,000 limit, this creating scope for the grant of an option over further shares to the same individual. 13 EX-13 10 a2068479zex-13.txt EXHIBIT 13 IMS HEALTH INCORPORATED -------------------------------- 2001 ANNUAL REPORT TO SHAREHOLDERS [LOGO] IMS HEALTH INCORPORATED 2001 ANNUAL REPORT TO SHAREHOLDERS TABLE OF CONTENTS Management's Discussion and Analysis of Results of Operations and Financial Position......................... 1-14 Statement of Management's Responsibility for Financial Statements................................................ 15 Report of Independent Accountants........................... 15 Consolidated Financial Statements........................... 16-22 Notes to Consolidated Financial Statements.................. 23-49 Quarterly Financial Data.................................... 50 Five-Year Selected Financial Data........................... 51
IMS HEALTH INCORPORATED MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL POSITION AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA - -------------------------------------------------------------------------------- IMS Health Incorporated ("IMS" or the "Company") is a leading global provider of information solutions to the pharmaceutical and healthcare industries. IMS operates in more than 100 countries and consists of the following business segments: - The IMS Segment is a leading global provider of market information, sales management and decision-support services to the pharmaceutical and healthcare industries. Its key products include sales management information to optimize sales force productivity, marketing effectiveness research for prescription and over-the-counter pharmaceutical products, consulting and other services. The IMS Segment is managed on a global business model with global leaders for the majority of its critical business processes. In addition, the IMS Segment includes IMS's venture capital unit, Enterprise Associates, LLC ("Enterprises"), which is focused on investments in emerging businesses and IMS's 26.8% equity interest in The TriZetto Group, Inc. ("TriZetto"). - The Cognizant Technology Solutions Corporation ("CTS") Segment delivers full life-cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. These services are delivered through the use of a seamless on-site and offshore consulting project team. CTS's primary service offerings include application development and integration, application management and re-engineering services. CTS is a publicly traded corporation on the NASDAQ national market. IMS owned 58.3% of the common shares outstanding (93.3% of the outstanding voting power) as of December 31, 2001 and 60.5% as of December 31, 2000. IMS accounts for CTS as a consolidated subsidiary. During the years ended December 31, 2000 and 1999, IMS also included: - The Transaction Businesses Segment, which consisted of: (a) Synavant, Inc. ("Synavant"), which serves the pharmaceutical industry by developing and selling pharmaceutical relationship management solutions that support sales and marketing decision-making; (b) Erisco Managed Care Technologies, Inc. ("Erisco"), a leading supplier of software-based administrative and analytical solutions to the managed care industry; and (c) three small non-strategic software businesses. IMS spun off the Synavant business on August 31, 2000 (the "Synavant Spin-Off") and sold Erisco to TriZetto and entered into a strategic alliance with TriZetto on October 3, 2000. IMS also divested or discontinued the other small non-strategic software businesses. On July 26, 1999, IMS completed a spin-off of the majority of its equity investment in Gartner, Inc. ("Gartner," formerly known as "Gartner Group, Inc.") to IMS shareholders (the "Gartner Spin-Off"). The Consolidated Financial Statements of IMS have been reclassified for all periods presented to reflect the Gartner equity investment as a discontinued operation. During the third quarter of 2001, IMS sold its remaining investment in Gartner. The above changes to the business are more fully discussed in Notes 1, 4, 5, 7, 12, 16 and 23 to the Consolidated Financial Statements. YEAR-ENDED DECEMBER 31, 2001 COMPARED WITH YEAR-ENDED DECEMBER 31, 2000 OPERATING RESULTS Revenue in 2001 decreased 6.4% to $1,332,923 from $1,424,359 in 2000. Excluding the $170,385 revenue from the Transaction Businesses Segment, which was divested in 2000, and excluding the $51,362 adverse impact of a generally stronger U.S. dollar in 2001 revenue grew 10.6%. This growth resulted primarily from the success of new products in the IMS Segment, and by robust demand for CTS's services, partially offset by a slowdown in non-contracted spending in the IMS Segment. IMS's 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 IMS's services. IMS's operating costs in 2001 were $494,411, compared with $549,259 in 2000, a decrease of 10.0%. Excluding the $86,179 of operating costs associated with Transaction Businesses Segment and certain technology acceleration costs in 2000 of $15,240, operating costs grew 10.4%, principally driven by CTS (29.0% growth), as well as higher data collection and production costs in the IMS Segment to support revenue growth. Selling and administrative expenses consist primarily of the costs attributable to sales, marketing, client service and administration, including personnel, promotion, communications, management, finance, and occupancy. IMS's selling and administrative expenses declined 17.3% to $344,100 in 2001 from $416,006 in 2000. Excluding the Transaction Businesses Segment and certain legal fees, selling and administrative 1 expenses grew at only 3.0%, reflecting the results of cost reduction actions initiated in the fourth quarter of 2000. Depreciation and amortization expense declined 24.8%, to $69,178 in 2001 from $92,000 in 2000. Excluding the Transaction Businesses Segment, depreciation and amortization expense remained relatively constant at $69,178 in 2001 compared with $69,645 in the previous year. During 2001, IMS undertook a Competitive Fitness Program to assess the worldwide costs of the IMS Segment and to identify actions to improve cost efficiencies. All functional areas were examined, including sales, marketing, client service, data collection, production, and management and administration. In the fourth quarter, after completing its assessment, IMS recorded Severance, Impairment and Other Charges of $94,616 primarily in connection with the actions identified by this project. These actions include a worldwide reduction in headcount of more than six hundred employees, the closing of certain facilities, the write-off of certain abandoned software and other assets and the termination of certain contractual relationships. See Note 8 to the Consolidated Financial Statements. During the fourth quarter of 2001, IMS terminated negotiations to dispose of one of its product lines and decided to retain and continue operating it. In connection with this terminated transaction, IMS recorded Terminated Transaction Costs of $6,457, relating primarily to legal and accounting services. In 2000, in connection with the Synavant Spin-Off, IMS incurred $37,626 of costs. These costs include $8,813 for expenses related to reductions in the administrative workforce resulting from consolidation following the Synavant Spin-Off. Additionally, a data processing agreement with a third party for $5,200 was no longer used by IMS as a result of IMS's determination to streamline its operations to focus on its core business and a further data enhancement contract for $3,600 was similarly no longer used. The remaining Synavant Spin-Off charges related primarily to legal, professional and other direct incremental costs. In addition, in connection with the Siebel alliance, more fully described in Note 6 to the Consolidated Financial Statements, Synavant assessed the impairment of its computer software (including acquired technology), goodwill and other intangible assets and change in intangible asset lives. As a result of this transaction, Synavant recorded an impairment charge of $115,453 in the third quarter of 2000, comprised of $14,553 on computer software and $100,900 on goodwill. IMS recorded this impairment loss because the Siebel alliance was signed prior to the Synavant Spin-Off. This impairment was recorded in the Transaction Businesses Segment. During 2000 IMS assessed its cost structure, directed towards streamlining its administrative infrastructure costs, leveraging marketing and sales efforts following the creation of a global key account management program, harmonizing global production activities, global development, human resources and communications. In connection with the actions taken to streamline operations, IMS incurred charges for the impairment of certain assets as well as severance costs. IMS recorded a Severance, Impairment and Other Charge of $45,689 during the fourth quarter of 2000, which is more fully described in Note 8 to the Consolidated Financial Statements. In the fourth quarter of 2000, IMS incurred a charge of $31,133 relating to changes in executive management. Of this charge, approximately $23,000 related to Victoria R. Fash (previously President and Chief Executive Officer) and Robert E. Weissman (previously Chairman) arising principally from the acceleration or enhancement of previously existing employee benefits obligations, including stock options and pensions. This charge also included the forgiveness of the balance, including accrued interest, due of $3,084 on a loan made to Ms. Fash during the year, plus an accompanying tax liability of $2,580. See Note 9 to the Consolidated Financial Statements. The remaining accrual at December 31, 2001 amounted to approximately $13,400, primarily relating to long-term pension benefits. Operating Income in 2001 increased 136.3%, to $324,161 compared with $137,193 in the prior year, primarily due to the prior year's Transaction Businesses Segment loss of $171,450. Excluding the Transaction Businesses Segment, as well as the Severance, Impairment and Other Charges in both years of $94,616 and $45,689 in 2001 and 2000 respectively, the Terminated Transaction Costs in 2001 of $6,457, the Executive Management Transition Charge in 2000 of $31,133, certain technology acceleration costs in 2000 of $15,240, and certain legal fees of $2,336 and $4,069 in 2001 and 2000 respectively, operating income grew 5.6%, to $427,570 in 2001 compared with $404,774 in the prior year. Excluding the unfavorable impact of a generally stronger U.S. dollar in 2001, operating income grew 14.4%. This was due to the revenue growth in the IMS and CTS Segments, and to IMS's continuing ability to leverage its resources. Net interest expense was $9,006 in 2001 and $13,308 in 2000. The decrease of $4,302 resulted primarily from interest income of $2,755 recorded on the Nielsen Media Research receivable (see Note 21 to the 2 Consolidated Financial Statements) and higher average cash balances during 2001. The Loss on Gartner Investment amounted to $84,880 in 2001. During the third quarter of 2001, IMS decided to sell, and by August 29, 2001 completed the sale of 1,555 shares of Class A common stock of Gartner, Inc. ("Gartner Shares") to Gartner and its remaining holdings to several institutional investors. IMS received aggregate proceeds of $65,207, or $9.88 per share, from these sales. IMS's cost basis in these shares was $77,743, or $11.78 per share. These sales divested IMS of its remaining equity interest in Gartner. They resulted in a pre-tax realized loss of $12,536 ($8,146, net of applicable taxes), which was recorded in two different lines in the Consolidated Statements of Income: (1) Income from Discontinued Operations, net of $72,344 ($47,025 net of applicable taxes), to reflect the difference between the fair market value at the date of the Gartner Spin-Off (July 26, 1999) and the book value of those shares; (2) a loss from dispositions in continuing operations of $84,880, which was recorded as Loss on Gartner Investment, to reflect the difference between the fair market value at the date of the Gartner Spin-Off and the disposal proceeds. In 2000, IMS recorded a similar loss of $6,896 to reflect the loss on shares contributed to Synavant as part of the Synavant Spin-Off as well as a loss on warrants which expired on December 1, 2000. A loss was recognized since the shares and warrants had a lower market value at the date of the Synavant Spin-Off or expiration date compared with the value at the date of the Gartner Spin-Off (July 26, 1999). These transactions resulted in gains within income from discontinued operations in 2000 of $4,692 net of applicable taxes. Gains (Losses) from Investments, net amounted to a net loss of $27,642 in 2001, compared to a net gain of $78,139 in the prior year. The 2001 loss is due primarily to net write-downs of investments within IMS securities portfolios of $30,213, an impairment loss of $1,955 on CTS's investment in Questra Corporation in recognition of an other-than-temporary decline in value, partially offset by a $1,990 gain on the sale of IDRAC Holdings Inc. ("IDRAC"), a non-strategic property that provides information on pharmaceutical product registrations. The investment write-down related mainly to a refinement in IMS's estimation approach for the assessment of other than temporary declines in value of the venture capital investments. See Notes 5 and 13 to the Consolidated Financial Statements. Gains in the prior year were due primarily to the sale of investments in American Cellular, Verisign Inc., Mercator Software Inc., Viant Corporation, Aspect Development Inc., I2 Technologies, and the partial sale of IMS's investment in e-Credit, net of selling expenses. In 2000, IMS recorded a Gain on Sale of Erisco of $84,530 as a result of the sale of its Erisco business in exchange for an equity interest in TriZetto. See Note 12 to the Consolidated Financial Statements. Gain (Loss) on Issuance of Investees' Stock, net resulted in a loss of $1,490 in 2001 compared with a gain of $9,029 in the prior year, in accordance with Staff Accounting Bulletin ("SAB") No. 51, "Accounting for Sales of Stock by a Subsidiary." The net loss in 2001 resulted from a loss on the issuance of stock by TriZetto of $6,679 primarily in connection with acquisitions, a secondary offering and stock option exercises, offset by a gain on the issuance of stock by CTS of $5,189 primarily in connection with stock option exercises and employee stock purchases. The $9,029 gain in the prior year resulted from the issuance of stock by TriZetto for an acquisition. As a result of stock issuances by CTS and TriZetto, IMS's ownership interest in CTS declined from 60.5% to 58.3% and the Company's ownership interest in TriZetto was diluted from 33.2% to 26.8% from December 31, 2000 to December 31, 2001. Other Expense, net decreased to $17,342 in 2001 from $27,374 in the prior year. The expense decline was primarily due to net foreign exchange gains of $4,955 in 2001 compared with net foreign exchange losses of $1,023 in 2000, as well as a reduction in certain non-recurring legal and professional expenses of $2,435 in 2001, compared with $8,419 in the prior year. IMS's 2001 effective tax rate of 20.9% reflects the financial statement impact of the expiration, without adjustment, on September 30, 2001, of the statute of limitations on certain previously-reserved-for Donnelley Legacy transactions (approximately $21,033), and the recognition of additional tax benefits arising from a 1998 non-U.S. reorganization which gave rise to tax deductible amortization of non-U.S intangible assets (approximately $14,660), resulting from the reassessment of the tax benefits from this reorganization following certain new non-U.S. tax legislation enacted at the end of the first quarter of 2001. IMS's 2000 effective tax rate of 53.7% reflected principally the non-deductible U.S. Impairment Charge-Synavant, Spin and Related Costs and Severance, Impairment and Other Charges (portions of which are non-deductible), and a reduction in net German deferred tax assets (principally non-U.S. intangible assets) due to a reduction in the German corporate tax rate from 40% to 25% ($17,655). These were offset by the recognition of certain German trade tax benefits on tax deductible amortization of non-U.S. intangible assets resulting from a favorable German court decision ($19,355), and the recognition of the tax benefit of certain net operating losses ("NOLs") due to the implementation of global tax planning strategies 3 ($10,072). For all periods presented, IMS's effective tax rate was reduced as a result of global tax planning initiatives. While IMS intends to continue to seek global tax planning initiatives, there can be no assurance that IMS will be able to successfully implement such initiatives to reduce or maintain its overall tax rate. The TriZetto Equity Loss, net was $6,985 in 2001 and $4,777 in 2000. The higher loss in 2001 reflects the full-year impact of TriZetto, compared with only three months in the prior year, partially offset by improved TriZetto underlying financial results. Income from Discontinued Operations, net was $47,025 in 2001, compared with $4,692 in the prior year. The 2001 income resulted from the sale of Gartner shares in August 2001. The prior-year income reflects a gain on the Gartner shares contributed to Synavant as part of the Synavant Spin-Off and a gain on warrants issued prior to the Gartner Spin-Off that expired on December 1, 2000. These transactions are described above and in Note 4 to the Consolidated Financial Statements. RESULTS BY BUSINESS SEGMENT IMS SEGMENT IMS Segment revenue increased 3.8% to $1,173,954 in 2001 from $1,131,211 in 2000. Excluding the $51,362 adverse impact of a generally stronger U.S. dollar in 2001 revenue grew 8.5%. Sales management revenue increased 7.0% (11.0% on a constant dollar basis, i.e., a basis that eliminates currency rate fluctuations) to $730,169 due to strong growth in sales management products in North America, particularly Earlyview, the expansion of Xponent in Europe and the success of the Weekly Data product in Japan. Market research revenue increased 2.0% (3.0% constant dollar) to $412,353 (6.5% on a constant dollar basis). Other revenue includes certain consultancy and other services and decreased 30.1% (22.0% constant dollar) to $31,432. This decline is primarily due to IMS's exit from certain small businesses. IMS Segment operating income was $288,540 in 2001, up 2.1% from $282,514 in the prior year, as a result of revenue growth as well as cost-containment actions initiated in the fourth quarter of 2000, in addition to the impact of the non-recurring expenses discussed above ($103,409 and $96,131 in 2001 and 2000, respectively), partially offset by the unfavorable impact of a generally stronger U.S. dollar. Excluding these expenses in both years, as well as the impact of foreign currency movements, IMS Segment operating income grew 12.8%. CTS SEGMENT IMS's ownership interest in CTS decreased to 58.3% (representing 93.3% of the outstanding voting power) at December 31, 2001 from 60.5% at December 31, 2000. This decrease was due to stock option exercises and employee stock purchases at CTS. CTS revenue, prior to the elimination of intersegment sales, increased 29.7% to $177,778 in 2001 from $137,031 in 2000. This increase resulted from higher application development and integration, application management, reengineering and other services. CTS operating income increased 36.3% to $35,621 in 2001 from $26,129 in the prior year. The increase resulted from the revenue growth noted above, partially offset by the costs of additional technical professionals and selling and administrative expenses to support the revenue increase. TRANSACTION BUSINESSES SEGMENT All of the businesses included in the Transaction Businesses segment were spun off, divested or discontinued in 2000. Therefore, there are no comparable operating results in 2001. RESULTS BY GEOGRAPHIC AREA Total IMS revenue in the United States declined by 6.1% to $614,108 in 2001 from $653,965 in 2000. The decrease was primarily due to the Transaction Businesses Segment. Excluding revenue from the Transaction Businesses Segment, U.S. revenue was $548,329 in 2000 and increased 12.0% in 2001. This increase was primarily due to new product growth at IMS and robust demand for CTS's services, partially offset by a slowdown in non-contracted revenue at IMS. Non-U.S. revenue decreased 6.7% to $718,815 in 2001 from $770,394 in 2000. Non-U.S. operations include principally Japan, the United Kingdom, Germany, Italy, France, Australia and other countries within Europe, Latin America and the Far East. Excluding revenue from the Transaction Businesses Segment, non-U.S. revenue grew 1.9% in 2001, due to new product growth at IMS in Japan, Canada, and other countries, partially offset by a slowdown in non-contracted revenue. YEAR-ENDED DECEMBER 31, 2000 COMPARED WITH YEAR-ENDED DECEMBER 31, 1999 OPERATING RESULTS Revenue in 2000 increased 1.9% to $1,424,359 from $1,397,989 in 1999, primarily due to strong growth in the core business offset by the performance of the Transaction Businesses Segment. The results of Synavant and Erisco are included for only eight and nine 4 months respectively in 2000 and twelve months in 1999. Included within Synavant, Strategic Technologies revenue declined in 2000 compared with 1999 for the periods consolidated. Excluding the Transaction Businesses Segment, revenue increased 12.9%. This increase reflected constant dollar double-digit revenue growth at IMS and CTS and is further described in "Results by Business Segment" below. On a constant dollar basis and excluding the Transaction Businesses Segment, 2000 revenues increased by 16.4% over 1999. IMS's operating costs in 2000 were $549,259, compared with $551,099 in 1999, a decrease of 0.3%. This decrease was due to the fact that the operating costs for Synavant and Erisco are included for eight and nine months, respectively, in 2000 and twelve months in 1999. During 2000, IMS announced the formation of a global data processing hub in Plymouth Meeting, Pennsylvania. It is one of the world's largest computer centers, handling 26 terabytes of data. The hub provides the technology foundation for IMS's global data processing and new Internet-based products. During the year, IMS incurred $15,240 of technology acceleration costs in connection with the development of such products. Excluding the Transaction Businesses Segment in both years, technology acceleration costs incurred in 2000, and the impact of Year 2000 remediation costs in 1999 of $24,558, operating costs increased by 13.1% in 2000. The operating cost increase was due to an increased number of technical professionals at CTS to meet the increased demand for services and an increase in the operating costs of the IMS Segment to support higher revenues and product launches. Excluding the Transaction Businesses Segment, technology acceleration costs and the impact of Year 2000 remediation costs discussed above, as a percentage of revenue, operating costs were relatively flat year-over-year, demonstrating IMS's operating leverage and ability to grow revenue at a rate which outpaces cost growth. IMS's selling and administrative expenses increased by 4.5% to $416,006 in 2000 from $397,924 in 1999. This low rate of increase was due to the inclusion of selling, general and administrative costs for Synavant and Erisco for eight and nine months respectively in 2000 versus twelve months in 1999. Excluding the Transaction Businesses Segment in both years, and certain legal costs of $4,069 incurred in 2000, selling and administrative expenses increased by 8.5%. This increase in expenses was primarily due to continued investment in CTS sales and administrative functions and infrastructure. The selling and administrative cost of the IMS Segment increased by 4.1%, demonstrating IMS's ability to increase revenue without significantly expanding its existing administrative infrastructure. Depreciation and amortization decreased 8.4% to $92,000 in 2000 from $100,443 in 1999. This reduction was primarily due to the amortization of goodwill and intangibles of Synavant which was included in 2000 for eight months and for twelve months in 1999. Excluding the Transaction Businesses Segment, depreciation and amortization increased by 2.4%. In 2000, in connection with the Synavant Spin-Off, IMS incurred $37,626 of costs. These costs included $8,813 for expenses related to reductions in the administrative workforce resulting from consolidation following the Synavant Spin-Off. Additionally, a data processing agreement with a third party for $5,200 was no longer used by IMS as a result of IMS's determination to streamline its operations to focus on its core business and a further data enhancement contract for $3,600 was similarly no longer used. The remaining Synavant Spin-Off charges related primarily to legal, professional and other direct incremental costs. In 1999 the $9,500 of Spin and Related Costs reflected direct incremental costs associated with the Gartner Spin-Off. In addition, in connection with the Siebel Alliance, more fully described in Note 6 to the Consolidated Financial Statements, Synavant assessed the impairment of its computer software (including acquired technology), goodwill and other intangible assets and change in intangible asset lives. As a result of this transaction, Synavant recorded an Impairment Charge of $115,453 in the third quarter of 2000, comprised of $14,553 on computer software and $100,900 on goodwill. IMS recorded this impairment loss because the Siebel alliance was signed prior to IMS's Synavant Spin-Off. This impairment was recorded in the Transaction Businesses Segment. During 2000, IMS assessed its cost structure, directed towards streamlining its administrative infrastructure costs, leveraging marketing and sales efforts following the creation of a global key account management program, harmonizing global production activities, global development, human resources and communications. In connection with the actions taken to streamline operations, IMS incurred charges for the impairment of certain assets as well as severance costs. IMS recorded a Severance, Impairment and Other Charge of $45,689 during the fourth quarter of 2000. See Note 8 to the Consolidated Financial Statements. In the fourth quarter of 2000, IMS incurred a charge of $31,133 relating to changes in executive management. Of this charge, approximately $23,000 related to Victoria R. Fash (previously President and Chief Executive Officer) and Robert E. Weissman (previously Chairman) arising principally from the acceleration or enhancement of previously existing employee benefits 5 obligations including stock options and pensions. This charge also included the forgiveness of the balance, including accrued interest due of $3,084 on a loan made to Ms. Fash during the year plus an accompanying tax liability of $2,580. See Note 9 to the Consolidated Financial Statements. The remaining accrual at December 31, 2001 amounted to approximately $13,400, primarily relating to long-term pension benefits. Operating income in 2000 decreased to $137,193 from $339,023 in 1999. This decline was primarily due to the Synavant impairment charge of $115,453 and Spin and Related Costs of $37,626 (both of which were included in the Transaction Businesses Segment), Severance, Impairment and Other Charges of $45,689 and the Executive Management Transition Charge of $31,133. Adjusting operating income in both years to exclude the Transaction Businesses Segment, charges in 2000 for technology acceleration, Severance, Impairment and Other Charges, Executive Management Transition Costs and certain legal charges and excluding in 1999, Spin and Related Costs and Year 2000 remediation costs, operating income increased by 18.6%. Operating income growth outpaced revenue growth primarily due to IMS's ability to continue to leverage its worldwide resources and improve operating margins. If the 2000 and 1999 operating margins were adjusted to exclude the items discussed above, operating margin improved to 32.3% in 2000 from 30.7% in 1999. Operating margin improvements were a result of both operations and the impact of foreign exchange. Net interest expense was $13,308 in 2000 versus net interest income of $635 in 1999. This increase in interest expense was due to a higher level of short-term borrowings to fund IMS's stock repurchase program and the payment of the Donnelley Legacy Tax Contingency (see Note 21 to the Consolidated Financial Statements), as well as cash payments to Synavant and Erisco. The Loss on Gartner Investment reflects a loss on shares contributed to Synavant and a loss on warrants which expired on December 1, 2000. A loss was recognized since the shares and warrants had a lower market value at the date of the Synavant Spin-Off or expiration date compared with the value at the date of the Gartner Spin-Off (July 26, 1999). These transactions resulted in gains within income from discontinued operations. The treatment within continuing and discontinued operations reflects the accounting adopted as of the date of the Gartner Spin-Off. See Note 4 to the Consolidated Financial Statements. Gains (Losses) from Investments, net reflected net pre-tax gains of $78,139 in 2000 compared to $25,264 in 1999. The gains were due primarily to the sale of Enterprise investments, net of selling expenses. In 2000 the sale of Erisco to TriZetto resulted in a net pre-tax gain of $84,530. Additionally, due to issuance of stock by TriZetto in connection with an acquisition in the fourth quarter of 2000, IMS recorded a pre-tax gain of $9,029. Other Expense, net increased to $27,374 in 2000 compared to $16,480 in 1999. This increase was primarily due to non-recurring legal and professional expenses in 2000, as well as higher minority interest expense relating to the improved operating results of CTS. IMS's 2000 effective tax rate of 53.7% reflected principally the non-deductible U.S. Impairment Charge--Synavant, Spin and Related Costs and Severance, Impairment and Other Charges (portions of which are non-deductible), and a reduction in the net German deferred tax assets (principally non-U.S. intangible assets) due to a reduction in German corporate tax rate from 40% to 25% ($17,655). These are offset by the recognition of certain German trade tax benefits on tax deductible amortization of non-U.S. intangible assets resulting from a favorable German court decision ($19,355), and the recognition of the tax benefit of certain NOL's due to the implementation of global tax planning strategies ($10,072). The 1999 effective tax rate of 28.1% reflected a non-deductible one-time Gartner Spin and Related Costs. For all periods presented, IMS's effective tax rate was reduced as a result of global tax planning initiatives. For example, to consolidate certain of its international operations, in 1999 IMS engaged in a non-U.S. reorganization which gave rise to the recognition of tax deductible amortization of non-U.S. intangible assets. See Note 17 to the Consolidated Financial Statements. While IMS intends to continue to seek global tax planning initiatives, there can be no assurance that IMS will be able to successfully implement such initiatives to reduce or maintain its overall tax rate. TriZetto Equity Loss, net was $4,777 in 2000, following the acquisition of a 36.1% share of TriZetto on October 3, 2000. Income from Discontinued Operations, net was $4,692, compared with $25,695 in 1999. Income from Discontinued Operations, net in 2000 reflects a gain on the Gartner shares contributed to Synavant as part of the Synavant Spin-Off and a gain on warrants issued prior to the Gartner Spin-Off that expired on December 1, 2000. The treatment of the Gartner shares and warrants within continuing and discontinued operations reflects the accounting adopted as of the date of the Gartner Spin-Off. See Note 4 to the Consolidated Financial Statements. Income from Discontinued Operations in 1999 was comprised of Gartner equity income through July 1999. 6 RESULTS BY BUSINESS SEGMENT IMS SEGMENT IMS Segment revenue increased 9.1% to $1,131,211 in 2000 from $1,037,025 in 1999. Excluding the impact of foreign currency movements, revenue grew 12.9%. Sales management revenue increased 13.8% (18.1% on a constant dollar basis) to $682,149 due to strong growth in sales management products in North America, particularly Xponent, Xtrend, Earlyview and Sales Territory Products, the expansion of Xponent in Europe and the success of the Weekly Data product in Japan. Market research revenue increased 3.0% to $404,091 or 6.5% on a constant dollar basis. Other revenue decreased 0.8% to $44,971. Other revenue includes certain consulting and other services. On a constant dollar basis these revenues grew 0.5%. IMS Segment operating income declined 2.8% in 2000 to $282,514 from $290,564 in 1999. This decrease in operating income was due to growth in the core IMS business which was more than offset by a number of one-time charges in 2000, including Severance, Impairment and Other Charges, the Executive Management Transition Charge and the technology acceleration charge. Excluding the non-recurring charges in 2000 of $96,131 as well as Year 2000 remediation costs of $24,558 and Gartner Spin-Off costs of $9,500 in 1999 operating income increased by 16.6% to $378,645 in 2000 from $324,622 in 1999. This strong growth and increasing margins (33.5% in 2000 versus 31.3% in 1999) reflect operating income growth which outpaced strong revenue growth due primarily to the segment's ability to leverage its established worldwide resources, as well as the favorable impact of foreign exchange. CTS SEGMENT IMS's ownership interest in CTS decreased to 60.5% (representing 93.9% of the outstanding voting power) at December 31, 2000 from 61.1% at December 31, 1999. This decrease was due to stock option exercises and employee stock purchases at CTS. CTS revenue, prior to the elimination of intersegment sales, increased 54.1% to $137,031 in 2000 from $88,904 in 1999. CTS operating income increased 57.0% to $26,129 in 2000 from $16,645 in 1999. The increase resulted primarily from an increase in application development and integration, application management, re-engineering and other services partially offset by a decrease in Year 2000 compliance services. TRANSACTION BUSINESSES SEGMENT Transaction Businesses Segment revenue decreased 40.6% to $170,385 in 2000 from $286,880 in 1999. This was primarily due to the inclusion of only eight months of Synavant revenue in 2000 versus twelve months in 1999, and nine months of Erisco revenues in 2000 versus twelve months in 1999. An increase in Erisco revenues (software licenses and services) was offset by lower interactive marketing volumes and lower Synavant software fees. The Transaction Businesses Segment reported an operating loss in 2000 of $171,450 compared to operating income of $31,814 in 1999. This was primarily due to the Synavant impairment charge of $115,453, Spin and Related Costs of $37,626 and the impact of the reduced revenues, explained above, on operating income. RESULTS BY GEOGRAPHIC AREA Total IMS revenue in the United States increased by 11.4% to $653,965 in 2000 from $586,826 in 1999. The increase reflected the strong performance of core business services, new product introductions and strong revenue growth at CTS through the addition of new customers and transitioning existing customers from Y2K compliance services. This was partially offset by the spin-off of the Synavant Business and disposal of Erisco in 2000. Non-U.S. revenue decreased 5.0% to $770,394 in 2000 from $811,163 in 1999. Non-U.S. operations include principally Japan, the United Kingdom, Germany, Italy, France, Australia and other countries within Europe, Latin America and the Far East. The decrease reflects the inclusion of Synavant revenues for eight months in 2000 versus twelve months in 1999. NON-U.S. OPERATING AND MONETARY ASSETS IMS operates globally, deriving a significant portion of its 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. IMS enters into forward foreign currency contracts to partially offset the effect of currency fluctuations. In 2001, foreign currency translation decreased U.S. dollar revenue growth by approximately 4.3%, while the impact on operating income growth was approximately 8.8%. In 2000, foreign currency translation decreased U.S. dollar revenue growth by approximately 3.8%, while the impact on operating income growth was negligible. Non-U.S. monetary assets are maintained in currencies other than the U.S. dollar, principally those of the Japanese yen, the Euro and the Swiss franc. Where monetary assets 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 Statements 7 of Shareholders' Equity. The effect of exchange rate changes during 2001 decreased the U.S. dollar amount of Cash and Cash Equivalents by $3,555. LIQUIDITY AND CAPITAL RESOURCES Cash and Cash Equivalents increased $149,793 during 2001 to $268,386 versus $118,593 in the prior year. The increase was driven by cash generated from operating activities of $325,305 offset by cash used in investing and financing activities of $53,281 and $118,676, respectively and a negative foreign exchange impact on Cash and Cash Equivalents of $3,555. Cash and Cash Equivalents include amounts at CTS of $84,977 and $61,976 as of December 31, 2001 and 2000, respectively. The Company owned 58.3% of the common shares outstanding which represented 93.3% of the voting power at December 31, 2001. To access these Cash and Cash Equivalents, the Company would have to require CTS to declare and pay a dividend. Furthermore, a portion of the dividend would be paid to the Minority Shareholders of CTS. Net Cash Provided by Operating Activities increased $155,593 during 2001 to $325,305 versus $169,712 in the prior year. This increase relates primarily to a $212,291 payment made to the Internal Revenue Service during 2000 for which there was no comparable payment in 2001 and the receipt during 2001 of $10,530 from Nielsen Media Research, Inc. These amounts relate to the Donnelley Legacy tax contingency as more fully described in Note 21 to the Consolidated Financial Statements. Adjusting for the impact of the payment and receipt as described, cash from operations would have amounted to $314,775 and $382,003 in 2001 and 2000, respectively, or a net decrease in cash provided of $67,228. The most significant item causing this decrease relates to approximately $32,300 in cash payments, in settlement of obligations accrued for during 2000 as part of the Synavant Spin and Related Cost accrual, the Executive Management Charge and the 2000 Severance, Impairment and Other charge that were previously accrued. Net cash used in investing activities decreased $36,379 to $53,281 from $89,660 in the prior year. The decrease is attributable to $65,207 in Gartner proceeds combined with the fact that 2001 was not impacted by three significant outlays which occurred during 2000 consisting of $32,012 relating to a cash payment made to Erisco prior to its disposition, $10,679 in payments made on the Erisco and TriZetto transaction and $27,343 to fund other investments primarily in Allscripts and Enterprises, as well as other items amounting to $15,608. Offsetting these amounts were lower proceeds on sales of investments of $82,385 and higher spending on business acquisitions of $32,085. Net cash used in financing activities increased $44,757 during 2001 to $118,676 versus $73,919 in the prior year. The increase in cash used is primarily related to net repayments on debt during 2001 as compared to net borrowings during 2000 amounting to an increase in net cash outflows of $293,495. Offsetting this increase in cash outflows, in 2001 IMS paid $108,529 less cash to repurchase shares under its share repurchase program, received $119,834 more in proceeds from the exercise of employee stock options and was not impacted by a $19,438 payment made as a result of the Synavant spin-off in 2000. Financing activities include cash dividends paid of $0.08 per share annually ($0.02 per quarter), which amounted to $23,641 and $23,686 during 2001 and 2000, respectively. The payment and level of cash dividends by IMS are subject to the discretion of the Board of Directors of IMS. Any future dividends will be based on and affected by a number of factors, including the operating results and the financial requirements of IMS. STOCK REPURCHASE PROGRAMS On July 19, 2000 the Board of Directors authorized a stock repurchase program to buy up to 40,000 shares of IMS's outstanding common stock. As of December 31, 2001, 20,577 shares have been acquired under this program at a total cost of $517,129. During 2001, IMS repurchased 12,124 shares at a total cost of $310,482. On October 19, 1999 the Board of Directors authorized a stock repurchase program to buy up to 16,000 shares of IMS's outstanding common stock. This program was completed in October 2000 at a total cost of $348,730. On October 20, 1998 the Board of Directors authorized a share repurchase program to buy up to 16,000 shares of the Company's outstanding common stock. This program was completed in October 1999 at a total cost of $478,302. 8 OTHER INFORMATION During the fourth quarter of 2001, IMS completed the assessment of its Competitive Fitness Program. This program was designed to further streamline operations, increase productivity, and improve client service. IMS recorded $94,616 of Severance, Impairment and Other Charges relating to the IMS Segment during the fourth quarter of 2001 as a component of operating income. The cash portion of the 2001 charge amounted to $64,205, primarily for severance payments and contract terminations, with the non-cash portion accounting for $30,411, composed primarily of asset write-offs. Of the cash portion, $46,348 is expected to be paid during 2002. The impact on the 1999 cash flow from the "Calendarization" (see Note 20 to the Consolidated Financial Statements) was $30,664, which represents cash flow from the IMS operating units for the month of December 1998. On July 23, 1999 Gartner paid a cash dividend to its holders of record as of July 16, 1999. IMS's portion of this dividend was $52,877, net of taxes. On July 23, 1999, Gartner effected a recapitalization and on July 26, 1999 IMS distributed approximately 40.7 million Gartner Class B Common Stock to its shareholders. During the third quarter of 2001, IMS completed the sale of its remaining interest in Gartner resulting in a net loss of $8,146. See Note 4 to the Consolidated Financial Statements for a further discussion of the sale of Gartner shares. IMS has borrowing arrangements with several international banks to provide lines of credit up to $525,000 at December 31, 2001. Total borrowings under these lines were $346,463 and $384,281 at December 31, 2001 and 2000, respectively. In general, the terms of these lines of credit give IMS the option to borrow at an interest rate equal to LIBOR plus 37.5 basis points for short-term lines and LIBOR plus 65 basis points for long-term lines. The weighted average interest rates for the short-term lines were 2.34% and 7.10% at December 31, 2001 and 2000, respectively. The weighted average interest rates for the long-term lines were 2.48% at December 31, 2001. The commitment fee associated with the unused short-term lines of credit is 22.5 basis points per year, increasing to 28.75 basis points per year if the facilities are less than 50% utilized. Under the long-term lines the commitment fee is 52.5 basis points per year. The borrowing arrangements require IMS to comply with certain financial covenants and at December 31, 2001 and 2000, IMS was in compliance with all such covenants. During the fourth quarter of 2001, IMS renegotiated with several banks and entered into three-year lines of credit for borrowings of up to $175,000. Borrowings under these three-year facilities are short-term in nature; however, IMS has the ability and the intent to refinance the short-term borrowings through December 2004 as they come due. As such, at December 31, 2001, the Company reclassified $150,000 of its then outstanding debt as long-term debt pursuant to the provisions of Statement of Financial Accounting Standards ("SFAS') No. 6, "Classification of Short-Term Obligations Expected to be Refinanced." Borrowings under short-term lines were $196,463 and $384,281 at December 31, 2001 and 2000, respectively. Borrowings have maturity dates of up to ninety days from their inception. The borrowings were taken out primarily to support IMS's share repurchase program and to fund the Donnelley Legacy tax payment further described in Note 21 to the Consolidated Financial Statements. Financial Reporting Release No. 61 was recently released by the Securities and Exchange Commission ("SEC") to require all companies to include a discussion to address, among other things, liquidity, off-balance sheet arrangements, contractual obligations and commercial commitments. These matters are addressed throughout this section and in Notes 5, 11, 12, 13 and 18 to the Consolidated Financial Statements. CONTRACTUAL OBLIGATIONS IMS's contractual obligations include facility leases, agreements to purchase data and telecommunications services and leases of certain computer and other equipment. At December 31, 2001, the minimum annual payments under these agreements and other contracts that have initial or remaining non-cancelable terms in excess of one year are as listed in the following table:
DATA AND COMPUTER OPERATING TELECOMMUNICATION EQUIPMENT YEAR LEASES(1) SERVICES(2) LEASES(3) TOTAL - ---------------------------------------------------------------- 2002 $19,222 $102,676 $17,599 $139,497 2003 17,107 79,557 13,373 110,037 2004 12,607 47,822 7,316 67,745 2005 9,894 37,133 4,252 51,279 2006 8,710 3,160 579 12,449 Thereafter 9,645 2,490 116 12,251 - ---------------------------------------------------------------- Total $77,185 $272,838 $43,235 $393,258 - ----------------------------------------------------------------
(1) Rental expense under real estate operating leases for the years 2001, 2000 and 1999 was $17,176, $18,911 and $26,656 respectively. 9 (2) Expense for data and telecommunications services for the years 2001, 2000 and 1999 was $96,727, $85,858 and $73,061 respectively. (3) Rental expense under computer and other equipment leases was $16,790, $14,348 and $22,248 for 2001, 2000 and 1999, respectively. These leases are frequently renegotiated or otherwise changed as advancements in computer technology produce opportunities to lower costs and improve performance. IMS may also be required to pay up to $36,720 during 2002 to 2004 as contingent consideration under the terms of one of its 2001 acquisitions. See Note 5 to the Consolidated Financial Statements. Commitments also include "Capital Calls" which are required payments pursuant to the Enterprises agreements. At December 31, 2001 the Company is obligated to contribute a maximum of $7,000 to meet capital call requirements over the remaining life of the Enterprises venture capital investments. IMS believes that its available funds and the cash flows expected to be generated from operations will be adequate to satisfy its current and planned operations and needs for at least the next 12 months. IMS's ability to expand and grow its business in accordance with current plans, to make acquisitions, repurchase stock and to meet its long-term capital requirements beyond this 12-month period will depend on many factors, including the rate, if any, at which its cash flow increases, its ability and willingness to accomplish acquisitions, repurchase treasury stock and the availability to IMS of public and private debt and equity financing, including its current ability to secure bank lines of credit. IMS cannot be certain that additional financing, if required, will be available on terms favorable to it, if at all. YEAR 2000 External and internal costs totaling $79,299 to address the Year 2000 issue were expensed as incurred through December 31, 1999, of which $24,558 was incurred in 1999. These costs were primarily related to repairing software. This does not include the costs of software and systems that were replaced or enhanced in the normal course of business. MARKET RISK IMS's primary market risks are the impact of foreign exchange fluctuations on non-dollar-denominated revenue, the impact of price fluctuations on equity securities and the impact of interest rate fluctuations on interest expense. IMS transacts business in more than 100 countries and is subject to risks associated with changing foreign exchange rates. IMS's objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes. Accordingly, IMS enters into foreign currency forward contracts to minimize the impact of foreign exchange movements on net income and on the value of non-functional currency assets and liabilities. It is IMS's policy to enter into foreign currency transactions only to the extent necessary to meet its objectives as stated above. IMS does not enter into foreign currency transactions for investment or speculative purposes. At December 31, 2001, all foreign currency forward contracts had a term of less than one year. The principal currencies hedged are the Japanese yen, the Euro and the Swiss franc. The fair value of IMS's hedging instruments, estimated at $131,591 at December 31, 2001, is subject to change as a result of potential changes in foreign exchange rates. IMS assesses its market risk based on changes in foreign exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values based on a hypothetical 10% change in currency rates. The potential loss in fair value for foreign exchange rate-sensitive instruments, all of which were forward foreign currency contracts, based on a hypothetical 10% decrease in the value of the U.S. dollar or, in the case of non-dollar-related instruments, the currency being purchased, was $9,112 at December 31, 2001. However, the change in the fair value of foreign exchange rate-sensitive instruments would likely be offset by a change in the fair value of the asset or liability being hedged. The estimated fair values of the foreign exchange risk management contracts were determined based on quoted market prices. IMS also invests in equity securities and is subject to equity price risk. These investments are classified as available for sale and consequently, carried at fair value, with unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. IMS does not hedge this market risk exposure. IMS assesses its market risk based on changes in market prices utilizing a sensitivity analysis. The sensitivity analysis measures the potential loss in fair values based on a hypothetical 10% decrease in the market price of these securities. A 10% decline in the market price of these equity securities would cause the fair value of the securities to decrease by $2,716 at December 31, 2001. IMS also borrows funds and since the interest rate associated with those borrowings changes over time, IMS is subject to interest rate risk. IMS has not hedged this exposure. IMS assesses its market risk based on 10 changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the increase in annual interest expense based on a hypothetical 1% increase in interest rates, which would have amounted to $3,464 at December 31, 2001. EURO CONVERSION On January 1, 1999, 11 member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency ("Euro"). The transition period for the introduction of the Euro was between January 1, 1999 and January 1, 2002. IMS instituted plans for the introduction of the Euro and addressed the related issues, including the conversion of information technology systems, recalculating currency risk, recalibrating derivatives and other financial instruments, continuity of contracts, taxation and accounting records and the increased price transparency resulting from the use of a single currency in the eleven participating countries which may affect the ability of some companies to price products differently in various European markets. IMS believes that differences in national market size, data collection requirements and specific product specifications required due to the diverse market information needs in the healthcare markets of Europe will reduce the potential for price harmonization in most of IMS's product ranges. The introduction of the Euro did not have a material adverse effect on IMS's results of operations during 2001 or 2000. FORWARD-LOOKING STATEMENTS This 2001 Annual Report to Shareholders, as well as information included in oral statements or other written statements made or to be made by IMS, contain statements which, in the opinion of IMS, may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements appear in a number of places in this Annual Report and include, but are not limited to, all statements relating to plans for future growth and other business development activities as well as capital expenditures, financing sources, dividends and the effects of regulation and competition, Euro conversion and all other statements regarding the intent, plans, beliefs or expectations of IMS or its directors or officers. Stockholders are cautioned that such forward-looking statements are not assurances for future performance or events and involve risks and uncertainties that could cause actual results and developments to differ materially from those covered in such forward-looking statements. These risks and uncertainties include, but are not limited to, risks associated with operating on a global basis, including fluctuations in the value of foreign currencies relative to the U.S. dollar, and the ability to successfully hedge such risks; to the extent IMS seeks growth through acquisitions, alliances or joint ventures, the ability to identify, consummate and integrate acquisitions, alliances and ventures on satisfactory terms; the ability to develop new or advanced technologies, systems and products for their businesses on time and on a cost-effective basis including but not limited to those that use or are related to the Internet; the ability to identify and implement cost-containment measures; the ability to successfully maintain historic effective tax rates and to achieve estimated corporate overhead levels; competition, particularly in the markets for pharmaceutical information; regulatory, legislative and enforcement initiatives, particularly in the area of medical privacy and tax; the ability to timely and cost-effectively resolve any problems associated with the Euro currency issue, including the possibility of problems with internal data processing systems; the ability to obtain future financing on satisfactory terms; deterioration in economic conditions, particularly in the pharmaceutical, healthcare, or other industries in which IMS's customers may operate; consolidation in the pharmaceutical industry and the other industries in which IMS's customers operate; conditions in the securities markets which may affect the value or liquidity of portfolio investments and management's estimates of lives of assets, recoverability of assets, fair market value, estimates and liabilities and accrued income tax benefits and liabilities and related contingencies; failure of third parties to convert their information technology systems to the Euro currency in a timely manner and actions of government agencies and other third parties with respect to Euro currency issues; and 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 IMS, its personnel and facilities, its customers and suppliers, financial markets and general economic conditions. Consequently, all the forward-looking statements contained in this Annual Report to Shareholders are qualified by the information contained herein, including, but not limited to, the information contained under this heading and the Consolidated Financial Statements and Notes thereto and by the material set forth under the headings "Business" and "Factors that May Affect Future Results" in IMS's Annual Report on Form 10-K for the year ended December 31, 2001. IMS is under no obligation to publicly release any revision to any forward-looking statement contained or incorporated herein to reflect any future events or occurrences. CRITICAL ACCOUNTING POLICIES Financial Reporting Release No. 60, which was recently released by the SEC, requires all companies to include a discussion of critical accounting policies or methods used in the preparation of financial statements. 11 Note 2 to the Consolidated Financial Statements includes a summary of the significant accounting policies and methods used in the preparation of IMS's Consolidated Financial Statements. Following is a brief discussion of the more significant accounting policies and methods used by IMS. Management's discussion and analysis of its results of operations and financial position are based upon its Consolidated Financial Statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in accordance with these principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and the related disclosure of contingent assets and liabilities. On an ongoing basis, IMS evaluates its estimates. The most significant estimates relate to the allowance for doubtful accounts, inventories, investments, depreciation of fixed assets including salvage values, carrying value of intangible assets and computer software, provision for income taxes and tax assets and liabilities, reserves for severance, pensions and reserves for employee benefits, contingencies and litigation. IMS bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could vary from the estimates and assumptions used in the preparation of the accompanying financial statements. IMS believes the following critical policies affect its more significant judgments and estimates used in the preparation of its Consolidated Financial Statements. REVENUE RECOGNITION. IMS recognizes revenue as earned, which is over the service period as the information is delivered or related services are performed. A substantial portion of IMS's revenue is derived from subscription based services. Advance payments for services and subscriptions are credited to deferred revenue and reflected in operating revenue over the subscription term, which is generally one year. IMS also derives a portion of its revenues from software licenses which is recognized upon delivery of the software, when persuasive evidence of an arrangement exists, the related fees are fixed or determinable and collection of fees is reasonably assured. Revenues from post-contract customer support (maintenance) are recognized on a straight-line basis over the term of the arrangement. Revenues from time and material service agreements are recognized as the services are provided. Revenues from fixed price service contracts which relate primarily to CTS are recognized over the contract term based on the percentage of costs incurred for services provided during the period compared to the total estimated costs of services to be provided over the entire arrangement. Anticipated losses on contracts are recognized immediately. Under the terms of these contracts, all services provided by IMS through the date of cancellation are due and payable. GOODWILL. Goodwill represents the excess purchase price over the fair value of identifiable net assets of businesses acquired. The Company amortizes goodwill on a straight-line basis over five to forty years. In accordance with the provisions of SFAS No. 142 goodwill arising on acquisitions completed since July 1, 2001 is no longer amortized. IMS periodically reviews the recoverability of goodwill, not identified with impaired long-lived assets, based on estimated undiscounted future cash flow from operating activities compared with the carrying value of goodwill and recognizes any impairment on the basis of such comparison. The recognition and measurement of goodwill impairment is assessed at the business unit level. Goodwill may become impaired as a result of several factors such as increased competition and lower demand for the Company's products and services. OTHER LONG-LIVED ASSETS. In accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," IMS reviews for the impairment of long-lived assets and certain identifiable intangibles held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, this statement requires recognition of an impairment loss when the sum of undiscounted expected future cash flow is less than the carrying amount of such assets. Accordingly, IMS recognizes impairment losses on long-lived assets as a result of its review. The measurement for such impairment loss is then based on the fair value of the asset measured by its discounted future cash flows or market value, if more readily determinable. INCOME TAXES. IMS operates in more than 100 countries around the world and its earnings are taxed at the applicable income tax rate in each of those countries. IMS provides for income taxes utilizing the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. In the event IMS 12 were to determine that it would be able to realize its deferred tax assets in the future in excess of its net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should IMS determine that it would not be able to realize all or part of its net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. While IMS intends to continue to seek global tax planning initiatives, there can be no assurance that IMS will be able to successfully implement such initiatives to reduce or maintain its overall tax rate. IMS intends to indefinitely reinvest the undistributed earnings of non-U.S. subsidiaries other than the Indian earnings of CTS. CTS management currently intends to repatriate all Indian earnings to the U.S. and has provided deferred U.S. income taxes on all such Indian undistributed earnings. Deferred tax liabilities for U.S. federal income taxes have not been recognized for all other undistributed earnings. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, applicable taxes will be provided for on such amounts. It is not currently practicable to determine the amount of applicable taxes. See Note 17 to the Consolidated Financial Statements. FOREIGN CURRENCY TRANSLATION. IMS has significant investments in non-U.S. countries. Therefore, changes in the value of foreign currencies affect IMS's Consolidated Financial Statements when translated into U.S. dollars. Impacts associated with foreign currency have been more fully discussed in the section entitled "Market Risk." For all operations outside the United States of America where IMS has designated the local currency as the functional currency, assets and liabilities are translated using end-of-period exchange rates; revenues and expenses are translated using average rates of exchange. For these countries, currency translation adjustments are accumulated in a separate component of Shareholders' Equity whereas transaction gains and losses are recognized in Other Expense, net. For operations in countries that are considered to be highly inflationary or where the U.S. dollar is designated as the functional currency, monetary assets and liabilities are translated using end-of-period exchange rates, whereas non-monetary accounts are translated using historical exchange rates, and all translation and transaction adjustments are recognized in Other Expense, net. INVESTMENTS. IMS carries direct equity investments in private companies and interests in venture capital entities in the financial statements at cost. On a quarterly basis IMS makes periodic estimates of the market value of these investments and reduces the carrying value of the investments if there is an other-than-temporary decline in their fair value below cost. IMS evaluates the recoverability of the underlying securities in each venture capital entity on an individual basis. If the market price of these equity securities declines by a significant amount there could be a material impact on IMS's financial statements. RECENTLY ISSUED ACCOUNTING STANDARDS Effective January 1, 2001 IMS adopted SFAS No. 133. "Accounting for Derivative Instruments and Hedging Activities," as amended. Additional discussion of IMS's derivative and hedging activities is included in Note 14 to the Consolidated Financial Statements. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001 and establishes specific criteria for the recognition of intangible assets separately from goodwill. IMS adopted SFAS No. 141 on July 1, 2001 and is not amortizing goodwill acquired subsequent to June 30, 2001. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that goodwill and intangible assets which have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. It also provides that intangible assets that have finite useful lives be amortized. Under the provisions of SFAS No. 142, any impairment loss identified upon adoption of this standard is recognized as a cumulative effect of a change in accounting principle. Any impairment loss incurred subsequent to initial adoption of SFAS No. 142 is recorded as a charge to current period earnings. IMS will adopt SFAS No. 142 beginning January 1, 2002 and at that time will stop amortizing goodwill that resulted from business combinations completed prior to the adoption of SFAS No. 141. IMS recorded goodwill amortization of $10,316 and $19,120 during 2001 and 2000, respectively. IMS also recorded amortization expense related to equity method investees of approximately $9,600 and $2,400 in 2001 and 2000, respectively. IMS has six months from January 1, 2002 to complete the first step of the transitional goodwill impairment test. IMS is currently evaluating the financial impact of adoption of SFAS No. 142; however, it does not believe that there will be a material adverse impact on IMS's financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 eliminates the 13 requirement for discontinued operations to be measured on a net realizable value basis and future operating losses to be recognized before they occur. Instead, it requires that assets held for sale be valued at the lower of carrying amount or fair value less cost to sell. SFAS 144 extends the reporting requirements for discontinued operations to certain components of an entity. Under the provisions of SFAS No. 144, spin-offs and exchanges of similar productive assets are required to be recorded at the lower of carrying value or fair value and such assets classified as held and used until they are disposed of. Any resultant impairment loss is required to be recognized when the asset is disposed of. For assets that are grouped when an entity is developing estimates of future cash flows, SFAS No. 144 requires that the remaining useful life of the "primary asset" be used for the entire group. In addition, SFAS No. 144 permits the use of a probability-weighted approach in developing estimates of future cash flows used to test for recoverability and in estimating fair value. IMS will adopt SFAS No. 144 beginning January 1, 2002 and is currently evaluating the impact of the adoption; however, IMS does not believe that there will be a material adverse impact on IMS's financial position, results of operations or cash flows. DIVIDENDS The payments and level of cash dividends by IMS are subject to the discretion of the Board of Directors of IMS. For the years ended December 31, 2001 and 2000, IMS declared quarterly dividends of $0.02 per share, or $0.08 per share on an annual basis. Any future dividends will be based on, and affected by, a number of factors, including the operating results and financial requirements of IMS. IMS HEALTH COMMON STOCK INFORMATION IMS's common stock is listed on the New York Stock Exchange (symbol "RX"). The number of shareholders of record and shares outstanding on December 31, 2001 and 2000, were 6,056 and 6,607, respectively (not in thousands; refers to actual number of shareholders) and 294,088 and 291,342, respectively. Approximately 77% of IMS's shares are held by institutions. The high and low closing stock price per share during 2001 were $30.20 and $18.99, respectively. The following table shows the high and low closing stock price per share during the four quarters of 2001 and 2000:
PRICE PER SHARE($) ----------------------- 2001 ----------------------- HIGH LOW - -------------------------------------------------------------- First Quarter 27.33 22.50 Second Quarter 30.20 24.30 Third Quarter 28.50 23.60 Fourth Quarter 27.60 18.99 - -------------------------------------------------------------- Year 30.20 18.99 - --------------------------------------------------------------
PRICE PER SHARE($) ----------------------- 2000(1) ----------------------- HIGH LOW - -------------------------------------------------------------- First Quarter 25.86 15.98 Second Quarter 17.56 14.33 Third Quarter 20.75 15.86 Fourth Quarter 28.56 19.94 - -------------------------------------------------------------- Year 28.56 14.33 - --------------------------------------------------------------
(1) Share prices for periods prior to the Synavant Spin-Off on August 31, 2000 are adjusted to give effect to the estimated impact of that Spin-Off on IMS share prices based on the share price of IMS and Synavant immediately prior and immediately after the Synavant Spin-Off. The 2000 high and low per share price unadjusted for the Synavant Spin-Off were as follows: $26.50 and $16.38 in the first quarter and $18.00 and $14.69 in the second quarter, respectively. 14 STATEMENT OF MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS - ------------------------------------------- To the Shareholders of IMS Health Incorporated: Management is responsible for the preparation of the consolidated financial statements and related information that are presented in this report. The consolidated financial statements, which include amounts based on management's estimates and judgments, have been prepared in conformity with accounting principles generally accepted in the United States of America. Other financial information in the report to shareholders is consistent with that in the consolidated financial statements. The Company maintains accounting and internal control systems to provide reasonable assurance at reasonable cost that assets are safeguarded against loss from unauthorized use or disposition, and that the financial records are reliable for preparing financial statements and maintaining accountability for assets. These systems are augmented by written policies, an organizational structure providing division of responsibilities, careful selection and training of qualified personnel and a program of internal audits. The Company engaged PricewaterhouseCoopers LLP, independent accountants, to audit and render an opinion on the consolidated financial statements in accordance with auditing standards generally accepted in the United States of America. These standards include an assessment of the systems of internal controls and tests of transactions to the extent considered necessary by them to support their opinion. The Board of Directors, through its Audit Committee consisting solely of outside directors of the Company, meets periodically with management, internal auditors and our independent accountants to ensure that each is meeting its responsibilities and to discuss matters concerning internal controls and financial reporting. PricewaterhouseCoopers LLP and the internal auditors each have full and free access to the Audit Committee. [LOGO] David M. Thomas Chairman, Chief Executive Officer and President [LOGO] Nancy E. Cooper Senior Vice President and Chief Financial Officer REPORT OF INDEPENDENT ACCOUNTANTS - ------------------------------------------- To the Board of Directors and Shareholders of IMS Health Incorporated: In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of income, shareholders' equity and cash flows present fairly, in all material respects, the financial position of IMS Health Incorporated and its subsidiaries at December 31, 2001 and 2000, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. /s/ PricewaterhouseCoopers LLP PricewaterhouseCoopers LLP New York, New York February 11, 2002 15 IMS HEALTH INCORPORATED Consolidated Statements of Financial Position
AS OF DECEMBER 31, ------------------------- AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 2001 2000 - --------------------------------------------------------------------------------------- ASSETS: CURRENT ASSETS: Cash and Cash Equivalents $ 268,386 $ 118,593 Accounts Receivable, net 228,626 230,988 Other Receivable (Note 21) 33,361 41,136 Other Current Assets 126,472 132,813 Net Assets of Discontinued Operations -- 60,799 - --------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 656,845 584,329 - --------------------------------------------------------------------------------------- Securities and Other Investments 51,992 87,500 TriZetto Equity Investment 119,896 137,501 Property, Plant and Equipment, net 149,084 145,447 Computer Software 116,540 117,688 Goodwill 148,597 144,100 Other Assets 124,600 91,596 - --------------------------------------------------------------------------------------- TOTAL ASSETS $ 1,367,554 $ 1,308,161 - --------------------------------------------------------------------------------------- LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY: CURRENT LIABILITIES: Accounts Payable $ 33,327 $ 45,198 Accrued and Other Current Liabilities 196,215 219,726 Short-Term Debt 196,463 384,281 Accrued Income Taxes 108,941 81,856 Short-Term Deferred Tax Liability 10,684 15,812 Deferred Revenues 89,861 96,095 - --------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 635,491 842,968 - --------------------------------------------------------------------------------------- Post-retirement and Post-employment Benefits 44,305 43,471 Long-Term Debt (Note 14) 150,000 -- Other Liabilities 174,373 182,840 - --------------------------------------------------------------------------------------- TOTAL LIABILITIES $ 1,004,169 $ 1,069,279 - --------------------------------------------------------------------------------------- Commitments and Contingencies (Notes 18 and 21) MINORITY INTERESTS $ 145,019 $ 135,342 SHAREHOLDERS' EQUITY: Preferred Stock, Par Value $.01 Per Share, Authorized--10,000 Shares; Outstanding--None -- -- Series Common Stock, Par Value $.01 Per Share, Authorized--10,000 Shares; Outstanding--None -- -- Common Stock, Par Value $.01, Authorized 800,000 Shares; Issued 335,045 Shares in 2001 and 2000, respectively 3,350 3,350 Capital in Excess of Par 504,776 596,273 Retained Earnings 921,925 760,140 Treasury Stock, at cost, 40,957 Shares and 43,703 Shares in 2001 and 2000, respectively (1,078,914) (1,139,298) Cumulative Translation Adjustment (138,123) (106,417) Minimum Pension Liability Adjustment (3,746) (672) Unrealized Loss on Gartner, Inc., net of tax benefit -- (20,946) Unrealized Gain on Investments, net of tax expense 9,098 11,110 - --------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 218,366 $ 103,540 - --------------------------------------------------------------------------------------- TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS' EQUITY $ 1,367,554 $ 1,308,161 - ---------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 16 IMS HEALTH INCORPORATED Consolidated Statements of Income
YEARS ENDED DECEMBER 31, ------------------------------------ AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 2001 2000 1999 - -------------------------------------------------------------------------------------------------- OPERATING REVENUE $1,332,923 $1,424,359 $1,397,989 - -------------------------------------------------------------------------------------------------- Operating Costs 494,411 549,259 551,099 Selling and Administrative Expenses 344,100 416,006 397,924 Depreciation and Amortization 69,178 92,000 100,443 Severance, Impairment and Other Charges 94,616 45,689 -- Terminated Transaction Costs 6,457 -- -- Spin and Related Costs -- 37,626 9,500 Impairment Charge--Synavant -- 115,453 -- Executive Management Transition Charge -- 31,133 -- - -------------------------------------------------------------------------------------------------- OPERATING INCOME 324,161 137,193 339,023 - -------------------------------------------------------------------------------------------------- Interest Income 9,053 4,332 8,225 Interest Expense (18,059) (17,640) (7,590) Loss on Gartner Investment (Note 4) (84,880) (6,896) -- Gains (Losses) from Investments, net (27,642) 78,139 25,264 Gain on Sale of Erisco -- 84,530 -- Gain (Loss) on Issuance of Investees' Stock, net (Notes 11 and 12) (1,490) 9,029 -- Other Expense, net (Note 11) (17,342) (27,374) (16,480) - -------------------------------------------------------------------------------------------------- NON-OPERATING INCOME (LOSS), NET (140,360) 124,120 9,419 - -------------------------------------------------------------------------------------------------- Income Before Provision for Income Taxes 183,801 261,313 348,442 Provision for Income Taxes (38,415) (140,412) (98,076) TriZetto Equity Loss, net of Income Tax Benefit of $4,504 for 2001 and $3,080 for 2000 (6,985) (4,777) -- - -------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 138,401 116,124 250,366 Income from Discontinued Operations, net of Income Taxes of $25,320, $2,526 and $12,635 for 2001, 2000 and 1999, respectively (Note 4) 47,025 4,692 25,695 - -------------------------------------------------------------------------------------------------- NET INCOME $ 185,426 $ 120,816 $ 276,061 - -------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE OF COMMON STOCK: Income from Continuing Operations $ 0.47 $ 0.39 $ 0.80 Income from Discontinued Operations 0.16 0.02 0.08 - -------------------------------------------------------------------------------------------------- BASIC EARNINGS PER SHARE OF COMMON STOCK $ 0.63 $ 0.41 $ 0.88 - -------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE OF COMMON STOCK: Income from Continuing Operations $ 0.46 $ 0.39 $ 0.78 Income from Discontinued Operations 0.16 0.02 0.08 - -------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER SHARE OF COMMON STOCK $ 0.62 $ 0.40 $ 0.86 - -------------------------------------------------------------------------------------------------- Weighted Average Number of Shares Outstanding--Basic 295,162 296,077 311,976 Dilutive Effect of Shares Issuable as of Period End Under Stock Option Plans 3,654 2,203 6,065 Adjustment of Shares Outstanding Applicable to Exercised and Cancelled Stock Options During the Period 1,331 1,758 1,520 - -------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING--DILUTED 300,147 300,038 319,561 - --------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 17 IMS HEALTH INCORPORATED Consolidated Statements of Cash Flows
YEARS ENDED DECEMBER 31, --------------------------------- AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 2001 2000 1999 - ----------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income $ 185,426 $ 120,816 $ 276,061 Less Income from Discontinued Operations (47,025) (4,692) (25,695) - ----------------------------------------------------------------------------------------------- Income from Continuing Operations 138,401 116,124 250,366 Adjustments to reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation and Amortization 69,178 92,000 100,443 Bad Debt Expense 3,930 3,378 2,143 Deferred Income Taxes (2,342) 45,983 18,085 (Gain) Loss from Investments, net 27,642 (78,139) (25,264) (Gain) Loss on Issuance of Investees' Stock, net 1,490 (9,029) -- TriZetto Equity Loss, net 6,985 4,777 -- Minority Interests in Net Income of Consolidated Companies 19,466 17,222 14,260 Non-Cash Portion of Severance, Impairment and Other Charges 30,411 35,341 -- Non-Cash Portion of Executive Management Transition Charge -- 18,951 -- Non-Cash Portion of Synavant Spin and Related Costs -- 1,946 -- Impairment Charge--Synavant -- 115,453 -- Loss on Gartner Investment 84,880 6,896 -- Gain on Sale of Erisco -- (84,530) -- Change in assets and liabilities, excluding effects from acquisitions and dispositions: Net (Increase) Decrease in Accounts Receivable (11,243) (34,401) 3,125 Net (Increase) Decrease in Inventory (5,028) 971 (5,128) Net (Increase) Decrease in Prepaid Expenses (2,393) 10,079 (3,382) Net (Decrease) Increase in Accounts Payable (10,817) 14,462 (4,745) Net (Decrease) Increase in Accrued and Other Current Liabilities (47,941) 11,882 (31,181) Net (Decrease) Increase in Accrued Severance, Impairment and Other Charges 28,117 39,129 -- Net (Decrease) Increase in Deferred Revenues (4,400) 6,843 (7,031) Net (Decrease) Increase in Accrued Income Taxes (31,787) 40,413 41,317 Increase in Pension Assets, net (19,135) (8,894) (1,352) Net Income Tax Benefit on Stock Option Exercises 28,256 12,631 7,224 Receipts (Payments) on Donnelley Legacy Tax Contingency 10,530 (212,291) -- Other Operating Items, net 11,105 2,515 (11,560) - ----------------------------------------------------------------------------------------------- NET CASH PROVIDED BY OPERATING ACTIVITIES 325,305 169,712 347,320 - ----------------------------------------------------------------------------------------------- CASH FLOWS USED IN INVESTING ACTIVITIES: Capital Expenditures (34,293) (33,433) (32,989) Additions to Computer Software (49,858) (50,646) (59,284) Payments for Acquisitions of Businesses, Net of Cash Acquired (43,318) (11,233) (38,809) Proceeds from Sale of Investments, net 1,052 83,437 51,442 Proceeds from Sale of IDRAC Holdings Inc., net 2,862 -- -- Proceeds from Sale of Gartner Investment 65,207 -- -- Cash Payment to Erisco prior to Disposition -- (32,012) -- Erisco and TriZetto Transaction Costs -- (10,679) -- Net (Increase) Decrease in Other Investments 122 (27,343) (19,408) Other Investing Activities, net 4,945 (7,751) (3,711) - ----------------------------------------------------------------------------------------------- NET CASH USED IN INVESTING ACTIVITIES (53,281) (89,660) (102,759) - -----------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 18 IMS HEALTH INCORPORATED Consolidated Statements of Cash Flows (continued)
YEARS ENDED DECEMBER 31, --------------------------------- AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA 2001 2000 1999 - ----------------------------------------------------------------------------------------------- CASH FLOWS USED IN FINANCING ACTIVITIES: Payments for Purchase of Treasury Stock (310,482) (419,011) (517,030) Proceeds from Exercise of Stock Options 249,607 129,773 31,453 Dividends Paid (23,641) (23,686) (25,043) Proceeds from Employee Stock Purchase Plan 2,459 2,087 4,229 Short-Term (Repayments) Borrowings, net (37,823) 255,672 92,242 Synavant Dividend -- (19,438) -- Other Financing Activities, net 1,204 684 (128) - ----------------------------------------------------------------------------------------------- NET CASH USED IN FINANCING ACTIVITIES (118,676) (73,919) (414,277) - ----------------------------------------------------------------------------------------------- Effect of Exchange Rate Changes (3,555) (3,415) (4,340) Impact of change in year end of the IMS Health operating units -- -- 30,664 Cash Flow Provided by Discontinued Operations -- -- 52,877 - ----------------------------------------------------------------------------------------------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 149,793 2,718 (90,515) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 118,593 115,875 206,390 - ----------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 268,386 $ 118,593 $ 115,875 - ----------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash Paid during the Period for Interest $ 20,376 $ 14,981 $ 7,491 Cash Paid during the Period for Income Taxes (Exclusive of payment of $212,291 Donnelley Legacy Tax Contingency in 2000, see Note 21.) $ 36,812 $ 47,925 $ 67,490 Cash Received from Income Tax Refunds $ 4,000 $ 14,438 $ 42,903 Non-Cash Investing Activities: Dividend of Gartner Class B Shares -- -- $ 134,259 Synavant Spin-Off Dividend -- $ 122,005 -- Equity Investment in TriZetto -- $ 100,650 --
The accompanying notes are an integral part of the Consolidated Financial Statements. 19 IMS HEALTH INCORPORATED Consolidated Statements of Shareholders' Equity AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA - --------------------------------------------------------------------------------
SHARES ----------------- CAPITAL IN COMMON TREASURY COMMON EXCESS OF PAR RETAINED TREASURY STOCK STOCK STOCK VALUE EARNINGS STOCK - ---------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1998 335,045 16,304 $3,350 $669,853 $686,653 $ (473,810) - ---------------------------------------------------------------------------------------------------- Net Income from IMS Operations for the Month of December 1998 1,040 Change in Cumulative Translation Adjustment (Note 20) Total Comprehensive Income - ---------------------------------------------------------------------------------------------------- BALANCE, JANUARY 1, 1999 335,045 16,304 $3,350 $669,853 $687,693 $ (473,810) - ---------------------------------------------------------------------------------------------------- Net Income 276,061 Cash Dividends ($0.08 per share) (25,043) Stock Dividend of Gartner Shares (134,259) Prepaid Employee Stock Option Plan Exercise or Cancellation (245) Treasury Shares Acquired 18,565 (517,030) Treasury Stock Reissued Under: Exercise of Stock Options (1,874) (16,585) 55,262 Restricted Stock Plan 4,028 Less: Unearned Portion 118 (4,028) Plus: Earned Portion of Grants (63) 3,589 Employee Stock Purchase Plan (149) 4,229 Cumulative Translation Adjustment Unrealized Gain on Gartner Securities, net of taxes of $9,198 Unrealized Gain on Other Investments, net of amount realized of $17,388, net of taxes of $6,562 Total Comprehensive Income - ---------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 335,045 32,901 $3,350 $653,023 $804,452 $ (927,760) - ---------------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME ------------------------------------ UNREALIZED MINIMUM CUMULATIVE GAINS PENSION TRANSLATION (LOSSES) ON LIABILITY COMPREHENSIVE ADJUSTMENT INVESTMENTS ADJUSTMENT INCOME TOTAL - ----------------------------------- BALANCE, DECEMBER 31, 1998 $ (84,149) $ 23,373 $ -- $825,270 - ----------------------------------- Net Income from IMS Operations for the Month of December 1998 1,040 1,040 Change in Cumulative Translation Adjustment (Note 20) 3,409 3,409 3,409 -------- -------- Total Comprehensive Income 4,449 - ----------------------------------- BALANCE, JANUARY 1, 1999 $ (80,740) $ 23,373 $ -- $829,719 - ----------------------------------- Net Income 276,061 276,061 Cash Dividends ($0.08 per share) (25,043) Stock Dividend of Gartner Shares 2,155 (132,104) Prepaid Employee Stock Option Plan Exercise or Cancellation (245) Treasury Shares Acquired (517,030) Treasury Stock Reissued Under: Exercise of Stock Options 38,677 Restricted Stock Plan 4,028 Less: Unearned Portion (4,028) Plus: Earned Portion of Grants 3,589 Employee Stock Purchase Plan 4,229 Cumulative Translation Adjustment (17,650) (17,650) (17,650) Unrealized Gain on Gartner Securities, net of taxes of $9,198 17,081 17,081 17,081 Unrealized Gain on Other Investments, net of amount realized of $17,388, net of taxes of $6,562 17,938 17,938 17,938 -------- -------- Total Comprehensive Income 293,430 - ----------------------------------- BALANCE, DECEMBER 31, 1999 $ (96,235) $ 58,392 $ -- $495,222 - -----------------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 20 IMS HEALTH INCORPORATED Consolidated Statements of Shareholders' Equity (continued) AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA - --------------------------------------------------------------------------------
SHARES ------------------- CAPITAL IN COMMON TREASURY COMMON EXCESS OF PAR RETAINED TREASURY STOCK STOCK STOCK VALUE EARNINGS STOCK - ------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 1999 335,045 32,901 $3,350 $653,023 $804,452 $ (927,760) - ------------------------------------------------------------------------------------------------- Net Income 120,816 Cash Dividends ($0.08 per share) (23,685) Synavant Spin-Off Dividend (141,443) Prepaid Employee Stock Option (1,998) Accelerated Stock Options 3,330 Treasury Shares Acquired 18,989 (419,011) Treasury Stock Reissued Under: Exercise of Stock Options (7,981) (58,082) 200,487 Restricted Stock Plan (73) 4,899 Employee Stock Purchase Plan (133) 2,087 Cumulative Translation Adjustment Minimum Pension Liability Adjustment Unrealized Loss on Gartner Securities, net of taxes of $11,263 Unrealized Loss on Other Investments--Net of amount realized of $23,664, net of taxes of $18,808 Total Comprehensive Income - ------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 335,045 43,703 $3,350 $596,273 $760,140 $(1,139,298) - ------------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME -------------------------------------- UNREALIZED MINIMUM CUMULATIVE GAINS PENSION TRANSLATION (LOSSES) ON LIABILITY COMPREHENSIVE ADJUSTMENT INVESTMENTS ADJUSTMENT INCOME TOTAL - ------------------------ BALANCE, DECEMBER 31, 1999 $ (96,235) $ 58,392 $ -- $495,222 - ------------------------ Net Income 120,816 120,816 Cash Dividends ($0.08 per share) (23,685) Synavant Spin-Off Dividend (141,443) Prepaid Employee Stock Option (1,998) Accelerated Stock Options 3,330 Treasury Shares Acquired (419,011) Treasury Stock Reissued Under: Exercise of Stock Options 142,405 Restricted Stock Plan 4,899 Employee Stock Purchase Plan 2,087 Cumulative Translation Adjustment (10,182) (10,182) (10,182) Minimum Pension Liability Adjustment (672) (672) (672) Unrealized Loss on Gartner Securities, net of taxes of $11,263 (38,027) (38,027) (38,027) Unrealized Loss on Other Investments--Net of amount realized of $23,664, net of taxes of $18,808 (30,201) (30,201) (30,201) -------- -------- Total Comprehensive Income 41,734 - ------------------------ BALANCE, DECEMBER 31, 2000 $(106,417) $ (9,836) $ (672) $103,540 - ------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 21 IMS HEALTH INCORPORATED Consolidated Statements of Shareholders' Equity (continued) AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA - --------------------------------------------------------------------------------
SHARES ------------------- CAPITAL IN COMMON TREASURY COMMON EXCESS OF PAR RETAINED TREASURY STOCK STOCK STOCK VALUE EARNINGS STOCK - ------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2000 335,045 43,703 $3,350 $596,273 $760,140 $(1,139,298) - ------------------------------------------------------------------------------------------------- Net Income 185,426 Cash Dividends ($0.08 per share) (23,641) Prepaid Employee Stock Option (1,691) Accelerated Stock Options 2,099 Shares issued in connection with a prior year acquisition (53) 818 Treasury Shares Acquired 12,124 (310,482) Treasury Stock Reissued Under: Exercise of Stock Options (14,518) (92,212) 365,018 Restricted Stock Plan (170) 2,571 Employee Stock Purchase Plan (129) 2,459 Board Deferred Stock Compensation 307 Cumulative Translation Adjustment Minimum Pension Liability Adjustment Unrealized Gain on Gartner Securities, net of Amount Realized of $8,148, net of taxes of $4,388 Unrealized Loss on Other Investments, Net of amount realized of $1,450, net of taxes of $781 Total Comprehensive Income - ------------------------------------------------------------------------------------------------- BALANCE, DECEMBER 31, 2001 335,045 40,957 $3,350 $504,776 $921,925 $(1,078,914) - ------------------------------------------------------------------------------------------------- OTHER COMPREHENSIVE INCOME -------------------------------------- UNREALIZED MINIMUM CUMULATIVE GAINS PENSION TRANSLATION (LOSSES) ON LIABILITY COMPREHENSIVE ADJUSTMENT INVESTMENTS ADJUSTMENT INCOME TOTAL - ------------------------ BALANCE, DECEMBER 31, 2000 $(106,417) $ (9,836) $ (672) $103,540 - ------------------------ Net Income 185,426 185,426 Cash Dividends ($0.08 per share) (23,641) Prepaid Employee Stock Option (1,691) Accelerated Stock Options 2,099 Shares issued in connect with a prior year acqu 818 Treasury Shares Acquired (310,482) Treasury Stock Reissued Under: Exercise of Stock Options 272,806 Restricted Stock Plan 2,571 Employee Stock Purchase Plan 2,459 Board Deferred Stock Compensation 307 Cumulative Translation Adjustment (31,706) (31,706) (31,706) Minimum Pension Liability Adjustment (3,074) (3,074) (3,074) Unrealized Gain on Gartner Securities, net of Amount Realized of $8,148, net of taxes of $4,388 20,946 20,946 20,946 Unrealized Loss on Other Investments, Net of amount realized of $1,450, net of taxes of $781 (2,012) (2,012) (2,012) -------- -------- Total Comprehensive Income 169,580 - ------------------------ BALANCE, DECEMBER 31, 2001 $(138,123) $ 9,098 $(3,746) $218,366 - ------------------------
The accompanying notes are an integral part of the Consolidated Financial Statements. 22 IMS HEALTH INCORPORATED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA - -------------------------------------------------------------------------------- NOTE 1. BASIS OF PRESENTATION IMS Health Incorporated ("IMS" or the "Company") is a leading global provider of information solutions to the pharmaceutical and healthcare industries. The Company operates in more than 100 countries. On August 31, 2000, the Company spun-off the businesses of Synavant, Inc. ("Synavant") by distributing the stock of Synavant to the Company's shareholders (the "Synavant Spin-Off"). The Synavant businesses include: the pharmaceutical industry automated sales and marketing support businesses previously operated by IMS Health Strategic Technologies Inc., and certain other foreign subsidiaries of the Company; substantially all of the Company's interactive and direct marketing business, including the business of Clark O'Neill, Inc., which was a wholly-owned subsidiary of the Company; and a majority stake in a foreign joint venture. On October 3, 2000, the Company sold Erisco Managed Care Technologies, Inc. ("Erisco") to The TriZetto Group, Inc. ("TriZetto") in exchange for an equity interest in TriZetto and entered into a technology and data alliance with TriZetto. These transactions, together with the divestitures or discontinuation of three small non-strategic software businesses, have resulted in a company concentrated on the Company's core data business of providing market information and decision support services to the pharmaceutical industry. At December 31, 2001 the Company also owned the venture capital unit--Enterprise Associates, LLC ("Enterprises") and a 58.3% interest in Cognizant Technology Solutions Corporation ("CTS"). The Company also owned approximately 26.8% of TriZetto's common stock as at December 31, 2001 and accounts for TriZetto under the equity method of accounting. On January 15, 1999, the Company effected a 2-for-1 stock split. All prior period share and per share information has been revised accordingly. On July 26, 1999, the Company completed a spin-off of the majority of its equity investment in Gartner, Inc. ("Gartner", formerly known as "Gartner Group Inc.") to the Company's shareholders (the "Gartner Spin-Off"). The Consolidated Financial Statements of the Company have been reclassified for all periods presented to reflect the Gartner equity investment as a discontinued operation. During the third quarter of 2001, the Company sold its remaining interest in Gartner. On June 30, 1998, the Company's common stock was distributed by Cognizant Corporation ("Cognizant"), which subsequently changed its name to Nielsen Media Research, Inc. ("NMR"), to Cognizant's shareholders (the "Cognizant Spin-Off"). Notwithstanding the form of the Cognizant Spin-Off, the Company was deemed the "accounting successor" to Cognizant. The consolidated financial statements of the Company have been reclassified to reflect NMR as a discontinued operation for periods up to and including June 30, 1998. The above changes to the business are more fully discussed in Notes 4, 5, 7, 12, 16 and 23. During the year ended December 31, 2001, the Company consisted of the following segments: 1. The IMS Segment is a leading global provider of market information, sales management and decision-support services to the pharmaceutical and healthcare industries. Its key products include sales management information to optimize sales force productivity, marketing effectiveness research for prescription and over-the-counter pharmaceutical products, consulting and other services. The IMS Segment is managed on a global business model with global leaders for the majority of its critical business processes. In addition the IMS Segment includes the Company's venture capital unit, Enterprises, which is focused on investments in emerging businesses and IMS's 26.8% equity interest in TriZetto. 2. The CTS Segment delivers full life-cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. These services are delivered through the use of a seamless on-site and offshore consulting project team. CTS's primary service offerings include application development and integration, application management and re-engineering services. IMS accounts for CTS as a consolidated subsidiary. During the years ended December 31, 2000 and 1999, the Company also included: 3. The Transaction Businesses Segment, which consisted of: (a) Synavant, which serves the pharmaceutical industry by developing and selling pharmaceutical relationship management solutions that support sales and marketing decision-making; (b) Erisco, a leading supplier of software-based administrative and analytical solutions to the managed care industry; and (c) three small non-strategic software 23 businesses. The Company spun off the Synavant business on August 31, 2000 and sold Erisco to TriZetto and entered into a strategic alliance with TriZetto on October 3, 2000. The Company also divested or discontinued the other small non-strategic software businesses. See Notes 7, 12, 16 and 23. All prior year segment information has been reclassified to conform with the December 31, 2001 presentation. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION. The Consolidated Financial Statements of the Company include the accounts of the Company, its subsidiaries and investments in which the Company has control. Material intercompany accounts and transactions are eliminated. Investments in companies over which the Company has significant influence but not a controlling interest are accounted for under the equity method of accounting. The Company recognizes in the income statement any gains or losses related to the issuance of stock by a consolidated subsidiary or an investment accounted for under the equity method. CASH AND CASH EQUIVALENTS. Cash and Cash Equivalents include primarily time and demand deposits in the Company's operating bank accounts. The Company considers all highly liquid investments with a maturity of 90 days or less at the time of purchase to be cash equivalents. SECURITIES AND OTHER INVESTMENTS. Marketable securities, principally consisting of equity securities, are classified as available-for-sale. Such securities are carried at fair value, with the unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. Any gains or losses from the sale of these securities are recognized in income using the specific identification method. Direct equity investments in private companies and interests in venture capital entities are carried at cost. See Note 13. The Company periodically evaluates the business prospects and financial position of each issuer whose securities are held. The Company pays special attention to those securities whose market values have declined materially for reasons other than changes in interest rates or other general market conditions. The Company evaluates the realizable value of the investment, the specific condition of the issuer and the issuer's ability to comply with the material terms of the security. Information reviewed may include the recent operational results and financial position of the issuer, information about its industry, recent press releases and other information. If evidence does not exist to support a realizable value equal to or greater than the carrying value of the investment, and such decline in market value is determined to be other than temporary, the carrying amount is reduced to its estimated net realizable value, which becomes the new cost basis. The amount of the reduction is reported as a realized loss in the period which it is determined. Any recovery of such reductions in the cost basis of an investment is recognized in income only upon the sale, repayment or other disposition of the investment. PROPERTY, PLANT AND EQUIPMENT. Buildings, machinery and equipment are recorded at cost and depreciated over their estimated useful lives to their salvage values using principally the straight-line method. Leasehold improvements are recorded at cost and amortized on a straight-line basis over the shorter of the term of the lease or the estimated useful life of the improvement. During 2001, the Company changed the estimated salvage value of two buildings with a net book value of approximately $43,000 from $0 to approximately $43,000. The effect of this change in accounting estimate was to reduce depreciation expense by approximately $700 for the year ended December 31, 2001 and approximately $1,100 per year in future years. Based on additional available appraisal information, the Company believes the revised salvage value represents a more accurate estimate. The change has been accounted for prospectively. See Note 22. COMPUTER SOFTWARE. Direct costs incurred in the development of computer software are capitalized in accordance with Statement of Financial Accounting Standards ("SFAS") No. 86, "Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise Marketed." Research and Development costs incurred to establish technological feasibility of a computer software product are expensed in the periods in which they are incurred. Capitalization ceases and amortization starts when the product is available for general release to customers. Computer software costs are being amortized, on a product by product basis, over three to seven years. Annual amortization is the greater of the amount computed using (a) the ratio that gross revenues for a product bear to the total of current and anticipated future gross revenues for that product, or (b) the straight-line method over the remaining estimated economic life of the product. The Company periodically reviews the unamortized capitalized costs of computer software products based on a comparison of the carrying value of computer software with its estimated net realizable value and changes in software technology. The Company recognizes immediately any impairment losses on capitalized software as a result of its review or upon its decision to discontinue a product. See Notes 6 and 8. The Company capitalizes internal-use software costs once certain criteria in Statement of Position 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use" have been met. GOODWILL. Goodwill represents the excess purchase price over the fair value of identifiable net assets 24 of businesses acquired and is amortized on a straight-line basis over five to forty years. In accordance with the provisions of SFAS 142, goodwill arising on acquisitions completed since July 1, 2001 is no longer amortized. The Company periodically reviews the recoverability of goodwill, not identified with impaired long-lived assets, based on estimated undiscounted future cash flow from operating activities compared with the carrying value of goodwill and recognizes any impairment on the basis of such comparison. The recognition and measurement of goodwill impairment is assessed at the business unit level. See Notes 6 and 8. OTHER LONG-LIVED ASSETS. In accordance with the provisions of SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," the Company reviews for impairment long-lived assets and certain identifiable intangibles held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, this statement requires recognition of an impairment loss when the sum of undiscounted expected future cash flows is less than the carrying amount of such assets. Accordingly, the Company recognizes impairment losses on long-lived assets as a result of its review. The measurement for such impairment loss is then based on the fair value of the asset measured by its discounted future cash flows or market value, if more readily determinable. REVENUE RECOGNITION. The Company recognizes revenue as earned, which is over the service period as the information is delivered or related services are performed. Advance payments for services and subscriptions are credited to deferred revenue and reflected in operating revenue over the subscription term, which is generally one year. Revenues from software licenses are recognized upon delivery of the software, when persuasive evidence of an arrangement exists, the related fees are fixed or determinable and collection of fees is reasonably assured. Revenues from post-contract customer support (maintenance) are recognized on a straight-line basis over the term of the arrangement. Revenues from time and material service agreements are recognized as the services are provided. Revenues from fixed price service and consulting contracts are recognized over the contract term based on the percentage of costs incurred for services provided during the period compared to the total estimated costs of services to be provided over the entire arrangement. Anticipated losses on contracts are recognized immediately. Under the terms of these contracts, all services provided by the Company through the date of cancellation are due and payable. FOREIGN CURRENCY TRANSLATION. The Company has significant investments in non-U.S. countries. Therefore, changes in the value of foreign currencies affect the Company's Consolidated Financial Statements when translated into U.S. dollars. For all operations outside the United States of America where the Company has designated the local currency as the functional currency, assets and liabilities are translated using end-of-period exchange rates; revenues and expenses are translated using average rates of exchange. For these countries, currency translation adjustments are accumulated in a separate component of Shareholders' Equity whereas transaction gains and losses are recognized in Other Expense, net. For operations in countries that are considered to be highly inflationary or where the U.S. dollar is designated as the functional currency, monetary assets and liabilities are translated using end-of-period exchange rates, whereas non-monetary accounts are translated using historical exchange rates, and all translation and transaction adjustments are recognized in Other Expense, net. INCOME TAXES. The Company provides for income taxes utilizing the asset and liability method of accounting for income taxes. Under this method, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income as an adjustment to income tax expense in the period that includes the enactment date. USE OF ESTIMATES. The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results could differ from those estimates. The most significant estimates are made in the accounting for: allowance for uncollectible accounts receivable, depreciation and amortization, carrying value of investments, capitalized software costs, employee benefit plans, taxes including tax benefits and liabilities, reserves for severance, contingencies, the fair value of certain assets, salvage values of property and purchase price allocations. EARNINGS PER SHARE. Basic earnings per share are calculated by dividing net income by weighted average common shares outstanding. Diluted earnings per share are calculated by dividing net income by dilutive potential common shares. Dilutive potential common shares are calculated in accordance with the treasury stock method, which assumes that the net proceeds from the 25 exercise of all stock options are used to repurchase common stock at market value. The amount of shares remaining after the net proceeds are exhausted represent the potentially dilutive effect of the securities. RECLASSIFICATIONS. Certain prior year amounts have been reclassified to conform with the 2001 presentation. This includes a reclassification of current and non-current deferred tax assets and liabilities to reflect them by tax jurisdiction. NOTE 3. SUMMARY OF RECENT ACCOUNTING PRONOUNCEMENTS Effective January 1, 2001 the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended. Additional discussion of the Company's derivative and hedging activities is included in Note 14. In July 2001, the Financial Accounting Standards Board ("FASB") issued SFAS No. 141, "Business Combinations," and SFAS No. 142 "Goodwill and Other Intangible Assets." SFAS No. 141 requires the purchase method of accounting to be used for all business combinations initiated after June 30, 2001 and establishes specific criteria for the recognition of intangible assets separately from goodwill. The Company adopted SFAS No. 141 on July 1, 2001 and is not amortizing goodwill acquired subsequent to June 30, 2001. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that goodwill and intangible assets which have indefinite useful lives will not be amortized but rather will be tested at least annually for impairment. It also provides that intangible assets that have finite useful lives be amortized. Under the provisions of SFAS No. 142, any impairment loss identified upon adoption of this standard is recognized as a cumulative effect of a change in accounting principle. Any impairment loss incurred subsequent to initial adoption of SFAS No. 142 is recorded as a charge to current period earnings. The Company will adopt SFAS No. 142 beginning January 1, 2002 and at that time will stop amortizing goodwill that resulted from business combinations completed prior to the adoption of SFAS No. 141. The Company recorded goodwill amortization of $10,316 and $19,120 during 2001 and 2000, respectively. The Company also recorded goodwill amortization expense related to equity method investees of approximately $9,600 and $2,400 in 2001 and 2000, respectively. The Company has six months from January 1, 2002 to complete the first step of the transitional goodwill impairment test. The Company is currently evaluating the financial impact of adoption of SFAS No. 142; however, it does not believe that there will be a material adverse impact on the Company's financial position, results of operations or cash flows. In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 eliminates the requirement for discontinued operations to be measured on a net realizable value basis and future operating losses to be recognized before they occur. Instead, it requires that assets held for sale be valued at the lower of carrying amount or fair value less cost to sell. SFAS No. 144 extends the reporting requirements for discontinued operations to certain components of an entity. Under the provisions of SFAS No. 144, spin-offs and exchanges of similar productive assets are required to be recorded at the lower of carrying value or fair value and such assets classified as held and used until they are disposed of. Any resultant impairment loss is required to be recognized when the asset is disposed of. For assets that are grouped when an entity is developing estimates of future cash flows, SFAS No. 144 requires that the remaining useful life of the "primary asset" be used for the entire group. In addition, SFAS No. 144 permits the use of a probability-weighted approach in developing estimates of future cash flows used to test for recoverability and in estimating fair value. The Company will adopt SFAS No. 144 beginning January 1, 2002 and is currently evaluating the impact of the adoption; however, the Company does not believe that there will be a material adverse impact on the Company's financial position, results of operations or cash flows. NOTE 4. DISCONTINUED OPERATIONS--INVESTMENT IN GARTNER STOCK On November 11, 1998, the Company announced that its Board of Directors had approved to spin-off substantially all of its equity ownership of Gartner. As provided for under a Distribution Agreement, entered into between Gartner and the Company, 40,690 Gartner Class A Shares were converted into an equal number of Gartner Class B Shares. As a result of the then proposed Gartner Spin-Off, the Company ceased recognition of gains in accordance with Staff Accounting Bulletin ("SAB") No. 51, "Accounting for Sales of Stock by a Subsidiary," in the fourth quarter of 1998. On July 16, 1999, subject to Gartner shareholder approval, the Boards of Directors of Gartner and the Company approved the final plan, terms and conditions governing the Gartner Spin-Off. Upon Gartner shareholder approval, which was obtained on July 16, 1999, in accordance with Accounting Principles Board ("APB") No. 30, "Reporting the Results of Operations--Effects of Disposal of a Segment of a Business and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," the financial statements of the Company were reclassified to reflect the Gartner equity investment as a discontinued operation for the periods presented. On July 16, 1999, the Company's Board of Directors declared a dividend of all Gartner Class B Shares, 26 which was distributed on July 26, 1999 to holders of the Company's common stock of record as of July 17, 1999. The transaction was structured as a tax-free distribution of Gartner stock to the Company's shareholders and the Company received a favorable ruling from the Internal Revenue Service ("IRS"). The distribution consisted of 0.1302 Gartner Class B Shares for each outstanding share of the Company's common stock (the "Gartner Distribution"). See Note 21. On July 23, 1999, Gartner paid a cash dividend to its holders of record as of July 16, 1999. The Company's portion of this dividend was $52,877, net of taxes and was accounted for as a reduction in the carrying value of the equity investment. The remaining investment in Gartner Stock subsequent to the Gartner Distribution was classified as available-for-sale. The unrealized gain as of the date of the Gartner Distribution (based on the then market price per share of $22.75 of Gartner Stock, the price at the time of the Gartner Distribution) was recorded as a component of Other Comprehensive Income and included as a component of Shareholders' Equity. Subsequent changes in the per share price of Gartner Stock since the date of the Gartner Distribution were also recorded as Other Comprehensive Income. Upon the sale of these securities, the unrealized gain measured based on the value of the Gartner shares as of the date of the Gartner Distribution was recognized in discontinued operations. The unrealized gains or losses in the market value subsequent to the date of the Gartner Distribution were recognized in continuing operations as shares were sold. During the third quarter of 2001, the Company decided to sell, and by August 29, 2001, completed the sale of 1,555 shares of Class A common stock of Gartner, Inc. ("Gartner Shares") to Gartner and its remaining holding in Gartner Shares to several institutional investors. The Company received aggregate proceeds of $65,207 or $9.88 per share, from these sales. The Company's cost basis in these shares was $77,743 or $11.78 per share. These sales divest the Company of its remaining equity interest in Gartner. The sale of shares to Gartner was part of Gartner's $75,000 stock buyback program announced on July 19, 2001. These sales resulted in a pre-tax realized loss of $12,536 ($8,146, net of applicable taxes), which was recorded in two different lines in the income statement: (1) Income from Discontinued Operations of $72,344 ($47,025 net of applicable taxes), to reflect the difference between the fair market value at the date of the Gartner Spin-Off (July 26, 1999) and the book value of those shares; (2) a loss from dispositions in continuing operations of $84,880 which was recorded as a Loss on Gartner Investment, to reflect the difference between the fair market value at the date of the Gartner Spin-Off and the disposal proceeds. There were no sales of Gartner shares during the year ended December 31, 2000. The Company had, however, agreed to contribute 312 Gartner Class A Shares to Synavant as part of the Synavant Spin-Off described in Note 7. This contribution had a fair market value of $4,000 at the date of the Synavant Spin-Off, and resulted in a gross realized gain of $3,424 which was recorded as income from discontinued operations net of applicable taxes of $1,198, to reflect the difference between the fair market value at the date of the Gartner Spin-Off (July 26, 1999) and the book value of those shares; and a loss from dispositions of $3,102 which was reflected in Loss on Gartner Investment to reflect the difference between the fair market value at the date of the Gartner Spin-Off (July 26, 1999) and the date of the Synavant Spin-Off (August 31, 2000). Warrants to purchase a further 599 Gartner Class A Shares expired on December 1, 2000, and resulted in a realized gain of $3,794 which was recorded in income from discontinued operations net of applicable taxes of $1,328 to reflect the fair market value of the warrants at the date of the Gartner Spin-Off (July 26, 1999), and a loss of $3,794 which was recorded in Loss on Gartner Investment within results from continuing operations to reflect expiration of the unexercised warrants on December 1, 2000. The Company incurred costs of $9,500 in 1999 in connection with the Gartner distribution. NOTE 5. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS During 2001, the Company completed five acquisitions with an aggregate cash purchase price of $43,318. The 2001 acquisitions were; (a) Meridian Research Vietnam Ltd. (Vietnam), (b) the exercise of the Company's option to purchase the remaining non-controlling interests in Medicare Audits Limited (U.K.), (c) the remaining interest in GPI Krankenhaus-forschung Gesellschaft fur Pharma-informationssysteme mbH (Germany), (d) Cambridge Pharma Consultancy, Ltd. (U.K. and U.S.) and (e) Medical Data Systems Limited (Ireland). Under the terms of the earn out within the purchase agreement for one of the acquisitions, the Company may be required to pay additional amounts as contingent consideration totaling up to $36,720 based on the achievement of certain targets during 2002 through 2004. Of the contingent consideration, up to $13,760 will be recorded as additional goodwill, while up to $22,960 will be recorded as compensation as earned in accordance with the provisions of Emerging Issues Task Force ("EITF") Statement No. 95-8, "Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination." The maximum contingent consideration payable with respect to any given year in the earn out period is $12,420. These acquisitions were recorded under the purchase method of accounting and 27 the Company has preliminarily recorded a total of $40,271 in goodwill and intangible assets, including approximately $16,000 in customer relationships, as a result of these acquisitions. The intangible assets will be amortized over periods ranging from five to ten years. Had these acquisitions occurred as of January 1, 2001 or 2000, the impact on the Company's results of operations would not have been significant. In accordance with SFAS No. 142, goodwill of approximately $12,100 has not been amortized, as the acquisitions were completed subsequent to June 30, 2001. DISPOSITIONS In the first quarter of 2001, the Company recorded a pre-tax gain of $1,990 on the sale of IDRAC Holdings Inc. ("IDRAC"), a non-strategic property that provides information on pharmaceutical product registrations, to a wholly owned subsidiary of Information Holdings Inc. ("IHI"). This gain is included in Gain (Loss) from Investments, net in the Consolidated Statements of Income. The operating results of IDRAC were not significant to the results of operations of the Company. In a separate transaction, the Company sold a non-exclusive perpetual license to IHI to use certain data for aggregate cash consideration of approximately $17 million, which was recognized as revenue upon delivery in 2001. In the third quarter of 2000, senior management of GIC Gesellschaft fur Informationstechnologie und Consulting GmbH, formerly a wholly-owned subsidiary of the Company, and its newly-formed affiliated company, GIC Global Information Technology and Consulting GmbH (collectively, "GIC") completed a management buy-out of the Company's data processing center located in Frankfurt, Germany. Under the terms of the purchase agreement, the aggregate purchase price of $6,100 was paid to the Company in monthly installments from July 1, 2000 to August 1, 2001 in the form of data processing and technology solution services provided by GIC. The Company recognized the fair market value of the services received and a pre-tax gain of $3,066 in the second half of 2000 in respect to services rendered by GIC in 2000. The remaining portion of the gain amounting to $1,493 was recognized in 2001, as services were rendered in accordance with the agreement. The impact of this transaction was reflected in operating costs in the Company's Consolidated Statements of Income. Since the completion of the management buy-out, GIC continued to occupy a sizable portion of space from the Company under a sublease agreement. During 2001, the sublease arrangement, which was due to expire in March 2002, was extended for a five-year period ending in 2007. Further, during the third quarter of 2001, the Company agreed to make a $2,000 loan to GIC's management in order to provide GIC with additional liquidity to grow the business. The operating costs of the Frankfurt data center were not material to the Company's consolidated operating results in any of the periods presented. As described in Notes 1, 7 and 12, Synavant was spun-off to the Company's shareholders on August 31, 2000 and Erisco was sold to TriZetto on October 3, 2000. The results of Erisco and Synavant are included in the Consolidated Statements of Income and Cash Flows through their respective disposition dates. NOTE 6. IMPAIRMENT CHARGE--SYNAVANT On July 14, 2000, Synavant entered into a 5-year strategic alliance with Siebel Systems, Inc. ("Siebel"), a leading provider of e-business applications software (the "Alliance"). Through the Alliance, the companies intend to jointly develop, market and sell pharmaceutical and healthcare related versions of Siebel's e-business software applications. Under the terms of the Alliance the extent to which Synavant may independently develop, integrate, market, license or distribute products that are directly competitive with those packaged and promoted by Siebel is limited. Although Synavant may continue to license and support its existing Cornerstone and Premiere customers, under the terms of the Alliance, it is contractually obligated to discontinue the future enhancement and development of the Cornerstone and Premiere products. Synavant management anticipates that these products would eventually be phased out and replaced by a new generation of joint solution offerings incorporating Siebel technology. As a result of this transaction, Synavant management concluded at that time that significant portions of its software (including acquired technology) and enterprise-wide goodwill were not recoverable. Under its accounting policy for capitalized software, Synavant performed a net realizable value analysis to determine the recoverability of its capitalized software assets. This analysis resulted in a write-down of $14,553 in the period ended September 30, 2000. Under its accounting policy for goodwill impairment, Synavant completed a discounted cash flow analysis on an enterprise wide basis, resulting in a write down of $100,900 of goodwill in the period ended September 30, 2000. The total Impairment Charge--Synavant, recorded in the Consolidated Statements of Income, was $115,453. The impairment charge was recorded in the results of the Transaction Businesses Segment. This charge was recorded by the Company as a result of the Siebel transaction being effected prior to the Synavant Spin-Off. See Note 23. NOTE 7. SPIN-OFF OF SYNAVANT On August 31, 2000, the Company completed the Synavant Spin-Off as an independent publicly traded company. Prior to the Synavant Spin-Off, the Company transferred to Synavant selected assets and liabilities held by the Company and its subsidiaries related to the 28 Synavant business. Synavant's businesses included the pharmaceutical industry automated sales and marketing support businesses previously operated by IMS Health Strategic Technologies Inc. and certain other foreign subsidiaries of the Company, substantially all of the Company's interactive and direct marketing business, including the business of Clark O'Neill, Inc., a wholly-owned subsidiary of the Company, and a majority stake in a foreign joint venture. The Company distributed (the "Synavant Distribution") to its shareholders of record as of the close of business on July 28, 2000 all of the outstanding shares of common stock, par value $0.01 per share, of Synavant (the "Synavant Common Stock"). The Synavant Distribution was effected by means of a pro rata dividend to the Company shareholders of one share of Synavant Common Stock (together with the associated preferred share purchase right) for every twenty shares of common stock, par value $0.01 per share, of the Company (the "IMS Common Stock") held. In lieu of fractional shares of Synavant Common Stock, each IMS shareholder received a cash payment representing such holder's proportionate interest in the net proceeds from the sale by the distribution agent for the Synavant Distribution of the aggregate fractional shares of Synavant Common Stock. The Synavant Distribution was accounted for as a tax-free pro-rata dividend to the Company shareholders and charged to retained earnings based on the book value of assets distributed to Synavant as at the date of the Synavant Distribution (August 31, 2000). The final dividend charged to retained earnings totaled $141,443 and was comprised of assets of $181,080 (including $19,438 of Cash, $43,195 of Accounts Receivable, $58,450 of Goodwill, $12,939 of Deferred Software and $16,294 of Property, Plant and Equipment) and liabilities of $39,637 (including $6,735 of Accounts Payable, $9,404 of Accrued Liabilities and $9,170 of Deferred Revenue). See Note 16. In connection with the Synavant Distribution, the Company and Synavant entered into a Distribution Agreement (the "Distribution Agreement"), providing for, among other things, certain corporate transactions required to effect the Distribution and other arrangements between the Company and Synavant subsequent to the Distribution. In particular, the Distribution Agreement defines the assets, liabilities and contractual relationships which were allocated to and assumed by Synavant and those that remained with the Company. This includes the Company's agreement to indemnify Synavant with respect to certain contingent liabilities as well as certain indemnification to the Company that Synavant has agreed to assume under certain circumstances. In addition to the Distribution Agreement, the Company and Synavant also entered into other agreements governing the relationship between the Company and Synavant. These include various Data Rights Agreements, a Tax Allocation Agreement, an Employee Benefits Agreement, a Data and Telecommunications Service Agreement, certain Sublease Arrangements, a Corporate Services Agreement, Shared Transaction Services Agreements, an Information Service Agreement and certain Credit Support Arrangements. Robert Kamerschen and H. Eugene Lockhart serve on the Board of Directors of both the Company and Synavant. Historically, the Synavant business was managed as part of the IMS Segment. Effective with the decision to spin-off Synavant, the business was managed as part of the Transaction Businesses Segment and, accordingly, its results are included in the Transaction Businesses Segment. Selected historical financial data for Synavant is included in Note 23. 29 On August 11, 2000, Synavant obtained a revolving line of credit for $20,000 for working capital purposes. The line of credit was guaranteed by the Company and was extended through February 15, 2001, at which time it was replaced with a similar line of credit with a maturity date of May 15, 2001. This line of credit was likewise guaranteed by the Company. On April 27, 2001, Synavant had this later line of credit replaced by a new revolving line of credit that is not guaranteed by the Company. As of December 31, 2001, the Company does not have any continuing obligations or commitments with respect to Synavant's credit lines. In 2000, in connection with the Synavant Spin-Off, the Company incurred $37,626 of costs. These costs included $8,813 for expenses related to reductions in the administrative workforce resulting from consolidation following the Synavant Spin-Off. Additionally, a data processing agreement with a third party for $5,200 was no longer used by the Company as a result of the Company's determination to streamline the Company's operations to focus on its core business and a further data enhancement contract for $3,600 was similarly no longer used. The remaining Synavant Spin-Off charges related primarily to legal, professional and other direct incremental costs. NOTE 8. SEVERANCE, IMPAIRMENT AND OTHER CHARGES During the fourth quarter of 2001, the Company completed the assessment of its Competitive Fitness Program. This program was designed to further streamline operations, increase productivity, and improve client service. In connection with this program, the Company recorded $94,616 of Severance, Impairment and Other Charges relating to the IMS Segment during the fourth quarter of 2001 as a component of operating income. Approximately $39,653 was charged to expense in the fourth quarter of 2001 related to a worldwide reduction in headcount of more than six-hundred employees. This included $33,376 of severance benefits that were calculated pursuant to the terms of established employee protection plans in accordance with local statutory minimum requirements or individual employee contracts, as applicable. This also included $6,277 of severance benefits for approximately one-hundred and seventy five employees that were recorded as part of the Competitive Fitness Program in accordance with EITF Statement No. 94-3 "Liability Recognition of Certain Employee Termination Benefits and other Costs to Exit an Activity (including Certain Costs incurred in Restructuring)." No material cash payments were made against the accrual prior to December 31, 2001. The Company recorded $15,827 in contract-related charges, including $7,493 in payments to exit data supply and processing contracts and $8,334 related to onerous lease and other obligations. These costs are incremental and either relate to existing contractual obligations that do not have any future economic benefit or represent a contract cancellation penalty. They relate, in part, to the decision in the fourth quarter to close down or vacate leased facilities in order to consolidate functions geographically as part of the Competitive Fitness Program. Approximately $17,723 was charged to expense in the fourth quarter of 2001 to write down deferred software costs to their net realizable value. These write-downs resulted from the Company's decision to abandon certain products or introduce new regional or global platforms. The Company also charged $4,243 of goodwill to expense in the fourth quarter of 2001 as a result of the decision to cease product offerings as well as increased competition in certain markets. Approximately $17,170 of the 2001 charge relates to GIC and resulted from the Company's decision to exit the GIC relationship and accelerate the transition of certain data processing functions that are currently rendered by GIC to the IMS global data center. See Note 5. Of the total GIC charge, approximately $14,600 is for lease and other asset impairments with the remaining balance of $2,570 representing contract termination payments to be made to GIC. The cash portion of the 2001 charge will amount to $64,205, primarily for severance payments and contract terminations. The non-cash portion amounts to $30,411 and is composed primarily of asset write-offs. Approximately $8,800 has been paid as of December 31, 2001. During the fourth quarter of 2000, the Company performed a strategic assessment of its existing cost structure. Based on this assessment, the Company initiated a plan to streamline its administrative infrastructure, leverage marketing and sales efforts following the creation of a global key account management program, harmonize human resources, communications and global production and development activities. Accordingly, the Company recorded Severance, Impairment and Other Charges of $45,689 during the fourth quarter of 2000 as a component of operating income. Severance liabilities were calculated pursuant to the terms of the ongoing employee protection plan, in accordance with local statutory minimum requirements or individual compensation contracts, as applicable. The 2000 charge included cash charges of $10,348, primarily for severance and contract termination and non-cash charges of $35,341, primarily for asset write-offs. The asset write-offs included: $8,045 for the other-than-temporary decline in the value of the Allscripts Healthcare Solutions, Inc. ("Allscripts," formerly 30 known as "Allscripts, Inc.") investment as described more fully in Note 13; $3,130 for the surrender of Enterprise warrants; $4,981 for assets which became redundant as a result of the global data center move to the United States; and $19,185 as a result of abandoning the existing delivery mechanisms for web-based or global delivery solutions. This program is substantially complete as of December 31, 2001. NOTE 9. EXECUTIVE MANAGEMENT TRANSITION CHARGE In the fourth quarter of 2000, the Company incurred a charge of $31,133 relating to changes in executive management. Of this charge, approximately $23,000 relates to Victoria R. Fash (previously President and Chief Executive Officer) and Robert E. Weissman (previously Chairman) arising principally from the acceleration or enhancement of previously existing employee benefit obligations, including stock options and pensions. The Company originally made a loan to Ms. Fash of $3,558 on January 3, 2000. On January 12, 2000 $632 was repaid and the loan accrued interest at an annual rate of 6.21%. As a result of Ms. Fash's negotiated agreement with the Company, the remaining balance on the loan and accrued interest in the amount of $3,084 were forgiven and the accompanying income tax liability to Ms. Fash of $2,580 was paid by the Company. The remaining accrual at December 31, 2001 amounted to approximately $13,400, primarily relating to long-term pension benefits. NOTE 10. TERMINATED TRANSACTION COSTS During fourth quarter of 2001, the Company terminated negotiations to dispose of one of its product lines and decided to retain and continue operating it. In connection with this terminated transaction, the Company recorded Terminated Transaction Costs of $6,457, relating primarily to legal and accounting services. NOTE 11. MINORITY INTERESTS The Company consolidates the assets, liabilities, results of operations and cash flows of businesses and investments over which it has control. Third parties' ownership interests are reflected as minority interests on the Company's financial statements. Two of the Company's subsidiaries contributed assets to, and participate in, a limited partnership. One subsidiary serves as general partner, and all other partners hold limited partnership interests. The partnership, which is a separate and distinct legal entity, is in the business of licensing database assets and computer software. In 1997, third-party investors contributed $100,000 to the partnership in exchange for minority ownership interests. The Company and its subsidiaries maintain a controlling (88%) interest in the partnership. Under the terms of the partnership agreements, the third-party investors have the right to take steps that would result in the liquidation of their partnership interest on June 30, 2003. The Company also has a controlling interest in CTS (58.3% of the outstanding shares representing 93.3% of the voting power at December 31, 2001). The related minority interest included within the Consolidated Statements of Financial Position at December 31, 2001 and December 31, 2000 was $28,378 and $24,333, respectively. Selected financial data for CTS is included in Note 23. Minority interest expense of $19,466, $17,222 and $14,260 was recorded in Other Expense, net in 2001, 2000 and 1999, respectively. In the year ended December 31, 2001, the Company recorded a $5,189 gain resulting from the issuance of CTS stock in connection with stock option exercises and employee stock purchases. This gain has been recognized in the Consolidated Statements of Income within Gain (Loss) on Issuance of Investees' Stock, net, in accordance with SAB No. 51. NOTE 12. INVESTMENTS IN EQUITY INVESTEES AND SUBSIDIARIES THE TRIZETTO GROUP, INC. On October 3, 2000 (the "Closing Date"), Elbejay Acquisition Corp. ("Merger Sub"), a Delaware corporation and a wholly owned subsidiary of TriZetto, a Delaware corporation, was merged (the "Merger") with and into Erisco, a New York corporation and a wholly owned subsidiary of the Company pursuant to the Agreement and Plan of Reorganization dated as of May 16, 2000 (the "Merger Agreement"), by and among TriZetto, Merger Sub, the Company and Erisco. The Merger effectuated the Company's sale of Erisco to TriZetto. In consideration, TriZetto issued 12,143 shares of common stock, par value $0.001 per share (the "TriZetto Common Stock"), to the Company. The transaction was accounted for by the Company as a disposition of Erisco in exchange for the acquisition of a 36.1% interest in TriZetto. The gross proceeds received by the Company, based on the closing share price of TriZetto Common Stock on the Nasdaq National Market on October 2, 2000 ($15.125 per share), were approximately $183,700 and the Company recorded a gain on the sale of Erisco of $84,530. In connection with the transaction the Company transferred $32,000 of cash to Erisco prior to disposition to TriZetto. This was funded by short-term debt and primarily represented the repayment of existing inter-company liabilities. As contemplated by the Merger Agreement, following the Merger, Victoria R. Fash, then President and Chief Executive Officer of the Company, was appointed to the TriZetto Board of Directors as the Company's director nominee. In January 2001, David M. Thomas, Chairman and Chief Executive Officer of the Company, 31 was appointed to replace Ms. Fash on the TriZetto Board. Additionally, as contemplated by the Merger Agreement, the Company and TriZetto entered into a Stockholder Agreement and a Registration Rights Agreement. The Stockholder Agreement imposes certain restrictions on the Company. These restrictions include, without limitation: (i) a standstill provision restricting the Company from, among other things, acquiring additional shares of TriZetto Common Stock until the earlier of the fourth anniversary of the Closing Date, or the date on which a Change of Control (as defined in the Stockholder Agreement) of TriZetto shall have occurred or TriZetto shall have publicly announced its willingness to consider a transaction that would constitute a Change of Control; (ii) a share transfer restriction that prohibits (subject to certain restrictions) transfers by the company of TriZetto Common Stock until the earlier of two years after the Closing Date, the date on which the Company beneficially owns less than 10% of the outstanding TriZetto Common Stock measured as of the Closing Date, or the date on which a Change of Control of TriZetto shall have occurred; (iii) a right of first refusal for TriZetto on transfers by the Company of more than 10% of the outstanding TriZetto Common Stock measured as of the time of the transfer commencing upon the termination of the share transfer restriction period described in (ii) above and continuing until the date on which the Company beneficially owns less than 10% of the outstanding TriZetto Common Stock measured as of the Closing Date (unless a Change of Control of TriZetto shall have occurred); and (iv) a right of first offer for TriZetto on any transfer of TriZetto Common Stock by the Company commencing upon the termination the share transfer restriction period described in (ii) above and continuing until the date on which the Company beneficially owns less than 10% of the outstanding TriZetto Common Stock measured as of the Closing Date. The Stockholder Agreement also grants the Company, for so long as the Company beneficially owns more than 10% of the outstanding TriZetto Common Stock measured as of the Closing Date, (i) the right to designate one director-nominee to the TriZetto Board of Directors and (ii) consent rights regarding certain transactions by TriZetto, subject in each case, to earlier termination of such rights upon the occurrence of certain events. Pursuant to the Registration Rights Agreement, the Company was granted registration rights in respect of the shares of TriZetto Common Stock issued to the Company in connection with the sale of Erisco. The Company is accounting for its ownership interest in TriZetto under the equity method and accordingly, records its share of the TriZetto operating results. At the date of the acquisition, the Company's initial equity investment in TriZetto in the amount of $136,196 was comprised of the Company's residual interest in the net assets of Erisco and its proportionate share of the tangible and identified intangible assets and the liabilities of TriZetto, goodwill and direct acquisition costs. In connection with the acquisition of its interest in TriZetto, the Company made allocations of the purchase price to software, tradename, customer contracts, and goodwill in the aggregate amounts of $5,819, $3,000, $12,504, and $95,773 respectively. The intangible assets are being amortized on a straight-line basis over the following estimates of useful lives: Software....................... 5 years Tradename...................... 20 years Customer Contracts............. 10 years Goodwill....................... 10 years
The Company's share of the adjusted operating results of TriZetto for the year ended December 31, 2001 and for the period from October 3, 2000 to December 31, 2000 amounted to a loss of $6,985 (net of a deferred tax benefit of $4,504) and $4,777 (net of a deferred tax benefit of $3,080), respectively. As the transaction has been accounted for as a non-monetary exchange, the Company's share of the adjusted operating results of TriZetto excludes the impact of the amortization of goodwill and other acquired intangibles associated with TriZetto's acquisition of Erisco (as reflected in its reported operating results) and includes the amortization of goodwill and acquired intangibles associated with the Company's acquisition of its interest in TriZetto. Summary financial information for TriZetto, as of and for the years ended December 31, 2001 and 2000, is presented in the following table. The amounts shown represent consolidated TriZetto operating results and financial position, based on publicly available information.
2001 2000 - -------------------------------------------------- Current Assets............... $129,532 $ 53,919 Non-Current Assets........... $261,189 $309,832 Current Liabilities.......... $ 83,387 $ 61,760 Non-Current Liabilities...... $ 26,379 $ 32,561 Revenues..................... $218,172 $ 89,056 Gross Profit................. $ 71,512 $ 14,038 Loss from Operations......... $(78,044) $(48,617) Net Loss..................... $(61,154) $(42,258) - --------------------------------------------------
The market value of the Company's investment in TriZetto was approximately $159,314 as at December 31, 2001. The issuance by TriZetto of shares of common stock resulted in a $6,679 loss, including taxes of $2,618, recorded in the year ended December 31, 2001. The majority of these shares were issued in a secondary 32 offering which generated proceeds to TriZetto of approximately $56,000. The remaining shares were issued primarily for acquisitions and stock option exercises. The issuance of equity by TriZetto resulted in the reduction of IMS Health's ownership stake from approximately 33.2% on December 31, 2000 to approximately 26.8% on December 31, 2001. The resulting loss has been recognized in the Consolidated Statements of Income within Gain (Loss) on Issuance of Investees' Stock, net, in accordance with SAB No. 51. On December 1, 2000, TriZetto acquired all of the issued and outstanding capital stock of Resource Information Management Systems, Inc. ("RIMS") for 2,588 shares of TriZetto common stock at an average price of $21.20 per share and $3,000 cash, as well as the assumption of stock options and an agreement to issue a certain amount of restricted stock. For the year ended December 31, 2000, the Company recognized a gain of $9,029, including tax of $3,539, in the income statement related to the issuance of common stock by TriZetto. The gain reflects the excess of the sales price of the TriZetto stock issued over the Company's carrying value of TriZetto stock. This stock issuance reduced the Company's ownership of TriZetto to 33.2% as of December 31, 2000. Effective October 1, 2000, TriZetto entered into a three-year license agreement for TriZetto's HealthWeb software which may be renewed for an additional one-year period. The license fee for the software is $3,000 payable in three annual installments of $1,000. As of December 31, 2001 $1,000 remained outstanding and was accrued for by the Company. COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION During 2001 CTS recorded revenues from TriZetto of approximately $401 and payments to TriZetto for commissions and marketing fees of approximately $1,012. NOTE 13. SECURITIES AND OTHER INVESTMENTS SECURITIES Securities and Other Investments include the Company's investments in: a) publicly traded marketable securities; b) direct equity investments in private companies, and c) interests in venture capital entities. Marketable securities, principally consisting of equity securities, are classified as available-for-sale. Such securities are carried at estimated fair value, with the unrealized gains and losses, net of income taxes, reported as a component of shareholders' equity. Typically these securities are distributed to the Company from venture capital entities it invests in. The cost and estimated fair value of these securities were $13,159 and $27,155 respectively at December 31, 2001, and $6,265 and $23,357 respectively at December 31, 2000. Direct equity investments in private companies and interests in venture capital entities are carried in the financial statements at cost which was $24,140 at December 31, 2001 and $60,233 at December 31, 2000. On a quarterly basis, the Company monitors the realizable value of these investments and makes appropriate reductions in their carrying values when a decline in value is deemed to be other-than-temporary. During the fourth quarter of 2001, the Company reviewed the Enterprises portfolio and re-assessed it as a non-strategic asset. The Company refined its estimation approach related to its assessment of the other-than-temporary decline in the fair value of the investments in the venture capital entities from evaluating the recoverability of the portfolio of each venture capital entity in the aggregate to evaluating the underlying securities. After a comprehensive review of the operating results, financial position and future prospects of the investments made by the entities, management concluded that the declines in the value of the investments made by the venture capital entities were other-than-temporary in nature and recorded a charge of $28,729 for the year ended December 31, 2001, included in Gains (Losses) from Investments, net in the Consolidated Statements of Income. During 2001 the Company sold securities from its available-for-sale portfolio and recorded a pre-tax gain of $1,082, which is included in Gains (Losses) from Investments, net in the Consolidated Statements of Income. The Company recorded $78,139 and $25,264 of net pre-tax gains from the disposition of its available-for-sale securities during 2000 and 1999, respectively. These amounts were recorded in Gains (Losses) from Investments, net. OTHER INVESTMENTS On February 17, 2000, the Company announced an alliance with and strategic investment in Allscripts to develop and market new Internet-based information healthcare solutions for the pharmaceutical industry. In conjunction with the agreement the Company made a private equity investment of $10,000 to acquire 215 shares of Allscripts common stock. During the fourth quarter of 2000, the Company determined the decline in value of its investment in Allscripts to be other-than-temporary. As a result, the Company incurred an impairment charge of $8,045 which was included as part of the Severance, Impairment and Other Charges described more fully in Note 8. In addition, during the third and fourth quarters of 2001 the Company determined that Allscripts had sustained a further other-than-temporary decline and reduced its carrying basis of Allscripts by an additional $1,258. This amount was charged to Gains (Losses) from Investments, net in the Consolidated Statements of Income. 33 In June 2000, the Company's CTS subsidiary announced a strategic relationship with Trident Capital to jointly invest in emerging e-business service and technology companies. In accordance with this strategy, the Company invested $1,955 in Questra Corporation ("Questra"), an e-business software and consulting firm headquartered in Rochester, New York, in return for a 5.8% equity interest. Trident Capital also independently made a direct investment in Questra. CTS's investment is being accounted for under the cost method of accounting. CTS reviews for impairment certain assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In the fourth quarter of 2001, Questra issued Preferred B shares in exchange for $19 million of new venture capital financing. Since CTS did not participate, that reduced its ownership interest in Questra from 5.8% to 2.1%. Based on the implied fair value of Questra, as measured by the latest round of financing, and considering the preferential liquidation rights that the Preferred B shareholders received, CTS has concluded that it will not recover any of its investment in Questra and has recorded an impairment loss of $1,955 to recognize the other than temporary decline in the value of its investment. This amount was charged to Gains (Losses) from Investments, net in the Consolidated Statements of Income. NOTE 14. FINANCIAL INSTRUMENTS FOREIGN EXCHANGE RISK MANAGEMENT On January 1, 2001, the Company adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities" and SFAS No. 138, "Accounting for Certain Derivative Instruments and Certain Hedging Activities, an amendment of SFAS No. 133." These statements standardize the accounting for derivative instruments. The Company is required to record all derivative instruments on the balance sheet at fair value. Derivatives that are not classified as hedges are adjusted to fair value through earnings. Changes in fair value of the derivatives that the Company has designated and that qualify as effective hedges are recorded in either other comprehensive income or earnings. Any ineffective portion of the Company's derivatives that are classified as hedges is immediately recognized in earnings. This change in accounting principle did not have a material impact on the Company's financial position, results of operations or cash flow. The Company transacts business in more than 100 countries and is subject to risks associated with changing foreign exchange rates. The Company's objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes. Accordingly, the Company enters into foreign currency forward contracts to minimize the impact of foreign exchange movements on net income and on the value of non-functional currency assets and liabilities. It is the Company's policy to enter into foreign currency transactions only to the extent necessary to meet its objectives as stated above. The Company does not enter into foreign currency transactions for investment or speculative purposes. At December 31, 2001 all foreign currency forward contracts had a term of less than one year. The principal currencies hedged are the Japanese yen, the Euro and the Swiss franc. The impact of foreign exchange risk management activities on pre-tax income in 2001, 2000 and 1999 was a net gain of $6,955, $19,535 and $3,239, respectively. In addition, at December 31, 2001, the Company had approximately $131,591 in foreign exchange forward contracts outstanding with various expiration dates through February 2002 hedging non-functional currency assets and liabilities. Gains and losses on these contracts are not deferred and are included in the Consolidated Statements of Income in Other Expense, net. FAIR VALUE OF FINANCIAL INSTRUMENTS At December 31, 2001, the Company's financial instruments included cash, cash equivalents, receivables, accounts payable, short-tem debt, including short-term borrowings reclassified as long-term debt, and foreign currency forward contracts. At December 31, 2001, the fair values of cash, cash equivalents, receivables, accounts payable and short-term debt approximated carrying values due to the short-term nature of these instruments. At December 31, 2001, the fair value of the Company's foreign currency forward contracts was $131,591 and all contracts mature in 2002. The estimated fair values of the forward contracts were determined based on quoted market prices. CREDIT CONCENTRATIONS The Company continually monitors its positions with, and the credit quality of, the financial institutions which are counterparties to its financial instruments and does not anticipate non-performance by the counterparties. The Company would not realize a material loss as of December 31, 2001 in the event of non-performance by any one counterparty. The Company enters into transactions only with financial institution counterparties which have a credit rating of A or better. In addition, the Company limits the amount of credit exposure with any one institution. The Company maintains accounts receivable balances ($228,626 and $230,988, net of allowances for doubtful accounts, at December 31, 2001 and 2000, respectively--see Note 22), principally from customers in the pharmaceutical industry. The Company's trade receivables do not represent significant concentrations of credit risk at December 31, 2001 due to the high 34 quality of its customers and their dispersion across many geographic areas. LINES OF CREDIT The Company has borrowing arrangements with several international banks to provide lines of credit up to $525,000 at December 31, 2001. Total borrowings under these lines were $346,463 and $384,281 at December 31, 2001 and 2000, respectively. In general, the terms of these lines of credit give the Company the option to borrow at an interest rate equal to LIBOR plus 37.5 basis points for short-term lines and LIBOR plus 65 basis points for long-term lines. The weighted average interest rates for the short-term lines were 2.34% and 7.10% at December 31, 2001 and 2000, respectively. The weighted average interest rates for the long-term lines were 2.48% at December 31, 2001. The commitment fee associated with the unused short-term lines of credit is 22.5 basis points per year, increasing to 28.75 basis points per year if the facilities are less than 50% utilized. Under the long-term lines the commitment fee is 52.5 basis points per year. The borrowing arrangements require the Company to comply with certain financial covenants and at December 31, 2001 and 2000, the Company was in compliance with all such covenants. During the fourth quarter of 2001, the Company renegotiated with several banks and entered into three-year lines of credit for borrowings of up to $175,000. Borrowings under these three-year facilities are short-term in nature; however, the Company has the ability and the intent to refinance the short-term borrowings through December 2004 as they come due. As such, at December 31, 2001, the Company reclassified $150,000 of its then outstanding debt as long-term debt pursuant to the provisions of SFAS No. 6, "Classification of Short-Term Obligations Expected to be Refinanced." Borrowings under short-term lines were $196,463 and $384,281 at December 31, 2001 and 2000, respectively. Borrowings have maturity dates of up to ninety days from their inception. 35 NOTE 15. PENSION AND POST-RETIREMENT BENEFITS The status of the Company's defined benefit pension and post-retirement benefit plans at December 31, 2001 and 2000 is as follows:
POST-RETIREMENT PENSION BENEFITS BENEFITS - ------------------------------------------------------------------------------------------------------- 2001 2000 2001 2000 - ------------------------------------------------------------------------------------------------------- CHANGE IN BENEFIT OBLIGATION Benefit obligation at beginning of year $156,332 $135,325 $ 8,360 $ 7,970 Service cost 7,888 10,249 550 620 Interest cost 9,793 11,703 870 580 Foreign currency exchange loss (2,163) (9,942) -- -- Amendments 1,096 (129) -- -- Curtailment charge (credit) -- 6,502 -- (420) Special termination benefits -- 158 -- -- Plan participants' contributions 723 687 70 50 Actuarial (gain) loss 4,127 6,975 3,560 (150) Benefits paid (10,796) (5,196) (320) (290) - ------------------------------------------------------------------------------------------------------- Benefit obligation at end of year 167,000 156,332 13,090 8,360 - ------------------------------------------------------------------------------------------------------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year 153,256 163,998 -- -- Actual return on assets (14,207) (2,449) -- -- Foreign currency exchange loss (1,815) (6,000) -- -- Employer contributions 25,164 2,383 250 240 Plan participants' contributions 723 687 70 50 Actual expense paid -- (167) -- -- Benefits paid (10,796) (5,196) (320) (290) - ------------------------------------------------------------------------------------------------------- Fair value of plan assets at end of year 152,325 153,256 -- -- - ------------------------------------------------------------------------------------------------------- FUNDED STATUS AT END OF YEAR (14,675) (3,076) (13,090) (8,360) Unrecognized actuarial (gain) loss 21,951 (10,225) 2,520 (910) Unrecognized prior service cost (885) (1,599) (70) (200) Unrecognized net transition asset 256 720 -- -- - ------------------------------------------------------------------------------------------------------- Net amount recognized at end of year 6,647 (14,180) (10,640) (9,470) - ------------------------------------------------------------------------------------------------------- AMOUNTS RECOGNIZED IN THE CONSOLIDATED STATEMENTS OF FINANCIAL POSITION CONSIST OF: Prepaid benefit cost 38,235 17,438 -- -- Accrued benefit liability (35,648) (33,340) (10,640) (9,470) Intangible asset 314 437 -- -- Accumulated other comprehensive income 3,746 1,285 -- -- - ------------------------------------------------------------------------------------------------------- Net amount recognized $ 6,647 $(14,180) $(10,640) $(9,470) - ------------------------------------------------------------------------------------------------------- WEIGHTED AVERAGE ASSUMPTIONS AS OF DECEMBER 31, Discount Rate 6.62% 6.81% 7.25% 7.50% Expected return on plan assets 8.76% 8.57% n/a n/a Rate of compensation increase 3.89% 3.92% n/a n/a - -------------------------------------------------------------------------------------------------------
The assumed rate of future increases in per capita cost of covered healthcare benefits is 9.0% in 2001, decreasing gradually to 5.0% for the year 2010 and remaining constant thereafter. The weighted average discount rates, expected return on plan assets and rate of compensation increase were 6.72%, 8.64% and 4.05% respectively as of December 31, 1999. 36 The components of net periodic benefit cost for 2001, 2000 and 1999 are summarized as follows:
PENSION BENEFITS POST-RETIREMENT BENEFITS ------------------------------ ------------------------------ 2001 2000 1999 2001 2000 1999 ------------------------------ ------------------------------ Service cost $ 7,888 $10,249 $ 9,781 $ 550 $ 620 $ 720 Interest cost 9,793 11,703 8,973 870 580 530 Expected return on plan assets (12,708) (12,952) (11,639) -- -- -- Prior service cost (credit) (196) (236) (217) (130) (130) (250) Transition Asset 485 (40) -- -- -- -- Recognized actuarial (gain) loss (208) (684) (501) 130 (10) -- Special termination benefit charge (credit) -- 158 -- -- -- -- Curtailment charge (credit) -- 6,610 -- -- (340) -- - ----------------------------------------------------------------------------------------- ------------------------------ Net periodic benefit cost $ 5,054 $14,808 $ 6,397 $1,420 $ 720 $1,000 - ----------------------------------------------------------------------------------------- ------------------------------
During 2001, the Company made a tax deductible contribution to its U.S. pension plan in the amount of $17,600. In connection with the Synavant Spin-Off and the sale of Erisco in 2000, employees of Synavant and Erisco ceased participation in Company-sponsored pension and post-retirement benefit plans. This was accounted for as a curtailment. The Company-sponsored defined benefit plan in the United States of America was amended to provide that affected Synavant and Erisco employees would be 100% vested in their accrued benefit under the plan. In addition, Synavant and Erisco employees who met specified age and service criteria at the time of the respective transactions will be eligible to participate in the Company sponsored post-retirement medical program as in effect at the time of their retirement. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $45,235, $43,270 and $10,364 respectively, as of December 31, 2001 and $48,029, $43,959 and $14,632, respectively, as of December 31, 2000. Additional executive related pension benefits that were recognized pursuant to certain employment arrangements at December 31, 2001. The Company's benefit obligation for these arrangements was $9,540 and an expense of $1,730 was charged during 2001. Assumed health care costs trend rates have a significant effect on the amounts reported for the post-retirement health care plan. A one-percentage- point change in assumed health care cost trend rates for 2001 would have the following effects:
1-PERCENTAGE 1-PERCENTAGE INCREASE (DECREASE) POINT INCREASE POINT DECREASE - -------------------------------------------------------------- Effect on total service/interest cost for post-retirement benefits $ 110 ($ 90) Effect on post-retirement benefit obligation $1,140 ($970)
Certain employees of the Company in the United States of America also are eligible to participate in the Company-sponsored defined contribution plan. The Company's businesses make a matching contribution of up to 50% of the employee's contribution based on specified limits of the employee's salary. The Company's expense related to this plan was $2,452, $3,248 and $3,108 for the years 2001, 2000 and 1999, respectively. NOTE 16. EMPLOYEE STOCK PLANS The Company maintains three Employees' Stock Incentive Plans, which provide for the grant of stock options, restricted stock and restricted stock units to eligible employees. At December 31, 2001, there were 50,957 shares of common stock reserved for issuance under all of Company stock plans of which, 18,823 shares are still available for future grants. These amounts include 18,000 shares from the 2000 Employee Stock Incentive Plan, which the Board of Directors approved during 2000. Generally, options vest proportionally over three years and have an exercise price equal to the fair market value of the common stock on the grant date. Certain grants permit accelerated vesting if specified performance targets are achieved. Options granted to Company employees must be exercised five, seven or ten years from the date of grant. The vesting period and option term for grants to employees is at the discretion of the Compensation and Benefits Committee of the Board of Directors. The Company granted 184 restricted stock units in 2001. The grants had a nominal value of $4,304, a weighted average grant price of $23.41 per share and vest over a two to four year period. The Company amended its Employee Stock Purchase Plan for 2001 to allow employees to purchase a limited amount of common stock at the end of each six month period at a price equal to the lesser of 85% of fair market value on (a) the first trading day of the period, or (b) the last trading day of the period. Fair market value is defined as the average of the high and 37 low prices of the shares on the relevant day. The Plan was originally adopted in 1998 with a quarterly purchase period and a price equal to the lesser of 90% of the fair market value on the first trading day or the last trading day of the period. CTS has stock option plans that provide for the grant of stock options to eligible employees, non-employee Directors and independent contractors. Under these plans, CTS has 7,638 shares authorized and has 2,271 shares available for future grants. SFAS No. 123, "Accounting for Stock-Based Compensation" requires that companies with stock-based compensation plans either recognize compensation expense based on the fair value of options granted or continue to apply the existing accounting rules and disclose pro forma net income and earnings per share assuming the fair value method had been applied. The Company has chosen to continue applying APB Opinion No. 25 and related interpretations in accounting for its plans. In accordance with APB Opinion No. 25, the Company recognized compensation expense in 2001 of $2,099 for the fixed stock option plans (primarily relating to vesting acceleration of certain employee stock options prior to termination) and $4,662 for restricted stock units. Compensation cost was recognized in 2000 and 1999 of $5,636 and $3,390, respectively, for restricted stock units and compensation cost related to terminated employees in 2000 was $3,309. If the compensation cost for the Company's stock-based compensation plans was determined based on the fair value at the grant dates for awards under those plans, consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below for the years ended December 31:
2001 2000 1999 - ------------------------------------------------------------------ Net Income: As reported $185,426 $120,816 $276,061 Pro forma $136,569 $17,894 $228,878 Earnings Per Share: Basic As reported $0.63 $0.41 $0.88 Pro forma $0.46 $0.06 $0.73 Diluted As reported $0.62 $0.40 $0.86 Pro forma $0.46 $0.06 $0.72
Note: The pro forma earnings may not be representative of the effects on net income and earnings per share in future years. The 2000 pro forma earnings reflect one-time vesting acceleration in 2000 which had a per share impact of $0.31 (basic) and $0.30 (diluted). The fair value of the Company's stock options used to compute pro forma net income and earnings per share is the estimated fair value at grant date using the Black-Scholes option pricing model. The following weighted average assumptions were used for the periods ended December 31:
2001 2000 1999 - ----------------------------------------------------------------------- Expected term (years) 2.98 2.98 3.00 Risk-free interest rate 4.1% 6.3% 4.8% Dividend yield 0.3% 0.3% 0.3% Expected volatility 38.0% 40.0% 35.0%
The weighted average fair values of the Company's stock options granted in 2001, 2000 and 1999 were $7.20, $6.23 and $9.61 per share, respectively. The fair value of CTS stock options used to compute the Company's pro forma net income and earnings per share was computed in the same manner with the following weighted average assumptions for the periods ended December 31:
2001 2000 1999 - ----------------------------------------------------------------------- Expected term (years) 3.00 3.90 3.90 Risk-free interest rate 4.3% 6.1% 5.6% Dividend yield 0.0% 0.0% 0.0% Expected volatility 78.0% 75.0% 75.0%
The weighted average fair values of CTS stock options granted during 2001, 2000 and 1999 were $16.68, $21.71 and $7.45 per share, respectively. For the period through the Gartner Spin-Off in 1999, the fair value of Gartner stock options used to compute the Company's pro forma net income and earnings per share was computed in the same manner with the following weighted average assumptions for 1999: dividend yield of 0%, expected volatility of 45%, risk--free interest rate of 4.7%, and expected term of 3.5 years. The weighted average fair value of Gartner stock options granted in 1999 was $8.91 per share. Holders of options to purchase the Company's stock did not receive shares as a result of the Synavant and Gartner Spin-Off in 2000 and 1999, respectively. Consequently, options granted under the Company's plans were adjusted to recognize the effects of the distributions and maintain the intrinsic value of the options. The options, as adjusted, represented a change in the number of shares issuable when exercised but maintained the same ratio of the exercise price to the market value per share, the same aggregate difference between market value and exercise price and the same vesting provisions, option periods and other terms and conditions as the options prior to the adjustment. In accordance with EITF Statement No. 90-9, "Changes to Fixed Employee Stock Option Plans as a Result of Equity Restructuring," no compensation charge was required for these option adjustments. 38 The following table summarizes stock option activity for each of the three years ended December 31:
WEIGHTED AVERAGE PER SHARE STOCK OPTIONS EXERCISE PRICE - -------------------------------------------------------------------------------------------- Options Outstanding, December 31, 1998 28,860 $21.18 - -------------------------------------------------------------------------------------------- Gartner Spin-Off Conversion adjustment(1) 4,108 -- Granted 8,646 $34.14 Exercised (1,885) $16.96 Expired/Terminated (4,847) $22.76 - -------------------------------------------------------------------------------------------- Options Outstanding, December 31, 1999 34,882 $21.96 - -------------------------------------------------------------------------------------------- Synavant Spin-Off (3,574) $22.31 Conversion adjustment(1) 1,259 -- Granted 24,924 $18.69 Exercised (8,191) $16.54 Expired/Terminated (3,733) $23.28 - -------------------------------------------------------------------------------------------- Options Outstanding, December 31, 2000 45,567 $20.40 - -------------------------------------------------------------------------------------------- Granted 4,270 $24.25 Exercised (14,566) $16.88 Expired/Terminated (3,137) $24.22 - -------------------------------------------------------------------------------------------- Options Outstanding, December 31, 2001 32,134 $22.14 - --------------------------------------------------------------------------------------------
(1) THE CONVERSION ADJUSTMENT RELATES TO THE CONVERSION FACTOR APPLIED TO EXISTING OPTIONS AS A RESULT OF THE GARTNER AND SYNAVANT SPIN-OFFS IN 1999 AND 2000, RESPECTIVELY. The following table summarizes significant ranges of outstanding and exercisable options at December 31, 2001:
WEIGHTED AVERAGE PER SHARE AS OF DECEMBER 31, 2001 OPTION EXERCISE PRICES ------------------------- REMAINING -------------------------- RANGE OF NUMBER NUMBER CONTRACTUAL EXERCISE PRICES OUTSTANDING EXERCISABLE LIFE OUTSTANDING EXERCISABLE - -------------------------------------------------------------------------------------------- $ 9.65-$14.76 174 169 4.1 years $12.66 $12.69 $15.21-$16.83 9,992 7,746 5.4 years $16.20 $16.46 $17.33-$20.52 6,847 3,582 7.3 years $20.39 $20.32 $21.00-$26.99 7,513 3,484 7.1 years $24.25 $24.67 $27.12-$29.90 2,654 2,081 6.8 years $29.10 $29.36 $30.39-$32.76 4,954 3,499 7.0 years $30.42 $30.42 ------------------------- 32,134 20,561 - --------------------------------------------------------------------------------------------
On January 3, 2000, the Company reduced the vesting period on substantially all options previously granted with a six-year vesting period to four years. As a result 4,997 previously unvested options with exercise prices ranging from $15.93 to $28.95 became exercisable of January 3, 2000. On May 22, 2000 in connection with the sale of Erisco, the Company accelerated the vesting on 2,738 options and extended the post termination exercise period for certain unvested options granted prior to 1998. 39 CTS stock option activity and related information as of and for the years ended December 31, 2001, 2000 and 1999 is summarized below:
2001 2000 1999 ------------------------------------------------------------------ WEIGHTED WEIGHTED WEIGHTED AVERAGE AVERAGE AVERAGE PER SHARE PER SHARE PER SHARE EXERCISE EXERCISE EXERCISE SHARES PRICE SHARES PRICE SHARES PRICE - ------------------------------------------------------------------------------------------------------------------------ Outstanding at beginning of year 3,681 $18.90 2,552 $ 8.37 1,370 $ 2.93 Granted, Employee Option Plan -- -- -- -- 122 $13.73 Granted, Directors Option Plan -- -- -- -- 40 $11.16 Granted, 1999 Incentive Comp. Plan 1,542 $31.71 1,408 $37.59 1,277 $12.58 Exercised (666) $ 7.71 (130) $ 6.01 (191) $ 2.88 Cancelled (238) $37.57 (148) $26.43 (66) $ 4.51 Expired (13) $53.70 (1) $12.22 -- -- - ------------------------------------------------------------------------------------------------------------------------ Outstanding--end of year 4,306 $24.08 3,681 $18.90 2,552 $ 8.37 - ------------------------------------------------------------------------------------------------------------------------ Exercisable--end of year 1,191 $13.99 957 $ 5.83 442 $ 3.40 - ------------------------------------------------------------------------------------------------------------------------
Options granted under these plans may not be granted at an exercise price less than fair market value of the underlying shares on the date of grant with the exception of 98 shares granted in 1998 to the Chairman & CEO at an amount less than the then current fair market value of the shares on the date of grant. CTS has recorded the related compensation expense over the vesting period of these options. All options have a life of ten years, generally vest proportionally over four years and have an exercise price equal to the fair market value of the common stock on the grant date. 40 NOTE 17. INCOME TAXES Income (Loss) from continuing operations before provision for income taxes consisted of:
2001 2000 1999 - ------------------------------------------------------------- U.S. $ (280) $ 86,719 $ 98,016 Non-U.S. 184,081 174,594 250,426 - ------------------------------------------------------------- $183,801 $261,313 $348,442 - -------------------------------------------------------------
The provision (benefit) for income taxes consisted of:
2001 2000 1999 - --------------------------------------------------------------- U.S. Federal and State: Current $(2,042) $ 59,022 $60,444 Deferred 501 34,362 3,560 - --------------------------------------------------------------- $(1,541) $ 93,384 $64,004 - --------------------------------------------------------------- Non-U.S.: Current $33,182 $ 23,165 $61,597 Deferred 6,774 23,863 (27,525) - --------------------------------------------------------------- $39,956 $ 47,028 $34,072 - --------------------------------------------------------------- Total $38,415 $140,412 $98,076 - ---------------------------------------------------------------
The following table summarizes the significant differences between the U.S. Federal statutory taxes and the Company's provision for income taxes for consolidated financial statement purposes.
2001 2000 1999 - ----------------------------------------------------------------------- Tax Expense at Statutory Rate 35.0% 35.0% 35.0% State and Local Income Taxes, net of Federal Tax Benefit 0.7 1.6 0.1 Pre-Spin Liability (11.4) -- 2.6 Amortizable Non-U.S. Intangibles (8.0) (7.4) (19.5) Impact of Non-U.S. Tax Rates and Credit (1.8) 2.7 2.1 Non-Deductible Goodwill Amortization 1.6 2.8 1.9 Non-U.S. Tax Liabilities 1.4 0.1 5.3 Non-Deductible U.S. Impairment Charge--Synavant -- 13.6 -- Utilization of Prior Year Non-U.S. NOL's -- (3.9) -- Non-Deductible Spin and Related Costs and Severance, Impairment and Other Charges -- 1.9 1.0 Impact of Non-U.S. Tax Rate Changes on Deferred Taxes -- 6.8 2.6 Recognition of Loss on Sale of SSJ -- -- (2.6) Other, net 3.4 0.5 (0.4) - ----------------------------------------------------------------------- Total Taxes 20.9% 53.7% 28.1% - -----------------------------------------------------------------------
The Company's 2001 effective tax rate of 20.9% reflects the financial statement impact of the expiration, without adjustment, on September 30, 2001 of the statute of limitations on certain previously-reserved-for Donnelley Legacy transactions (approximately $21,033), and the recognition of additional tax benefits arising from a 1998 non-U.S. reorganization which gave rise to tax deductible amortization of non-U.S intangible assets (approximately $14,660), resulting from the reassessment of the tax benefits from this reorganization following certain new non-U.S. tax legislation enacted at the end of the first quarter of 2001. The Company's 2000 effective tax rate of 53.7% reflected principally the non-deductible U.S. Impairment Charge--Synavant, Spin and Related Costs and Severance, Impairment and Other Charges (portions of which are non-deductible), and a reduction in the net German deferred tax assets (principally non-U.S. intangible assets) due to a reduction in the German corporate tax rate from 40% to 25% ($17,655). These were offset by the recognition of certain German trade tax benefits on tax deductible amortization of non-U.S. intangible assets resulting from a favorable German court decision ($19,355), and the recognition of the tax benefit of certain net operating losses ("NOLs") due to the implementation of global tax planning strategies ($10,072). The Company's 1999 effective tax rate of 28.1% reflected a non-deductible one-time Gartner Spin and Related Costs. To consolidate certain of its international operations, in 1999 the Company engaged in a non-U.S. reorganization which gave rise to tax deductible amortization of non-U.S. intangible assets. The Company's deferred tax assets (liabilities) are comprised of the following at December 31:
2001 2000 - ------------------------------------------------------------- Deferred Tax Assets: Non-U.S. Intangibles $ 63,322 $ 74,914 Net Operating Losses 28,518 28,176 Employee Benefits 24,194 15,106 Accrued Liabilities 7,983 6,561 U.S. Intangibles -- 6,284 - ------------------------------------------------------------- 124,017 131,041 Valuation Allowance (13,202) (11,718) - ------------------------------------------------------------- 110,815 119,323 - ------------------------------------------------------------- Deferred Tax Liabilities: Computer Software (36,309) (26,213) CTS Undistributed Indian Earnings (25,535) (16,822) Securities and Other Investments (21,056) (37,554) Deferred Revenue (15,982) (31,882) Depreciation (10,242) (9,844) Other (9,843) (5,505) - ------------------------------------------------------------- (118,967) (127,820) - ------------------------------------------------------------- Net Deferred Tax Asset (Liability) $ (8,152) $ (8,497) - -------------------------------------------------------------
In connection with the tax-free TriZetto acquisition, the Company has a deferred tax liability of $30,178 and $35,502 for 2001 and 2000 respectively, on the difference between the substituted tax basis and the equity investment in TriZetto in accordance with SFAS No. 109. This deferred tax liability is included in Securities and Other Investments above. The 2001 and 2000 net deferred tax liability consists of a current deferred tax asset of $63,103 and $62,934, a non-current deferred tax asset of $47,063 and $49,342, a current deferred tax liability of $10,684 and $15,812, and a non-current deferred tax liability included in Other Liabilities of $107,634 and $104,961, respectively. Also included in Other Liabilities are certain income tax and other Donnelley Legacy liabilities deemed to be long-term in nature by the Company ($49,746). See Notes 2, 21 and 22. 41 The Company has established a valuation allowance attributable to deferred tax assets, primarily net operating losses, in certain U.S. state and non-U.S. tax jurisdictions where, based on available evidence, it is more likely than not that such assets will not be realized. The Company intends to indefinitely reinvest the undistributed earnings of non-U.S. subsidiaries other than the Indian earnings of CTS. CTS management currently intends to repatriate all Indian earnings to the U.S. and has provided deferred U.S. income taxes on all such Indian undistributed earnings. Undistributed earnings of non-U.S. subsidiaries, other than the Indian earnings of CTS, aggregated approximately $675,700 at December 31, 2001. Deferred tax liabilities for U.S. federal income taxes have not been recognized for these undistributed earnings. If such earnings are repatriated in the future, or are no longer deemed to be indefinitely reinvested, applicable taxes will be provided for on such amounts. It is not currently practicable to determine the amount of applicable taxes. NOTE 18. COMMITMENTS The Company's contractual obligations include facility leases, agreements to purchase data and telecommunications services and leases of certain computer and other equipment. At December 31, 2001, the minimum annual payment under these agreements and other contracts that have initial or remaining non-cancelable terms in excess of one year are as listed in the following table:
DATA AND COMPUTER OPERATING TELECOMMUNICATION EQUIPMENT YEAR LEASES(1) SERVICES(2) LEASES(3) TOTAL - -------------------------------------------------------------------------------- 2002 $19,222 $102,676 $ 17,599 $139,497 2003 17,107 79,557 13,373 110,037 2004 12,607 47,822 7,316 67,745 2005 9,894 37,133 4,252 51,279 2006 8,710 3,160 579 12,449 Thereafter 9,645 2,490 116 12,251 - -------------------------------------------------------------------------------- Total $77,185 $272,838 $ 43,235 $393,258 - --------------------------------------------------------------------------------
(1) Rental expense under real estate operating leases for the years 2001, 2000 and 1999 was $17,176, $18,911 and $26,656 respectively. (2) Expense for data and telecommunications services for the years 2001, 2000 and 1999 was $96,727, $85,858 and $73,061 respectively. (3) Rental expense under computer and other equipment leases was $16,790, $14,348 and $22,248 for 2001, 2000 and 1999, respectively. These leases are frequently renegotiated or otherwise changed as advancements in computer technology produce opportunities to lower costs and improve performance. Commitments also include "Capital Calls" which are required payments pursuant to the Enterprises agreements. At December 31, 2001 the Company is obligated to contribute a maximum of $7,000 to meet capital call requirements over the remaining life of the Enterprises venture capital entities. NOTE 19. IMS HEALTH CAPITAL STOCK On July 19, 2000 the Board of Directors authorized a stock repurchase program to buy up to 40,000 shares, marking the fifth consecutive repurchase program the Company has implemented. Shares acquired through the repurchase program will be open-market purchases in compliance with Securities and Exchange Commission Rule 10b-18. During 2001, the Company repurchased 12,124 shares of outstanding common stock at a total cost of $310,482. The shares were repurchased under the stock repurchase programs approved by the Board of Directors on July 19, 2000. As of December 31, 2001, 20,577 shares had been repurchased since the inception of the July 2000 program at a total cost of $517,129. On October 19, 1999 the Board of Directors authorized a stock repurchase program to buy up to 16,000 of the Company's outstanding common stock. A portion of this program was intended to offset option exercises. This program was completed in October 2000 at a total cost of $348,730. On October 20, 1998 the Board of Directors authorized a stock repurchase program to buy up to 16,000 shares of the Company's outstanding common stock. A portion of this program was intended to offset option exercises. This program was completed in October 1999 at a cost of $478,302. Under the Company's Restated Certificate of Incorporation as amended, the Company has authority to issue 820,000 shares with a par value of $.01 per share of which 800,000 represent shares of common stock, 10,000 represent shares of preferred stock and 10,000 represent shares of series common stock. The preferred and series common stock can be issued with varying terms, as determined by the Board of Directors. On December 15, 1998, the Company's Board of Directors authorized a 2-for-1 split of its common stock effective January 15, 1999, in the form of a stock dividend to shareholders of record on December 29, 1998. All share and per share amounts in the accompanying Consolidated Financial Statements and Notes to Consolidated Financial Statements have been restated to give effect to the stock split. In connection with the Cognizant Spin-Off, the Company entered into a Rights Agreement designed to protect shareholders of the Company in the event of unsolicited offers to acquire the Company and the other coercive takeover tactics which, in the opinion of the Board of Directors, could impair its ability to represent shareholder interests. Under the Rights Agreement, each share of the common stock has one-half of one right which trades with the stock until the right becomes exercisable. Each right entitles the registered holder to purchase 1/1000 of a share of Series A Junior Participating Preferred Stock, par value $.01 per share, at a price of $225 per 1/1000 of a share, subject to adjustment. The rights will generally not be exercisable until a person or group ("Acquiring Person") acquires beneficial ownership of, or commences a tender offer or exchange offer 42 which would result in such person or group having beneficial ownership of 15% or more of the outstanding common stock (20% in the case of certain institutional investors). In the event that any person or group becomes an Acquiring Person, each right will thereafter entitle its holder (other than the Acquiring Person) to receive, upon exercise, shares of stock having a market value of two times the exercise price in the form of the Company's common stock or, where appropriate, the Acquiring Person's common stock. The Company may redeem the rights, which expire in June 2008, for $0.01 per right, under certain circumstances. NOTE 20. ELIMINATION OF ONE-MONTH REPORTING LAG IN IMS HEALTH OPERATING ENTITIES Effective in the first quarter of 1999, the Company's operating units which previously reported on a fiscal year ended November 30 revised their reporting period to conform to the Company's fiscal year end of December 31 (the "Calendarization"). This revision was made to reflect the results of operations and financial position of these operating units on a more timely basis, consistent with business performance, and to increase operating efficiency. The Company has improved its internal financial systems and work processes, so that the Company now has the capability to more rapidly collect, consolidate and report information. As such, the financial statements of the Company's operating units at December 31, 1998 reflect a twelve-month period ended November 30. The $1,040 of net income related to the operating results of the Company's operating units for the period December 1 through December 31, 1998 was recorded directly to shareholders' equity as an addition to Retained Earnings. In addition, December 1998 included a $3,409 currency translation adjustment in the period that was recorded as a reduction of cumulative translation adjustment. The following table presents the company's operating units condensed consolidated financial information for the one-month period ended December 31, 1998:
ONE MONTH ENDED DECEMBER 31, 1998 - ---------------------------------------------------- Revenue.......................... $71,754 Operating Income................. 1,137 Income Before Provision for Income Taxes................... 1,432 Provision for Income Taxes....... (392) Net Income....................... $ 1,040 - ---------------------------------------------------- Earnings Per Share............... $ 0.003 - ----------------------------------------------------
The following table presents the Company's operating units cash flow information for the one-month period ended December 31, 1998:
ONE MONTH ENDED DECEMBER 31, 1998 - ------------------------------------------------- Net Cash Provided by Operating Activities.... $30,852 Net Cash Used in Investing Activities.............. (3,645) Net Cash Provided by Financing Activities.... 2,276 Effect of Exchange Rate Changes on Cash and Cash Equivalents............. 1,181 - ------------------------------------------------- Increase in Cash and Cash Equivalents............. $30,664 - -------------------------------------------------
NOTE 21. CONTINGENCIES The Company and its subsidiaries are involved in various legal proceedings, claims litigation and tax matters arising in the ordinary course of business. In the opinion of management, the outcome of such current legal proceedings, claims litigation and tax matters, if decided adversely, could have a material effect on quarterly or annual operating results or cash flows when resolved in a future period. However, in the opinion of management, these matters will not materially affect the Company's consolidated financial position. In addition, the Company is subject to certain other contingencies discussed below: INFORMATION RESOURCES LITIGATION On July 29, 1996, Information Resources, Inc. ("IRI") filed a complaint in the United States District Court for the Southern District of New York, naming as defendants the corporation then known as "The Dun and Bradstreet Corporation" and now known as "R. H. Donnelley Corporation" ("Donnelley"), A.C. Nielsen Company and I.M.S. International Inc. (a predecessor of IMS Health) (the "IRI Action"). At the time of the filing of the complaint, each of the other defendants was a subsidiary of Donnelley. The complaint alleges various violations of the United States antitrust laws, including alleged violations of Sections 1 and 2 of the Sherman Act. The complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship. These latter claims relate to the acquisition by the defendants of Survey Research Group Limited ("SRG"). IRI alleges that SRG violated an alleged agreement with IRI when it agreed to be acquired by the defendants and that the defendants induced SRG to breach that agreement. IRI's complaint alleges damages in excess of $350,000, which amount IRI has asked to be trebled under the antitrust laws. IRI also seeks punitive damages in an unspecified amount. 43 On October 15, 1996, the defendants moved for an order dismissing all claims in the complaint. On May 6, 1997, the United States District Court for the Southern District of New York issued a decision dismissing IRI's claim of attempted monopolization in the United States, with leave to replead within sixty days. The Court denied the defendants' motion with respect to the remaining claims in the complaint. On June 3, 1997, the defendants filed an answer denying the material allegations in IRI's complaint, and A.C. Nielsen Company filed a counterclaim alleging that IRI has made false and misleading statements about its services and commercial activities. On July 7, 1997, IRI filed an amended and restated complaint repleading its alleged claim of attempted monopolization in the United States and realleging its other claims. On August 18, 1997, the defendants moved for an order dismissing the amended claims. On December 1, 1997, the court denied the motion and, on December 16, 1997, the defendants filed a supplemental answer denying the remaining material allegations of the amended complaint. On December 22, 1999, the defendants filed a motion for partial summary judgement seeking to dismiss IRI's non-U.S. antitrust claims. On July 12, 2000, the court granted the motion dismissing claims of injury suffered from activities in foreign markets where IRI operated through subsidiaries or companies owned by joint ventures or "relationships" with local companies. This ruling is currently on appeal. Discovery is continuing in this matter. In light of the potentially significant liabilities which could arise from the IRI Action and in order to facilitate the distribution by Donnelley of shares of Cognizant Corporation ("Cognizant") and ACNielsen Corporation (the parent company of A.C. Nielsen Company) in 1996, Donnelley, ACNielsen and Cognizant entered into an Indemnity and Joint Defense Agreement pursuant to which they agreed (i) to certain arrangements allocating liabilities that may arise out of or in connection with the IRI Action, and (ii) to conduct a joint defense of such action. In particular, the Indemnity and Joint Defense Agreement provides that, in the event of an adverse decision, ACNielsen will assume exclusive liability for liabilities up to a maximum amount to be calculated at the time such liabilities, if any, become payable (the "ACN Maximum Amount") and that Cognizant and Donnelley will share liability equally for any amounts in excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an investment banking firm as the maximum amount ACNielsen will be able to pay after giving effect to (i) any plan submitted by such investment bank that is designed to maximize the claims paying ability of ACNielsen without impairing the investment banking firm's ability to deliver a viability opinion (but which will not require any action requiring shareholder approval), and (ii) payment of related fees and expenses. For these purposes, financial viability means the ability of ACNielsen, after giving effect to such plan, the payment of related fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as they become due and to finance the current and anticipated operating and capital requirements of its business, as reconstituted by such plan, for two years from the date any such plan is expected to be implemented. On February 19, 2001, ACNielsen announced that it merged with VNU N.V. Pursuant to the Indemnity and Joint Defense Agreement, VNU is to be included with ACNielsen for purposes of determining the ACN Maximum Amount. In 1998, IMS Health was spun-off from Cognizant (the "1998 Spin-Off") which then changed its name to Nielsen Media Research, Inc. ("NMR"). IMS Health and NMR are jointly and severally liable to Donnelley and ACNielsen for Cognizant's obligations under the terms of the Distribution Agreement dated October 28, 1996 among Donnelley, Cognizant and ACNielsen (the "1996 Distribution Agreement"). In connection with the 1998 Spin-Off, IMS Health and NMR agreed that, as between themselves, IMS Health will assume 75%, and NMR will assume 25%, of any payments to be made in respect of the IRI Action under the Indemnity and Joint Defense Agreement or otherwise, including any legal fees and expenses related thereto incurred in 1999 or thereafter. IMS Health agreed to be fully responsible for any legal fees and expenses incurred during 1998. NMR's aggregate liability to IMS Health for payments in respect of the IRI Action and certain other contingent liabilities shall not exceed $125,000. During 1998, Donnelley separated into two companies (the "1998 Donnelley Spin"), Donnelley and The Dun & Bradstreet Corporation ("D&B I"). As a result, Donnelley and D&B I are each jointly and severally liable for all Donnelley liabilities under the Indemnity and Joint Defense Agreement and the 1996 Distribution Agreement. During 2000, D&B I separated into two companies, Moody's Corporation ("Moody's") and The Dun & Bradstreet Corporation ("D&B II"). Moody's and D&B II are each jointly and severally liable for all liabilities under the Indemnity and Joint Defense Agreement and the 1996 Distribution Agreement that were assumed by D&B I in the 1998 Donnelley Spin. Management of the Company is unable to predict at this time the final outcome of this matter or whether the resolution of this matter could materially affect the Company's results of operations, cash flows or financial position. MATTERS BEFORE THE EUROPEAN COMMISSION The Company is the subject of complaints filed with the European Commission ("EC" or the "Commission") pursuant to Article 3 of Council Regulation No. 17 of 1972. The EC complaints allege that the Company has been and continues to engage in certain commercial practices that violate Articles 81 and 82 of 44 the EC Treaty, which relate to agreements or abuses of a dominant position that adversely affect competition. As a result of certain of these complaints, on October 19, 2000, the Commission initiated formal proceedings against the Company through the adoption of a statement of objections alleging that certain of the Company's commercial practices constituted an abuse of a dominant position in contravention of Article 82 of the EC Treaty. A statement of objections is a preliminary document that does not represent the Commission's final view on the practices at issue. Under Commission procedures, the Company has full rights of defense, including access to the Commission's files, the right to answer the statement of objections in writing and produce evidence of its own, and the right to request the opportunity to present its defense at an oral hearing. On February 6, 2001, the Company filed its written answer to the statement of objections. The Commission will ultimately determine whether a decision requiring the Company to end some or all of the contested practices is necessary and may impose fines against the Company. If such a decision is rendered against the Company, the Company could appeal that decision before the European Court of First Instance. The Company intends to vigorously defend this matter. One of the EC complaints is an application lodged with the Commission by National Data Corporation ("NDC") on December 19, 2000. This complaint requests that the Commission initiate a proceeding against the Company for an alleged infringement of Article 82 of the EC Treaty and grant interim measures (the "Application"). The Application concerns an IMS Health geographic mapping structure used for the reporting of regional sales data in Germany, which the German courts have ruled is copyright protected. The Application requests that the Commission grant interim relief requiring the Company to grant NDC a compulsory license to enable NDC to use this structure in its competing regional sales data service in Germany. On March 8, 2001, the Commission decided to initiate formal proceedings against the Company through the adoption of another statement of objections alleging that the Company's refusal to enter into negotiations with NDC following NDC's request for a license to use the aforementioned geographic mapping structure could constitute an abuse of a dominant position in contravention of Article 82 of the EC Treaty. In addition, the Commission proposed the granting of interim measures requiring the Company to license this structure to third parties, including NDC, until the Commission adopts a final decision on the merits of the case. On July 3, 2001, the Commission announced its interim decision in these proceedings (the "Interim Decision") ordering interim measures pending a final decision on the Application. The Interim Decision required the Company to grant a license of the geographic mapping structure on commercially reasonable terms without delay to NDC and to any other competitor currently present on the German regional sales data market should it request a license. The terms and royalties to be paid for the license were to be agreed between the Company and the requesting party, and if agreement could not be reached in a two week period, then the terms and royalties for the license would be determined by one or more independent experts agreed to by the parties, or if the parties could not agree, then the Commission would appoint one or more experts. The Interim Decision states that the expert(s) shall communicate its determination to the Commission for approval within two weeks of being chosen. Finally, the Interim Decision provides for a penalty of 1,000 EUROS per day should the Company fail to comply with the Interim Decision. Following issuance of the Interim Decision, NDC and AyzX Deutschland GmbH ("AzyX") requested from the Company a license to the geographic mapping structure. The Company was not able to agree with NDC or AzyX on the terms and royalties to be paid for the license or the determination of one or more independent experts. Before the Commission appointed any independent experts, the Interim Decision was suspended by the President of the European Court of First Instance (the "CFI") as noted below. On August 6, 2001, the Company filed an appeal with the CFI seeking the annulment of the Interim Decision in its entirety (the "Annulment Appeal") and requesting that operation of the Interim Decision be suspended until the CFI renders judgement on the Annulment Appeal. On October 26, 2001, the President of the CFI ruled in the Company's favor and suspended the operation of the Decision until the Annulment Appeal is heard and decided. On December 12, 2001, NDC filed an appeal to the European Court of Justice ("ECJ") seeking annulment of the October 26 decision against it. The Company has filed its reply to NDC's appeal and expects the ECJ to rule on the appeal in the coming months. The Company intends to continue to vigorously assert that its refusal to grant licenses to its copyright protected geographic mapping structure to its direct competitors in Germany, competing in the same market for which the copyright exists, is not in contravention of Article 82 of the EC Treaty. Management of the Company is unable to predict at this time the final outcome of the matters described above or whether the resolution of these matters could materially affect the Company's future results of operations, cash flows or financial position. OTHER CONTINGENCIES Under the terms of the earn out within the purchase agreements for one of the acquisitions made in 2001, the Company may be required to pay up to 45 $36,720 during 2002 to 2004 as contingent consideration. See Note 5. 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 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. In 1999, the Company was informed by D&B I, acting as agent for Donnelley, that the IRS was reviewing Donnelley's utilization of certain capital losses during 1989 and 1990. In response, D&B I advised that it intended to file an amended tax return for these periods and to pay this amount in order to prevent further interest from accruing. In May 2000, D&B I paid $349,291 of this amount and the Company paid $212,291 pursuant to its obligation under the 1996 Distribution Agreement and the Distribution Agreement between Cognizant (renamed NMR) and the Company (the "1998 Distribution Agreement"), whereby the Company is in effect obligated to pay an amount equal to one-half of the tax and interest owed to the IRS for this matter to the extent the liability exceeds $137,000 (subject to reimbursement to the Company of a portion of this amount by NMR). In the second quarter of 2000, Donnelley received a formal assessment from the IRS with respect to this matter in the amount of $561,582, for additional tax and interest due, which was satisfied by the payments made by D&B I and the Company in May 2000. D&B I has advised the Company that, notwithstanding the filing and payment, it intends to contest the assessment and would also contest the assessment of amounts, if any, in excess of the amounts paid. The Company had previously accrued for this liability and, therefore, this payment did not result in an expense in 2000. Pursuant to the 1998 Distribution Agreement, NMR is responsible for a portion of the amount that the Company paid pursuant to the 1996 Distribution Agreement ($41,136 according to the Company's calculations). NMR was not obligated to pay its share to the Company until January 2, 2001. In December 2000, the Company requested reimbursement of this amount from NMR. On January 2, 2001, NMR made a payment of $10,530 in respect of such matter but refused to pay the remaining $30,606 based on its interpretation of the applicable agreements. The Company believes that NMR's position has no merit and plainly contravenes the terms of the applicable agreements. Accordingly, the Company has a receivable of $33,361 for the outstanding principal amount due and has now also recorded interest income thereon of $2,755 from January 2, 2001 in accordance with the terms of the applicable agreements, reflected as Other Receivable in the Consolidated Statements of Financial Position. The Company has commenced arbitration regarding this matter by filing a Demand for Arbitration with the American Arbitration Association International Center for Dispute Resolution. The Company believes it will prevail in this matter. In connection with the Gartner Spin-Off, the Company and Gartner entered into a Distribution Agreement and an Agreement and Plan of Merger (the "1999 Distribution Agreements"). Pursuant to the 1999 Distribution Agreements, Gartner agreed to indemnify the Company and its stockholders for additional taxes which may become payable as a result of certain actions that may be taken by Gartner that adversely affect the tax-free treatment of the Gartner Spin-Off. However, the Company may become obligated for certain tax liabilities in the event the Gartner Spin-Off is deemed to be a taxable transaction as a result of certain Gartner share transactions that may be undertaken following the Gartner Spin-Off. In the opinion of management, it is not probable that any such significant liabilities will be incurred by the Company. As part of the Synavant Spin-Off, IMS Health and Synavant entered into a Distribution Agreement. In connection with the Distribution, Synavant will be jointly and severally liable to the other parties in the 1996 and 1998 Distribution Agreements for the liabilities relating to certain tax matters as well as those relating to the IRI Action. Under the Synavant Distribution Agreement, as between IMS Health and Synavant, each will bear 50% of IMS Health's share of these liabilities (net of the liability borne by NMR) up to a maximum liability of $9,000 for Synavant. See Note 7. If, contrary to expectations, the Synavant Spin-Off were not to qualify as tax free under Section 355 of the Internal Revenue Code, then, in general, a corporate tax would be payable by the consolidated group, of which IMS Health is a common parent and Synavant is a member, based on the difference between (x) the fair market value of the Synavant Common Stock on the date of the Synavant Spin-Off and (y) the adjusted basis of such Synavant Common Stock. In addition, under the consolidated return rules, each member of the consolidated group would be severally liable for such tax liability. IMS Health estimates that the aggregate tax liability in this regard is not expected to exceed $100,000. Pursuant to the Tax Allocation Agreement, IMS Health would be liable for the resulting corporate tax, except as provided in the Distribution Agreement. In the opinion of management and based on the opinion of tax counsel it is not probable that the Company will incur any liability. The Company intends to vigorously defend the matters noted above. The Company is unable to predict at this time the final outcome of these matters or whether the resolution of these matters could materially affect the Company's results of operations, cash flows, or financial position. 46 NOTE 22. SUPPLEMENTAL FINANCIAL DATA ACCOUNTS RECEIVABLE, NET:
2001 2000 - ------------------------------------------------------------ Trade and Notes $193,182 $202,344 Less: Allowance for Doubtful Accounts (9,260) (8,016) Unbilled Receivables 31,268 21,006 Other 13,436 15,654 - ------------------------------------------------------------ At December 31, $228,626 $230,988 - ------------------------------------------------------------
OTHER CURRENT ASSETS:
2001 2000 - ------------------------------------------------------------ Deferred Income Taxes $ 63,103 $ 62,934 Prepaid Expenses 23,335 21,666 Inventory 34,032 30,307 Cash Due in Respect of Stock Options 4,449 10,961 Other 1,553 6,945 - ------------------------------------------------------------ At December 31, $126,472 $132,813 - ------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT, NET:
ESTIMATED 2001 2000 USEFUL LIVES - ------------------------------------------------------------------- Buildings $ 84,466 $ 85,020 40-50 years Machinery and Equipment 209,041 196,719 3-5 years Less: Accumulated Depreciation (158,280) (150,415) Leasehold Improvements, less Accumulated Amortization of $12,108 and $12,570, respectively 7,486 7,634 Land 6,371 6,489 - ---------------------------------------------------- At December 31, $149,084 $145,447 - ----------------------------------------------------
OTHER ASSETS:
2001 2000 - ------------------------------------------------------------- Long-Term Pension Assets $ 45,982 $25,940 Long-Term Deferred Tax Asset 47,063 49,342 Deferred Charges and Other Intangible Assets 24,997 9,571 Other 6,558 6,743 - ------------------------------------------------------------- At December 31, $124,600 $91,596 - -------------------------------------------------------------
COMPUTER SOFTWARE AND GOODWILL:
SOFTWARE GOODWILL - ------------------------------------------------------------ January 1, 2000 $174,974 $339,491 Additions at Cost 50,646 -- Amortization (40,995) (19,120) Synavant and Erisco dispositions (Notes 7 and 12) (20,091) (69,957) Impairment Charge--Synavant (Note 6) (14,553) (100,900) Asset Impairment Charge (Note 8) (24,166) -- Other Deductions, Reclassifications and Foreign Exchange (8,127) (5,414) - ------------------------------------------------------------ December 31, 2000 $117,688 $144,100 Additions at Cost 49,858 19,553 Amortization (29,537) (10,316) Asset Impairment Charge (Note 8) (17,723) (4,243) Other Deductions, Reclassifications and Foreign Exchange (3,746) (497) - ------------------------------------------------------------ December 31, 2001 $116,540 $148,597 - ------------------------------------------------------------
Accumulated amortization of computer software was $244,116 and $234,270 at December 31, 2001 and 2000, respectively. Accumulated amortization of goodwill was $50,984 and $41,937 at December 31, 2001 and 2000, respectively. ACCOUNTS PAYABLE:
2001 2000 - -------------------------------------------------------------- Trade $16,481 $15,548 Taxes Other than Income Taxes 11,967 19,863 Other 4,879 9,787 - -------------------------------------------------------------- At December 31, $33,327 $45,198 - --------------------------------------------------------------
ACCRUED AND OTHER CURRENT LIABILITIES:
2001 2000 - ------------------------------------------------------------ Salaries, Wages, Bonuses and Other Compensation $ 37,039 $ 58,370 Data acquisition 28,267 23,033 Accrued Severance and Other 63,700 39,129 Other 67,209 99,194 - ------------------------------------------------------------ At December 31, $196,215 $219,726 - ------------------------------------------------------------
47 NOTE 23. OPERATIONS BY BUSINESS SEGMENT Operating segments are defined as components of an enterprise about which financial information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision-making groups, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company, operating globally in approximately 100 countries, is managed by way of and delivers information, software and related services principally through the strategic business segments referenced below. See Note 1. The chief operating decision-makers evaluate the performance and allocate resources based on revenue and operating income. All inter-segment transactions are excluded from management's analysis of operations by business segment. As at December 31, 2001, the Company's reportable segments are as follows: 1. The IMS Segment is a leading global provider of market information, sales management and decision-support services to the pharmaceutical and healthcare industries. Its key products include sales management information to optimize sales force productivity, marketing effectiveness research for prescription and over-the-counter pharmaceutical products, consulting and other services. The IMS Segment is managed on a global business model with global leaders for the majority of its critical business processes. Corporate expenses, which were previously not allocated to segments, are now included within the IMS Segment as the costs principally relate to the management of its business. Corporate expenses of $30,668 and $32,018 have been reclassified for the years ended December 31, 2000 and 1999, respectively. In addition the IMS Segment includes the Company's venture capital unit, Enterprises, which is focused on investments in emerging businesses and IMS's 26.8% equity interest in TriZetto. 2. The CTS Segment delivers full life-cycle solutions to complex software development and maintenance problems that companies face as they transition to e-business. These services are delivered through the use of a seamless on-site and offshore consulting project team. CTS's primary service offerings include application development and integration, application management and re-engineering services. During 2000 and 1999, the Company also included: 3. The Transaction Businesses Segment, which consisted of (a) Synavant, which serves the pharmaceutical industry by developing and selling pharmaceutical relationship management solutions that support sales and marketing decision-making; (b) Erisco, a leading supplier of software- based administrative and analytical solutions to the managed care industry; and (c) three small non-strategic software businesses. The Company spun off the Synavant business on August 31, 2000 and sold Erisco to TriZetto and entered into a strategic alliance with TriZetto on October 3, 2000. The Company also divested or discontinued the other small non-strategic software businesses.
TRANSACTION TOTAL IMS CTS BUSINESSES(2) ELIMINATION CONSOLIDATED - -------------------------------------------------------------------------------------------------------------------- YEAR END DECEMBER 31, 2001: Revenue(5) $1,173,954 $177,778 -- $(18,809) $1,332,923 Operating Income (Loss)(1) $ 288,540 $ 35,621 -- -- $ 324,161 Total Assets(3)(4) $1,222,571 $144,983 -- -- $1,367,554 - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000: Revenue(5) $1,131,211 $137,031 $ 170,385 $(14,268) $1,424,359 Operating Income (Loss)(1) $ 282,514 $ 26,129 $(171,450) -- $ 137,193 Total Assets(3)(4) $1,192,348 $109,542 $ 6,271 -- $1,308,161 - -------------------------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1999: Revenue(5) $1,037,025 $ 88,904 $ 286,880 $(14,820) $1,397,989 Operating Income (Loss)(1) $ 290,564 $ 16,645 $ 31,814 -- $ 339,023 Total Assets(3)(4) $1,153,236 $ 69,011 $ 311,724 -- $1,533,971 - --------------------------------------------------------------------------------------------------------------------
NOTES TO OPERATIONS BY BUSINESS SEGMENTS: 1. In 2000, $37,626 of Spin and Related Costs (Synavant), which were previously recorded in Corporate Expenses, have been reallocated to the Transaction Businesses Segment and an Executive Management Transition Charge of $31,133, previously recorded in Corporate Expenses, has been reallocated to the IMS Segment. In 1999, Spin and Related Costs (Gartner) of $9,500 were previously recorded in Corporate Expenses and have now been reallocated to the IMS Segment. 48 2. The Transaction Businesses Segment includes Synavant up to the spin-off date of August 31, 2000, and Erisco up to the date of the sale of October 3, 2000. Revenues and operating losses for Synavant during this period amounted to $119,700 and $132,000 respectively. The remaining revenues and results of operations relate primarily to the Erisco business. 3. Total assets of the IMS Segment include Net Assets of Discontinued Operations (Gartner) of $0, $60,799 and $96,988, as of December 31, 2001, 2000 and 1999, respectively. IMS Segment assets also include the Company's investment in TriZetto of $119,896 and $137,501 as of December 31, 2001 and 2000 respectively, and certain Corporate assets. 4. CTS segment assets include Cash and Cash Equivalents of $84,977, $61,976 and $42,641 at December 31, 2001, 2000 and 1999, respectively. 5. Eliminations relate to sales from the CTS segment to the IMS segment. GEOGRAPHIC FINANCIAL INFORMATION:
U.S. NON-U.S.(2) TOTAL - ------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2001 Revenue(1) $614,108 $718,815 $1,332,923 Long-Lived Assets(3) $433,676 $223,412 $ 657,088 - ------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 2000 Revenue(1) $653,965 $770,394 $1,424,359 Long-Lived Assets(3) $478,426 $188,871 $ 667,297 - ------------------------------------------------------------------------------------------------- YEAR ENDED DECEMBER 31, 1999 Revenue(1) $586,826 $811,163 $1,397,989 Long-Lived Assets(3) $626,044 $210,404 $ 836,448 - -------------------------------------------------------------------------------------------------
(1) REVENUE RELATES TO EXTERNAL CUSTOMERS AND IS PRIMARILY BASED ON THE LOCATION OF THE CUSTOMER. (2) NON-U.S. REVENUE IS PRINCIPALLY FROM JAPAN, THE UNITED KINGDOM, GERMANY, ITALY, FRANCE, AUSTRALIA AND OTHER COUNTRIES WITHIN EUROPE, LATIN AMERICA AND THE FAR EAST. (3) LONG-LIVED ASSETS CONSISTS OF: SECURITIES AND OTHER INVESTMENTS; TRIZETTO EQUITY INVESTMENT; PROPERTY, PLANT AND EQUIPMENT, NET; COMPUTER SOFTWARE; GOODWILL; DEFERRED CHARGES, NET; OTHER INTANGIBLES, NET AND LONG-TERM PENSION ASSETS. FINANCIAL INFORMATION BY KEY PRODUCT LINE:
2001 2000 1999 - -------------------------------------------------------------------------------------------------- IMS Segment Sales management $ 730,169 $ 682,149 $ 599,273 Market research 412,353 404,091 392,423 Other 31,432 44,971 45,329 - -------------------------------------------------------------------------------------------------- Total IMS Segment 1,173,954 1,131,211 1,037,025 CTS Segment(1) 158,969 122,763 74,084 Transaction Businesses Segment -- 170,385 286,880 - -------------------------------------------------------------------------------------------------- Total Revenues $1,332,923 $1,424,359 $1,397,989 - --------------------------------------------------------------------------------------------------
(1) AFTER ELIMINATION OF INTERSEGMENT SALES OF $18,809, $14,268 AND $14,820 IN 2001, 2000 AND 1999, RESPECTIVELY. 49 QUARTERLY FINANCIAL DATA (UNAUDITED) AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
THREE MONTHS ENDED 2001 ------------------ MAR-31 JUN-30 SEP-30 DEC-31(1) FULL YEAR - --------------------------------------------------------------------------------------------------------------------- Revenue $329,562 $334,349 $328,137 $340,875 $1,332,923 Operating Income (Loss) $ 96,458 $107,207 $123,442 $ (2,946) $ 324,161 Income (Loss) from Continuing Operations, Net of Income Taxes $ 65,807 $ 64,544 $ 41,285 $(33,235) $ 138,401 Income from Discontinued Operations, Net of Income Taxes -- -- $ 47,025 -- $ 47,025 Net Income (Loss) $ 65,807 $ 64,544 $ 88,310 $(33,235) $ 185,426 - --------------------------------------------------------------------------------------------------------------------- Basic Earnings Per Share Income (Loss) from Continuing Operations $ 0.22 $ 0.22 $ 0.14 $ (0.11) $ 0.47 Income from Discontinued Operations $ 0.00 $ 0.00 $ 0.16 $ 0.00 $ 0.16 Net Income (Loss) $ 0.22 $ 0.22 $ 0.30 $ (0.11) $ 0.63 - --------------------------------------------------------------------------------------------------------------------- Diluted Earnings Per Share Income (Loss) from Continuing Operations $ 0.22 $ 0.21 $ 0.14 $ (0.11) $ 0.46 Income from Discontinued Operations $ 0.00 $ 0.00 $ 0.16 $ 0.00 $ 0.16 Net Income (Loss) $ 0.22 $ 0.21 $ 0.29 $ (0.11) $ 0.62 - ---------------------------------------------------------------------------------------------------------------------
(1) Refer to Notes 8, 10 and 13 for additional information regarding significant items impacting the Consolidated Statements of Income during the Fourth Quarter of 2001.
THREE MONTHS ENDED 2000 ------------------ MAR-31 JUN-30 SEP-30 DEC-31(1) FULL YEAR - --------------------------------------------------------------------------------------------------------------------- Revenue $352,523 $369,401 $355,867 $346,568 $1,424,359 Operating Income (Loss) $ 75,060 $ 78,547 $(45,999) $ 29,585 $ 137,193 Income (Loss) from Continuing Operations, Net of Income Taxes $ 82,852 $ 50,229 $(58,417) $ 41,460 $ 116,124 Income from Discontinued Operations, Net of Income Taxes -- -- $ 2,226 $ 2,466 $ 4,692 Net Income (Loss) $ 82,852 $ 50,229 $(56,191) $ 43,926 $ 120,816 - --------------------------------------------------------------------------------------------------------------------- Basic Earnings Per Share Income (Loss) from Continuing Operations $ 0.28 $ 0.17 $ (0.20) $ 0.14 $ 0.39 Income from Discontinued Operations $ 0.00 $ 0.00 $ 0.01 $ 0.01 $ 0.02 Net Income (Loss) $ 0.28 $ 0.17 $ (0.19) $ 0.15 $ 0.41 - --------------------------------------------------------------------------------------------------------------------- Diluted Earnings Per Share Income (Loss) from Continuing Operations $ 0.27 $ 0.17 $ (0.20) $ 0.14 $ 0.39 Income from Discontinued Operations $ 0.00 $ 0.00 $ 0.01 $ 0.01 $ 0.02 Net Income (Loss) $ 0.27 $ 0.17 $ (0.19) $ 0.15 $ 0.40 - ---------------------------------------------------------------------------------------------------------------------
50 FIVE-YEAR SELECTED FINANCIAL DATA (UNAUDITED) AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA
2001 2000 1999 1998 1997 - ---------------------------------------------------------------------------------------------------------------------------- RESULTS OF OPERATIONS: Revenue $1,332,923 $1,424,359 $1,397,989 $1,186,513 $1,059,559 Costs and Expenses(1) 1,008,762 1,287,166 1,058,966 1,054,029 831,949 - ---------------------------------------------------------------------------------------------------------------------------- Operating Income(1) 324,161 137,193 339,023 132,484 227,610 Non-Operating Income (Loss), net(2) (140,360) 124,120 9,419 52,360 13,955 - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations, Before Provision For Income Taxes 183,801 261,313 348,442 184,844 241,565 Provision For Income Taxes (38,415) (140,412) (98,076) (58,780) (55,614) TriZetto Equity Loss, net of Income Taxes (6,985) (4,777) -- -- -- - ---------------------------------------------------------------------------------------------------------------------------- Income from Continuing Operations 138,401 116,124 250,366 126,064 185,951 Income from Discontinued Operations, net of Income Taxes(3) 47,025 4,692 25,695 94,494 126,399 - ---------------------------------------------------------------------------------------------------------------------------- Net Income $ 185,426 $ 120,816 $ 276,061 $ 220,558 $ 312,350 - ---------------------------------------------------------------------------------------------------------------------------- Basic Earnings Per Share of Common Stock Income from Continuing Operations $ 0.47 $ 0.39 $ 0.80 $ 0.39 $ 0.57 Income from Discontinued Operations, Net of Income Taxes Taxes $ 0.16 $ 0.02 $ 0.08 $ 0.29 $ 0.38 - ---------------------------------------------------------------------------------------------------------------------------- Net Income $ 0.63 $ 0.41 $ 0.88 $ 0.68 $ 0.95 - ---------------------------------------------------------------------------------------------------------------------------- Average Number of Shares Outstanding 295,162 296,077 311,976 324,584 330,326 Diluted Earnings Per Share of Common Stock Income from Continuing Operations $ 0.46 $ 0.39 $ 0.78 $ 0.38 $ 0.55 Income from Discontinued Operations, Net of Income Taxes $ 0.16 $ 0.02 $ 0.08 $ 0.28 $ 0.38 - ---------------------------------------------------------------------------------------------------------------------------- Net Income $ 0.62 $ 0.40 $ 0.86 $ 0.66 $ 0.93 - ---------------------------------------------------------------------------------------------------------------------------- Average Number of Shares Outstanding--Diluted 300,147 300,038 319,561 335,770 334,980 As a % of Operating Revenue: Operating Income(1) 24.3% 9.6% 24.3% 11.2% 21.5% Income from Continuing Operations, net of Income Taxes(1) 10.4% 8.2% 17.9% 10.6% 17.5% - ---------------------------------------------------------------------------------------------------------------------------- Cash Dividend Declared Per Common Stock $ 0.08 $ 0.08 $ 0.08 $ 0.03 $ -- - ---------------------------------------------------------------------------------------------------------------------------- Balance Sheet Data: Shareholders' Equity $ 218,366 $ 103,540 $ 495,222 $ 825,270 $ 801,570 Total Assets $1,367,554 $1,308,161 $1,533,971 $1,789,205 $1,516,537 Post-Retirement and Post-Employment Benefits $ 44,305 $ 43,471 $ 27,429 $ 27,577 $ 38,032 Long-Term Debt and Other Liabilities $ 324,373 $ 182,840 $ 163,356 $ 253,261 $ 158,742 - ----------------------------------------------------------------------------------------------------------------------------
(1) 2001 includes charges related to Severance, Impairment and Other Charges of $94,616, and Terminated Transaction Costs of $6,457. 2000 includes charges related to the Synavant Spin-Off of $37,626, the Synavant related impairment charge of $115,453, the Executive Management Transition Charge of $31,133 and Severance, Impairment and Other Charges of $45,689. 1999 includes charges related to the Gartner Spin-Off of $9,500. 1998 includes charges related to the Cognizant Spin-Off of $35,025 and one-time charges and IPR&D write-offs related to the Walsh and PMSI acquisitions of $48,019 and $32,800, respectively. (2) Non-Operating Income, net in 2001 includes loss on Gartner shares of $84,880, gains/(losses) from dispositions-net of $27,642 and the SAB No. 51 loss related to issuance of investees' stock of $1,490. Non-Operating Income, net in 2000 includes the gain on the sale of Erisco of $84,530, gains from dispositions--net of $78,139, loss on Gartner shares of $6,896 and the SAB No. 51 gain related to the issue of stock by TriZetto of $9,029. Non-operating Income, net in 1999 includes gains from dispositions-net of $25,264. Non-operating Income, net in 1998 includes the gain related to the CTS IPO of $12,777 and gains from dispositions-net of $33,341. Results for 1997 include gains from dispositions-net of $9,391 in non-operating income. (3) Income from Discontinued Operations, net of Income Taxes includes a tax provision of $25,320, $2,526, $12,635, $49,303 and $62,271 for 2001, 2000, 1999, 1998 and 1997, respectively. 51 IMS HEALTH INCORPORATED - -------------------------------------------------------------------------------- DIRECTORS - -------------------------------------------------------------------------------------------------------------------- CLIFFORD L. ALEXANDER, JR. (2)(3) H. EUGENE LOCKHART (1) PRESIDENT PRESIDENT & CHIEF EXECUTIVE OFFICER ALEXANDER & ASSOCIATES, INC. THE NEW POWER COMPANY CONSTANTINE L. CLEMENTE (3) GILLES V. J. PAJOT EXECUTIVE VICE PRESIDENT--CORPORATE EXECUTIVE VICE PRESIDENT AND PRESIDENT, AFFAIRS, IMS EUROPEAN REGION SECRETARY AND GENERAL COUNSEL IMS HEALTH INCORPORATED PFIZER INC. KATHRYN E. GIUSTI (1) M. BERNARD PUCKETT (2) PRESIDENT PRIVATE INVESTOR THE MULTIPLE MYELOMA RESEARCH FOUNDATION JOHN P. IMLAY, JR. (2) DAVID M. THOMAS (3) CHAIRMAN CHAIRMAN, CHIEF EXECUTIVE OFFICER AND IMLAY INVESTMENTS, INC. PRESIDENT IMS HEALTH INCORPORATED ROBERT J. KAMERSCHEN (2)(3) WILLIAM C. VAN FAASEN (1) FORMER CHAIRMAN & CHIEF EXECUTIVE PRESIDENT & CHIEF EXECUTIVE OFFICER OFFICER BLUE CROSS & BLUE SHIELD DIMAC MARKETING CORPORATION OF MASSACHUSETTS ROBERT J. LANIGAN (1) BOARD COMMITTEES CHAIRMAN EMERITUS (1) AUDIT COMMITTEE FORMER CHAIRMAN & CHIEF EXECUTIVE (2) COMPENSATION AND BENEFITS OFFICER COMMITTEE OWENS--ILLINOIS, INC. (3) NOMINATING AND GOVERNANCE COMMITTEE OFFICERS - -------------------------------------------------------------------------------------------------------------------- DAVID M. THOMAS ROBERT H. STEINFELD CHAIRMAN, CHIEF EXECUTIVE OFFICER AND SENIOR VICE PRESIDENT, PRESIDENT GENERAL COUNSEL AND CORPORATE SECRETARY GILLES V. J. PAJOT JOHN R. WALSH EXECUTIVE VICE PRESIDENT VICE PRESIDENT, INVESTOR RELATIONS AND AND PRESIDENT, IMS EUROPEAN REGION ACTING TREASURER NANCY E. COOPER LESLYE G. KATZ SENIOR VICE PRESIDENT AND CHIEF VICE PRESIDENT AND CONTROLLER FINANCIAL OFFICER OFFICERS OF OPERATING UNITS - -------------------------------------------------------------------------------------------------------------------- GARY W. NOON (4) ROGER A. KORMAN WIJEYARAJ A. MAHADEVA PRESIDENT, IMS U.S. PRESIDENT, IMS CANADA AND CHAIRMAN AND CHIEF EXECUTIVE LATIN AMERICA OFFICER, COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION SHUNSUKE KEIMATSU MURRAY L. AITKEN (4) CHAIRMAN, IMS ASIA PACIFIC SENIOR VICE PRESIDENT, IMS GLOBAL CONSULTING AND SERVICES (4) DENOTES EXECUTIVE OFFICER OF THE COMPANY
[LOGO] TRANSFER AGENT American Stock Transfer and Trust Company 59 Maiden Lane New York, NY 10038 Telephone: (212) 936-5100 CORPORATE OFFICE 1499 Post Road Fairfield, CT 06430 Telephone: (203) 319-4700 INDEPENDENT ACCOUNTANTS PricewaterhouseCoopers LLP 1301 Avenue of Americas New York, NY 10019 FORM 10-K Your Company will file its report to shareholders on Form 10-K with the Securities and Exchange Commission by March 31, 2002. Many of the 10-K information requirements are satisfied by this 2001 Annual Report to Shareholders. However, a copy of the Form 10-K will be available without charge after March 31, 2002, upon request to the Investor Relations Department at the Corporate Office address or via E-mail at jwalsh@imshealth.com. COMMON STOCK INFORMATION The Company's common stock is listed under the symbol RX on the New York Stock Exchange. EX-21 11 a2068479zex-21.txt EXHIBIT 21 EXHIBIT 21 IMS HEALTH INCORPORATED ACTIVE SUBSIDIARIES AS OF DECEMBER 31, 2001
STATE OR OTHER % OWNERSHIP JURISDICTION OF 100% EXCEPT NAME INCORPORATED AS NOTED - ---- ---------------------- ------------ COGNIZANT TECHNOLOGY SOLUTIONS CORPORATION Delaware 58.29 Cognizant Technology Solutions U.S. Corporation Delaware Cognizant Technology Solutions Canada, Inc. Canada Cognizant Technology Solutions Germany GmbH Germany Cognizant Technology Solutions India Limited India Cognizant Technology Solutions UK Limited United Kingdom CSS Investment Corporation Delaware COORDINATED MANAGEMENT SYSTEMS, INC. Delaware DBHC, INC. Delaware LexHealth, Inc. Illinois ENTERPRISE ASSOCIATES, LLC Delaware IMS AG Switzerland IMS Health Licensing Associates, L.P. Delaware 87.85 Spartan Leasing Corporation Delaware PMA Sociedad Anonima Argentina IMS Health Marktforschungs G.m.b.H. Austria Pharmacall Statistik Ges.m.b.H. Austria IMS Health Bangladesh Limited Bangladesh IMS Health S.A. Belgium IMS Health Finance Ltd. Bermuda Pharma Data Boliviana S.R.L. Bolivia IMS Health Do Brasil Ltda. Brazil Asesorias IMS Health Chile Limitada Chile Intercomunicaciones Y Servicio de Datos S.A. Colombia 98.96 IMS Medinform A.S. Czech Republic IMS Republica Dominicana, S.A. Dominican Republic Datandina Ecuador S.A. Ecuador IMS Egypt Limited Egypt IMS HEALTH Oy Finland IMS HEALTH S.A. France Logimed S.A.S. France Source Informatics S.A.S. France Asserta Centroamerica Medicion de Mercados, S.A. Guatemala IMS Health Services Ltd. Hungary PharmaFELAX Commerical Ltd. Hungary UAB IMS Health Lithuania IMS Health Malaysia Sdn. Bhd. Malaysia Interdata S.A. de C.V. Mexico IPP Informacion Promocional y Publicitaria S.A. de C.V. Mexico Informations Medicales & Statistiques S.A.R.L. Morocco I.M.S. Health B.V. Netherlands I.M.S. Finance (Nederland) B.V. Netherlands IMS Health Norway A/S Norway Pharma Data Paraguaya S.R.L. Paraguay IMS Health Del Peru S.A. Peru
29
STATE OR OTHER % OWNERSHIP JURISDICTION OF 100% EXCEPT NAME INCORPORATED AS NOTED - ---- ---------------------- ------------ IMS Poland Limited Sp.z.o.o. Poland IMS Information Medical Statistics, spol.s.r.o. Slovakia IMS Health, S.A. Spain Mercados Y Analisis, S.A. Spain IMS Lanka (Private) Limited Sri Lanka IHA.IMS Health GmbH Switzerland 50.00 Interstatistik AG Switzerland IMS Ges.m.b.H. Austria Datec Industria e Comercio, Distribuidora Grafica e Mala Brazil Direta Ltda. IMS Tunisia Tunisia IMS Tibbi Istatistik Ticaret ve Musavirlik Ltd Sirketi Turkey Pharma Data Uruguaya S.A. Uruguay PMV De Venezuela, C.A. Venezuela IMS CHINAMETRIK LIMITED Hong Kong IMS Meridian Limited Hong Kong Meridian Research Limited British Virgin Islands Meridian Research Vietnam Ltd Vietnam IMS CHINAMETRIK INCORPORATED Delaware IMS HEALTH ASIA (1989) PTE. LTD. Singapore IMS HEALTH AUSTRALIA PTY. LTD. Australia Farmer Crow Pty. Limited Australia Chemdata Pty. Limited Australia Data Design Hisoft Pty. Limited Australia Medrecord Australia Pty. Limited Australia Healthnet Pty. Limited Australia IMS HEALTH, CANADA LIMITED Canada IMS HEALTH DEUTSCHLAND GMBH Germany IMS-MIDOC Medizinische Informations-Dokumentations und Germany Consultinggesellschaft mbH IMS Health Beteiligungs-gesellschaft mbH Germany IMS Health GmbH & Co. OHG Germany GPI Krankenhaus-forschung Gesellschaft Fur Pharma-Informationssysteme mbH Germany IMS Hellas Ltd. Greece IMS HEALTH FINANCE, INC. Delaware IMS HEALTH GROUP LIMITED United Kingdom IMS Health HQ Limited United Kingdom IMS Holdings (U.K.) Limited United Kingdom IMS Health Limited United Kingdom Imsworld Publications Ltd. United Kingdom Medical Direct Mail Organisation Ltd. United Kingdom Pharma Strategy Group Limited United Kingdom PMS International Limited United Kingdom Cambridge Pharma Consultancy, Ltd. United Kingdom Cambridge Pharma Consultancy Inc. Delaware PPR Communications Ltd. United Kingdom PMSI UK Limited United Kingdom IMS Health Networks Limited United Kingdom PMSI Medical Research Factors Limited United Kingdom Medicare Audits Limited United Kingdom
30
STATE OR OTHER % OWNERSHIP JURISDICTION OF 100% EXCEPT NAME INCORPORATED AS NOTED - ---- ---------------------- ------------ IMS HEALTH INDIA HOLDING CORPORATION Delaware RX India Corporation Delaware IMS Health India Private Limited India IMS HEALTH KOREA LTD. Korea IMS HEALTH, LDA. Portugal IMS HEALTH (NZ) LIMITED New Zealand IMS HEALTH PHILIPPINES, INC. Philippines IMS HEALTH PUERTO RICO INC. Puerto Rico IMS HEALTH S.P.A. Italy IMS HEALTH TRADING CORPORATION Delaware IMS Health (Pty.) Ltd. South Africa Decision Surveys International (Pty.) Ltd. South Africa PMSA (Pty.) Ltd. South Africa IMS HEALTH TRANSPORTATION SERVICES CORPORATION Delaware IMS INFORMATION MEDICAL STATISTICS (ISRAEL) LTD. Israel IMS JAPAN K.K. Japan PMSI Japan K.K. Japan IMS SOFTWARE SERVICES, LTD. Delaware IMS TAIWAN COMPANY LTD. Taiwan INTERCONTINENTAL MEDICAL STATISTICS INTERNATIONAL, LTD. (DE) Delaware IMS HEALTH LIMITED Ireland Medical Data Systems Limited Ireland I-SQUARED, INC. Delaware SOURCE INFORMATICS EUROPE B.V. Netherlands SOURCE INFORMATICS LIMITED United Kingdom
31 EX-23 12 a2068479zex-23.txt EXHIBIT 23 EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File Nos. 333-53712, 333-69195, 333-67779 and 333-58361) of IMS Health Incorporated of our report dated February 11, 2002 relating to the consolidated financial statements, which appears in the 2001 Annual Report to Shareholders, which is incorporated in this Annual Report on Form 10-K. We also consent to the incorporation by reference of our report dated February 11, 2002 relating to the financial statement schedule which appears in this Form 10-K. PricewaterhouseCoopers LLP New York, New York March 20, 2002 32 -----END PRIVACY-ENHANCED MESSAGE-----