Full Press Release Details
IMS HEALTH HOLDINGS, INC.
| Page | ||||
| Condensed Consolidated Statements of Financial Position as of September 30, 2016 and December 31, 2015 | 2 | |||
| Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2016 and 2015 | 3 | |||
| Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2016 and 2015 | 4 | |||
| Notes to Condensed Consolidated Financial Statements | 5 |
IMS HEALTH HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
| (in millions, except per share data) | September 30, 2016 | December 31, 2015 | ||||||
| Assets | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 2,031 | $ | 396 | ||||
| Accounts receivable, net | 528 | 508 | ||||||
| Other current assets | 222 | 188 | ||||||
| Total Current Assets | 2,781 | 1,092 | ||||||
| Property, plant and equipment, at cost | 380 | 314 | ||||||
| Less accumulated depreciation | (173 | ) | (147 | ) | ||||
| Property, plant and equipment, net | 207 | 167 | ||||||
| Computer software, net | 350 | 309 | ||||||
| Goodwill | 3,936 | 3,604 | ||||||
| Other identifiable intangibles, net | 2,201 | 2,178 | ||||||
| Other assets | 138 | 109 | ||||||
| Total Assets | $ | 9,613 | $ | 7,459 | ||||
| Liabilities and Stockholders Equity | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 115 | $ | 163 | ||||
| Accrued and other current liabilities | 619 | 611 | ||||||
| Current portion of long-term debt | 88 | 59 | ||||||
| Deferred revenues | 240 | 200 | ||||||
| Total Current Liabilities | 1,062 | 1,033 | ||||||
| Postretirement and postemployment benefits | 112 | 109 | ||||||
| Long-term debt | 5,980 | 4,136 | ||||||
| Deferred tax liability | 523 | 526 | ||||||
| Other liabilities | 90 | 83 | ||||||
| Total Liabilities | 7,767 | 5,887 | ||||||
| Commitments and Contingencies (Note 11) | ||||||||
| Stockholders Equity: | ||||||||
| Common Stock, $0.01 par value, 700.0 shares authorized, 343.4 and 341.8 shares issued at September 30, 2016 and December 31, 2015, respectively | 3 | 3 | ||||||
| Capital in excess of par | 2,089 | 2,038 | ||||||
| Retained earnings | 329 | 208 | ||||||
| Treasury stock, at cost, 13.6 and 12.6 shares at September 30, 2016 and December 31, 2015, respectively | (353 | ) | (327 | ) | ||||
| Accumulated other comprehensive loss | (222 | ) | (350 | ) | ||||
| Total Stockholders Equity | 1,846 | 1,572 | ||||||
| Total Liabilities and Stockholders Equity | $ | 9,613 | $ | 7,459 |
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).
IMS HEALTH HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| (in millions, except per share data) | 2016 | 2015 | 2016 | 2015 | ||||||||||||
| Revenue | $ | 791 | $ | 735 | $ | 2,367 | $ | 2,109 | ||||||||
| Information | 381 | 373 | 1,140 | 1,101 | ||||||||||||
| Technology services | 410 | 362 | 1,227 | 1,008 | ||||||||||||
| Operating costs of information, exclusive of depreciation and amortization | 179 | 167 | 514 | 493 | ||||||||||||
| Direct and incremental costs of technology services, exclusive of depreciation and amortization | 222 | 195 | 684 | 528 | ||||||||||||
| Selling and administrative expenses, exclusive of depreciation and amortization | 177 | 181 | 522 | 498 | ||||||||||||
| Depreciation and amortization | 89 | 87 | 264 | 264 | ||||||||||||
| Severance, impairment and other charges | 9 | 16 | 76 | 50 | ||||||||||||
| Operating Income | 115 | 89 | 307 | 276 | ||||||||||||
| Interest income | 2 | 1 | ||||||||||||||
| Interest expense | (48 | ) | (44 | ) | (141 | ) | (124 | ) | ||||||||
| Other income (loss), net | 6 | (7 | ) | 16 | ||||||||||||
| Non-Operating Loss, Net | (48 | ) | (38 | ) | (146 | ) | (107 | ) | ||||||||
| Income before income taxes | 67 | 51 | 161 | 169 | ||||||||||||
| (Provision for) benefit from income taxes | (13 | ) | (8 | ) | (40 | ) | 219 | |||||||||
| Net Income | $ | 54 | $ | 43 | $ | 121 | $ | 388 | ||||||||
| Earnings per Share Attributable to Common Stockholders: | ||||||||||||||||
| Basic | $ | 0.16 | $ | 0.13 | $ | 0.37 | $ | 1.17 | ||||||||
| Diluted | $ | 0.16 | $ | 0.13 | $ | 0.36 | $ | 1.14 | ||||||||
| Weighted-Average Common Shares Outstanding: | ||||||||||||||||
| Basic | 328.5 | 328.5 | 328.6 | 331.9 | ||||||||||||
| Diluted | 335.4 | 336.1 | 335.6 | 340.4 | ||||||||||||
| Comprehensive Income: | ||||||||||||||||
| Net Income | $ | 54 | $ | 43 | $ | 121 | $ | 388 | ||||||||
| Cumulative translation adjustment (net of taxes of $1 and $(8) for the three months ended and $5 and $(29) for the nine months ended, respectively) | $ | 5 | $ | (40 | ) | $ | 136 | $ | (94 | ) | ||||||
| Unrealized gains (losses) on derivatives (net of taxes of $(1) and $1 for the three months ended and $6 and $ for the nine months ended, respectively) | (1 | ) | (11 | ) | ||||||||||||
| Losses (gains) on derivative instruments, reclassified into earnings (net of taxes of $(1) and $2 for the three months ended and $(1) and $7 for the nine months ended, respectively) | 2 | (5 | ) | 2 | (13 | ) | ||||||||||
| Postretirement and postemployment adjustments (net of taxes of $(1) and $(1) for the three months ended and $(1) and $(1) for the nine months ended, respectively) | 1 | 3 | 1 | 3 | ||||||||||||
| Other Comprehensive Income (Loss) | 8 | (43 | ) | 128 | (104 | ) | ||||||||||
| Total Comprehensive Income | $ | 62 | $ | $ | 249 | $ | 284 |
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).
IMS HEALTH HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| Nine Months Ended September 30, | ||||||||
| (in millions) | 2016 | 2015 | ||||||
| Cash Flows from Operating Activities: | ||||||||
| Net Income | $ | 121 | $ | 388 | ||||
| Adjustments to Reconcile Net Income to Net Cash from Operating Activities: | ||||||||
| Depreciation and amortization | 264 | 264 | ||||||
| Deferred income taxes | (16 | ) | (286 | ) | ||||
| Non-cash stock-based compensation charges | 23 | 19 | ||||||
| Non-cash gains on derivative instruments | (9 | ) | (16 | ) | ||||
| Non-cash amortization of debt original issue discount and issuance costs | 8 | 7 | ||||||
| Loss on Venezuela remeasurement | 2 | 7 | ||||||
| Excess tax benefits from stock-based compensation | (26 | ) | (19 | ) | ||||
| Other | 3 | |||||||
| Change in assets and liabilities, excluding effects from acquisitions and dispositions: | ||||||||
| Net (increase) decrease in current assets | (29 | ) | 18 | |||||
| Net decrease in current liabilities | (48 | ) | (53 | ) | ||||
| Increase in pension assets (net of liabilities) | (6 | ) | (5 | ) | ||||
| Increase in other long-term assets (net of other long-term liabilities) | (21 | ) | (1 | ) | ||||
| Net Cash Provided by Operating Activities | 263 | 326 | ||||||
| Cash Flows from Investing Activities: | ||||||||
| Capital expenditures | (81 | ) | (29 | ) | ||||
| Additions to computer software | (99 | ) | (87 | ) | ||||
| Payments for acquisitions of businesses, net of cash acquired | (283 | ) | (466 | ) | ||||
| Net Cash Used in Investing Activities | (463 | ) | (582 | ) | ||||
| Cash Flows from Financing Activities: | ||||||||
| Borrowings under revolving credit facility | 236 | 427 | ||||||
| Repayments of revolving credit facility | (361 | ) | (330 | ) | ||||
| Proceeds from issuance of debt | 2,046 | 496 | ||||||
| Repayments of debt | (57 | ) | (42 | ) | ||||
| Debt-related fees | (24 | ) | (7 | ) | ||||
| Contingent consideration and deferred purchase price payments | (9 | ) | (5 | ) | ||||
| Proceeds from equity plan activity | 8 | 25 | ||||||
| Payments for treasury stock | (29 | ) | (300 | ) | ||||
| Excess tax benefits from stock-based compensation | 26 | 19 | ||||||
| Other financing activities | (7 | ) | ||||||
| Net Cash Provided by Financing Activities | 1,829 | 283 | ||||||
| Effect of Exchange Rate Changes on Cash and Cash Equivalents | 6 | (23 | ) | |||||
| Increase in Cash and Cash Equivalents | 1,635 | 4 | ||||||
| Cash and Cash Equivalents, Beginning of Period | 396 | 390 | ||||||
| Cash and Cash Equivalents, End of Period | $ | 2,031 | $ | 394 |
The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).
IMS HEALTH HOLDINGS, INC.
Notes to Condensed Consolidated Financial Statements
Note 1. Basis of Presentation and
Recently Issued Accounting Standards
IMS Health Holdings, Inc. (the Company ) is a leading global information and technology services company providing clients in the
healthcare industry with comprehensive solutions to measure and improve their performance. The Company has one of the largest and most comprehensive collections of healthcare information in the world, spanning sales, prescription and promotional
data, medical claims, electronic medical records and social media. For information offerings, the Company receives data without patient identifiers and standardizes, organizes, structures and integrates this data by applying its sophisticated
analytics and leveraging its global technology infrastructure to help its clients run their organizations more efficiently and make better decisions to improve their operational and financial performance. The Company has a presence in over 100
countries and generated 61% of its 2015 revenue from outside the United States.
The Company serves key healthcare organizations and
decision makers around the world, spanning the breadth of life science companies, including pharmaceutical, biotechnology, consumer health and medical device manufacturers, as well as distributors, providers, payers, government agencies,
policymakers, researchers and the financial community. The Company s information and technology services offerings, which it has developed with significant investment over its 60+ year history, are deeply integrated into its clients
Basis of Presentation
accompanying unaudited Condensed Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America ( U.S. GAAP ) for interim financial information. The
Condensed Consolidated Financial Statements do not include all the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments, all of which are of a normal recurring nature,
considered necessary for a fair statement of financial position, results of operations and comprehensive income, cash flows and stockholders equity for the periods presented have been included. The results of operations for interim periods are
not necessarily indicative of the results expected for the full year. The December 31, 2015 Condensed Consolidated Statement of Financial Position was derived from audited financial statements, but does not include all disclosures required by
U.S. GAAP. The Condensed Consolidated Financial Statements and related notes should be read in conjunction with the audited Consolidated Financial Statements and related notes of IMS Health Holdings, Inc. included in the Company s Annual Report
on Form 10-K for the year ended December 31, 2015. Certain prior year amounts have been reclassified to conform to the 2016 presentation. Amounts presented in the Condensed Consolidated Financial
Statements may not add due to rounding.
Merger with Quintiles Transnational Holdings, Inc.
On May 3, 2016, the Company and Quintiles Transnational Holdings Inc. ( Quintiles ) entered into a definitive merger agreement,
pursuant to which the companies will be combined. The merger was completed on October 3, 2016. See Note 14, Subsequent Events, for further information.
Recently Issued Accounting Standards
August 2016, the Financial Accounting Standards Board ( FASB ) issued guidance intended to reduce the diversity in how certain transactions are classified in the statement of cash flows. The guidance is effective for the Company s
interim and annual periods beginning January 1, 2018, and requires adoption on a retrospective basis. Earlier adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In March 2016, the FASB issued guidance which simplifies certain aspects of accounting for share-based payments to employees, including the
requirement for companies to recognize the income tax effects of awards in the income statement when the awards vest or are settled. Additionally, companies can elect to estimate forfeitures or recognize when they occur. The guidance is effective
for the Company s interim and annual periods beginning January 1, 2017. Early adoption is permitted. The Company is currently evaluating the impact of this standard on its consolidated financial statements.
In May 2014, the FASB issued revised guidance on the recognition of revenue from contracts with customers. The guidance provides that revenue
should be recognized for the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance also requires enhanced
disclosures. In August 2015, the FASB delayed the effective date of the guidance. In March 2016, the FASB issued further guidance
on assessing whether an entity is a principal or an agent in a revenue transaction, which impacts whether an entity reports revenue on a gross or net basis. Additionally, in 2016, the FASB issued
implementation guidance for the revenue standard, including guidance on identifying performance obligations. The new revenue standard is effective for the Company s interim and annual periods beginning January 1, 2018. The Company is
currently evaluating the impact of these standards on its consolidated financial statements, as well as the method of transition it will use in adopting the new standard.
In February 2016, the FASB issued updated guidance on leases. The guidance requires a lessee to recognize a right-of-use asset and a lease liability on the statement of financial position for all leases with terms more than 12 months. Recognition, measurement and presentation of expenses will depend on
classification as a finance or operating lease. The amendments also require certain quantitative and qualitative disclosures about leasing arrangements. The guidance is effective for the Company s interim and annual periods beginning
January 1, 2019. Early adoption is permitted. The new standard must be adopted using a modified retrospective transition approach, which requires application of the new guidance at the beginning of the earliest comparative period presented. The
Company is currently evaluating the impact of this new standard on its consolidated financial statements and related disclosures.
Note 2. Acquisitions
The Company makes acquisitions to enhance its capabilities and offerings in certain areas, including technology services.
The Company completed eight unrelated individually immaterial acquisitions during the first nine months of 2016, three of which occurred in
the third quarter of 2016. These acquisitions expanded the Company s existing capabilities in technology services offerings, and to a lesser degree, information offerings. The purchase price allocations for these acquisitions will be finalized
after the completion of the valuation of certain intangible assets and any adjustments to the preliminary purchase price allocation are not expected to have a material impact on the Company s results of operations. The Condensed Consolidated
Financial Statements include the results of the acquisitions subsequent to closing. As these acquisitions were immaterial to the Company s operating results both individually and in the aggregate, pro forma results of operations are not
provided. The following table provides certain financial information for acquisitions occurring in 2016, including the preliminary allocation of the aggregate purchase price to certain tangible and intangible assets acquired and goodwill.
| (in millions) | Amortization Period | |||||||
| Total cost of acquisitions, net of cash acquired | $ | 292 | ||||||
| Acquisition-related costs | 5 | |||||||
| Amounts recorded in the Condensed Consolidated Statements of Financial Position: | ||||||||
| Goodwill | 226 | |||||||
| Portion of goodwill deductible for tax purposes | 9 | |||||||
| Computer software | 2-10 years | 22 | ||||||
| Intangible assets: | ||||||||
| Client relationships | 10 years | 52 | ||||||
| Databases | 5 years | 28 | ||||||
| Trade names | 10 years | 4 | ||||||
| Covenant not to compete | 5 years | 1 | ||||||
| Total intangible assets | $ | 85 |
During the second quarter of 2016, the Company recorded an adjustment to its preliminary purchase
price allocation as well as related deferred tax effects, which reduced the amount allocated to client relationships by $17 million for an acquisition that occurred in the first quarter of 2016.
Goodwill is attributable to the value of the synergies between the acquired companies and IMS Health.
Company completed the acquisition of certain customer relationship management ( CRM ) and strategic data businesses of Cegedim, SA ( Cegedim and the Cegedim acquisition ). Cegedim is a global technology and services
company specializing in healthcare whose offerings help pharmaceutical companies manage their sales and marketing operations.
following pro forma information presents the financial results as if the acquisition of Cegedim had occurred on January 1, 2014, with pro forma adjustments to give effect to an increase in selling and administrative expenses in 2014 for
acquisition-related costs, additional depreciation and amortization for fair value adjustments of property, plant and equipment and intangible assets, an increase in interest expense from acquisition financing, and related tax effects. The pro forma
results do not include any anticipated cost synergies, costs or other effects of the planned integration of Cegedim. Accordingly, such pro forma amounts are not necessarily indicative of the results that actually would have occurred for the period
presented below had the Cegedim acquisition been completed on January 1, 2014, nor are they indicative of the future operating results of the Company.
| (in millions, except per share amounts) | Nine Months Ended September 30, 2015 | |||
| Revenues | $ | 2,227 | ||
| Net income | 389 | |||
| Basic earnings per share | 1.19 | |||
| Diluted earnings per share | 1.16 |
Contingent Consideration
Under the terms of certain acquisition-related purchase agreements, the Company may be required to pay additional amounts as contingent
consideration based on the achievement of certain financial performance related metrics, ranging from $0 to $31 million through 2018. The Company s contingent consideration recorded on the balance sheet was approximately $19 million
and $28 million at September 30, 2016 and December 31, 2015, respectively. The fair value measurement of this contingent consideration is classified within Level 3 of the fair value hierarchy (see Note 5) and reflects the
Company s own assumptions in measuring fair values using the income approach. In developing these estimates, the Company considered certain performance projections, historical results, and industry trends. Changes in the fair value estimates
are included in selling and administrative expenses.
The following table sets forth changes in the Company s goodwill for the nine months ended September 30, 2016.
| (in millions) | Goodwill | |||
| Balance at December 31, 2015 | $ | 3,604 | ||
| Goodwill assigned in purchase price allocations (see Note 2) | 226 | |||
| Foreign currency translation adjustments and other | 106 | |||
| Balance at September 30, 2016 | $ | 3,936 |
Note 4. Severance, Impairment and Other Charges
As a result of ongoing cost reduction efforts, the Company recorded severance charges consisting of global workforce reductions to streamline
its organization. The following table sets forth the activity in the Company s severance-related reserves for the nine months ended September 30, 2016:
| (in millions) | 2016 Plan (1) | 2015 Plan (2) | ||||||
| Balance, December 31, 2015 | $ | $ | 51 | |||||
| Charges | 75 | |||||||
| Cash payments | (8 | ) | (39 | ) | ||||
| Foreign exchange and other | 1 | |||||||
| Balance, September 30, 2016 | $ | 67 | $ | 13 |
Additionally, during the three months ended September 30, 2016, the Company reversed $2 million of severance accruals for
restructuring plans implemented prior to 2015.
During the three and nine months ended September 30, 2016, the Company recorded impairment charges of $1 million and $3 million,
respectively, the majority of which related to impaired property leases.
During the nine months ended September 30, 2015, the
Company recorded impairment charges of $7 million. The charge is primarily comprised of the write-off of the value of computer software that was no longer in use and contract-related deferred charges for
which the Company will not realize any future economic benefits.
Note 5. Derivatives and Fair Value
Foreign Exchange Risk Management
Company transacts business in more than 100 countries and is subject to risks associated with fluctuating foreign exchange rates. The Company s objective is to reduce earnings and cash flow volatility associated with foreign exchange rate
movements. Accordingly, the Company enters into foreign currency forward contracts to minimize the impact of foreign exchange movements on non functional currency assets and liabilities and to hedge
non-U.S. Dollar anticipated royalties ( Royalty Hedging ). It is the Company s policy to enter into foreign currency transactions only to the extent necessary to meet its objectives as
stated above. The Company does not enter into foreign currency transactions for investment or speculative purposes. The principal currencies hedged are the Euro, the Japanese Yen, the Swiss Franc and the Canadian Dollar.
The forward contracts entered into for balance sheet risk management purposes are not designated as hedges and are carried at fair value, with
changes in the fair value recorded to other income (loss), net in the Condensed Consolidated Statements of Comprehensive Income. These contracts do not subject the Company to material balance sheet risk because gains and losses on these derivatives
are intended to offset gains and losses on the assets and liabilities being hedged.
The forward contracts entered into for Royalty