Data. Insights. Results.

Transcription

1 Image Area Data. Insights. Results. Raymond James 26 th Annual Institutional Investors Conference March 2005

2 Safe Harbor Certain statements we make today are forward-looking within the meaning of 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 forwardlooking statement can be guaranteed. We call your attention to our fourth quarter and full year 2004 earnings release and our 2003 annual 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 forwardlooking statements, whether as a result of new information, future events or otherwise. 2

3 Financial Highlights All financials shown are on an adjusted basis : Adjusted results are those used by management for the purposes of global business decision-making, including developing budgets and managing expenditures. Adjusted results exclude certain U.S. GAAP measures to the extent that management believes exclusion will facilitate comparisons across periods and more clearly indicate trends. Although IMS discloses adjusted results in order to give a full picture to investors of its business as seen by management, these adjusted results are not prepared specifically for investors 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 adjusted results 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 adjusted results are urged to review the detailed reconciliations of the adjusted measures to comparable U.S. GAAP results. Adjusted Q4 and full year 2004 Net Income, EPS and a complete reconciliation to the comparable GAAP numbers can be found in our Q4 and full year 2004 earnings press release, which is available in the Investors Section of and is attached to this document & 2003 Free Cash Flow, 2003 & 2002 ROIC and a complete reconciliation to the comparable GAAP numbers can be found in our Q4 and full year 2004 earnings press release and are available in the Investors Section of and are attached to this document. 3

4 Statement on Guidance IMS expects SEC-reported first quarter and full-year diluted earnings per share ( EPS ) to differ from adjusted diluted EPS. Items that could cause first quarter and full-year 2005 SEC-reported diluted EPS to differ from adjusted diluted EPS include, but are not limited to, additional IRI legal fees and gains or losses resulting from strategic actions with respect to IMS s investments. Additional items including phasing adjustments of foreign currency hedge gains (losses) and phasing adjustments relating to any tax benefit could cause quarterly SEC-reported diluted earnings per share ( EPS ) to differ from quarterly adjusted diluted EPS. By year-end, it is expected that the foreign currency hedge gain difference and any phasing adjustments for a tax benefit difference between SEC-reported and adjusted diluted EPS will show no difference in these items between SEC-reported and adjusted diluted EPS for the full year. IMS is unable to predict at this time the occurrence or amount of these as well as other items that could cause full-year 2005 SEC-reported diluted EPS to differ from adjusted diluted EPS. The guidance provided in this presentation does not reflect the impact of options expensing. Free cash flow guidance may differ from net cash provided by operating activities on a SECreported basis in ways similar to those described in the reconciliations identified in the 2004 full year press release and the 2003 free cash flow attached to this document. Statements relating to guidance are based on current expectations as February 15, 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. 4

5 IMS Snapshot NYSE: RX Founded in 1954: Intercontinental Medical Statistics $1.6 billion in revenues in % reported revenue growth $181M in Consulting and Services, up 50% >60% revenue Non-U.S. Double-digit growth in EMEA, Asia Pac $322m Free Cash Flow + 41% 22% growth excluding sales of TZIX shares 6400 employees in 100 countries Clients include every pharmaceutical & biotech company Track over 1 million brands, daily 5

6 Operational Performance Constant Dollar Revenue Growth by Year Adjusted EPS from Continuing Operations* $0.89 $1.01 $1.18 4% 6% 8% +13% +17% Free Cash Flow $322m $196m $229m $278M excluding sale of TriZetto shares, + 22% +17% +41% * Continuing Operations Excludes CTSH

7 Full Year 2004 Adjusted Earnings ($ millions, except per share) Actual Year to Year Year to Year C-D Revenue 1,569 14% 8% Op Income % -7% Excl. Restructuring % 3% Net Income % EPS $ % Repurchased 15 million shares in 2004 Preliminary Free Cash Flow $322M, +41% year-to-year Includes $44.6M from sale of TriZetto shares 7

8 Business Line Performance: CD Revenue Growth 2003 Growth Full Year 2004 Long-Term Model Sales Force Effectiveness 3% 3% 7 10% Portfolio Optimization 3% 4% 3 5% Launch/Brand/Other 14% 15% 15 20% Consulting & Services 24% 43% 20 30% Total 6% 8% 8 13% 8

9 IMS Leadership Strong and Growing Customer Set Unique Global Competitive Position Sustainable Growth Model Investment Flexibility Strong and Resilient Financial Model Expanding Market Opportunities Providing Unique and Essential Value 9

10 Creating Unique Value Retail Pharmacies Drug Wholesalers Hospitals/Doctors IMS Intellectual Capital Manufacturer Direct Mail Order/PBMs Long-Term Care 10

11 What is New at IMS Leading in Customer Satisfaction Enabling a Strong Consulting & Services Business Realizing our Growth Opportunities Achieving Profitable Growth from Acquisitions Accelerating Global Capabilities and Performance 11

12 IMS Continuum of Capabilities Information Analytics Consulting Yields a Greater Market Opportunity ~ $2B $4-5B+ 12

13 2005 Guidance Full Year 2005 Guidance CD Revenue Growth 8% 10% Operating Margins 26% - 27% Adjusted EPS $1.29 $1.35 Free Cash Flow $250 - $295m Share Repurchase up to 8m shares Q Guidance CD Revenue Growth 8 10% Adjusted EPS $ $0.30 Note: Along with our usual exclusions, guidance excludes expensing of options 13

14 Sustainable Financial Model Strategic Goals 6 Quarter Performance CD Revenue Growth 8 13% 9% EPS Growth > _ Revenue Growth 12% ROIC >30% >30%* Free Cash Flow Conversion >85% Net Earnings >100% Net Earnings * Based on 2002 and

15 Financial Model Comparisons IMS Valuation is at the Low End of Comparables Range Confidence in IMS Long Term Outlook of 8% - 13% 6 Quarters of Double Digit Adjusted EPS Growth Fwd P/E Long Term EPS Growth IMS 18x 12% Market Intelligence Companies Average* 24x 13% Large Pharma 16x 10% S&P x 6% Healthcare Svs 24x 19% * Data Processing / Market Intelligence Companies: PAYX, FDC, MCO, ADP, ARB, DJ, EFX, MHP Source: Thomson Financial 2/22/05 15

16 External Factors Affecting our Growth Number of Pharma Sales Reps Generic Event Historical Effect No Effect No Measurable Effect Future Expectation No Effect No Measurable Effect Pharma Co Mergers Pharma SG&A Growth < 1 2 percentage points of impact on growth Limited overall correlation, unique to each client and geography Model assumes 1 2 percentage points of impact on growth Positive opportunity for IMS even if growth stabilizes or moderates 16

17 Emerging Marketplace Opportunities Research & Development Japan China Biotech Managed Care Government Consumer Health 17

18 Summary Executing Well Global Presence Ensures Growth and Resiliency Opportunity Pipeline is Strengthening Financial Model Continues to be Strong Sustaining a Strong Cash Flow Model Expanding Market Opportunity Positions IMS Well for Future Growth 18

19 Image Area Data. Insights. Results.

20 Contacts: Bill Hughes Darcie Peck Corporate Communications Investor Relations (203) (203) News For Immediate Release IMS HEALTH DELIVERS STRONG FOURTH-QUARTER 2004 WITH 16 PERCENT REVENUE GROWTH AND 14 PERCENT EPS GROWTH FAIRFIELD, CT, Feb. 15, IMS Health (NYSE: RX) today announced fourthquarter 2004 revenues of $443.7 million, up 16 percent compared with revenues of $384.1 million for the fourth quarter of Fourth-quarter diluted earnings per share on an SEC-reported basis was $0.32, up 14 percent, compared with $0.28 in the 2003 fourth quarter. Fourth-quarter adjusted diluted earnings per share was $0.34, compared with $0.29 per share in the same period of 2003, an increase of 17 percent. Net income on an SEC reported basis was $73.6 million, up 6 percent compared with net income of $69.7 million in the year-earlier quarter. On an adjusted basis, net income for the fourth quarter of 2004 was $79.2 million, up 12 percent, compared with net income of $70.9 million in the prior year. Adjusted results for the fourth quarter of 2004 include a $36.9 million pre-tax severance charge and a $38.8 million pre-tax gain on the sale of IMS's equity interest in TriZetto, as well as the related net tax provision of $1.4 million. "IMS delivered a strong fourth quarter and an excellent 2004, in line with the fullyear guidance we raised back in July, said David R. Carlucci, IMS chief executive officer and president. Our performance reflects the success of our teams around the world in applying their creativity and expertise to solve our clients' most challenging issues. We

21 were particularly pleased with results in the US, where we saw significant improvement in our business, and both our Europe and Asia Pacific regions posted double-digit revenue gains. Our balance sheet remains strong and our free cash flow is outstanding. As a result, we have real momentum heading into Adjusted results for the 2004 fourth quarter exclude certain net pre-tax expense items totaling approximately $1.8 million, as well as certain net tax provisions of approximately $3.7 million. See Tables 5 and 7 for a reconciliation between SEC and adjusted results for the quarters ended December 31, 2004 and 2003, respectively. Full-Year 2004 Results For the year ended December 31, 2004, revenues were $1,569.0 million, up 14 percent over the same period in Diluted earnings per share on an SEC-reported basis for the 2004 full year was $1.20, compared with $2.58 in the year-earlier period, which included a $2.01 gain on the split-off of Cognizant Technology Solutions in the first quarter of Adjusted diluted earnings per share for the full-year 2004 was $1.18, a 16 percent increase over the $1.02 reported in the prior-year period. On an SEC-reported basis, net income for the full year was $285.4 million, compared with $638.9 million for the comparable period last year, which included a $496.9 million gain on the split-off of Cognizant Technology Solutions in the first quarter of On an adjusted basis, net income for the full year was $280.8 million, up 11 percent, compared with adjusted net income of $252.0 million in For the full year, operating income was $386.5 million on both an SEC-reported and adjusted basis, compared with $361.5 million on an SEC-reported basis and $398.7 million on an adjusted basis in Operating income in 2004 rose 7 percent on an SEC-reported basis and declined 3 percent on an adjusted basis from Operating income in 2004 includes a $36.9 million pre-tax severance charge. Page 2

22 Adjusted results for the 2004 full year exclude certain net pre-tax income items totaling approximately $7.7 million. In addition, there were certain net tax provisions of approximately $3.1 million that were excluded from adjusted results. See Tables 6 and 8 for a reconciliation between SEC and adjusted results for the years ended December 31, 2004 and 2003, respectively. Preliminary net cash provided by operating activities on an SEC-reported basis was $399.1 million. Preliminary free cash flow for the full-year 2004 was $322.2 million. See Table 10 for a complete reconciliation. Balance Sheet Highlights IMS's cash, cash equivalents and short-term marketable securities as of December 31, 2004 totaled $460.0 million, compared with $384.5 million on December 31, Total debt as of December 31, 2004 was $630.1 million, up from $562.0 million at the end of See Table 9 for selected consolidated balance sheet items. Share Repurchase Program, Shares Outstanding IMS repurchased approximately 3.8 million shares in the fourth quarter at a total cost of $85.6 million. For the full-year 2004, the company repurchased 15.0 million shares at a total cost of $362.7 million. In December 2004, the board of directors authorized the company to repurchase up to 10 million additional IMS shares. The number of actual shares outstanding as of December 31, 2004 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 information solutions to the pharmaceutical and healthcare industries. With $1.6 billion in 2004 revenue and more than 50 years of industry experience, IMS offers leading-edge business intelligence products and services that are integral to clients day-to-day operations, including portfolio optimization capabilities; launch and brand management Page 3

23 solutions; sales force effectiveness innovations; managed care and over-the-counter offerings; and consulting and services solutions that improve ROI and the delivery of quality healthcare worldwide. Additional information is available at Conference Call and Webcast Details IMS will host a conference call at 5 p.m. (EST) today to discuss its fourth-quarter and full-year 2004 financial results. To participate, please dial (U.S. and Canada) and (outside the United States 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 Investor Relations section of the IMS Website and via telephone by dialing (U.S. and Canada) or (outside the United States and Canada), and entering access code beginning one hour after the call is completed. 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) 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, (ii) 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, (iii) the ability to develop new or advanced technologies and systems for its businesses on time and on a cost-effective basis, and the ability to implement cost-containment measures, (iv) regulatory, legislative and enforcement initiatives, particularly in the areas of medical privacy and tax, (v) to the extent unforeseen cash needs arise, the ability to obtain financing on favorable terms, and (vi) deterioration in economic conditions, particularly in the pharmaceutical, healthcare or other industries in which IMS Health s customers operate. Page 4

24 Table 1 IMS Health SEC Income Statement (a) Three Months Ended December 31 (unaudited, in millions except per share) 2004 SEC 2003 SEC % Fav (Unfav) Revenue Sales Force Effectiveness $190.9 $ % Portfolio Optimization Brand, Launch and Other Consulting and Services Total Operating Expenses (b) Operating Costs (188.6) (154.6) (22) Selling and Administrative (107.2) (94.3) (14) Depreciation and Amortization (26.2) (20.1) (30) Severance, Impairment & other charges (j) (36.9) 0.0 NM Total (358.8) (269.0) (33) Operating Income (26) Interest expense, net (3.4) (2.8) Gains (losses) from investments, net (e) 1.2 (0.9) Gain from sale of TriZetto (c) Loss on issuance of investees stock, net (f) (0.1) (0.0) Other expense, net (g) (8.7) (4.1) Pretax Income Provision for Income Taxes (h) (39.8) (35.4) TriZetto Equity Income (Loss), Net (c) 0.8 (4.1) Net Income from continuing operations Gain from discontinued operations CTS (l) Net Income $73.6 $ Diluted EPS: Income from continuing operations Income from discontinued operations CTS (l) Total Diluted EPS $0.32 $ % Shares Outstanding: Weighted Average Diluted % End-of-Period Actual The accompanying notes are an integral part of these financial tables. Page 5

25 Table 2 IMS Health SEC Income Statement (a) Twelve Months Ended December 31 (unaudited, in millions except per share) 2004 SEC 2003 SEC % Fav (Unfav) Revenue Sales Force Effectiveness $705.5 $ % Portfolio Optimization Brand, Launch and Other Consulting and Services Total 1, , Operating Expenses (b) Operating Costs (664.1) (575.8) (15) Selling and Administrative (388.1) (332.1) (17) Depreciation and Amortization (93.5) (75.1) (24) Severance, Impairment & other charges (i), (j) (36.9) (37.2) 1 Total (1,182.6) (1,020.3) (16) Operating Income Interest expense, net (11.7) (11.2) Gains from investments, net (e) Gain from sale of TriZetto (c) Loss on issuance of investees stock, net (f) (0.2) (0.4) Other expense, net (g) (10.9) (25.8) Pretax Income Provision for Income Taxes (h) (129.2) (166.0) TriZetto Equity Income (Loss), Net (c) 0.2 (4.2) TriZetto impairment charge, net (k) 0.0 (14.8) Net Income from continuing operations Income from discontinued operations CTS (d) Gain on discontinued operations CTS (l) Net Income $285.4 $638.9 (55) Diluted EPS: Income from continuing operations Income from discontinued operations CTS (d) Gain on discontinued operations CTS (l) Total Diluted EPS $1.20 $2.58 (53) % Shares Outstanding: Weighted Average Diluted % End-of-Period Actual The accompanying notes are an integral part of these financial tables. Page 6

26 Table 3 IMS Health Adjusted Income Statement (a) Three Months Ended December 31 (unaudited, in millions except per share) 2004 Adjusted 2003 Adjusted % Fav (Unfav) Constant $ Growth Revenue Sales Force Effectiveness $190.9 $ % 1 % Portfolio Optimization Brand, Launch and Other Consulting and Services Total Operating Expenses (b) Operating Costs (188.6) (154.6) (22) Selling and Administrative (107.2) (94.3) (14) Depreciation and Amortization (26.2) (20.1) (30) Severance, Impairment & other charges (j) (36.9) 0.0 NM Total (358.8) (269.0) (33) Operating Income (26) (31) Interest expense, net (3.4) (2.8) (23) Gain from sale of TriZetto (c) NM Other expense, net (5.8) (9.7) 40 Pretax Income Provision for Income Taxes (36.1) (30.6) (18) TriZetto Equity Income (Loss), Net (c) 0.8 (1.1) NM Net Income from continuing operations $79.2 $ % Diluted EPS: Total Diluted EPS $0.34 $ % Shares Outstanding: Weighted Average Diluted % End-of-Period Actual The accompanying notes are an integral part of these financial tables. Page 7

27 Table 4 IMS Health Adjusted Income Statement (a) Twelve Months Ended December 31 (unaudited, in millions except per share) 2004 Adjusted 2003 Adjusted % Fav (Unfav) Constant $ Growth Revenue Sales Force Effectiveness $705.5 $ % 3 % Portfolio Optimization Brand, Launch and Other Consulting and Services Total 1, , Operating Expenses (b) Operating Costs (664.1) (575.8) (15) Selling and Administrative (388.1) (332.1) (17) Depreciation and Amortization (93.5) (75.1) (24) Severance, Impairment & other charges (j) (36.9) 0.0 NM Total (1,182.6) (983.0) (20) Operating Income (3) (7) Interest expense, net (11.7) (11.2) (5) Gain from sale of TriZetto (c) NM Other expense, net (6.9) (26.9) 74 Pretax Income Provision for Income Taxes (126.1) (110.1) (15) TriZetto Equity Income (Loss), Net (c) 0.2 (1.3) NM Net Income from continuing operations % Income from discontinued operations CTS (d) (100) Net Income $280.8 $ % Diluted EPS: Income from continuing operations Income from discontinued operations CTS (d) (100) Total Diluted EPS $1.18 $ % Shares Outstanding: Weighted Average Diluted % End-of-Period Actual The accompanying notes are an integral part of these financial tables Page 8

28 Table 5 IMS Health Reconciliation from SEC to Adjusted Income Statement (a) Three Months Ended December 31, 2004 (unaudited, in millions except per share) SEC Q4 Adjustments Adjusted Q4 Revenue Sales Force Effectiveness $190.9 $0.0 $190.9 Portfolio Optimization Brand, Launch and Other Consulting and Services Total Operating Expenses (b) Operating Costs (188.6) 0.0 (188.6) Selling and Administrative (107.2) 0.0 (107.2) Depreciation and Amortization (26.2) 0.0 (26.2) Severance, Impairment & other charges (j) (36.9) 0.0 (36.9) Total (358.8) 0.0 (358.8) Operating Income Interest expense, net (3.4) 0.0 (3.4) Gains from investments, net (e) 1.2 (1.2) 0.0 Gain from sale of TriZetto (c) Loss on issuance of investees stock, net (f) (0.1) Other expense, net (g) (8.7) 2.9 (5.8) Pretax Income Provision for Income Taxes (h) (39.8) 3.7 (36.1) TriZetto Equity Income, Net (c) Net Income $73.6 $5.6 $79.2 Diluted EPS: Total Diluted EPS $0.32 $0.02 $0.34 Shares Outstanding: Weighted Average Diluted End-of-Period Actual The accompanying notes are an integral part of these financial tables. Page 9

29 Table 6 IMS Health Reconciliation from SEC to Adjusted Income Statement (a) Twelve Months Ended December (unaudited, in millions except per share) SEC FY Adjustments Adjusted FY Revenue Sales Force Effectiveness $705.5 $0.0 $705.5 Portfolio Optimization Brand, Launch and Other Consulting and Services Total 1, ,569.0 Operating Expenses (b) Operating Costs (664.1) 0.0 (664.1) Selling and Administrative (388.1) 0.0 (388.1) Depreciation and Amortization (93.5) 0.0 (93.5) Severance, Impairment & other charges (j) (36.9) 0.0 (36.9) Total (1,182.6) 0.0 (1,182.6) Operating Income Interest expense, net (11.7) 0.0 (11.7) Gains from investments, net (e) 11.9 (11.9) 0.0 Gain from sale of TriZetto (c) Loss on issuance of investees stock, net (f) (0.2) Other expense, net (g) (10.9) 4.0 (6.9) Pretax Income (7.7) Provision for Income Taxes (h) (129.2) 3.1 (126.1) TriZetto Equity Loss, Net (c) Net Income $285.4 ($4.6) $280.8 Diluted EPS: Total Diluted EPS $1.20 ($0.02) $1.18 Shares Outstanding: Weighted Average Diluted End-of-Period Actual The accompanying notes are an integral part of these financial tables. Page 10

30 Table 7 IMS Health Reconciliation from SEC to Adjusted Income Statement (a) Three Months Ended December (unaudited, in millions except per share) SEC Q4 Adjustments Adjusted Q4 Revenue Sales Force Effectiveness $181.3 $0.0 $181.3 Portfolio Optimization Brand, Launch and Other Consulting and Services Total Operating Expenses (b) Operating Costs (154.6) 0.0 (154.6) Selling and Administrative (94.3) 0.0 (94.3) Depreciation and Amortization (20.1) 0.0 (20.1) Total (269.0) 0.0 (269.0) Operating Income Interest expense, net (2.8) 0.0 (2.8) Losses from investments, net (e) (0.9) Loss on issuance of investees stock, net (f) (0.0) Other expense, net (g) (4.1) (5.6) (9.7) Pretax Income (4.8) Provision for Income Taxes (h) (35.4) 4.8 (30.6) TriZetto Equity Loss, Net (c) (4.1) 3.0 (1.1) Net Income from continuing operations Income from discontinued operations CTS (l) 1.8 (1.8) 0.0 Net Income $69.7 $1.2 $70.9 Diluted EPS: Income from continuing operations Income from discontinued operations CTS (l) 0.01 (0.01) 0.00 Total Diluted EPS $0.28 $0.01 $0.29 Shares Outstanding: Weighted Average Diluted End-of-Period Actual The accompanying notes are an integral part of these financial tables. Page 11

31 Table 8 IMS Health Reconciliation from SEC to Adjusted Income Statement (a) Twelve Months Ended December (unaudited, in millions except per share) SEC FY Adjustments Adjusted FY Revenue Sales Force Effectiveness $657.1 $0.0 $657.1 Portfolio Optimization Brand, Launch and Other Consulting and Services Total 1, ,381.8 Operating Expenses (b) Operating Costs (575.8) 0.0 (575.8) Selling and Administrative (332.1) 0.0 (332.1) Depreciation and Amortization (75.1) 0.0 (75.1) Severance, Impairment & other charges (i) (37.2) Total (1,020.3) 37.2 (983.0) Operating Income Interest expense, net (11.2) 0.0 (11.2) Gains from investments, net (e) 0.3 (0.3) 0.0 Loss on issuance of investees stock, net (f) (0.4) Other expense, net (g) (25.8) (1.0) (26.9) Pretax Income Provision for income taxes (h) (166.0) 55.8 (110.1) TriZetto equity loss, Net (c) (4.2) 3.0 (1.3) TriZetto impairment charge, net (k) (14.8) Net Income from continuing operations Income from discontinued operations CTS (d) Gain on discontinued operations CTS (l) (496.9) 0.0 Net Income $638.9 ($386.9) $252.0 Diluted EPS: Income from continuing operations Income from discontinued operations CTS (d) Gain on discontinued operations CTS (l) 2.01 (2.01) 0.00 Total Diluted EPS $2.58 ($1.56) $1.02 Shares Outstanding: Weighted Average Diluted End-of-Period Actual The accompanying notes are an integral part of these financial tables. Page 12

32 Table 9 IMS Health Selected Consolidated Balance Sheet Items (unaudited, in millions) ` Dec. 31, 2004 Dec. 31, 2003 Cash and cash equivalents $444.9 $344.4 Short-term marketable securities Accounts receivable, net Short-term debt Long-term debt The accompanying notes are an integral part of these financial tables. Page 13

33 IMS Health NOTES TO FINANCIAL TABLES 1-9 (a) SEC Income Statement (Tables 1 and 2) differs from the Adjusted Income Statement (Tables 3 and 4) by amounts that are detailed on Tables 5, 6, 7 and 8. Adjusted results are those used by management for the purposes of global business decision-making, including developing budgets and managing expenditures. Adjusted results exclude certain U.S. GAAP measures to the extent that management believes exclusion will facilitate comparisons across periods and more clearly indicate trends. Although IMS discloses adjusted results in order to give a full picture to investors of its business as seen by management, these adjusted results are not prepared specifically for investors 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 adjusted results 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 adjusted results are urged to review the detailed reconciliations of the adjusted measures to comparable U.S. GAAP results. (b) Operating expenses in 2003 reflect a reclassification between operating costs and selling and administrative expenses to make them comparable with the 2004 presentation. (c) (d) (e) (f) (g) TriZetto Equity Income in the fourth quarter of 2004 includes IMS s share of TriZetto results as well as purchase accounting amortization expenses. In the fourth quarter of 2004, IMS sold its entire interest in TriZetto back to the company for a pre-tax gain of $38.8 million. IMS intends to use a portion of the proceeds from this sale to fund the severance expense described in Note (j) below. In the fourth quarter of 2003, TriZetto recorded a $18.7 million charge relating to loss contracts and asset impairments. IMS s share of this charge ($3.0 million) has been excluded from adjusted results because it is not related to IMS s core business operations. IMS divested its equity interest in CTS on February 6, 2003 via a split-off transaction. Income from discontinued operations includes IMS s share of CTS income on an after-tax basis for the portion of the first quarter of 2003 prior to the split-off. Previously CTS had been consolidated into the IMS Health financial statements. Gains from investments, net were $1.2 million in the fourth quarter of 2004, relating primarily to a $1.7 million gain from the sale of a security, partially offset by $0.4 million of fees for the Enterprise investments. This is compared with a net loss of $0.9 million in the fourth quarter of Gains from investments, net were $11.9 million for 2004, primarily from the sale of securities in the first three quarters and the items discussed above. This is compared with a net gain of $0.3 million for These gains and losses are excluded from adjusted results because they relate to nonstrategic investments and are not related to IMS s core business operations. Loss on issuance of investees stock, net was $0.1 million in the fourth quarter of 2004 compared with a loss of $0.0 million in the fourth quarter of Loss on issuance of investees stock was $0.2 million for full year 2004 compared to a loss of $0.4 million for full year These SAB 51 losses relate to the exercise of stock options by TriZetto employees and TriZetto share repurchases. They are excluded from adjusted results because they are not related to IMS s core business operations. Other expense, net includes $1.2 and $0.4 million of expenses for legal fees in the fourth quarter of 2004 and 2003, respectively, related to the IRI litigation. For full year 2004, IRI litigation fees were $4.0 million compared with ($1.0) million for full year These expenses are excluded from adjusted results because they relate to a D&B legacy matter and are not related to IMS s core business operations. In addition, Other expense, net excludes a quarterly phasing adjustment of foreign currency hedge gains (losses), net of $1.7 million in the fourth quarter of 2004 and ($6.0) million in the fourth quarter of This phasing adjustment is made to adjusted results in order to more closely match the timing of foreign exchange hedge gains (losses) with the operating income being hedged. For the full year, there is no difference between the hedge losses in adjusted and SEC results. Page 14

34 (h) (i) (j) (k) (l) The tax provision for the fourth quarter and full year of 2004 includes a tax benefit of $0.2 million and a tax provision of $3.1 million, respectively, related to the items described in notes (e), (f) and (g). The tax provision for the fourth quarter and full year of 2003 includes a tax provision of $0.8 million and $0.3 million, respectively, related to items described in notes (e), (f) and (g), and a tax benefit for the full year 2003 of $13.2 million for the item in note (i). These tax benefits and tax provisions are excluded from adjusted results because the related charges are excluded from adjusted results. In addition, the first quarter 2004 tax provision also includes a $15.6 million tax benefit related to a favorable audit resolution in the U.S. of the 1998 and 1999 tax years. Adjusted results include a phasing adjustment to recognize it ratably throughout The phasing adjustment for the fourth quarter of 2004 was $4.0 million. This phasing adjustment allows the full year effective tax rate to be applied in each quarter to adjusted pretax results. Similarly, the tax provision for the first quarter of 2003 includes a $13.9 million tax benefit; adjusted results include a phasing adjustment to recognize it ratably throughout The fourth quarter 2003 phasing adjustment was a provision of $3.9 million. The tax provision for full year 2003 also includes an accrual of $69.6 million related to a D&B legacy tax transaction and subsequent related transactions. This tax provision is excluded from adjusted results because it relates to legacy tax transactions and is not related to IMS s core business operations. IMS incurred $37.2 million of expense in the first quarter of 2003 for severance, impairment and other charges, including severance for approximately 80 employees, contract cancellations and impairments, idle real estate facilities and software writedowns. These amounts are excluded from adjusted results because management does not expect them to be relevant to the business going forward. Severance, impairment and other charges were recorded in 2000, 2001 and 2003, and there can be no assurances that such charges will not be recorded in the future. IMS incurred $36.9 million of expense in the fourth quarter of 2004 for severance for approximately 465 employees. This severance expense will be funded by a portion of the proceeds from the sale of IMS s equity interest in TriZetto, which is described in Note (c) above. The TriZetto Impairment Charge, net recorded in the first quarter of 2003 reduced the book value per share of IMS s investment in TriZetto shares ($6.14 per share) down to the March 31, 2003 market value per share ($4.13). This charge is excluded from adjusted results because it relates to a nonstrategic investment and is not related to IMS s core business operations. The split-off of CTS described in Note (d) generated a net gain of $496.9 million in 2003, of which $495.1 million was recorded in the first quarter and $1.8 million was recorded in the fourth quarter of This gain is calculated as the proceeds from the split-off less the book value of IMS s investment in CTS and transaction costs. No tax provision is provided as the split-off is expected to be a tax-free transaction. This gain is excluded from adjusted results as it relates to the divestiture of the business and is not related to IMS s ongoing core business operations. 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 15

35 Table 10 IMS Health Reconciliation from SEC to Free Cash Flow (Preliminary - Subject to Change) Twelve Months Ended December (unaudited, in millions) SEC Cash Flow Free Cash Flow Adjustments Cash Flows from Operating Activities: 1 Net income $285.4 $(4.6) $280.8 Adjustments to Reconcile Net Income to Net Cash Provided by Op. Activities: Depreciation & amortization Bad debt expense Deferred income taxes 17.9 (17.9) 0 3 Gains from investments, net (11.9) Gain from sale of TriZetto (38.8) 0 (38.8) 3 Loss on issuance of investees stock, net 0.2 (0.2) 0 TriZetto equity income, net (0.2) 0 (0.2) Minority interests in net income of consolidated 4 companies 5.8 (5.8) 0 Non-cash stock compensation charges Change in Assets and Liabilities, excl. Effects from Acquisitions and Dispositions: Net decrease in accounts receivable Net increase in inventory (6.9) 0 (6.9) Net increase in prepaid expenses and other current assets (16.9) 0 (16.9) Net increase in accounts payable Net increase in accrued and other current liabilities Net decrease in accrued severance, impairment and other 5 charges (6.9) Net increase in 2004 accrued severance, impairment and other charges Net decrease in deferred revenues (0.5) 0 (0.5) Net increase in accrued income taxes 23.1 (23.1) 2 0 Net increase in pension assets, net of liabilities (25.5) Net increase in other long-term assets (1.9) Net tax benefit on stock option exercises 9.2 (9.2) 0 Net Cash Provided by Operating Activities $399.1 $(14.5) $ Cash Flows Provided by/(used in) Investing Activities: Capital expenditures (22.5) 0 (22.5) Additions to computer software (84.5) 0 (84.5) Proceeds from sale of TriZetto Free Cash Flow, End of Period $322.2 In addition to SEC Cash Flow, management provides Free Cash Flow information as it is believed to be a helpful measure for investors of cash generated from and invested in current operations, and is indicative of the cash the Company has available for acquisitions, share repurchases, dividends, debt reduction, etc. Final free cash flow information will be posted on when available. Amounts presented may not add due to rounding. Please see following page for the accompanying notes to the Reconciliation of SEC Cash Flow to Free Cash Flow (unaudited) Page 16

36 IMS Health NOTES TO RECONCILIATION FROM SEC TO FREE CASH FLOW (TABLE 10) 1 For details of reconciliation items between SEC net income and adjusted net income, see Table 6. Adjusted results are those used by management for the purposes of global business decision making, including developing budgets and managing expenditures. Adjusted results exclude certain U.S. GAAP measures to the extent that management believes that exclusion will facilitate comparisons across periods and more clearly indicate trends. Although IMS discloses adjusted results in order to give a full picture to investors of its business as seen by management, these adjusted results are not prepared specifically for investors 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 adjusted results 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 adjusted results are urged to review the detailed reconciliations of the adjusted measures to comparable U.S. GAAP results. 2 Movements in deferred and accrued income taxes do not necessarily relate directly to current operations. The tax provision, included within Adjusted Net Income, is considered to be useful to represent cash taxes from operations. 3 This item constitutes part of the $4.6 million net adjustment to Net Income, so no add back is required for Free Cash Flow. 4 Free Cash Flow is designed to only include IMS s share of cash from consolidated subsidiaries, so no add back is required. 5 Payouts for severance, impairment and other charges in prior years do not constitute part of Adjusted Net Income, and are therefore not included as Free Cash Flow. 6 Pension assets and liabilities and other inherently long-term assets are not viewed as part of current operations and are therefore excluded from Free Cash Flow. 7 All impacts from stock option exercises are excluded from Free Cash Flow as they are considered to be financing activities. 8 Investments in capital assets and software are integral to the ongoing business and operations of the Company and are therefore included as part of Free Cash Flow. Page 17

37 IMS HEALTH RETURN ON INVESTED CAPITAL Year Ended December 31, 2002 (Dollars in thousands) Net Operating Profits After Taxes SEC Adjusted 2002 Adjustments 2002 Net Income $ 266,115 $ 13,652 1 $ 279,767 Add: Goodwill amortization - - Non-recurring costs 26,118 (26,118) 2 - Interest expense 14,443-14,443 Tax paid on investment and interest income (effective tax rate * income) 8,591 (6,262) 3 2,329 Subtract: Investment and interest income (27,893) 20,331 3 (7,562) Tax shield from interest expense (effective tax rate * interest expense) (4,448) - (4,448) Net Operating Profits After Taxes (NOPAT) 282,926 $ 1, ,529 DIVIDED BY Invested capital Total Assets 1,618,528-1,618,528 Less: Cash (415,472) - (415,472) Short-term Investments (18,351) - (18,351) Long -term Investments (excluding investments in strategic alliances) Non-interest bearing current liabilities (no cost, interest free) Accounts Payable (37,285) - (37,285) Accrued Liabilities & Other (181,513) - (181,513) Accrued Income Taxes (143,872) - (143,872) INVESTED CAPITAL 822, ,035 AVERAGE INVESTED CAPITAL 765, ,970 ROIC 36.9% 37.1% Management provides Return on Invested Capital (ROIC) information as it is believed to be a helpful measure to determine the cash rate of return on capital that a company has invested. Note: 1 For details of reconciliation items between SEC Net Income and adjusted Net Income, see Press Release for the Year Ended December 31, 2002, available on our Internet website at 2 Relates to Non-cash TriZetto impairment charge and is non-operating in nature and as such is excluded from adjusted income. 3 Relates to Gains (losses) from investments, net and Gain (loss) on issuance of investees' stock, net and the associated taxes. Both items are non-operating in nature and as such are excluded from adjusted income.

38 IMS Health Incorporated Return on Invested Capital (unaudited) Year Ended December 31, 2003 (In thousands) SEC Adjustments Adjusted Net Operating Profits After Taxes ("NOPAT"): Net Income $ 638,945 1 $ (386,903) $ 252,042 Add: Severance, impairment and other charges, net of taxes 23,128 (23,128) 2 - Interest expense 15,388-15,388 Tax paid on investment, interest income and other non-operating expenses (effective tax rate * income) (6,709) (270) 3 (6,979) Gain on discontinued operations (496,887) 496, TriZetto impairment charge, net of taxes 14,842 (14,842) 5 - TriZetto restructuring charge, net of taxes 2,962 (2,962) 6 - Income from discontinued operations, net of taxes (2,779) - (2,779) D&B legacy tax accrual 69,580 (69,580) 7 - Subtract: Investment, interest income and other non-operating expenses 21, ,659 Tax shield from interest expense (effective tax rate * interest expense) (4,740) - (4,740) Net Operating Profits After Taxes $ 275,512 $ 80 $ 275,592 DIVIDED BY Invested Capital: Total Assets $ 1,644,338 $ - $ 1,644,338 Subtract: Cash (344,432) - (344,432) Short-term investments (40,108) - (40,108) Non-interest bearing current liabilities (no cost, interest free) Accounts payable (47,513) - (47,513) Accrued and other current liabilities (190,478) - (190,478) Accrued income taxes (67,369) - (67,369) Invested Capital $ 954,438 $ - $ 954,438 Average Invested Capital $ 862,634 $ 862,634 Return on Invested Capital 31.9% 31.9% Management provides Return on Invested Capital (ROIC) information as it is believed to be a helpful measure to determine the cash rate of return on capital that a company has invested. Notes: 1 For details of reconciliation items between SEC Net Income and Adjusted Net Income, see Press Release for the Year Ended December 31, 2003, available in the "Investors" area of our Internet website under "Earnings & Financial Releases" at Management uses adjusted results to evaluate its financial results for business decision-making, to develop budgets and to manage expenditures with respect to its core business. Management believes that the adjusted results are useful to investors as a supplement to historical U.S. GAAP information because they facilitate comparisons across periods, more clearly indicate trends and add insight into the Company s performance by focusing on the results generated by the Company's core operations. Adjusted results should not be regarded as a replacement for corresponding U.S. GAAP measures, which provide more comprehensive information about the financial results of IMS. Investors are urged to review the detailed reconciliations of the adjusted measures to the comparable U.S. GAAP results. 2 Severance, impairment and other charges do not constitute part of Adjusted Net Income, so are not included in adjusted results. 3 Relates to Gains (losses) from investments, net, Loss on issuance of investees' stock, net and IRI litigation fees. These items, and the related tax impact are excluded from adjusted results because they are not related to IMS's core business operations. 4 IMS divested its equity interest in Cognizant Technology Solutions ("CTS") on February 6, 2003 via a split-off transaction, which generated a gain of $496,887 for This gain is excluded from adjusted results as it relates to the divestiture of the business and is not related to IMS's ongoing core business operations. 5 This constitutes part of the $386,903 net adjustment to Net Income number, so no add back is required for adjusted results. 6 In the fourth quarter, TriZetto recorded an $18,720 charge relating to loss contracts and asset impairments in lines of business that TriZetto is exiting. IMS's share of this charge is not related to IMS's core business operations and has therefore been excluded from adjusted results. 7 Relates to an accrual for a D&B legacy tax transaction and subsequent related transactions. This accrual is not related to IMS's core business operations and as such is excluded from adjusted income.

39 IMS Health Incorporated Reconciliation of SEC Cash Flow to Free Cash Flow (unaudited) Year Ended December 31, 2003 SEC Free (In thousands) Cash Flow Adjustments Cash Flow Cash Flows from Operating Activities: Net Income $ 638,945 $ 1 (386,903) $ 252,042 Less Income from discontinued operations (2,779) 2, Less Gain from discontinued operations (496,887) 496, Income from continuing operations 139, , ,042 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation & amortization 75, ,132 Bad debt expense Deferred income taxes 27,333 (27,333) 3 0 Gains from investments, net (258) Loss on issuance of investees' stock, net 420 (420) 4 0 TriZetto equity loss, net 4,248 (2,962) 5 1,286 TriZetto impairment charge, net 14,842 (14,842) 4 0 Minority interests in net income of consolidated companies 7,579 (7,579) 6 0 Non-cash stock compensation charges 3, ,005 Non-cash portion of severance, impairment and other charges 6,576 (6,576) 7 0 Change in assets and liabilities, excluding effects from acquisitions and dispositions: Net increase in accounts receivable (31,899) 0 (31,899) Net increase in inventory (591) 0 (591) Net increase in prepaid expenses and other current assets (8,569) 0 (8,569) Net increase in accounts payable 9, ,861 Net increase in accrued and other current liabilities 25, ,846 Net increase in accrued severance, impairment and other charges 8,015 (8,015) 7 0 Net increase in deferred revenues 2, ,704 Net increase in accrued income taxes 76,588 (76,588) 3 0 Net increase in pension assets (net of liabilities) (24,813) 24, Net increase in other long-term assets (2,510) 2, Net tax benefit on stock option exercises 4,016 (4,016) 9 0 Nielsen Media Research payment received in respect of D&B Legacy Tax Matters 37,025 (37,025) 10 0 Net cash Provided by Operating Activities $ 374,501 $ (45,012) $ 329,489 Cash Flows used in Investing Activities: Capital Expenditures (23,676) 0 (23,676) 11 Additions to Computer Software (77,296) 0 (77,296) 11 Free Cash Flow, End of Period $ 228,517 In addition to SEC Cash Flow, management provides Free Cash Flow information as it is believed to be a helpful measure for investors of cash generated from and invested in current operations, and is indicative of the cash the Company has available for acquisitions, share repurchases, dividends, debt reduction, etc. Please see following page for the accompanying notes to the Reconciliation of SEC Cash Flow to Free Cash Flow (unaudited)

40 IMS Health Incorporated Notes to Reconciliation of SEC Cash Flow to Free Cash Flow (unaudited) Notes: 1 For details of reconciliation items between SEC Net Income and Adjusted Net Income, see Press Release for the Year Ended December 31, 2003, available in the "Investors" area of our Internet website under "Earnings & Financial Releases" at Management uses adjusted results to evaluate its financial results for business decision-making, to develop budgets and to manage expenditures with respect to its core business. Management believes that the adjusted results are useful to investors as a supplement to historical U.S. GAAP information because they facilitate comparisons across periods, more clearly indicate trends and add insight into the Company s performance by focusing on the results generated by the Company s core operations. Adjusted results should not be regarded as a replacement for corresponding U.S. GAAP measures, which provide more comprehensive information about the financial results of IMS. Investors are urged to review the detailed reconciliations of the adjusted measures to the comparable U.S. GAAP results. 2 Consistent with prior periods, IMS's share of CTS's Net Income is included for the period as part of Free Cash Flow. 3 Movements in deferred and accrued income taxes do not necessarily relate directly to current operations. The tax provision, included within Adjusted Net Income, is considered to be useful to represent cash taxes from operations. 4 These items constitute part of the $112,763 net adjustment to Net Income number, so no add back is required for Free Cash Flow. 5 In the fourth quarter, TriZetto recorded an $18,720 charge relating to loss contracts and asset impairments in lines of business that TriZetto is exiting. IMS's share of this charge is not related to IMS's core business operations and has therefore been excluded from Free Cash Flow. 6 Free Cash Flow is designed to only include IMS's share of cash from consolidated subsidiaries, so no add back is required. 7 Severance, impairment and other charges do not constitute part of Adjusted Net Income, so are not included as Free Cash Flow. 8 Pension assets and liabilities and other inherently long-term assets are not viewed as part of current operations and are therefore excluded from Free Cash Flow. 9 All impacts from stock option exercises are excluded from Free Cash Flow as they are considered to be financing activities. 10 The Nielsen Media Research payment received in respect of D&B Legacy Tax Matters is not viewed as part of current operations and is therefore excluded from Free Cash Flow. 11 Investment in capital assets and software are integral to the ongoing business and operations of the Company and are therefore included as part of Free Cash Flow.