Dave Carlucci Chairman and CEO IMS Health

Transcription

1 Dave Carlucci Chairman and CEO IMS Health 1 March 11, 2009

2 Safe Harbor Certain statements we make today are forward-looking within the meaning of the US federal securities laws. These statements include, certain projections regarding the trends in our business, future events and future financial performance. We would like to caution you that these statements are just predictions, and the actual event or results may differ. They can be affected by inaccurate assumptions or by known or unknown risks or uncertainties. Consequently, no forward-looking statement can be guaranteed. We call your attention to our fourth quarter 2008 earnings release and our 2008 full year report on Form 10-K, which set forth important factors that could cause actual results to differ materially from those contained in any such forward-looking statements. All forward-looking statements represent our views only as of the date they are made and the company undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. 2

3 Statement on Guidance We guide to constant dollar revenue but GAAP reported revenue will include the effect of foreign currency fluctuations, which we cannot at this time reliably predict. Non-GAAP Free cash flow guidance may differ from net cash provided by operating activities on a GAAP basis in ways similar to those described in the reconciliations identified in the 2008 free cash flow reconciliation which can be found in the Investors Section of and attached to this document. Statements relating to guidance are based on current expectations as of March 11, These statements are forward-looking, and actual results may differ materially. IMS does not undertake to update these targets in any way or for any reason prior to discussing actual results. 3

4 Financial Highlights Today we will discuss certain measures on a non-gaap basis. The non-gaap measures discussed today are those used by management for the purposes of global business decision-making, including developing budgets and managing expenditures. These non-gaap measures exclude certain U.S. GAAP measures to the extent that management believes exclusion will facilitate comparisons across periods and more clearly indicate trends. Any such measures are not prepared under a comprehensive set of accounting rules and are not a replacement for the more comprehensive information for investors included in IMS's U.S. GAAP results. The method IMS uses to prepare these measures differs in significant respects from U.S. GAAP and is likely to differ from the methods used by other companies. Investors interested in management's non-gaap measures are urged to review the reconciliations of the adjusted measures to comparable U.S. GAAP results. Preliminary (non-gaap) 2008 Free Cash Flow and a complete reconciliation to the comparable GAAP numbers can be found in the Investors Section of and are attached to this document. 4

5 IMS: The gold standard for information about the pharmaceutical and healthcare industries Global leader in market intelligence with more than five decades of experience Diverse sources of revenue in over 100 countries Expanding across new client sets in high growth business areas Growing market opportunity greater than $7 billion Financially strong and investing for growth 5 5

6 From 2002, our addressable market opportunity has expanded more than three times Global Measurement Performance Mgmt Pricing and Market Access Managed Care Contracting Government Health Economics & Outcomes Research Promotional Mgmt $2 Billion 2002 Consulting New Audiences New Businesses Sales Force Effectiveness Market Research Information Mgmt Sales Management Generics Biotech Oncology Portfolio Strategy $7+ Billion

7 We have delivered excellent performance over the last four years Revenue $M Operating Income* $M $2,400 $2,200 $2,000 $1,800 $1, $500 $450 $ Earnings per share* Free Cash Flow per share* $1.70 $1.60 $1.40 $ $1.50 $ * Non-GAAP, 2005 excludes FAS 123r expense

8 Our strong cash flow and capital allocation reflects the importance of investing in our business and returning cash to shareholders $1,200 $1,000 $800 $600 $400 $200 M Share Repurchase Cap Ex/Software Acquisitions $1.2 billion cash flow generated : $439 million acquisitions $524 million new offerings & capital expenditures $1.8 billion share repurchase $

9 Full Year 2008 Adjusted (Non-GAAP) Results Executing well in a challenging environment $ Millions Full Year 2008 Revenue $2,330 Operating Income $511 Margin 22% Net Income $312 EPS $1.70 Year-to-Year Growth 6% 6% Flat 2% 11% Preliminary Free Cash Flow $317 10% 9

10 2008 Performance Summary Executing well in a dynamic environment Free cash flow strong: $317M +10% Adjusted operating margin: 22%, flat year-to-year Adjusted EPS: $ % Restructuring plan completed Disciplined approach to capital deployment Excellent liquidity position Improving our productivity and investing in new business growth areas 10

11 In 2009 our clients face both challenges and opportunities Continuing to optimize near-term results Selecting growth opportunities more decisively geographies, portfolios, launches Accelerating implementation of new business models Account for pending losses from patent expiries Prepare for a new wave of innovation Adjust for the economic downturn 2009 Pharmaceutical Market Summary 4.5% to 5.5% growth Emerging markets & specialty medicines drive growth ~$24 billion in patent expiries More pressure from payers to prove value 11

12 In 2009 our operational roadmap is clear Managing our portfolio to growth opportunities Capitalize on our leadership position in patient/payer insights Leverage global expertise in new commercial models Expand our launch readiness capabilities Accelerate expansion in implementation services Prioritizing our regional investments Extend our strength in emerging / mid-markets Improve growth in the major markets Optimizing our client engagements Execute on unique strategies for each large client Increase penetration for mid-sized clients Aggressively engaging new audiences Governments, payers, generics, consumer health Leveraging our productivity investments 12

13 In 2009 our operational roadmap is clear Managing our portfolio to growth opportunities Capitalize on our leadership position in patient/payer insights Leverage global expertise in new commercial models Expand our launch readiness capabilities Accelerate expansion in implementation services Prioritizing our regional investments Extend our strength in emerging / mid-markets Improve growth in the major markets Optimizing our client engagements Execute on unique strategies for each large client Increase penetration for mid-sized clients Aggressively engaging new audiences Governments, payers, generics, consumer health Leveraging our productivity investments 2009 Guidance CD revenue growth 0 3% EPS $ $1.77 Free cash flow at or above the 2008 level of $317M 13

14 Investment Summary Global leader well positioned for a dynamic environment Invested ahead of market trends Substantially differentiated global capabilities Capitalizing on high growth areas across several dimensions Client: governments, payers, generics, consumer health Geographic: emerging & mid-markets Offerings: patient & payer behaviors and specialty markets Services: building momentum in implementation services Financially strong Excellent cash flow generation Strong liquidity position Improving our productivity 14

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16 News For Immediate Release Contacts: Darcie Peck Gary Gatyas Investor Relations Communications (203) (610) IMS Health Reports 2008 Fourth-Quarter and Full-Year Results Delivers Strong Earnings Per Share Growth, Exceptional Cash Flow Performance NORWALK, CT, February 5, 2009 IMS Health (NYSE: RX), the world s leading provider of market intelligence to the pharmaceutical and healthcare industries, today announced fourth-quarter 2008 net income of $98.5 million and diluted earnings per share of $0.54, compared with net income of $18.0 million and EPS of $0.09 in the fourth quarter of After adjusting for a 2007 restructuring charge and certain other items, net income on a non-gaap basis for the fourth quarter of 2008 rose 9 percent and EPS on a non-gaap basis was up 16 percent year over year (See below and Note c to the financial tables). Total revenue for the fourth quarter of 2008 was $580.9 million, a 4 percent decrease or flat constant dollar from the fourth quarter of For full-year 2008, net income was $311.3 million and EPS was $1.70, up 33 percent and 44 percent, respectively. After adjusting for certain items, net income on a non-gaap basis grew 2 percent and EPS on a non-gaap basis rose 11 percent for the year (See below and Note c to the financial tables). Revenue for the 2008 full year was $2,329.5 million, up 6 percent or 3 percent constant dollar from 2007.

17 IMS delivered exceptional cash flow and double-digit earnings per share growth in 2008, reflecting the strength of our financial position and soundness of our strategy, said David R. Carlucci, IMS chairman and chief executive officer. We have positioned IMS to perform well in a slower growth environment and taken the right steps to align for new opportunities, tightly manage our costs, and maintain a solid balance sheet. As the industry leader, we are becoming an even stronger, more vital partner to clients right at the center of helping them adapt to today s market realities. The company also announced its financial guidance for the 2009 full year. Constant-dollar revenue growth is expected to be flat to 3 percent this year, and diluted earnings per share is expected to be in the $1.70 $1.77 range. Operating income in the fourth quarter of 2008 was $126.6 million, compared with $47.0 million in the year-earlier quarter. When adjusted for non-cash asset write-downs in 2008, operating income on a non-gaap basis for the 2008 fourth quarter was $136.0 million compared with $135.7 million in the year-earlier quarter after adjusting for the 2007 restructuring charge (See Note c to the financial tables). Fourth-quarter 2008 diluted earnings per share was $0.54 on a GAAP basis, compared with $0.09 in the prior-year quarter. When adjusted for certain items, earnings per share on a non-gaap basis for this year s fourth quarter grew $0.07 year over year, to $0.50 (See Note c to the financial tables). Net income on a GAAP basis was $98.5 million, compared with $18.0 million in the year-earlier quarter. When adjusted for certain items, net income on a non-gaap basis for the 2008 fourth quarter was $90.6 million, compared with $83.4 million in the fourth quarter of 2007 (See Note c to the financial tables). Full-Year Results For the 2008 full year, revenues were $2,329.5 million, up 6 percent or 3 percent constant dollar, compared with revenue of $2,192.6 million in Operating income for Page 2

18 2008 was $498.3 million, compared with $393.3 million in the year-earlier period, up 27 percent and 18 percent constant dollar. After adjusting for a 2008 charge related to the company s Government Solutions subsidiary and 2008 non-cash asset write-downs, operating income on a non-gaap basis for the 2008 full year was $511.5 million, up 6 percent or flat on a constant-dollar basis compared with operating income on a non-gaap basis of $482.0 million in 2007, which reflects an adjustment for the 2007 restructuring charge (See Note c to the financial tables). For the 2008 full year, diluted earnings per share on a GAAP basis was $1.70, compared with $1.18 a year earlier. After adjusting for certain items, earnings per share for 2008 on a non-gaap basis was $1.70, $0.17 above diluted earnings per share on a non-gaap basis of $1.53 in 2007 (See Note c to the financial tables). Net income on a GAAP basis was $311.3 million, compared with $234.0 million in When adjusted for certain items, net income for 2008 on a non-gaap basis was $311.7 million, compared with $304.3 million in the year-earlier period (See Note c to the financial tables). Preliminary net cash provided by operating activities on a GAAP basis for 2008 was $420.7 million preliminary free cash flow on a non-gaap basis was $317.5 million (See Note d to the financial tables). Balance Sheet Highlights IMS s cash and cash equivalents as of December 31, 2008 totaled $215.7 million, compared with $218.2 million on December 31, Total debt as of December 31, 2008 was $1,404.2 million, up from $1,203.2 million at the end of 2007, primarily due to the impact of exchange rates on foreign debt. Share Repurchase Program, Shares Outstanding During the fourth quarter, approximately 440,000 shares were repurchased at a total cost of $7.6 million. Shares repurchased in 2008 totaled 10.5 million shares at a cost Page 3

19 of $238.0 million. The impact of the share repurchase program was an EPS benefit of $0.06 per share in 2008 compared to $0.01 per share in The number of shares outstanding as of December 31, 2008 was approximately million, compared with million as of December 31, About IMS Operating in more than 100 countries, IMS Health is the world s leading provider of market intelligence to the pharmaceutical and healthcare industries. With $2.3 billion in 2008 revenue and more than 50 years of industry experience, IMS offers leading-edge market intelligence products and services that are integral to clients day-to-day operations, including product and portfolio management capabilities; commercial effectiveness innovations; managed care and consumer health offerings; and consulting and services solutions that improve productivity and the delivery of quality healthcare worldwide. Additional information is available at Conference Call and Webcast Details IMS will host a conference call at 8:00 a.m. ET today to discuss its fourth-quarter and full-year results. To participate, please dial 1 (800) (U.S. and Canada) or 1 (212) (outside the U.S. and Canada) approximately 15 minutes before the scheduled start of the call. The conference call also will be accessible live on the Investor Relations section of the IMS Website at Prior to the conference call, a copy of this press release and any other financial or statistical information presented during the call will be made available in the Investors area of IMS s Website. A replay of the conference call will be available online on the Investors section of the IMS Website and via telephone by dialing 1 (800) (U.S. and Canada) or 1 (402) (outside the U.S. and Canada), and entering access code beginning at 10:30 a.m. ET today. Page 4

20 Forward-Looking Statements This press release includes statements that may constitute forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of Although IMS Health believes the expectations contained in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove correct. This information may involve risks and uncertainties that could cause actual results of IMS Health to differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to (i) regulatory, legislative and enforcement initiatives, particularly in the areas of data access and utilization and tax, (ii) the 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, (iii) to the extent unforeseen cash needs arise, the ability to obtain financing on favorable terms, (iv) to the extent IMS Health seeks growth through acquisitions and joint ventures, the ability to identify, consummate and integrate acquisitions and joint ventures on satisfactory terms, (v) the ability to develop new or advanced technologies and systems for its businesses on time and on a cost-effective basis, and (vi) deterioration in economic conditions, particularly in the pharmaceutical, healthcare or other industries in which IMS Health s customers operate. Additional information on factors that may affect the business and financial results of the company can be found in the filings of the company made from time to time with the Securities and Exchange Commission. IMS Health undertakes no obligation to correct or update any forward-looking statements, whether as a result of new information, future events or otherwise. Page 5

21 Table 1 IMS Health GAAP Income Statement Three Months Ended December 31 (unaudited, in millions except per share) 2008 GAAP 2007 GAAP % Fav (Unfav) Non-GAAP Constant $ Growth % Revenue (a) (b) Sales Force Effectiveness $262.2 $272.5 (4) % 0 Portfolio Optimization (6) (1) Launch, Brand and Other (3) 3 Total (4) 0 Revenue Detail: Information & Analytics ( I&A ) Revenue (5) 0 Consulting & Services ( C&S ) Revenue (3) 2 Total Revenue (4) 0 Operating Expenses (b) Operating Costs of I&A (180.0) (187.7) 4 Direct and Incremental Costs of C&S (72.4) (74.2) 2 Selling and Administrative (157.8) (175.5) 10 External-use Software Amortization (11.7) (12.8) 9 Depreciation and Other Amortization (23.0) (20.1) (14) Severance, impairment, and other charges (9.4) (88.7) 89 Total (454.4) (559.0) 19 Operating Income (a) % 161 Interest expense, net (7.8) (7.3) (6) Other Income (Expense), net (15.5) (3.9) NM Pretax Income Provision for Income Taxes (4.8) (17.8) 73 Net Income (c) NM Diluted EPS: Total Diluted EPS $ 0.54 $0.09 NM Shares Outstanding: Weighted Average Diluted End-of-Period Actual Weighted Average Basic The accompanying notes are an integral part of these financial tables. Page 6

22 Table 2 IMS Health GAAP Income Statement Twelve Months Ended December 31 (unaudited, in millions except per share) 2008 GAAP 2007 GAAP % Fav (Unfav) Non-GAAP Constant $ Growth % Revenue (a) (b) Sales Force Effectiveness $1,057.1 $1, % 2 Portfolio Optimization Launch, Brand and Other Total 2, , Revenue Detail: Information & Analytics ( I&A ) Revenue 1, , Consulting & Services ( C&S ) Revenue Total Revenue 2, , Operating Expenses (b) Operating Costs of I&A (756.6) (713.2) (6) Direct and Incremental Costs of C&S (275.5) (244.3) (13) Selling and Administrative (650.3) (626.9) (4) External-use Software Amortization (49.7) (48.6) (2) Depreciation and Other Amortization (89.6) (77.6) (15) Severance, impairment, and other charges (9.4) (88.7) 89 Total (1,831.2) (1,799.3) (2) Operating Income (a) % 18 Interest expense, net (34.5) (29.7) (16) Gains (losses) from investments, net (84) Other Income (Expense), net (49.1) (16.3) (202) Pretax Income Provision for Income Taxes (103.8) (115.6) 10 Net Income (c) Diluted EPS: Total Diluted EPS $ 1.70 $ Shares Outstanding: Weighted Average Diluted End-of-Period Actual Weighted Average Basic The accompanying notes are an integral part of these financial tables. Page 7

23 Table 3 IMS Health Selected Consolidated Balance Sheet Items (unaudited, in millions) Dec. 31, 2008 Dec. 31, 2007 Cash and cash equivalents $215.7 $218.2 Accounts receivable, net Total long-term debt 1, ,203.2 The accompanying notes are an integral part of these financial tables. Page 8

24 Table 4 IMS Health Preliminary GAAP Cash Flows from Operating Activities Twelve Months Ended December 31 (unaudited, in millions) 2008 GAAP Net Income $ Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: Depreciation & Amortization Bad Debt Expense 2.3 Deferred Income Taxes (11.9) Gain on Sale of Assets, net (4.4) Minority Interests in Net Income of Consolidated Companies 7.7 Non-Cash Stock-Based Compensation Charges 28.0 Net Tax Expense on Stock-Based Compensation (0.5) Excess Tax Benefits from Stock-Based Compensation (0.1) Non-Cash Severance, Impairment & Other Charges 9.4 Change in Assets and Liabilities, Excluding Effects from Acquisitions and Dispositions: Net Decrease in Accounts Receivable 31.9 Net Increase in Work-In-Process Inventory (1.7) Net Increase in Prepaid Expenses & Other Current Assets (0.2) Net Increase in Accounts Payable 1.6 Net Decrease in Accrued & Other Current Liabilities (12.6) Net Decrease in Accrued Severance, Impairment & Other (51.1) Net Decrease in Deferred Revenues (27.7) Net Decrease in Accrued Income Taxes (19.1) Net Decrease in Pension Assets, net of Liabilities 8.4 Net Decrease in Other Long-Term Assets, net of Other Long-Term Liabilities 10.0 Net Cash Provided by Operating Activities (d) $ The accompanying notes are an integral part of these financial tables. Page 9

25 IMS Health NOTES TO FINANCIAL TABLES a) Reference to Constant-Dollar Growth (non-gaap). Constant-dollar growth (non-gaap) rates eliminate the impact of year-over-year foreign currency fluctuations (Tables 1 and 2). IMS reports results in U.S. dollars but does business on a global basis. Exchange rate fluctuations affect the rates at which IMS translates foreign revenues and expenses into U.S. dollars and have important effects on results. In order to illustrate these effects, IMS provides the magnitude of changes in revenues and operating income in constant-dollar terms. IMS uses results at constant-dollar rates for purposes of global business decision-making, including developing budgets and managing expenditures. IMS management believes this information, when read together with U.S. GAAP results, facilitates a comparative view of business growth. Constant-dollar rates are not prepared under U.S. GAAP and are not a replacement for the more comprehensive information for investors included in IMS s U.S. GAAP results. The method IMS uses to prepare constant-dollar rates differs in significant respects from U.S. GAAP and is likely to differ from the methods used by other companies. b) Revenue and operating expenses in 2007 reflect reclassifications to make them comparable with the 2008 presentation. c) Net income, fully diluted EPS and, where applicable, Operating income for the three and twelve months ended December 31, 2008 included the following notable items: In Selling and administrative expenses, $3.7 million of expense ($2.4 million net of taxes, or $0.01 EPS impact for the twelve months ended December 31, 2008) recorded in the three months ended September 30, 2008 related to the Voluntary Disclosure Program at the Company s Government Solutions subsidiary as discussed in Note 7 of the Company s Form 10-Q for the quarterly period ended September 30, In Severance, impairment and other charges, a $9.4 million restructuring charge ($6.9 million net of taxes, or $0.04 EPS impact for the three and twelve months ended December 31, 2008) recorded in the three months ended December 31, 2008 for the write-off of certain capitalized software assets resulting from the discontinuation of certain IMS products at the end of In Other expense, net, a $16.1 million foreign exchange loss ($14.5 million net of taxes, or $0.08 EPS impact for the three and twelve months ended December 31, 2008) related to the liquidation of nonfunctional currency Venezuelan Bolívars held at the Company s Swiss operating subsidiary and a $4.0 million gain ($2.6 million net of taxes, or $0.01 EPS benefit for the three and twelve months ended December 31, 2008) related to the sale of certain assets in the Company s Latin America region, both recorded in the three months ended December 31, In Provision for income taxes, a $20.7 million net tax benefit ($0.11 EPS benefit for the three and twelve months ended December 31, 2008) as a result of a non-u.s. reorganization involving several IMS subsidiaries recorded in the three months ended December 31, Additionally, in Provision for income taxes, a $3.9 million tax phasing adjustment ($0.02 EPS impact) was reflected in the non-gaap measures for the three months ended December 31, 2008 arising from the expiration of both a non- U.S. agreement and certain non-u.s. statutes of limitations. Adjusting for these tax items resulted in an effective tax rate of approximately 29% in the non-gaap measures for the twelve months ended December 31, After adjusting for these items and the phasing of foreign exchange losses ($1.9 million, or $0.01 EPS benefit, net of taxes for the three months ended December 31, 2008), operating income, net income and diluted EPS on a non-gaap basis would have been $136.0 million and $511.5 million, $90.6 million and $311.7 million and $0.50 and $1.70 for the three and twelve months ended December 31, 2008, respectively. Net income, fully diluted EPS and, where applicable, Operating income for the three and twelve months ended December 31, 2007 included the following notable items: In Severance, impairment and other charges, an $88.7 million restructuring charge ($62.6 million net of taxes, or $0.32 EPS impact for the three and twelve months ended December 31, 2007) recorded in the three months ended December 31, 2007 to strengthen client-facing operations worldwide, increase the Company s operating efficiencies and streamline its cost structure in response to healthcare marketplace dynamics. In Provision for income taxes, a $7.5 million tax provision ($0.04 EPS impact for the twelve months ended December 31, 2007) recorded in the three months ended September 30, 2007 to revalue net deferred tax assets in Germany as a result of a reduction in the statutory German federal tax rate during the third quarter of Page 10

26 In Provision for income taxes, a $20.9 million tax benefit during the three months ended March 31, 2007 arising from the settlement of a foreign tax audit and the reorganization of certain subsidiaries. A $5.6 million tax phasing adjustment ($0.03 EPS impact) was reflected in the non-gaap measures for the three months ended December 31, This phasing adjustment, which resulted in an effective tax rate of approximately 31% in the non-gaap measures for the three months ended December 31, 2007, was necessary in order to achieve an effective tax rate of approximately 31% in the non-gaap measures for the twelve months ended December 31, After adjusting for these items and the phasing of foreign exchange losses ($2.8 million, or $0.01 EPS benefit, net of taxes for the three months ended December 31, 2007), operating income, net income and diluted EPS on a non-gaap basis would have been $135.7 million and $482.0 million, $83.4 million and $304.3 million and $0.43 and $1.53 for the three and twelve months ended December 31, 2007, respectively. References are made to results that represent certain U.S. GAAP measures after adjustment to reflect notable items to the extent that management believes adjusting for these items will facilitate better comparisons across periods and more clearly indicate trends. These non-gaap measures are those used by management for purposes of global business decision making, including developing budgets and managing expenditures. Any such measures presented on a non-gaap basis are not prepared under a comprehensive set of accounting rules and are not a replacement for the more comprehensive information for investors included in IMS s U.S. GAAP results. d) Reconciliation of Preliminary GAAP Cash Flows from Operating Activities to Non-GAAP Free Cash Flow Twelve Months Ended December 31 (unaudited, in millions) 2008 Note Reference Net Cash Provided by Operating Activities (unaudited) $ Capital Expenditures (36.4) 2 Additions to Computer Software (77.6) 2 Proceeds from Sale of Assets Deferred Income Taxes Minority Interests in Net Income of Consolidated Companies (7.7) 4 Net Tax Expense on Stock-Based Compensation Excess Tax Benefits from Stock-Based Compensation Net Decrease in Accrued Income Taxes Net Decrease in Pension Assets, net of Liabilities (8.4) 6 Net Decrease in Other Long-Term Assets, net of Other Long-Term Liabilities (10.0) 6 Non-GAAP Free Cash Flow (unaudited) $ Notes: 1 Non-GAAP Free Cash Flow excludes certain amounts to the extent that management believes that exclusion will facilitate comparisons across periods and more clearly indicate trends. Although IMS discloses adjusted Non-GAAP Free Cash Flow in order to give a full picture to investors of the operational performance of its business as seen by management, Non-GAAP Free Cash Flow is not prepared under a comprehensive set of accounting rules and is not a replacement for the more comprehensive information for investors included in IMS's U.S. GAAP results. The method IMS uses to prepare Non-GAAP Free Cash Flow differs in significant respects from U.S. GAAP and is likely to differ from the methods used by other companies. 2 Investments in capital assets and software are integral to the ongoing business and operations of the Company and are therefore included as part of Non-GAAP Free Cash Flow. 3 Movements in deferred and accrued income taxes do not necessarily relate directly to current operations and therefore are excluded from Non-GAAP Free Cash Flow. 4 Non-GAAP Free Cash Flow is designed to only include IMS's share of Net income from consolidated subsidiaries. Page 11

27 5 Tax benefits and expenses from stock-based compensation are excluded from Non-GAAP Free Cash Flow as they are considered to be financing activities. 6 Pension assets and liabilities and other inherently long-term assets and liabilities are not viewed as part of current operations and are therefore excluded from Non-GAAP Free Cash Flow. Amounts presented in the financial tables may not add due to rounding. These financial tables should be read in conjunction with IMS Health s filings previously made or to be made with the Securities and Exchange Commission. Page 12

28 IMS Health Incorporated Reconciliation of GAAP Cash Flow Components to Non-GAAP Free Cash Flow (Unaudited) Twelve Months Ended December 31, 2008 GAAP Non-GAAP Cash Flow Free (In thousands) Components Adjustments Cash Flow 1 Cash Flows from Operating Activities: Net Income $ 311,250 $ - $ 311,250 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 139, ,364 Bad debt expense 2, ,267 Deferred income taxes (11,931) 11, Gain from investments, net (379) 0 (379) Gain on sale of assets, net (4,041) 0 (4,041) Minority interests in net income of consolidated companies 7,702 (7,702) 3 0 Non-cash stock-based compensation charges 28, ,036 Net tax expense on stock-based compensation (499) Excess tax benefits from stock-based compensation (94) Non-cash severance, impairment and other charges 9, ,408 Change in assets and liabilities, excluding effects from acquisitions and dispositions: Net decrease in accounts receivable 31, ,931 Net increase in work-in-process inventory (1,654) 0 (1,654) Net increase in prepaid expenses and other current assets (240) 0 (240) Net increase in accounts payable 1, ,580 Net decrease in accrued and other current liabilities (12,550) 0 (12,550) Net decrease in accrued severance, impairment and other charges (51,057) 0 (51,057) Net decrease in deferred revenues (27,694) 0 (27,694) Net decrease in accrued income taxes (19,064) 19, Net decrease in pension assets, net of liabilities 8,352 (8,352) 5 0 Net decrease in other long-term assets, net of other long-term liabilities 9,967 (9,967) 5 0 Net Cash Provided by Operating Activities $ 420,654 $ 5,567 $ 426,221 Cash Flows (Used in) Provided by Investing Activities: Capital expenditures (36,352) 0 (36,352) 6 Additions to computer software (77,642) 0 (77,642) 6 Proceeds from sale of assets 5, ,272 6 Non-GAAP Free Cash Flow, End of Period $ 317,499 Please see following page for the accompanying notes to the Reconciliation of GAAP Cash Flow Components to Non-GAAP Free Cash Flow (Unaudited).

29 IMS Health Incorporated Notes to Reconciliation of GAAP Cash Flow Components to Non-GAAP Free Cash Flow (Unaudited) (In thousands) Notes: 1 Non-GAAP Free Cash Flow excludes certain amounts to the extent that management believes that exclusion will facilitate comparisons across periods and more clearly indicate trends. Although IMS discloses adjusted Non-GAAP Free Cash Flow in order to give a full picture to investors of the operational performance of its business as seen by management, Non-GAAP Free Cash Flow is not prepared under a comprehensive set of accounting rules and is not a replacement for the more comprehensive information for investors included in IMS's U.S. GAAP results. The method IMS uses to prepare Non-GAAP Free Cash Flow differs in significant respects from U.S. GAAP and is likely to differ from the methods used by other companies. 2 Movements in deferred and accrued income taxes do not necessarily relate directly to current operations and therefore are excluded from Non-GAAP Free Cash Flow. 3 Non-GAAP Free Cash Flow is designed to only include IMS's share of net income from consolidated subsidiaries. 4 Tax benefits and expenses from stock-based compensation are excluded from Non-GAAP Free Cash Flow as they are considered to be financing activities. 5 Pension assets and liabilities and other inherently long-term assets and liabilities are not viewed as part of current operations and are therefore excluded from Non-GAAP Free Cash Flow. 6 Investments in capital assets and software are integral to the ongoing business and operations of the Company and are therefore included as part of Non-GAAP Free Cash Flow.