10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark one)

ý	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2004
OR
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                     to

Commission file number 001-14049

IMS Health Incorporated
(Exact name of registrant as specified in its charter)
Delaware	06-1506026
(State of Incorporation)	(I.R.S. Employer Identification No.)
1499 Post Road, Fairfield, CT	06824
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code(203) 319-4700

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ý No  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes ý No o

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

Title of Class	Shares Outstanding At June 30, 2004
Common Stock, par value $.01 per share	233,858,708

IMS HEALTH INCORPORATED

INDEX TO FORM 10-Q

2

PART I. FINANCIAL INFORMATION

Item I. FINANCIAL STATEMENTS

IMS HEALTH INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (Unaudited)

(Dollars and shares in thousands, except per share data)

	As of June 30, 2004			As of December 31, 2003
Assets:
Current Assets:
Cash and cash equivalents	$	371,897		$	344,432
Short-term marketable securities	27,821			40,108
Accounts receivable, net of allowances of $4,753 and $4,429 in 2004 and 2003, respectively	293,715			271,268
Other current assets	111,851			123,121
Total Current Assets	805,284			778,929
Securities and other investments	12,023			14,988
TriZetto equity investment (Note 8)	40,562			42,742
Property, plant and equipment, net of accumulated depreciation of $181,882 and $174,472 in 2004 and 2003, respectively	140,277			141,282
Computer software	207,903			198,558
Goodwill	259,677			247,958
Other assets	222,529			219,881
Total Assets	$	1,688,255		$	1,644,338
Liabilities, Minority Interests and Shareholders’ Equity:
Current Liabilities:
Accounts payable	$	52,177		$	47,513
Accrued and other current liabilities	160,829			190,478
Short-term debt	233,417			409,941
Accrued income taxes	102,626			67,369
Short-term deferred tax liability	9,461			9,248
Deferred revenues	113,921			112,076
Total Current Liabilities	672,431			836,625
Postretirement and postemployment benefits	91,293			86,920
Long-term debt (Note 10)	401,187			152,050
Other liabilities	234,760			277,313
Total Liabilities	$	1,399,671		$	1,352,908
Commitments and contingencies (Note 9)
Minority Interests	$	103,021		$	101,853
Shareholders’ Equity:
Common Stock, par value $.01, authorized 800,000 shares; issued 335,045 shares at June 30, 2004 and December 31, 2003, respectively	$	3,350		$	3,350
Capital in excess of par	481,550			490,297
Retained earnings	1,926,202			1,789,503
Treasury stock, at cost, 101,187 and 96,706 shares at June 30, 2004 and December 31, 2003, respectively	(2,158,697		)	(2,032,748		)
Cumulative translation adjustment	(44,668		)	(37,255		)
Minimum pension liability adjustment, net of taxes of $10,806 at June 30, 2004 and December 31, 2003	(21,963		)	(21,963		)
Unrealized loss on changes in fair value of cash flow hedges, net of tax	(1,323		)	(2,299		)
Unrealized gains on investments, net of taxes of $599 and $373 at June 30, 2004 and December 31, 2003, respectively	1,112			692
Total Shareholders’ Equity	$	185,563		$	189,577
Total Liabilities, Minority Interests and Shareholders’ Equity	$	1,688,255		$	1,644,338

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

3

IMS HEALTH INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars and shares in thousands, except per share data)

	Three Months Ended June 30,
	2004			2003
Operating Revenue	$	379,583		$	337,776
Operating costs	162,386			141,547
Selling and administrative expenses	92,412			79,099
Depreciation and amortization	22,317			19,831
Operating Income	102,468			97,299
Interest income	2,103			1,255
Interest expense	(4,162		)	(3,920		)
Gains (losses) from investments, net	2,074			32
Gain (loss) on issuance of investees’ stock, net	(91		)	54
Other expense, net	(1,604		)	(9,835		)
Non-Operating Income (Loss), Net	(1,680		)	(12,414		)
Income before provision for income taxes	100,788			84,885
Provision for income taxes (Note 12)	(35,364		)	(29,463		)
TriZetto equity loss, net of income taxes of $196 and $43for 2004 and 2003, respectively	(303		)	(66		)
Net Income	$	65,121		$	55,356
Basic Earnings Per Share of Common Stock	$	0.28		$	0.23
Diluted Earnings Per Share of Common Stock	$	0.27		$	0.23
Weighted average number of shares outstanding – basic	235,142			241,999
Dilutive effect of shares issuable as of period-end under stock option plans	5,017			813
Adjustment of shares outstanding applicable to exercised and cancelled stock options during the period	137			5
Weighted Average Number of Shares Outstanding – Diluted	240,296			242,817

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

4

IMS HEALTH INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(Dollars and shares in thousands, except per share data)

	Six Months Ended June 30,
	2004			2003
Operating Revenue	$	741,159		$	651,693
Operating costs	311,940			278,804
Selling and administrative expenses	186,496			160,591
Depreciation and amortization	44,023			36,629
Severance, impairment and other charges	—			37,220
Operating Income	198,700			138,449
Interest income	3,065			2,518
Interest expense	(8,433		)	(7,974		)
Gains (losses) from investments, net	8,527			(844		)
Loss on issuance of investees’ stock, net	(91		)	(261		)
Other income (expense), net	1,173			(20,638		)
Non-Operating Income (Loss), Net	4,241			(27,199		)
Income before provision for income taxes	202,941			111,250
Provision for income taxes (Note 12)	(55,473		)	(93,812		)
TriZetto equity loss, net of income taxes of $820 and $258 for 2004 and 2003, respectively	(1,269		)	(399		)
TriZetto impairment charge, net of income taxes of $9,565 for 2003	—			(14,842		)
Income from continuing operations	146,199			2,197
Income from discontinued operations, net of income taxes of $1,237 for 2003 (Note 6)	—			2,779
Gain on discontinued operations (Note 6)	—			495,053
Net Income	$	146,199		$	500,029
Basic Earnings Per Share of Common Stock:
Income from continuing operations	$	0.62		$	0.01
Income from discontinued operations	—			1.99
Basic Earnings Per Share of Common Stock	$	0.62		$	1.99
Diluted Earnings Per Share of Common Stock:
Income from continuing operations	$	0.61		$	0.01
Income from discontinued operations	—			1.98
Diluted Earnings Per Share of Common Stock	$	0.61		$	1.99
Weighted average number of shares outstanding – basic	235,074			250,658
Dilutive effect of shares issuable as of period-end under stock option plans	4,901			663
Adjustment of shares outstanding applicable to exercised and cancelled stock options during the period	354			5
Weighted Average Number of Shares Outstanding – Diluted	240,329			251,326

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

5

IMS HEALTH INCORPORATED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(Dollars and shares in thousands, except per share data)

	Six Months Ended June 30,
	2004			2003
Cash Flows from Operating Activities:
Net income	$	146,199		$	500,029
Less income from discontinued operations and gain on disposal	—			(497,832		)
Income from continuing operations	146,199			2,197
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	44,023			36,629
Bad debt expense	450			513
Deferred income taxes	32,966			9,079
(Gains) losses from investments, net	(8,527		)	844
Loss on issuance of investees’ stock, net	91			261
TriZetto equity loss, net	1,269			399
TriZetto impairment charge, net	—			14,842
Minority interests in net income of consolidated companies	2,781			5,445
Non-cash stock compensation charges	1,492			1,532
Non-cash portion of severance, impairment and other charges	—			6,480
Change in assets and liabilities, excluding effects from acquisitions and dispositions:
Net increase in accounts receivable	(17,601		)	(12,984		)
Net increase in inventory	(3,055		)	(857		)
Net increase in prepaid expenses and other current assets	(10,846		)	(13,071		)
Net increase in accounts payable	3,736			2,149
Net decrease in accrued and other current liabilities	(27,590		)	(7,453		)
Net (decrease) increase in accrued severance, impairment and other charges	(3,374		)	18,304
Net increase in deferred revenues	393			3,300
Net (decrease) increase in accrued income taxes	(12,774		)	52,210
Net decrease in pension assets and liabilities	385			933
Net decrease in other long-term assets	5,345			2,065
Net tax benefit on stock option exercises	6,029			78
Nielsen Media Research payment received in respect of D&B Legacy Tax Matters	—			37,025
Net Cash Provided by Operating Activities	161,392			159,920
Cash Flows Used in Investing Activities:
Capital expenditures	(10,997		)	(9,133		)
Additions to computer software	(36,736		)	(37,680		)
Investments in short-term marketable securities	12,287			(3,333		)
Payments for acquisitions of businesses, net of cash acquired	(19,275		)	(48,966		)
Funding of venture capital investments	(500		)	(1,200		)
Other investing activities, net	1,455			(2,843		)
Net Cash Used in Investing Activities	(53,766		)	(103,155		)
Cash Flows Used in Financing Activities:
Net increase (decrease) in debt	72,766			(91,272		)
Borrowings under private placement	—			150,000
Payments for purchase of treasury stock	(204,284		)	(93,550		)
Proceeds from exercise of stock options	60,220			1,755
Dividends paid	(9,500		)	(9,785		)
Proceeds from employee stock purchase plan	1,847			1,385
Increase in cash overdrafts	2,011			832
Payments to minority interests	(1,613		)	(4,152		)
Refund of cash portion of Synavant spin-off dividend	—			4,863
Net Cash Used in Financing Activities	(78,553		)	(39,924		)
Effect of Exchange Rate Changes	(1,608		)	4,956
Increase in Cash and Cash Equivalents	27,465			21,797
Cash and Cash Equivalents, Beginning of Period	344,432			264,732
Cash and Cash Equivalents, End of Period	$	371,897		$	286,529

See accompanying Notes to the Condensed Consolidated Financial Statements (unaudited).

6

IMS HEALTH INCORPORATED

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

(Dollars and shares in thousands, except per share data)

Note 1.Interim Condensed Consolidated Financial Statements (unaudited)

The accompanying Condensed Consolidated Financial Statements (unaudited) have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and Article 10 of Regulation S-X under the Securities and Exchange Act of 1934, as amended.  The Condensed Consolidated Financial Statements (unaudited) do not include all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements.  In the opinion of management, all adjustments, all of which are of a normal recurring nature, considered necessary for a fair presentation of financial position, results of operations and cash flows for the periods presented have been included.  The results of operations for interim periods are not necessarily indicative of the results expected for the full year.  The Condensed Consolidated Financial Statements (unaudited) and related notes should be read in conjunction with the Consolidated Financial Statements and related notes of IMS Health Incorporated (the “Company” or “IMS”) included in its 2003 Annual Report on Form 10-K and in its previous filings on Form 10-Q.  Certain prior year amounts have been reclassified to conform to the 2004 presentation.  Amounts presented in the Condensed Consolidated Financial Statements (unaudited) may not add due to rounding.

Note 2.Basis of Presentation

The Company is a leading global provider of information solutions to the pharmaceutical and healthcare industries.  The Company’s revenues are derived primarily from the sale of a broad line of market information, sales management and consulting services to the pharmaceutical and healthcare industries.  The Company’s information products are developed to meet client needs by using data secured from a worldwide network of suppliers in the markets where operations exist.  Key information products include:

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

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

•Brand and Launch Management and Other to support client needs relative to market segmentation and positioning and life cycle management for prescription and over-the-counter pharmaceutical products; and

•Consulting and Services that use in-house capabilities and methodologies to assist pharmaceutical clients in analyzing and evaluating market trends, strategies and tactics, and to help in the development and implementation of customized software applications and data warehouse tools.

The Company operates in more than 100 countries.  The Company also owns a venture capital unit, Enterprise Associates, LLC (“Enterprises”), which is focused on investments in emerging businesses, and a 25.8% equity interest in The TriZetto Group, Inc. (“TriZetto”), at June 30, 2004.

7

The Company is managed on a global business model with global leaders for the majority of its critical business processes and accordingly has one reportable segment.

Management believes that important measures of the Company’s financial condition and results of operations include operating revenue, constant dollar revenue growth, operating income, operating margin and cash flows.

Until February 6, 2003, the Company also included the Cognizant Technology Solutions Corporation Segment (“CTS”), which provides custom Information Technology (“IT”) design, development, integration and maintenance services.  CTS is a publicly traded corporation on the Nasdaq national market system.  The Company owned 55.3% of the common shares outstanding of CTS (92.5% of the outstanding voting power) as of December 31, 2002, and accounted for CTS as a consolidated subsidiary.  On February 6, 2003, the Company divested CTS through a split-off transaction, and as a result, the Company’s share of CTS results are presented as discontinued operations for 2003 through the date of divestiture (see Note 6).

Note 3.Summary of Recent Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” (“FIN 46”).  FIN 46 requires all Variable Interest Entities (“VIEs”) to be consolidated by the primary beneficiary.  The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE.  In addition, FIN 46 expands disclosure requirements for both VIEs that are consolidated as well as VIEs from which the entity is the holder of a significant amount of the beneficial interest, but not the majority.  In December 2003, the FASB issued Interpretation 46R, “Consolidation of Variable Interest Entities” (revised December 2003), (“FIN 46R”) which further clarified the provisions of FIN 46 and delayed the effective date for applying the provisions of FIN 46 until the end of the first quarter of 2004 for interests held by public entities in VIEs or potential VIEs created before February 1, 2003.  The adoption of FIN 46R did not have a material impact on the Company’s financial position, results of operations or cash flows for the three and six months ended June 30, 2004.

In December 2003, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 132 (revised 2003), “Employer’s Disclosures about Pensions and Other Postretirement Benefits,” an amendment of SFAS Nos. 87, “Employers’ Accounting for Pensions”, 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination of Benefits,” and 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” and a revision of SFAS No. 132.  SFAS No. 132 (revised 2003) requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans, but does not change the measurement or recognition of such plans.  The new disclosure requirements contained in SFAS No. 132 (revised 2003) are effective for fiscal years ending after December 15, 2003, with a delayed effective date for certain disclosures, for foreign plans, and for non-public entities.  The Company has adopted all aspects of SFAS No. 132 (revised 2003) for all foreign and non-foreign plans, with the exception of the estimated future benefit payment disclosure.  This requirement is first effective for fiscal years ending after June 15, 2004.  Additionally the Company is required to disclose components of the net benefit cost in the quarterly financial statements beginning with the first quarter of 2004.  This interim disclosure information is included in

8

Note 11.  The adoption of SFAS No. 132 (revised 2003) did not have a material impact on the Company’s financial position, results of operations or cash flows for the three and six months ended June 30, 2004.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law in the U.S.  The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.  In May 2004, the FASB issued Staff Position No. (“FSP”) FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.”  This statement requires entities to disclose the effects of the Act and to assess the impact of the subsidy on the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost in the first interim period beginning after June 15, 2004.  The effective date for the Company is the quarter ending September 30, 2004.  The Company is currently evaluating the impact of the Act on its postretirement benefit plan.

Note 4.Summary of Significant Accounting Policies

Stock-based compensation.  SFAS No. 123, “Accounting for Stock-Based Compensation”, as amended by SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure – an amendment of FASB Statement No. 123” 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 Accounting Principles Board (“APB”) Opinion No. 25, and related interpretations in accounting for its plans.  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 three and six months ended June 30:

		Three months ended June 30,						Six months ended June 30,
		2004			2003			2004			2003
Net Income:	As reported	$	65,121		$	55,356		$	146,199		$	500,029
	Add:  Stock-based employee compensation expense included in reported net income, net of tax	913			552			1,657			1,175
	Deduct:  Total stock-based employee compensation expense under fair value method for all awards, net of tax	(7,708		)	(4,769		)	(13,070		)	(10,875		)
	Pro forma	$	58,326		$	51,139		$	134,786		$	490,329
Earnings Per Share:
Basic	As reported	$	0.28		$	0.23		$	0.62		$	1.99
	Pro forma	$	0.25		$	0.21		$	0.57		$	1.96
Diluted
	As reported	$	0.27		$	0.23		$	0.61		$	1.99
	Pro forma	$	0.24		$	0.21		$	0.56		$	1.95

9

For a description of the Company’s other critical accounting policies, please refer to the Company’s 2003 Annual Report on Form 10-K as filed with the Securities and Exchange Commission.

Note 5.Acquisitions

The Company makes acquisitions in order to expand its products, services and geographic reach.  During the six months ended June 30, 2004, the Company completed four acquisitions for an aggregate cost of $19,497.  The acquisitions were Source Belgium S.A. (Belgium), H.E.D.M. Bvba (Belgium), SciCon Wissenschaftliche Unternehmensberatung GmbH (Germany) and Groupe PR (France) and were accounted for under the purchase method of accounting.  As such, the aggregate purchase price has been allocated on a preliminary basis to the assets and liabilities acquired based on estimated fair values as of the closing date.  The purchase price allocations will be finalized after completion of the valuation of certain assets and liabilities.  Any adjustments resulting from the finalization of the purchase price allocations are not expected to have a material impact on the Company’s results of operations.  The Condensed Consolidated Financial Statements (unaudited) include the results of these acquired companies subsequent to the closing of the acquisitions.  Had these acquisitions occurred as of January 1, 2004 or 2003, the impact on the Company’s results of operations would not have been significant.  Goodwill of approximately $7,693 was recorded in connection with these acquisitions, of which none is deductible for tax purposes.

During the three months ended March 31, 2003, the Company completed two acquisitions for an aggregate cost of $52,938.  These acquisitions were Data Niche Associates, Inc. (U.S.) and Azyx Polska Geopharma Information Services, Sp.z.o.o. (Poland).  These acquisitions were accounted for under the purchase method of accounting.  The aggregate purchase price for each acquisition has been allocated to the assets and liabilities acquired based on their respective fair values.  The Condensed Consolidated Financial Statements (unaudited) include the results of these acquired companies subsequent to the closing of the acquisitions.  Had these acquisitions occurred as of January 1, 2003, the impact on the Company’s results of operations would not have been significant.  Goodwill of approximately $31,973 was recorded in connection with these acquisitions, of which $26,990 is deductible for tax purposes.

During the three months ended March 31, 2003, the Company also entered into an agreement to purchase the Azyx business in Portugal.  However, at the time, the completion of this acquisition was contingent upon the Company getting regulatory approval from Portugal.  The Company received regulatory approval for the Azyx business in Portugal during July 2003, and the acquisition was completed during the third quarter of 2003.

Note 6.CTS Split-Off

On February 6, 2003, the Company completed an exchange offer to distribute its majority interest in CTS.  The Company exchanged 0.309 shares of CTS class B common shares for each share of the Company that was tendered.  Under terms of the offer, the Company accepted 36,540 IMS common shares tendered in exchange for all 11,291 CTS common shares that the Company owned.  As the offer was oversubscribed, the Company accepted tendered IMS shares on a pro-rata basis in proportion to the number of shares tendered.  The proration factor was 21.115717%.

10

As a result of this exchange offer, during the three months ended March 31, 2003, the Company recorded a net gain from discontinued operations of $495,053.  This gain was based on the Company’s closing market price on February 6, 2003 multiplied by the 36,540 shares of IMS common shares accepted in the offer, net of the Company’s carrying value of CTS and after deducting direct and incremental expenses related to the exchange offer.

During the first quarter of 2003, the Company recorded direct and incremental costs related to the CTS Split-Off of approximately $17,300, consisting primarily of investment advisor, legal and accounting fees.  During the fourth quarter of 2003, the Company reversed $1,834 of expenses as a true up of actual costs incurred.  This reversal resulted in an increase to the gain from discontinued operations of $1,834.

In accordance with the provisions of SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” for the period from January 1, 2003 through the disposition date the Company recorded the results of CTS and the gain on disposal as income from discontinued operations net of income taxes in the Condensed Consolidated Statements of Income (unaudited).

If, contrary to expectations, the CTS distribution were not to qualify as tax free under Section 355 of the Internal Revenue Code, then, in general, a corporate tax would be payable by the Company based on the difference between (x) the fair market value of the CTS class B common stock at the time of the exchange offer and (y) the Company’s adjusted tax basis in such class B common stock.  Pursuant to the distribution agreement entered into between the Company and CTS in connection with the distribution, CTS agreed to indemnify the Company in the event the transaction is taxable as a result of a breach of certain representations made by CTS, subject to certain exceptions.  In the opinion of management and based on the opinion of tax counsel, McDermott, Will & Emery, it is not probable, but may be reasonably possible, that the Company will incur liability for this matter and as such the Company has not accrued for this potential liability.  The Company estimates that the aggregate tax liability in this regard is not expected to exceed $215,725.

Note 7.Goodwill and Intangible Assets

During the first half of 2004, the Company recorded additional goodwill of $13,136 related primarily to the preliminary allocation of purchase price for the four acquisitions completed in 2004 (see Note 5) and payments on earn-out agreements on acquisitions completed prior to 2004.  As of June 30, 2004, goodwill amounted to $259,677.

All of the Company’s acquired intangibles are subject to amortization.  Intangible asset amortization expense was $2,975 and $5,738, during the three and six months ended June 30, 2004, respectively.  At June 30, 2004, intangible assets were primarily composed of Customer Relationships, Databases and Trade Names (principally included in Other assets) and Computer software.  The gross carrying amounts and related accumulated amortization of these intangibles were $75,170 and $18,148, respectively, at June 30, 2004 and $58,612 and $7,597, respectively, at June 30, 2003.  These intangibles are amortized over periods ranging from two to fifteen years with a weighted average life of 7.7 years.  The weighted average amortization periods of the acquired intangibles by asset class are listed in the following table:

11

Intangible Asset Type	Weighted average amortization (years) period
Customer Relationships	8.4
Computer Software and Algorithms	9.8
Databases	4.9
Trade Names	3.7
Other	4.5
Weighted average	7.7

Customer relationships accounted for the largest portion of the Company’s acquired intangibles at June 30, 2004.  In accordance with the principles of SFAS No. 142, “Goodwill and Other Intangible Assets” and Statement of Financial Accounting Concepts No. 7, “Using Cash Flow Information and Present Value in Accounting Measurements,” when determining the value of customer relationships for purposes of allocating the purchase price of an acquisition, the Company looks at existing customer contracts of the acquired business to determine if they represent a reliable future source of income and hence, a valuable intangible asset for the Company.  The Company determines the fair value of the customer relationships based on the estimated future benefits the Company expects from the acquired customer contracts.  In performing its evaluation and estimation of the useful life of customer relationships, the Company looks to the historical growth rate of operating revenue of the acquired company’s existing customers as well as the historical attrition rates.

Based on current estimated useful lives, amortization expense associated with intangible assets at June 30, 2004 is estimated to be approximately $3,000 for each of the last two quarters of 2004.  Annual amortization expense associated with intangible assets is estimated to be as follows:

Year Ended December 31,	Amortization expense
2005	$	11,622
2006	10,280
2007	8,005
2008	5,633
2009	4,618
Thereafter	$	13,196

Note 8.Investments in Equity Investees

The Company’s investment in TriZetto is accounted for under the equity method of accounting.  The Company’s share of the adjusted operating results of TriZetto amounted to losses of $303 and $1,269 for the three and six months ended June 30, 2004, respectively (net of deferred tax benefits of $196 and $820, respectively).  For the three and six months ended June 30, 2003, the Company’s share of the adjusted operating results of TriZetto amounted to losses of $66 and $399 (net of deferred tax benefits of $43 and $258, respectively).

12

The Company performs a periodic assessment in accordance with its policy to determine whether an other-than-temporary decline in fair value has occurred.  Based on this assessment, an impairment charge of $14,842, net of taxes of $9,565, was recorded in the first quarter of 2003, to write down the Company’s investment in TriZetto following the continued significant decline in the market value of TriZetto shares below the Company’s carrying value.  The Company concluded that these declines were other-than-temporary in accordance with Staff Accounting Bulletin (“SAB”) No. 59, “Views on Accounting for Noncurrent Marketable Equity Securities,” and the impairment charge recorded brought the Company’s book value in TriZetto down to TriZetto’s March 31, 2003 market value.  As of June 30, 2004, the market value of TriZetto exceeded the carrying value by approximately $40,310.

Note 9.Contingencies

The Company and its subsidiaries are involved in legal and tax proceedings, claims and litigation arising in the ordinary course of business.  Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available.  For those matters where management currently believes it is probable that the Company will incur a loss and that the probable loss or range of loss can be reasonably estimated, the Company has recorded reserves in the consolidated financial statements based on its best estimates of such loss.  In other instances, because of the uncertainties related to either the probable outcome or the amount or range of loss, management is unable to make a reasonable estimate of a liability, if any.  However, even in many instances where the Company has recorded a reserve, the Company is unable to predict with certainty the final outcome of the matter or whether resolution of the matter will materially affect the Company’s results of operations, financial position or cash flows.  As additional information becomes available, the Company adjusts its assessment and estimates of such liabilities accordingly.

The Company routinely enters into agreements with its customers to sell data that the Company acquires in the normal course of business.  In these customer agreements the Company agrees to indemnify and hold harmless the customers for any damages they may suffer as a result of potential intellectual property infringement claims.  These indemnities typically have terms of approximately two years.  The Company has not accrued a liability with respect to these matters, as the exposure is considered remote.

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

Legacy and Related Matters

In order to understand the Company’s exposure to the potential liabilities described below, it is important to understand the relationship between the Company and its predecessors and other parties that, through various corporate reorganizations and contractual commitments, have assumed varying degrees of responsibility with respect to such matters.

In November 1996, the company then known as The Dun & Bradstreet Corporation (“D&B”) separated into three public companies by spinning-off ACNielsen Corporation (“ACNielsen”) and

13

Cognizant Corporation (“Cognizant”) (the “1996 Spin-Off”).  Pursuant to the agreements effecting the 1996 Spin-Off, among other things, certain liabilities, including contingent liabilities relating to the IRI Action (defined below) and tax liabilities arising out of certain prior business transactions (the “D&B Legacy Tax Matters”), described more fully below, were allocated among D&B, ACNielsen and Cognizant.

In June 1998, Cognizant separated into two public companies by spinning off IMS (the “1998 Spin-Off”) and then changed its name to Nielsen Media Research, Inc. (“NMR”).  As a result of the 1998 Spin-Off, the Company and NMR are jointly and severally liable for all liabilities of Cognizant under the agreements effecting the 1996 Spin-Off.  As between themselves, however, the Company and NMR agreed that IMS will assume 75%, and NMR will assume 25%, of any payments to be made in respect of the IRI Action, including any legal fees and expenses related thereto incurred in 1999 or thereafter (IMS agreed to be responsible for legal fees and expenses incurred during 1998).  In addition, the Company and NMR agreed they would share equally Cognizant’s share of liability arising out of the D&B Legacy Tax Matters after the Company paid the first $130,000 of such liability.  NMR’s aggregate liability for payments in respect of the IRI Action and the D&B Legacy Tax Matters shall not exceed $125,000.

Also during 1998, D&B separated into two public companies by spinning-off The Dun & Bradstreet Corporation (“D&B I”) and then changed its name to R.H. Donnelley (“Donnelley”).  As a result of their separation in 1998, Donnelley and D&B I are each jointly and severally liable for all liabilities of D&B under the agreements effecting the 1996 Spin-Off.

During 2000, D&B I separated into two public companies by spinning off The Dun & Bradstreet Corporation (“D&B II”) and then changed its name to Moody’s Corporation (“Moody’s).  Pursuant to their separation in 2000, Moody’s and D&B II are each jointly and severally liable for all of D&B’s liabilities under the agreements effecting the 1996 Spin-Off.

IRI Litigation.  The following is a description of an antitrust lawsuit filed in 1996 by Information Resources, Inc. (“IRI”).  As more fully described below, VNU N.V., a publicly traded Dutch company (“VNU”), and its U.S. subsidiaries VNU, Inc., ACNielsen, AC Nielsen (US), Inc. (“ACN (US)”), and NMR (collectively, the “VNU Parties”), have assumed exclusive joint and several liability for any judgment or settlement of this antitrust lawsuit.  As a result of the indemnity obligation, the Company does not have any exposure to a judgment or settlement of this lawsuit unless the VNU Parties default on their obligations.  In the event of such default, the Company could be liable as a successor to one of the named parties in the IRI Action (as defined below).

In July 1996, IRI filed a complaint, subsequently amended in 1997, in the U.S. District Court for the Southern District of New York, naming as defendants a company then known as The Dun & Bradstreet Corporation and now known as Donnelley, A.C. Nielsen Company (a subsidiary of ACNielsen) and I.M.S. International, Inc. (a predecessor of the Company) (the “IRI Action”).  At the time of the filing of the complaint, each of the other defendants was a wholly-owned subsidiary of Donnelley.  The amended complaint alleges various violations of U.S. antitrust laws under Sections 1 and 2 of the Sherman Antitrust Act.  The amended complaint also alleges a claim of tortious interference with a contract and a claim of tortious interference with a prospective business relationship.  These claims relate to the acquisition by defendants of Survey Research Group Limited

14

(“SRG”).  IRI alleged SRG violated an alleged agreement with IRI when it agreed to be acquired by defendants and that defendants induced SRG to breach that agreement.

IRI’s antitrust claims allege that defendants developed and implemented a plan to undermine IRI’s ability to compete within the United States and foreign markets in North America, Latin America, Asia, Europe and Australia/New Zealand through a series of anti-competitive practices, including: unlawfully tying/bundling services in the markets in which defendants allegedly had monopoly power with services in markets in which ACNielsen competed with IRI; entering into exclusionary contracts with retailers in certain countries to deny IRI’s access to sales data necessary to provide retail tracking services or to artificially raise the cost of that data; predatory pricing; acquiring foreign market competitors with the intent of impeding IRI’s efforts to expand; disparaging IRI to financial analysts and clients; and denying IRI access to capital necessary for it to compete.

IRI’s amended complaint originally alleged damages in excess of $350,000, which IRI asked to be trebled under antitrust laws.  IRI has since revised its allegation of damages to exceed $650,000, which IRI also asked to be trebled.  IRI has filed with the court the report of its expert who has opined that IRI suffered damages of between $581,600 and $651,700 from the defendants’ alleged practices.  IRI also sought punitive damages in an unspecified amount.

In April 2003, the Court denied a motion for partial summary judgment by defendants that sought to dismiss certain of IRI’s claims and granted in part a motion by IRI seeking reconsideration of certain summary judgment rulings the Court had previously made in favor of defendants.  The motion granted by the Court concerns IRI’s claims of injuries from defendants’ alleged conduct in certain foreign markets.

Pursuant to a scheduling order entered by the Court on April 8, 2004, discovery is scheduled to end on November 1, 2004, and trial is scheduled to begin April 18, 2005.

On June 21, 2004, pursuant to a stipulation between IRI and defendants, the Court ordered that certain of IRI’s claims be dismissed with prejudice from the lawsuit, including the claim for tortious interference with the SRG acquisition.  ACNielsen has advised the Company that based on discussions with its counsel ACNielsen believes that the dismissal of the tortious interference claims also precludes any claim for punitive damages.

In connection with the 1996 Spin-Off, D&B (now Donnelley), Cognizant (now NMR) and ACNielsen entered into an Indemnity and Joint Defense Agreement (the “Original JDA”), pursuant to which they agreed to:

•allocate potential liabilities that may relate to, arise out of or result from the IRI Action (“IRI Liabilities”); and

•conduct a joint defense of such action.

In particular, the Original JDA provided that:

15

•ACNielsen would assume exclusive liability for IRI Liabilities up to a maximum amount to be calculated at such time as such liabilities became payable as a result of a final non-appealable judgment or any settlement permitted under the Original JDA (the “ACN Maximum Amount”); and

•D&B and Cognizant would share liability equally for any amounts in excess of the ACN Maximum Amount.

The Original JDA also provided that if it became necessary to post any bond pending an appeal of an adverse judgment, then Cognizant and D&B would be required to obtain the bond required for the appeal, and each shall pay 50% of the costs of such bond, if any, which cost will be added to IRI Liabilities.

In 2001, ACNielsen was acquired by VNU N.V., a publicly traded Dutch company (“VNU”).  VNU assumed ACNielsen’s obligations under the Original JDA, and pursuant to the Original JDA VNU was to be included with ACNielsen for purposes of determining the ACN Maximum Amount.

On July 30, 2004, the VNU Parties, Donnelley, D&B II, Moody’s and the Company entered into an Amended and Restated Indemnity and Joint Defense Agreement (the “Amended JDA”).  Pursuant to the Amended JDA, any and all IRI Liabilities incurred by Donnelley, D&B II, Moody’s or IMS relating to a judgment (even if not final) or any settlement being entered into in the IRI Action will be jointly and severally assumed and fully discharged exclusively by the VNU Parties.  Under the Amended JDA, the VNU Parties have agreed to, jointly and severally, indemnify Donnelley, D&B II, Moody’s and IMS from and against all IRI Liabilities to which they become subject.  As a result, the concept of the “ACN Maximum Amount,” which previously represented a cap on VNU’s liability for the IRI Liabilities, no longer exists and all such liabilities are the responsibility of the VNU Parties pursuant to the Amended JDA.

In addition, the Amended JDA provides that if it becomes necessary to post any bond pending an appeal of an adverse judgment, then the VNU Parties shall obtain the bond required for the appeal and shall pay the full cost of such bond.

16

In connection with entering into the Amended JDA, Donnelley, D&B II, Moody’s and IMS agreed to amend certain covenants of the Original JDA to provide operational flexibility for ACNielsen going forward.  In addition, the Amended JDA includes certain amendments to the covenants of ACNielsen (which, under the Amended JDA, are now also applicable to ACN (US), which we understand holds ACNielsen’s operating assets) that are designed to preserve such parties’ claim-paying ability and protect Donnelley, D&B II, Moody’s and IMS.  Among other covenants, ACNielsen and ACN (US) agreed that neither they nor any of their respective subsidiaries will incur any indebtedness to any affiliated person, except indebtedness the payment of which will, after a payment obligation under the Amended JDA comes due, be conditioned on, and subordinated to, the payment and performance of the obligations of such parties under the Amended JDA.  VNU has agreed to having a process agent in New York to receive on its behalf service of any process concerning the Amended JDA.

As described above, the VNU Parties have assumed exclusive responsibility for the payment of all IRI Liabilities.  Provided that the VNU Parties are able to fulfill their obligations under the Amended JDA, and that they ultimately do fulfill such obligations, the Company believes that the resolution of the IRI Action should not have a material adverse effect on the Company’s financial position, results of operations or cash flows.  However, because liability for violations of the antitrust laws is joint and several and because the rights and obligations relating to the Amended JDA are based on contractual relationships, the failure of the VNU Parties to fulfill their obligations under the Amended JDA could result in the other parties bearing all or a share of the IRI Liabilities.  Joint and several liability for the IRI Action means that even where more than one defendant is determined to have been responsible for an alleged wrongdoing, the plaintiff can collect all or part of the judgment from just one of the defendants.  This is true regardless of whatever contractual allocation of responsibility the defendants and any other indemnifying parties may have made, including the allocations described above between the VNU Parties, Donnelly, D&B II, Moody’s and IMS.

Accordingly, and as a result of the allocations of liability described above, in the event the VNU Parties default on their obligations under the Amended JDA, the Company will be responsible for 75% of Cognizant’s share of any liabilities arising out of the IRI Action (which, under the application of joint and several liability described above, could be all the IRI Liabilities since the Company is a successor to a named defendant) and NMR will be responsible for 25% of any such liabilities; provided that NMR’s aggregate liability for payments in respect of the IRI Action and the D&B Legacy Tax Matters shall not exceed $125,000.  To date, NMR has made payments of approximately $41,000 relating to the D&B Legacy Tax Matters.  Further, if the VNU Parties default on their obligations, NMR, one of the VNU Parties, may default on its obligation to share any IRI Liabilities with the Company, or at the time the IRI Liabilities arise may have previously made sharing payments up to its $125,000 cap.  In either such event, the Company could be liable for an amount up to all the IRI Liabilities.

The Company is unable to predict the outcome of the IRI Action, the financial condition of any of the VNU Parties or the other defendants at the time of any such outcome or whether the VNU Parties or the other defendants will fulfill their obligations under the Amended JDA or other related contractual agreements.  Hence, the Company cannot estimate such parties’ ability to pay the IRI Liabilities pursuant to the Amended JDA or the amount of the judgment or settlement in the IRI Action.  Nonetheless, management presently believes that the risk that the Company will incur any material liabilities with respect to the IRI Action is remote and, therefore no liability in respect of this matter has been accrued in the Company’s financial statements.  As discussed above, provided that the VNU Parties ultimately fulfill their obligations under the Amended JDA, the Company believes that the resolution of the IRI Action should not have a material adverse effect on the Company’s financial position, results of operations or cash flows.  If, however, IRI were to prevail in whole or in part in this action and if the Company is required to pay a substantial portion of any significant settlement or judgment, the outcome of this matter could have a material adverse effect on the Company’s financial position, results of operations and cash flows.

D&B Legacy and Related Tax Matters.  During the second quarter of 2003, the IRS issued an agent’s final examination report seeking to disallow certain royalty expense deductions claimed by D&B on its 1995 and 1996 tax returns in connection with a partnership established in 1993.  In January of 2004, the IRS issued an agent’s final examination report to the partnership seeking to reallocate certain items of partnership income and expense as well as disallow certain items of partnership expense on the partnership’s 1997 tax return during which year Cognizant was a partner in the partnership.  In January 2004, the IRS issued agent’s final examination reports to the partnership and

17

the Company seeking to reverse items of partnership income and loss and disallow certain royalty expense deductions claimed by the Company on its 1998 and 1999 tax returns arising from the Company’s participation in the partnership.  If the IRS were to ultimately prevail in the foregoing positions, the Company’s share of the total liability for 1995 and 1996 would be approximately $41,800, its liability for 1997 would be approximately $18,000, and its aggregate liability for 1998 and 1999 would be approximately $27,200 (all net of income tax benefit).  If the IRS were to take a comparable position with respect to all of the Company’s tax years subsequent to 1999 and ultimately prevail, the Company’s additional liability would be approximately $43,700 (net of income tax benefit).

In addition, in the second quarter of 2003, the IRS issued an additional agent’s final examination report to the partnership described above seeking to reallocate certain partnership income to D&B for 1996.  D&B II and the Company believe that the positions taken by the IRS in this report are inconsistent with the IRS’s denial of the royalty expense deductions described above.  If the IRS were to ultimately prevail in this matter, the Company’s share of the liability for 1996 would be approximately $21,000 (net of income tax benefit).

In addition, the IRS has asserted penalties for the years described above based on its interpretation of applicable law.  If the IRS were to prevail in its assertion of penalties and interest thereon, the Company’s share of such penalties and interest would be approximately $8,300 for 1995 and 1996 and its aggregate liability for 1998 and 1999 would be approximately $9,900 (all net of income tax benefit).  D&B II and the Company dispute this interpretation.

D&B II, as agent for Donnelley in the D&B Legacy Tax Matters, has filed protests relating to the proposed assessments for 1995 and 1996 with the IRS Office of Appeals.  D&B II advised that it will attempt to resolve these matters in the administrative appeals process before proceeding to litigation if necessary.  During the first quarter of 2004, as a result of information from D&B II regarding a proposed mediation with the IRS to settle partnership items related to 1995 and 1996, the Company reclassified its tax reserves related to 1995 and 1996 from long-term (Other liabilities) to short-term (Accrued income taxes).  In addition, the Company has filed protests relating to the proposed assessments for 1997, 1998 and 1999 with the IRS Office of Appeals and will attempt to resolve these matters in the administrative appeals process before proceeding to litigation if necessary.

In June 2004, the Company was advised that D&B II believes that it has reached a basis for settlement with the IRS regarding the 1995 and 1996 corporate and partnership proposed assessments.  The agreement is tentative and non-binding until a definitive settlement agreement is executed.  The agreement eliminates the “inconsistent positions” described above.  The Company expects that its share of the liability could range from approximately $28,300 to $35,700 (tax, penalty and interest, net of associated tax benefits), and that such payment is expected to be made in 2004.

In another D&B Legacy Tax Matter, in June 2000, the IRS completed its review of Donnelley’s utilization of certain capital losses generated during 1989 and 1990 and issued a formal notice of adjustment. D&B I, as agent for Donnelley, advised the Company that on May 12, 2000, it filed an amended tax return for the 1989 and 1990 tax periods, which reflected $561,582 of additional tax and interest due.  D&B I paid the IRS $349,291 of this amount on May 12, 2000, and the Company paid the IRS $212,291 on May 17, 2000.  D&B I advised the Company that, notwithstanding the filing and

18

payment, it intended to contest the assessment and would also contest the assessment of amounts, if any, in excess of the amounts paid.  D&B I filed the complaint for a refund in the U.S. District Court on September 21, 2000.  In June 2004, D&B II advised the Company that it has decided not to pursue the refund claim and believes it has reached a basis for settlement with the IRS.  The agreement is tentative and non-binding until a definitive settlement agreement is executed.  The pending settlement requires Donnelley to withdraw its complaint for a refund.  The Company expects that its share of the liability could range from approximately $7,100 to $11,000 (penalty and interest, net of associated tax benefits), and that such payment is expected to be made in 2004.

The Company has reserves of approximately $42,000 with respect to the two foregoing matters which management believes are appropriate based on current expectations.  The Company’s share of the actual liabilities with respect to these matters is dependent on the terms of any settlement agreements, the computation of interest payable with respect to the settlements and the terms of the 1996 and 1998 Spin-Off agreements referred to above.

During the first quarter of 2003, the Company increased its reserve to its anticipated share of the probable liability in connection with all of the foregoing tax matters (to approximately $133,145).  In the opinion of management, it is not probable, but may be reasonably possible that the Company will have additional liability of $18,200 in excess of the amount reserved for these matters.  Accordingly, based on information currently available, management does not believe that these matters will have a material adverse effect on the Company’s consolidated financial position or results of operations but may have a material adverse effect on cash flows in the period in which any such amounts are paid.

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

Sharing Dispute.  In May 2000, the Company paid $212,291 to the IRS in connection with a D&B Legacy Tax Matter.  Pursuant to the terms of the 1998 Spin-Off, NMR was liable for a portion of this amount but was not obligated to pay the Company for its share until January 2, 2001.  In December 2000, the Company requested reimbursement from NMR in the amount of $41,136, which represented NMR’s share of the liability according to the Company’s calculations.  On January 2, 2001, NMR made a payment of $10,530 but refused to pay the remaining $30,606 based on its interpretation of the applicable agreements.  At March 31, 2003, the Company had a receivable of $36,805, which included the outstanding principal and accumulated accrued interest of $6,199.  During the three and six months ended June 30, 2003, $220 and $909, respectively, of interest income was accrued in accordance with the terms of the applicable agreements.  These amounts were reflected in Other receivable in the Condensed Consolidated Statements of Financial Position (unaudited).  On April 29, 2003, a panel from the American Arbitration Association International Center for Dispute Resolution issued an award in favor of the Company and ordered that NMR pay the Company the entire principal balance plus simple 9% interest from January 2, 2001, together with all legal fees and costs incurred by the Company in connection with the arbitration.  On April 30, 2003, the Company received $37,025 from NMR in satisfaction of the principal amount plus interest from January 2, 2001 through April 30, 2003.  On May 16, 2003, the Company received an additional $1,332 from NMR as reimbursement of the Company’s legal fees and costs in connection with the arbitration.

19

Matters Before the European Commission and Belgian Competition Service

In December 2000, National Data Corporation (now NDCHealth Corporation, “NDC”) filed a complaint against the Company with the European Commission (the “Commission”), requesting that the Commission initiate a proceeding against the Company for an alleged infringement of Article 82 of the EC Treaty.  Article 82 of the EC Treaty relates to abuses of a dominant position that adversely affect competition.  The complaint concerned an IMS geographic mapping structure used for the reporting of regional sales data in Germany, which the German courts have ruled is copyright protected.  In addition to seeking a formal Commission proceeding against the Company, the complaint requested 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.

In March 2001, the Commission initiated formal proceedings against the Company in this matter and in July 2001, the Commission ordered interim measures against the Company pending a final decision (the “Interim Decision”).  Under the Interim Decision, the Company was ordered to grant a license of the geographic mapping structure on commercially reasonable terms without delay to NDC and to any other competitor then present in the German regional sales data market that requested a license.

In August 2001, the Company filed an appeal with the Court of First Instance (“CFI”) seeking the suspension and annulment of the Interim Decision in its entirety (the “Annulment Appeal”).  In October 2001, the President of the CFI suspended the Interim Decision pending a judgment on the Annulment Appeal.  In April 2002, the European Court of Justice (“ECJ”) denied an appeal by NDC attempting to overturn the CFI’s October 2001 suspension.

In October 2002, the CFI postponed further consideration of the Annulment Appeal until after the ECJ decided certain questions separately referred to it by a German court that is presiding over certain litigation that the Company is maintaining against NDC in Germany.  In the German litigation, the Company is seeking an injunction and damages against NDC for misappropriation of the Company’s intellectual property rights (the “Infringement Claim”).

In August 2003, the Commission withdrew its Interim Decision and then subsequently (in October 2003), the Commission applied to the CFI to have the Annulment Appeal declared moot in its entirety.  Most recently, in April 2004, the ECJ rendered its decision in the case referred to it by the German court.  This will permit the CFI to move forward with its consideration of the Annulment Appeal and the German court to move forward with its consideration of the Infringement Claim against NDC.

The Company intends to continue to vigorously assert that its refusal to grant licenses for the use of its copyright protected geographic mapping structure to its direct competitors in Germany, which compete 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 this matter or whether the resolution of this matter could materially affect the Company’s future results of operations, cash flows or financial position.

Complaints were filed in 1998 and 1999 against the Company with the Belgian Competition Service (“BCS”) by SmithKline Beecham Pharma S.A. (“SKB”) and Source Informatics Belgium S.A.

20

(“Source”) alleging abuse of a dominant position on the Belgian market and requests were made for the adoption of interim measures pending consideration of the complaints.  In October 1999 and 2000, the Chairman of the BCS adopted interim measures against the Company, with which the Company has complied.  In April 2004, the Company acquired Source and in June 2004 the BCS sent information requests to the Company, Source and the successor to SKB.  The Company and Source have responded to the requests and will vigorously contest any adverse determination (including the assertion of penalties) by the BCS.  Management of the Company is unable to predict at this time the final outcome of this matter or whether an adverse resolution thereof could materially affect the Company’s results of operations, cash flows or financial position in the period in which such adverse resolution occurs.

Other Contingencies

Contingent Consideration.  Under the terms of the purchase agreements related to acquisitions made from 2001 to 2004, the Company may be required to pay additional amounts as contingent consideration based on the achievement of certain targets during 2003 to 2007.  Substantially all of any additional payments will be recorded as goodwill in accordance with EITF No. 95-8, “Accounting for Contingent Consideration Paid to the Shareholders of an Acquired Enterprise in a Purchase Business Combination.”  As of June 30, 2004, approximately $3,000 was earned and paid under these contingencies.  Based on current estimates, management expects the remaining additional contingent payments under these agreements to total approximately $23,000.  It is expected that these contingent payments will be resolved within a specified time period after the end of each respective calendar year from 2004 through 2007.

Gartner Spin-Off.  In July 1999, the Company spun off Gartner, Inc.  Pursuant to the terms of that spin-off, Gartner agreed to indemnify the Company and its stockholders for additional taxes that may become payable as a result of certain actions that may be taken by Gartner that adversely affect the tax free treatment of the spin-off.  However, the Company may become obligated for certain tax liabilities in the event the spin-off is deemed to be a taxable transaction as a result of certain Gartner share transactions that may be undertaken following the spin-off.  In the opinion of management, it is remote that the Company will incur any material liabilities with respect to this matter.

Synavant Spin-Off.  In August 2000, the Company spun off Synavant, Inc.  Pursuant to the terms of that spin-off, Synavant undertook to be jointly and severally liable to the other parties to the 1996 Spin-Off for any future liabilities of Cognizant under the terms of that spin-off and to NMR for any future liabilities of the Company under the 1998 Spin-Off.  However, as between the Company and Synavant, each agreed to bear 50% of the Company’s share of any future liability arising out of the IRI Action or the D&B Legacy Tax Matters (net of the liability borne by NMR), up to a maximum liability of $9,000 for Synavant.  In connection with the acquisition of Synavant by Dendrite International, Inc., on June 16, 2003, Synavant satisfied its current and future liabilities to the Company in respect of the IRI Action and the D&B Legacy Tax Matters by paying $8,345 to the Company of which approximately $4,900 represented an adjustment to the Synavant Spin dividend, approximately $2,200 represented the reimbursement of previously expensed legal fees and approximately $1,100 was a prepayment of Synavant’s future 50% share of legal fees associated with the IRI litigation.

If, contrary to expectations, the spin-off of Synavant 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

21

consolidated group, of which the Company 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 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.  Pursuant to the terms of the spin-off, the Company would be liable for the resulting corporate tax, except in certain circumstances.  In the opinion of management and based on the opinion of tax counsel, McDermott, Will & Emery, it is not probable, but may be reasonably possible, that the Company will incur liability for this matter, therefore, the Company has not recorded reserves for this matter.  The Company estimates that the aggregate tax liability in this regard would not exceed $100,000.

CTS Split-Off.  The Company completed the CTS Split-Off exchange offer on February 6, 2003 (see Note 6).  If, contrary to expectations, the CTS distribution were not to qualify as tax free under Section 355 of the Internal Revenue Code, then, in general, a corporate tax would be payable by the Company based on the difference between (x) the fair market value of the CTS class B common stock at the time of the exchange offer and (y) the Company’s adjusted tax basis in such class B common stock.  Pursuant to the distribution agreement entered into between the Company and CTS in connection with the distribution, CTS agreed to indemnify the Company in the event the transaction is taxable as a result of a breach of certain representations made by CTS, subject to certain exceptions.  In the opinion of management and based on the opinion of tax counsel, McDermott, Will & Emery, it is not probable, but may be reasonably possible, that the Company will incur liability for this matter, therefore, the Company has not recorded reserves for this matter.  The Company estimates that the aggregate tax liability in this regard would not exceed $215,725.

Other Tax Contingencies. The Company has reserved approximately $22,000 of income tax benefits related to a 1998 non-U.S. tax reorganization that gave rise to tax deductible amortization of non-U.S. intangible assets.  This represents the Company’s best estimate of the probable liability in the event the relevant tax authorities challenge such tax benefits.  Accordingly, based on information currently available, management does not believe that this matter will have a material adverse effect on the Company’s consolidated financial position or results of operations but may have a material adverse effect on cash flows in the period in which any such amounts are paid.

In addition to the tax items discussed above, the Company has tax reserves of approximately $27,500 that relate to various positions it has taken on tax returns filed in numerous countries over the last several years.  These reserves represent the Company’s best estimate of the probable liability should the tax return positions be challenged by the relevant tax authorities.  While the amount is material in the aggregate, no individual item is material and no single event will have a material impact related to these reserves.

Other Litigation.  On January 17, 2003, the Company was served with a summons in a new litigation matter (the “Douglas Litigation”).  Also named as defendants in this litigation are approximately 60 software vendors from which the Company purchased prescription data in the 1990’s (and, for many of these vendors, from which the Company continues to purchase data).  In this action, it was alleged the Company misappropriated the trade secrets (i.e., prescription data) of thousands of pharmacies in the United States and used this information either without authorization or outside the

22

scope of any authorization.  This same conduct was alleged to breach contracts between the Company and the software vendors from which the Company had purchased this prescription data.

The action was brought in state court in southern Illinois (Circuit Court of the 20^th Judicial Circuit) by two pharmacies.  Plaintiffs sought class action status, representing all pharmacies whose data was sold to the Company by their pharmacy dispensary software vendors from 1990 to the present.  The pharmacies were seeking $100,000 in actual damages plus an unspecified amount of unjust enrichment damages (i.e., share of the Company profits) derived from use of the prescription data by the Company and the other defendants, or, in the alternative, a reasonable royalty paid for the use of the prescription data.  However, the Company believed and continues to believe that its practices with respect to the acquisition and use of this prescription data are consistent with applicable law and industry practices, and that the claims were without merit.

The Company was a defendant in another litigation brought in state court in southern Illinois (Circuit Court of the 20^th Judicial Circuit) (the “Mayberry Litigation”).  This lawsuit was originally brought in 1994 against Mayberry Systems, a small developer of pharmacy dispensary software in the Midwest.  Two pharmacy customers alleged Mayberry Systems was taking prescription data from their systems without authorization, and selling it to others (including the Company).  The Company was subsequently added to the lawsuit in 1996, alleging that the Company knew or should have known that Mayberry Systems was taking the data and selling it without authorization (i.e., misappropriation of trade secrets).  The lawsuit was later certified as a class action on behalf of all former and current customers of Mayberry Systems (approximately 350 pharmacies).  Plaintiffs were demanding damages in the amount of $20,000 plus punitive damages and attorney’s fees.

Although the Company believed that the two actions described above were without merit, the Company pursued a joint settlement of the cases.  During the third quarter of 2003, the Company proposed a preliminary settlement agreement with the plaintiffs’ counsel on both the actions which was subject to several significant contingencies.  On February 17, 2004, the Illinois state court approved the proposed settlement.  The period for the filing of appeals and motions for rehearing expired on March 18, 2004.  As a result of the resolution of the significant contingencies related to the settlement, in the fourth quarter of 2003, the Company recorded a pre-tax charge of $10,636, net of $5,500 to be reimbursed under the Company’s insurance coverage.  Under the settlement, the Company will make certain cash payments, provide certain product credits and enter into certain agreements for the purchase of data originating from the independent pharmacy plaintiffs.  This will provide the Company the opportunity to acquire new data for new offerings while eliminating the costs and risks of litigation.  During the first half of 2004, the Company paid approximately $7,400 related to this settlement and received $5,500 from insurance coverage.

During the second quarter of 2003 and up to the date of this filing, the Company has been served with 66 complaints filed with the Labor Court in Frankfurt, Germany.  The plaintiffs are mostly part of a group of approximately 110 employees of GIC Global Information Technology and Consulting GmbH (“GIC Global”) whose employment was terminated in the second quarter of 2003 in connection with GIC Global’s insolvency proceedings.  GIC Global is owned by former senior managers of what was once the Company’s data processing center in Frankfurt, Germany.  GIC Global purchased the assets and business of the Frankfurt data processing center from the Company in September 2000 as

23

part of a management buyout.  Thereafter, the Company moved its data processing to its data center in the United States.  The plaintiffs are seeking reemployment and/or severance from the Company.

As of the date of this filing, a total of 25 of the complaints described above were dismissed by the Labor Court and two complaints were voluntarily withdrawn.  Five of the dismissal actions have been appealed by the respective plaintiffs, one of which was voluntarily withdrawn, and proceedings with respect to the other four appeals remain pending.  On April 13, 2004 and May 11, 2004, judgments on two of the complaints were rendered against the Company in the aggregate amount of approximately $240, which judgments the Company intends to appeal.  Actions on four additional complaints remain pending.

Although the Company continues to believe that these claims are without merit and intends to vigorously defend the remaining actions, on April 13, 2004, the Company entered into settlements with 54 (which settlement superceded 18 of the 25 dismissals described above) of the GIC plaintiffs in the aggregate amount of approximately $200 in order to avoid the potential future costs of numerous appeals.  The Company has paid approximately $440 with respect to these settlements and the two judgments which the Company intends to appeal but has not accrued a liability with respect to the four remaining actions, because management currently believes that the Company’s exposure to any material loss with respect to those remaining actions is remote.

Note 10.Financial Instruments

Foreign Exchange Risk Management

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.  The principal currencies hedged are the Euro, the Japanese Yen, the British Pound, the Swiss Franc and the Canadian Dollar.

The impact of foreign exchange risk management activities on pre-tax income in the three and six months ended June 30, 2004 was a net gain of $1,222 and $5,591, respectively, and net losses in the three and six months ended June 30, 2003 of $9,282 and $16,984, respectively.  In addition, at June 30, 2004, the Company had approximately $298,408 in foreign exchange forward contracts outstanding with various expiration dates through September 2004 relating to non-functional currency assets and liabilities.  Foreign exchange forward contracts are recorded at estimated fair value.  The estimated fair values of the forward contracts are based on quoted market prices.  Unrealized and realized gains and losses on these contracts are not deferred and are included in the Condensed Consolidated Statements of Income (unaudited) in Other income (expense), net.

24

Fair Value of Financial Instruments

At June 30, 2004, the Company’s financial instruments included cash, cash equivalents, short-term marketable securities, accounts receivables, accounts payable, short-tem debt, long-term debt and foreign currency forward contracts.  At June 30, 2004, the fair values of cash, cash equivalents, accounts receivables, accounts payable and short-term debt approximated carrying values due to the short-term nature of these instruments.  The contractual value of the Company’s foreign currency forward contracts was approximately $298,408 at June 30, 2004, and all contracts mature in 2004.  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 June 30, 2004 in the event of non-performance by any one counterparty.  The Company enters into transactions only with financial institution counterparties which have primarily credit ratings of A or better.  In addition, the Company limits the amount of credit exposure with any one institution.

The Company maintains accounts receivable balances ($293,715 and $271,268, net of allowances, at June 30, 2004 and December 31, 2003, respectively), principally from customers in the pharmaceutical industry.  The Company’s trade receivables do not represent significant concentrations of credit risk at June 30, 2004 due to the high quality of its customers and their dispersion across many geographic areas.

Lines of Credit and Liquidity

The Company had borrowing arrangements with several domestic and international banks to provide lines of credit up to $700,000 at June 30, 2004.  Total borrowings under these existing lines were $481,300 and $407,600 at June 30, 2004 and December 31, 2003, respectively, of which $230,000 and $407,600 were classified as short-term, and $251,300 and $0 were classified as long-term as of June 30, 2004 and December 31, 2003, respectively.

On April 5, 2004, the Company entered into a $700,000 revolving credit facility with a syndicate of 12 banks (the “Unsecured Facility”).  The Unsecured Facility replaced the Company’s lines of credit with several domestic and international banks.  The Unsecured Facility is comprised of $430,000 of short-term lines that expire April 2005 and $270,000 of long-term lines expiring April 2007.  In general, rates for borrowing under both the short-term and long-term components are LIBOR plus 45 basis points and can vary based on the Company’s Debt to EBITDA ratio.  The weighted average interest rates for the short-term lines were 1.86% and 1.61% at June 30, 2004 and December 31, 2003, respectively.  The weighted average interest rates for the long-term lines were 1.88% and 1.84% at June 30, 2004 and December 31, 2003, respectively.  In addition, the Company will pay a commitment fee on the unused portion of the short-term and long-term facilities of 0.08% and 0.10%, respectively.

The Company defines long-term lines as those where the lines are non-cancelable for more than 365 days from the balance sheet date by the financial institutions except for specified violations of the provisions of the agreement.  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 as they

25

come due through April 2007.  At June 30, 2004, the Company reclassified $251,300 of its debt outstanding as long-term debt in accordance with the provisions of SFAS No. 6, “Classification of Short-Term Obligations Expected to be Refinanced.”

Total debt of $634,604 and $561,991 at June 30, 2004 and December 31, 2003, respectively, included $150,000 of five-year private placement debt (as further discussed below), and $3,304 and $4,391 at June 30, 2004 and December 31, 2003, respectively, related primarily to cash overdrafts, certain capital leases, mortgages and an adjustment to the carrying amount of fair value hedged debt.  At June 30, 2004, the Company had $18,700 and $200,000 available under its long and short-term lines of credit, respectively.

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 had maturity dates of up to 90 days from their inception.  These lines of credit were due to mature in 2004 and as such $175,000 was reclassified to short-term debt as of December 31, 2003.

In March and April 2002, the Company entered into interest rate swaps on a portion of its variable rate debt portfolio.  These arrangements convert the variable interest rates to a fixed interest rate on a notional amount of $75,000 and mature at various times from March 2005 through April 2006.  The fixed rates range from 4.05% to 5.08%.  The interest rate swaps are accounted for as cash flow hedges and any changes in fair value are recorded in Other Comprehensive Income, in the Condensed Consolidated Statements of Shareholders’ Equity (unaudited).  The fair values are determined based on estimated prices quoted by financial institutions.  The mark-to-market adjustment for the three and six months ended June 30, 2004 was an unrealized net loss of $870 and $976, respectively.

In January 2003, the Company closed a private placement transaction pursuant to which the Company issued $150,000 of five-year debt to several highly rated insurance companies at a fixed rate of 4.60%.  The proceeds were used to pay down short-term debt.  The Company also swapped $100,000 of its fixed rate debt to floating rate based on six-month LIBOR plus a margin of approximately 107 basis points.  These swaps have been accounted for as fair value hedges under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  The fair values are determined based on estimated prices quoted by financial institutions.  The cumulative fair value adjustment to the swap as of June 30, 2004 was a decrease of $113.

The Company’s financing arrangements provide for certain covenants and events of default customary for similar instruments, including in the case of its main bank arrangements and the 2003 private placement transaction, covenants to maintain specific ratios of consolidated total indebtedness to EBITDA and of EBITDA to certain fixed charges.  At June 30, 2004, the Company was in compliance with these financial debt covenants and anticipates that it will remain in compliance with the covenants over the term of the borrowing arrangements.

26

Note 11.Pension and Postretirement Benefits

Components of Net Periodic Benefit Cost for three months ended June 30,	Pension Benefits						Other Benefits
	2004			2003			2004			2003
Service cost	$	2,430		$	1,738		$	29		$	36
Interest cost	3,237			2,881			217			190
Expected return on plan assets	(5,410		)	(3,415		)	0			0
Amortization of prior service cost (credit)	(80		)	56			(247		)	(247		)
Amortization of transition obligation	(23		)	(3		)	0			0
Amortization of net loss	254			596			167			113
Net periodic benefit cost	$	407		$	1,853		$	166		$	92

Components of Net Periodic Benefit Cost for six months ended June 30,	Pension Benefits						Other Benefits
	2004			2003			2004			2003
Service cost	$	5,272		$	4,732		$	83		$	72
Interest cost	6,656			5,934			426			380
Expected return on plan assets	(9,372		)	(6,830		)	0			0
Amortization of prior service cost (credit)	(114		)	112			(494		)	(494		)
Amortization of transition obligation	(46		)	(7		)	0			0
Amortization of net loss	1,296			1,167			316			226
Net periodic benefit cost	$	3,692		$	5,108		$	331		$	184

Plans accounted for under APB Opinion No. 12, “Omnibus Opinion – 1967”.  The Company provides certain executives with supplemental pension benefits in accordance with their individual employment arrangements.  As individual arrangements, these pension benefits are accounted for under APB Opinion No. 12 (which addresses accounting for deferred compensation contracts) and not SFAS No. 87, and as a result, the tables of this Note do not include the Company’s expense associated with providing these benefits.  The Company’s expense for these unfunded arrangements was $1,046 for the three months ended June 30, 2004 and $2,125 for the six months ended June 30, 2004.  In addition the above tables have been adjusted to exclude the impact of expense associated with these individual arrangements in the amount of $1,079 for the three months ended March 31, 2004 and $702 for the three months ended March 31, 2003.

Note 12.Income Taxes

The Company operates in more than 100 countries around the world and its earnings are taxed at the applicable income tax rate in each of these countries.

For the six months ended June 30, 2004 the Company’s effective tax rate was impacted by approximately $15,100 primarily due to a favorable partial U.S. audit settlement.  For the six months ended June 30, 2003 the Company’s effective tax rate was impacted by approximately $69,600 due to the Company’s reassessment, based on information received in April 2003, of its liability associated with certain D&B Legacy Tax Matters and related subsequent transactions.  This is more fully described in Note 9.  Further, the 2003 effective tax rate was affected by the favorable settlement of a non-U.S. audit which approximated $13,900.

27

While the Company intends to continue to seek global tax planning initiatives, there can be no assurance that the Company will be able to successfully implement such initiatives to reduce or maintain its overall tax rate.

The Company accrues for tax loss contingencies in the period in which they are probable and estimable in accordance with SFAS No. 5, “Accounting for Contingencies.”  These reserves are included in current income taxes payable to the extent the related amounts are expected to be paid within the next twelve-month period.  If the Company expects the liability to be settled beyond one year, these amounts are classified as a long-term liability.

Note 13.IMS Health Capital Stock

On February 10, 2004, the Board of Directors authorized a stock repurchase program to buy up to 10,000 shares.  As of June 30, 2004, approximately 7,500 shares remained available for repurchase under the February 2004 program.

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

On July 19, 2000, the Board of Directors authorized a stock repurchase program to buy up to 40,000 shares.  This program was completed in June 2003 at a total cost of $868,314.

During the six months ended June 30, 2004, the Company repurchased approximately 8,057 shares of outstanding common stock under these programs, including the repurchase of 4,600 shares on January 9, 2004 pursuant to an accelerated share repurchase program (“ASR”).  The ASR agreement provides for the final settlement of the contract in either cash or additional shares of the Company’s common stock at the Company’s sole discretion.The Company was required to pay an additional $942 as the final settlement amount based on an increase in the Company’s share price over the settlement period.  The total cost of the shares repurchased during the six months ended June 30, 2004 was $204,284.

Shares acquired through the Company’s repurchase programs described above are open-market purchases or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18.

As discussed in Note 6, during the three months ended March 31, 2003, the Company completed the CTS Split-Off exchange offer and accepted 36,540 IMS common shares tendered in exchange for all 11,291 CTS common shares that the Company owned.

The Company re-issued approximately 3,463 treasury shares under option exercises for proceeds of $60,220 during the six months ended June 30, 2004.  In addition, the Company paid dividends of $0.02 per share for a total of $4,793 during the three months ended June 30, 2004.  For the six months ended June 30, 2004, the Company paid dividends of $0.04 per share for a total of $9,500.

Note 14.         Comprehensive Income

The following table sets forth the components of comprehensive income, net of income tax expense:

28

	Three Months Ended June 30,						Six Months Ended June 30,
	2004			2003			2004			2003
Net Income	$	65,121		$	55,356		$	146,199		$	500,029
Other comprehensive income, net of taxes:
Unrealized gains (losses) on:
Available-for-sale equity securities	498			834			427			718
Reclassification adjustment	0			(560		)	219			(201		)
Tax benefit on above	(174		)	(96		)	(226		)	(181		)
Change in unrealized gains (losses) on investments	324			178			420			336
Foreign currency translation gains (losses)	(2,422		)	24,464			(7,413		)	29,273
Changes in fair value of cash flow hedges	870			(87		)	976			(129		)
Total other comprehensive income (loss)	(1,228		)	24,555			(6,017		)	29,480
Comprehensive Income	$	63,893		$	79,911		$	140,182		$	529,509

Note 15.Severance, Impairment and Other Charges

During the three months ended March 31, 2003, the Company recorded $37,220 of severance, impairment and other charges (the “first quarter charge”) as a component of operating income.  These charges were incurred due to a number of business and strategic factors affecting the Company:

•severance-related charges of $9,958 were incurred in an effort to streamline operations and increase productivity through a worldwide reduction in headcount of approximately 80 employees.  This reduction in headcount was primarily focused on upgrading the skills and capabilities of our employee base as we transform the business to provide new and enhanced analytical and consulting offerings to our customers.  The reduction in headcount also led to charges for impaired leases in the U.S. and U.K. for office space no longer being used by the Company and for which the Company has not been able to obtain subleases at rates comparable to the terms of its lease obligations.  These severance benefits were calculated pursuant to the terms of established employee protection plans, in accordance with local statutory minimum requirements or individual employee contracts, as applicable;

•contract-related charges of $22,307 were incurred for impaired data supply, data processing and impaired lease contracts in the Company’s U.S. and Japanese operations.  An impairment for a data supply contract in the U.S. was realized due to the fact that in the first quarter of 2003 we determined that expected revenues under a co-marketing agreement with a data supplier would not be generated, but the Company was still required to make payments under the terms of the contract.  The Company also realized an impairment for a data processing contract in Japan related to a weekly data product in Japan that was discontinued at the end of the first quarter of 2003, due to the interruption in data supply; and

•asset write-downs of $4,955 were recorded to write-down certain computer software primarily in the U.S. and Japan to its net realizable value.  In the U.S., a decision to change the underlying technology in a product required the write-down of a

29

previous version.  In Japan, the termination of the weekly data product required the write-down of the software used for that product.

	Severance related charges			Contract related charges			Asset write-downs			Total
Charge at March 31, 2003	$	9,958		$	22,307		$	4,955		$	37,220
2003 Utilization	(6,197		)	(7,047		)	(6,634		)	(19,878		)
2004 Utilization	(1,097		)	(1,847		)	—			(2,944		)
Adjustments	(1,746		)	67			1,679			—
Balance at June 30, 2004	$	918		$	13,480		$	0		$	14,398

The cash portion of the first quarter charge amounted to $30,586, of which the Company paid approximately $13,244 during 2003 and $2,944 during the six months ended June 30, 2004, related primarily to employee termination benefits and contract-related charges.  The remaining accrual of $14,398 at June 30, 2004 relates to lease obligations and continuing payments related to employee termination benefits.

The Company expects that cash outlays will be applied against the $14,398 balance remaining as follows:

Year Ended December 31,	Cash Outlays
2004	$	2,948
2005	7,917
2006	923
2007	752
2008	228
Thereafter	1,630
Total	$	14,398

During the nine months ended December 31, 2003, the Company reversed approximately $1,750 of severance related charges originally included in the first quarter charge due to the Company’s refinement of estimates.  The Company also recorded additional charges during 2003 of approximately $1,700 related primarily to a software impairment.

During the fourth quarter of 2001, the Company completed the assessment of its Competitive Fitness Program (the “Program”).  This Program was designed to streamline operations, increase productivity, and improve client service.  In connection with this Program, the Company recorded $94,616 of Severance, impairment and other charges during the fourth quarter of 2001 as a component of operating income.

30

	Severance related charges			Contract related charges			Asset write- downs			Total
Charge at December 31, 2001	$	39,652		$	26,324		$	28,640		$	94,616
2001 utilization	(3,692		)	(6,663		)	(27,887		)	(38,242		)
2002 utilization	(26,277		)	(9,819		)	(1,474		)	(37,570		)
2003 utilization	(6,384		)	(2,720		)	(241		)	(9,345		)
2004 utilization	(189		)	(241		)	—			(430		)
Adjustments	(688		)	(274		)	962			—
Balance at June 30, 2004	$	2,422		$	6,607		$	0		$	9,029

Approximately $39,652 was charged to expense in the fourth quarter of 2001 related to a worldwide reduction in headcount.  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 175 employees that were recorded as part of the 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).”

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 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 of 2001 to close down or vacate leased facilities in order to consolidate functions geographically as part of the 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 were rendered by GIC to the IMS Global Data Center.  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.

As of June 30, 2004, the Company paid approximately $55,985 under the Program.  Total terminations under the Program were 535.  Although the total number of terminations from the Program was lower than the original plan by approximately 18%, due to a change in the mix of actual employee terminations, the Company has experienced a higher level of severance costs per employee, thereby offsetting any cost savings from fewer actual terminations.  As expected, all actions under the Program were completed by December 31, 2002.  The remaining accrual of $9,029 at June 30, 2004 related primarily to a facility shutdown and employee termination payments.

31

The adjusted cash portion of the 2001 charge amounted to $65,014, primarily for severance payments and contract terminations.  The non-cash portion amounted to $29,602 and is composed primarily of asset write-offs.  The Company expects that cash outlays will be applied against the $9,029 balance remaining as follows:

Year Ended December 31,	Cash Outlays
2004	$	3,372
2005	1,754
2006	1,754
2007	2,149
Total	$	9,029

The Company expects that future results will benefit from the Program and the first quarter charge to the extent of the contract-related charges and asset write-downs primarily through 2007.  The Company’s severance actions related to a shifting of resources around the Company and as such are not expected to generate material cost savings.  The income statement lines that will be impacted in future periods are Operating costs for the contract-related charges and Depreciation and amortization for the asset write-downs.  However, the Company does not expect a material impact on future cash flows due to the fact that the Company is still contractually obligated to continue to make payments under impaired contracts.

Note 16.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 operates a globally consistent business model, offering pharmaceutical business information, software and related services to its customers in more than 100 countries.  See Note 1.

The Company maintains regional geographic management to facilitate local execution of its global strategies.  However, the Company maintains global leaders for the majority of its critical business processes; and the most significant performance evaluations and resource allocations made by the Company’s chief operating decision makers are made on a global basis.  As such, the Company has concluded that it maintains one operating and reportable segment.

Geographic Financial Information:

The following represents selected geographic information for the regions in which the Company operates as of and for the three and six months June 30, 2004 and 2003:

32

	Americas (1)		Europe (2)		Asia Pacific (3)		Corporate & Other			Total IMS
Three months ended June 30, 2004:
Operating revenue (4)	$	172,492	$	156,669	$	50,422	—			$	379,583
Operating income (5)	$	75,712	$	32,310	$	25,350	$	(30,904	)	$	102,468
Six months ended June 30, 2004:
Operating revenue (4)	$	339,403	$	299,373	$	102,383	—			$	741,159
Operating income (5)	$	148,482	$	56,200	$	54,048	$	(60,030	)	$	198,700
Three months ended June 30, 2003:
Operating revenue (4)	$	160,424	$	133,927	$	43,425	—			$	337,776
Operating income (5)	$	72,332	$	28,394	$	24,568	$	(27,995	)	$	97,299
Six months ended June 30, 2003:
Operating revenue (4)	$	311,729	$	247,936	$	92,028	—			$	651,693
Operating income (5)	$	139,824	$	44,750	$	53,184	$	(99,309	)	$	138,449

Notes to Geographic Financial Information:

(1)Americas includes the United States, Canada and Latin America.

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

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

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

(5)Operating income for the three geographic regions does not reflect the allocation of certain expenses that are maintained in Corporate and Other and as such, is not a true measure of the respective regions’ profitability.  For the three months ended March 31, 2003, Severance, impairment and other charges of $17,369, $5,040 and $11,081 for the Americas, Europe and Asia Pacific, respectively, are presented in Corporate and Other.  The operating income for the geographic segments includes the impact of foreign exchange in converting results into U.S. Dollars.

A summary of the Company’s operating revenue by product line, as of and for the three and six months ended June 30, 2004 and 2003 is presented below:

	Three Months Ended June 30,				Six Months Ended June 30,
	2004		2003		2004		2003
Sales Force Effectiveness	$	172,660	$	159,613	$	339,789	$	311,975
Portfolio Optimization	$	109,673	$	99,482	$	222,775	$	199,932
Brand and Launch Management and Other	$	52,406	$	48,536	$	101,186	$	88,160
Consulting and Services	$	44,844	$	30,145	$	77,409	$	51,626
Total Operating revenue	$	379,583	$	337,776	$	741,159	$	651,693

33

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

(Dollars and shares in thousands, except per share data)

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

Our Business

IMS Health Incorporated (“we”, “us” or “our”) is a leading global provider of information solutions to the pharmaceutical and healthcare industries.  Our revenues are derived primarily from the sale of a broad line of market information, sales management and consulting services to the pharmaceutical and healthcare industries.  Our information products are developed to meet client needs by using data secured from a worldwide network of suppliers in the markets where operations exist.  Key information products include:

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

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

•Brand and Launch Management and Other to support client needs relative to market segmentation and positioning and life cycle management for prescription and over-the-counter pharmaceutical products; and

•Consulting and Services that use in-house capabilities and methodologies to assist pharmaceutical clients in analyzing and evaluating market trends, strategies and tactics, and to help in the development and implementation of customized software applications and data warehouse tools.

We operate in more than 100 countries.  We also own a venture capital unit, Enterprise Associates, LLC (“Enterprises”), which is focused on investments in emerging businesses, and a 25.8% equity interest in The TriZetto Group, Inc. (“TriZetto”), at June 30, 2004.

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

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

Split-Off of Cognizant Technology Solutions Corporation Segment (“CTS”)

Until February 6, 2003, we also included CTS, which provides custom Information Technology (“IT”) design, development, integration and maintenance services.  CTS is a publicly traded corporation on the Nasdaq national market system.  We owned 55.3% of the common shares outstanding of CTS (92.5% of the outstanding voting power) as of December 31, 2002, and accounted for CTS as a consolidated subsidiary.  On February 6, 2003, we divested CTS through a split-off transaction, and as a result, during the first quarter of 2003, we recorded a net gain from discontinued operations of $495,053.  Our share of CTS results are presented as discontinued operations for 2003

34

through the date of divestiture (see Note 6 to the unaudited Condensed Consolidated Financial Statements).

Operating Results

References to constant dollar results.  We report results in U.S. Dollars but we do business on a global basis.  Exchange rate fluctuations affect the rate at which we translate foreign revenues and expenses into U.S. Dollars and have important effects on our results.  In order to illustrate these effects, the discussion of our business in this report sometimes describes the magnitude of changes in constant dollar terms.  We believe this information facilitates a comparative view of business growth.  In the first six months of 2004, the U.S. Dollar was generally weaker against other currencies compared to the first six months of 2003, so growth at constant dollar exchange rates was lower than growth at actual currency exchange rates.  See “How Exchange Rates Affect Our Results” below and the discussion of “Market Risk” in the Management Discussion and Analysis in our annual report on Form 10-K for the year ended December 31, 2003 for a more complete discussion regarding the impact of foreign currency translation on our business.

Summary of Operating Results

					% Variance
	Three months ended June 30,				2004 vs. 2003
	2004		2003
Operating revenue	$	379,583	$	337,776	12.4	%
Operating costs	162,386		141,547		14.7	%
Selling and administrative expenses	92,412		79,099		16.8	%
Depreciation and amortization	22,317		19,831		12.5	%
Operating income	$	102,468	$	97,299	5.3	%

					% Variance
	Six months ended June 30,				2004 vs. 2003
	2004		2003
Operating revenue	$	741,159	$	651,693	13.7	%
Operating costs	311,940		278,804		11.9	%
Selling and administrative expenses	186,496		160,591		16.1	%
Depreciation and amortization	44,023		36,629		20.2	%
Severance, impairment and other charges	—		37,220		n/a
Operating income	$	198,700	138,449		43.5	%

Operating Income

Our operating income for the second quarter of 2004 grew 5.3% at reported exchange rates and 3.3% at constant dollar terms, to $102,468 from $97,299 in the second quarter of 2003.  The change was primarily due to the increase in our operating revenue.  Operating income for the six months ended June 30, 2004 grew 43.5% to $198,700 from $138,449 in the six months ended June 30, 2003.  The change was largely the result of $37,220 in severance, impairment and other charges we recorded in the first quarter of 2003 and the increase in our operating revenue.  Absent the impact of severance,

35

impairment and other charges, our operating income increased by 13.1% at reported exchange rates and 9.0% at constant dollar terms.

Operating Revenue

Our operating revenue for the second quarter of 2004 grew 12.4% to $379,583 from $337,776 in the second quarter of 2003.   On a constant dollar basis our operating revenue growth was 8.6%.  Operating revenue for the first six months of 2004 grew 13.7% to $741,159 from $651,693 in the first six months of 2003.  On a constant dollar basis our operating revenue growth was 8.1%.  The increase in our operating revenue during the second quarter and first six months of 2004 resulted from growth in revenue in all four of our product and service categories, together with the effect of currency translation.

Summary of Operating Revenue

	Three months ended June 30,				% Variance 2004 vs 2003
	2004		2003		Reported Rates		Constant Dollar
Sales Force Effectiveness	$	172,660	$	159,613	8	%	5	%
Portfolio Optimization	$	109,673	$	99,482	10	%	6	%
Brand and Launch Management and Other	$	52,406	$	48,536	8	%	4	%
Consulting and Services	$	44,844	$	30,145	49	%	44	%
Operating Revenue	$	379,583	$	337,776	12	%	9	%

	Six months ended June 30,				% Variance 2004 vs 2003
	2004		2003		Reported Rates		Constant Dollar
Sales Force Effectiveness	$	339,789	$	311,975	9	%	4	%
Portfolio Optimization	$	222,775	$	199,932	11	%	6	%
Brand and Launch Management and Other	$	101,186	$	88,160	15	%	8	%
Consulting and Services	$	77,409	$	51,626	50	%	44	%
Operating Revenue	$	741,159	$	651,693	14	%	8	%

•Sales Force Effectiveness revenue grew primarily due to Core Xponent offerings in the United States, Canada and Europe, and growth in Asia (excluding Japan), Latin America, and acquisitions.  The decline of revenue in Japan is leveling off and we anticipate a gradual return to growth in the second half of 2004.

•Portfolio Optimization revenue grew primarily due to strong demand for certain of our core products, including our next generation MIDAS offering, called MIDAS Quantum; KnowledgeLink, our proprietary search engine; and NPA Market-Dynamics, our premier longitudinal offering in the United States.

36

•Brand Management, Launch Management and Other product lines revenue grew primarily due to weekly data sales and acquisitions in Europe.

•Consulting and Services revenue grew strongly across all our service lines, primarily in our Management Consulting service line.

Operating Costs

Our operating costs include data processing costs, the costs of data collection and production, and costs attributable to personnel involved in production, data management, and the processing and delivery of our consulting and services.  Our operating costs grew 14.7% to $162,386 in the second quarter of 2004, from $141,547 in the second quarter of 2003 and for the first six months of 2004 grew 11.9% to $311,940 from $278,804 for the comparable period in 2003.  The increase in our operating costs was primarily due toforeign currency translation, increased cost of consulting, higher data costs to support revenue growth, and acquisitions.  The effect of foreign currency translation increased our operating costs by approximately $7,000 for the second quarter of 2004 as compared to the second quarter of 2003 and approximately $17,000 for the first six months of 2004 as compared to the first six months of 2003.  Excluding the effect of the change in foreign currency translation, our operating costs grew 9.8% in the second quarter of 2004 as compared to the second quarter of 2003 and grew 5.9% in the first six months of 2004 as compared to the first six months of 2003.

Although our operating costs decreased as a percent of revenue in the first six months of 2004 as compared to the first six months of 2003, our operating costs generally have increased at a rate greater than operating revenues in each of the last two full fiscal years.  This increase has been due to the impact of foreign currency translation, increased cost of consulting, higher data costs to support revenue growth, and acquisitions.

Selling and Administrative Expenses

Our selling and administrative expenses consist primarily of the costs attributable to sales, marketing and administration, including human resources, legal, management and finance.  Our selling and administrative expenses grew 16.8% in the second quarter of 2004, to $92,412 from $79,099 in the second quarter of 2003 and grew 16.1% to $186,496 from $160,591 in the first six months of 2004 compared to the first six months of 2003, primarily due to the following factors:

•Foreign Currency Translation: The effect of foreign currency translation increased our selling and administrative expenses by approximately $4,000 for the second quarter of 2004 as compared to the second quarter of 2003 and approximately $12,000 for the first six months of 2004 compared to the first six months of 2003.  Excluding the effect of the change in foreign currency translation, our selling and administrative expenses grew 11.8% in the second quarter of 2004 as compared to the second quarter of 2003 and 8.9% in the first six months of 2004 as compared to the first six months of 2003.

•Sales and Marketing: Sales and marketing expense increased by $4,689 in the second quarter of 2004, compared to the second quarter of 2003 and increased by $9,008 in the first six months of 2004, compared to the first six months of 2003 to support operating revenue growth.

37

Depreciation and Amortization

Our depreciation and amortization charges increased 12.5% to $22,317 in the second quarter of 2004, from $19,831 in the second quarter of 2003, primarily due to computer software amortization associated with new products, which increased by $1,731 in the second quarter of 2004 compared to the second quarter of 2003.  Depreciation and amortization charges increased 20.2% to $44,023 in the first six months of 2004, from $36,629 in the first six months of 2003, primarily due to computer software amortization associated with new products, which increased by $6,326.

Severance, Impairment and Other Charges

During the first quarter of 2003, we recorded a $37,220 pretax charge for Severance, impairment and other charges, consisting primarily of severance charges of approximately $9,958 for approximately 80 employees, charges to exit data supply and processing contracts of $16,500, lease obligations associated with abandoned properties of $5,807, and approximately $4,955 to write down computer software to its net realizable value.  For more detail concerning these changes see Note 8 to the Consolidated Financial Statements and the discussion of “Severance, Impairment and Other Charges” in the Management Discussion and Analysis, both in our Annual Report on Form 10-K for the year ended December 31, 2003.

Trends in our Operating Margins

Our operating margins for the second quarter and first six months of 2004 were 27.0% and 26.8%, respectively, as compared to 28.8% and 21.2% in the second quarter of 2003 and first six months of 2003, respectively.  The decrease in our operating margin for the second quarter of 2004 is primarily due to increases in data costs and continuing investment in new products.  The improvement in our operating margin for the first six months of 2004 was primarily due to the absence in 2004 of the Severance, impairment and other charges of $37,220 recorded in the first quarter of 2003.

Operating margins generally have declined over the past two years and may continue to decline in future periods as we invest in acquisitions and new products and services to drive future revenue growth.

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

Non-Operating Income (Loss)

Our non-operating loss decreased 86.5% to a net loss of $1,680 in the second quarter of 2004 from a net loss of $12,414 in the second quarter of 2003 and grew 115.6% to a net gain of $4,241 in the six months ended June 30, 2004 from a net loss of $27,199 in the six months ended June 30, 2003.  The increase in our non-operating income was primarily due to the following factors:

38

•Gains from Investments: We had gains from investment of $2,074 during the second quarter of 2004, primarily as a result of the sale of investments in the Enterprises portfolio.  Gains from investment in the second quarter of 2003 were $32. We had gains from investment of $8,527 during the first six months of 2004, primarily as a result of the sale of investments in the Enterprises portfolio.  Losses from investment in the first six months of 2003 were $844.

•Other Income: Other income (expense), net, increased primarily due to net foreign exchange gains of $1,222 and $5,591 in the second quarter and first six months of 2004, respectively, compared with net foreign exchange losses of $9,282 and $16,984 in the second quarter of and first six months of 2003, respectively.

Taxes

For the six months ended June 30, 2004, our effective tax rate was impacted by approximately $15,100, primarily due to a favorable partial U.S. audit settlement.  For the six months ended June 30, 2003, our effective tax rate was impacted by approximately $69,600 due to our reassessment, based on information received in April 2003, of our liability associated with certain D&B Legacy Tax Matters and related subsequent transactions.  This is more fully described in Note 9 to the Condensed Consolidated Financial Statements (unaudited).  Further, our effective tax rate for the six months ended June 30, 2003 was affected by the favorable settlement of a non-U.S. audit which approximated $13,900.

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

TriZetto

In the first quarter of 2003, we recorded an impairment charge of $14,842, net of taxes of $9,565, to write down our investment in TriZetto following the continued significant decline in the market value of TriZetto shares below our carrying value.  We concluded that this decline was other-than-temporary in accordance with Staff Accounting Bulletin (“SAB”) No. 59, “Views on Accounting for Noncurrent Marketable Equity Securities.”  As of March 31, 2003, TriZetto shares closed at $4.13 compared to our book value per share of $6.14 prior to recording the impairment charge.  As of June 30, 2004, the market value of TriZetto exceeded our carrying value by approximately $40,310.  There can be no assurance that TriZetto shares will continue to trade above our carrying value or that further impairment charges will not be required.

A charge for TriZetto equity loss, net, of $303 and $1,269 was recorded in the three and six months ended June 30, 2004, respectively and losses of $66 and $399 were recorded in the three and six months ended June 30, 2003, respectively.  We do not control TriZetto and our results may be significantly affected by our share of its income or losses.

39

Operating Results by Geographic Region

The following represents selected geographic information for the regions in which we operate for the three and six months ended June 30, 2004 and 2003:

	Americas (1)		Europe (2)		Asia Pacific (3)		Corporate & Other			Total IMS
Three months ended June 30, 2004:
Operating revenue (4)	$	172,492	$	156,669	$	50,422	—			$	379,583
Operating income (5)	$	75,712	$	32,310	$	25,350	$	(30,904	)	$	102,468
Six months ended June 30, 2004:
Operating revenue (4)	$	339,403	$	299,373	$	102,383	—			$	741,159
Operating income (5)	$	148,482	$	56,200	$	54,048	$	(60,030	)	$	198,700
Three months ended June 30, 2003:
Operating revenue (4)	$	160,424	$	133,927	$	43,425	—			$	337,776
Operating income (5)	$	72,332	$	28,394	$	24,568	$	(27,995	)	$	97,299
Six months ended June 30, 2003:
Operating revenue (4)	$	311,729	$	247,936	$	92,028	—			$	651,693
Operating income (5)	$	139,824	$	44,750	$	53,184	$	(99,309	)	$	138,449

Notes to Geographic Financial Information:

(1)Americas includes the United States, Canada and Latin America.

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

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

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

(5)Operating income for the three geographic regions does not reflect the allocation of certain expenses that are maintained in Corporate and Other and as such, is not a true measure of the respective regions’ profitability.  For the three months ended March 31, 2003, Severance, impairment and other charges of $17,369, $5,040 and $11,081 for the Americas, Europe and Asia Pacific, respectively, are presented in Corporate and Other.  The operating income for the geographic segments includes the impact of foreign exchange in converting results into U.S. Dollars.

Americas Region

Operating revenue growth in the Americas region was 7.5% in the second quarter of 2004, compared to the second quarter of 2003, primarily due to strong performance in the consulting and services business in the U.S., and continued strength of the sales force effectiveness and portfolio optimization business lines, particularly in Canada.  Operating revenue growth was 8.9% in the first six months of 2004, compared to the first six months of 2003, primarily due to increased demand in all areas of the region for our core sales force effectiveness and portfolio optimization offerings.  Growth was also strong in our consulting and services line in the United States.

40

Operating income growth in the Americas region was 4.7% in the second quarter of 2004, compared to the second quarter of 2003.  Operating income growth lagged revenue growth due to investment in global consulting capabilities and higher data collection costs to support new products. Operating income growth was 6.2% in the first six months of 2004, compared to the first six months of 2003, primarily due to increased revenue offset by increased costs of data, investments in product development and acquisitions.

Europe Region

Operating revenue growth in the Europe region was 17.0% in the second quarter of 2004, compared to the second quarter of 2003, primarily due to growth in core sales force effectiveness, our next-generation MIDAS offering, our services and consulting business, weekly data sales as well as foreign exchange.  Operating revenue growth was 20.7% in the first six months of 2004, compared to the first six months of 2003, primarily due to strong growth in the consulting and services business and the sales force effectiveness business line, as well as foreign exchange.

Operating income in the Europe region increased by 13.8% in the second quarter of 2004, compared to the second quarter of 2003.  The operating income growth in 2004 was primarily driven by operating revenue growth and foreign exchange. Operating income growth was 25.6% in the first six months of 2004, compared to the first six months of 2003, primarily driven by operating revenue growth, efforts to control costs and foreign exchange.

Asia Pacific Region

Operating revenue in the Asia Pacific region increased 16.1% in the second quarter of 2004, compared to the second quarter of 2003, primarily due to a return to growth in Japan, continued strong growth in the rest of the region and foreign exchange. Operating revenue growth was 11.3% in the first six months of 2004, compared to the first six months of 2003, primarily due to strong growth in the region outside of Japan and foreign exchange, partially offset by the decline in Japan.  The decline in operating revenue in Japan was due to a data supplier issue that resulted in the interruption of the data supply used in a weekly product.  We discontinued that product at the end of the first quarter of 2003 and it has not yet been replaced with a new product, causing the revenue decline.

Operating income in the Asia Pacific region increased by 3.2% in the second quarter of 2004, compared to the second quarter of 2003, primarily due to the operating revenue issues discussed above. Operating income growth was 1.6% in the first six months of 2004, compared to the first six months of 2003.  The decline in operating margin in the region was due to the impact of the revenue decline in Japan from the discontinuation of the weekly product; because costs are primarily fixed in nature, the revenue decline produced an operating income decline.  In addition, we are incurring expenses to develop new products and services in Japan that are intended to replace and grow those revenues lost from the discontinuation of the weekly product.

How Exchange Rates Affect Our Results

We operate globally, deriving a significant portion of our operating income from non-U.S. operations.  As a result, fluctuations in the value of foreign currencies relative to the U.S. Dollar may

41

increase the volatility of our U.S. Dollar operating results.  We enter into forward foreign currency contracts to partially offset the effect of currency fluctuations.  In 2004, foreign currency translation increased our U.S. Dollar revenue growth by approximately 3.8 percentage points in the second quarter and 5.6 percentage points in the first six months, while the impact on our operating income growth was an approximate increase of 2.0 percentage points in the second quarter and 4.1 percentage points in the first six months.

Our non-U.S. monetary assets are maintained in currencies other than the U.S. Dollar, principally the Euro, the Japanese Yen, the British Pound, the Swiss Franc and the Canadian Dollar.  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 our Condensed Consolidated Statements of Shareholders’ Equity (unaudited).  The effect of exchange rate changes during 2004 decreased our U.S. Dollar amount of Cash and cash equivalents by $1,608.

Liquidity and Capital Resources

On February 6, 2003, we divested CTS through a split-off transaction, and as a result, our share of CTS results are presented as discontinued operations for 2003 through the date of divestiture (see Note 6 to our unaudited Condensed Consolidated Financial Statements).

Our cash and cash equivalents increased $27,465 during the first six months of 2004 to $371,897 at June 30, 2004 compared to $344,432 at December 31, 2003.  The increase primarily reflects cash we generated from operating activities of $161,392, offset by cash used in investing and financing activities of $53,766 and $78,553, respectively.  Including the change in short-term marketable securities, which is included in cash used in investing activities, our cash and cash equivalents and short-term marketable securities increased to $399,718 at June 30, 2004 compared to $384,540 at December 31, 2003, an increase of $15,178.

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

•development of software to be used in our new products and capital expenditures to expand and upgrade our information technology capabilities and to build or acquire facilities to house our growing business (we currently expect to spend approximately $80,000 to $90,000 during 2004 for software development and capital expenditures);

•acquisitions;

•share repurchases;

•dividends to our shareholders (if dividends continue at our first and second quarter of 2004 levels, we would expect dividends for 2004 to be $0.08 per share or approximately $19,000); and

•payments for tax related matters, including the D&B Legacy Tax Matters discussed further in Note 9 to our Condensed Consolidated Financial Statements (unaudited).  We currently

42

expect payments for certain of the D&B Legacy Tax Matters to be up to approximately $42,000 in the second half of 2004.

Net cash provided by operating activities amounted to $161,392 for the six months ended June 30, 2004, an increase of $1,472 over the comparable period in 2003.  The increase relates primarily to higher income from continuing operations in the first half of 2004, offset by the funding of income taxes, accrued and other current liabilities during the six months ended June 30, 2004, and the payment from Nielsen Media Research in 2003, as discussed in Note 9 to the Condensed Consolidated Financials Statements (unaudited), with no comparable payment in the same period in 2004

Net cash used in investing activities amounted to $53,766 for the six months ended June 30, 2004, a decrease in cash used of $49,389 over the comparable period in 2003.  The lower cash requirements during the first six months of 2004 relate primarily to the fact that we only made net payments of $19,275 for acquisitions during the first six months of 2004, compared to net payments made for acquisitions of $48,966 during the comparable period in 2003.  We also had a $15,620 reduction in funding requirements for short-term marketable securities for the first half of 2004 compared with 2003.

Net cash used in financing activities amounted to $78,553 for the six months ended June 30, 2004, an increase of $38,629 over the comparable period in 2003.  This increase was primarily due to an increase of $110,734 for payments to purchase our stock during the first six months of 2004 compared with the comparable period in 2003, offset by a $58,465 increase in proceeds we received from the exercise of stock options by our employees and a $14,038 net increase in our borrowings during the first six months of 2004 compared with the comparable period in 2003.

Our financing activities include cash dividends we paid of $0.02 per share quarterly, which amounted to $9,500 and $9,785 during the first six months of 2004 and 2003, respectively.  The payments and level of cash dividends made by us are reviewed quarterly and are subject to the discretion of our Board of Directors.  Any future dividends, other than the $0.02 per share dividends for the first and second quarters of 2004, which were declared by our Board of Directors in February 2004 and April 2004, respectively, will be based on, and affected by, a number of factors, including our operating results and financial requirements.

Tax and other Contingencies

We are exposed to certain known tax and other contingencies that are material to our investors.  The facts and circumstances surrounding these contingencies and a discussion of their effect on us are included in Note 9 to our Condensed Consolidated Financial Statements (unaudited) for the period ended June 30, 2004.  We do not know of any material tax or other contingencies, other than those described in Note 9 to our Condensed Consolidated Financial Statements (unaudited).

These contingencies may have a material effect on our liquidity, capital resources or results of operations.  Although we have established reserves for D&B Legacy Tax Matters, a 1998 non-U.S. tax reorganization and certain tax return positions in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies”, the actual liability for these

43

matters may exceed the amount of the reserve.  We have not established any reserves in respect of the other contingencies described in Note 9 to the Condensed Consolidated Financial Statements (unaudited).  In addition, even where our reserves are adequate, the incurrence of any of these liabilities may have a material effect on our liquidity and the amount of cash available to us for other purposes.

Management believes that we have made appropriate arrangements in respect of the future effect on us of these known tax and other contingencies.  Management also believes that the amount of cash available to us from our operations, together with cash from financing, will be sufficient for us to pay any known tax and other contingencies as they become due without materially affecting our ability to conduct our operations and invest in the growth of our business.

Stock Repurchase Programs

Our share repurchase program has been developed to buy opportunistically, when we believe that our share price provides us with an attractive use of our cash flow and debt capacity.

On February 10, 2004, our Board of Directors authorized a stock repurchase program to buy up to 10,000 shares.  As of June 30, 2004, approximately 7,500 shares remained available for repurchase under the February 2004 program.

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

On July 19, 2000, our Board of Directors authorized a stock repurchase program to buy up to 40,000 shares.  We completed in June 2003 at a total cost of $868,314.

During the six months ended June 30, 2004, we repurchased approximately 8,057 shares of outstanding common stock under these programs, including the repurchase of 4,600 shares on January 9, 2004 pursuant to an accelerated share repurchase program (“ASR”).  The ASR agreement provides for the final settlement of the contract in either cash or additional shares of our common stock at our sole discretion.We were required to pay an additional $942 as the final settlement amount based on an increase in our share price over the settlement period.  The total cost of the shares repurchased during the six months ended June 30, 2004 was $204,284.

Shares acquired through our repurchase programs described above are open-market purchases or privately negotiated transactions in compliance with Securities and Exchange Commission Rule 10b-18.

Debt

In recent years, we have increased debt levels to balance appropriately the objective of generating an attractive cost of capital with providing us a reasonable amount of financial flexibility.  At June 30, 2004, our debt totaled $634,604, and management does not believe that this level of debt poses a material risk to us due to the following factors:

44

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

•at June 30, 2004, we had $399,718 in worldwide cash and cash equivalents and short-term marketable securities;

•at June 30, 2004, we had $218,700 of unused debt capacity under our existing bank credit facilities ($18,700 and $200,000 available under our long and short-term lines, respectively); and

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

We had borrowing arrangements with several domestic and international banks to provide lines of credit up to $700,000 at June 30, 2004.  Total borrowings under these existing lines were $481,300 and $407,600 at June 30, 2004 and December 31, 2003, respectively, of which $230,000 and $407,600 were classified as short-term and $251,300 and $0 were classified as long-term as of June 30, 2004 and December 31, 2003, respectively.

On April 5, 2004, we entered into a $700,000 revolving credit facility with a syndicate of 12 banks (the “Unsecured Facility”).  The Unsecured Facility replaced our lines of credit with several domestic and international banks.  The Unsecured Facility is comprised of $430,000 of short-term lines that expire April 2005 and $270,000 of long-term lines expiring April 2007.  In general, rates for borrowing under both the short-term and long-term components are LIBOR plus 45 basis points and can vary based on our Debt to EBITDA ratio.  The weighted average interest rates for our short-term lines were 1.86% and 1.61% at June 30, 2004 and December 31, 2003, respectively.  The weighted average interest rates for our long-term lines were 1.88% and 1.84% at June 30, 2004 and December 31, 2003, respectively.  In addition, we will pay a commitment fee on the unused portion of the short-term and long-term facilities of 0.08% and 0.10%, respectively.

We define long-term lines as those where the lines are non-cancelable for more than 365 days from the balance sheet date by the financial institutions except for specified violations of the provisions of the agreement.  Borrowings under these three-year facilities are short-term in nature; however, we have the ability and the intent to refinance the short-term borrowings as they come due through April 2007.  At June 30, 2004, we reclassified $251,300 of our short-term debt outstanding as long-term debt in accordance with the provisions of SFAS No. 6, “Classification of Short-Term Obligations Expected to be Refinanced.”

Our total debt of $634,604 and $561,991 at June 30, 2004 and December 31, 2003, respectively, included $150,000 of five-year private placement debt (as further discussed below), and $3,304 and $4,391 at June 30, 2004 and December 31, 2003, respectively, related primarily to cash overdrafts, certain capital leases, mortgages and an adjustment to the carrying amount of fair value hedged debt.  At June 30, 2004, we had $18,700 and $200,000 available under our long and short-term lines of credit, respectively.

45

During the fourth quarter of 2001, we renegotiated with several banks and entered into three-year lines of credit for borrowings of up to $175,000.  Borrowings had maturity dates of up to 90 days from their inception.  These lines of credit were due to mature in 2004 and as such $175,000 was reclassified to short-term as of December 31, 2003.

In March and April 2002, we entered into interest rate swaps on a portion of our variable rate debt portfolio.  These arrangements convert the variable interest rates to a fixed interest rate on a notional amount of $75,000 and mature at various times from March 2005 through April 2006.  The fixed rates range from 4.05% to 5.08%.  We accounted for the interest rate swaps as cash flow hedges and we recorded any changes in fair value in Other Comprehensive Income, in our Condensed Consolidated Statements of Shareholders’ Equity (unaudited).  We determine the fair values based on estimated prices quoted by financial institutions.  The mark-to-market adjustment for the three and six months ended June 30, 2004 was an unrealized net loss of $870 and $976, respectively.

In January 2003, we closed a private placement transaction pursuant to which we issued $150,000 of five-year debt to several highly rated insurance companies at a fixed rate of 4.60%.  We used the proceeds to pay down short-term debt.  We also swapped $100,000 of our fixed rate debt to floating rate based on six-month LIBOR plus a margin of approximately 107 basis points.  We accounted for these swaps as fair value hedges under the provisions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities.”  We determined the fair values based on estimated prices quoted by financial institutions.  The cumulative fair value adjustment to the swap as of June 30, 2004 was a decrease of $113.

Our financing arrangements provide for certain covenants and events of default customary for similar instruments, including in the case of our main bank arrangements and the 2003 private placement transaction, covenants to maintain specific ratios of consolidated total indebtedness to EBITDA and of EBITDA to certain fixed charges.  At June 30, 2004, we were in compliance with these financial debt covenants and we anticipate that we will remain in compliance with the covenants over the term of the borrowing arrangements.

Severance, Impairment and Other Charges

During the three months ended March 31, 2003, we recorded $37,220 of severance, impairment and other charges (the “first quarter charge”) as a component of operating income.  We incurred these charges due to a number of business and strategic factors affecting us:

•severance-related charges of $9,958 were incurred in an effort to streamline operations and increase productivity through a worldwide reduction in headcount of approximately 80 employees.  This reduction in headcount was primarily focused on upgrading the skills and capabilities of our employee base as we transform the business to provide new and enhanced analytical and consulting offerings to our customers.  The reduction in headcount also led to charges for impaired leases in the U.S. and U.K. for office space no longer being used by us and for which we had not been able to obtain subleases at rates comparable to the terms of our lease obligations.  These severance benefits were calculated pursuant to the terms of established employee protection plans, in accordance with local statutory minimum requirements or individual employee contracts, as applicable;

46

•contract-related charges of $22,307 were incurred for impaired data supply, data processing and impaired lease contracts in our U.S. and Japanese operations.  An impairment for a data supply contract in the U.S. was realized due to the fact that in the first quarter of 2003 we determined that expected revenues under a co-marketing agreement with a data supplier would not be generated, but we are still required to make payments under the terms of the contract.  We also realized an impairment for a data processing contract in Japan related to a weekly data product in Japan that was discontinued at the end of the first quarter of 2003, due to the interruption in data supply; and

•asset write-downs of $4,955 were recorded to write-down certain of our computer software primarily in the U.S. and Japan to its net realizable value.  In the U.S., our decision to change the underlying technology in a product required the write-down of a previous version.  In Japan, the termination of our weekly data product required the write-down of our software used for that product.

	Severance related charges			Contract related charges			Asset write-downs			Total
Charge at March 31, 2003	$	9,958		$	22,307		$	4,955		$	37,220
2003 Utilization	(6,197		)	(7,047		)	(6,634		)	(19,878		)
2004 Utilization	(1,097		)	(1,847		)	—			(2,944		)
Adjustments	(1,746		)	67			1,679			—
Balance at June 30, 2004	$	918		$	13,480		$	0		$	14,398

The cash portion of the first quarter charge amounted to $30,586, of which we paid approximately $13,244 during 2003 and $2,944 during the six months ended June 30, 2004, related primarily to employee termination benefits and contract-related charges.  The remaining accrual of $14,398 at June 30, 2004 relates to lease obligations and continuing payments related to employee termination benefits.

We expect that cash outlays will be applied against the $14,398 balance remaining as follows:

Year Ended December 31,	Cash Outlays
2004	$	2,948
2005	7,917
2006	923
2007	752
2008	228
Thereafter	1,630
Total	$	14,398

During the nine months ended December 31, 2003, we reversed approximately $1,750 of severance related charges originally included in the first quarter charge due to our refinement of estimates.  We also recorded additional charges during 2003 of approximately $1,700 related primarily to a software impairment.

47

We expect that future results will benefit from the first quarter charge to the extent of the contract-related charges and asset write-downs primarily through 2007.  Our severance actions related to a shifting of resources and as such are not expected to generate material cost savings.  The income statement lines that will be impacted in future periods are Operating costs for the contract-related charges and Depreciation and amortization for the asset write-downs.  However, we do not expect a material impact on future cash flows due to the fact that we are still contractually obligated to continue to make payments under impaired contracts.

Recently Issued Accounting Standards

In January 2003, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 46, “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51,” (“FIN 46”).  FIN 46 requires all Variable Interest Entities (“VIEs”) to be consolidated by the primary beneficiary.  The primary beneficiary is the entity that holds the majority of the beneficial interests in the VIE.  In addition, FIN 46 expands disclosure requirements for both VIEs that are consolidated as well as VIEs from which the entity is the holder of a significant amount of the beneficial interest, but not the majority.  In December 2003, the FASB issued Interpretation 46R, “Consolidation of Variable Interest Entities” (revised December 2003), (“FIN 46R”) which further clarified the provisions of FIN 46 and delayed the effective date for applying the provisions of FIN 46 until the end of the first quarter of 2004 for interests held by public entities in VIEs or potential VIEs created before February 1, 2003.  The adoption of FIN 46R did not have a material impact on our financial position, results of operations or cash flows for the three and six months ended June 30, 2004.

In December 2003, the FASB issued SFAS No. 132 (revised 2003), “Employer’s Disclosures about Pensions and Other Postretirement Benefits,” an amendment of SFAS Nos. 87, “Employers’ Accounting for Pensions”, 88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination of Benefits,” and 106, “Employers’ Accounting for Postretirement Benefits Other Than Pensions,” and a revision of SFAS No. 132.  SFAS No. 132 (revised 2003) requires additional disclosures about the assets, obligations, cash flows, and net periodic benefit cost of defined benefit pension plans and other postretirement benefit plans, but does not change the measurement or recognition of such plans.  The new disclosure requirements contained in SFAS No. 132 (revised 2003) are effective for fiscal years ending after December 15, 2003, with a delayed effective date for certain disclosures, for foreign plans, and for non-public entities.  We have adopted all aspects of SFAS No. 132 (revised 2003) for all foreign and non-foreign plans, with the exception of the estimated future benefit payment disclosure.  This requirement is first effective for fiscal years ending after June 15, 2004.  Additionally, we are required to disclose components of the net benefit cost in quarterly financial statements beginning with the first quarter of 2004.  This interim disclosure information is included in Note 11 to the Condensed Consolidated Financial Statements (unaudited).  The adoption of SFAS No. 132 (revised 2003) did not have a material impact on our financial position, results of operations or cash flows for the three and six months ended June 30, 2004.

In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the “Act”) was signed into law in the U.S.  The Act introduced a prescription drug benefit under Medicare Part D and a federal subsidy to sponsors of retirement health care plans that provide a benefit that is at least actuarially equivalent to Medicare Part D.  In May 2004, the FASB issued Staff

48

Position No. (“FSP”) FAS 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.”  This statement requires entities to disclose the effects of the Act and to assess the impact of the subsidy on the accumulated postretirement benefit obligation and the net periodic postretirement benefit cost in the first interim period beginning after June 15, 2004.  The effective date for us is the quarter ending September 30, 2004.  We are currently evaluating the impact of the Act on our postretirement benefit plan.

Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that, in our opinion, may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995.  The words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “foresee,” “likely,” “project,” “estimate,” “will,” “may,” “should,” “future,” “predicts,” “potential,” “continue” and similar expressions identify these forward-looking statements, which appear in a number of places in this Quarterly Report and include, but are not limited to, all statements relating to plans for future growth and other business development activities as well as capital expenditures, financing sources, dividends and the effects of regulation and competition, foreign currency conversion and all other statements regarding the intent, plans, beliefs or our expectations or our directors or officers.  Investors 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 – we derived approximately 61% of our operating revenue in 2003 from non-U.S. operations;

•to the extent we seek growth through acquisitions, alliances or joint ventures, the ability to identify, consummate and integrate acquisitions, alliances and ventures on satisfactory terms;

•our ability to develop new or advanced technologies, including sophisticated information systems, software and other technology used to deliver our products and services and to do so on a timely and cost-effective basis, and the exposure to the risk of obsolescence or incompatibility of these technologies with those of our customers or suppliers;

•our ability to maintain and defend our intellectual property rights in jurisdictions around the world;

•our ability to successfully maintain historic effective tax rates;

•competition, particularly in the markets for pharmaceutical information;

•regulatory, legislative and enforcement initiatives to which we are or may become subject, relating particularly to tax and to patient privacy and the collection and dissemination of

49

data and specifically, the use of anonymized patient-specific information, which we anticipate to be an increasingly important tool in the design, development and marketing of pharmaceuticals;

•regulatory, legislative and enforcement initiatives to which our customers in the pharmaceutical industry are or may become subject restricting the prices that may be charged for subscription or other pharmaceutical products or the manner in which such products may be marketed or sold;

•deterioration in economic conditions, particularly in the pharmaceutical, healthcare, or other industries in which our customers may operate;

•consolidation in the pharmaceutical industry and the other industries in which our customers operate;

•the imposition of additional restrictions on our use of or access to data, or the refusal by data suppliers to provide data to us;

•conditions in the securities markets that may affect the value or liquidity of portfolio investments, including the investment in TriZetto and management’s estimates of lives of assets, recoverability of assets, fair market value, estimates and liabilities and accrued income tax benefits and liabilities;

•to the extent unforeseen cash needs arise, the ability to obtain financing on favorable terms; 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 us, our personnel and facilities, our customers and suppliers, financial markets and general economic conditions.

Consequently, all the forward-looking statements contained in this Quarterly Report on Form 10-Q are qualified by the information contained herein, including, but not limited to, the information contained under this heading and our Condensed Consolidated Financial Statements (unaudited) and notes thereto for the three and six months ended June 30, 2004 and by the material set forth under the headings “Business” and “Factors That May Affect Future Results” in our Annual Report on Form 10-K for the year ended December 31, 2003.  We are 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

Income Taxes.  In addition to the tax items discussed in Note 9 to the Condensed Consolidated Financial Statements (unaudited), we have tax reserves of approximately $27,500 that relate to various positions we have taken on tax returns filed in numerous countries over the last several years.  These reserves represent our best estimate of the probable liability should the tax return positions be challenged by the relevant tax authorities.  While the amount is material in the aggregate, no individual item is material and no single event will have a material impact related to these reserves.

50

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

Information in response to this Item is set forth in “Note 10. Financial Instruments” in the Notes to the Condensed Consolidated Financial Statements (unaudited) on pages 24 through 26 hereof.

Item 4. Controls and Procedures

(a)Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as the Company’s are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

The Company’s Chief Executive Officer andChief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-14c and 15d-14c under the Exchange Act) as of June 30, 2004 (the “Evaluation Date”).  Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective in alerting them on a timely basis to material information relating to the Company (including its consolidated subsidiaries) required to be included in the Company’s periodic filings under the Exchange Act.

(b)Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

51

PART II.  OTHER INFORMATION

Item 1. Legal Proceedings

Information in response to this Item is incorporated by reference to the information set forth in “Note 9. Contingencies” in the Notes to the Condensed Consolidated Financial Statements (unaudited) on pages 13 through 24 hereof.

Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

The following table provides information about the purchase by the Company during the quarter ended June 30, 2004 of equity securities that are registered by the Company pursuant to Section 12 of the Exchange Act.

Period	Total Number of Shares Purchased(1)	Average Price Paid per Share	Total Number of Shares Purchased Under Publicly Announced Programs	Maximum Number of Shares that May Yet Be Purchased Under the Programs(2)
April 1-30, 2004	—	—	—	—
May 1-31, 2004	1,097,900	24.77	1,097,900	9,032,100
June 1-30, 2004	1,502,500	24.68	1,502,500	7,529,600
Total	2,600,400	24.72	2,600,400	7,529,600

(1)All shares were repurchased through the Company’s publicly announced stock repurchase programs.

(2)On April 15, 2003, the Company announced a stock repurchase program to buy up to 10,000,000 shares of the Company’s common stock.  The Company completed the April 2003 program during the quarter ended June 30, 2004.  On February 10, 2004, the Company announced a stock repurchase program to buy up to 10,000,000 shares of the Company’s common stock.  Unless terminated earlier by resolution of the Company’s Board of Directors, this program will expire when the Company has repurchased all shares authorized for repurchase thereunder.  As of June 30, 2004, 2,470,400 shares had been purchased under the February 2004 program.

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

The Annual Meeting of Shareholders of IMS Health Incorporated was held on May 7, 2004.

The following nominees for director named in the Proxy Statement dated March 22, 2004 were elected at the Meeting by the votes indicated:

	For	Withheld
James D. Edwards	189,962,989	7,016,746
David M. Thomas	188,650,488	8,329,247
William C. Van Faasen	189,935,052	7,044,683

52

The votes in favor of the election of the nominees represent at least 96% of the shares present at the meeting.

Approval of the appointment of PricewaterhouseCoopers LLP as Independent Public Accountants was approved by the following vote:

	For	Against	Abstain
Number of Shares	190,015,208	5,400,740	1,563,783
Approval of the Shareholder Proposal to Elect Each Director Annually:
Number of Shares	130,602,609	41,061,132	1,769,706
Approval of the Shareholder Proposal Regarding Shareholder Input Regarding Golden Parachutes:
Number of Shares	73,586,515	95,992,379	3,854,550

Item 6. Exhibits and Reports on Form 8-K

(a)Exhibits:

Exhibit Number	Description of Exhibits
10.1	Amended and Restated Indemnity and Joint Defense Agreement among VNU N.V., VNU Inc., AC Nielsen Corporation, Neilsen Media Research Inc., R.H. Donnelley Corporation, The Dun & Bradstreet Corporation, Moody’s Corporation and IMS Health Incorporated, dated July 30, 2004.
31.1	CEO 302 Certification pursuant to Rule 13a-14(a)/15d-14(a)
31.2	CFO 302 Certification pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Joint CEO/CFO Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

(b)Reports on 8-K:

A report on Form 8-K was filed on April 20, 2004 to present under Item 12, Results of Operations and Financial Condition, the Press Release regarding IMS Health’s financial results for its 2004 first quarter.

53

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

		IMS Health Incorporated
	By:	/s/ Nancy E. Cooper
Date: August 3, 2004		Nancy E. Cooper
		Senior Vice President and
		Chief Financial Officer
		(principal financial officer)
		/s/ Leslye G. Katz
Date: August 3, 2004		Leslye G. Katz
		Vice President, Controller
		(principal accounting officer)

54

EXHIBIT INDEX

Exhibit Number	Description of Exhibits
10.1	Amended and Restated Indemnity and Joint Defense Agreement among VNU N.V., VNU Inc., AC Nielsen Corporation, Neilsen Media Research Inc., R.H. Donnelley Corporation, The Dun & Bradstreet Corporation, Moody’s Corporation and IMS Health Incorporated, dated July 30, 2004.
31.1	CEO 302 Certification pursuant to Rule 13a-14(a)/15d-14(a)
31.2	CFO 302 Certification pursuant to Rule 13a-14(a)/15d-14(a)
32.1	Joint CEO/CFO Certification Required Under Section 906 of the Sarbanes-Oxley Act of 2002

55

EX-10.1

EXHIBIT 10.1

AMENDED AND RESTATED
INDEMNITY AND JOINT DEFENSE AGREEMENT

This Amended and Restated Indemnity and Joint Defense Agreement (this “Agreement”), is entered into as of July 30, 2004, by and among VNU, N.V., a corporation organized under the laws of the Netherlands (“VNU”), VNU, Inc., a New York corporation and a wholly owned subsidiary of VNU (“VNU Inc.”), ACNielsen Corporation, a Delaware corporation and a wholly owned subsidiary of VNU (“ACNielsen”), AC Nielsen (US), Inc., a Delaware corporation and a wholly owned subsidiary of VNU Inc. (“New ACN”), Nielsen Media Research, Inc. (formerly, Cognizant Corporation (“Cognizant”)), a Delaware corporation and a wholly owned subsidiary of VNU Inc. (“NMR”), R.H. Donnelley Corporation (formerly, The Dun & Bradstreet Corporation (“Old D&B”)), a Delaware corporation (“Donnelley”), The Dun & Bradstreet Corporation, a Delaware corporation (“D&B”), Moody’s Corporation, a Delaware corporation (“Moody’s”), and IMS Health Incorporated, a Delaware corporation (“IMS”) (each individually, a “Party,” and collectively, the “Parties”).

WHEREAS, Old D&B, ACNielsen Company (a subsidiary of ACNielsen) and I.M.S. International, Inc. (formerly a subsidiary of Cognizant and a predecessor of IMS) have been named as defendants in an action commenced by Information Resources, Inc. (“IRI”) by the filing of its complaint dated July 29, 1996 in the action captioned Information Resources, Inc. v. The Dun & Bradstreet Corporation, A.C. Nielsen Co. and I.M.S. International, Inc. (S.D.N.Y.) 96 Civ. 5716 (this action and any amended complaint or action arising out of the same or substantially similar factual allegations by IRI or any successor or Affiliate thereof are referred to herein as the “Lawsuit”);

WHEREAS, Old D&B, Cognizant and ACNielsen are parties to an Indemnity and Joint Defense Agreement, dated as of October 28, 1996 (the “Original Agreement”), which provided for, among other things (i) allocation of financial responsibility among Old D&B, Cognizant and ACNielsen for the liabilities arising out of, or in connection with, the Lawsuit, and (ii) terms and conditions for the joint defense by the parties thereto against the Lawsuit;

WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of October 28, 1996, among Old D&B, Cognizant and ACNielsen (the “1996 Distribution Agreement”), the shares of Cognizant and ACNielsen were distributed by Old D&B to the stockholders of Old D&B (the “1996 Distribution”);

WHEREAS, the 1996 Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate among Old D&B, Cognizant and ACNielsen financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by Old D&B and its Subsidiaries before the 1996 Distribution;

WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of June 30, 1998, between Cognizant (subsequently renamed NMR) and IMS (the “1998 Cognizant/IMS Distribution Agreement”), the shares of IMS were distributed by Cognizant to the stockholders of Cognizant (the “1998 Cognizant/IMS Distribution”);

WHEREAS, the 1998 Cognizant/IMS Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate between Cognizant and IMS financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by Cognizant and its subsidiaries before the 1998 Cognizant/IMS Distribution, including Cognizant’s liabilities under the 1996 Distribution Agreement and the Original Agreement;

WHEREAS, under the terms of the 1996 Distribution Agreement, as a condition to the 1998 Cognizant/IMS Distribution, IMS was required to undertake, and did undertake, to each of Old D&B and ACNielsen to be jointly and severally liable with Cognizant for all of Cognizant’s liabilities under the 1996 Distribution Agreement;

WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of June 30, 1998, between Old D&B (subsequently renamed Donnelley) and The New Dun & Bradstreet Corporation (subsequently renamed The Dun & Bradstreet Corporation) (the “1998 Old D&B/Donnelley Distribution Agreement”), the shares of The New Dun & Bradstreet Corporation were distributed by Old D&B to the stockholders of Old D&B (the “1998 Old D&B/Donnelley Distribution”);

WHEREAS, the 1998 Old D&B/Donnelley Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate between Old D&B and The New Dun & Bradstreet Corporation financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by Old D&B and its subsidiaries before the 1998 Old D&B/Donnelley Distribution, including Old D&B’s liabilities under the 1996 Distribution Agreement and the Original Agreement;

WHEREAS, under the terms of the 1996 Distribution Agreement, as a condition to the 1998 Old D&B/Donnelley Distribution, The New Dun & Bradstreet Corporation was required to undertake, and did undertake, to each of Cognizant and ACNielsen to be jointly and severally liable with Old D&B for all of Old D&B’s liabilities under the 1996 Distribution Agreement;

WHEREAS, pursuant to the terms of the Agreement and Plan of Merger, dated as of August 15, 1999, among VNU USA, Inc. (“VNU USA”), Niner Acquisition, Inc., a wholly owned subsidiary of VNU USA (“Niner”), and NMR, Niner merged with and into NMR, with NMR continuing as the surviving corporation and a wholly owned subsidiary of VNU USA;

WHEREAS, pursuant to the terms of the Distribution Agreement, dated as of September 30, 2000, between The Dun & Bradstreet Corporation (subsequently renamed Moody’s) and The New Dun & Bradstreet Corporation (subsequently renamed

2

D&B) (the “2000 D&B/Moody’s Distribution Agreement”), the shares of D&B were distributed by Moody’s to the stockholders of Moody’s (the “2000 D&B/Moody’s Distribution”);

WHEREAS, the 2000 D&B/Moody’s Distribution Agreement provided for, among other things, assumptions of liabilities and cross indemnities designed to allocate between The Dun & Bradstreet Corporation and The New Dun & Bradstreet Corporation financial responsibility for the liabilities arising out of, or in connection with, the businesses conducted by The Dun & Bradstreet Corporation and its subsidiaries before the 2000 Distribution, including The Dun & Bradstreet Corporation’s liabilities under the 1996 Distribution Agreement, the Original Agreement and the 1998 Old D&B/Donnelley Distribution Agreement;

WHEREAS, under the terms of the 1996 Distribution Agreement, as a condition to the 2000 D&B/Moody’s Distribution, The New Dun & Bradstreet Corporation was required to undertake, and did undertake, to each of NMR (as successor to Cognizant) and ACNielsen to be jointly and severally liable with Donnelley (as successor to Old D&B) for all of Old D&B’s liabilities under the 1996 Distribution Agreement;

WHEREAS, under the terms of the 1998 Old D&B/Donnelley Distribution Agreement, as a condition to the 2000 D&B/Moody’s Distribution, The New Dun & Bradstreet Corporation was required to undertake, and did undertake, to Donnelley (as successor to Old D&B) to be jointly and severally liable with The Dun & Bradstreet Corporation for all of The Dun & Bradstreet Corporation’s liabilities under the 1998 Old D&B/Donnelley Distribution Agreement;

WHEREAS, pursuant to the terms of the Agreement and Plan of Merger, dated as of December 17, 2000, among VNU, Artist Acquisition, Inc., a wholly owned subsidiary of VNU (“Artist”), and ACNielsen, Artist merged with and into ACNielsen, with ACNielsen continuing as the surviving corporation and a wholly owned subsidiary of VNU (the “ACNielsen Acquisition”);

WHEREAS, under the terms of the Original Agreement, in connection with the ACNielsen Acquisition, VNU was required to assume, and did assume, all of ACNielsen’s obligations under the Original Agreement;

WHEREAS, pursuant to the terms and subject to the limitations hereof, VNU, VNU Inc., ACNielsen, New ACNand NMR, jointly and severally, have agreed, inter alia, (i) to assume and duly and punctually perform, be bound by, and otherwise discharge in accordance with their terms the IRI Liabilities and (ii) indemnify Donnelley (as successor to Old D&B), D&B, Moody’s and IMS against any IRI Liabilities which may be incurred, directly or indirectly, by any of them;

WHEREAS, the Parties believe that they have a mutuality of interest in a joint defense in connection with the Lawsuit and any additional actions, investigations or

3

proceedings that have arisen or may arise in connection with the subject matter of the Lawsuit;

WHEREAS, it is the intention and understanding of the Parties that communications between and among them as provided herein and any joint interviews of prospective witnesses for the purpose of a joint defense are confidential and are protected from disclosure to any third party by the attorney-client privilege, the work product doctrine and any other applicable privileges;

WHEREAS, in order to pursue a joint defense effectively, the Parties have also concluded that, from time to time, their mutual interests will be best served by sharing privileged material, mental impressions, memoranda, interview reports and other work products and information, including the confidences of each party;

WHEREAS, it is a purpose of this Agreement to insure that the exchanges and disclosures of privileged materials contemplated herein do not diminish or constitute a waiver of any privilege that may otherwise be available by virtue of any prior agreement, conduct, operation of law or otherwise;

WHEREAS, the Parties desire to amend and restate the Original Agreement as set forth herein and each Party expressly acknowledges that the execution and delivery of this Agreement does not in any manner constitute an admission that the Lawsuit has any merit.

NOW, THEREFORE, in consideration of the mutual promises, covenants and releases contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

ARTICLE I
DEFINITIONS

SECTION 1.1.          Definitions.  The following terms shall have the following meanings:

“1996 Distribution” shall have the meaning set forth in the recitals hereto.

“1996 Distribution Agreement” shall have the meaning set forth in the recitals hereto.

“1998 Cognizant/IMS Distribution” shall have the meaning set forth in the recitals hereto.

“1998 Cognizant/IMS Distribution Agreement” shall have the meaning set forth in the recitals hereto.

“1998 Old D&B/Donnelley Distribution “ shall have the meaning set forth in the recitals hereto.

4

“1998 Old D&B/Donnelley Distribution Agreement” shall have the meaning set forth in the recitals hereto.

“2000 D&B/Moody’s Distribution” shall have the meaning set forth in the recitals hereto.

“2000 D&B/Moody’s Distribution Agreement” shall have the meaning set forth in the recitals hereto.

“ACNielsen” shall have the meaning set forth in the recitals hereto.

“ACNielsen Acquisition” shall have the meaning set forth in the recitals hereto.

“Affiliate” of any specified Person means any other Person, directly or indirectly, controlling or controlled by or under direct or indirect common control with such specified Person.  For the purposes of this definition, “control” when used with respect to any specified Person means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of Voting Stock, by contract or otherwise; and the terms “controlling” and “controlled” have meanings correlative to the foregoing.

“Ancillary Agreements” shall mean all of the written agreements, instruments, assignments or other written arrangements (other than this Agreement and the 1996 Distribution Agreement) entered into in connection with the transactions contemplated by this Agreement and the 1996 Distribution Agreement, including, without limitation, the Conveyancing and Assumption Instruments, the Data Services Agreement, the Employee Benefits Agreement, the Intellectual Property Agreement, the Shared Transaction Services Agreements, the TAM Master Agreement, the Tax Allocation Agreement and the Transition Services Agreement.

“Artist” shall have the meaning set forth in the recitals hereto.

“Board of Directors” shall mean, when used with respect to a specified corporation, the board of directors of the corporation so specified, and when used with respect to VNU, the executive board of VNU.

“Business Combination” means, with respect to any Person, any consolidation or merger or any sale, conveyance, assignment, transfer, lease or other disposition of all or substantially all of the properties and assets of such Person as an entirety in one transaction or series of transactions.

“Business Day” means any day that is not a Saturday, a Sunday or any other day on which banks are required or authorized by law to be closed in New York, New York.

“Capital Lease Obligations” of a Person means any obligation which is required to be classified and accounted for as a capital lease for financial reporting

5

purposes in accordance with GAAP; the amount of such obligations shall be the capitalized amount thereof, determined in accordance with GAAP.

“Capital Stock” means, with respect to any Person, any and all shares, interests, participations, rights to purchase, warrants, options, or other equivalents (however designated) of capital stock of a corporation, and any and all equivalent ownership interests in a Person other than a corporation, in each case whether now outstanding or hereafter issued.

“Cash Equivalents” means, at any time, (a) any evidence of Indebtedness with a maturity of 180 days or less from the date of acquisition issued or directly and fully guaranteed or insured by the United States of America or any agency or instrumentality thereof (provided, that the full faith and credit of the United States of America is pledged in support thereof); (b) certificates of deposit, money market deposit accounts and acceptances with a maturity of 180 days or less from the date of acquisition of any financial institution that is a member of the Federal Reserve System having combined capital and surplus and undivided profits of not less than $500 million; (c) commercial paper with a maturity of 180 days or less from the date of acquisition issued by a corporation that is not an Affiliate of a VNU Party whose debt rating, at the time as of which such investment is made, is at least “A-1” by Standard & Poor’s Corporation or at least “P-1” by Moody’s Investors Service, Inc., or rated at least an equivalent rating category of another nationally recognized securities rating agency; (d) repurchase agreements and reverse repurchase agreements having a term of not more than 30 days for underlying securities of the types described in clause (a) above entered into with a financial institution meeting the qualifications described in clause (b) above; (e) any security, maturing not more than 180 days after the date of acquisition, backed by standby or direct pay letters of credit issued by a bank meeting the qualifications described in clause (b) above; and (f) any security, maturing not more than 180 days after the date of acquisition, issued or fully guaranteed by any state, commonwealth, or territory of the United States of America, or by any political subdivision thereof, and rated at least “A” by Standard & Poor’s Corporation or at least “A” by Moody’s Investors Service, Inc., or rated at least an equivalent rating category of another nationally recognized securities rating agency.

“Cognizant” shall have the meaning set forth in the recitals hereto.

“Consolidated EBITDA” means for any period the sum of Consolidated Net Income plus, to the extent deducted in computing Consolidated Net Income, Consolidated Interest Expense, Consolidated Tax Expense, all depreciation and, without duplication, all amortization, in each case, for such period, of the Relevant Party and its Subsidiaries on a consolidated basis, all as determined in accordance with GAAP.

“Consolidated Interest Expense” means for any period the sum of (a) the aggregate of the interest expense on Indebtedness of the Relevant Party and its Subsidiaries for such period, on a consolidated basis as determined in accordance with GAAP (excluding the amortization of costs relating to original debt issuances but including the amortization of debt discount) plus (b) without duplication, that portion of

6

Capital Lease Obligations of the Relevant Party and its Subsidiaries representing the interest factor for such period as determined in accordance with GAAP plus (c) without duplication, dividends paid in respect of preferred stock of Subsidiaries or Disqualified Stock of the Relevant Party and its Subsidiaries to Persons other than the Relevant Party or a wholly owned Subsidiary of the Relevant Party.

“Consolidated Net Income” means, for any period, the net income or loss of the Relevant Party and its Subsidiaries for such period on a consolidated basis as determined in accordance with GAAP, adjusted by excluding the after-tax effect of (a) any gains (but not losses) from currency exchange transactions not in the ordinary course of business; (b) the net income of any Person which is not a Subsidiary of the Relevant Party or is accounted for by the equity method of accounting except to the extent of the amount of dividends or distributions actually paid in cash by such Person to the Relevant Party or a Subsidiary of the Relevant Party during such period; (c) except to the extent includible pursuant to clause (b), the net income of any Person accrued prior to the date it becomes a Subsidiary of the Relevant Party or is merged into or consolidated with the Relevant Party or any of its Subsidiaries or such Person’s assets are acquired by the Relevant Party or any of its Subsidiaries; (d) net gains attributable to write-ups (determined after taking into account losses attributable to write-downs) of assets or liabilities other than in the ordinary course of business; (e) the cumulative effect of a change in accounting principles; and (f) net income from discontinued operations.

“Consolidated Net Worth” of a Person and its Subsidiaries means as of any date all amounts that would be included under stockholders’ equity on a consolidated balance sheet of such Person and its Subsidiaries determined in accordance with GAAP.

“Consolidated Tax Expense” means for any period the aggregate of the federal, state, local and foreign income tax expense of the Relevant Party and its Subsidiaries for such period, on a consolidated basis as determined in accordance with GAAP, to the extent deducted in computing Consolidated Net Income.

“Covenant Party” shall have the meaning set forth in Section 3.1 hereto.

“Counsel of Record” shall have the meaning set forth in Section 4.1 hereto.

“D&B” shall have the meaning set forth in the recitals hereto.

“D&B Party” shall have the meaning set forth in Section 2.2 hereto.

“D&B Parties Counsel” shall have the meaning set forth in Section 4.1 hereto.

“Defense Costs” shall have the meaning set forth in Section 4.1 hereto.

“Defense Costs Statement” shall have the meaning set forth in Section 4.1 hereto.

7

“Defense Materials” shall have the meaning set forth in Section 4.1 hereto.

“Designated Officers” means, with respect to any VNU Party, the chief financial officer (or equivalent officer) of such VNU Party.

“Disqualified Stock” means any Capital Stock which pays a mandatory dividend (other than in Capital Stock) or which, by its terms (or by the terms of any security into which it is convertible or exchangeable), or upon the happening of any event, (i) matures or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, (ii) is redeemable at the option of the holder thereof, in whole or in part or (iii) is convertible or exchangeable for Indebtedness or Disqualified Stock of any Relevant Party or its Subsidiaries.

“Donnelley” shall have the meaning set forth in the recitals hereto.

“Federal Funds Rate” means, for any period, a fluctuating interest rate per annum equal for each day during such period to the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published for such day (or, if such day is not a Business Day, for the next preceding Business Day) by the Federal Reserve Bank of New York.

“Fixed Charge Coverage Ratio” means for any period the ratio of Consolidated EBITDA to Consolidated Interest Expense for such period; provided, however, that in making such computation, the interest expense on any Indebtedness to be incurred and computed on a pro forma basis and bearing a floating interest rate shall be computed as if the rate in effect on the date of computation had been the applicable rate for the entire period.

“GAAP” means the generally accepted accounting principles in the United States, including those set forth in the opinions and pronouncements of the Accounting Principles Board of the American Institute of Certified Public Accountants and statements and pronouncements of the Financial Accounting Standards Board or in such other statements by such other entity as may be approved by a significant segment of the accounting profession in the United States, in each case applied on a consistent basis.

“IMS” shall have the meaning set forth in the recitals hereto.

“IMS Counsel” shall have the meaning set forth in Section 4.1 hereto.

“Indebtedness” means, with respect to any Person, without duplication, (a) the principal of and premium (if any) in respect of (i) indebtedness of such Person for money borrowed and (ii) indebtedness evidenced by notes, indentures, bonds, other similar instruments for the payment of which such Person is responsible or liable; (b) all Capital Lease Obligations of such Person; (c) all obligations of such Person issued or assumed as the deferred purchase price of property; (d) all obligations of such Person for the reimbursement of any obligor on any letter of credit or similar credit transaction; (e) all dividends on Capital Stock issued by third parties for the payment of which such

8

Person is responsible; (f) all obligations of the type referred to in clauses (a) through (e) above of third parties secured by any Lien on any property or asset of such Person, the amount of such obligation being deemed to be the lesser of the value of such property or assets or the amount of the obligation so secured; (g) indebtedness secured by any Lien existing on property acquired by such Person subject to such Lien, whether or not the indebtedness secured thereby shall have been assumed; provided, that if such Person has not assumed such Indebtedness the amount of Indebtedness of such Person shall be deemed to be the lesser of the value of such acquired property or the amount of the indebtedness secured; (h) guarantees, endorsements and other obligations, whether or not contingent, in respect of, or agreements to purchase or otherwise acquire, Indebtedness of other Persons; (i) all Disqualified Stock issued by such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; (j) preferred stock issued by any Subsidiary of such Person valued at the greater of its voluntary or involuntary maximum fixed repurchase price plus accrued and unpaid dividends; and (k) all obligations under or in respect of Interest Rate Protection and Other Hedging Agreements.

For purposes of this definition, “maximum fixed repurchase price” of any preferred stock issued by any Subsidiary of a Person and of any Disqualified Stock which does not have a fixed repurchase price shall be calculated in accordance with the terms of such preferred stock or such Disqualified Stock as if such preferred stock or such Disqualified Stock were purchased on any date on which Indebtedness shall be required to be determined pursuant to this Agreement, and if such price is based upon, or measured by, the fair market value of such preferred stock or Disqualified Stock, such fair market value shall be determined in good faith by the Board of Directors of the issuer of such preferred stock or such Disqualified Stock.

“Indemnified Parties” shall have the meaning set forth in Section 2.2 hereto.

“Interest Rate Protection and Other Hedging Agreements” means one or more of the following agreements entered into by one or more financial institutions: (a) interest rate protection agreements (including, without limitation, interest rate, swaps, caps, floors, collars and similar agreements), (b) foreign exchange contracts, currency swap agreements or other similar agreements or arrangements designed to protect against fluctuations in currency values and/or (c) other types of hedging agreements from time to time.

“IRI” shall have the meaning set forth in the recitals hereto.

“IRI Investor” shall have the meaning set forth in Section 2.3 hereto.

“IRI Liabilities” shall have the meaning set forth in Section 2.1 hereto.

“Lawsuit” shall have the meaning set forth in the recitals hereto.

9

“Lien” means any mortgage, lien, pledge, security interest, conditional sale or other title retention agreement or other security interest or encumbrance of any kind (including any agreement to give any security interest).

“Moody’s” shall have the meaning set forth in the recitals hereto.

“Niner” shall have the meaning set forth in the recitals hereto.

“NMR” shall have the meaning set forth in the recitals hereto.

“Officer “ means the Chairman of the Board of Directors, the Vice-Chairman of the Board of Directors, the Chief Executive Officer or the Chief Financial Officer of the relevant party.

“Officer’s Certificate” means a certificate signed by an Officer.

“Old D&B” shall have the meaning set forth in the recitals hereto.

“Original Agreement” shall have the meaning set forth in the recitals hereto.

“Parent” of a Person means any other Person with the power to direct the management and policies of such Person, directly or indirectly, whether through ownership of Voting Stock, by contract or otherwise.

“Party” shall have the meaning set forth in the recitals hereto.

“Party Counsel” shall have the meaning set forth in Section 4.1 hereto.

“Permitted Related Person Subordinated Indebtedness” shall have the meaning set forth in Section 3.6 hereto.

“Person” means any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof.

“Prime Rate” means a fluctuating interest rate per annum in effect from time to time, which shall at all times be equal to the higher of (i) the rate of interest announced publicly by Citibank, N.A. in New York, New York, from time to time, as Citibank, N.A.’s prime rate and (ii) ½ of 1% per annum above the Federal Funds Rate.

“Process Agent” shall have the meaning set forth in Section 5.13 hereto.

“Related Person” means (a) any Affiliate of a Relevant Party, (b) any Person who directly or indirectly holds 5% or more of any class of Voting Stock of a Relevant Party or any Subsidiary of a Relevant Party, (c) any Person who is an executive officer or director of a Relevant Party and (d) any Affiliate of or any relative by blood,

10

marriage or adoption not more remote than first cousin of any such Person referred to in clause (b) or (c) above.

“Relevant Party” shall have the meaning set forth in Section 3.4 hereto.

“Restricted Payment” means, with respect to a Covenant Party and its Subsidiaries, (a) any declaration or payment of any dividend on, or any distribution in respect of, or any purchase, redemption or retirement for value of, any Capital Stock of such Covenant Party or its Subsidiary or any deposit with respect to the foregoing (other than dividends or distributions payable solely to such Covenant Party), (b) any charitable contribution, (c) any voluntary payments to pension or other benefit plans, (d) any payments in respect of any Permitted Related Person Subordinated Indebtedness (other than amounts paid solely to a Covenant Party) or (e) any accelerated payment of any accounts payable or any cancellation or discounting of, or delay or extension in the collection of, any accounts receivable, unless such acceleration, cancellation, discounting, delay or extension, as the case may be, is in the ordinary course of such Person’s business.

“Strategic Transaction” shall mean any direct or indirect acquisition or disposition of any business or of any assets comprising a business, or any acquisition or disposition of any interest in a joint venture or other equity investment in any business.

“Subordination Agreement” shall have the meaning set forth in Section 3.6 hereto.

“Subsidiary” shall mean any corporation, partnership or other entity of which another entity (a) owns, directly or indirectly, ownership interests sufficient to elect a majority of the Board of Directors (or persons performing similar functions) (irrespective of whether at the time any other class or classes of ownership interests of such corporation, partnership or other entity shall or might have such voting power upon the occurrence of any contingency) or (b) is a general partner or an entity performing similar functions (e.g., a trustee).  For purposes of this Agreement, the term “Subsidiary” as it relates to IMS shall be deemed to include the following former affiliates of IMS:  Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment.

“Trust” shall have the meaning set forth in Section 2.3 hereto.

“VNU” shall have the meaning set forth in the recitals hereto.

“VNU USA” shall have the meaning set forth in the recitals hereto.

“VNU Inc.” shall have the meaning set forth in the recitals hereto.

“VNU Party” shall have the meaning set forth in Section 2.1 hereto.

11

“Voting Stock” means all outstanding classes of Capital Stock of any Person ordinarily entitled (without regard to the occurrence of any contingency) to vote in the election of directors, managers, trustees or other voting members of the governing body of such Person.

“Withdrawing Party” shall have the meaning set forth in Section 4.1 hereto.

ARTICLE II
ALLOCATION OF LIABILITIES/
INDEMNIFICATION

SECTION 2.1.  Allocation of Liabilities.The Parties agree that in the event that liabilities are incurred by any Party hereto or any Subsidiary (including, with respect to IMS, Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment) thereof, relating to, arising out of or resulting from a judgment being entered, or any settlement permitted hereby being entered into, in connection with the Lawsuit, any and all of such liabilities (“IRI Liabilities”) shall be jointly and severally assumed and duly and fully paid and discharged in accordance with their terms exclusively by VNU, VNU Inc., ACNielsen, New ACN and NMR (each, a “VNU Party” and, collectively, the “VNU Parties”).  IRI Liabilities shall not include Defense Costs (whether or not paid), which shall be shared by the Parties in accordance with Section 4.1(h).

SECTION 2.2.  Indemnification.  The VNU Parties shall, jointly and severally, indemnify, defend and hold harmless Donnelley, D&B, Moody’s (collectively, the “D&B Parties”) and IMS and their respective Subsidiaries (including, with respect to IMS, Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment) (collectively, the “Indemnified Parties”) from and against, and shall reimburse the same for and in respect of, any and all IRI Liabilities assessed against any of them, or to which any of them becomes subject, as a result of the Lawsuit.

SECTION 2.3.  Other Agreements Relating to Allocation of IRI Liabilities.

(a)       If any of the D&B Parties or IMS acquires beneficial ownership of 20% or more of the outstanding contingent value rights issued by the Information Resources Inc. Litigation Contingent Payment Rights Trust (or any successor thereof) (the “Trust”) (an “IRI Investor”), then such IRI Investor shall be deemed to be Withdrawing Party for purposes of and with the consequences set forth in Section 4.1(g).

(b)       The VNU Parties agree that if it shall be necessary to post any bond pending any appeal of the Lawsuit or otherwise in connection therewith, the

12

VNU Parties shall promptly procure such a bond and shall exclusively pay the full cost thereof.

(c)       The directors of A.C. Nielsen Company immediately prior to the 1996 Distribution shall be third-party beneficiaries of the agreements set forth in Article II.

ARTICLE III
COVENANTS/ REPRESENTATION AND WARRANTIES

SECTION 3.1.          Limitation on Restricted Payments. 

(a)           Neither ACNielsen nor New ACN (each a “Covenant Party” and, collectively, the “Covenant Parties”) will, nor will they permit any of their Subsidiaries to, directly or indirectly, make any Restricted Payment if, at the time of such Restricted Payment, and after giving effect thereto, the aggregate amount of such Restricted Payment and all other Restricted Payments declared or made for the then current calendar year shall exceed the sum of:

(i)    $30 million; and

(ii)   20% of the aggregate, without duplication, Consolidated Net Income (which, for purposes of this Section 3.1, shall not be less than zero) of the Covenant Parties accrued on a cumulative basis during the last four completed calendar quarters ending on or prior to the date of such proposed Restricted Payment;

provided, however, that the foregoing provisions will not prevent the payment of a dividend within 60 days after the date of its declaration if at the date of declaration such payment was permitted by the foregoing provisions.

(b)           The amount of all Restricted Payments (other than cash) shall be the fair market value on the date of such Restricted Payment of the asset(s) or securities proposed to be paid, transferred or issued by such Covenant Party or its Subsidiary, as the case may be, pursuant to such Restricted Payment.  The fair market value of any non-cash Restricted Payment shall be determined by the Board of Directors of such Covenant Party acting in good faith, whose determination shall be conclusive and whose resolution with respect thereto shall be delivered to each of the D&B Parties and IMS not later than three (3) days following the date of making such Restricted Payment, such determination to be based upon an opinion or appraisal issued by an internationally recognized investment banking firm if such fair market value is estimated to exceed $15 million.

SECTION 3.2.      Limitation on Transactions with Related Persons.

(a)       Neither Covenant Party will, nor will it permit any of its Subsidiaries to, directly or indirectly, enter into or suffer to exist any transaction or series of related transactions (including, without limitation, the sale, purchase, exchange or

13

lease of assets, property or services) with any Related Person unless (i) such transaction or series of transactions is on terms that are no less favorable to the relevant Covenant Party or its Subsidiary, as the case may be, than would be available in a comparable transaction with an unrelated third party and (ii) where such transaction or series of transactions involves aggregate consideration (including, without limitation, the assumption of indebtedness) in excess of 7.5% of the aggregate Consolidated Net Worth of the Covenant Parties on a combined basis (without duplication) as of the end of the prior fiscal year, the relevant Covenant Party shall also deliver to each of the D&B Parties and IMS not later than the date of entering into any such transaction, an opinion from an internationally recognized investment banking firm chosen by such Covenant Party as to the fairness of such transaction or series of transactions to such Covenant Party or such Subsidiary from a financial point of view.

(b)           For purposes of the foregoing, a series of related transactions will be deemed to include, without limitation, a series of transactions if, within six months of closing one transaction, another transaction is entered into with the same Person or with a successor or affiliate thereof.

(c)           Notwithstanding the foregoing, the provisions of this Section 3.2 will not apply to (i) compensation or employee benefit arrangements with any officer or director of a Covenant Party or (ii) any Restricted Payment permitted to be made pursuant to this Agreement.

SECTION 3.3.      Merger and Consolidation.  Neither Covenant Party may engage in any Business Combination with any Person, unless:

(a)           either:

(i)    the Covenant Party shall be the continuing corporation and the Persons who were such Covenant Party’s stockholders immediately prior to such Business Combination continue to hold more than 50% of the combined voting power of the Voting Stock of the continuing corporation upon consummation of such Business Combination; or

(ii)   (A) such Person and such Person’s Parent, if any, (x) shall be a corporation, partnership or trust organized and validly existing under the laws of the United States or any State thereof or the District of Columbia or (y) shall duly execute and deliver to each of the D&B Parties and IMS a consent to jurisdiction in the form set forth in Exhibit 3.3(A) hereto and (B) such Person and such Person’s Parent, if any, shall expressly assume, by an instrument of assumption in the form set forth in Exhibit 3.3(B) hereto executed and delivered to each of the D&B Parties and IMS, all of the VNU Parties’ obligations hereunder;

(b)           immediately after the Business Combination, the Covenant Party and its Subsidiaries or such Person, or such Person’s Parent, if any, and its Subsidiaries shall have a Consolidated Net Worth equal to or greater than the

14

Consolidated Net Worth of such Covenant Party and its Subsidiaries immediately prior to such Business Combination;

(c)           the Covenant Party shall have delivered to each of the D&B Parties and IMS (i) an Officer’s Certificate stating that such Business Combination complies with this Agreement and (ii) an Officer’s Certificate and an opinion of reputable outside counsel, each stating that such consent to jurisdiction, in the event clause (a)(ii)(A)(y) is applicable, and such instrument of assumption, in the event clause (a)(ii)(B) is applicable, constitute legal, valid and binding obligations of such Person and such Person’s Parent, if any, enforceable in accordance with their terms; and

(d)           such Business Combination is permitted under Section 3.4 below.

SECTION 3.4.      Limitation on Certain Transactions.

(a)           Neither Covenant Party will enter into any Strategic Transaction or engage in any Business Combination unless an Officer’s Certificate is delivered to each of the D&B Parties and IMS certifying that, after giving pro forma effect to such Strategic Transaction or Business Combination, the Fixed Charge Coverage Ratio of the Covenant Parties on a combined basis, or, in the case of a Business Combination, the Fixed Charge Coverage Ratio on a combined basis of the continuing corporation (or, in the case of a Business Combination that is a sale, conveyance, assignment, transfer, lease or other disposition of all or substantially all of the properties and assets of the Covenant Party, the purchaser, recipient, assignee, transferee or lessor of such properties and assets) following such Business Combination (the Covenant Party engaging in such Strategic Transaction or Business Combination, or such continuing corporation, purchaser, recipient, assignee, transferee or lessor, as the case may be, and the other Covenant Party referred to individually as the “Relevant Party”) and of the other Covenant Party, in each case calculated as set forth in Section 3.4(c) below, is greater than 2 to 1, which Officer’s Certificate shall be accompanied by a letter from each Relevant Party’s independent accountants confirming that such Fixed Charge Coverage Ratio has been correctly calculated in accordance with the requirements hereof and based on financial statements prepared in accordance with GAAP.

(b)           In addition, neither Covenant Party will enter into any Strategic Transaction or engage in any Business Combination involving aggregate consideration (including, without limitation, the assumption of indebtedness) in excess of $50 million, unless the following conditions are met:

(i)    the Board of Directors of such Covenant Party has received an opinion in writing from an internationally recognized investment bank chosen by such Covenant Party, to the effect that such transaction is fair, from a financial point of view, to the Covenant Party, a copy of which opinion shall have been delivered to the D&B Parties and IMS; and

15

(ii)   in the case of a disposition of a business, an equity interest in a business or the disposition of assets comprising a business, which disposition does not involve the simultaneous equity investment in a joint venture entity which is the acquirer of such business, equity investment or assets, the consideration therefor is limited to cash, Cash Equivalents and/or marketable securities which are freely tradable on a public stock exchange or inter-dealer quotation system.

(c)           The Fixed Charge Coverage Ratio shall be for the most recent four consecutive full fiscal quarters ending prior to such certification, taken as one period, and calculated on the assumptions that (i) any Indebtedness to be incurred in connection with an acquisition or Business Combination had been incurred on the first day of such four-quarter period, (ii) any other Indebtedness incurred, repaid or retired by the Relevant Party and its Subsidiaries since the beginning of such four-quarter period was incurred, repaid or retired, as the case may be, on the first day of such four-quarter period (except that, in making such computation, the amount of Indebtedness under any revolving credit facility outstanding on the date of such calculation shall be computed based on (A) the average daily balance of such Indebtedness during such four-quarter period or during such shorter included period when such facility was outstanding or (B) if such facility was created after the end of such four-quarter period, the average daily balance of such Indebtedness during the period from the date of creation of such facility to the date of the calculation) and (iii) any acquisition or disposition by the Relevant Party or its Subsidiaries of any assets out of the ordinary course of business or of any company, division or line of business, in each case since the first day of its last four completed fiscal quarters, had been consummated on such first day of such four-quarter period.

(d)           For purposes of the foregoing, any issuance or transfer of any Capital Stock of a wholly owned Subsidiary which is a holder of obligations of a Subsidiary that constitute Indebtedness shall be deemed an incurrence of Indebtedness if such issuance or transfer results in such wholly owned Subsidiary no longer being a wholly owned Subsidiary.

SECTION 3.5.      Limitation on Reincorporation.  Neither Covenant Party will, without the prior written consent of each D&B Party and IMS, re-incorporate or re-organize its corporate form under the laws of a jurisdiction other than the State of Delaware unless such Covenant Party, as re-incorporated or re-organized under the laws of such other jurisdiction, could take substantially the same actions without stockholder (or equity holder) consent or approval under the laws of such jurisdiction and such Covenant Party’s then applicable certificate of incorporation, charter, by-laws or other organizational documents as such Covenant Party could take without stockholder consent or approval under the General Corporation Law of the State of Delaware and such Covenant Party’s certificate of incorporation and by-laws as of the date hereof, and counsel reasonably satisfactory to the D&B Parties and IMS confirms the foregoing in writing to the reasonable satisfaction of the D&B Parties and IMS.

16

SECTION 3.6.      Subordination. No Covenant Party shall (i) directly or indirectly, create, incur, assume or guaranty, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness to any Related Person except any such Indebtedness which is expressly subordinated and made junior to the payment and performance in full of all of the obligations of the Covenant Parties under this Agreement in accordance with a subordination agreement in the form of Exhibit 3.6 hereto (the “Subordination Agreement”) or (ii) permit any of its Subsidiaries to directly or indirectly, create, incur, assume or guaranty, suffer to exist, or otherwise become or remain directly or indirectly liable with respect to any Indebtedness to any Related Person except any such Indebtedness which is expressly subordinated and made junior to the payment and performance in full of all of the obligations of the Covenant Parties under this Agreement to the same extent as set forth in the Subordination Agreement (such subordinated Indebtedness under clauses (i) and (ii), “Permitted Related Person Subordinated Indebtedness”).

SECTION 3.7.      Notices. Each VNU Party shall deliver to each of the D&B Parties and IMS, promptly upon actual awareness of any Designated Officer becoming aware of any default by such VNU Party in the performance or observance of its obligations or covenants under this Agreement, an Officers’ Certificate specifying such default.

SECTION 3.8.      VNU Covenants. VNU covenants and agrees to cause each Covenant Party and its respective Subsidiaries to fully comply with the covenants set forth in this Agreement.

SECTION 3.9.      Representations and Warranties of the VNU Parties. To induce the D&B Parties and IMS to enter into this Agreement, each VNU Party represents and warrants, as of the date first written above, that the following statements are true and correct:

(a)       Organization; Requisite Power and Authority. Each VNU Party (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

(b)       Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of each VNU Party.  This Agreement has been duly executed and delivered by each VNU Party and is a legally valid and binding obligation of each VNU Party, enforceable against each VNU Party in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

(c)       Properties and Assets.  New ACN and its Subsidiaries collectively own, hold, lease, are licensees of, or otherwise have the legal right to the use

17

of, substantially all of the assets and properties (in each case, tangible and intangible) utilized in the business and operations of ACNielsen and New ACN and their respective Subsidiaries as presently conducted.

SECTION 3.10.    Representations and Warranties of Donnelley. To induce the VNU Parties to enter into this Agreement, Donnelly represents and warrants, as of the date first written above, that the following statements are true and correct:

(a)       Organization; Requisite Power and Authority. Donnelley (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

(b)       Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of Donnelley.  This Agreement has been duly executed and delivered by Donnelley and is a legally valid and binding obligation of Donnelley, enforceable against Donnelley in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

SECTION 3.11.    Representations and Warranties of D&B. To induce the VNU Parties to enter into this Agreement, D&B represents and warrants, as of the date first written above, that the following statements are true and correct:

(a)       Organization; Requisite Power and Authority. D&B (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

(b)       Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of D&B.  This Agreement has been duly executed and delivered by D&B and is a legally valid and binding obligation of D&B, enforceable against D&B in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

SECTION 3.12.    Representations and Warranties of Moody’s. To induce the VNU Parties to enter into this Agreement, Moody’s represents and warrants, as of the date first written above, that the following statements are true and correct:

(a)       Organization; Requisite Power and Authority. Moody’s (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and

18

authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

(b)       Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of Moody’s.  This Agreement has been duly executed and delivered by Moody’s and is a legally valid and binding obligation of Moody’s, enforceable against Moody’s in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

SECTION 3.13.    Representations and Warranties of IMS. To induce the VNU Parties to enter into this Agreement, IMS represents and warrants, as of the date first written above, that the following statements are true and correct:

(a)       Organization; Requisite Power and Authority. IMS (a) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization as identified in the preamble hereto, and (b) has all requisite power and authority to own and operate its properties, to carry on its business as now conducted and as proposed to be conducted, to enter into this Agreement to which it is a party and to fulfill the obligations contemplated hereby.

(b)       Due Authorization; Binding Obligation. The execution, delivery and performance of this Agreement has been duly authorized by all necessary action on the part of IMS.  This Agreement has been duly executed and delivered by IMS and is a legally valid and binding obligation of IMS, enforceable against IMS in accordance with its terms, except as may be limited by bankruptcy, insolvency, reorganization or by equitable principles relating to enforceability.

ARTICLE IV
JOINT DEFENSE PROVISIONS

SECTION 4.1.          Counsel.

(a)       ACNielsen shall select counsel of record to represent ACNielsen Company, Donnelley (as successor to Old D&B), D&B, Moody’s, NMR (as successor to Cognizant) and IMS (which reference to IMS shall be deemed to include I.M.S. International, Inc.), in the Lawsuit (“Counsel of Record”).  Counsel of Record shall communicate and consult with all Parties in connection with the defense of the Lawsuit, but shall be subject to direction only from ACNielsen.

(b)       Each of the D&B Parties and IMS shall be free to retain at their own expense counsel to monitor the Lawsuit (“D&B Parties Counsel” and “IMS Counsel” respectively, and, collectively, “Party Counsel”).  Counsel of Record shall communicate and consult with any Party Counsel.  Neither Party Counsel nor any other

19

counsel retained by any of the D&B Parties or IMS shall appear in the Lawsuit unless such Party shall have become a Withdrawing Party under Section 4.1(g) hereof.

(c)       Counsel of Record and Party Counsel shall make available to other such counsel and any Party confidential oral information and memoranda or other documents related to the defense of the Lawsuit (“Defense Materials”) to the extent that they deem it prudent and consistent with the objectives of the joint defense provided for herein.

(d)       The Defense Materials obtained by counsel for any Party shall remain confidential and shall be protected from disclosure to any third party except as provided herein.

(e)       Counsel of Record and Party Counsel shall not disclose Defense Materials or the contents thereof to anyone except their respective clients, expert witnesses and consultants, counsel for other Parties to the Agreement, or attorneys, paralegals and staff within their firms, without first obtaining the consent of Counsel of Record and Party Counsel whose clients (or who themselves) may be entitled to claim any privilege with respect to such materials.  All persons permitted access to Defense Materials shall be specifically advised that the Defense Materials are privileged and subject to the terms of this Agreement.

(f)        If any other person or entity requests or demands, by subpoena or otherwise, any Defense Materials from any of the Parties or their counsel, the recipient of the request will immediately notify Counsel of Record and Party Counsel, and each such counsel shall take all steps necessary to permit the assertion of all applicable rights and privileges with respect to such Defense Materials and shall cooperate fully with such other counsel in any proceeding relating to the disclosure of Defense Materials.

(g)       If any of the D&B Parties or IMS decides that it no longer wishes to engage in a joint defense (a “Withdrawing Party”), the Withdrawing Party immediately shall notify the other Parties to this Agreement in writing and shall simultaneously return to Counsel of Record the originals and all copies of Defense Materials provided to it.  In such event, the Withdrawing Party shall no longer have any rights to obtain Defense Materials, but shall retain other rights and obligations set forth in the Agreement, including the obligations to share Defense Costs pursuant to and on the terms of Section 4.1(h) below, unless otherwise specifically provided.  The Withdrawing Party shall lose its right to indemnification by the VNU Parties under this Agreement.  ACNielsen shall have the absolute right to continue to be represented in all matters in and affecting the Lawsuit by Counsel of Record.  All Parties expressly agree that Counsel of Record may continue to represent Parties that have not withdrawn, and all Parties agree and acknowledge that receipt and use of Defense Materials by Counsel of Record or any action taken or knowledge gained by Counsel of Record in connection with its representation of a Withdrawing Party shall not be grounds for disqualification of Counsel of Record as counsel for any other Party to this Agreement in the Lawsuit.

20

(h)       It is the intention of the Parties that ACNielsen, the D&B Parties (collectively, in accordance with their separate agreements) and NMR and IMS (collectively, in accordance with their separate agreement) shall each pay one third of the costs of defending the Lawsuit, including attorneys’ fees, expert witness and consultants’ fees and all other costs and expenses for the defense of the Lawsuit (or prosecution of any counterclaim to the Lawsuit) duly incurred by ACNielsen or Counsel of Record (“Defense Costs”).  ACNielsen shall forward to each of the D&B Parties, IMS and NMR, on a monthly basis, a statement of the Defense Costs incurred in the preceding month (the “Defense Costs Statement”) and the D&B Parties (collectively, in accordance with their separate agreements) and NMR and IMS (collectively, in accordance with their separate agreement) shall each reimburse ACNielsen for one third of such Defense Costs promptly thereafter.  Any such Defense Costs that are not so reimbursed to ACNielsen within thirty (30) days following receipt of the Defense Costs Statement by the Party required to reimburse such Defense Costs to ACNielsen under this Section 4.1(h) shall accrue interest on the amount of such Defense Costs at the Prime Rate payable by such Party, commencing on the later of (i) the 31^st day following such receipt or (ii) the date of actual payment of such costs by ACNielsen, and continuing until (but not including) the date of payment in full of such Defense Costs together with all interest accrued thereon. In the event that ACNielsen obtains reimbursement for Defense Costs from IRI or the Trust in accordance with a certain Settlement Agreement and Release between ACNielsen and IRI, dated as of July 1, 1985, or for any other reason, the VNU Parties shall repay to each of the D&B Parties (collectively) and NMR and IMS (collectively) one third of such reimbursement up to the extent of their respective payments of Defense Costs pursuant to the Original Agreement or this Agreement.

(i)        No Party may enter into any settlement agreement in the Lawsuit without express consent in writing of the other Parties, except that ACNielsen may, if it so chooses, enter into a full and final settlement of the Lawsuit provided that the VNU Parties pay the full amount of the settlement and obtain a full and final release of each of the D&B Parties, IMS, I.M.S. International, Inc. and their respective Subsidiarieswith respect to the Lawsuit.  Such a settlement shall impose no obligation on any other Party to this Agreement without such Party’s express consent in writing.  In the event that any Party receives a settlement proposal with respect to the Lawsuit, it shall immediately communicate the substance of the offer to the Counsel of Record.

(j)        All other Parties to this Agreement shall cooperate with ACNielsen in the defense of the Lawsuit and the prosecution of any counterclaim therein, including providing, or causing to be provided, records or witnesses as soon as practicable after receipt of any request therefor from or on behalf of ACNielsen.

ARTICLE V
MISCELLANEOUS

SECTION 5.1.          Complete Agreement; Construction.  This Agreement, including the Exhibits hereto, shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments and writings with respect to such subject matter, including the Original

21

Agreement.  In the event and to the extent that there is a conflict between the provisions of this Agreement and the provisions of the 1996 Distribution Agreement, this Agreement shall control.

SECTION 5.2.          Ancillary Agreements.  This Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the Ancillary Agreements.

SECTION 5.3.          Counterparts.  This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to the other Parties.

SECTION 5.4.          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:

If to any VNU Party, to:

VNU

770 Broadway, 8th Floor

New York, NY 10003

Facsimile:  (646) 654-5060

Attention:  Chief Legal Officer

with a copy to:

Shearman & Sterling LLP

599 Lexington Avenue

New York, NY 10022

Facsimile:  (212) 848-7179

Attention:  Henry Weisburg, Esq.

If to Donnelley, to:

R.H. Donnelley Corporation

1001 Winstead Dr.

Cary, NC 27513

Facsimile:  (919) 297-1518

Attention:  General Counsel

22

If to D&B, to:

The Dun & Bradstreet Corporation

103 John F. Kennedy Parkway

Short Hills, NJ 07078

Facsimile:  (866) 561-5154

Attention:  General Counsel

with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, NY 10036

Facsimile: (212) 735-2000

Attention:  David Fox, Esq.

If to Moody’s, to:

Moody’s Corporation

99 Church Street

New York, NY 10007

Facsimile:  (212) 553-0084

Attention:  General Counsel

with a copy to:

Skadden, Arps, Slate, Meagher & Flom LLP

Four Times Square

New York, NY 10036

Facsimile: (212) 735-2000

Attention:  David Fox, Esq.

If to IMS, to:

IMS Health Incorporated

1499 Post Road

Fairfield, CT 06824

Facsimile:  (203) 319-4552

Attention:  General Counsel

with a copy to:

Sullivan & Cromwell LLP

125 Broad Street

New York, NY 10004

Facsimile:  (212) 558-3588

Attention:  Alan J. Sinsheimer, Esq.

23

SECTION 5.5.          Waivers.  The failure of any Party to require strict performance by any other Party of any provision in this Agreement will not waive or diminish that Party’s right to demand strict performance thereafter of that or any other provision hereof.

SECTION 5.6.          Amendments.  This Agreement may not be modified or amended except by an agreement in writing signed by each of the Parties hereto.

SECTION 5.7.          Assignment.  This Agreement shall not be assignable, in whole or in part, directly or indirectly, by any Party without the prior written consent of the other Parties, and any attempt to assign any rights or obligations arising under this Agreement without such consent shall be void.

SECTION 5.8.          Successors and Assigns.  The provisions to this Agreement shall be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and permitted assigns.

SECTION 5.9.              Termination.  This Agreement may not be terminated except by an agreement in writing signed by all Parties.

SECTION 5.10.            Third Party Beneficiaries.  Except as provided in Article II, this Agreement is solely for the benefit of the Parties hereto and their respective Subsidiaries (including, with respect to IMS, Gartner Inc., Synavant, Inc. and Cognizant Technology Solutions Corporation, and their respective successors and assigns, provided, in the case of any such assigns, that VNU has granted its prior written consent to such assignment) and Affiliates and should not be deemed to confer upon third parties any remedy, claim, liability, reimbursement, claim of action or other right in excess of those existing without reference to this Agreement.

SECTION 5.11.            Title and Headings.  Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

SECTION 5.12.            GOVERNING LAW.  THIS AGREEMENT 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 WITHOUT GIVING EFFECT TO ANY CHOICE OR CONFLICT OF LAW PROVISIONS OR RULES THEREOF.

SECTION 5.13.            Consent to Jurisdiction.

(a)       Each of the Parties irrevocably submits to the exclusive jurisdiction of (a) the Supreme Court of the State of New York, New York County, and (b) the United States District Court for the Southern District of New York, for the purposes of any suit, action or other proceeding arising out of this Agreement or any transaction contemplated hereby.  Each of the Parties agrees to commence any action, suit or proceeding relating hereto either in the United States District Court for the Southern District of New York or if such suit, action or other proceeding may not be

24

brought in such court for jurisdictional reasons, in the Supreme Court of the State of New York, New York County.

(b)       Each of the Parties further agrees that service of any process, summons, notice or document by U.S. registered mail to such Party’s respective address set forth above shall be effective service of process for any action, suit or proceeding in New York with respect to any matters to which it has submitted to jurisdiction in this Section, except that in the event that at any time VNU ceases to maintain an office in New York, New York, VNU hereby agrees to irrevocably appoint CT Corporation System (the “Process Agent”), with an office on the date hereof, at 111 Eight Avenue, 13^th Floor, New York, New York 10011, United States, as its agent to receive on behalf of VNU service of copies of the summons and complaint and any other process which may be served in all such actions and proceedings.  Such service may be made by mailing or delivering a copy of such process to VNU in care of the Process Agent at the Process Agent’s above address, and VNU hereby irrevocably authorizes and directs the Process Agent to accept such service on behalf of VNU.

(c)       Each of the parties irrevocably and unconditionally waives any objection to the laying of venue of any action, suit or proceeding arising out of this Agreement or the transactions contemplated hereby in (i) the Supreme Court of the State of New York, New York County, or (ii) the United States District Court for the Southern District of New York, and hereby further irrevocably and unconditionally waives and agrees not to plead or claim in any such court that any such action, suit or proceeding brought in any such court has been brought in an inconvenient forum.

(d)       Concurrently with the execution and delivery of this Agreement, each of the D&B Parties and IMS have received opinions from De Brauw Blackstone Westbroek N.V., outside Dutch counsel for VNU, and Bird & Bird, outside Dutch counsel for D&B, each dated as of the date hereof, to the effect that, under Dutch law and VNU’s organizational documents, this Agreement (i) has been duly authorized, executed and delivered by VNU, (ii) constitutes a valid and legally binding agreement of VNU and (iii) is enforceable against VNU in accordance with its terms.  Copies of such opinions are attached as Exhibit 5.13 hereto.

SECTION 5.14.            Severability.  In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby.  The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

SECTION 5.15.            Further Assurances.  From time to time, as and when reasonably requested by any other Party hereto, each Party hereto shall execute and deliver, or cause to be executed and delivered, all such documents and instruments and shall take, or cause to be taken, all such further or other actions as such other Party may

25

reasonably deem necessary or desirable to effect the purposes of this Agreement and the transactions contemplated hereunder.

SECTION 5.16.            Specific Enforcement.  The parties agree that irreparable damage would occur and that the parties would not have any adequate remedy at law in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached.  It is accordingly agreed that the parties shall be entitled to a preliminary and/or permanent injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court set forth in Section 5.13, this being in addition to any other remedy to which they are entitled at law or in equity.

26

IN WITNESS WHEREOF the Parties have caused this Agreement to be executed and delivered as of the date first above written.

VNU, N.V.
By:	/s/ F. J. G. M. Cremers
Name:  F. J. G. M. Cremers
Title:  Member of the Executive Board
VNU, Inc.
By:	/s/ Michael E. Elias
Name:  Michael E. Elias
Title:  Vice President & Deputy General Counsel
ACNielsen Corporation
By:	/s/ Michael E. Elias
Name:  Michael E. Elias
Title:  Vice President & Assistant Secretary
Nielsen Media Research, Inc.
By:	/s/ James Ross
Name:  James Ross
Title:  Assistant Secretary
AC Nielsen (US), Inc.
By:	/s/ Michael E. Elias
Name:  Michael E. Elias
Title:  Vice President & Assistant Secretary

R.H Donnelley Corporation
By:	/s/ Robert J. Bush
Name:	Robert J. Bush
Title:	Vice President, General Counsel and Corporate Secretary
The Dun & Bradstreet Corporation
By:	/s/ David Lewinter
Name:	David Lewinter
Title:	Senior Vice President and General Counsel
Moody’s Corporation
By:	/s/ John Goggins
Name:	John Goggins
Title:	Senior Vice President and General Counsel
IMS Health Incorporated
By:	/s/ Robert H. Steinfeld
Name:	Robert H. Steinfeld
Title:	Senior Vice President, General Counsel and Corporate Secretary

EX-31.1

Exhibit 31.1

CEO CERTIFICATION

I, David M. Thomas, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of IMS Health Incorporated (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  August 3, 2004

By:	/s/ David M. Thomas
	David M. Thomas
	Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CFO CERTIFICATION

I, Nancy E. Cooper, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of IMS Health Incorporated (the “registrant”);

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(c)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:	August 3, 2004
By:	/s/ Nancy E. Cooper
	Nancy E. Cooper
	Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(Subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code)

Pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned does hereby certify that:

The Form 10-Q for the quarter ended June 30, 2004 (the “Form 10-Q”) of the Company fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934 and information contained in the Form10-Q fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ David M. Thomas
Date: August 3, 2004	David M. Thomas
	Chairman and Chief Executive Officer
	/s/ Nancy E. Cooper
Date: August 3, 2004	Nancy E. Cooper
	Senior Vice President and Chief Financial Officer

The foregoing certification is being furnished solely pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code) and is not being filed as part of the Form 10-Q or as a separate disclosure document.

A signed original of this written statement required by Section 906 has been provided to IMS Health Incorporated and will be retained by IMS Health Incorporated and furnished to the Securities and Exchange Commission or its staff upon request.