IMS HEALTH INC - 10-K Annual Report

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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, 2001

OR

/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 001-14049
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IMS HEALTH INCORPORATED
(Exact name of registrant as specified in its charter)

DELAWARE 06-1506026
(State of incorporation) (IRS Employer Identification No.)

1499 POST ROAD, FAIRFIELD, CONNECTICUT 06430
(Address of principal executive offices) (Zip Code)

REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (203) 319-4700

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
NONE
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Indicate by check mark whether the registrant (1) has filed all reports
required by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

As of March 1, 2002, 290,910,303 shares of Common Stock of IMS Health
Incorporated were outstanding and the aggregate market value of such Common
Stock held by nonaffiliates (based upon its closing transaction price on the
Composite Tape on such date) was approximately $5,881 million. This value was
calculated by excluding all shares held by directors and executive officers of
the Registrant but the Registrant does not concede that all such persons are
"affiliates" of the Registrant for purposes of federal securities laws.

(CONTINUED)

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DOCUMENTS INCORPORATED BY REFERENCE

PART I

Item 1 --Business "Management's Discussion and Analysis of Results of
Operations and Financial Position" in the 2001 Annual
Report to Shareholders.

"Note 1. Basis of Presentation," "Note 4.
Discontinued Operations--Investment in Gartner
Stock," "Note 5. Acquisitions and Dispositions,"
"Note 7. Spin-Off of Synavant," "Note 12. Investments
in Equity Investees' and Subsidiaries," "Note 16.
Employee Stock Plans," "Note 21. Contingencies" and
"Note 23. Operations by Business Segment" to the
Consolidated Financial Statements in the 2001 Annual
Report to Shareholders.

Item 3 --Legal Proceedings "Note 21. Contingencies" to the Consolidated
Financial Statements in the 2001 Annual Report to
Shareholders.

PART II

Item 5 -- Market for the Registrant's Common "Management's Discussion and Analysis of Results of
Equity and Related Shareholder Matters Operations and Financial Position" in the 2001 Annual
Report to Shareholders.

Item 6 --Selected Financial Data "Five-Year Selected Financial Data" in the 2001
Annual Report to Shareholders.

Item 7 -- Management's Discussion and Analysis of "Management's Discussion and Analysis of Results of
Financial Condition and Results of Operations and Financial Position" in the 2001 Annual
Operations Report to Shareholders.

Item 7A -- Quantitative and Qualitative Disclosure "Management's Discussion and Analysis of Results of
About Market Risk Operations and Financial Position" and "Note 14.
Financial Instruments" to the Consolidated Financial
Statements in the 2001 Annual Report to Shareholders.

Item 8 -- Financial Statements and Supplementary Consolidated Financial Statements and Notes thereto
Data in the 2001 Annual Report to Shareholders.

PART III

Item 10 -- Directors and Executive Officers of the Section entitled "Proposal No. 1: Election of
Registrant Directors" in the Company's Definitive Proxy
Statement (the "Proxy Statement") relating to its
Annual Meeting of Shareholders to be held on May 3,
2002.

Item 11 --Executive Compensation Section entitled "Compensation of Executive Officers"
in the Proxy Statement.

Item 12 -- Security Ownership of Certain Section entitled "Security Ownership of Management
Beneficial Owners and Management and Others" in the Proxy Statement.

Item 13 -- Certain Relationships and Related Not applicable.
Transactions

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The Index to Exhibits is located on Pages 24 to 28

PART I

As used in this report, except where the context indicates otherwise, the
terms "Company" and "IMS" mean IMS Health Incorporated and all subsidiaries
consolidated in the financial statements contained or incorporated by reference
herein.

ITEM 1. BUSINESS

IMS was incorporated under the laws of the State of Delaware on February 3,
1998. The Company began operating as an independent publicly-held company on
July 1, 1998 as a result of its spin-off (the "Cognizant Spin-Off") from
Cognizant Corporation ("Cognizant"). Notwithstanding the legal form of the
Cognizant Spin-Off, IMS was deemed the "accounting successor" to Cognizant.
Immediately following the Cognizant Spin-Off, Cognizant changed its name to
Nielsen Media Research, Inc. ("NMR").

Cognizant began operating as an independent publicly-held company on
November 1, 1996 as a result of its spin-off (the "D&B Spin-Off") from the
corporation now known as "R.H. Donnelley Corporation" and previously known as
"The Dun & Bradstreet Corporation" ("Donnelley").

The corporate and financial characteristics of IMS have developed, in part,
as a result of the D&B Spin-Off, the Cognizant Spin-Off and IMS's spin-off of
Synavant, Inc. ("Synavant") in 2000, as well as IMS's relationships with the
other parties to those transactions. The terms of those relationships are
briefly described at the end of this Item 1 under the heading "Relationships
between IMS and Synavant, IMS and NMR and among IMS, Donnelley and ACNielsen."

IMS operates in more than 100 countries and consists of the following
business segments:

- The IMS Segment is a leading global provider of market information, sales
management and decision-support services to the pharmaceutical and
healthcare industries. Its key products include sales management
information to optimize sales force productivity, marketing effectiveness
research for prescription and over-the-counter pharmaceutical products,
consulting and other services. The IMS Segment is managed on a global
business model with global leaders for the majority of its critical
business processes. In addition, the IMS Segment includes IMS's venture
capital unit, Enterprise Associates, LLC ("Enterprises"), which is focused
on investments in emerging businesses and IMS's 26.8% equity interest in
The TriZetto Group, Inc. ("TriZetto").

- The Cognizant Technology Solutions Corporation ("CTS") Segment delivers
full life-cycle solutions to complex software development and maintenance
problems that companies face as they transition to e-business. These
services are delivered through the use of a seamless on-site and offshore
consulting project team. CTS's primary service offerings include
application development and integration, application management and
re-engineering services. CTS is a publicly-traded corporation, with its
Class A common stock traded on the Nasdaq National Market. At
December 31, 2001, IMS owned 11,290,900 shares of CTS's Class B common
stock, which represented 58.3% of the total outstanding stock of CTS and
93.3% of the combined voting power of CTS's outstanding common stock. IMS
accounts for CTS as a consolidated subsidiary.

During the years ended December 31, 2000 and 1999, IMS also included:

- The Transaction Businesses Segment, which consisted of: (a) Synavant,
which serves the pharmaceutical industry by developing and selling
pharmaceutical relationship management solutions that support sales and
marketing decision-making; (b) Erisco Managed Care Technologies, Inc.
("Erisco"), a leading supplier of software-based administrative and
analytical solutions to the managed care industry; and (c) three small
non-strategic software businesses. IMS spun off the Synavant business on
August 31, 2000 (the "Synavant Spin-Off") and sold Erisco to TriZetto and
entered into a strategic alliance with TriZetto on October 3, 2000. IMS
also divested or discontinued the other small non-strategic software
businesses.

Additional information regarding the Transaction Businesses Segment is
contained in the "Management's Discussion and Analysis of Results of Operations
and Financial Position" section, and in Note 23 to the Consolidated Financial
Statements, of the 2001 Annual Report to Shareholders.

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On July 26, 1999, IMS completed a spin-off of the majority of its equity
investment in Gartner, Inc. ("Gartner", formerly known as "Gartner
Group, Inc.") to IMS shareholders (the "Gartner Spin-Off"). The Consolidated
Financial Statements of IMS have been reclassified for all periods presented to
reflect the Gartner equity investment as a discontinued operation. During the
third quarter of 2001, IMS sold its remaining investment in Gartner.

Segment financial information, including financial information about
domestic and foreign generated revenue, is included in Note 23 to the
Consolidated Financial Statements in the 2001 Annual Report to Shareholders.

Additional information regarding changes to and the development of the
business of IMS is contained in the "Management's Discussion and Analysis of
Results of Operations and Financial Position" section, and in Notes 1, 4, 5, 7,
12, 16, 21 and 23 to the Consolidated Financial Statements, of the 2001 Annual
Report to Shareholders.

IMS SEGMENT

The IMS Segment provides sales management and market research information
services to the pharmaceutical and healthcare industries worldwide. The IMS
Segment provides information services covering more than 100 countries and
maintains offices in 76 countries on six continents, with 60% of total 2001 IMS
Segment revenue generated outside the United States. 2001 IMS Segment revenue
represented 88% of total consolidated revenue.

IMS SERVICES

Sales management services represented 62% of the IMS Segment's worldwide
revenue in 2001. Sales management services include sales territory reports,
prescription tracking reports and self-medication services. Sales management
services are used principally by pharmaceutical manufacturers to measure and
forecast the effectiveness and efficiency of sales representatives and to target
the marketing and sales efforts of a client's sales force. They are also used by
customers to compensate pharmaceutical sales forces. Sales management services
are made available to clients and their sales representatives and management via
hardcopy reports, CD-ROMs, software application tools, computer on-line
services, web-based access and magnetic media for use in client computer systems
and IMS's customized electronic workstations. IMS's data delivery systems help
clients to maximize efficiency by aiding in the setting of sales targets and
calculation of sales commissions; giving fast access to sales data and
permitting more sophisticated analyses; improving call reporting; and improving
communication between sales management and their sales forces. In the United
States, IMS has several customized client decision support systems that allow a
client to store large amounts of data at its own site and integrate its own
internal sales and marketing data with IMS data and other external data. IMS's
principal sales management services are as follows:

- SALES TERRITORY REPORTING SERVICES. Sales territory reporting is the
principal sales management service offered by IMS to its pharmaceutical
clients. Sales territory reports can be precisely tailored for each
client, and measure the sales of a client's own products and those of
competitors within specified geographical configurations. These reports
are designed to provide marketing and sales managers with a reliable
measurement of each salesperson's activity and effectiveness in his or her
sales territory. XPLORER WEB-TM-, a web-based platform, enables decision
makers easy and immediate measurement of activity by integrating unique
sets of IMS customer-level prescription and sales intelligence, along with
the client's proprietary segmentation, call plan, promotional activity and
territory sales goals. IMS's sales territory reporting services cover 51
countries and are used for applications such as sales-force compensation,
resource allocation, territory alignment, market analyses and distribution
management. Reports are available to clients with a variety of frequencies
such as: on a weekly, monthly and quarterly basis. In the United States,
sales territory reports from IMS's DDD-TM- service allow pharmaceutical
clients to track the flow of sales for their products and those of their
competitors to various levels of geography and channels of distribution.
The DDD database contains data on sales of pharmaceutical products through
all distribution channels, including direct sales by pharmaceutical
manufacturers and indirect sales through drug wholesalers, mail service
distributors, warehousing chains and other specialty distributors.

In Japan, the IMS Segment offers WEEKLY GP PHARMA-TM-, which tracks sales of
pharmaceuticals sold through pharmaceutical wholesalers to general practitioners
and by pharmacies in Japan.

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- PRESCRIPTION TRACKING REPORTING SERVICES. Prescription tracking reporting
services are designed to monitor prescription activity and to track the
movement of pharmaceutical products out of retail channels. Prescription
tracking services are used by pharmaceutical companies to facilitate
product marketing at the prescriber level. In the United States, the
XPONENT-Registered Trademark- service monitors prescription activity from
retail pharmacies, long-term care and mail service pharmacies using a
patented statistical methodology to project the prescription activity of
nearly 1.2 million individual prescribers on a monthly basis. XPONENT is
available in six European countries. The European XPONENT database is
built from prescription data collected from retail pharmacies and coding
centers which are linked to the geographical area in which the
prescription was written, and where permissible under local data privacy
laws, to individual prescribers. The IMS Segment also offers
EarlyView-Registered Trademark-, a sales optimization solution, providing
weekly prescriber-level activity, prescribing and competitive trends and
alerts for client's key prescribers directly to clients' sales
representatives electronically.

- SELF-MEDICATION SERVICES. These services provide detailed product
movement, market share and pricing information for over-the-counter
personal care, patient care and nutritional products. The IMS Segment
publishes self-medication reports covering 24 countries and provides
related services. PHARMATREND-TM-, the IMS Segment's tracking service for
over-the-counter pharmaceutical products, is available in 12 European
countries.

Market research services represented approximately 35% of the IMS Segment's
worldwide revenue in 2001. The principal market research services are
multinational integrated analytical tools, and syndicated pharmaceutical,
medical, hospital, promotional and prescription audits. Market research services
are utilized by clients for various strategic purposes, including analyzing
market shares, therapeutic prescribing trends and price movements at the
national and sub-national levels. The information reported in these services is
generated or derived from data collected primarily from pharmaceutical
manufacturers, pharmaceutical wholesalers, pharmacies, hospitals and doctors.
Market research services are delivered to clients via hardcopy reports, CD-ROMs,
software application tools, computer on-line services, and magnetic media for
use in client computer systems and the IMS Segment's customized electronic
workstations. The IMS Segment's principal market research services are as
follows:

- PHARMACEUTICAL AUDITS. These audits measure the sale of pharmaceutical
products into pharmacies, supplemented in some countries by data collected
from prescribing physicians, retail chains and discount stores. These
audits contain data projected to national estimates, showing product sales
by therapeutic class broken down by package size and dosage form. IMS
publishes pharmaceutical audits covering more than 90 countries.

- MEDICAL AUDITS. These audits are based on information collected from
panels of practicing physicians and contain projected national estimates
of the number of consultations for each diagnosed disease with details of
the therapy prescribed. These audits also analyze the use physicians make
of individual drugs by listing the diseases for which they are prescribed,
the potential therapeutic action the physician is expecting, other drugs
prescribed at the same time, and estimates of the total number of drugs
used for each disease. IMS publishes medical audits covering 51 countries.

- HOSPITAL AUDITS. These audits contain data projected to national estimates
and show the sale of pharmaceutical products to hospitals by therapeutic
class. Related reports provide audits of laboratory diagnostic supplies,
hospital supplies and hospital records. IMS publishes hospital audits
covering 39 countries.

- PROMOTIONAL AUDITS. These audits measure pharmaceutical promotion for a
particular market, including sales-force promotion and journal and mail
advertising, based on information received from panels of physicians and
from monitoring medical journals and direct mail. IMS publishes
promotional reports covering 22 countries.

- PRESCRIPTION AUDITS. These audits analyze the rate at which drugs move out
of the pharmacy and into the hands of the consumer, and measure both what
is prescribed by physicians and what is actually dispensed at the
pharmacy. IMS publishes prescription audits covering 21 countries.

- MIDAS-Registered Trademark- SERVICES. MIDAS is an on-line multinational
integrated data analysis tool that harnesses IMS's worldwide databases and
is used by the pharmaceutical industry to assess and utilize
pharmaceutical information and trends in multiple markets. MIDAS gives
clients on-line access to IMS-compiled

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pharmaceutical, medical, promotional and chemical data. Using MIDAS,
clients are able to view information from the national databases compiled
by IMS and produce statistical reports in the format required by the
client. MIDAS is available in 79 countries.

- OTHER MARKET RESEARCH REPORTS. These include managed care reports, which
offer an array of information to quantify the effects of managed care on
the pharmaceutical and healthcare industry; Market Research Publications
including the Pharmaceutical World Review; personal care reports, which
measure the sale of healthcare accessories, wound care and dietetic aids;
and reports on bulk chemical shipments and molecules for R&D. IMS has
developed, in certain countries, disease and treatment information at the
patient level (in which information is not identifiable to any individual
patient) that gives participants in the healthcare industry new insights
into the treatment of diseases. The availability, scope and frequency of
the foregoing reports vary on a country-by-country basis.

The remaining 3% of the IMS Segment's 2001 revenue was derived primarily
through professional consulting, and research and development services. IMS
provides pharmaceutical and other clients with a range of value-added services
that are used (i) to study specific issues and trends in the pharmaceutical
marketplace and the healthcare industry, (ii) to manage sales and marketing,
(iii) to evaluate the effectiveness of marketing programs, (iv) to analyze
components of a product marketing program at any stage of its implementation,
and (v) for consultancy in optimizing strategy, marketing programs and product
commercialization. These services include:

- PROFESSIONAL CONSULTING SERVICES. The IMS Segment's professional
consulting services are provided to help clients analyze and evaluate
market trends, strategies and tactics, and to assist in the development
and implementation of customized software applications and data warehouse
tools. In the United States, the IMS Segment's professional consulting
services provide a wide range of custom market research, promotion
optimization, promotion effectiveness, managed care and other advanced
analytics services for the pharmaceutical and healthcare marketplace. The
professional services consulting group also helps clients to design
customized decision support systems based on a variety of cutting-edge
technologies, for the purpose of leveraging the IMS Segment data more
rapidly. Outside of the United States, consulting services are offered on
a country-by-country basis.

IMS DATA SUPPLIERS

Over the past four decades, the IMS Segment has developed strong
relationships with its data suppliers in each market in which it operates. As
the supply of pharmaceutical data is critical to the IMS Segment's business, IMS
devotes significant human and financial resources to its data collection
efforts, and in many cases has historical connections with the trade
associations and professional associations involved. In the United States, IMS
has been designated as a database licensee by the American Medical Association
("AMA") for use and sublicensing of the AMA's physician database.

IMS CUSTOMERS

Sales to the pharmaceutical industry accounted for substantially all of the
IMS Segment's revenue in 2001. All major pharmaceutical and biotechnology
companies are customers of the IMS Segment, and many of the companies subscribe
to reports and services in several countries. The IMS Segment's customer base is
broad in scope and enables it to avoid dependence on any single customer. None
of the IMS Segment's customers accounted for more than 10% of the Company's
gross revenues in 2001.

IMS COMPETITION

While no competitor provides the geographical reach or breadth of the IMS
Segment's services, the IMS Segment generally competes in the countries in which
it operates with other information services companies, as well as the in-house
capabilities of its customers. Generally, competition has arisen on a
country-by-country basis. In Europe, certain of the IMS Segment's services
compete with those offered by competitors such as Taylor Nelson in the United
Kingdom, Cegedim in France, Germany and the United Kingdom, National Data
Corporation in Germany and the United Kingdom, and AzyX Geopharma in Belgium,
Germany, Poland and Portugal. In the United States, certain of

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IMS's sales management services, including its sales territory and prescription
tracking reports, compete with the offerings of various companies, particularly
National Data Corporation. Also, various companies compete with the IMS Segment
in the United States with respect to the IMS Segment's market research services.
Service, quality, coverage and speed of delivery of information services and
products are the principal differentiators in IMS's market.

IMS FOREIGN OPERATIONS

As indicated above, the IMS Segment and its subsidiaries engage in a
significant portion of their business outside of the United States. The IMS
Segment provides information services covering more than 100 countries and
maintains offices in 76 countries on six continents, with 60% of total 2001
revenue and a significant portion of its operating income generated outside the
United States. The IMS Segment's foreign operations are subject to the usual
risks inherent in carrying on business outside of the United States, including
fluctuation in relative currency values, possible nationalization,
expropriation, price controls and other restrictive government actions. IMS
believes that the risk of nationalization or expropriation is reduced because
its products are software, services and information, rather than the production
of products that require manufacturing facilities or the use of natural
resources.

IMS INTELLECTUAL PROPERTY

The IMS Segment owns and controls a number of trade secrets, confidential
information, trademarks, trade names, copyrights, patents and other intellectual
property rights which, in the aggregate, are of material importance to its
business. The IMS Segment owns two significant U.S. patents relating to its
XPONENT product, U.S. Patent Nos. 5,420,786 and 5,781,893, each having a
remaining life of twelve years. The IMS Segment also has numerous trade secrets
relating to data processing that are of material importance to its business.
Management believes that the "IMS" name and related names, marks and logos are
of material importance to IMS. IMS is licensed to use certain technology and
other intellectual property rights owned and controlled by others, and
similarly, other companies are licensed to use certain technology and other
intellectual property rights owned and controlled by IMS. The technology and
other intellectual property rights licensed by IMS are of importance to its
business, although management of IMS believes that IMS's business, as a whole,
is not dependent upon any one intellectual property or group of such properties.

The names of IMS's and its subsidiaries' products and services referred to
herein are trademarks, service marks, registered trademarks or registered
service marks owned by or licensed to IMS or one of its subsidiaries.

IMS EMPLOYEES

The IMS Segment had approximately 5,428 employees worldwide as of
December 31, 2001. Almost all of these employees are full-time. None of the
Company's U.S. employees are represented by a union. In Austria, Belgium,
France, Germany, Italy, the Netherlands and Spain, the Company has Works
Councils, which are a legal requirement in those countries. The Company also has
a European Works Council, which is a requirement under European Union laws.
Management considers its relations with its employees to be good and to have
been maintained in a normal and customary manner.

CORPORATE

IMS currently maintains its corporate center in Fairfield, Connecticut.
Other components of the IMS Segment are:

- ENTERPRISES. Enterprises invests in venture capital funds that invest in
emerging businesses, with an emphasis on information technology and the
healthcare information industry. It has invested as a limited partner in
Information Partners Capital Fund, Information Associates, L.P. and
Information Associates II, L.P., all of which are venture capital limited
partnerships. Enterprises also has a limited number of direct investments.

- TRIZETTO. The Company owns 12,142,857 of the common shares of TriZetto,
which it received as consideration for the sale of Erisco to TriZetto on
October 3, 2000. IMS's ownership interest in TriZetto represented 26.8% of
the outstanding shares of TriZetto as of December 31, 2001. TriZetto is a
publicly-traded information technology and services company focused on the
healthcare industry. TriZetto delivers proprietary and third-

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party software on a licensed or hosted basis, as well as outsourcing and
consulting services. TriZetto's target markets include health plans,
benefits administrators and physician groups, according to publicly
available information. As of December 31, 2001, TriZetto served
approximately 540 customers representing more than 110 million health plan
lives. TriZetto offers five categories of complementary products and
services: hosted solutions, business services, enterprise software,
e-business solutions and consulting services. Its hosted solutions provide
proprietary enterprise software as well as third party applications on a
monthly subscription fee basis. TriZetto also offers business services
such as claims and enrollment processing and information technology
department outsourcing. TriZetto's enterprise software offering include
its Facets-Registered Trademark- and QicLink-TM- applications and its
e-business solutions include its HealthWeb-Registered Trademark- Internet
platform. In addition, TriZetto provides consulting services, including
information technology assessment, software development and implementation
services. IMS accounts for its ownership interest in TriZetto under the
equity method.

CTS SEGMENT

The CTS Segment ("CTS") delivers high-quality, cost-effective, full life
cycle solutions to complex software development and maintenance problems that
companies face as they transition to e-business. These IT services are delivered
through the use of a seamless on-site and offshore consulting project team.
CTS's solutions include application development and integration, application
management and re-engineering services. 2001 CTS Segment revenue (net of inter
segment sales) represented 11.9% of total consolidated revenue.

CTS provides professional services to its customers through an integrated
business model. CTS's business model combines a technical and account management
team located on-site at the customer location and eleven development centers
located in India. To support this business model, CTS has recruited and trained
a current staff of approximately 2,650 programmers in India. CTS has also put in
place a well developed facilities, technology and communications infrastructure.
By basing CTS's technical operations in India, CTS has access to a large pool of
skilled, English-speaking IT and Internet technology professionals. Such IT and
Internet technology professionals service customers on a cost basis
significantly lower than in developed countries. The main elements of the CTS
solution, which CTS believes differentiates it from other IT service providers,
include the following:

- ESTABLISHED AND SCALABLE PROPRIETARY PROCESSES. To facilitate a
cost-effective, on-time delivery of high-quality projects integrating an
on-site and offshore team, CTS has developed proprietary methodologies.
Such methodologies are encapsulated in CTS's QVIEW software engineering
process, which is available to all on-site and offshore programmers. CTS
utilizes this ISO 9000 certified process to define and implement projects
from the design, development and deployment stages through to ongoing
application maintenance. For most projects, QVIEW is used to make an
extensive front-end assessment. This assessment allows CTS to define the
scope and risks of the project and subdivide the project into smaller
phases with frequent deliverables and feedback from customers. CTS also
utilizes its QVIEW process to detect, mitigate and correct possible
quality defects and to establish appropriate contingencies for each
project.

- HIGHLY-SKILLED WORKFORCE. CTS has placed significant emphasis on
recruiting and training its workforce of highly skilled professionals.
Such professionals must be versed in CTS's processes and methodologies,
particularly the QVIEW software engineering process. CTS has over 240
project managers and senior technical personnel on its worldwide staff,
many of whom have significant work experience in the United States and
Europe. CTS maintains programs and personnel, including an extensive
campus recruiting program in India, to hire and train the best available
technical professionals in both legacy systems and emerging technologies.
CTS provides five months of combined classroom and on-the-job training to
new hires. CTS provides additional training each year to continually
enhance the business practices, tools, technology and consulting skills of
its professional staff.

- RESEARCH AND DEVELOPMENT AND COMPETENCY CENTERS. CTS has project
experience and expertise across multiple architectures and technologies,
and makes a substantial on-going investment in competency centers and
research and development to keep abreast of the latest technology
developments. Most of CTS's programmers are trained in multiple
technologies and architectures. As a result, CTS is able to react to
customers' needs and quickly redeploy programmers to new technologies.

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- WELL-DEVELOPED INFRASTRUCTURE. CTS's extensive facilities, technology and
communications infrastructure facilitates the seamless integration of its
on-site and offshore workforces. This is accomplished by permitting team
members in different locations to access common project information and to
work directly on customer projects. By using the excess capacity of a
customer's existing computing facilities during off-peak hours, CTS's
offshore development centers can undertake additional projects without
substantial customer investment in new hardware and software. In addition,
for large projects with short time frames, CTS's offshore facilities allow
for parallel processing of various development phases to accelerate
delivery time.

CTS SERVICES

- APPLICATION DEVELOPMENT AND INTEGRATION. Define requirements, write
specifications and design, develop, test and integrate software across
multiple platforms including internet technologies.

- APPLICATION MANAGEMENT. Support some or all of a customer's applications,
ensuring that systems remain operational and responsive to changing user
requirements, and to provide ongoing enhancement as required by the
customer.

- RE-ENGINEERING. Modify and test applications to enable systems to function
in new operating environments.

CTS uses its QVIEW software engineering process, its on-site and offshore
delivery model and well-developed facilities, technology and communications
infrastructure to deliver these services. For each of these services, CTS
utilizes its QVIEW proprietary processes and methodologies to define the
execution and delivery of the projects.

CTS markets and sells its services directly through its professional staff,
senior management and sales personnel.

CTS CUSTOMERS

A significant portion of the gross revenues reported by Cognizant Technology
Solutions Corporation is derived from services performed for IMS. IMS eliminates
these intercompany revenues in consolidation and excludes them from the reported
CTS Segment results. The following discussion of CTS customers refers to the
gross reported CTS results.

CTS provides services through time and material ("T&M") and fixed bid
contracts. The volume of work CTS performs for specific customers is likely to
vary from year to year, and a significant customer in one year may not use CTS's
services in a subsequent year. In 1999, IMS and First Data Corporation each
accounted for more than 10.0% of CTS's revenue. In 2001 and 2000, IMS accounted
for more than 10.0% of CTS's revenue. Presented below is additional information
about CTS's customers.

CTS COMPETITION

The IT services market includes a large number of participants, is subject
to rapid change and is intensely competitive. This market includes participants
from a variety of market segments, including:

- systems integration firms;

- contract programming companies;

- application software companies;

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- Internet solutions providers;

- the professional services groups of computer equipment companies;

- facilities management and outsourcing companies; and

- "Big Five" accounting firms.

In certain markets in which CTS competes, there are no significant barriers
to entry. Current and potential competitors may introduce new and more
competitive services, make strategic acquisitions or establish cooperative
relationships among themselves or with third parties. As a result, these
competitors increase the ability of their services to address the needs of
customers. Many of CTS's competitors have significantly greater financial,
technical and marketing resources and greater name recognition than CTS. The
principal competitive factors affecting the markets for CTS's services include:
performance and reliability; quality of technical support, training and
services; responsiveness to customer needs; reputation, experience and financial
stability; and competitive pricing of services.

CTS competes by offering: a well-developed recruiting, training and
retention model; a successful service and delivery model; an excellent referral
base; continual investment in process improvement and knowledge capture;
investment in research and development; and continued focus on responsiveness to
customer needs, quality of services, competitive prices, project management
capabilities and technical expertise.

In order to be successful in the future, CTS must continue to respond
promptly and effectively to technological change and competitors' innovations.
There can be no assurance that CTS will be able to compete successfully against
current and future competitors. CTS's failure to successfully compete could have
a material adverse effect upon its business, results of operations and financial
condition.

CTS INTELLECTUAL PROPERTY

CTS's consulting business includes the co-development, with the customer, of
software applications and other technology deliverables. These include written
specifications and documentation in connection with specific customer
engagements. CTS's future success depends in part on its ability to protect its
intellectual property rights. CTS presently holds no patents or registered
copyrights. CTS relies upon a combination of copyright and trade secret laws,
non-disclosure and other contractual arrangements and various security measures
to protect its intellectual property rights. India is a member of the Berne
Convention, and has agreed to recognize protections on copyrights conferred
under the laws of foreign countries, including the laws of the United States.
CTS believes that laws, rules, regulations and treaties in effect in the United
States and India are adequate to protect it from misappropriation or
unauthorized use of CTS's copyrights. However, there can be no assurance that
such laws will not change and, in particular, that the laws of India will not
change in ways that may prevent or restrict the transfer of software components,
libraries and toolsets from India to the United States. There can be no
assurance that the steps taken by CTS to protect its intellectual property
rights will be adequate to deter misappropriation of any of CTS's intellectual
property, or that CTS will be able to detect unauthorized use and take
appropriate steps to enforce CTS's rights.

Pursuant to the License Agreement between CTS and IMS, all rights to the
"Cognizant" name and certain related trade and service marks were transferred to
CTS in July, 1998.

CTS EMPLOYEES

At December 31, 2001, CTS employed approximately 855 persons on a full-time
basis in its North American headquarters and satellite offices and on-site North
American customer locations. CTS also employed approximately 110 persons on a
full-time basis in its European satellite offices and on-site European customer
locations and approximately 2,960 persons on a full-time basis in its offshore
software development centers in India. None of CTS's employees is subject to a
collective bargaining arrangement. CTS considers its relations with employees to
be good.

For additional information regarding CTS, see CTS's Annual Report on
Form 10-K for the year ended December 31, 2001 and its other filings with the
Securities and Exchange Commission.

8

RELATIONSHIPS BETWEEN IMS AND SYNAVANT, IMS AND NMR AND AMONG IMS,
DONNELLEY AND ACNIELSEN

SYNAVANT SPIN-OFF

Prior to the Synavant Spin-Off, IMS and Synavant entered into certain
agreements governing their relationship subsequent to the Synavant Spin-Off and
providing for the allocation of certain liabilities and obligations arising from
periods prior to the Synavant Spin-Off, including those obligations and
liabilities that arose in connection with the D&B Spin-Off. The following
descriptions summarize certain terms of the most significant of such agreements,
but are qualified by reference to the texts of such agreements, which are
incorporated by reference to the Exhibits to this Form 10-K.

SYNAVANT DISTRIBUTION AGREEMENT. IMS and Synavant entered into a
Distribution Agreement (the "Synavant Distribution Agreement"), providing for,
among other things, certain corporate transactions required to effect the
Synavant Spin-Off and other arrangements between IMS and Synavant subsequent to
the Distribution. In particular, the Synavant Distribution Agreement defines the
assets, liabilities and contractual relationships which were allocated to and
assumed by each of Synavant and IMS, with the effect that financial
responsibility for (i) the liabilities arising out of or in connection with
Synavant's businesses and certain other specified liabilities generally were
allocated to Synavant and (ii) all other liabilities generally were allocated to
IMS. Pursuant to the terms of the Distribution Agreement (the "D&B Distribution
Agreement") among Cognizant, Donnelley and ACNielsen Corporation ("ACNielsen"),
as a condition to the Synavant Spin-Off, Synavant was required to and did
undertake to be jointly and severally liable to Donnelley and ACNielsen for any
Cognizant liabilities arising thereunder. Further, the terms of the Distribution
Agreement (the "Cognizant Distribution Agreement") between NMR and IMS, as a
condition to the Synavant Spin-Off, Synavant was required to and did undertake
to be jointly and severally liable to NMR for any IMS liabilities arising
thereunder. The Synavant Distribution Agreement allocates between IMS and
Synavant the financial responsibility for such liabilities arising under the D&B
Distribution Agreement and the Cognizant Distribution Agreement, including
contingent liabilities related to certain prior business transactions and
certain on-going litigation. (See Notes 7 and 21 to the Consolidated Financial
Statements in the 2001 Annual Report to Shareholders).

In addition to the Synavant Distribution Agreement, IMS and Synavant also
entered into other agreements governing the relationship between IMS and
Synavant. These include two Data Rights Agreements and a Tax Allocation
Agreement, each of which is described below, as well as an Employee Benefits
Agreement, a Data and Telecommunications Service Agreement, certain sublease
arrangements, a Corporate Services Agreement, Shared Transaction Services
Agreements, an Information Service Agreement and certain credit support
arrangements. After the date of the Synavant Spin-Off (the "Synavant Spin-Off
Date"), there were individuals on the Boards of Directors of IMS and Synavant
who were also serving on the Board of Directors of the other company.

SYNAVANT DATA RIGHTS AGREEMENTS. Pursuant to the Xponent Data License
Agreement, IMS granted to Synavant a non-transferable and non-exclusive license
to use IMS's Xponent data solely for the purpose of (i) selecting a list of
doctors to whom its healthcare company clients can send proprietary materials,
(ii) providing its single source sampling products to pharmaceutical clients,
(iii) providing data to publishers of journals or other media for the purpose of
determining advertising, and (iv) selecting doctors to whom its pharmaceutical
clients can send certain drug samples. Pursuant to the Pharbase Cross License
Agreement, Synavant granted to IMS a worldwide, perpetual, non-transferable and
non-exclusive license to use all Synavant data (including Pharbase) in order to
(i) update its prescriber databases, (ii) update its sales, prescription and
market research databases, and (iii) create derivative works from such databases
in connection with the delivery of services to its clients. IMS granted to
Synavant a non-transferable and non-exclusive license to certain IMS data to be
used solely to update its Pharbase database. Both parties agreed not to use
certain data in products delivered to certain competitors of the other party.

SYNAVANT TAX ALLOCATION AGREEMENT. IMS and Synavant entered into a Tax
Allocation Agreement under which IMS agreed to pay any taxes, or receive any
refunds or credits of taxes, shown as due on a U.S. federal, state or local
income or franchise tax return for a taxable period beginning prior to
August 31, 2000, the Synavant Spin-Off Date. All taxes other than U.S. federal,
state and local income and franchise taxes will be the responsibility of
Synavant if

9

they are attributable to the Synavant business and of IMS if they are
attributable to all other businesses of IMS. For taxable periods beginning on or
after Synavant Spin-Off Date, Synavant and IMS agreed to be responsible for
their own taxes.

COGNIZANT SPIN-OFF (1998)

Prior to the Cognizant Spin-Off, IMS and Cognizant (now NMR) entered into
certain agreements governing their relationship subsequent to the Cognizant
Spin-Off and providing for the allocation of certain liabilities and obligations
arising from periods prior to the Cognizant Spin-Off, including those
obligations and liabilities that arose in connection with the D&B Spin-Off. The
following descriptions summarize certain terms of the most significant of those
agreements, but are qualified by reference to the texts of such agreements,
which are incorporated by reference to the Exhibits to this Form 10-K.

COGNIZANT DISTRIBUTION AGREEMENT. NMR and IMS entered into the Cognizant
Distribution Agreement providing for, among other things, assumption of
liabilities and cross indemnities designed to allocate generally, effective as
of the date of the Cognizant Spin-Off, financial responsibility for (i) the
liabilities arising out of or in connection with Cognizant's businesses (i.e.
NMR) and certain other specified liabilities to NMR and (ii) all other
liabilities to IMS. Pursuant to the terms of the D&B Distribution Agreement
among Cognizant, Donnelley and ACNielsen, as a condition to the Cognizant
Spin-Off, IMS and NMR were required to and did undertake to be jointly and
severally liable to Donnelley and ACNielsen for any Cognizant liabilities
arising thereunder. The Cognizant Distribution Agreement allocates between IMS
and NMR the financial responsibility for such liabilities, including contingent
liabilities related to certain prior business transactions and certain on-going
litigation. (See Note 21 to the Consolidated Financial Statements in the 2001
Annual Report to Shareholders).

COGNIZANT TAX ALLOCATION AGREEMENT. NMR and IMS entered into a Tax
Allocation Agreement under which IMS agreed to pay any taxes, or receive any
refunds or credits of taxes, shown as due on a U.S. federal, state or local
income or franchise tax return for a taxable period beginning prior to the date
of the Cognizant Spin-Off. Any subsequent adjustment of such taxes will be
allocated to IMS if such adjustment relates to IMS's business and to NMR if such
adjustment relates to the NMR business, except that any adjustment of such taxes
attributable to tax items or positions initially determined by NMR's corporate
office will be allocated to IMS. All taxes other than U.S. federal, state and
local income and franchise taxes will be the responsibility of IMS if they are
attributable to IMS's business and of NMR if they are attributable to NMR's
business. For taxable periods beginning on or after the date of the Cognizant
Spin-Off, IMS and NMR will be responsible for their own taxes.

D&B SPIN-OFF (1996)

Prior to the D&B Spin-Off, Donnelley, Cognizant and ACNielsen entered into
certain agreements governing their relationship subsequent to the D&B Spin-Off
and providing for certain liabilities and obligations arising from periods prior
to the D&B Spin-Off. The following descriptions summarize certain terms of the
most significant of those agreements, but are qualified by reference to the
texts of such agreements, which are incorporated by reference to the Exhibits to
this Form 10-K.

D&B DISTRIBUTION AGREEMENT. Donnelley, Cognizant and ACNielsen entered into
the D&B Distribution Agreement providing for, among other things, assumptions of
liabilities and cross indemnities designed generally to allocate to Donnelley,
effective as of November 1, 1996, financial responsibility for all liabilities
of Donnelley, except for certain liabilities arising out of or in connection
with the businesses that became part of Cognizant or ACNielsen as a result of
the D&B Spin-Off. Similarly, the D&B Distribution Agreement provided for the
allocation generally to Donnelley of the financial responsibility for the
liabilities arising out of or in connection with then-former businesses,
including those formerly conducted by or associated with Cognizant or ACNielsen,
provided that liabilities related to certain prior business transactions were
allocated to Cognizant if such liabilities exceed certain specified amounts.
(See Note 21 to the Consolidated Financial Statements in the 2001 Annual Report
to Shareholders).

10

D&B TAX ALLOCATION AGREEMENT. Donnelley, Cognizant and ACNielsen entered
into a Tax Allocation Agreement (the "1996 Tax Allocation Agreement"). Except as
otherwise provided in the D&B Distribution Agreement, the D&B Tax Allocation
Agreement provided, among other things, that Donnelley must pay Donnelley's
entire consolidated tax liability for the tax years that Cognizant and ACNielsen
were included in Donnelley's consolidated Federal income tax return. For periods
prior to the D&B Spin-Off, Donnelley is generally liable for state and local
taxes measured by income or imposed in lieu of income taxes. The D&B Tax
Allocation Agreement allocated liability to Donnelley, Cognizant and ACNielsen
for their respective shares of other state and local taxes, as well as any
foreign taxes attributable to periods prior to the D&B Spin-Off.

INDEMNITY AND JOINT DEFENSE AGREEMENT ("IJDA"). Under the IJDA, ACNielsen
assumed exclusive liability for the Information Resources Litigation, discussed
in Note 21 to the Consolidated Financial Statements in the 2001 Annual Report to
Shareholders, up to a specified amount (the "ACN Maximum Amount"), which is to
be calculated at the time such liabilities, if any, become payable, and that
Cognizant and Donnelley will share liability equally for any amounts in excess
of the ACN Maximum Amount. The ACN Maximum Amount will be determined by an
investment banking firm as the maximum amount which ACNielsen is able to pay
after giving effect to (i) any plan submitted by such investment bank which is
designed to maximize the claims-paying ability of ACNielsen without impairing
the investment banking firm's ability to deliver a viability opinion (but which
will not require any action requiring shareholder approval) and (ii) payment of
related fees and expenses. For these purposes, financial viability means the
ability of ACNielsen, after giving effect to such plan, the payment of related
fees and expenses and the payment of the ACN Maximum Amount, to pay its debts as
they become due and to finance the current and anticipated operating and capital
requirements of its business, as reconstituted by such plan, for two years from
the date any such plan is expected to be implemented. On February 19, 2001,
ACNielsen announced that it merged with VNU N.V. Pursuant to the Indemnity and
Joint Defense Agreement, VNU is to be included with ACNielsen for purposes of
determining the ACN Maximum Amount.

FACTORS THAT MAY AFFECT FUTURE RESULTS

From time to time, information and statements provided by the Company may
contain "forward-looking statements" as defined by the Private Securities
Litigation Reform Act of 1995. The Company cautions shareholders and investors
that actual results may differ materially from those projected or suggested in
any forward-looking statement as a result of a wide variety of factors,
including but not limited to the factors set forth below and under the caption
"Forward Looking Statements" in the Company's 2001 Annual Report to
Shareholders, which is incorporated herein by reference:

- Results could be affected by the costs and other effects of litigation and
other contingencies involving the Company. In particular, management of
the Company is unable to predict at this time the final outcome of the
Information Resources Litigation, the Matters before the European
Commission and the Donnelley Tax Matters described in Note 21 to the
Consolidated Financial Statements in the 2001 Annual Report to
Shareholders, or whether the resolution of these matters could materially
affect the Company's results of operations, cash flows or financial
position.

- The Company operates globally, deriving 54% of its $1,332,923 in revenue
from non-U.S. operations. As a result, fluctuations in the value of
foreign currencies relative to the U.S. dollar may increase the volatility
of U.S. dollar-denominated operating results. Emerging markets currencies
tend to be considerably less stable than in established markets, which may
further contribute to volatility in operating results. In addition, the
Company is subject to the usual risks inherent in carrying on business in
certain countries outside the United States, including possible
nationalization, expropriation, price controls or other restrictive
government actions. Management believes that the risk of nationalization
or expropriation is reduced because its basic service is the delivery of
information, rather than the production of products which require
manufacturing facilities or use of natural resources.

- The Company competes in businesses which demand or sell sophisticated
information systems, software and other technology, including the
technology utilized to deliver products and services. The types of systems
which

11

the Company's businesses require or sell can be expected to be subject to
refinements, some of which may be major, as such systems and underlying
technologies are upgraded or advanced or new technologies are introduced.
There can be no guarantee that as various systems and technologies become
outdated, the Company will be able to replace them, to replace them as
quickly as the Company's competition or develop and market new and better
products and services and technology in the future on time and on a
cost-effective basis. Further, there can be no guarantee regarding the
degree and rate which customers will adopt new technologies or products
that may result in the Company not achieving the benefits that might have
been anticipated from such new technologies or products.

- Currently, the Company's assets include a majority interest in CTS
consisting of 11,290,900 shares of CTS Class B common stock, which
represents 58.3% of the outstanding shares of all classes of CTS common
stock (93.3% of the combined voting power of CTS's outstanding common
stock) at December 31, 2001; and an equity investment in TriZetto
consisting of 12,142,857 shares of TriZetto common stock, which
represented 26.8% of the outstanding shares of TriZetto common stock at
December 31, 2001, as well as, directly or through its investment in
various limited partnerships, shares of various other companies, both
public and private. Variations will occur in the market value of the
Company's securities, and such variations may have an impact on the
trading price of the Company's Common Stock. The results of operations of
CTS and TriZetto may be subject to the various factors described in their
respective reports filed with the SEC from time to time. Declines in the
values of the Company's CTS and TriZetto investments, which the Company
determines to be other than temporary, will have an impact on the
Company's operating results in the period in which such determination is
made.

- A number of countries in which the Company operates have enacted
regulations limiting the prices pharmaceutical companies may charge for
drugs. The Company believes that such cost containment measures will cause
pharmaceutical companies to seek more effective means of marketing their
products (which will benefit the Company in the medium and long term).
However, such governmental regulation may cause pharmaceutical companies
to revise or reduce their marketing programs in the near term, which may
in turn reduce the demand for certain of the Company's products and
services.

- Certain of the data services provided by the Company relate to the
diagnosis and treatment of disease, including prescription data. The use
of anonymized patient-specific information is anticipated to be an
increasingly important tool in the design, development and marketing of
pharmaceuticals. Recently, there have been a number of regulatory and
legislative initiatives in the area of medical privacy at the federal,
state and foreign government levels. Most of these initiatives seek to
place restrictions on the use and disclosure of patient-identifiable
information without consent and, in some cases, seek to extend
restrictions to non-patient-identifiable information or the process of
anonymizing data. In addition, there are initiatives that seek to restrict
access to this information to non-commercial uses. To protect privacy, no
individual patient is identified in any IMS database (except in the
limited circumstances where the advance express written consent of the
patient has been obtained) so that many of these initiatives would not
apply to the Company's business. However, there can be no assurance that
these initiatives or future initiatives would not adversely affect the
Company's ability to generate or assemble data or to develop or market
current or future products or services.

- The Company is directly subject to certain restrictions on the collection
and use of data. Laws relating to the collection and use of data are
evolving, as are contractual rights relating to such data. There can be no
assurance that contractual restrictions, legislation or regulations will
not, now or in the future, directly or indirectly restrict the analysis or
dissemination of the type of information the Company gathers and therefore
materially adversely affect its operations.

- Suppliers of data may increase restrictions on the use of the data by the
Company, or refuse to license the data to the Company. There can be no
assurance that data suppliers will not impose additional contractual
restrictions on the Company's use or access to data, or refuse to provide
data, now or in the future, in a manner which could have a material
adverse affect on the business of the Company or its operating results.

12

- The Company relies on a combination of trade secret, patent, copyright and
trademark laws, contractual provisions, policies, practices, and technical
measures to protect its proprietary rights in its products, services,
databases and technologies. There can be no assurance that these
protections will be adequate, or that the Company will adequately employ
each and every one of these protections, or that the Company's competitors
will not develop products, services, databases or technologies that are
substantially equivalent or superior to the Company's products, services,
databases or technologies. Although the Company believes that its
products, services, databases, technologies and related proprietary rights
do not infringe upon the proprietary rights of third parties, there can be
no assurance that third parties will not assert infringement claims
against the Company in the future. Additionally, the Company may find it
necessary to initiate litigation to protect the Company's trade secrets,
to enforce its patent, copyright and trademark rights, and to determine
the scope and validity of the proprietary rights of others. These types of
litigation can be costly and time consuming.

- The future success of the Company depends upon the contributions of its
employees, including senior management and key personnel. The future
success of the Company also depends on its continuing ability to attract
and retain highly qualified technical and managerial personnel.
Competition for such personnel is intense. Any difficulties with the
foregoing could have a material adverse affect on the business of the
Company or its operating results.

- An important aspect of the Company's business strategy in the past has
been growth through acquisitions or joint ventures, and, although the
Company expects to continue to pursue acquisitions and joint ventures,
there can be no assurance that management of the Company will be able to
identify and consummate acquisitions or joint ventures on satisfactory
terms. Furthermore, every acquisition or joint venture will entail some
degree of uncertainty and risk and, even if consummated, may not produce
the operating results or increases in value over time which were expected
at the time of acquisition or joint venture.

- The Company's results could be adversely affected by general or specific
weakening of economic conditions, including weak economic conditions in
the pharmaceutical, healthcare, information technology or other industries
in which the Company's customers operate.

13

ITEM 2. PROPERTIES

The principal properties of the Company as at December 31, 2001 are set
forth below.

The executive offices of the Company are located at 1499 Post Road,
Fairfield, Connecticut in a leased property (approximately 15,000 square feet).

Property of the Company is geographically distributed to meet sales and
operating requirements worldwide. The properties and equipment of the Company
are generally considered to be both suitable and adequate to meet current
operating requirements and virtually all space is being utilized.

IMS SEGMENT

Owned properties located within the United States include three facilities.
The properties are located in Totowa, New Jersey (approximately 130,000 square
feet), and Plymouth Meeting (approximately 212,000 square feet) and West
Norriton, Pennsylvania (approximately 17,000 square feet).

Owned properties located outside the United States include: one property in
each of Buenos Aires, Argentina (approximately 12,000 square feet); Brussels,
Belgium (25,000 square feet); Santiago, Chile (approximate 4,000 square feet);
Lisbon, Portugal (approximately 10,000 square feet); Caracas, Venezuela
(approximately 4,000 square feet); and London (approximately 102,000 square
feet) and Pinner, England (approximately 26,000 square feet).

The operations of the IMS Segment are also conducted from nine leased
offices located throughout the United States and ninety-six leased offices in
non-United States locations.

IMS owns or leases a variety of computers and other equipment for its
operational needs. The Company continues to upgrade and expand its computers and
related equipment in order to increase efficiency, enhance reliability and
provide the necessary base for business expansion.

CTS SEGMENT

Headquartered in Teaneck, New Jersey, operations are conducted from seven
leased office locations in the United States (aggregating approximately 49,000
square feet) and fourteen non-United States locations (aggregating approximately
373,000 square feet), which are primarily located in India.

ITEM 3. LEGAL PROCEEDINGS

Reference is made to "Note 21. Contingencies" of the Notes to the
Consolidated Financial Statements on pages 43 to 47 of the 2001 Annual Report to
Shareholders, which is incorporated herein by reference.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

14

EXECUTIVE OFFICERS OF THE REGISTRANT*

Officers are appointed by the Board of Directors to hold office until their
respective successors are chosen and qualified. Listed below are the executive
officers of IMS at March 15, 2002 and brief summaries of their business
experience during the past five years.

- ------------------------

* Set forth as a separate item pursuant to Item 401(b) of the Securities and
Exchange Commission's Regulation S-K.

** Member of the Board of Directors.

Mr. Thomas was appointed Chairman, Chief Executive Officer and President of
IMS in November, 2000. Prior to that, he was Senior Vice President/Group
Executive at IBM, responsible for the global Personal Systems Group, from
January, 1998 to September, 2000. Mr. Thomas also was a member of the IBM
Corporate Executive Committee, which oversees all IBM operations worldwide.
Joining IBM in 1972, Mr. Thomas held progressively responsible executive
positions at the company, including General Manager, IBM North America from
October, 1995 to January, 1996, and General Manager, Global Industries from
January, 1996 to January, 1998.

Mr. Pajot was appointed Executive Vice President of IMS in November, 2000.
He joined the Company as President of IMS Europe Region in December, 1997.
Previously, Mr. Pajot worked for 20 years with Pharmacia & Upjohn and its
predecessor company, serving as Senior Vice President at Pharmacia & Upjohn from
July, 1997 to December, 1997, with responsibility for global restructuring
initiatives following the 1995 merger of Pharmacia and Upjohn. From November,
1995 to July, 1997, he was Senior Vice President of Pharmacia & Upjohn's Europe,
Middle East and Africa Region. Prior to that, he served as Executive Vice
President, Worldwide Pharmacia AB from September, 1994 to November, 1995.

Mr. Noon was appointed President of IMS U.S. in November, 2000. Previously,
he was Vice President, Global Marketing for Pfizer/Warner Lambert, a position he
held since September, 1999. Mr. Noon was Founder and Managing Director of
U.K.-based Practice Resource Systems (PRS) from April, 1996 to September, 1999,
where he developed a clinical information system to integrate data across
physician, pharmacy and hospital settings. From 1991 to 1995, Mr. Noon held a
series of progressively responsible executive positions at GlaxoWellcome,
including UK Integration Executive for the International Business & Commercial
Development Task Force from March, 1995 to October, 1995 and Regional Director,
Wellcome Pharmaceutical U.K. and Northern Europe from November, 1994 to March,
1995.

Ms. Cooper was appointed Chief Financial Officer of IMS in December, 2001.
Prior to that, she served as Chief Financial Officer at Reciprocal, Inc., a
leading digital distribution infrastructure enabler, from July, 2000 to October,
2001. From September, 1998 to July, 2000, Ms. Cooper was Chief Financial Officer
of Pitney Bowes Credit Corporation. She served as a Partner at General Atlantic
Partners, a private equity firm focused on software and investments, from
January to July, 1998. Prior to that, she spent 22 years at IBM in various
positions of increasing responsibility, including Director of Financial
Management Systems, Pricing and Financial Planning from 1982 to 1992, and
Controller and Treasurer and Financial Director at IBM Credit Corporation from
September, 1992 to January, 1995, Assistant Controller of IBM in 1996 and Chief
Financial Officer of IBM Global Industries in 1997.

15

Mr. Steinfeld was appointed Senior Vice President, General Counsel and
Corporate Secretary in November, 2000. He was appointed Vice President, Taxes in
April, 1998, and named Senior Vice President, Tax and Corporate Development in
October, 2000. Mr. Steinfeld joined Cognizant Corporation in February, 1997 as
Director of Taxes. From September, 1993 to February, 1997, he was Vice
President, Taxation at Ultramar Corporation, a multinational petroleum refining
and marketing company. From 1991 to 1993, he served as Vice President, Taxes at
GAF Corporation and its publicly traded subsidiary, International Specialty
Products, Inc. Prior to that, Mr. Steinfeld was a Partner and Chairman of the
Tax Department at the law firm of Webster & Sheffield.

Mr. Walsh was appointed Vice President, Investor Relations in July, 1998 and
Acting Treasurer in November 2001. Previously, he was Director-Finance of
Cognizant Corporation from April, 1997 to June, 1998. Prior to that he served in
various capacities in Finance for MCI Communications Corporation from April,
1985 to April, 1997.

Ms. Katz was appointed Vice President and Controller of IMS in October,
2001. Prior to that, Ms. Katz served as Vice President and Chief Financial
Officer of American Lawyer Media, Inc., a legal journalism and information
company, from September, 1998 to July, 2001. She was Vice President and
Treasurer of Cognizant Corporation from August, 1996 to August, 1998. Ms. Katz
held a number of senior financial management posts at Donnelley (then known as
"The Dun & Bradstreet Corporation") from 1980 to 1996, including Senior Vice
President and Chief Financial Officer of Reuben H. Donnelley from September,
1992 to July, 1996.

Mr. Aitken was appointed Senior Vice President of Global Consulting and
Services for IMS in June, 2001. Prior to that, he was a Principal in McKinsey &
Co.'s Pharmaceutical and Medical Products Practice from July, 1997 to June,
2001. Joining McKinsey in 1987, he held progressively responsible positions with
the firm in its Los Angeles and Seoul, South Korea operations, and was named a
Principal and Partner in December, 1994.

16

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS

Information in response to this Item is set forth under IMS Health Common
Stock Information in the "Management's Discussion and Analysis of Results of
Operations and Financial Position" on page 14 of the 2001 Annual Report to
Shareholders, which information is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

Selected financial data required by this Item is incorporated herein by
reference to the information relating to the years 1997 through 2001 set forth
in the "Five-Year Selected Financial Data" on page 51 of the 2001 Annual Report
to Shareholders.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Information in response to this Item is set forth in the "Management's
Discussion and Analysis of Results of Operations and Financial Position" on
pages 1 to 14 of the 2001 Annual Report to Shareholders, which information is
incorporated herein by reference.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Information in response to this Item is set forth under Market Risk in the
"Management's Discussion and Analysis of Results of Operations and Financial
Position" on pages 10 and 11 and in "Note 14. Financial Instruments" of Notes to
Consolidated Financial Statements on pages 34 and 35 of the 2001 Annual Report
to Shareholders, which information is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

See Index to Consolidated Financial Statements and Schedule under Item 14 on
page 19.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

17

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information in response to this Item will be set forth in the section
entitled "Proposal No. 1: Election of Directors" in the Company's Definitive
Proxy Statement (the "2002 Proxy Statement") relating to its Annual Meeting of
Shareholders to be held on May 3, 2002, which information is incorporated herein
by reference, except that "Executive Officers of the Registrant" on pages 15 and
16 of this report responds to Items 401(b) and (e) of the Securities and
Exchange Commission's Regulation S-K with respect to the Company's executive
officers.

ITEM 11. EXECUTIVE COMPENSATION

Information in response to this Item will be set forth in the section
entitled "Compensation of Executive Officers" in the Company's 2002 Proxy
Statement, which information is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information in response to this Item will be set forth in the section
entitled "Security Ownership of Management and Others" in the Company's 2002
Proxy Statement, which information is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not applicable.

18

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) List of documents filed as part of this report.

(1) Consolidated Financial Statements.

See Index to Consolidated Financial Statements and Schedule on page 21.

(2) Consolidated Financial Statement Schedule.

See Index to Consolidated Financial Statements and Schedule on page 21.

(3) Other Financial Information.

Five-year Selected Financial Data. See Index to Consolidated Financial
Statements and Schedule on page 21.

(b) Reports on Form 8-K.

A report on Form 8-K was filed on October 24, 2001 to present under Item 5,
Other Events, disclosure of the appointment of Nancy E. Cooper as the
Company's new Chief Financial Officer.

(c) Exhibits.

See Index to Exhibits on pages 24 to 28, which indicates which Exhibits are
management contracts or compensatory plans required to be filed as Exhibits.
Only responsive information appearing on pages 1 through 51 to Exhibit 13 is
incorporated herein by reference, and no other information appearing in
Exhibit 13 is or shall be deemed to be filed as part of this Form 10-K.

(d) Financial Statement Schedule.

See Index to Consolidated Financial Statements and Schedule on page 21.

19

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

IMS HEALTH INCORPORATED
(Registrant)

By: /s/ DAVID M. THOMAS
---------------------------------------------------
David M. Thomas
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT

Date: March 20, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the date indicated.

/s/ DAVID M. THOMAS /s/ JOHN P. IMLAY, JR.
- ------------------------------------------------- -------------------------------------------------
(David M. Thomas, (John P. Imlay, Jr., Director)
Chairman, Chief Executive Officer, President and
Director) (principal executive officer)

/s/ NANCY E. COOPER /s/ ROBERT J. KAMERSCHEN
- ------------------------------------------------- -------------------------------------------------
(Nancy E. Cooper, Senior Vice President (Robert J. Kamerschen, Director)
and Chief Financial Officer)
(principal financial officer)

/s/ LESLYE G. KATZ /s/ ROBERT J. LANIGAN
- ------------------------------------------------- -------------------------------------------------
(Leslye G. Katz, Vice President, Controller) (Robert J. Lanigan, Director)
(principal accounting officer)

/s/ CLIFFORD L. ALEXANDER, JR. /s/ H. EUGENE LOCKHART
- ------------------------------------------------- -------------------------------------------------
(Clifford L. Alexander, Jr., Director) (H. Eugene Lockhart, Director)

/s/ CONSTANTINE L. CLEMENTE /s/ GILLES V. J. PAJOT
- ------------------------------------------------- -------------------------------------------------
(Constantine L. Clemente, Director) (Gilles V. J. Pajot, Executive Vice President
and Director)

/s/ KATHRYNE E. GIUSTI /s/ BERNARD PUCKETT
- ------------------------------------------------- -------------------------------------------------
(Kathryne E. Giusti, Director) (Bernard Puckett, Director)

/s/ WILLIAM C. VAN FAASEN
- -------------------------------------------------
(William C. Van Faasen, Director)

Date: March 20, 2002

20

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE

FINANCIAL STATEMENTS:

The Company's Consolidated Financial Statements, the notes thereto and the
related report thereon of PricewaterhouseCoopers LLP, independent accountants,
as of December 31, 2001 and 2000 and for the years ended December 31, 2001,
2000, and 1999, appearing on pages 15 to 49 of the 2001 Annual Report to
Shareholders, are incorporated by reference into this Annual Report on
Form 10-K (see below). The additional financial data indicated below should be
read in conjunction with such consolidated financial statements.

Schedules other than the one listed above are omitted as not required or
inapplicable or because the required information is provided in the consolidated
financial statements, including the notes thereto.

21

REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors
of IMS Health Incorporated:

Our audits of the consolidated financial statements referred to in our
report dated February 11, 2002, appearing in the 2001 Annual Report to
Shareholders of IMS Health Incorporated (which report and consolidated financial
statements are incorporated by reference in this Annual Report on Form 10-K)
also included an audit of the financial statement schedule listed in the index
under Item 14(a)(2) of this Form 10-K. In our opinion, this financial statement
schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.

PricewaterhouseCoopers LLP
New York, New York
February 11, 2002

22

IMS HEALTH INCORPORATED AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000 AND 1999
(IN THOUSANDS)

- ------------------------

NOTE:

(a) The charge-off of uncollectible accounts for which a reserve was provided in
prior periods.

(b) Valuation allowances on assets related to additional NOLs created during the
year where, based on available evidence, it is more likely than not that
such assets will not be realized.

(c) Includes valuation allowances related to the net operating losses ("NOLs")
of Erisco and the Synavant Business, $204 and $2,276, respectively; the
recognition of the benefit of certain NOLs due to the implementation of
global tax planning strategies ($10,072), and the expiration and true-up of
certain NOLs ($1,548).

(d) Includes the allowance for doubtful accounts transferred to Synavant and
Erisco in 2000.

23

INDEX TO EXHIBITS

- --------------------------

* Management contract or compensatory plan or arrangement

+ Filed herewith

28