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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(MARK ONE)
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________ TO __________.
COMMISSION FILE NUMBER 001-12275.
IMS HEALTH INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 06-1506026
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
200 NYALA FARMS, WESTPORT, CONNECTICUT 06880
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (203) 222-4200.
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
- - ------------------- -------------------
Common Stock, par value $.01 per share ................. New York Stock Exchange
Preferred Stock Purchase Rights ........................ New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|
As of February 1, 1999, 318,016,855 shares of Common Stock of IMS Health
Incorporated were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon its closing transaction price on the
Composite Tape on such date) was approximately $12,025 million.
(Continued)
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Documents Incorporated by Reference
PART I
ITEM 1 -Business IMS Health Business
Segments, 1998, Pages
34 to 36 Note 17.
Operations by Business
Segments, of the 1998
Annual Report to
Shareholders.
ITEM 3 -Legal Proceedings Pages 32 and 33, Note
15. Contingencies, of
the 1998 Annual Report
to Shareholders.
PART II
ITEM 5 -Market for the Registrant's Common Pages 11 and 12,
Equity and Related Stockholder Financial Review, of
Matters the 1998 Annual Report
to Shareholders.
ITEM 6 -Selected Financial Data Page 38, Five-Year
Selected Financial
Data, of the 1998
Annual Report to
Shareholders.
ITEM 7 -Management's Discussion and Analysis Pages 1 to 12,
of Financial Condition and Results of Financial Review, of
Operations the 1998 Annual Report
to Shareholders.
ITEM 7A -Quantitative and Qualitative Disclosure Page 11, Financial
About Market Risk Review, and Page 24 to
25, Note 9. Financial
Instruments, of the
1998 Annual Report to
Shareholders.
ITEM 8 -Financial Statements and Supplementary Pages 14 to 38 of the
Data 1998 Annual Report to
Shareholders; Pages F-1
to F-20 of the Gartner
Group, Inc. 1998 Annual
Report to Shareholders.
PART III
ITEM 10 -Directors and Executive Officers of the Section entitled
Registrant "Election of Directors"
of the Company's Proxy
Statement dated
February 26, 1999.
ITEM 11 -Executive Compensation Section entitled
"Compensation of
Executive Officers and
Directors" of the
Company's Proxy
Statement dated
February 26, 1999.
ITEM 12 -Security Ownership of Certain Beneficial Section entitled
Owners and Management "Security Ownership of
Management and Others"
of the Company's Proxy
Statement dated February
26, 1999.
ITEM 13 -Certain Relationships and Related Not Applicable.
Transactions
--------------------------
The Index to Exhibits is located on Page 23
1
PART I
As used in this report, except where the context indicates otherwise, the
terms "Company" and "IMS HEALTH" mean IMS Health Incorporated and all
subsidiaries consolidated in the financial statements contained or incorporated
by reference herein.
ITEM 1. BUSINESS
IMS Health Incorporated ("accounting successor to Cognizant") was
incorporated under the laws of the State of Delaware on February 3, 1998. The
Company began operating as an independent publicly held company on July 1, 1998
(the "Distribution Date") as a result of its spin-off (the "Cognizant Spin-off")
from Cognizant Corporation ("Cognizant"). Prior to the Cognizant Spin-off, the
Company was owned by Cognizant. Cognizant began operating as an independent
publicly held company on November 1, 1996 as a result of its spin-off (the "D&B
Spin-off") from The Dun & Bradstreet Corporation ("Dun & Bradstreet"). Prior to
the D&B Spin-off, Cognizant was owned by Dun & Bradstreet.
The Common stock of IMS HEALTH was distributed by Cognizant Corporation
("Cognizant") to its shareholders on June 30, 1998. Simultaneously with the
distribution Cognizant changed its name to Nielsen Media Research, Inc.
("Nielsen Media Research"). Notwithstanding the legal form of the distribution,
whereby Cognizant spun off IMS HEALTH, for accounting purposes the transaction
is accounted for as if Cognizant spun off Nielsen Media Research and IMS HEALTH
has been deemed the "accounting successor" to Cognizant. The separation created
IMS HEALTH as the premier global provider of information solutions to the
pharmaceutical and healthcare industries, and established an independent Nielsen
Media Research, the leader in North American electronic audience measurement
services.
On November 11, 1998 the Company announced that its Board of Directors
approved a plan, in principle, to spin-off substantially all of its equity
ownership of Gartner Group, Inc. ("Gartner"). The transaction, expected to be
completed in the first half of 1999, is to be structured as a tax-free
distribution of Gartner stock to IMS HEALTH shareholders.
At the December 31, 1998 the Company owned approximately 47 million shares
of Gartner. Prior to the spin-off, 40.1 million of these shares will be
exchanged for new Class B Common Stock of Gartner. The Class B Stock will be
entitled to elect 80% of Gartner's Board of Directors, but will otherwise be
identical to existing Class A Common Stock. The exchange will be part of a
Gartner recapitalization. The Class B shares will be distributed to the
Company's shareholders in a tax-free distribution, subject to receipt of a
favorable tax ruling from the Internal Revenue Service ("IRS") with respect to
the distribution. The Company intends to monetize its remaining position in
Gartner by the end of 1999. This includes 6.9 million shares of Class A Common
Stock and warrants to purchase a further 600,000 shares.
Separately, Gartner announced that, subject to approval by the IRS of the
tax-free treatment of the distribution, it intends to declare a special one-time
cash dividend of $300 million to its shareholders of record immediately prior to
the spin-off. The Gartner Board of Directors also announced that it intends to
authorize a $300 million open market share repurchase program for up to 20% of
its stock commencing immediately after the spin-off.
The transaction is subject to receipt of a favorable ruling from the IRS,
final approval by the Company's and Gartner Boards of Directors, and approval by
Gartner shareholders.
IMS HEALTH is the global provider of information solutions to the
pharmaceutical and healthcare industries. IMS HEALTH consists of the market
information, and decision-support services business for the pharmaceutical and
healthcare industries conducted by IMS HEALTH and various subsidiaries ("IMS"),
IMS Health Strategic Technologies Inc. ("Strategic Technologies"), which is a
leading provider of automated sales support to the pharmaceutical industry,
ERISCO Managed Care Technologies, Inc. ("Erisco"), which provides application
software and services to the healthcare industry to help manage the
administration of group health and life insurance products, Enterprise
Associates, Inc. ("Enterprises"), which invests in businesses mainly in the
information technology and healthcare information industries, a 61.7% ownership
interest in Cognizant Technology Solutions Corporation ("CTS"), which provides
software solutions to complex IT problems including application development and
maintenance services and Year 2000 and Eurocurrency compliance services. The
Company also has an equity investment in Gartner Group, Inc. ("Gartner"), the
premier provider of research and advisory services to the information technology
industry. The Company operates in approximately 90 countries. The number of
full-time equivalent employees at December 31, 1998 was approximately 8,000.
The Company's operations can be grouped into the following business
segments: IMS, Emerging Markets, and CTS, plus its equity investment in Gartner.
Gartner is the leading independent provider of research and analysis on the
computer hardware, software, communications and related technology industries.
2
IMS
The IMS segment provides information and decision-support services to the
pharmaceutical and healthcare industries worldwide. These services broadly
include market research services, sales management services, sales force
automation and other professional, software, direct marketing and research and
development services. IMS provides information services covering 94 countries
and maintains offices in 74 countries on six continents, with 62% of total
revenue generated outside the United States in 1998. In 1998, IMS continued its
expansion in developing markets in Eastern Europe and Sub-Saharan Africa.
Revenue in 1998 increased by 22% compared with 1997 in these developing markets.
Sales management services represented approximately 48% of the IMS
segment's worldwide revenue in 1998. Sales management services include sales
territory reports, prescription tracking reports and doctor profiling services.
These reports are customized for each pharmaceutical client and are used
principally by pharmaceutical manufacturers to measure and forecast the
effectiveness and efficiency of sales representatives and to target the
marketing and sales efforts of a client's salesforce. IMS's principal sales
management services are as follows:
o Sales Territory Reporting Services. Sales territory reporting is the
principal sales management service offered by IMS to its
pharmaceutical clients. Sales territory reports can be precisely
tailored for each client, and measure the sales of a client's own
products and those of competitors within specified geographical
configurations. These reports are designed to provide marketing and
sales managers with a reliable measurement of each salesperson's
activity and effectiveness in his or her sales territory, and
therefore are used by clients, among other things, for determining
sales force compensation. Data reported for multiple territories are
used for applications such as resource allocation, territory
alignment, market analyses and distribution management. Depending on
the particular market, sales territory reports are available to
clients on a weekly, monthly or quarterly basis. In the United
States, sales territory reports from IMS's DDD service allow
pharmaceutical clients to track the flow of their products and those
of their competitors to various levels of geography and channels of
distribution. The DDD database contains a virtual census of sales of
pharmaceutical products through all distribution channels, including
direct sales by pharmaceutical manufacturers and indirect sales
through drug wholesalers, mail order distributors, warehousing
chains and other market participants. IMS provides sales territory
reporting services in 35 countries.
o Prescription Tracking Reporting Services. Prescription tracking
reporting services are designed to monitor prescription activity and
to track the movement of pharmaceutical products out of pharmacies.
Prescription tracking services are used by pharmaceutical companies
to facilitate product marketing at the prescriber level. In the
United States, the Xponent service monitors prescription activity at
the retail pharmacy and mail order outlet level, and uses a patented
statistical methodology to project the prescription activity of
nearly one million individual prescribers on a monthly basis.
Xponent is currently under development in Europe. The Europe Xponent
database is built from prescription data collected from retail
pharmacies and coding centers which are linked to the geographical
area in which the prescription was written, and where permissible
under local data privacy laws, to individual prescribers. Europe
Xponent is in development in the United Kingdom, Germany, Belgium,
the Netherlands, Italy, France and Spain. The acquisition of PMSI
has accelerated the development of Xponent.
Sales management reporting services are made available to clients
and their sales representatives and management via hardcopy reports, CD-ROMs,
software application tools, computer on-line services, web based access and
magnetic media for use in client computer systems and IMS's customized
electronic workstations. IMS's data delivery systems assist clients in
maximizing efficiency by aiding in the setting of sales targets and calculation
of sales commissions; giving fast access to sales data and permitting more
sophisticated analyses; improving call reporting; and improving communication
between sales management and their sales forces. In the United States, IMS has
several customized client-server decision support systems that allow a client to
store large amounts of data at its own site and integrate its own internal sales
and marketing data with IMS data and other external data. IMS also provides
clients with customized data warehouse tools and web based access capabilities.
Market research services represented approximately 35% of the IMS
segment's worldwide revenue in 1998. The principal market research services are
syndicated pharmaceutical, medical, hospital, promotional, prescription and
self-medication audits. Market research services are utilized by clients for
various strategic purposes, including analyzing market shares, therapeutic
prescribing trends and price movements at the national and subnational levels.
The information reported in these services is generated or derived from data
collected primarily from pharmaceutical manufacturers, pharmaceutical
wholesalers, pharmacies, hospitals and doctors. Market research services are
delivered to clients via hardcopy reports, CD-ROMs, software application tools,
computer on-line services, and magnetic media for use in client computer systems
and IMS's customized electronic workstations. IMS's principal market research
services are as follows:
3
o Pharmaceutical Audits. These audits measure the sale of
pharmaceutical products into pharmacies, supplemented in some
countries by data collected from prescribing physicians, retail
chains and discount stores. These audits contain data projected to
national estimates, showing product sales by therapeutic class
broken down by package size and dosage form. IMS publishes
pharmaceutical audits in over 83 countries.
o Medical Audits. These audits are based on information collected from
panels of practicing physicians and contain projected national
estimates of the number of consultations for each diagnosed disease
with details of the therapy prescribed. These audits also analyze
the use physicians make of individual drugs by listing the diseases
for which they are prescribed, the potential therapeutic action the
physician is expecting, other drugs prescribed at the same time, and
estimates of the total number of drugs used for each disease. IMS
publishes medical audits in over 47 countries.
o Hospital Audits. These audits contain data projected to national
estimates and show the sale of pharmaceutical products to hospitals
by therapeutic class. Related reports provide audits of laboratory
diagnostic supplies, hospital supplies, and hospital records. IMS
publishes hospital audits for 38 countries.
o Promotional Audits. These audits measure pharmaceutical promotion
for a particular market, including sales-force promotion and journal
and mail advertising, based on information received from panels of
physicians and from monitoring medical journals and direct mail. IMS
publishes promotional reports for 26 countries.
o Prescription Audits. These audits analyze the rate at which drugs
move out of the pharmacy and into the hands of the consumer, and
measure both what is prescribed by physicians and what is actually
dispensed at the pharmacy. IMS publishes prescription audits in over
15 countries.
o Self-Medication and OTC Reports. These reports provide detailed
product movement, market share and pricing information for
over-the-counter, personal care and patient care products. IMS
publishes self-medication reports in 34 countries.
o Other Market Research Reports. These include managed care reports
which offer an array of information to quantify the effects of
managed care on the pharmaceutical and healthcare industry; personal
care reports which measure the sale of healthcare accessories, wound
care and dietetic aids; and veterinary reports which analyze the
animal care pharmaceutical market. IMS has developed, in certain
countries, disease and treatment information at the patient level
(which information is not identifiable to any individual patient)
that gives participants in the healthcare industry new insights into
the treatment of diseases. The availability, scope and frequency of
the foregoing reports vary on a country-by-country basis.
The remaining 17% of the IMS segment's 1998 revenue was derived primarily
through professional consulting, software, direct marketing, research and
development services, and sales support technology. IMS provides pharmaceutical
and other clients with a range of value-added services that are used (i) to
study specific issues and trends in the pharmaceutical marketplace and the
healthcare industry, (ii) to manage sales and marketing, (iii) to evaluate the
effectiveness of marketing programs, (iv) to analyze components of a product
marketing program at any stage of its implementation, and (v) for consultancy
in optimizing strategy, marketing programs and product commercialization. These
services are as follows:
o IMS Global Services. IMS's Global Services unit is based in the
United Kingdom and the United States and provides access to global
level information services to pharmaceutical clients operating on a
multinational level. Global Services' core service offering,
MIDAS(TM), is an on-line multinational integrated data analysis tool
which harnesses IMS's worldwiDE databases and is used by the
pharmaceutical industry to assess and utilize pharmaceutical
information and trends in multiple markets. MIDAS gives clients
on-line access to IMS-compiled pharmaceutical, medical, promotional
and chemical data. Using MIDAS, clients are able to select
information from the national databases compiled by IMS and produce
statistical reports in the format the client requires. IMS Global
Services also publishes various in-depth reviews of the worldwide
pharmaceutical marketplace and provides custom market research and
strategic consultancy.
o Territory enterprise relationship management systems. Strategic
Technologies, a subsidiary of IMS HEALTH is a leading provider of
automated sales support technologies to the pharmaceutical industry.
Strategic Technologies offers sales and marketing applications which
can be integrated with client-critical databases to provide customer
and business insights. Over 35,000
4
pharmaceutical sales executives worldwide rely on Strategic
Technologies' solutions to make critical sales and marketing
decisions on a daily basis. Three industry-leading IMS HEALTH
products increase pharmaceutical sales force performance and
productivity by providing access to up-to-the-minute profiling,
targeting, activity reporting, team selling and sample management
information. Cornerstone(TM) is a flexiblE, Windows(TM)-based,
integrated sales and marketing information system used by sales
forces. Capabilities of IMS HEALTH'S Cornerstone include the ability
to quickly access and generate standard and customized reports, such
as weekly activity summary reports, division reports and product
launch reports; desktop or laptop reporting that provides fast
updating of customer activities; and access to pharmaceutical
databases through Cornerstone's MarketViews, which can be configured
to deliver customized sales summaries by territory, district and
physicians. Premiere(SM) is a Windows(TM)-based, integrated salES
and marketing information system similar to Cornerstone with a
substantial user base in Europe, Canada and Asia/Pacific. Core data
can be drawn from various sources and tailored by country, region,
department or individual user. Its unique application generators and
builders are used to customize and modify the system to a company's
specific requirements --quickly and without the need for
re-programming. Sales and marketing professionals at every level of
an organization can use Premiere to develop selling strategies,
allocate and coordinate sales resources, track competitive activity,
and plan, monitor and evaluate sales activity. Precise(SM)2000 is an
Electronic Territory Management System that offers lower-cost
hardware solutions for pharmaceutical sales organizations. The
system is designed to help sales teams optimize their resources at
every level, including organizing daily sales activities, monitoring
individual performance, and making strategic and tactical decisions.
This fully integrated software system also can be customized to
increase productivity, to target prospective customers and to
improve decision-making within a sales organization. Management is
currently developing a next stage integrated and global sales
management information system. Strategic Technologies is a market
leader in application of a variety of hand held devices which offer
greater portability in developed markets and a low cost entry
strategy into sales force automation in emerging markets.
o Professional Consulting Services. IMS's professional consulting
services are provided to assist clients in the analysis and
evaluation of market trends, strategies and tactics, and to assist
in the development and implementation of customized software
applications and data warehouse tools. In the United States, IMS's
professional consulting services provides a wide range of custom
market research, promotion optimization, promotion effectiveness,
managed care and other advanced analytics services for the
pharmaceutical and healthcare marketplace. The professional services
consulting group also assists clients in designing customized
decision support systems based on a variety of cutting-edge
technologies which enable clients to optimize IMS data more rapidly
and effectively in their decision-making process. Outside of the
United States, a variety of consulting services is generally offered
on a country-by-country basis.
o Direct Marketing Services. IMS engages in the direct marketing
businesses in the United States. Clark-O'Neill, Inc.
("Clark-O'Neill"), a wholly-owned subsidiary, represents the core of
IMS's direct marketing business. Clark-O'Neill's services include
sample distribution, pharmaceutical field salesforce support
services, publication circulation management, direct mail,
telemarketing projects utilizing physicians and other healthcare
professionals, and other customized promotion programs.
o Research and Development Services. IMS's research and development
services provide clients with information and workstation tools
intended to improve the effectiveness and speed of clinical research
and subsequent regulatory approvals. IMS's regulatory affairs
database, IDRAC, covers the European Union, certain Eastern European
countries, Japan and the United States, guides users through the
drug development and registration process. IMS also owns a 40%
equity interest in DataEdge, an information provider to the
pharmaceutical industry on clinical trial design and implementation.
o Pharmacy dispensing and point-of-sales software systems. IMS also
provides pharmacy dispensing and point-of-sale software systems to
retail pharmacies in the United Kingdom and Australia.
Over the past four decades, IMS has developed strong relationships with
its data suppliers in each market in which it operates. As the supply of
pharmaceutical data is critical to IMS's business, IMS devotes significant human
and financial resources to its data collection efforts and in many cases has
historical connections with the trade associations and professional associations
involved. In the United States, IMS HEALTH and Clark-O'Neill each have been
designated as database licensees by the American Medical Association ("AMA") for
use and sublicensing of the AMA's physician database.
Sales to the healthcare industry accounted for substantially all of the
IMS segment's revenue in 1998. All major pharmaceutical companies are customers
of IMS, and many of the companies subscribe to reports and services in several
5
countries. IMS's customer base is broad in scope and enables it to avoid
dependence on any single customer. None of IMS's customers accounted for more
than 10% of the Company's gross revenues in 1998.
While no competitor provides the geographical reach or breadth of IMS's
services, IMS generally has competition in the countries in which it operates
from other information services companies, as well as the in-house capabilities
of its customers. Generally, competition has arisen on a country-by-country
basis. In the United States, certain of IMS's sales management services,
including its sales territory and prescription tracking reports, representing
approximately 60% of the annual revenue of the US unit, compete with the
services of National Data Corp. Quality, completeness and speed of delivery of
information services and products are the principal methods of competition in
IMS's market.
EMERGING MARKETS
This segment is comprised of Erisco, Enterprises and SSJ K.K. ("SSJ").
ERISCO
Erisco has been a leading provider of application software and services to
the healthcare industry for over two decades. Erisco's legacy system solutions,
ClaimFacts and GroupFacts, were designed to help indemnity insurance carriers,
third party administrators and self-administered corporations manage the
administration of group health and life insurance products.
Erisco's primary offering, Facets, is a client/server system which
integrates advanced technology with clinical information to help managed care
organizations ("MCOs") provide high-quality, cost-effective solutions in their
marketplace. Primary markets include health maintenance organizations, preferred
provider organizations, Blue Cross/Blue Shield organizations, managed-indemnity
carriers and specialized MCOs.
Erisco's strategic growth will come from Facets sales to the MCO market.
Ongoing change in healthcare has had a significant impact on this market
segment, resulting in the migration of plan members from indemnity-oriented
plans to managed care. By the year 2000, managed health plan membership in the
United States is estimated to surpass the 100 million mark. This significant
market growth combined with the limitations of aging information systems, will
continue to increase the demand for sophisticated managed care applications.
Erisco also extends its Facets business solution through a service bureau
offering for low-volume customers, and through alliances with strategic,
complementary systems partners, and systems integration and implementation
consultants.
Within the high-growth managed care market segment, Erisco competes with
three other information systems vendors; McKessonHBOC, Computer Sciences
Corporation and Health Systems Design. Competition is principally based on
company reputation, system functionality and technology, and ease of use and
service.
ENTERPRISES
Enterprises invests in emerging and established businesses, with an
emphasis on information technology and the health care information industry. It
has invested as a limited partner in Information Partners Capital Fund,
Information Associates, L.P. and Information Associates II, L.P., all of which
are venture capital limited partnerships, as well as through direct investments.
SSJ
SSJ is based in Japan and markets financial application software products
and services tailored for the Japanese market.
6
CTS
In the second quarter of 1998, CTS effected an initial public offering of
its Class A Common Stock. As of December 31, 1998 IMS HEALTH owns 61.7% of the
outstanding common stock of CTS, representing approximately 94% of the combined
voting power of CTS' common stock. CTS is quoted on the Nasdaq National Market
under the trading symbol "CTSH." CTS provides various software development and
maintenance services to IMS Health and is subsidiaries, including assisting in
IMS HEALTH'S Year 2000 compliance efforts. IMS HEALTH provides certain
administrative services to CTS pursuant to an agreement entered into in
connection with the public offering.
During 1998, CTS recorded intercompany sales of approximately $13
million, principally to the IMS segment. These sales are eliminated in
consolidation.
CTS delivers high-quality, cost-effective, full life cycle solutions to
complex software development and maintenance problems. Its services include the
following:
o Application Development Services. CTS develops new applications for
IBM mainframe, client/server architectures and other emerging
technology environments. CTS follows either of two approaches,
including (i) full life cycle application development in which CTS
assumes total start-to-finish responsibility and accountability for
analysis, design, implementation and testing of systems, or (ii)
cooperative development in which CTS's employees work with a
customer's in-house information technology ("IT") personnel to
analyze, design, implement and test new systems.
o Application Maintenance Support Services. CTS provides services to
ensure that a customer's legacy software systems are operational and
responsive to end-users' changing needs. In doing so, CTS is often
able to introduce process enhancements and improve service levels to
customers requesting modifications and on-going support.
o Year 2000 Compliance Services. With the year 2000 approaching,
computer software systems that were not designed to process dates
correctly in the next century are expected to fail. Organizations
rely on mission-critical software systems and must either repair the
problem presented by the Year 2000 issue or replace legacy systems.
CTS uses its proprietary Year 2000 toolset and methodology, Century
Transition Services 2000, to provide a cost-effective total solution
for all phases of a Year 2000 compliance project. The Century
Transition Services 2000 methodology covers the entire life cycle of
a Year 2000 compliance project and comprises a seven step process:
(i) inventory preparation, (ii) impact analysis, (iii) strategy and
design, (iv) code change and data migration, (v) unit, system and
acceptance testing, (vi) implementation and (vii)
post-implementation support. The Century Transition Services 2000
toolset covers a wide array of common programming languages and
environments including many client/server environments. CTS is thus
able to provide complete solutions across a large portion of
customers' systems.
o Eurocurrency Compliance Services. The monetary union of the European
Community presents a significant opportunity for CTS as computer
systems which deal with any European denominated currency modified
to handle local currency and Eurocurrency transactions. CTS is
addressing the Eurocurrency compliance problem and has established a
dedicated practice to focus on this problem. CTS believes that
portions of its Year 2000 toolset and methodology can be extended to
efficiently address the European currency compliance needs of
customers.
o Testing and Quality Assurance Services. Testing and quality
assurance is a critical aspect of any software development activity.
CTS works with customers to better define the quality assurance
processes which are in use by the customers' in-house IT
departments. CTS utilizes its quality assurance expertise to ensure
better quality software through fundamental process improvements.
o Re-Hosting and Re-Engineering Services. Through CTS's re-hosting and
re-engineering service offerings, CTS works with customers to
migrate systems based on legacy computing environments to newer,
open-systems-based platforms and client/server architectures.
The IT services market includes a large number of participants, is subject
to rapid changes and is highly competitive. Many of CTS's competitors have
significantly greater financial, technical and marketing resources and greater
name recognition than CTS. The principal competitive factors affecting the
markets for CTS's services include (i) performance and reliability, (ii) quality
of technical support, training and services, (iii) responsiveness to customer
needs, (iv) reputation, experience and financial stability and (v) competitive
pricing of services.
7
RESOURCE GROUP
Shared Business Services began operations in 1994 as an internal services
business. The shared service center in Allentown, Pennsylvania provides
centralized functions covering broad finance and administrative services
formerly supplied within each IMS HEALTH division, in the United States and
Canada, but at lower cost with higher levels of service. In 1998 effective with
the Cognizant Spin-off, the center began servicing Nielsen Media Research as an
external services provider in the functions of general accounting, accounts
payable, payroll and financial systems support.
FOREIGN OPERATIONS
As indicated above, IMS HEALTH and its subsidiaries engage in a
significant portion of their business outside of the United States. IMS HEALTH's
foreign operations are subject to the usual risks inherent in carrying on
business outside of the United States, including fluctuation in relative
currency values, possible nationalization, expropriation, price controls and
other restrictive government actions. IMS HEALTH believes that the risk of
nationalization or expropriation is reduced because its products are software,
services and information, rather than the production of products which require
manufacturing facilities or the use of natural resources.
INTELLECTUAL PROPERTY
IMS HEALTH owns and controls a number of patents, trade secrets,
confidential information, trademarks, trade names, copyrights and other
intellectual property rights which, in the aggregate, are of material importance
to its business. Management believes that the "IMS" name and related names,
marks and logos are of material importance to IMS HEALTH. IMS HEALTH is licensed
to use certain technology and other intellectual property rights owned and
controlled by others, and similarly, other companies are licensed to use certain
technology and other intellectual property rights owned and controlled by IMS
HEALTH. The technology and other intellectual property rights licensed by IMS
HEALTH are of importance to its business, although management of IMS HEALTH
believes that IMS HEALTH's business, as a whole, is not dependent upon any one
intellectual property or group of such properties.
The names of IMS HEALTH's and its subsidiaries' products and services
referred to herein are trademarks, service marks, registered trademarks or
registered service marks owned by or licensed to IMS HEALTH or one of its
subsidiaries.
RELATIONSHIP BETWEEN IMS HEALTH
AND NIELSEN MEDIA RESEARCH AFTER THE DISTRIBUTION
Prior to the Cognizant Spin-off, IMS HEALTH and Cognizant (which changed
its name to Nielsen Media Research, Inc.) entered into certain agreements
governing their relationship subsequent to the Cognizant Spin-off and providing
for the allocation of certain liabilities and obligations arising from periods
prior to the Cognizant Spin-off, including those obligations and liabilities
that arose in connection with the D&B Spin-off. The following descriptions
summarize certain terms of such agreements, but is qualified by reference to the
texts of such agreements, which are incorporated by reference to the Exhibits to
this Form 10-K.
DISTRIBUTION AGREEMENT
Cognizant and IMS HEALTH entered into a Distribution Agreement (the
"Distribution Agreement") providing for, among other things, certain corporate
transactions required to effect the Cognizant Spin-off and other arrangements
between Cognizant and IMS HEALTH subsequent to the Cognizant Spin-off.
In particular, the Distribution Agreement defines the assets and
liabilities which were allocated to and assumed by IMS HEALTH and those which
are allocated to and assumed by Nielsen Media Research. All assets were
transferred without any representation or warranty, "as is-where is", and the
relevant transferee bears the risk that any necessary consent to transfer was
not obtained.
The Distribution Agreement provides for, among other things, assumption of
liabilities and cross indemnities designed to allocate generally, effective as
of the Distribution Date, financial responsibility for the liabilities arising
out of or in connection with (i) Cognizant's businesses (i.e., Nielsen Media
Research) and certain other specified liabilities and (ii) all other liabilities
to IMS HEALTH. Pursuant to the terms of the 1996 Distribution Agreement (the
"1996 Distribution Agreement") among Cognizant, Dun & Bradstreet and ACNielsen
Corporation ("ACNielsen"), as a condition to the Distribution, IMS HEALTH and
Nielsen Media Research were required to and did undertake to be jointly and
severally liable to Dun & Bradstreet and ACNielsen for any liabilities arising
thereunder. The Distribution Agreement allocates between IMS HEALTH and
8
Nielsen Media Research the financial responsibility for such liabilities
including contingent liabilities related to certain prior business transactions
and certain liabilities to Dun & Bradstreet that may arise in connection with
the D&B Spin-off.
Among other things, IMS HEALTH and Nielsen Media Research agreed to an
allocation of certain potential liabilities in connection with the action filed
by Information Resources, Inc. described in Note 15 of the Notes to Consolidated
Financial Statements in the 1998 Annual Report to Shareholders, referred to in
Item 3 Legal Proceedings (the "IRI Action"). IMS HEALTH and Nielsen Media
Research have agreed that, as between themselves, IMS HEALTH will assume 75%,
and Cognizant will assume 25%, of any payments to be made by Cognizant in
respect of IRI Action under the 1996 Indemnity and Joint Defense Agreement among
Cognizant, Dun & Bradstreet and ACNielsen (the "IJDA") including any legal fees
and expenses incurred in 1999 or thereafter. IMS HEALTH agreed to be fully
responsible for any legal fees and expenses incurred during 1998. Nielsen Media
Research aggregate liability to IMS HEALTH for payments in respect of the IRI
Action and certain other specified contingent liabilities is not to exceed $125
million. Under the IJDA, ACNielsen assumed exclusive liability for the IRI
Liabilities up to a specified amount (the "ACN Maximum Amount"), which is to be
calculated at the time such liabilities, if any, become payable, and that
Cognizant and Dun & Bradstreet will share liability equally for any amounts in
excess of the ACN Maximum Amount. The ACN Maximum Amount will be determined by
an investment banking firm as the maximum amount which ACNielsen is able to pay
after giving effect to (i) any plan submitted by such investment bank which is
designed to maximize the claims-paying ability of ACNielsen without impairing
the investment banking firm's ability to deliver a viability opinion (but which
will not require any action requiring shareholder approval), and (ii) payment of
related fees and expenses. For these purposes, financial viability means the
ability of ACNielsen, after giving effect to such plan, the payment of related
fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as
they become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by such plan, for two years from
the date any such plan is expected to be implemented.
In addition, pursuant to the Distribution Agreement, on the Distribution
Date, Nielsen Media Research contributed to IMS HEALTH all cash in Nielsen Media
Research accounts other than (i) cash required by Nielsen Media Research to
satisfy certain specified obligations and (ii) such additional cash as was
necessary for the net borrowings of Nielsen Media Research (excluding the items
referred to in clause (i)) to be $300 million as of the Distribution Date.
The Distribution Agreement provides that neither Nielsen Media Research
nor IMS HEALTH will take any action that would jeopardize the intended tax
consequences of the Cognizant Spin-off. Specifically, each company agrees to
maintain its status as a company engaged in the active conduct of a trade or
business, as defined in Section 355(b) of the Internal Revenue Code, until the
second anniversary of the Distribution Date. As part of the request for a ruling
that the Cognizant Spin-off will be tax free for Federal income tax purposes,
each company represented to the Internal Revenue Service that, subject to
certain exceptions, it has no plan or intent to liquidate, merge or sell all or
substantially all of its assets. As a result, the Company may not initiate any
action leading to a change of control, and in the case of a change in control,
the foregoing representations, and the ruling based thereon, could be called
into question. As a result, the acquisition of control of the Company prior to
July 1, 2000 may be more difficult or less likely to occur because of the
potential substantial contractual damages associated with a breach of such
provisions of the Distribution Agreement.
TAX ALLOCATION AGREEMENT
Nielsen Media Research and IMS HEALTH entered into a Tax Allocation
Agreement under which IMS HEALTH agreed to pay any taxes, or receive any refunds
or credits of taxes, shown as due on a U.S. federal, state or local income or
franchise tax return for a taxable period beginning prior to the Distribution
Date (including the current taxable period to the extent such taxes, refunds or
credits are attributable to the portion of such taxable period up to and
including the Distribution Date). Any subsequent adjustment of such taxes will
be allocated to IMS HEALTH if such adjustment relates to IMS HEALTH's business
and to Cognizant if such adjustment relates to the Nielsen Media Research
business, except that any adjustment of such taxes attributable to tax items or
positions initially determined by Cognizant's corporate office will be allocated
to IMS HEALTH.
All taxes other than U.S. federal, state and local income and franchise
taxes will be the responsibility of IMS HEALTH if they are attributable to IMS
HEALTH's business and of Nielsen Media Research if they are attributable to
Nielsen Media Research business.
For taxable periods beginning on or after the Distribution Date (and the
portion of the current taxable period beginning after the Distribution Date),
IMS HEALTH and Nielsen Media Research will be responsible for their own taxes.
9
EMPLOYEE BENEFITS AGREEMENT
Nielsen Media Research and IMS HEALTH entered into an Employee Benefits
Agreement, which allocates responsibility for certain employee benefits matters
on and after the Distribution Date. Among other things, the Employee Benefits
Agreement requires that the Company adopt a defined pension plan, nonqualified
supplemental pension plans and welfare plans for the benefit of IMS HEALTH
employees and former employees. Nielsen Media Research is required to continue
to sponsor its current defined benefit pension plans and welfare plans for the
benefit of employees and former employees and will retain the liability for
benefits under Nielsen Media Research nonqualified supplemental pension plans
for such employees. Nielsen Media Research and IMS HEALTH will each generally
retain the severance liabilities of their respective employees who terminated
employment prior to the Distribution Date. Assets and liabilities of the
Cognizant Pension Plan attributable to the Company's employees and retirees were
transferred to a plan maintained by the Company.
AMENDED AND RESTATED TRANSITION SERVICES AGREEMENT
Nielsen Media Research, IMS HEALTH, Dun & Bradstreet, R.H. Donnelley,
Inc., ACNielsen and Gartner entered into an Amended and Restated Transition
Services Agreement pursuant to which such parties have agreed to certain basic
terms governing the provision by Dun & Bradstreet to the other parties of
insurance and risk management services for a transitional period after the
Distribution Date. The Amended and Restated Transition Services Agreement amends
and restates in its entirety the Transition Services Agreement dated as of
October 28, 1996 among Cognizant, Dun & Bradstreet and ACNielsen entered into in
connection with the D&B Spin-off and includes Gartner as a party to such
agreement.
FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information and statements provided by the Company may
contain "forward-looking statements" as defined by the Private Securities
Litigation Reform Act of 1995. The Company cautions shareholders and investors
that actual results may differ materially from those projected or suggested in
any forward-looking statement as a result of a wide variety of factors,
including but not limited to the factors set forth below:
o Many existing computer systems and software applications use two
digits, rather than four, to record years. Unless modified, such
systems will not properly record or interpret years after 1999,
which could lead to business disruptions ("the Year 2000 issue").
The Company began to address the Year 2000 issue in 1996, when it
began to assess the impact on its operations. In 1997, the Company
created a Year 2000 Task Force (the "task force") to manage overall
risks and to facilitate activities across the entire Company. CTS, a
majority owned subsidiary, is being used to convert the majority of
the systems to allow most internal staff members to focus on the
core business. The Company has also used outside services to assist
in conversion and to assess the progress of its Year 2000 program.
The Company has identified its Year 2000 areas of focus as systems
and software for the creation and delivery of its products and
systems and software for its internal administrative operations.
o The cost of addressing the Year 2000 issue and the dates which the
Company currently expects to complete Year 2000 compliance are based
on the current best estimates of management, which are derived
utilizing various assumptions regarding the future events. There can
be no guarantee that these estimates will be achieved, and actual
results may differ materially. Specific factors that may cause such
material differences include, but are not limited to, the
availability and cost of personnel trained in this area of
expertise, the ability to locate and correct all relevant computer
codes, and the success of customers and suppliers in addressing the
Year 2000 issue. The Company's plans are dependent on the continuous
operation of industries outside of its direct control such as
utilities, transportation, etc. The above expectations are subject
to uncertainties. For example, if the Company is unsuccessful in
identifying or fixing all Year 2000 problems in its critical
operations, or effected by the inability of its data suppliers or
major customers to continue operations due to such a problem, the
Company's results of operations or financial condition could be
materially impacted. See the "Financial Review" in the 1998 Annual
Report to Shareholders.
o Results could be affected by the costs and other effects of
litigation and other contingencies involving the Company. In
particular, management of the Company is unable to predict at this
time the final outcome of the IRI Action described in "Note 15.
Contingencies" of the Notes to Consolidated Financial Statements in
the 1998 Annual Report to Shareholders, or whether the resolution of
this matter could materially affect the Company's results of
operations, cash flows or financial position.
o The Company has been informed by The Dun & Bradstreet Corporation
("D&B") that the IRS is currently reviewing D&B's utilization of
certain losses during 1989 and 1990. While D&B has not received an
assessment with respect to these transactions, it understands that
the IRS will challenge D&B's position. The Company has estimated
that D&B's total cash liability to the IRS if an assessment is made
and the IRS prevails would be approximately $425,000 for taxes and
accrued interest net of tax benefit. Under the terms of the 1996
Distribution Agreement, the Company is liable to pay half of such
taxes and interest owed to the extent that D&B's total liabilities
exceed $137,000. A portion of the Company's liabilities would in
turn be shared with Nielsen Media Research in connection with the
Distribution dated June 30, 1998 between Cognizant and the Company.
The Company estimates that its current share of the Liability were
the IRS to prevail would be approximately $135,000. Additional
information is incorporated by reference to Note 12. Income Taxes on
Pages 30 - 31 of the 1998 Annual Report to Shareholders.
10
o The Company operates globally, deriving 59% of its $1,186,513 in
revenue and 114% of its $132,484 in operating income from non-U.S.
operations. As a result, fluctuations in the value of foreign
currencies relative to the U.S. dollar may increase the volatility
of U.S. dollar-denominated operating results. The Company's
geographic expansion in emerging markets such as Eastern Europe,
Africa and Asia Pacific is expected to continue. Emerging markets
tend to be considerably less stable than established markets which
may further contribute to volatility in operating results. In
addition, the Company is subject to the usual risks inherent in
carrying on business in certain countries outside the United States,
including possible nationalization, expropriation, price controls or
other restrictive government actions. Management believes that the
risk of nationalization or expropriation is reduced because its
basic service is the delivery of information, rather than the
production of products which require manufacturing facilities or use
of natural resources.
o Although an important aspect of the Company's business strategy is
growth through acquisitions, there can be no assurance that
management of the Company will be able to identify and consummate
acquisitions on satisfactory terms. Furthermore, every acquisition
will entail some degree of uncertainty and risk, and even if
consummated, may not produce the operating results or increases in
value over time which were expected at the time of acquisition.
o The Company competes in businesses which demand or sell
sophisticated information systems, software and other technology.
The types of systems which the Company's businesses require or sell
can be expected to be subject to refinements as such systems and
underlying technologies are upgraded and advanced, and there can be
no guarantee that as various systems and technologies become
outdated, the Company will be able to replace them, to replace them
as quickly as the Company's competition or to develop and market new
and better products and services in the future on a cost-effective
basis.
o Currently, the Company's assets include a significant block of the
outstanding shares of Gartner. In the third quarter of 1997, the
Company's voting interest in Gartner fell below 50% to 49.5% based
upon the exercise of Gartner employee stock options and employee
stock purchases. Accordingly, as of September 30, 1997 the Company
deconsolidated Gartner and is accounting for its ownership interest
on the equity basis. Gartner's common stock has historically traded
at higher multiples than market averages and has generally
experienced greater price volatility than the market as a whole. It
can be expected that variations in the market value of the Gartner
shares held by the Company will have an impact on the trading prices
of the Company's Common Stock. Gartner's results of operations may
also be subject to the various factors described in Gartner's
reports filed with the SEC from time to time.
o A number of countries in which the Company operates have enacted
regulations limiting the prices pharmaceutical companies may charge
for drugs. The Company believes that such cost containment measures
will cause pharmaceutical companies to seek more effective means of
marketing their products (which will benefit the Company in the
medium and long term). However, such governmental regulation may
cause pharmaceutical companies to revise or reduce their marketing
programs in the near term.
o Certain of the data services provided by the Company relate to the
diagnosis and treatment of disease. The use of patient-specific
information is anticipated to be an increasingly important tool in
the design, development and marketing of pharmaceuticals. To protect
privacy, no individual patient is identified in any IMS database.
Recently, there have been a number of regulatory and legislative
initiatives in the area of medical privacy at the federal, state and
foreign government levels. Most of these initiatives seek to place
restrictions on the use and disclosure of patient-identifiable
information without consent and consequently would not apply to the
Company's business. However, there can be no assurance that future
initiatives would not adversely affect the Company's ability to
generate or assemble data or to develop or market current or future
products and services.
o Each of the Company's businesses is subject to significant or
potential competition which is likely to intensify in the future.
o The Company's results could be adversely affected by general or
specific weakening of economic conditions, including weak economic
conditions in the pharmaceutical, healthcare, information technology
or other industries in which the Company's customers operate.
11
o On November 11, 1998 the Company announced that its Board of
Directors approved a plan, in principle, to spin-off substantially
all of its equity ownership of Gartner. The transaction, expected to
be completed in the first half of 1999, is to be structured as a
tax-free distribution of Gartner Stock to IMS HEALTH shareholders.
The transaction is subject to receipt of a favorable ruling from the
IRS, final approval by the Company's and Gartner's Board of
Directors, and approval by Gartner shareholders. Additional
information is incorporated by reference to the Financial Review on
pages 1-12 of the 1998 Annual Report to Shareholders.
---------------------------------------
The names of the Company's products used in this report are trademarks or
registered trademarks of IMS Health Incorporated or one of its subsidiaries.
Additional information is incorporated by reference to Note 17. Operations by
Business Segment on Pages 34 - 36 of the 1998 Annual Report to Shareholders.
12
ITEM 2. PROPERTIES
The principal properties of the Company are set forth below.
The executive offices of IMS Health Incorporated are located at 200 Nyala
Farms, Westport, Connecticut in a leased property.
Property of the Company is geographically distributed to meet sales and
operating requirements worldwide. The properties of the Company are
generally considered to be both suitable and adequate to meet current
operating requirements and virtually all space is being utilized.
IMS
Owned properties located within the United States include three
facilities. The properties are located in Totowa, New Jersey; and Plymouth
Meeting and West Norriton, Pennsylvania.
Owned properties located outside the United States include nine
facilities: one property each in Buenos Aires, Argentina; Artarmon,
Australia; Crows Nest, Australia; Innsbruck, Austria; Santiago, Chile;
Lisbon, Portugal; and London, Loughborough and Pinner, England.
The operations of this business unit are also conducted from twenty-two
leased offices located throughout the United States and one-hundred and
five non-United States locations.
EMERGING MARKETS
Operations are conducted from two leased office locations throughout the
United States.
CTS
Operations are conducted from three leased office locations throughout the
United States and nine non-United States locations.
RESOURCE GROUP/CORPORATE
Operations are conducted from two leased office locations in Allentown,
Pennsylvania and Westport, Connecticut.
ITEM 3. LEGAL PROCEEDINGS
Reference is made to Note 15. of Notes to Consolidated Financial
Statements on Pages 32 and 33 of the 1998 Annual Report to Shareholders
which is incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
13
EXECUTIVE OFFICERS OF THE REGISTRANT*
Officers are elected by the Board of Directors to hold office until their
respective successors are chosen and qualified.
Listed below are the executive officers of the registrant at February 26,
1999 and brief summaries of their business experience during the past five
years.
Name Title Age
---- ----- ---
Robert E. Weissman Chairman and Chief Executive Officer** 58
Victoria R. Fash President and Chief Operating Officer** 48
J. Michal Conaway Chief Financial Officer 50
Gilles Pajot Vice Chairman and President - Europe Region 49
Robert Hooper President, IMS America 53
Alan J. Klutch Senior Vice President - Finance 54
James C. Malone Senior Vice President - Finance and Controller 50
Kenneth S. Siegel Senior Vice President - General Counsel and
Corporate Secretary 43
Craig S. Kussman Senior Vice President - Corporate Development 40
David H. Owen Senior Vice President - Global Human Resources 48
Matthew L. Friedman Vice President and Treasurer 41
* Set forth as a separate item pursuant to Items 401(b) and (e) of
Regulation S-K.
** Member of the Board of Directors.
Mr. Weissman was appointed Chairman and Chief Executive Officer of IMS
Health Incorporated in February, 1998. He previously served as Chairman and
Chief Executive Officer of Cognizant Corporation from September, 1996 to July,
1998. Mr. Weissman was Chairman and Chief Executive Officer of Dun & Bradstreet
from April, 1995 to October, 1996 after serving as President and Chief Executive
Officer from January, 1994 to March, 1995. He was named Dun & Bradstreet's
President and Chief Operating Officer in January, 1985.
Ms. Fash was appointed President and Chief Operating Officer of IMS Health
Incorporated in February, 1998 and will become the Chief Executive Officer,
effective March 19, 1999. Ms. Fash served as Executive Vice President and Chief
Financial Officer of Cognizant Corporation from September, 1996 to July, 1998
and Chairman and Chief Executive Officer of I.M.S. International, Inc., a
subsidiary of Cognizant, from December, 1997 to July, 1998. From April, 1995 to
November, 1996, Ms. Fash was Vice President-Business Strategy of Dun &
Bradstreet. Prior to that, she served as Vice President-Business Operations
Planning of Dun & Bradstreet from May, 1994 to April, 1995. Previously, she had
served as Assistant to the President of Dun & Bradstreet from September, 1991 to
May, 1994.
Mr. Conaway was appointed Chief Financial Officer in September, 1998. He
previously served as Senior Vice President and Chief Financial Officer of Fluor
Corporation, an engineering and diversified services company, from June, 1995 to
September, 1998; Vice President and Chief Financial Officer from June, 1994 to
June, 1995 and Vice President-Finance from January, 1993 to June, 1994.
Mr. Pajot was appointed Vice Chairman and President - Europe Region in
December, 1997. Prior to that he served as Senior Vice President and President
Market Region Europe of Pharmacia & Upjohn. From September, 1994 to November
1995 he was Executive Vice President Worldwide of Pharmacia AB.
Mr. Hooper was appointed General Manager of IMS America, Ltd. in April,
1997 and was appointed President in April, 1998. Prior to that, he was President
of Abbott Laboratories Canada from July 1993 to April, 1997.
Mr. Klutch was appointed Senior Vice President - Finance of IMS Health
Incorporated in June, 1998. He previously served as Senior Vice President -
Finance of Cognizant Corporation from September, 1996 to July, 1998. Mr. Klutch
was Vice President - Financial Planning of Dun & Bradstreet from October, 1984
to October, 1996.
Mr. Malone was appointed Senior Vice President - Finance and Controller of
IMS Health Incorporated in May, 1998. He served as Senior Vice President -
Finance and Controller of Cognizant Corporation from December, 1996 to July,
1998 and had been appointed Vice President - Finance and Controller from
September, 1996 to December, 1996. Previously, he had served as Assistant Vice
President and Leader - North American Shared Transaction Services Center
14
from February, 1995 to December, 1996 and as Vice President and Controller of
Reuben H. Donnelley Corporation, subsidiary of Dun & Bradstreet from 1990 to
February, 1995.
Mr. Siegel was appointed Secretary of IMS Health Incorporated in February,
1998 and Senior Vice President, General Counsel and Corporate Secretary in June,
1998. He served as Senior Vice President and General Counsel of Cognizant
Corporation from February, 1997 to July, 1998 and Secretary from July, 1997 to
July, 1998. Mr. Siegel was a partner with the law firm of Baker & Botts, L.L.P.
from September, 1994 to February, 1997. Previously, he was a partner at the law
firm of O'Sullivan Graev & Karabell from July, 1987 to August, 1994.
Mr. Kussman was appointed Senior Vice President - Corporate Development in
August, 1998 having served as Vice President Corporate Development since June,
1998. He served as Vice President - Corporate Development of Cognizant
Corporation from October, 1997 to June, 1998 and Vice President - Mergers and
Acquisitions, from November, 1996 to October, 1997. Previously, he had served as
Assistant Vice President - Financial Planning of Dun & Bradstreet from May, 1991
to November, 1996.
Mr. Owen was appointed Senior Vice President, Global Human Resources in
December 1998. Previously, he operated his own business consulting firm, Owen
Consultants, from January, 1998 to November, 1998 and again from July, 1997 to
December, 1997. Mr. Owen was Resourcing Director of Origin BV, an information
technology services company, from February, 1997 to December, 1997 and was
Director, Human Resources, Service Delivery and Internal Communications at Forte
plc, a hotel and restaurant operator.
Mr. Friedman was appointed Vice President and Treasurer of IMS Health
Incorporated in February, 1999, having served as Interim Treasurer of the
Company since August, 1998. Previously he was Assistant Treasurer of Cognizant
Corporation from November, 1996 to June, 1998. Prior to that he served as
Director - International Finance for Dun & Bradstreet from December, 1994 to
November, 1996.
15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information in response to this Item is set forth under Dividends and
Common Stock Information in the "Financial Review" on Page 7 of the 1998 Annual
Report to Shareholders, which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data required by this Item is incorporated herein by
reference to the information relating to the years 1994 through 1998 set forth
in the "Five-Year Selected Financial Data" on Page 27 of the 1998 Annual Report
to Shareholders.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Information in response to this Item is set forth in the "Financial
Review" on Pages 1 to 7 of the 1998 Annual Report to Shareholders, which
information is incorporated herein by reference.
ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Information in response to this Item is set forth under Market Risk in the
"Financial Review" on Page 11 and in Note 9. Financial Instruments on Pages 24
to 25 of the 1998 Annual Report to Shareholders, which information is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Schedules under Item 14 on Page 15.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information in response to this Item is incorporated herein by reference
to the section entitled "Election of Directors" in the Company's proxy statement
dated February 26, 1999 with the Securities and Exchange Commission, except that
"Executive Officers of the Registrant" on Page 10 of this report responds to
Items 401(b) and (e) of Regulation S-K.
ITEM 11. EXECUTIVE COMPENSATION
Information in response to this Item is incorporated herein by reference
to the section entitled "Compensation of Executive Officers and Directors" in
the Company's proxy statement dated February 26, 1999 with the Securities and
Exchange Commission.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information in response to this Item is incorporated herein by reference
to the section entitled "Security Ownership of Management and Others" in the
Company's proxy statement dated February 26, 1999 with the Securities and
Exchange Commission.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information in response to this Item is incorporated herein by reference
to the section entitled "Security Ownership of Management and Others" in the
Company's proxy statement dated February 26, 1999 with the Securities and
Exchange Commission.
17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) List of documents filed as part of this report.
(1) Financial Statements.
See Index to Financial Statements and Schedule on Page 20.
(2) Financial Statement Schedule.
See Index to Financial Statements and Schedule on Page 20.
(3) Other Financial Information.
Five-year Selected Financial Data. See Index to Financial
Statements and Schedule on Page 20.
(4) Exhibits.
See Index to Exhibits on Pages 23, which indicates which
Exhibits are management contracts or compensatory plans
required to be filed as Exhibits. Only responsive information
appearing on pages 1 to 38 to Exhibit 13 is incorporated
herein by reference, and no other information appearing in
Exhibit 13 is or shall be deemed to be filed as part of this
Form 10-K.
(b) Reports on Form 8-K.
18
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
IMS HEALTH INCORPORATED
(Registrant)
By: /s/ ROBERT E. WEISSMAN
------------------------------------
(Robert E. Weissman,
Chairman)
By: /s/ VICTORIA R. FASH
------------------------------------
(Victoria R. Fash,
President & Chief Executive Officer)
By: /s/ J. MICHAL CONAWAY
------------------------------------
(J. Michal Conaway,
Chief Financial Officer)
By: /s/ JAMES C. MALONE
------------------------------------
(James C. Malone, Senior Vice
President - Finance & Controller)
Date: February 26, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.
/s/ CLIFFORD L. ALEXANDER /s/ H. EUGENE LOCKHART
- - -------------------------------------- ---------------------------------
(Clifford L. Alexander, Jr., Director) (H. Eugene Lockhart, Director)
/s/ VICTORIA R. FASH /s/ M. BERNARD PUCKETT
- - -------------------------------------- ---------------------------------
(Victoria R. Fash, Director) (M. Bernard Puckett, Director)
/s/ JOHN P. IMLAY /s/ WILLIAM C. VAN FAASEN
- - -------------------------------------- ---------------------------------
(John P. Imlay, Jr., Director) (William C. Van Faasen, Director)
/s/ ROBERT KAMERSCHEN /s/ ROBERT E. WEISSMAN
- - -------------------------------------- ---------------------------------
(Robert Kamerschen, Director) (Robert E. Weissman, Director)
/s/ ROBERT J. LANIGAN
- - --------------------------------------
(Robert J. Lanigan, Director)
Date: February 26, 1999
19
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
FINANCIAL STATEMENTS:
The Company's consolidated financial statements, the notes thereto and the
related report thereon of PricewaterhouseCoopers LLP, independent accountants,
for the years ended December 31, 1998, 1997, and 1996, appearing on pages 14 to
36 of the accompanying 1998 Annual Report to Shareholders, are incorporated by
reference into this Annual Report on Form 10-K (see below). The additional
financial data indicated below should be read in conjunction with such
consolidated financial statements.
PAGE
----------------------------------------------
10-K 1998 ANNUAL REPORT TO
SHAREHOLDERS
--------------------- ---------------------
Statement of Management's Responsibility for Financial Statements........Exhibit 13 Pg 13 13
Report of Independent Accountants........................................Exhibit 13 Pg 13 13
As of December 31, 1998, 1997 and 1996:
Consolidated Statements of Financial Position..........................Exhibit 13 Pg 15 15
For the years ended December 31, 1998, 1997 and 1996:
Consolidated Statements of Income......................................Exhibit 13 Pg 14 14
Consolidated Statements of Cash Flows..................................Exhibit 13 Pg 16 16
Consolidated Statements of Shareholders' Equity........................Exhibit 13 Pg 17 - 18 17 - 18
Notes to Consolidated Financial Statements...............................Exhibit 13 Pg 19 - 37 19 - 37
Other Financial Information:
Quarterly Financial Data (Unaudited) for the years ended
December 31, 1998, 1997 and 1996.......................................Exhibit 13 Pg 37 37
Management's Discussion and Analysis of Financial
Condition and Results of Operations ...................................Exhibit 13 Pg 1- 7 1 - 7
Business Segments is already included in "Notes to Consolidated Financial Statements"
Five-Year Selected Financial Data......................................Exhibit 13 Pg 38 38
SCHEDULE:
Report of Independent Accountants...................................... 16 --
II. Valuation and Qualifying Accounts for the years ended
December 31, 1998, 1997, and 1996............................................ 17 --
OTHER:
IMS Health Incorporated and Subsidiaries............................... Exhibit 21 --
Schedules other than the one listed above are omitted as not required or
inapplicable or because the required information is provided in the consolidated
financial statements, including the notes thereto.
The consolidated financial statements of Gartner Group, Inc. and the notes
thereto, for the years ended September 30, 1998, 1997, and 1996, and the related
report thereon of KPMG Peat Marwick LLP, independent accountants, for the years
ended September 30, 1998, 1997 and 1996 appearing on pages F-1 to F-20 of the
Gartner Group, Inc. 1998 Annual Report to Shareholders, filed hereunder as
Exhibit 99.2, are incorporated by reference into this Annual Report on Form
10-K.
20
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors
of IMS Health Incorporated:
Our audits of the consolidated financial statements referred to in our
report dated February 16, 1999 appearing in the 1998 Annual Report to
Shareholders of IMS Health Incorporated ("accounting successor to Cognizant
Corporation") (which report and consolidated financial statements are
incorporated by reference in this Annual Report on Form 10-K) also included an
audit of the financial statement schedules listed in Item 14(a)(2) of this Form
10-K. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
New York, New York
February 16, 1999
21
IMS HEALTH INCORPORATED AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS(A)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
(IN THOUSANDS)
- - -----------------------------------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
- - -----------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE CHARGED TO BALANCE
BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(B) OF PERIOD
----------- --------- -------- ------------- ---------
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
For the Year Ended December 31, 1998 ... $ 3,905 $ 1,828 $ 2,034 $ 7,767
======= ======= ======= =======
For the Year Ended December 31, 1997 ... $11,697 $ 462 $(8,254) $ 3,905
======= ======= ======= =======
For the Year Ended December 31, 1996 ... $ 8,135 $ 4,093 $ (531) $11,697
======= ======= ======= =======
NOTE:
(A) Schedule II has been restated to exclude Nielsen Media Research, a
discontinued operation.
(B) Primarily represents the inclusion of the allowance for doubtful
accounts related to the Walsh and PMSI businesses in 1998; and the
deconsolidation of Gartner and the recovery of accounts in 1997.
22
INDEX TO EXHIBITS
REGULATION S-K
EXHIBIT NUMBER DESCRIPTION
- - -------------- -----------
3 Articles of Incorporation and By-laws
.1 Restated Certificate of Incorporation of IMS Health Incorporated
dated May 29, 1998 (incorporated by reference to Exhibit 3.1 to
Registrant's Registration Statement on Form 10 filed on June 12,
1998, file number 001-14049).
.2 Amended and Restated By-laws of IMS Health Incorporated
(incorporated by reference to Exhibit 3.1 to Registrant's
Registration Statement on Form 10 filed on June 12, 1998, file
number 001-14049).
10 Material Contracts
.1 Distribution Agreement between Cognizant Corporation and IMS Health
Incorporated, dated as of June 30, 1998.
.2 Tax Allocation Agreement between Cognizant Corporation and IMS
Health Incorporated, dated as of June 30, 1998.
.3 Employee Benefits Agreement between Cognizant Corporation and IMS
Health Incorporated, dated as of June 30, 1998.
.4 Amended and Restated Transition Services Agreement among The Dun &
Bradstreet Corporation, The New Dun & Bradstreet Corporation,
Cognizant Corporation, IMS Health Incorporated, ACNielsen
Corporation and Gartner Group, Inc., dated as of June 30, 1998.
.5 1998 IMS Health Incorporated Non-Employee Directors' Stock Incentive
Plan, as adopted effective July 1, 1998.*
.6 1998 IMS Health Incorporated Non-Employee Directors' Deferred
Compensation Plan, as adopted effective July 1, 1998.*
.7 1998 IMS Health Incorporated Employees' Stock Incentive Plan, as
adopted effective July 1, 1998.*
.8 1998 IMS Health Incorporated Replacement Plan for Certain Employees
Holding Cognizant Corporation Equity-Based Awards, as adopted
effective July 1, 1998.*
.9 1998 IMS Health Incorporated Replacement Plan for Certain
Non-Employee Directors Holding Cognizant Corporation Equity-Based
Awards, as adopted effective July 1, 1998.*
.10 Form of Non-Employee Directors' Stock Option Agreement.*
.11 Form of Non-Employee Directors' Restricted Stock Agreement.*
.12 Form of Restricted Stock Unit Agreements
.13 Form of Stock Option Agreement.*
.14 Form of Purchased Option Agreement.*
.15 Forms of Change-in-Control Agreement for Certain Executives of IMS
Health Incorporated.*
.16 IMS Health Incorporated Employee Protection Plan, as adopted
effective December 1, 1998.*
.17 IMS Health Incorporated Executive Annual Incentive Plan, as adopted
effective July 1, 1998. *
.18 IMS Health Incorporated Supplemental Executive Retirement Plan, as
adopted effective July 1, 1998.*
.19 IMS Health Incorporated Retirement Excess Plan, as adopted effective
July 1, 1998.*
.20 Rights Agreement dated as of June 15, 1998 between IMS Health
Incorporated and First Chicago Trust Company of New York.
.21 IMS Health Incorporated Savings Equalization Plan, as adopted
effective July 1, 1998.*
.22 Employment Agreement by and between IMS Health Incorporated and
Robert E. Weissman, dated as of July 1, 1998.*
.23 Employment Agreement by and between IMS Health Incorporated and
Victoria R. Fash, dated as of July 1, 1998.*
.24 Amended and Restated Cognizant Technology Solutions Non-Employee
Directors' Stock Option Plan (incorporated by reference to Exhibit
10.3 to the Form S-1 filed by Cognizant Technology Solution
Corporation on April 9, 1998, file number 333-49783).
.25 Undertaking of IMS Health Incorporated, dated June 30, 1998.
13 1998 Annual Report to Shareholders.
21 List of Active Subsidiaries as of December 31, 1998.
23 Consent of Independent Accountants.
27 Financial Data Schedules.
99. Additional Exhibits
.1 Consent of KPMG Peat Marwick LLP, independent accountants for
Gartner Group, Inc.
.2 Pages F1 to F20 of the Gartner Group, Inc. 1998 Annual Report
to Shareholders.
- - --------------------------------------------------------------------------------
* Management contract or compensatory plan or arrangement