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EX-32.1 - EX-32.1 JUNE 2015 - IMS Health Holdings, Inc.ims-ex321_201506307.htm
EX-32.2 - EX-32.2 JUNE 2015 - IMS Health Holdings, Inc.ims-ex322_201506308.htm
EX-31.2 - EX-31.2 JUNE 2015 - IMS Health Holdings, Inc.ims-ex312_2015063011.htm
EX-31.1 - EX-31.1 JUNE 2015 - IMS Health Holdings, Inc.ims-ex311_2015063010.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

x

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

For the quarterly period ended June 30, 2015

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: 001-36381

 

IMS HEALTH HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-1335689

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification Number)

83 Wooster Heights Road, Danbury, CT 06810

(Address of principal executive offices and Zip Code)

(203) 448-4600

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed 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 whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer

 

¨

  

Accelerated filer

 

¨

 

 

 

 

Non-accelerated filer

 

x  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No   x

Indicate the number of shares outstanding of each of the issuer’s classes of Common Stock, as of the latest practicable date.

 

Class

 

Number of Shares Outstanding

Common Stock $0.01 par value

 

328,384,503 shares outstanding as of July 27, 2015

 

 

 

 

 


IMS HEALTH HOLDINGS INC.

FORM 10-Q

TABLE OF CONTENTS

 

 

 

 

  

Page

 

 

 

PART I—FINANCIAL INFORMATION

  

 

 

 

 

Item 1.

 

Financial Statements (unaudited)

  

2

 

 

 

 

 

Condensed Consolidated Statements of Financial Position as of June 30, 2015 and December 31, 2014

  

2

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Six Months Ended June 30, 2015 and 2014

  

3

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2015 and 2014

  

4

 

 

 

 

 

Condensed Consolidated Statement of Shareholders’ Equity for the Six Months Ended June 30, 2015

  

5

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

  

6

 

 

 

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

21

 

 

 

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

  

34

 

 

 

Item 4.

 

Controls and Procedures

  

35

 

 

PART II—OTHER INFORMATION

  

 

 

 

 

Item 1.

 

Legal Proceedings

  

36

 

 

 

Item 1A.

 

Risk Factors

  

36

 

 

 

Item 6.

 

Exhibits

  

37

 

 

SIGNATURES

  

38

 

 

 

1


PART I—FINANCIAL INFORMATION

 

Item 1. Financial Statements

IMS HEALTH HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(unaudited)

  

 

 

June 30,

 

 

December 31,

 

(in millions, except per share data)

 

2015

 

 

2014

 

Assets

 

 

 

 

 

 

 

 

Current Assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

348

 

 

$

390

 

Restricted cash

 

 

22

 

 

 

24

 

Accounts receivable, net

 

 

446

 

 

 

330

 

Other current assets

 

 

318

 

 

 

270

 

Total Current Assets

 

 

1,134

 

 

 

1,014

 

Property, plant and equipment, at cost

 

 

326

 

 

 

291

 

Less accumulated depreciation

 

 

(156

)

 

 

(138

)

Property, plant and equipment, net

 

 

170

 

 

 

153

 

Computer software, net

 

 

280

 

 

 

258

 

Goodwill

 

 

3,515

 

 

 

3,417

 

Other identifiable intangibles, net

 

 

2,271

 

 

 

2,142

 

Other assets

 

 

176

 

 

 

166

 

Total Assets

 

$

7,546

 

 

$

7,150

 

 

 

 

 

 

 

 

 

 

Liabilities and Shareholders’ Equity

 

 

 

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

170

 

 

$

87

 

Accrued and other current liabilities

 

 

547

 

 

 

481

 

Current portion of long-term debt

 

 

59

 

 

 

50

 

Deferred revenues

 

 

202

 

 

 

167

 

Total Current Liabilities

 

 

978

 

 

 

785

 

Postretirement and postemployment benefits

 

 

110

 

 

 

95

 

Long-term debt

 

 

4,134

 

 

 

3,743

 

Deferred tax liability

 

 

652

 

 

 

904

 

Other liabilities

 

 

89

 

 

 

81

 

Total Liabilities

 

 

5,963

 

 

 

5,608

 

 

 

 

 

 

 

 

 

 

Commitments and Contingencies (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shareholders’ Equity:

 

 

 

 

 

 

 

 

Common Stock, $0.01 par value, 700.0 shares authorized, 340.2 and

    335.6 shares issued at June 30, 2015 and December 31, 2014, respectively

 

 

3

 

 

 

3

 

Capital in excess of par

 

 

2,032

 

 

 

1,975

 

Retained earnings (Accumulated deficit)

 

 

136

 

 

 

(209

)

Treasury stock, at cost, 11.9 and 0.8 shares at June 30, 2015 and

   December 31, 2014, respectively

 

 

(310

)

 

 

(10

)

Accumulated other comprehensive loss

 

 

(278

)

 

 

(217

)

Total Shareholders’ Equity

 

 

1,583

 

 

 

1,542

 

Total Liabilities and Shareholders’ Equity

 

$

7,546

 

 

$

7,150

 

  

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).

 

 

2


IMS HEALTH HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(unaudited)

  

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in millions, except per share data)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

$

742

 

 

$

662

 

 

$

1,374

 

 

$

1,307

 

Information

 

 

374

 

 

 

386

 

 

 

728

 

 

 

767

 

Technology services

 

 

368

 

 

 

276

 

 

 

646

 

 

 

540

 

Operating costs of information, exclusive of depreciation and amortization

 

 

169

 

 

 

174

 

 

 

326

 

 

 

338

 

Direct and incremental costs of technology services, exclusive of depreciation

   and amortization

 

 

195

 

 

 

140

 

 

 

333

 

 

 

276

 

Selling and administrative expenses, exclusive of depreciation and amortization

 

 

180

 

 

 

247

 

 

 

317

 

 

 

418

 

Depreciation and amortization

 

 

81

 

 

 

115

 

 

 

177

 

 

 

222

 

Severance, impairment and other charges

 

 

21

 

 

 

25

 

 

 

34

 

 

 

25

 

Operating Income (Loss)

 

 

96

 

 

 

(39

)

 

 

187

 

 

 

28

 

Interest income

 

 

1

 

 

 

 

 

 

1

 

 

 

2

 

Interest expense

 

 

(43

)

 

 

(49

)

 

 

(80

)

 

 

(138

)

Other income (loss), net

 

 

6

 

 

 

(271

)

 

 

10

 

 

 

(288

)

Non-Operating Loss, Net

 

 

(36

)

 

 

(320

)

 

 

(69

)

 

 

(424

)

Income (loss) before income taxes

 

 

60

 

 

 

(359

)

 

 

118

 

 

 

(396

)

(Provision for) benefit from income taxes

 

 

(13

)

 

 

139

 

 

 

227

 

 

 

152

 

Net Income (Loss)

 

$

47

 

 

$

(220

)

 

$

345

 

 

$

(244

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings (Loss) per Share Attributable to Common Shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

 

$

(0.67

)

 

$

1.03

 

 

$

(0.80

)

Diluted

 

$

0.14

 

 

$

(0.67

)

 

$

1.01

 

 

$

(0.80

)

Weighted-Average Common Shares Outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

331.6

 

 

 

329.7

 

 

 

333.6

 

 

 

304.9

 

Diluted

 

 

340.0

 

 

 

329.7

 

 

 

342.6

 

 

 

304.9

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income (Loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

47

 

 

$

(220

)

 

$

345

 

 

$

(244

)

Cumulative translation adjustment (net of taxes of $27 and $(8) for the three

   months ended and $(21) and $(10) for the six months ended, respectively)

 

$

23

 

 

$

19

 

 

$

(54

)

 

$

37

 

Unrealized gains (losses) on derivatives (net of taxes of $ and $1 for the

   three months ended and $(1) and $1 for the six months ended, respectively)

 

 

 

 

 

(14

)

 

 

1

 

 

 

(15

)

(Gains) losses on derivative instruments, reclassified into earnings (net of taxes

   of $3 and $ for the three months ended and $5 and $— for the six months

   ended, respectively)

 

 

(4

)

 

 

1

 

 

 

(8

)

 

 

 

Other Comprehensive Income (Loss)

 

$

19

 

 

$

6

 

 

$

(61

)

 

$

22

 

Total Comprehensive Income (Loss)

 

$

66

 

 

$

(214

)

 

$

284

 

 

$

(222

)

  

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).

 

 

3


IMS HEALTH HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)   

 

 

 

Six Months Ended

 

 

 

June 30,

 

(in millions)

 

2015

 

 

2014

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

Net Income (Loss)

 

$

345

 

 

$

(244

)

Adjustments to Reconcile Net Income (Loss) to Net Cash

   Provided by (Used in) Operating Activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

177

 

 

 

222

 

Loss on extinguishment of debt

 

 

 

 

 

79

 

Deferred income taxes

 

 

(270

)

 

 

(188

)

Non-cash stock-based compensation charges

 

 

14

 

 

 

46

 

Non-cash gains on derivative instruments

 

 

(11

)

 

 

(7

)

Non-cash amortization of debt original issue discount and debt issuance costs

 

 

5

 

 

 

12

 

Loss on Venezuela remeasurement

 

 

7

 

 

 

49

 

Excess tax benefits from stock-based compensation

 

 

(19

)

 

 

 

Other

 

 

3

 

 

 

1

 

Change in assets and liabilities, excluding effects from

   acquisitions and dispositions:

 

 

 

 

 

 

 

 

Net decrease (increase) in accounts receivable

 

 

11

 

 

 

(23

)

Net increase in other current assets

 

 

(22

)

 

 

(40

)

Net increase in accounts payable

 

 

6

 

 

 

2

 

Net decrease in accrued and other current liabilities

 

 

(39

)

 

 

(120

)

Net increase in deferred revenues

 

 

12

 

 

 

8

 

Increase in pension assets (net of liabilities)

 

 

(5

)

 

 

(10

)

Decrease (increase) in other long-term assets (net of long-term liabilities)

 

 

1

 

 

 

(16

)

Net Cash Provided by (Used in) Operating Activities

 

 

215

 

 

 

(229

)

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(25

)

 

 

(45

)

Additions to computer software

 

 

(53

)

 

 

(44

)

Payments for acquisitions of businesses, net of cash acquired

 

 

(373

)

 

 

(27

)

Purchase of interest rate caps

 

 

 

 

 

(21

)

Other investing activities, net

 

 

 

 

 

1

 

Net Cash Used in Investing Activities

 

 

(451

)

 

 

(136

)

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

Borrowings under revolving credit facility

 

 

204

 

 

 

372

 

Repayments of revolving credit facility

 

 

(202

)

 

 

(134

)

Proceeds from issuance of debt

 

 

496

 

 

 

499

 

Repayments of debt

 

 

(27

)

 

 

(1,757

)

Debt issuance costs and amendment fees

 

 

(5

)

 

 

(22

)

Contingent consideration and deferred purchase price payments

 

 

(4

)

 

 

(1

)

Proceeds from equity plan activity

 

 

23

 

 

 

1

 

Payments for treasury stock

 

 

(300

)

 

 

(3

)

Excess tax benefits from stock-based compensation

 

 

19

 

 

 

 

Proceeds from initial public offering, net of costs

 

 

 

 

 

989

 

Other financing activities

 

 

(1

)

 

 

 

Net Cash Provided by (Used in) Financing Activities

 

 

203

 

 

 

(56

)

 

 

 

 

 

 

 

 

 

Effect of Exchange Rate Changes on Cash and Cash Equivalents

 

 

(9

)

 

 

(39

)

Decrease in Cash and Cash Equivalents

 

 

(42

)

 

 

(460

)

Cash and Cash Equivalents, Beginning of Period

 

 

390

 

 

 

725

 

Cash and Cash Equivalents, End of Period

 

$

348

 

 

$

265

 

  

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).

 

 

4


IMS HEALTH HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

(unaudited)

  

(in millions)

 

Shares

Common

Stock

 

 

Shares

Treasury

Stock

 

 

Common

Stock

 

 

Treasury

Stock

 

 

Capital in

Excess

of Par

 

 

Retained Earnings (Accumulated

Deficit)

 

 

Cumulative

Translation

Adjustment

 

 

Unrealized

Gains on

Derivative

Instruments

 

 

Gains

on Derivative

Instruments

Reclassified into

Earnings

 

 

Unamortized

Postretirement and

Postemployment

Adjustment

 

 

Accumulated

Other

Comprehensive

Loss

 

 

Total

Shareholders’

Equity

 

Balance, December 31, 2014

 

 

335.6

 

 

 

0.8

 

 

$

3

 

 

$

(10

)

 

$

1,975

 

 

$

(209

)

 

$

(169

)

 

$

3

 

 

$

(4

)

 

$

(47

)

 

$

(217

)

 

$

1,542

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

345

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

345

 

Issuances of common stock

 

 

4.6

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

24

 

Repurchases of common stock

 

 

 

 

 

 

11.1

 

 

 

 

 

 

 

(300

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(300

)

Stock-based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

14

 

Net tax benefit on stock-based

   compensation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

19

 

Cumulative translation

   adjustments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(54

)

 

 

(54

)

Unrealized gains on derivative

   instruments, net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

 

 

 

 

 

 

 

 

1

 

 

 

1

 

Gains on derivative instruments

   reclassified into earnings,

   net of tax

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(8

)

 

 

 

 

 

 

(8

)

 

 

(8

)

Balance, June 30, 2015

 

 

340.2

 

 

 

11.9

 

 

$

3

 

 

$

(310

)

 

$

2,032

 

 

$

136

 

 

$

(223

)

 

$

4

 

 

$

(12

)

 

$

(47

)

 

$

(278

)

 

$

1,583

 

 

The accompanying notes are an integral part of the condensed consolidated financial statements (unaudited).

 

 

5


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements

(unaudited)

 

Note 1. Basis of Presentation and Recently Issued Accounting Standards

Background

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 63% of its 2014 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’ workflow.  

Basis of Presentation

The 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 loss, cash flows and shareholders’ 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, 2014 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, 2014. Certain prior year amounts have been reclassified to conform to the 2015 presentation. Amounts presented in the Condensed Consolidated Financial Statements may not add due to rounding.

Recently Issued Accounting Standards

In July 2015, the Financial Accounting Standards Board (“FASB”) delayed the effective date of the guidance on the recognition of revenue from contracts with customers to interim and annual periods beginning January 1, 2018. Earlier adoption is permitted. The Company is currently evaluating this guidance to determine any potential impact that it may have on its financial results.

In April 2015, the FASB issued guidance to help entities evaluate the accounting for fees paid by a customer in a cloud computing arrangement. Under the new guidance, if a cloud computing arrangement includes a software license, then the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses. If a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. The guidance is effective for the Company’s interim and annual periods beginning after December 15, 2015. Early adoption is permitted. The Company is currently evaluating this guidance to determine any potential impact that it may have on its financial results.

Also in April 2015, the FASB issued guidance on the presentation of debt issuance costs. The guidance requires the presentation of debt issuance costs as a direct deduction from the related debt liability rather than as an asset. The guidance is effective for the Company’s interim and annual periods beginning after December 15, 2015. At June 30, 2015, the Company had unamortized debt issuance costs of $58 million included in Other assets.

In April 2014, the FASB issued guidance which changed the criteria for reporting discontinued operations and modifies the related disclosure requirements. Additionally, the new guidance requires that a business which qualifies as held for sale upon acquisition should be reported as discontinued operations. Adoption of this guidance on January 1, 2015, which is applied prospectively, did not have a material impact on our consolidated financial statements.

6


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

 

Note 2. Acquisitions

The Company makes acquisitions to enhance its capabilities and offerings in certain areas, including technology services. On April 1, 2015, the Company completed the acquisition of certain customer relationship management (“CRM”) and strategic data businesses of Cegedim, SA (“Cegedim” and the “Cegedim acquisition”) at a price of €385 million plus an initial working capital adjustment of €11 million (or $426 million). Cegedim, headquartered in Paris, France, is a global technology and services company specializing in healthcare whose offerings help pharmaceutical companies manage their sales and marketing operations. The acquisition includes Cegedim’s (i) CRM solutions that help life sciences clients drive sales effectiveness, optimize marketing programs across multiple channels and mitigate regulatory compliance risks; (ii) OneKey Reference Database that provides insights on healthcare professionals across the globe; and (iii) information solutions that use primary market research. The acquisition was financed through a combination of existing cash and net proceeds from the Company’s 4.125% senior unsecured notes issued in March 2015 (the “4.125% Senior Notes”). See Note 6 for additional information on the 4.125% Senior Notes. The Company believes that the acquisition further enhances its software development, data warehousing, mobile applications and business intelligence tools, as well as analytics and implementation services.

The following table summarizes the provisional purchase price allocation to the estimated fair values of the assets acquired and liabilities assumed for the Cegedim acquisition.

 

(in millions)

  

 

 

Cash

 

$

89

 

Accounts receivable

 

 

127

 

Other current assets

 

 

62

 

Property, plant and equipment

 

 

16

 

Goodwill

 

 

134

 

Identifiable intangible assets

  

 

258

  

Other assets

 

 

7

 

Liabilities assumed

 

 

(267

)

Total purchase price allocation

 

$

426

 

 

Identifiable intangible assets and their preliminary estimated useful lives consist of the following:

 

(in millions)

 

Useful life

 

Amount

 

Client relationships

 

10-15 years

 

$

134

 

Databases

 

5 years

 

 

86

 

Technology

 

2-10 years

 

 

26

 

Trade names

 

10-15 years

 

 

12

 

Total intangible assets

 

 

 

$

258

 

The purchase price allocation is preliminary and may change as the Company obtains additional information. Any adjustments to the allocation are not expected to have a material impact on the Company’s results of operations.

The fair values for the intangible assets and property, plant and equipment acquired were primarily based on significant inputs that are not observable in the market and thus represent a Level 3 measurement in the fair value hierarchy. Client relationships, trade names and technology were valued using the income approach, which estimates the fair value based on the cash flows that an asset can be expected to generate over its remaining useful life. The cost approach, which estimates value by determining the current cost of replacing an asset with another of equivalent economic utility, was used for databases and property, plant and equipment.

Goodwill is attributable to the value of the synergies between the acquired company and IMS Health. The Company anticipates that the majority of the value assigned to goodwill will not be deductible for tax purposes.

The Company incurred acquisition-related costs for the Cegedim acquisition of $6 million during the six months ended June 30, 2015.

7


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

Pro Forma Information

The 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 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 periods presented below had the Cegedim acquisition been completed on January 1, 2014, nor are they indicative of the future operating results of the Company.

 

 

 

Six Months Ended

June 30, 2015

 

 

Three Months Ended

June 30, 2014

 

Six Months Ended

June 30, 2014

 

(in millions)

 

 

 

 

 

Revenues

 

$

1,492

 

 

$

809

 

 

$

1,588

 

Net income (loss)

 

 

346

 

 

 

(221

)

 

 

(268

)

Basic earnings (loss) per share

 

 

1.04

 

 

 

(0.67

)

 

 

(0.88

)

Diluted earnings (loss) per share

 

 

1.01

 

 

 

(0.67

)

 

 

(0.88

)

The Company’s Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2015 included $110 million of revenues related to the Cegedim acquisition. The revenue reflected a reduction of $2 million related to a deferred revenue adjustment to fair value. Following the closing of the Cegedim acquisition, the Company began integrating Cegedim’s operations, and as such, computing a separate measure of Cegedim’s stand-alone profitability for periods after the acquisition date is impracticable.

In addition to the Cegedim acquisition, the Company also completed the acquisitions of ImpactRx (South Africa), Dataline Software (U.K.), Mercurial (Australia) and ViS Research (U.S.) during the six months ended June 30, 2015. ImpactRx performs sourcing and commercial reporting of drug utilization data for the pharmaceutical industry. Dataline is a leader in big data analytics and the acquisition is expected to extend the Company’s technology-enabled Real-World Evidence (“RWE”) platform and accelerate delivery of integrated clinical and cost-of-care insights for assessing healthcare value and performance. Mercurial is a leading provider of cloud-based business intelligence tools. ViS Research has a unique platform for optimizing key aspects of clinical trial planning. 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. Had these acquisitions occurred as of the beginning of 2014, the impact on the Company’s results of operations would not have been material.

 

 

Summary Financial Information

Financial information related to these acquisitions, excluding the Cegedim acquisition, is as follows:

 

 

 

Weighted-Average

 

June 30,

 

(in millions)

 

Amortization Period

 

2015

 

Total cash cost of acquisitions, net of cash acquired

 

 

 

$

36

 

Acquisition-related costs

 

 

 

 

1

 

 

 

 

 

 

 

 

Amounts recorded in the Condensed Consolidated Statements of Financial Position:

 

 

 

 

 

 

Goodwill

 

 

 

$

25

 

Portion of goodwill deductible for tax purposes

 

 

 

 

 

Computer software

 

5 years

 

 

4

 

Intangible assets:

 

 

 

 

 

 

Client relationships

 

10 years

 

$

29

 

Covenant not to compete

 

3 years

 

 

2

 

Databases

 

1 year

 

 

1

 

Trade names

 

3 years

 

 

2

 

Total intangible assets

 

 

 

$

34

 

 

8


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

 

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 $44 million through 2017. The Company’s contingent consideration recorded on the balance sheet was approximately $30 million and $24 million at June 30, 2015 and December 31, 2014, 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.

 

Note 3. Goodwill and Identifiable Intangible Assets

The following table sets forth changes in the Company’s goodwill for the six months ended June 30, 2015.

  

(in millions)

  

Goodwill

 

Balance at December 31, 2014

  

$

3,417

  

Goodwill assigned in purchase price allocations (see Note 2)

  

 

159

  

Foreign currency translation adjustments and other

  

 

(61

)  

Balance at June 30, 2015

  

$

3,515

  

  

The gross carrying amounts, related accumulated amortization and the weighted average amortization periods of the Company’s intangible assets are listed in the following table:

  

 

  

June 30, 2015

 

  

December 31, 2014

 

(in millions)

  

Gross
Carrying
Amount

 

  

Accumulated
Amortization

 

  

Weighted Average
Amortization
Period (Years)

 

  

Gross
Carrying
Amount

 

  

Accumulated
Amortization

 

Databases

  

$

743

  

  

$

(644

)  

  

 

1

  

  

$

679

  

  

$

(639

)  

Client Relationships

  

 

2,187

  

  

 

(649

)  

  

 

13

  

  

 

2,051

  

  

 

(592

)  

Trade Names (Finite-Lived)

  

 

152

  

  

 

(42

)  

  

 

14

  

  

 

142

  

  

 

(38

)  

Trade Names (Indefinite-Lived)

  

 

506

  

  

 

  

  

 

N/A

  

  

 

523

  

  

 

  

Covenants not to compete and other

 

 

33

 

 

 

(15

)

 

 

2

 

 

 

32

 

 

 

(16

)

Total Intangible Assets

  

$

3,621

  

  

$

(1,350

)  

  

 

10

  

  

$

3,427

  

  

$

(1,285

)  

  

Intangible asset amortization expense was $42 million and $74 million during the three months ended June 30, 2015 and 2014, respectively, and $100 million and $147 million for the six months ended June 30, 2015 and 2014, respectively. Based on current estimated useful lives, amortization expense associated with intangible assets at June 30, 2015 is estimated to be as follows:

  

(in millions)
Year ended December 31,

  

Amortization
Expense

 

Remainder of 2015

  

$

91

  

2016

  

 

178

  

2017

  

 

165

  

2018

  

 

161

  

2019

  

 

160

  

Thereafter

  

 

1,010

  

  

9


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

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 six months ended June 30, 2015:  

 

(in millions)

 

2015 Plan(1)

 

 

2013 and 2014 Plans(2)

 

Balance at December 31, 2014

 

$

 

 

$

18

 

Charges

 

 

27

 

 

 

 

Cash payments

 

 

(5

)

 

 

(11

)

Balance at June 30, 2015

 

$

22

 

 

$

7

 

(1) 

In the first quarter of 2015, the Company implemented a restructuring plan (the “2015 Plan”) and recorded a pre-tax severance charge of $12 million. In the second quarter of 2015, the Company recorded an additional pre-tax severance charge of $15 million. The Company expects that cash outlays related to the 2015 Plan will be substantially complete by the end of 2016.

(2) 

In December 2013, the Company implemented a restructuring plan (the “2013 Plan”) and recorded a pre-tax severance charge of $12 million. In May 2014, the Company implemented a restructuring plan (the “2014 Plan”) and recorded pre-tax severance charges of $15 million. An additional $7 million was recorded over the balance of the year. The Company expects that cash outlays related to the 2013 and 2014 Plans will be substantially complete by the end of 2016.

Other charges

During the six months ended June 30, 2015, the Company recorded impairment charges of $7 million, $6 million of which was recorded in the second quarter of 2015. The $7 million charge is primarily comprised of the write-off of the value of computer software that was no longer in use and contract-related charges for which the Company will not realize any future economic benefits.

During the three and six months ended June 30, 2014, the Company recorded impairment charges of $10 million, of which $7 million related to impaired leases for properties in the United States and $3 million for the write-down of certain assets and contract-related charges for which the Company will not realize any future economic benefits.

 

 

Note 5. Derivatives and Fair Value

Foreign exchange risk management

The Company transacts business in more than 100 countries and is subject to risks associated with changing foreign exchange rates. The Company’s objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes. 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 (Loss). 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 Hedging purposes are designated as hedges and are carried at fair value, with changes in the fair value recorded to Accumulated Other Comprehensive Income (Loss) (“AOCI”). The change in fair value is reclassified from AOCI to earnings in the quarter in which the hedged royalty is paid. These contracts have various expiration dates through May 2016.

10


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

The following table details the components of foreign exchange gain (loss) included in Other income (loss), net on the Condensed Consolidated Statements of Comprehensive Income (Loss):

 

 

  

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

(in millions)

  

2015

 

  

2014

 

 

2015

 

  

2014

 

Revaluation of other non-functional currency assets and liabilities(1)

  

 

(3

)  

  

 

(52

)  

 

 

(3

)  

  

 

(56

)  

Effect of derivatives

  

 

9

  

  

 

  

 

 

13

  

  

 

  

Total foreign exchange gain (loss)

  

$

6

  

  

$

(52

 

$

10

  

  

$

(56

)  

(1)

The six months ended June 30, 2015 included a $7 million charge and the three and six months ended June 30, 2014 included a $49 million charge related to a change in the exchange rate used to remeasure the Company’s Venezuelan Bolívar account balances. The charges are further described below in this Note.

Net Investment Risk Management

Beginning in April 2014, the Company designated its foreign currency denominated debt as a hedge of net investment in foreign subsidiaries to reduce the volatility in shareholders’ equity caused by changes in the Euro exchange rate with respect to the U.S. Dollar. As of June 30, 2015, these borrowings (net of original issue discount) were €1,134 million ($1,268 million). The effective portion of foreign exchange gains or losses on the remeasurement of the debt is recognized in the cumulative translation adjustment component of AOCI with the related offset in long-term debt. Those amounts would be reclassified from AOCI to earnings upon the sale or substantial liquidation of these net investments. The amount of foreign exchange (losses) gains related to the net investment hedges included in cumulative translation adjustment for the three and six months ended June 30, 2015 were $(50) million and $72 million, respectively.

Interest Rate Risk Management

The Company purchases interest rate caps and has entered into interest rate swap agreements for purposes of managing its risk in interest rate fluctuations.

In April 2014, the Company purchased U.S. Dollar denominated interest rate caps (“2014 Caps”) for a total notional value of $1 billion at strike rates ranging between 2% and 3%. These caps are effective at various times between April 2014 and April 2016, and expire at various times between April 2017 and April 2019. The total premiums paid were $21 million. The 2014 Caps are designated as cash flow hedges. Additionally, the Company had U.S. Dollar and Euro denominated interest rate caps that expired at various times through January 2015. These expired caps were not designated as cash flow hedges.

The Company also entered into U.S. Dollar and Euro denominated interest rate swap agreements in April 2014 (“2014 Swaps”) to hedge interest rate exposure on notional amounts of approximately $600 million of its borrowings. The 2014 swaps were effective between April and June 2014, and expire at various times from March 2017 through March 2021. On these agreements, the Company pays a fixed rate ranging from 1.4% to 2.1% and receives a variable rate of interest equal to the greater of three-month U.S. Dollar London Interbank Offered Rate (“LIBOR”) or three-month Euro Interbank Offered Rate (“EURIBOR”), and 1%. The 2014 Swaps are designated as cash flow hedges. The Company also entered into interest rate swap agreements in May 2010 (“2010 Swaps”) to hedge interest rate exposure on notional amounts of $375 million of its borrowings. The 2010 Swaps were effective in January 2012, and expire at various times through January 2016. On these agreements, the Company pays a fixed rate ranging from 3% to 3.3% and receives a variable rate of interest equal to the three-month LIBOR. The 2010 Swaps are not designated as cash flow hedges.

11


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

The fair values of derivative instruments in the Condensed Consolidated Statements of Financial Position are as follows:

 

 

 

 

 

June 30, 2015

 

 

December 31, 2014

 

 

 

 

 

Fair Value of Derivative

 

 

U.S. Dollar

Notional

 

 

Fair Value of Derivative

 

 

U.S. Dollar

Notional

 

(in millions)

 

Balance Sheet Caption

 

Asset

 

 

Liability

 

 

 

 

Asset

 

 

Liability

 

 

 

Derivatives Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Accounts receivable/

Accounts payable

 

$

11

 

 

$

1

 

 

$

191

 

 

$

18

 

 

$

 

 

$

189

 

Interest rate caps

 

Non-Current Assets

 

 

7

 

 

 

 

 

 

1,000

 

 

 

12

 

 

 

 

 

 

1,000

 

Interest rate swaps

 

See below(1)

 

 

 

 

 

9

 

 

 

524

 

 

 

 

 

 

12

 

 

 

553

 

Derivatives not Designated as Hedging Instruments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange contracts

 

Accounts receivable/

Accounts payable

 

 

1

 

 

 

1

 

 

 

146

 

 

 

 

 

 

2

 

 

 

93

 

Interest rate swaps

 

See below(1)

 

 

 

 

 

2

 

 

 

100

 

 

 

 

 

 

4

 

 

 

225

 

Total Derivatives

 

 

 

$

19

 

 

$

13

 

 

 

 

 

 

$

30

 

 

$

18

 

 

 

 

 

  

(1)

$2 million included in Accrued and other current liabilities and $9 million included in Other liabilities at June 30, 2015 and $1 million included in Accrued and other current liabilities and $15 million included in Other liabilities at December 31, 2014 in the Condensed Consolidated Statements of Financial Position.

 

For derivatives designated as hedges, the Company assesses, both at the inception of the hedge and on an ongoing basis, whether the derivatives are highly effective in offsetting changes in fair values or cash flows of hedged items. If it is determined that a derivative ceases to be highly effective as a hedge, the Company will discontinue hedge accounting with respect to that derivative prospectively. When it is probable that a hedged forecasted transaction will not occur, the Company discontinues hedge accounting for the affected portion of the forecasted transaction, and reclassifies gains or losses that were accumulated in AOCI to earnings in Other income (loss), net on the Condensed Consolidated Statements of Comprehensive Income (Loss). Cash flows are classified consistent with the underlying hedged item.

The effects of derivative instruments in cash flow hedging relationships on the Condensed Consolidated Statements of Comprehensive Income (Loss) are as follows:

 

(in millions)

  

Effect of Derivatives on Financial Performance

 

 

  

Amount of Income/(Loss)
Recognized in AOCI

 

  

Location of Income/(Loss)
Reclassified from AOCI into
Earnings

 

Amount of
Income/(Loss)
Reclassified from
AOCI
into Earnings

 

Three Months Ended June 30,

  

2015

 

 

2014

 

  

 

 

2015

 

  

2014

 

Foreign exchange contracts

  

$

(3

 

$

(2

  

Other income (loss), net

 

$

7

 

  

$

(1

)  

Interest rate derivatives

  

 

3

 

 

 

(13

  

Interest expense

 

 

 

  

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

2015

 

 

 

2014

 

 

 

 

 

2015

 

 

 

2014

 

Foreign exchange contracts

  

$

4

 

 

$

(3

  

Other income (loss), net

 

$

13

 

  

$

  

Interest rate derivatives

  

 

(1

 

 

(13

  

Interest expense

 

 

 

  

 

  

 

  

The pre-tax gain (loss) recognized in earnings on derivatives not designated as hedging instruments was as follows:

 

 

  

Three Months Ended
June 30,

 

 

Six Months Ended
June 30,

 

(in millions)

  

2015

 

  

2014

 

 

2015

 

  

2014

 

Foreign exchange contracts(1)

  

$

2

  

  

$

1

 

 

$

  

  

$

  

Interest rate derivatives(2)

  

 

  

  

 

  

 

 

  

  

 

  

Total derivatives not designated as hedging instruments

  

$

2

  

  

$

1

 

 

$

  

  

$

  

(1)

Included in Other income (loss), net.

(2)

Included in interest expense.

12


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

Changes in the fair value of derivatives that are designated as cash flow hedges are recorded in AOCI to the extent effective and reclassified into earnings in the same period or periods during which the transaction hedged by that derivative also affects earnings. The Company expects $5 million of pre-tax unrealized gains related to its foreign exchange contracts and interest rate derivatives included in AOCI at June 30, 2015 to be reclassified into earnings within the next twelve months.

Fair value disclosures

The Company is subject to authoritative guidance which requires a three-level hierarchy for disclosure of fair value measurements as follows:

 

Level 1 — 

Quoted prices in active markets for identical assets or liabilities.

 

 

Level 2 — 

Quoted prices for similar assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets; and model-derived valuations in which all significant inputs are observable in active markets.

 

 

Level 3 — 

Unobservable inputs reflecting management’s own assumptions about the inputs used in pricing the asset or liability.

The carrying values of cash, cash equivalents, restricted cash, accounts receivable and accounts payable approximated their fair values at June 30, 2015 and December 31, 2014 due to the short-term nature of these instruments. At June 30, 2015 and December 31, 2014, the fair value of total debt approximated $4,216 million and $3,799 million, respectively, as determined under Level 2 measurements based on quoted prices for these financial instruments.

Recurring measurements

The following tables summarize assets and liabilities measured at fair value on a recurring basis at the dates indicated:

 

 

  

Basis of Fair Value Measurements

 

 

  

June 30, 2015

 

(in millions)

  

Level 1

 

  

Level 2

 

  

Level 3

 

  

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

19

 

 

 

 

 

 

19

 

Total

 

$

 

 

$

19

 

 

$

 

 

$

19

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

 

$

 

 

$

30

 

 

$

30

 

Derivatives

 

 

 

 

 

13

 

 

 

 

 

 

13

 

Total

 

$

 

 

$

13

 

 

$

30

 

 

$

43

 

 

 

  

December 31, 2014

 

(in millions)

  

Level 1

 

  

Level 2

 

  

Level 3

 

  

Total

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Derivatives

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Total

 

$

 

 

$

30

 

 

$

 

 

$

30

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 

 

$

 

 

$

24

 

 

$

24

 

Derivatives

 

 

 

 

 

18

 

 

 

 

 

 

18

 

Total

 

$

 

 

$

18

 

 

$

24

 

 

$

42

 

Derivatives consist of foreign exchange contracts and interest rate caps and swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates. The fair value of the interest rate caps and swaps is the estimated amount that the Company would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities.

13


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

The following table summarizes Level 3 acquisition-related contingent consideration liabilities (see Note 2) carried at fair value on a recurring basis with the use of unobservable inputs for the period indicated.

 

(in millions)

  

Contingent
Consideration
Liabilities

 

Balance at December 31, 2014

  

$

24

  

New acquisitions

 

 

12

 

Cash payments

  

 

(2

)

Changes in fair value estimates and foreign currency translation adjustments

  

 

(4

)

Balance at June 30, 2015

  

$

30

 

Venezuela

The Company’s Swiss operating subsidiary, IMS AG, maintains certain account balances in Bolívars (mainly cash and cash equivalents). As these balances are held in a non-functional currency of IMS AG, the Company is required to mark-to-market these balances at each reporting date and reflect these movements as gains or losses in income. Additionally, since January 2010, Venezuela has been designated as hyper-inflationary, and as such, all foreign currency fluctuations are recorded in income for certain account balances at the Company’s local Venezuelan operating subsidiary.  

In 2014, the Venezuelan government significantly expanded the use of the Supplementary Foreign Currency Administration System (“SICAD”) I exchange market and created a third exchange market called SICAD II, which the Company utilized to remeasure its Venezuelan Bolívar account balances beginning on June 30, 2014. As a result of the change to the SICAD II rate from the official exchange rate, the Company recorded a pre-tax charge of $49 million to foreign exchange loss within Other income (loss), net in the second quarter of 2014. In February 2015, the Venezuelan government announced that the SICAD II market would no longer be available, and a new foreign exchange market system ("SIMADI") was created. SIMADI has exchange rates significantly less favorable than SICAD II. As a result of the change to the SIMADI rate, the Company recorded a pre-tax charge of $7 million to foreign exchange loss within Other income (loss), net in the first quarter of 2015. At June 30, 2015, the SIMADI rate was approximately 197 Bolívars to one U.S. Dollar. The net assets held and revenue generated by the Company’s Venezuelan subsidiaries were not material to the Company’s consolidated results as of June 30, 2015.

 

 

Note 6. Debt

The following table summarizes the Company’s debt at the dates indicated:  

  

 

 

June 30,

 

 

December 31,

 

(in millions)

 

2015

 

 

2014

 

Senior Secured Credit Facilities:

 

 

 

 

 

 

 

 

Senior Secured Term A Loan due 2019—USD LIBOR at average floating rates of 2.53%

 

$

496

 

 

$

307

 

Senior Secured Term A Loan due 2019—EUR LIBOR at average floating rates of 2.25%

 

 

142

 

 

 

158

 

Senior Secured Term B Loan due 2021—USD LIBOR at average floating rates of 3.50%

 

 

1,726

 

 

 

1,735

 

Senior Secured Term B Loan due 2021—EUR LIBOR at average floating rates of 3.75%

 

 

825

 

 

 

901

 

Revolving Credit Facility due 2019:

 

 

 

 

 

 

 

 

U.S. Dollar denominated borrowings—USD LIBOR at average floating rates of 2.72%

 

 

217

 

 

 

215

 

4.125% Senior Notes due 2023 - Euro denominated

 

 

308

 

 

 

 

6.00% Senior Notes due 2020  - U.S. Dollar denominated

 

 

500

 

 

 

500

 

Principal Amount of Debt

 

 

4,214

 

 

 

3,816

 

Less: Unamortized Discounts

 

 

(21

)

 

 

(23

)

Total Debt

 

$

4,193

 

 

$

3,793

 

 

14


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

Scheduled principal payments due on the Company’s debt as of June 30, 2015 for the remainder of 2015 and thereafter were as follows:

 

 

 

Year

 

(in millions)

 

2015

 

 

2016

 

 

2017

 

 

2018

 

 

2019

 

 

Thereafter

 

 

Total

 

Debt

 

$

30

 

 

$

59

 

 

$

72

 

 

$

89

 

 

$

722

 

 

$

3,242

 

 

$

4,214

 

  

Senior Secured Credit Facilities

In May 2015, IMS Health Incorporated (“IMS Health”), an indirect wholly-owned subsidiary of the Company, entered into an amendment (the “2015 Amendment”) to the Third Amended and Restated Credit and Guaranty Agreement, dated as of March 17, 2014, among IMS Health, IMS AG and IMS Japan K.K., as co-borrowers, Healthcare Technology Intermediate Holdings, Inc., Bank of America, N.A. and the other lenders party thereto (as amended by the 2015 Amendment, the “Credit Agreement” and, together with the related security and other documents for the senior secured term loan facilities and the senior secured revolving facility, the “Senior Secured Credit Facilities”). The 2015 Amendment increased outstanding commitments under the Company’s existing Term A loans by $200 million. The proceeds from the additional term loans were used to fund a portion of the Company’s repurchase of its common shares. See Note 8 for further information on the share repurchase. As a result of the 2015 Amendment, the Company incurred $2 million of third party fees, which will be amortized as a component of interest expense.

In March 2014, IMS Health and certain of its subsidiaries, as co-borrowers, entered into an amendment (the “2014 Amendment”) to the Second Amended and Restated Credit and Guaranty Agreement, dated as of October 24, 2012. The 2014 Amendment added commitments in respect of new Term A loans (the “New Term Loans”) in the aggregate dollar equivalent amount of $500 million, increased outstanding commitments under the revolving credit facility to $500 million, modified certain interest rates and covenants and made additional modifications to the then outstanding senior secured credit facilities. The New Term Loans were funded in April 2014 concurrent with the Company’s Initial Public Offering (“IPO”). The New Term Loans and revolving credit facility mature in March 2019, while the Term B loans mature in March 2021. As a result of the 2014 Amendment, the Company recorded $11 million of debt extinguishment losses and $2 million of third party fees in Other income (loss), net during the six months ended June 30, 2014.

IMS Health is required to make scheduled quarterly payments on the Term A loans at rates that vary from 1.25% to 2.50% of the original principal amount of the term loans, with the remaining balance paid at maturity. Additionally, IMS Health is required to make scheduled quarterly payments on the Term B loans equal to approximately 0.25% of the original principal amount of the term loans, with the remaining balance paid at maturity. IMS Health is also required to pay an annual commitment fee that ranges from 0.30% to 0.40% in respect of any unused commitments under the revolving credit facility.

At June 30, 2015, IMS Health, IMS AG and IMS Japan K.K., as co-borrowers, had an aggregate $500 million revolving credit facility, of which $283 million was unused. The Senior Secured Credit Facilities are secured by a security interest in substantially all of Healthcare Technology Intermediate Holdings, Inc.’s, IMS Health’s and the U.S. subsidiary guarantors’ tangible and intangible assets, including the stock of IMS Health and certain of IMS Health’s U.S. restricted subsidiaries and a portion of the stock of IMS Health’s non-U.S. restricted subsidiaries directly owned by Healthcare Technology Intermediate Holdings, Inc., IMS Health or a U.S. subsidiary guarantor. In addition, the obligations of IMS AG are guaranteed by certain of its Swiss restricted subsidiaries and are secured by certain assets of IMS AG and the Swiss guarantors, including the stock of the Swiss guarantors, and the obligations of IMS Japan K.K. are secured by certain of its assets. There have been no borrowings by IMS Japan K.K. to date.  

Senior Notes

In anticipation of the Cegedim acquisition, IMS Health issued €275 million aggregate principal amount of 4.125% senior unsecured notes due in April 2023 (the “4.125% Senior Notes”) on March 30, 2015. The proceeds, along with cash on hand, were used on April 1, 2015 to fund the Cegedim acquisition and pay fees and expenses of $4 million in connection with the debt offering. See Note 2 for more information on the Cegedim acquisition. Interest on the 4.125% Senior Notes is payable semi-annually each year, commencing on October 1, 2015. The 4.125% Senior Notes are guaranteed on a senior unsecured basis by IMS Health’s wholly-owned domestic subsidiaries that are guarantors under the Senior Secured Credit Facilities. The Company may redeem the 4.125% Senior Notes, in whole or in part, at any time prior to April 1, 2018 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. On or after April 1, 2018, the Company may redeem all or a portion of the 4.125% Senior Notes at predetermined redemption prices set forth in the indenture governing the 4.125% Senior Notes plus accrued and unpaid interest to the date of redemption.

15


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

In addition to the 4.125% Senior Notes, IMS Health has $500 million aggregate principal amount of 6% Senior Notes due in November 2020 (the “6% Senior Notes”) outstanding. Interest is payable semi-annually each year. The 6% Senior Notes are guaranteed on a senior unsecured basis by IMS Health’s wholly-owned domestic subsidiaries that are guarantors under the Senior Secured Credit Facilities. The Company may redeem the 6.0% Senior Notes, in whole or in part, at any time prior to November 1, 2015 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. On or after November 1, 2015, the Company may redeem all or a portion of the 6% Senior Notes at predetermined redemption prices set forth in the indenture governing the 6% Senior Notes plus accrued and unpaid interest to the date of redemption.

Other

In connection with the Company’s IPO in April 2014, the Company redeemed its 12.5% senior notes and senior PIK notes and incurred a loss on extinguishment of debt of $219 million in the second quarter of 2014, consisting of a payment of make-whole premiums of $151 million and the write-off of $68 million of debt issuance costs and discounts.

The Senior Secured Credit Facilities and the indentures for the 4.125% Senior Notes and 6% Senior Notes provide for certain covenants and events of default customary for similar instruments, including a covenant not to exceed a specified ratio of consolidated senior secured net indebtedness to Consolidated EBITDA, as defined in the Credit Agreement, and a covenant to maintain a specified minimum interest coverage ratio. If an event of default occurs under any of the Company’s or the Company’s subsidiaries’ financing arrangements, the creditors under such financing arrangements will be entitled to take various actions, including the acceleration of amounts due under such arrangements, and in the case of the lenders under the revolving credit facility and New Term Loans, other actions permitted to be taken by a secured creditor. At June 30, 2015, the Company was in compliance with the financial covenants under the Company’s financing arrangements.

 

Note 7. Pension and Postretirement Benefits

The following table summarizes the components of net periodic benefit cost for the Company’s pension benefits.

 

 

  

Pension Benefits

 

 

  

U.S. plans

 

 

Non-U.S. plans

 

 

U.S. plans

 

 

Non-U.S. plans

 

 

  

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

(in millions)

  

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Service cost

  

$

3

  

 

$

3

  

 

$

2

  

 

$

2

  

 

$

6

  

 

$

5

  

 

$

4

  

 

$

3

  

Interest cost

  

 

3

  

 

 

3

  

 

 

3

  

 

 

2

  

 

 

6

  

 

 

6

  

 

 

5

  

 

 

5

  

Expected return on plan assets

  

 

(5

 

 

(5

 

 

(3

 

 

(3

 

 

(11

 

 

(10

 

 

(6

 

 

(6

Net periodic benefit cost

  

$

1

  

 

$

1

  

 

$

2

  

 

$

1

  

 

$

1

  

 

$

1

  

 

$

3

  

 

$

2

  

 

The Company’s net periodic benefit cost for its postretirement benefits was less than $1 million for the three and six months ended June 30, 2015 and 2014, respectively. During the six months ended June 30, 2015, the Company contributed approximately $9 million to its pension and postretirement benefit plans and expects to contribute an additional $3 million for the remainder of 2015.

Note 8. Shareholders’ Equity

Share Repurchase

On May 3, 2015, the Company’s board of directors authorized a $300 million common stock repurchase program. In connection with that program, on May 12, 2015, the Company purchased 11.1 million shares of its common stock from the underwriters of the Secondary Offering (as defined below) having an aggregate value of approximately $300 million at $27.0875 per share, equal to the midpoint between the public offering price and the price paid by the underwriters to the Selling Stockholders for the shares sold in the Secondary Offering. To fund the share repurchase, the Company entered into the 2015 Amendment to the Credit Agreement that provided the Company with $200 million in additional term loan borrowings and utilized borrowings from its revolving credit facility and available cash. See Note 6 for additional information on the 2015 Amendment.

Secondary Offering

On May 12, 2015, existing shareholders of the Company (collectively, the “Selling Stockholders”) completed the sale of 57.97 million shares of the Company’s common stock at a public offering price of $27.50 per share, including 6.87 million shares that were

16


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

offered and sold by the Selling Stockholders pursuant to the full exercise of the underwriter’s option to purchase additional shares. These transactions are collectively referred to as the “Secondary Offering.” The Company did not sell any stock in, or receive any proceeds from, the Secondary Offering. The Company incurred $1 million of expenses in the second quarter of 2015 related to the Secondary Offering, which were included in Selling and administrative expenses.

Note 9. Stock-Based Compensation

In April 2014, the Company paid $30 million in the aggregate to holders of outstanding cash settled stock appreciation rights (“Phantom SARs”) upon completion of the Company’s IPO.

Note 10. Income Taxes

The Company operates in more than 100 countries around the world and its earnings are taxed at the applicable income tax rate in each of these countries. As required, the Company computes interim taxes based on an estimated annual effective tax rate.

The Company recorded a provision for income taxes of $13 million and a benefit from income taxes of $227 million for the three and six months ended June 30, 2015, respectively. The tax expense in the three months ended June 30, 2015 was favorably impacted as a result of profits generated in non-U.S. tax jurisdictions with lower tax rates than the U.S. statutory tax rate. Historically, the Company provided deferred taxes with respect to all of its non-U.S. subsidiaries’ unremitted earnings. The tax benefit for the six months ended June 30, 2015 was favorably impacted as a result of the Company changing its assertion related to these earnings and is asserting that the unremitted earnings of its non-U.S. subsidiaries related to prior years, as well as those related to 2015 will be indefinitely reinvested outside the United States. As a result of this change in assertion, the Company reversed a previously established deferred tax liability of $256 million as a discrete benefit in the first quarter of 2015. The Company has the intent and ability to indefinitely reinvest its non-U.S. subsidiaries’ unremitted earnings outside the United States as these earnings are no longer expected to be repatriated to the United States to meet the Company’s U.S. cash needs. Further, the Company intends to reinvest the non-U.S. earnings in the growth of its non-U.S. businesses.

The Company recorded a benefit for income taxes of $139 million and $152 million for the three and six months ended June 30, 2014, respectively. The tax benefit in both periods was primarily due to a significant amount of deductible expenses in the U.S. related to the redemption of the Company’s 12.5% senior notes and senior PIK notes, the termination of a management services agreement with affiliates of the certain of the Company’s shareholders (see Note 12), and non-executive Phantom SARs compensation expense. In addition, the tax benefit in both periods was impacted as a result of profits generated in non-U.S. tax jurisdictions with lower tax rates than the U.S. statutory tax rate and by deferred U.S. income tax expense related to non-U.S. earnings net of associated tax credits. The Company also recorded a tax benefit of $6 million as a result of the conclusion of a U.S. Federal income tax examination for 2010 and 2011.  

 

 

Note 11. Contingencies

The Company and its subsidiaries are involved in legal and tax proceedings, claims and litigation arising in the ordinary course of business. Management periodically assesses the Company’s liabilities and contingencies in connection with these matters based upon the latest information available. For those matters where management currently believes it is probable that the Company will incur a loss and that the probable loss or range of loss can be reasonably estimated, the Company has recorded reserves in the Condensed Consolidated Financial Statements based on its best estimates of such loss. In other instances, because of the uncertainties related to either the probable outcome or the amount or range of loss, management is unable to make a reasonable estimate of a liability, if any. However, even in many instances where the Company has recorded an estimated liability, the Company is unable to predict with certainty the final outcome of the matter or whether resolution of the matter will materially affect the Company’s results of operations, financial position or cash flows. As additional information becomes available, the Company adjusts its assessments and estimates of such liabilities accordingly.

The Company routinely enters into agreements with its suppliers to acquire data and with its clients to sell data, all in the normal course of business. In these agreements, the Company sometimes agrees to indemnify and hold harmless the other party for any damages such other party may suffer as a result of potential intellectual property infringement and other claims related to the use of the data. The Company has not accrued a liability with respect to these matters, as the exposure is considered remote.

17


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

Based on its review of the latest information available, management does not expect the impact of pending legal and tax proceedings, claims and litigation, either individually or in the aggregate, to have a material adverse effect on the Company’s results of operations, cash flows or financial position. However, one or more unfavorable outcomes in any claim or litigation against the Company could have a material adverse effect for the period in which it is resolved. The following is a summary of certain legal matters involving the Company.

IMS Health Government Solutions Voluntary Disclosure Program Participation

The Company’s wholly-owned subsidiary, IMS Government Solutions Inc. (“IMS Government Solutions”), is primarily engaged in providing services and products under contracts with the U.S. government. U.S. government contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. government have the ability to investigate whether contractors’ operations are being conducted in accordance with such requirements. U.S. government investigations, whether relating to these contracts or conducted for other reasons, could result in administrative, civil or criminal liabilities, including repayments, fines or penalties being imposed on us, or could lead to suspension or debarment from future U.S. government contracting. U.S. government investigations often take years to complete and may result in no adverse action against the Company.

IMS Government Solutions discovered potential noncompliance with various contract clauses and requirements under its General Services Administration Contract (the “GSA Contract”) which was awarded in 2002 to its predecessor company, Synchronous Knowledge Inc. (Synchronous Knowledge Inc. was acquired by IMS Health in May 2005). The potential noncompliance arose from three primary areas: first, at the direction of the government, work performed under one task order was invoiced under another task order without the appropriate modifications to the orders being made; second, personnel who did not meet strict compliance with the labor categories component of the qualification requirements of the GSA Contract were assigned to contracts; and third, certain discounts that were given to commercial customers were not also offered to the government, in alleged violation of the GSA Contract’s Price Reductions Clause. Upon discovery of the potential noncompliance, the Company began remediation efforts, promptly disclosed the potential noncompliance to the U.S. government, and was accepted into the Department of Defense Voluntary Disclosure Program. The Company filed its Voluntary Disclosure Program Report (“Disclosure Report”) on August 29, 2008. Based on the Company’s findings as disclosed in the Disclosure Report, the Company recorded a reserve of approximately $4 million for this matter in 2008. During 2010, the Company recorded an additional reserve of approximately $2 million as a result of its ongoing investigation relating to this matter. In September 2014, the General Services Administration offered to settle the third matter described above (i.e., the Price Reductions Clause aspect of the Disclosure Report) for $1.5 million, in-line with the amount the Company had recorded for this area of potential noncompliance. On April 23, 2015, the Company and the government executed the settlement agreement and made the $1.5 million payment. The Company is currently unable to determine the outcome of all of these matters pending the resolution of the Voluntary Disclosure Program process and its ultimate liability arising from these matters could exceed its current reserves.

Symphony Health Solutions Litigation

On July 24, 2013, Symphony Health Solutions filed a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania against IMS Health alleging that IMS Health is actively engaging in anticompetitive business practices in violation of the Sherman Antitrust Act and Pennsylvania state law. The complaint seeks trebled actual damages in an unspecified amount, punitive damages, costs and injunctive relief. The Company believes the complaint is without merit, rejects all claims raised, asserted counterclaims against Symphony Health and will vigorously defend IMS Health’s position.

 

Note 12. Related Party

Due to related party relationships, it is possible that the terms of the following transactions are not the same as those that would result from transactions among wholly unrelated parties.

Management Services Agreement

The Company had a management services agreement with affiliates of TPG Global, LLC, CPP Investment Board Private Holdings Inc. and Leonard Green & Partners, L.P. (collectively, the “Sponsors”) pursuant to which they would provide management services to the Company. In conjunction with the Company’s IPO, the management services agreement was terminated for a settlement amount of $72 million and the Company recorded this charge as a component of Selling and administrative expenses, exclusive of depreciation and amortization in the Condensed Consolidated Statements of Comprehensive Income (Loss) in the second quarter of 2014. Prior to the termination of the management services agreement, the Company paid an additional $2 million during the first quarter of 2014 in monitoring fees pursuant to the management services agreement.

18


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

Note 13. Operations by Business Segment

Operating segments are defined as components of an enterprise about which financial information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision-making groups, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. The Company operates a globally consistent business model, offering pharmaceutical business information and related services to its clients in more than 100 countries.

The Company maintains regional geographic management who are responsible for bringing the Company’s full suite of offerings to their respective markets and to facilitate local execution of its global strategies. However, the Company maintains global leaders for the majority of its critical business processes; and the most significant performance evaluations and resource allocations made by the Company’s chief operating decision maker is made on a global basis. As such, the Company has concluded that it maintains one operating and reportable segment.

 

Geographic Financial Information:

The following represents selected geographic information for the regions in which the Company operates.  

 

(in millions)

 

Americas(1)

 

 

EMEA(2)

 

 

Asia

Pacific(3)

 

 

Corporate

& Other

 

 

Total

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

330

 

 

$

302

 

 

$

110

 

 

$

 

 

$

742

 

Operating income (loss)(5)

 

 

50

 

 

 

58

 

 

 

28

 

 

 

(40

)

 

 

96

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

296

 

 

$

261

 

 

$

105

 

 

$

 

 

$

662

 

Operating income (loss)(5)

 

 

55

 

 

 

76

 

 

 

33

 

 

 

(203

)

 

 

(39

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

623

 

 

$

534

 

 

$

217

 

 

$

 

 

$

1,374

 

Operating income (loss)(5)

 

 

115

 

 

 

113

 

 

 

66

 

 

 

(107

)

 

 

187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

583

 

 

$

509

 

 

$

215

 

 

$

 

 

$

1,307

 

Operating income (loss)(5)

 

 

132

 

 

 

142

 

 

 

70

 

 

 

(316

)

 

 

28

 

 

In April 2015, the Company realigned its regional reporting so that India, Sri Lanka and Bangladesh are included in EMEA. Previously, these countries had been included in the Asia Pacific region. Additionally in 2015, the Company made changes to its geographic reporting classifications to move some functions out of Corporate and Other and into the other regions. As a result of these changes, reclassifications of prior years’ geographic financial information were made to conform to the current year presentation. The reclassifications did not change previously reported condensed consolidated results of operations.

(1)

Americas includes the United States, Canada and Latin America. Revenue in the United States was $278 million and $237 million for the second quarters of 2015 and 2014, respectively, and $523 million and $469 million for the first six months of 2015 and 2014, respectively.

(2)

EMEA includes countries in Europe, the Middle East, and Africa, and the countries of India, Sri Lanka and Bangladesh.

(3)

Asia Pacific includes Japan, Australia and other countries in the Asia Pacific region, excluding India, Sri Lanka and Bangladesh. Revenue in Japan was $59 million and $61 million for the second quarters of 2015 and 2014, respectively, and $123 million and $130 million for the first six months of 2015 and 2014, respectively.

(4)

Revenue relates to external clients and is primarily based on the location of the client. Revenue for the geographic regions includes the impact of foreign exchange in converting results into U.S. Dollars.

(5)

Operating income (loss) for the three geographic regions does not reflect the allocation of certain expenses that are maintained in Corporate and Other and as such, is not a true measure of the respective regions’ profitability. The Operating income (loss) amounts for the geographic regions include the impact of foreign exchange in converting results into U.S. dollars. The following presents the depreciation and amortization related to purchase accounting adjustments for each region that are presented in Corporate and Other:

 

(in millions)

 

Americas

 

 

EMEA

 

 

Asia Pacific

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

$

19

 

 

$

4

 

 

$

5

 

2014

 

 

32

 

 

 

23

 

 

 

10

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

46

 

 

 

18

 

 

 

13

 

2014

 

 

63

 

 

 

45

 

 

 

20

 

19


IMS HEALTH HOLDINGS, INC.

Notes to Condensed Consolidated Financial Statements - Continued

(unaudited)

 

 

 

Note 14. Earnings per Share

Basic earnings (loss) per share is computed using the weighted-average number of common shares outstanding during the period. Diluted earnings (loss) per share is computed, when the result is dilutive, using the weighted-average number of common shares and dilutive potential common shares outstanding during the period. Dilutive potential common shares primarily consist of employee stock options and restricted stock units.

Employee stock options, restricted stock units and similar equity instruments granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding include restricted stock units and the dilutive effect of in-the-money options which is calculated based on the average share price for each fiscal period using the treasury stock method. Under the treasury stock method, the amount the employee must pay for exercising stock options, the amount of compensation cost for future service that the Company has not yet recognized, and the amount of benefits that would be recorded in additional paid-in capital when the award becomes deductible for tax purposes are assumed to be used to repurchase shares.

In periods of net loss, basic loss per share and diluted loss per share are the same since the effect of potential common shares is anti-dilutive and therefore excluded.

The following table presents the composition of basic and diluted weighted average shares outstanding:

 

 

  

Three Months Ended
June 30,

 

  

Six Months Ended
June 30,

 

(Shares in millions)

  

2015

 

  

2014

 

  

2015

 

  

2014

 

Basic weighted-average common shares outstanding

  

 

331.6

  

  

 

329.7

  

  

 

333.6

  

  

 

304.9

  

Effect of dilutive stock-based awards

  

 

8.4

  

  

 

  

  

 

9.0

  

  

 

  

Diluted weighted-average common shares outstanding

  

 

340.0

  

  

 

329.7

  

  

 

342.6

  

  

 

304.9

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares excluded from computation of diluted earnings (loss) per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average potential common shares excluded from computation due to anti-dilutive effect

 

 

 

 

 

19.3

 

 

 

 

 

 

19.3

 

  

 

 

 

 

20


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This discussion and analysis should be read in conjunction with the accompanying Condensed Consolidated Financial Statements (unaudited) and related notes and with the audited Consolidated Financial Statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2014. This discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should read the “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” sections of this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2014 for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The terms “Company,” “IMS,” “we,” “our” or “us,” as used herein, refer to IMS Health Holdings, Inc. and its consolidated subsidiaries unless otherwise stated or indicated by context. Amounts presented may not add due to rounding.

Background

We are a leading global information and technology services company providing clients in the healthcare industry with comprehensive solutions to measure and improve their performance. We have 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, we receive data without patient identifiers and standardize, organize, structure and integrate this data by applying our sophisticated analytics and leveraging our global technology infrastructure to help our clients run their organizations more efficiently and make better decisions to improve their operational and financial performance. We have a presence in over 100 countries and we generated 63% of our 2014 revenue from outside the United States.

We serve 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. Our information and technology services offerings, which we have developed with significant investment over our 60-year history, are deeply integrated into our clients’ workflow.

Acquisitions

We make acquisitions to enhance our capabilities and offerings in certain areas, including technology services. On April 1, 2015, we completed the acquisition of certain customer relationship management (“CRM”) and strategic data businesses of Cegedim, SA (“Cegedim” and the “Cegedim acquisition”) at a price of €385 million plus an initial working capital adjustment of €11 million (or $426 million). Cegedim, headquartered in Paris, France, is a global technology and services company specializing in healthcare whose offerings help pharmaceutical companies manage their sales and marketing operations. The acquisition includes Cegedim’s (i) CRM solutions that help life sciences clients drive sales effectiveness, optimize marketing programs across multiple channels and mitigate regulatory compliance risks; (ii) OneKey Reference Database that provides insights on healthcare professionals across the globe; and (iii) information solutions that use primary market research. The acquisition was financed through a combination of existing cash and net proceeds from our 4.125% senior unsecured notes issued in March 2015 (the “4.125% Senior Notes”). We believe that the acquisition further enhances our software development, data warehousing, mobile applications and business intelligence tools, as well as analytics and implementation services.  

Additionally, during the six months ended June 30, 2015, we completed the acquisitions of ImpactRx (South Africa), Dataline Software (U.K.), Mercurial (Australia) and ViS Research (U.S.) at a total cash cost, net of cash acquired, of approximately $36 million. 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 allocations are not expected to have a material impact on our results of operations. The results of operations of the acquired businesses have been included since the date of their acquisition and, other than the Cegedim acquisition, were not significant to our consolidated results of operations.

See Note 2 to our Condensed Consolidated Financial Statements for additional information with respect to these acquisitions.  

Results excluding the Effects of Foreign Currency Translation and Certain Charges

We report results in U.S. Dollars, but we do business on a global basis. Exchange rate fluctuations affect the U.S. Dollar value of foreign currency revenue and expenses and may have a significant effect on our results. The discussion of our financial results in this report includes comparisons with the prior year in constant currency terms, using consistent exchange rates. We believe this information facilitates comparison of the underlying results over time. During the first six months of 2015, the U.S. Dollar was generally stronger against the other currencies in which we transact business as compared to the first six months of 2014. The revenue growth at actual currency rates was lower than the growth at constant currency exchange rates during the first six months. See “—

21


 

How Exchange Rates Affect our Results” and “—Quantitative and Qualitative Disclosures about Market Risk” below for a more complete discussion regarding the impact of foreign currency translation on our business.

We also discuss below our revenue, operating income, operating costs of information, direct and incremental costs of technology services, selling and administrative expenses and operating margins excluding non-cash stock-based compensation charges, acquisition-related charges, restructuring and related charges, purchase accounting adjustments and sponsor monitoring fees as a supplement to our results presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). We believe providing these non-GAAP measures is useful as it facilitates comparisons across the periods presented and more clearly indicates trends. Management uses these non-GAAP measures in its global decision making, including developing budgets and managing expenditures.

Results of Operations

Summary of Results

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in millions)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Revenue

 

$

742

 

 

$

662

 

 

$

1,374

 

 

$

1,307

 

Information

 

 

374

 

 

 

386

 

 

 

728

 

 

 

767

 

Technology services

 

 

368

 

 

 

276

 

 

 

646

 

 

 

540

 

Operating costs of information, exclusive of depreciation and

   amortization

 

 

169

 

 

 

174

 

 

 

326

 

 

 

338

 

Direct and incremental costs of technology services, exclusive of

   depreciation and amortization

 

 

195

 

 

 

140

 

 

 

333

 

 

 

276

 

Selling and administrative expenses, exclusive of depreciation

   and amortization

 

 

180

 

 

 

247

 

 

 

317

 

 

 

418

 

Depreciation and amortization

 

 

81

 

 

 

115

 

 

 

177

 

 

 

222

 

Severance, impairment and other charges

 

 

21

 

 

 

25

 

 

 

34

 

 

 

25

 

Operating Income (Loss)

 

 

96

 

 

 

(39

)

 

 

187

 

 

 

28

 

Interest income

 

 

1

 

 

 

 

 

 

1

 

 

 

2

 

Interest expense

 

 

(43

)

 

 

(49

)

 

 

(80

)

 

 

(138

)

Other income (loss), net

 

 

6

 

 

 

(271

)

 

 

10

 

 

 

(288

)

Non-Operating Loss, Net

 

 

(36

)

 

 

(320

)

 

 

(69

)

 

 

(424

)

Income (loss) before income taxes

 

 

60

 

 

 

(359

)

 

 

118

 

 

 

(396

)

(Provision for) benefit from income taxes

 

 

(13

)

 

 

139

 

 

 

227

 

 

 

152

 

Net Income (Loss)

 

$

47

 

 

$

(220

)

 

$

345

 

 

$

(244

)

22


 

Net Income (Loss) to Adjusted EBITDA Reconciliation

We have included a presentation of Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) because we believe it provides additional information regarding our performance and our ability to service our debt. In addition, management believes that Adjusted EBITDA is useful to assess our operating performance trends because it excludes certain material non-cash items, unusual or non-recurring items that are not expected to continue in the future and certain other items. Adjusted EBITDA is not presented in accordance with U.S. GAAP, and our computation of Adjusted EBITDA may vary from those used by other companies. Adjusted EBITDA should not be considered as an alternative to net income or loss, operating income or loss, cash flows from operating activities or any other measures of operating performance, liquidity or indebtedness derived in accordance with U.S. GAAP. Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. A reconciliation of Adjusted EBITDA to net income, the most directly comparable financial measure calculated and presented in accordance with U.S. GAAP, is provided below.

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in millions)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Net Income (Loss)

 

$

47

 

 

$

(220

)

 

$

345

 

 

$

(244

)

Provision for (benefit from) income taxes

 

 

13

 

 

 

(139

)

 

 

(227

)

 

 

(152

)

Other (income) loss, net

 

 

(6

)

 

 

271

 

 

 

(10

)

 

 

288

 

Interest expense

 

 

43

 

 

 

49

 

 

 

80

 

 

 

138

 

Interest income

 

 

(1

)

 

 

 

 

 

(1

)

 

 

(2

)

Depreciation and amortization

 

 

81

 

 

 

115

 

 

 

177

 

 

 

222

 

Deferred revenue purchase accounting adjustments

 

 

2

 

 

 

 

 

 

3

 

 

 

2

 

Non-cash stock-based compensation charges(1)

 

 

8

 

 

 

15

 

 

 

14

 

 

 

46

 

Restructuring and related charges(2)

 

 

21

 

 

 

27

 

 

 

35

 

 

 

29

 

Acquisition-related charges(3)

 

 

11

 

 

 

6

 

 

 

19

 

 

 

12

 

Sponsor monitoring fees(3)

 

 

 

 

 

72

 

 

 

 

 

 

74

 

Non-executive phantom SARs compensation expenses(4)

 

 

 

 

 

30

 

 

 

 

 

 

30

 

Secondary offering expenses

 

 

1

 

 

 

 

 

 

1

 

 

 

 

Adjusted EBITDA

 

$

220

 

 

$

226

 

 

$

436

 

 

$

443

 

(1)

Non-cash stock-based compensation charges are included in Operating costs of information, Direct and incremental costs of technology services and Selling and administrative expenses as follows:

 

 

 

Three Months Ended

 

 

Six Months Ended

 

 

 

June 30,

 

 

June 30,

 

(in millions)

 

2015

 

 

2014

 

 

2015

 

 

2014

 

Operating costs of information

 

$

 

 

$

2

 

 

$

1

 

 

$

5

 

Direct and incremental costs of technology services

 

 

1

 

 

 

1

 

 

 

1

 

 

 

4

 

Selling and administrative expenses

 

 

7

 

 

 

12

 

 

 

12

 

 

 

37

 

(2)

Restructuring and related charges includes severance and impairment charges and the cost of employee and third-party charges related to dual running costs for knowledge transfer activities. Dual running costs for knowledge transfer activities of $1 million for the three and six months ended June 30, 2015 and $2 million and $3 million for the three and six months ended June 30, 2014, respectively, are primarily included in Operating costs of information.

(3)

Acquisition-related charges and Sponsor monitoring fees are included in Selling and administrative expenses.

(4)

Non-executive phantom SARs compensation expense of $10 million and $20 million for the three and six months ended June 30, 2014 are included in Operating costs of information and Selling and administrative expenses, respectively.

Revenue

Total revenue increased 12.0% to $742 million for the three months ended June 30, 2015 compared to $662 million in the same quarter in the prior year, and grew 24.6% on a constant currency basis, as the U.S. Dollar strengthened against most other currencies in which we transact business. The strengthening of the U.S. Dollar compared to the Euro was responsible for over half of the foreign exchange impact. Revenue from our information offerings decreased 3.2% in the second quarter of 2015 and grew 9.4% on a constant currency basis over the same period. Revenue from our technology services offerings increased 33.3% in the second quarter of 2015 and grew 45.6% on a constant currency basis over the same period in the prior year. Constant currency growth in the Americas and EMEA (Europe, the Middle East, Africa, India, Sri Lanka and Bangladesh) regions contributed approximately 90% of our total revenue growth during the second quarter of 2015 compared to the same quarter of 2014. The constant currency increase in information offerings was driven by growth in all our geographies, with the largest contribution coming from EMEA. The constant currency increase in technology services revenue was primarily driven by increases in technology and applications offerings in the Americas and EMEA and workflow analytics offerings in EMEA.

23


 

Revenue for the three months ended June 30, 2015 included $110 million related to the Cegedim acquisition. Excluding the impact of the Cegedim acquisition, revenue decreased 4.6% in the second quarter of 2015 and increased 5.2% on a constant currency basis over the same period in the prior year. Also excluding the Cegedim acquisition, information offerings revenue declined 10.7% and increased 0.5% on a constant currency basis, while technology services revenue increased 3.8% and 11.7% on a constant currency basis in the second quarter of 2015 compared to the same quarter in the prior year.

Total revenue increased 5.1% to $1,374 million for the six months ended June 30, 2015 compared to $1,307 million in the same period in the prior year, and grew 15.9% on a constant currency basis, as the U.S. Dollar strengthened against most other currencies in which we transact business. The strengthening of the U.S. Dollar compared to the Euro was responsible for over half of the foreign exchange impact. Revenue from our information offerings decreased 5.1% in the first six months of 2015 and grew 6.2% on a constant currency basis over the same period. Revenue from our technology services offerings increased 19.6% in the first six months of 2015 and grew 29.5% on a constant currency basis over the same period in the prior year. Constant currency growth in the Americas and EMEA regions contributed approximately 90% of our total revenue growth during the first six months of 2015 compared to the same quarter of 2014. The constant currency increase in information offerings was driven by growth in all our geographies, with the largest contribution coming from EMEA. The constant currency increase in technology services revenue was driven by increases in technology and applications offerings in the Americas and EMEA and workflow analytics offerings in EMEA.

Revenue for the six months ended June 30, 2015 included $110 million related to the Cegedim acquisition. Excluding the impact of the Cegedim acquisition, revenue decreased 3.3% in the first six months of 2015 and increased 6.1% on a constant currency basis over the same period in the prior year. Also excluding the Cegedim acquisition, information offerings revenue declined 8.9% and increased 1.8% on a constant currency basis, while technology services revenue increased 4.6% and 12.2% on a constant currency basis in the first six months of 2015 compared to the same period in the prior year.

Operating Costs of Information, exclusive of Depreciation and Amortization

Operating costs of information offerings decreased $5 million, or 2.6%, in the three months ended June 30, 2015 compared to the same quarter in the prior year. Included in Operating costs of information for the second quarter of 2014 was $10 million of non-executive cash settled stock appreciation rights (“Phantom SARs”) compensation expense resulting from our Initial Public Offering (“IPO”) in April 2014. Excluding the favorable effect of foreign currency translation of $17 million, non-executive Phantom SARs compensation expense, non-cash stock-based compensation charges and restructuring and related charges, operating costs of information increased 15.5% in the second quarter of 2015 compared to the second quarter of 2014. The constant currency increase in operating costs of information was primarily due to an increase in compensation costs of approximately $15 million, largely due to the Cegedim acquisition, and data costs as we continue to invest in new data sources.

Operating costs of information offerings decreased $12 million, or 3.5%, in the six months ended June 30, 2015 compared to the same period in the prior year. Excluding the favorable effect of foreign currency translation of $30 million, non-executive Phantom SARs compensation expense of $10 million, non-cash stock-based compensation charges and restructuring and related charges, operating costs of information increased 10.9% in the first six months of 2015 compared to the first six months of 2014. The constant currency increase in operating costs of information was primarily due to an increase in data costs as we continue to invest in new data sources and compensation costs of approximately $17 million, largely due to the Cegedim acquisition.  

Direct and Incremental Costs of Technology Services, exclusive of Depreciation and Amortization

Direct and incremental costs of technology services offerings grew $55 million, or 39.5%, in the three months ended June 30, 2015 compared to the same quarter in the prior year. Excluding the favorable effect of foreign currency translation of $17 million and non-cash stock-based compensation charges, direct and incremental costs of technology services grew 54.1% in the second quarter of 2015 compared to the second quarter of 2014. The constant currency increase in direct and incremental costs of technology services was driven primarily by increased compensation costs of $45 million, largely due to the Cegedim acquisition and to support the growth in our technology services offerings. Additionally, increases in professional fees of approximately $21 million, largely due to the Cegedim acquisition, and data costs directly related to technology services of approximately $8 million compared to the second quarter of 2014 contributed to the growth.  

Direct and incremental costs of technology services offerings grew $57 million, or 20.7%, in the six months ended June 30, 2015 compared to the same period in the prior year. Excluding the favorable effect of foreign currency translation of $27 million and non-cash stock-based compensation charges, direct and incremental costs of technology services grew 32.6% in the first six months of 2015 compared to the first six months of 2014. The constant currency increase in direct and incremental costs of technology services was driven primarily by increased compensation costs of $52 million, largely due to Cegedim acquisition and to support the growth in our technology services offerings. Additionally, increases in professional fees of approximately $22 million, largely due to the Cegedim acquisition, and data costs directly related to technology services of approximately $10 million compared to the first six months of 2014 contributed to the growth.  

24


 

Selling and Administrative Expenses, exclusive of Depreciation and Amortization

Selling and administrative expenses decreased $67 million, or 27.4%, in the three months ended June 30, 2015 compared to the same quarter in the prior year. Included in Selling and administrative expenses for the second quarter of 2014 was $72 million related to the termination of a management services agreement with affiliates of certain of our shareholders and $20 million of non-executive Phantom SARs compensation expense. Excluding the favorable effect of foreign currency translation of $20 million, sponsor monitoring fees, non-executive Phantom SARs compensation expense, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees, selling and administrative expenses grew 31.2% in the second quarter of 2015 compared to second quarter of 2014. Selling and administrative expenses in constant currency reflected higher compensation expense of approximately $34 million and occupancy expense of approximately $7 million compared to the second quarter of 2014, both of which were almost entirely due to the Cegedim acquisition.  

Selling and administrative expenses decreased $101 million, or 24.0%, in the six months ended June 30, 2015 compared to the same period in the prior year. Included in Selling and administrative expenses for the first six months of 2014 was $72 million related to the termination of the management services agreement with affiliates of certain of our shareholders and $20 million of non-executive Phantom SARs compensation expense. Excluding the favorable effect of foreign currency translation of $31 million, sponsor monitoring fees, non-executive Phantom SARs compensation expense, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees, selling and administrative expenses grew 15.4% in the first six months of 2015 compared to the first six months of 2014. Selling and administrative expenses in constant currency reflected higher compensation expense of approximately $41 million and occupancy expense of approximately $6 million compared to the first six months of 2014, both of which were largely due to the Cegedim acquisition. Partially offsetting this increase was lower professional fees of approximately $9 million in the first six months of 2015.

Depreciation and Amortization

Depreciation and amortization expense decreased $34 million, or 28.9%, in the three months ended June 30, 2015 compared to the same quarter in the prior year. Depreciation and amortization expense decreased $45 million, or 20.2%, in the six months ended June 30, 2015 compared to the same period in the prior year. The decreases in both periods were primarily due to certain intangible assets becoming fully amortized during the first quarter of 2015, partially offset by additional depreciation and amortization expense related to the Cegedim acquisition of approximately $10 million.

Severance, Impairment and Other Charges

Severance, impairment and other charges for the three months ended June 30, 2015 were primarily comprised of $15 million of severance and $6 million of asset impairment and other charges. Severance, impairment and other charges for the six months ended June 30, 2015 were composed of $27 million of severance and $7 million of asset impairment and other charges. Severance, impairment and other charges for the three and six months ended June 30, 2014 were primarily comprised of $15 million of severance and $7 million for impaired leases for properties in the United States. See Severance, Impairment and Other Charges below for further information.

Operating Income (Loss)

Operating income (loss) was income of $96 million in the three months ended June 30, 2015, compared to a loss of $39 million in the same quarter in the prior year. Included in operating loss for 2014 was $72 million related to the termination of a management services agreement with affiliates of certain of our shareholders and $30 million of non-executive Phantom SARs compensation expense. The variance between periods was also due to higher revenues, lower depreciation and amortization expense related to purchase accounting adjustments and lower operating expenses as discussed above in the second quarter of 2015 compared to the prior year quarter. Operating income (loss) was income for the second quarter of 2015 in constant currency terms compared to a loss in the second quarter of 2014, resulting in a favorable variance of $152 million. Absent the impact of non-cash stock-based compensation charges, acquisition-related charges, restructuring and related charges, purchase accounting adjustments, sponsor monitoring fees and non-executive Phantom SARs compensation expense, operating income decreased 1.2% at reported foreign currency rates and increased 11.2% on a constant currency basis for the second quarter of 2015.

Operating income was $187 million in the six months ended June 30, 2015, an increase of $159 million, compared to the same period in the prior year. Included in operating income for 2014 was $72 million related to the termination of a management services agreement with affiliates of certain of our shareholders and $30 million of non-executive Phantom SARs compensation expense. The increase was also due to higher revenues, lower depreciation and amortization expense related to purchase accounting adjustments and lower operating expenses as discussed above in the first six months of 2015 compared to the prior year period. Operating income for the first six months of 2015 increased $190 million in constant currency terms compared to the first six months of 2014. Absent the impact of non-cash stock-based compensation charges, acquisition-related charges, restructuring and related charges, purchase

25


 

accounting adjustments, sponsor monitoring fees and non-executive Phantom SARs compensation expense, operating income decreased 2.1% at reported foreign currency rates and increased 9.7% on a constant currency basis for the first six months of 2015.

Trends in Operating Margins

Operating margins improved to 12.9% for the three months ended June 30, 2015 from (5.9%) for the three months ended June 30, 2014. Margins in both periods were negatively impacted by the effects of foreign currency translation, non-cash stock-based compensation charges, acquisition-related charges, restructuring and related charges and purchase accounting adjustments and margins in 2014 were negatively impacted by non-executive Phantom SARs compensation expense and sponsor monitoring fees. Excluding the effects of foreign currency translation and these charges, operating margins were 23.2% and 25.8% in the second quarter of 2015 and 2014, respectively. The year over year decrease in operating margin was primarily due to the lower profitability of the acquired Cegedim businesses.

Operating margins improved to 13.6% for the six months ended June 30, 2015 from 2.2% for the six months ended June 30, 2014. Margins in both periods were negatively impacted by the effects of foreign currency translation, non-cash stock-based compensation charges, acquisition-related charges, restructuring and related charges and purchase accounting adjustments and margins in 2014 were negatively impacted by non-executive Phantom SARs compensation expense and sponsor monitoring fees. Excluding the effects of foreign currency translation and these charges, operating margins were 24.9% and 26.1% in the first six months of 2015 and 2014, respectively. The year over year decrease in operating margin was primarily due to the lower profitability of the businesses we acquired from Cegedim.

Non-Operating Loss, net

Non-operating loss, net was $36 million in the three months ended June 30, 2015, a decrease of $284 million compared to the same quarter in the prior year. Interest expense, net of interest income, was $7 million lower than in the second quarter of 2014, primarily due to the redemption of our 12.5% senior notes and senior PIK notes in April 2014. Additionally, the hedge of non-U.S. dollar anticipated royalties resulted in $6 million gain in the second quarter of 2015 compared to an almost $1 million loss in the second quarter of 2014. Included in the non-operating loss for the second quarter of 2014 was a $151 million payment of a make-whole premium and $68 million for the write-off of debt issuance costs and discounts, both of which were related to the redemption of our 12.5% senior notes and senior PIK notes in April 2014, and $49 million related to the remeasurement of our Venezuelan Bolívar account balances. See Note 5 to our Condensed Consolidated Financial Statements for further information on the remeasurement of our Venezuelan Bolívar account balances.

Non-operating loss, net was $69 million in the six months ended June 30, 2015, a decrease of $355 million compared to the same period in the prior year. Interest expense, net of interest income, was $57 million lower than in the first six months of 2014, primarily due to the redemption of our 12.5% senior notes and senior PIK notes in April 2014. Included in the non-operating loss for the first six months of 2015 was a $7 million charge related to the remeasurement of our Venezuelan Bolívar account balances compared to a $49 million charge in the first six months of 2014. Additionally, the hedge of non-U.S. dollar anticipated royalties resulted in a $13 million gain in the first six months of 2015 compared to a less than $1 million gain in the first six months of 2014. Also included in the non-operating loss for the first six months of 2014 was a $151 million payment of a make-whole premium and $68 million for the write-off of debt issuance costs and discounts, both of which were related to the redemption of our 12.5% senior notes and senior PIK notes in April 2014, and $13 million of debt extinguishment losses and third-party fees related to the 2014 amendment of our senior secured credit facilities.

See Note 5 to our Condensed Consolidated Financial Statements for further information on the remeasurement of our Venezuelan Bolívar account balances and Note 6 for the debt transactions.

Taxes

We operate in more than 100 countries around the world and our earnings are taxed at the applicable income tax rate in each of these countries. As required, we compute interim taxes based on an estimated annual effective tax rate.

We recorded a provision for income taxes of $13 million and a benefit from income taxes of $139 million for the three months ended June 30, 2015 and 2014, respectively, which resulted in an effective tax rate expense of 22.2% and benefit of 38.8%, respectively. The effective tax rate expense for the three months ended June 30, 2015 was favorably impacted as a result of profits generated in non-U.S. tax jurisdictions with lower tax rates than the U.S. statutory tax rate. The effective tax rate benefit for the three months ended June 30, 2014 was primarily due to a significant amount of deductible expenses in the United States related to the redemption of our 12.5% senior notes and senior PIK notes, the termination of the management services agreement with affiliates of the Sponsors and non-executive Phantom SARs compensation expense. In addition, the effective tax rate benefit for the three months

26


 

ended June 30, 2014 was impacted as a result of profits generated in non-U.S. tax jurisdictions with lower tax rates than the U.S. statutory tax rate and by deferred U.S. income tax expense related to non-U.S. earnings net of associated tax credits.

We recorded a benefit for income taxes of $227 million and $152 million for the six months ended June 30, 2015 and 2014, respectively, which resulted in effective tax rate benefits of 192.2% and 38.4% respectively. The effective tax rate benefit for the six months ended June 30, 2015 was favorably impacted as a result of profits generated in non-U.S. tax jurisdictions with lower tax rates than the U.S. statutory tax rate. Historically, we provided deferred taxes with respect to all of our non-U.S. subsidiaries’ unremitted earnings. The tax benefit for the six months ended June 30, 2015 was also favorably impacted as a result of changing our assertion related to our earnings and asserting that the unremitted earnings of our non-U.S. subsidiaries related to prior years, as well as those related to 2015 will be indefinitely reinvested outside the United States. As a result of this change in assertion, we reversed a previously established deferred tax liability of $256 million as a discrete benefit to the first quarter of 2015. We have the intent and ability to indefinitely reinvest our non-U.S. subsidiaries’ unremitted earnings outside the United States as these earnings are no longer expected to be repatriated to the United States to meet our U.S. cash needs. Further, we intend to reinvest the non-U.S. earnings in the growth of our non-U.S. businesses. If the $256 million discrete benefit related to the change in assertion was not recorded in the first quarter of 2015, the effective tax rate would have been 25.2% for the six months ended June 30, 2015. The effective tax rate benefit of 38.4% for the six months ended June 30, 2014 was primarily impacted by a significant amount of deductible expenses in the United States related to the redemption of our 12.5% senior notes and senior PIK notes, the termination of the management services agreement with affiliates of the Sponsors and non-executive Phantom SARs compensation expense. In addition, the tax rate benefit for the six months ended June 30, 2014 was impacted as a result of profits generated in non-U.S. tax jurisdictions with lower tax rates than the U.S. statutory tax rate and by deferred U.S. income tax expense related to non-U.S. earnings net of associated tax credits.

Operations by Geographic Region

Operating segments are defined as components of an enterprise about which financial information is available that is evaluated on a regular basis by the chief operating decision-maker, or decision-making groups, in deciding how to allocate resources to an individual segment and in assessing performance of the segment. We operate a globally consistent business model, offering pharmaceutical business information and related services to our clients in more than 100 countries.

We maintain regional geographic management who are responsible for bringing our full suite of offerings to their respective markets and to facilitate local execution of our global strategies. However, we maintain global leaders for the majority of our critical business processes; and the most significant performance evaluations and resource allocations made by our chief operating decision maker are made on a global basis. As such, we have concluded that we maintain one operating and reportable segment.

The following represents selected geographic information for the regions in which we operate.  

 

(in millions)

 

Americas(1)

 

 

EMEA(2)

 

 

Asia

Pacific(3)

 

 

Corporate

& Other

 

 

Total

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

330

 

 

$

302

 

 

$

110

 

 

$

 

 

$

742

 

Operating income (loss)(5)

 

 

50

 

 

 

58

 

 

 

28

 

 

 

(40

)

 

 

96

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

296

 

 

$

261

 

 

$

105

 

 

$

 

 

$

662

 

Operating income (loss)(5)

 

 

55

 

 

 

76

 

 

 

33

 

 

 

(203

)

 

 

(39

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

623

 

 

$

534

 

 

$

217

 

 

$

 

 

$

1,374

 

Operating income (loss)(5)

 

 

115

 

 

 

113

 

 

 

66

 

 

 

(107

)

 

 

187

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue(4)

 

$

583

 

 

$

509

 

 

$

215

 

 

$

 

 

$

1,307

 

Operating income (loss)(5)

 

 

132

 

 

 

142

 

 

 

70

 

 

 

(316

)

 

 

28

 

In April 2015, we realigned our regional reporting so that India, Sri Lanka and Bangladesh are included in EMEA. Previously, these countries had been included in the Asia Pacific region. Additionally in 2015, we made changes to our geographic reporting classifications to move some functions out of Corporate and Other and into the other regions. As a result of these changes, reclassifications of prior years’ geographic financial information were made to conform to the current year presentation. The reclassifications did not change previously reported condensed consolidated results of operations.

(1)

Our Americas region includes the United States, Canada and Latin America. Revenue in the United States was $278 million and $237 million for the second quarters of 2015 and 2014, respectively, and $523 million and $469 million for the first six months of 2015 and 2014, respectively.

27


 

(2)

Our EMEA region includes countries in Europe, the Middle East and Africa and the countries of  India, Sri Lanka and Bangladesh.

(3)

Our Asia Pacific region includes Japan, Australia and other countries in the Asia Pacific region, excluding India, Sri Lanka and Bangladesh. Revenue in Japan was $59 million and $61 million for the second quarters of 2015 and 2014, respectively, and $123 million and $130 million for the first six months of 2015 and 2014, respectively.

(4)

Revenue relates to external clients and is primarily based on the location of the client. Revenue for the geographic regions includes the impact of foreign exchange in converting results into U.S. Dollars.

(5)

Operating income (loss) for the three geographic regions does not reflect the allocation of certain expenses that are maintained in Corporate and Other and as such, is not a true measure of the respective regions’ profitability. The Operating Income (loss) amounts for the geographic regions include the impact of foreign exchange in converting results into U.S. dollars. The following presents the depreciation and amortization related to purchase accounting adjustments for each region that are presented in Corporate and Other:

 

(in millions)

 

Americas

 

 

EMEA

 

 

Asia Pacific

 

Three Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

$

19

 

 

$

4

 

 

$

5

 

2014

 

 

32

 

 

 

23

 

 

 

10

 

Six Months Ended June 30,

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

46

 

 

 

18

 

 

 

13

 

2014

 

 

63

 

 

 

45

 

 

 

20

 

Americas Region

Revenue in the Americas region grew 11.3% in the three months ended June 30, 2015 compared to the same quarter in the prior year. On a constant currency basis, revenue grew 16.2% in the second quarter of 2015 compared to the second quarter of 2014. Revenue in the Americas region grew 6.9% in the six months ended June 30, 2015 compared to the same period in the prior year. On a constant currency basis, revenue grew 11.2% in the first six months of 2015 compared to the first six months of 2014. Revenues for both the three and six months ended June 30, 2015 were positively impacted by the Cegedim acquisition. Technology and applications offerings within technology services accounted for the majority of the growth for both the three and six months ended June 30, 2015, largely driven by the United States.

Operating income in the Americas region decreased 9.4% in the three months ended June 30, 2015 compared to the same quarter in the prior year. On a constant currency basis, operating income grew 2.0% in the second quarter of 2015 compared to the second quarter of 2014. The increase in constant currency operating income in the second quarter of 2015 was a result of revenue growth, partially offset by increases in operating expenses of $46 million to support the revenue growth in the region. Excluding $12 million of non-executive Phantom SARS compensation expense and $7 million impairment of a leased property included in the second quarter of 2014, operating expenses grew $65 million. Operating income in the Americas region decreased 13.1% in the six months ended June 30, 2015 compared to the same period in the prior year. On a constant currency basis, operating income decreased 4.7% in the first six months of 2015 compared to the first six months of 2014. The decrease in constant currency operating income in the first six months of 2015 was a result of increases in operating expenses of $70 million to support the revenue growth in the region, partially offset by the revenue growth. Excluding $12 million of non-executive Phantom SARS compensation expense and $7 million impairment of a leased property included in the first six months of 2014, operating expenses grew $89 million.

EMEA Region

Revenue in the EMEA region grew 15.9% in the three months ended June 30, 2015 compared to the same quarter in the prior year. On a constant currency basis, revenue grew 37.4% in the second quarter of 2015 compared to the second quarter of 2014. Revenue in the EMEA region grew 4.8% in the six months ended June 30, 2015 compared to the same period in the prior year. On a constant currency basis, revenue grew 23.0% in the first six months of 2015 compared to the first six months of 2014. Revenues for both the three and six months ended June 30, 2015 were positively impacted by the Cegedim acquisition. The constant currency increase in revenue in EMEA for both the three and six months ended June 30, 2015 was primarily the result of strong growth in our technology and applications and work flow analytics offerings within technology services, as well as solid growth in information offerings.

Operating income in the EMEA region declined 23.3% in the three months ended June 30, 2015 compared to the same quarter in the prior year. On a constant currency basis, operating income increased 0.1% in the second quarter of 2015 compared to the second quarter of 2014. The small increase in constant currency operating income in the second quarter of 2015 was a result of strong revenue growth in the region, almost entirely offset by increases in operating expenses of $95 million to support the revenue growth. Excluding $10 million of non-executive Phantom SARS compensation expense included in the second quarter of 2014, operating expenses grew $105 million. Operating income in the EMEA region declined 20.0% in the six months ended June 30, 2015 compared to the period in the prior year. On a constant currency basis, operating income increased 3.3% in the first six months of 2015 compared to the first six months of 2014. The increase in constant currency operating income in the first six months of 2015 was a result of strong revenue growth in the region, partially offset by increases in operating expenses of $110 million to support the revenue

28


 

growth. Excluding $10 million of non-executive Phantom SARS compensation expense included in the first six months of 2014, operating expenses grew $120 million.

Asia Pacific Region

Revenue in the Asia Pacific region grew 4.5% in the three months ended June 30, 2015 compared to the same quarter in the prior year. On a constant currency basis, revenue grew 16.6% in the second quarter of 2015 compared to the second quarter of 2014. Revenue in the Asia Pacific region grew 1.0% in the six months ended June 30, 2015 compared to the same period in the prior year. On a constant currency basis, revenue grew 11.9% in the first six months of 2015 compared to the first six months of 2014. The constant currency increase in revenue for both the three and six months ended June 30, 2015 was primarily the result of strong growth in our technology and applications and work flow analytics offerings within technology services, led by Japan.

Operating income in the Asia Pacific region declined 17.1% in the three months ended June 30, 2015 compared to the same quarter in the prior year. On a constant currency basis, operating income grew 0.6% in the second quarter of 2015 compared to the second quarter of 2014. The increase in constant currency operating income in the second quarter of 2015 was primarily a result of the revenue increase, which was almost entirely offset by increases in operating expenses of $17 million. Operating income in the Asia Pacific region declined 6.4% in the six months ended June 30, 2015 compared to the same period in the prior year. On a constant currency basis, operating income grew 11.6% in the first six months of 2015 compared to the first six months of 2014. The increase in constant currency operating income in the first six months of 2015 was primarily a result of the revenue increase, partially offset by increases in operating expenses of $17 million.

How Exchange Rates Affect our Results

We operate globally, deriving a significant portion of our operating income from non-U.S. operations. As a result, fluctuations in the value of foreign currencies in which we transact business relative to the U.S. Dollar may increase the volatility of U.S. Dollar operating results. We enter into foreign currency forward contracts to partially offset the effect of currency fluctuations and the impact of these forward contracts is reflected in Other income (loss), net on the Condensed Consolidated Statements of Comprehensive Income (Loss). Foreign currency translation decreased our U.S. Dollar revenue growth by approximately 12.6 percentage points in the second quarter of 2015 and 10.8 percentage points in the first six months of 2015 and increased our operating income decline by 5.9 percentage points in the second quarter of 2015 and decreased our operating income growth by 431.2 percentage points for the first six months of 2015.

Non-U.S. monetary assets are maintained in currencies other than the U.S. Dollar, principally the Swiss Franc, Euro and the Japanese Yen, and as such, the reported values of these assets may be significantly affected by fluctuations in foreign exchange rates. At June 30, 2015, the Swiss Franc, Euro and Japanese Yen exchange rates were weaker against the U.S. Dollar compared to December 31, 2014. Where monetary assets are held in the functional currency of the local entity, changes in the value of these currencies relative to the U.S. Dollar are reflected in accumulated other comprehensive income in the Condensed Consolidated Statements of Financial Position. The effect of exchange rate changes, which included the charges taken for our Venezuelan operations in both years, decreased the U.S. Dollar amount of cash and cash equivalents by $9 million and $39 million during the first six months of 2015 and 2014, respectively.

Liquidity and Capital Resources

We fund our liquidity needs for capital investment, working capital, and other financial commitments through cash flow from operations and our Senior Secured Credit Facilities (as defined below). At June 30, 2015, cash and cash equivalents were $348 million and our total indebtedness was $4,193 million. Additionally, we had $283 million available for borrowing under our Senior Secured Credit Facility. In addition to operating cash flows, other factors that affect our overall management of liquidity include capital expenditures, software development costs, acquisitions, debt service requirements, adequacy of our revolving credit facility and access to the capital markets.

In April 2014, we completed our IPO and raised net proceeds of approximately $987 million. Substantially all of the proceeds from the IPO, borrowings under new term loans and our existing revolving credit facility and cash on hand were used to (i) fund the redemption of our 12.5% senior notes and senior PIK notes and pay related fees and expenses, (ii) pay $30 million to holders of Phantom SARs and (iii) pay $72 million to terminate our management services agreement with affiliates of certain of our shareholders.

We believe we will have available resources to meet both our short-term and long-term liquidity requirements, including our debt service. We expect that the cash flow from our operations, combined with existing cash and amounts available under the secured revolving credit facility, will provide sufficient liquidity to fund our current obligations, projected working capital requirements, restructuring obligations and capital spending over the next year. While our board of directors will review our dividend policy from

29


 

time to time, we currently do not intend to pay dividends in the foreseeable future. In addition we may, from time to time, purchase, repay, redeem or retire any of our outstanding debt or equity securities in privately negotiated or open market transactions, by tender offer or otherwise. Over the next twelve months, we currently expect that we will use our cash and cash equivalents primarily to fund:

·

principal and interest payments of approximately $204 million;

·

development of software to be used in our new products and capital expenditures of $165 million to $175 million, which includes a preliminary estimate of Cegedim’s forecasted spending, to expand and upgrade our information technology capabilities and to equip facilities to house our business;

·

payments of approximately $33 million related to our employee severance plans;

·

pension and other postretirement benefit plan contributions of approximately $11 million;

·

acquisitions and potential payments for contingent consideration; and

·

share repurchases.

Cash Flows

Cash and cash equivalents decreased $42 million to $348 million at June 30, 2015 compared to $390 million at December 31, 2014. The decrease reflects cash used in investing activities of $451 million and a decrease in cash of $9 million due to the effect of exchange rate changes, partially offset by cash provided by operating activities of $215 million and cash provided by financing activities of $203 million.

Net cash provided by operating activities amounted to $215 million for the six months ended June 30, 2015 compared to cash used of $229 million for the six months ended June 30, 2014. Cash flows from operating activities for the first six months of 2015 reflects higher cash-related net income of $281 million and favorable working capital movements of $141 million, primarily due to lower interest payments in 2015 and the timing of other payments and the collection of receivables, partially offset by higher severance payments in 2015. Cash flows from operating activities for the first six months of 2014 included $72 million paid to terminate the management services agreement, $151 million in make-whole premiums related to the repayment of our 12.5% senior notes and senior PIK notes and $30 million paid to the holders of the outstanding Phantom SARs. Interest paid was $95 million lower in the first six months of 2015, primarily due to the redemption of our 12.5% senior notes and senior PIK notes in conjunction with our IPO in April 2014, as well as lower interest paid under Term B loans.

Net cash used in investing activities amounted to $451 million for the six months ended June 30, 2015, an increase in cash used of $315 million compared to the six months ended June 30, 2014. The increase is primarily due to higher payments for acquisitions in 2015, including the Cegedim acquisition, partially offset by lower capital expenditures in the first six months of 2015 as 2014 included the purchase of an office building in India, and a premium paid for the interest rate caps purchased in April 2014.

Net cash provided by financing activities amounted to $203 million for the six months ended June 30, 2015, compared to net cash used of $56 million for the six months ended June 30, 2014. Cash flows from financing activities for the first six months of 2015 is primarily comprised of the issuance of the 4.125% Senior Notes in March 2015 and additional term loans resulting from the 2015 Amendment to our Senior Secured Credit Facilities in May 2015 and proceeds from equity plan activity, partially offset by the repurchase of our common stock. Cash flows from financing activities for the first six months of 2014 was primarily comprised of the repayment of our 12.5% senior notes and senior PIK notes and the payment of debt amendment fees related to the 2014 Amendment (as defined below), partially offset by the net proceeds received from the IPO, proceeds from the issuance of Term A loans and higher net borrowings under our revolving credit facility in 2014.

Share Repurchases

On May 3, 2015, our board of directors authorized a $300 million common stock repurchase program. In connection with that program, on May 12, 2015, we purchased 11.1 million shares of our common stock having an aggregate value of approximately $300 million at $27.0875 per share. To fund the share repurchase, we entered into the 2015 Amendment (as defined below) that provided us with $200 million in additional term loan borrowings and utilized borrowings from our revolving credit facility and available cash. See Note 8 to our Condensed Consolidated Financial Statements for additional information.

30


 

Debt

At June 30, 2015, our principal amount of debt outstanding totaled $4,214 million. Management does not believe that this level of debt poses a material risk to us due to the following factors:

·

in the last two calendar years combined, we have generated strong net cash provided by operating activities of $524 million;

·

at June 30, 2015, we had $348 million in worldwide cash and cash equivalents; and

·

at June 30, 2015, we had a $500 million revolving credit facility, of which $283 million was unused.

The following table summarizes our debt at the dates indicated:

 

 

 

June 30,

 

 

December 31,

 

(in millions)

 

2015

 

 

2014

 

Senior Secured Credit Facilities:

 

 

 

 

 

 

 

 

Senior Secured Term A Loan due 2019—USD LIBOR at average floating rates of 2.53%

 

$

496

 

 

$

307

 

Senior Secured Term A Loan due 2019—EUR LIBOR at average floating rates of 2.25%

 

 

142

 

 

 

158

 

Senior Secured Term B Loan due 2021—USD LIBOR at average floating rates of 3.50%

 

 

1,726

 

 

 

1,735

 

Senior Secured Term B Loan due 2021—EUR LIBOR at average floating rates of 3.75%

 

 

825

 

 

 

901

 

Revolving Credit Facility due 2019:

 

 

 

 

 

 

 

 

U.S. Dollar denominated borrowings—USD LIBOR at average floating rates of 2.72%

 

 

217

 

 

 

215

 

4.125% Senior Notes due 2023 - Euro denominated

 

 

308

 

 

 

 

6.00% Senior Notes due 2020  - U.S. Dollar denominated

 

 

500

 

 

 

500

 

Principal Amount of Debt

 

 

4,214

 

 

 

3,816

 

Less: Unamortized Discounts

 

 

(21

)

 

 

(23

)

Total Debt

 

$

4,193

 

 

$

3,793

 

Senior Secured Credit Facilities

In May 2015, IMS Health Incorporated (“IMS Health”), our indirect wholly-owned subsidiary, entered into an amendment (the “2015 Amendment”) to the Third Amended and Restated Credit and Guaranty Agreement, dated as of March 17, 2014, among IMS Health, IMS AG and IMS Japan K.K., as co-borrowers, Healthcare Technology Intermediate Holdings, Inc., Bank of America, N.A. and the other lenders party thereto (as amended by the 2015 Amendment, the “Credit Agreement” and, together with the related security and other documents for the senior secured term loan facilities and the senior secured revolving facility, the “Senior Secured Credit Facilities”). The 2015 Amendment increased outstanding commitments under our existing Term A loans by $200 million. The proceeds from the additional term loans were used to fund a portion of our repurchase of our common shares. See Note 8 for further information on the share repurchase. As a result of the 2015 Amendment, we incurred $2 million of third party fees, which will be amortized as a component of interest expense.

In March 2014, IMS Health and certain of its subsidiaries, as co-borrowers, entered into an amendment (the “2014 Amendment”) to the Second Amended and Restated Credit and Guaranty Agreement, dated as of October 24, 2012. The 2014 Amendment added commitments in respect of new Term A loans (the “New Term Loans”) in the aggregate dollar equivalent amount of $500 million, increased outstanding commitments under the revolving credit facility to $500 million, modified certain interest rates and covenants and made additional modifications to the then outstanding senior secured credit facilities. The New Term Loans were funded in April 2014 concurrent with our IPO. The New Term Loans and revolving credit facility mature in March 2019, while the Term B loans mature in March 2021. As a result of the 2014 Amendment, we recorded $11 million of debt extinguishment losses and $2 million of third party fees in Other income (loss), net during the six months ended June 30, 2014.

IMS Health is required to make scheduled quarterly payments on the Term A loans at rates that vary from 1.25% to 2.50% of the original principal amount of the term loans, with the remaining balance paid at maturity. Additionally, IMS Health is required to make scheduled quarterly payments on the Term B loans equal to approximately 0.25% of the original principal amount of the term loans, with the remaining balance paid at maturity. IMS Health is also required to pay an annual commitment fee that ranges from 0.30% to 0.40% in respect of any unused commitments under the revolving credit facility.

At June 30, 2015, IMS Health, IMS AG and IMS Japan K.K., as co-borrowers, had an aggregate $500 million revolving credit facility, of which $283 million was unused. The Senior Secured Credit Facilities are secured by a security interest in substantially all of Healthcare Technology Intermediate Holdings, Inc.’s, IMS Health’s and the U.S. subsidiary guarantors’ tangible and intangible assets, including the stock of IMS Health and certain of IMS Health’s U.S. restricted subsidiaries and a portion of the stock of IMS Health’s non-U.S. restricted subsidiaries directly owned by Healthcare Technology Intermediate Holdings, Inc., IMS Health or a U.S.

31


 

subsidiary guarantor. In addition, the obligations of IMS AG are guaranteed by certain of its Swiss restricted subsidiaries and are secured by certain assets of IMS AG and the Swiss guarantors, including the stock of the Swiss guarantors, and the obligations of IMS Japan K.K. are secured by certain of its assets. There have been no borrowings by IMS Japan K.K. to date.

Senior Notes

In anticipation of the Cegedim acquisition, IMS Health issued €275 million aggregate principal amount of its 4.125% Senior Notes due in April 2023 on March 30, 2015. The proceeds, along with cash on hand, were used on April 1, 2015, to fund the Cegedim acquisition and pay fees and expenses of $4 million in connection with the debt offering. Interest on the 4.125% Senior Notes is payable semi-annually each year, commencing on October 1, 2015. The 4.125% Senior Notes are guaranteed on a senior unsecured basis by IMS Health’s wholly-owned domestic subsidiaries that are guarantors under the Senior Secured Credit Facilities. We may redeem the 4.125% Senior Notes, in whole or in part, at any time prior to April 1, 2018 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium.  On or after April 1, 2018, we may redeem all or a portion of the 4.125% Senior Notes at predetermined redemption prices set forth in the indenture governing the 4.125% Senior Notes plus accrued and unpaid interest to the date of redemption.

In addition to the 4.125% Senior Notes, IMS Health has $500 million aggregate principal amount of 6% Senior Notes due in November 2020 (the “6% Senior Notes”) outstanding. Interest is payable semi-annually each year. The 6% Senior Notes are guaranteed on a senior unsecured basis by IMS Health’s wholly-owned domestic subsidiaries that are guarantors under the Senior Secured Credit Facilities. We may redeem the 6.0% Senior Notes, in whole or in part, at any time prior to November 1, 2015 at a price equal to 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of redemption, plus a “make-whole” premium. On or after November 1, 2015, we may redeem all or a portion of the 6% Senior Notes at predetermined redemption prices set forth in the indenture governing the 6% Senior Notes plus accrued and unpaid interest to the date of redemption.

Other

In connection with our IPO in April 2014, we redeemed our 12.5% senior notes and senior PIK notes and incurred a loss on extinguishment of debt of $219 million in the second quarter of 2014, consisting of a payment of make-whole premiums of $151 million and the write-off of $68 million of debt issuance costs and discounts.

The Senior Secured Credit Facilities and the indentures for the 4.125% Senior Notes and 6% Senior Notes provide for certain covenants and events of default customary for similar instruments, including a covenant not to exceed a specified ratio of consolidated senior secured net indebtedness to Consolidated EBITDA, as defined in the Credit Agreement, and a covenant to maintain a specified minimum interest coverage ratio. If an event of default occurs under any of our or our subsidiaries’ financing arrangements, the creditors under such financing arrangements will be entitled to take various actions, including the acceleration of amounts due under such arrangements, and in the case of the lenders under the revolving credit facility and New Term Loans, other actions permitted to be taken by a secured creditor. At June 30, 2015, we were in compliance with the financial covenants under our financing arrangements.

Severance, Impairment and Other Charges

As a result of ongoing cost reduction efforts, we recorded severance charges consisting of global workforce reductions to streamline our organization. The following table sets forth the activity in our severance-related reserves for the six months ended June 30, 2015:

 

(in millions)

 

2015 Plan(1)

 

 

2013 and 2014 Plans(2)

 

Balance at December 31, 2014

 

$

 

 

$

18

 

Charges

 

 

27

 

 

 

 

Cash payments

 

 

(5

)

 

 

(11

)

Balance at June 30, 2015

 

$

22

 

 

$

7

 

(1) 

In the first quarter of 2015, we implemented a restructuring plan (the “2015 Plan”) and recorded a pre-tax severance charge of $12 million. In the second quarter of 2015, we recorded an additional pre-tax severance charge of $15 million. We anticipate that there may be further charges recorded under the 2015 plan during the balance of fiscal year 2015. We expect that cash outlays related to the 2015 Plan will be substantially complete by the end of 2016.

(2)  

In December 2013, we implemented a restructuring plan (the “2013 Plan”) and recorded a pre-tax severance charge of $12 million. In May 2014, we implemented a restructuring plan (the “2014 Plan”) and recorded pre-tax severance charges of $15 million. An additional $7 million was recorded over the balance of the year. We expect that cash outlays related to the 2013 and 2014 Plans will be substantially complete by the end of 2016.

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Other charges

During the six months ended June 30, 2015, we recorded impairment charges of $7 million, $6 million of which was recorded in the second quarter of 2015. The $7 million charge is primarily comprised of the write-off of the value of computer software that was no longer in use and contract-related charges for which we will not realize any future economic benefits.

During the three and six months ended June 30, 2014, we recorded impairment charges of $10 million, of which $7 million related to impaired leases for properties in the United States and $3 million for the write-down of certain assets and contract-related charges for which we will not realize any future economic benefits.

Contingencies

We are exposed to certain known contingencies that are material to our investors. The facts and circumstances surrounding these contingencies and a discussion of their effect on us are included in Note 11 to our Condensed Consolidated Financial Statements. These contingencies may have a material effect on our liquidity, capital resources or results of operations. In addition, even where our reserves are adequate, the incurrence of any of these liabilities may have a material effect on our liquidity and the amount of cash available to us for other purposes.

Management believes that we have made appropriate arrangements in respect of the future effect on us of these known contingencies. Management also believes that the amount of cash available to us from our operations, together with cash from financing, will be sufficient for us to pay any known contingencies as they become due without materially affecting our ability to conduct our operations and invest in the growth of our business.

Contractual Obligations

Following the issuance of our 4.125 % Senior Notes and the 2015 Amendment to our Credit Agreement, our future scheduled debt principal payments and estimated interest payments, based on rates as of June 30, 2015, are $102 million for the remainder of 2015, $446 million for 2016-2017, $1,100 million for 2018-2019 and $3,297 million thereafter.

Recently Issued Accounting Standards

Information relating to recently issued accounting standards is included in Note 1 to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q, as well as information included in oral statements or other written statements made or to be made by us, contain statements that constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “ongoing,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:

·

plans for future growth and other business development activities, including acquisitions;

·

plans for capital expenditures;

·

expectations for market and industry growth;

·

financing sources;

·

share repurchases and dividends;

·

the effects of regulation and competition;

·

foreign currency conversion;

·

the impact of litigation, government inquiries and investigations; and

·

all other statements regarding our intent, plans, beliefs or expectations or those of our directors or officers.

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We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Important factors that could cause actual results and events to differ materially from those indicated in the forward-looking statements include, among others, the following:

·

our data suppliers might restrict our use of or refuse to license data, which could lead to our inability to provide certain offerings;

·

failure to meet productivity objectives under our internal business transformation initiatives could adversely impact our competitiveness and our ability to meet our growth objectives;

·

we may be unsuccessful at investing in growth opportunities;

·

we may not close announced acquisitions in the indicated timeframes or at all, and may not successfully integrate our acquisition targets or for other reasons may not achieve expected benefits of our acquisition transactions;

·

data protection and privacy laws may restrict our current and future activities;

·

breaches or misuse of our or our outsourcing partners’ security or communication systems could expose us, our clients, our data suppliers or others to risk of loss;

·

hardware and software failures, delays in the operation of our computer and communications systems or the failure to implement system enhancements may adversely impact us;

·

consolidation in the industries in which our clients operate may reduce the volume of offerings purchased by consolidated clients following an acquisition or merger;

·

our ability to protect our intellectual property rights and our susceptibility to claims by others that we are infringing on their intellectual property rights; and

·

the other risks identified in our Annual Report on Form 10-K and any subsequent filings we make with the Securities and Exchange Commission.

The forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Report. We undertake no obligation to publicly update any forward-looking statements whether as a result of new information, future developments or otherwise.

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

There have been no material changes to our quantitative and qualitative disclosures about market risk during the six months ended June 30, 2015 as compared to the quantitative and qualitative disclosures about market risk described in our Annual Report on Form 10-K for the year ended December 31, 2014, except as discussed below.

Venezuela

Our Swiss operating subsidiary, IMS AG, maintains certain account balances in Bolívars (mainly cash and cash equivalents). As these balances are held in a non-functional currency of IMS AG, we are required to mark-to-market these balances at each reporting date and reflect these movements as gains or losses in income. Additionally, since January 2010, Venezuela has been designated as hyper-inflationary, and as such, all foreign currency fluctuations are recorded in income for certain account balances at our local Venezuelan operating subsidiary.

In 2014, the Venezuelan government significantly expanded the use of the Supplementary Foreign Currency Administration System (“SICAD”) I exchange market and created a third exchange market called SICAD II, which we utilized to remeasure our Venezuelan Bolívar account balances beginning on June 30, 2014. As a result of the change to the SICAD II rate from the official exchange rate, we recorded a pre-tax charge of $49 million to foreign exchange loss within Other income (loss), net in the second quarter of 2014. In February 2015, the Venezuelan government announced that the SICAD II market would no longer be available, and a new foreign exchange market system ("SIMADI") was created. SIMADI has exchange rates significantly less favorable than SICAD II. As a result of the change to the SIMADI rate, we recorded a pre-tax charge of $7 million to foreign exchange loss within Other income (loss), net in the first quarter of 2015. At June 30, 2015, the SIMADI rate was approximately 197 Bolívars to one U.S. Dollar. The net assets held and revenue generated by our Venezuelan subsidiaries were not material to our consolidated results as of June 30, 2015. We will continue to monitor any future impact of these mechanisms on the exchange rate we use to remeasure our Venezuelan subsidiaries financial statements.

 

 

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Item 4. Controls and Procedures

(a)

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that the Company files or submits to the SEC under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of June 30, 2015 (the “Evaluation Date”). Based on such evaluation, such officers have concluded that, as of the Evaluation Date, the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

On April 1, 2015, the Company completed the acquisition of certain customer relationship management and strategic data businesses of Cegedim, SA (“Cegedim”). Management considers this transaction to be material to the Company’s condensed consolidated financial statements. The Company intends to evaluate Cegedim’s internal controls and, if necessary, make any changes that it believes to be appropriate to those internal controls as the Company integrates the acquired business. Management intends to exclude the internal controls of Cegedim in its annual assessment of the effectiveness of the Company’s internal control over financial reporting pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 for the year ended December 31, 2015. This exclusion is in accordance with the general guidance issued by the Securities and Exchange Commission that an assessment of a recent business combination may be omitted from management’s report on internal control over financial reporting in the first year of consolidation.

(b)

Changes in Internal Control over Financial Reporting

There have been no changes in the Company’s internal control over financial reporting that occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

 

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PART II—OTHER INFORMATION

 

Item 1. Legal Proceedings

Information in response to this Item is incorporated by reference to the information set forth under the heading “Legal Proceedings” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. Additionally, see Note 11, Contingencies, to our Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.

 

 

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Purchases of Equity Securities by the Issuer

 

Period

 

Total Number of Shares Purchased

 

 

 

Average Price Paid per Share

 

 

 

Total Number of Shares Purchased Under Publicly Announced Programs

 

 

 

Maximum Number of Shares that May Yet Be Purchased Under the Programs (1)

 

 

(in millions, except per share data)

April 1, 2015 –

   April 30, 2015

 

 

 

 

 

 

 

 

 

 

May 1, 2015 –

   May 31, 2015

 

11.1

 

 

$

27.0875

 

 

 

11.1

 

 

 

June 1, 2015 –

   June 30, 2015

 

 

 

 

 

 

 

 

 

 

Total

 

11.1

 

 

$

27.0875

 

 

 

11.1

 

 

 

 

(1)

On May 3, 2015, the Board of Directors authorized a $300 million common stock repurchase program. As of May 12, 2015, the program was completed. See Note 8 to our Condensed Consolidated Financial Statements for further details.

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Item 6. Exhibits

 

 

  

 

  

 

  

Incorporated by Reference

Exhibit
Number

  

Exhibit Description

  

Filed
Herewith

  

Form

  

File No.

  

Exhibit

  

Filing Date

 

 

 

 

 

 

 

 

 

 

 

 

 

3.1

 

Amended and Restated Certificate of Incorporation of IMS Health Holdings, Inc.

 

 

 

8-K

 

001-36381

 

3.1

 

April 9, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

3.2

 

Amended and Restated Bylaws of IMS Health Holdings, Inc.

 

 

 

8-K

 

001-36381

 

3.2

 

April 9, 2014

 

 

 

 

 

 

 

 

 

 

 

 

 

31.1

  

Certification of Chief Executive Officer and President, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

X

  

 

  

 

  

 

  

 

 

 

 

 

 

 

 

31.2

  

Certification of Senior Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

  

X

  

 

  

 

  

 

  

 

 

 

 

 

 

 

 

32.1

  

Certification of Chief Executive Officer and President, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  

X

  

 

  

 

  

 

  

 

 

 

 

 

 

 

 

32.2

  

Certification of Senior Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

  

X

  

 

  

 

  

 

  

 

 

 

 

 

 

 

 

101*

  

Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Condensed Consolidated Statements of Financial Position, (ii) Condensed Consolidated Statements of Comprehensive Income (Loss), (iii) Condensed Consolidated Statements of Cash Flows, (iv) Condensed Consolidated Statement of Shareholders’ Equity, and (v) Notes to Condensed Consolidated Financial Statements.

  

X

  

 

  

 

  

 

  

 

*

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files in Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

 

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized on August 4, 2015.

 

IMS HEALTH HOLDINGS, INC.

 

/s/ Ronald E. Bruehlman

Ronald E. Bruehlman

Senior Vice President and Chief Financial Officer

(On behalf of the Registrant and as Principal Financial Officer)

 

 

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