IQVIA HOLDINGS INC.
Item 1. Business
Our Company
IQVIA is a leading global provider of advanced analytics, technology solutions and contract research services to the life sciences industry. Formed through the Merger of IMS Health and Quintiles, IQVIA applies human data science - leveraging the analytic rigor and clarity of data science to the ever-expanding scope of human science - to enable companies to reimagine and develop new approaches to clinical development and commercialization, speed innovation, and accelerate improvements in healthcare outcomes. Powered by the IQVIA CORE, we deliver unique and actionable insights at the intersection of large scale analytics, transformative technology and extensive domain expertise as well as execution capabilities. With approximately 67,000 employees, we conduct operations in more than 100 countries.
We have one of the largest and most comprehensive collections of healthcare information in the world, which includes more than 800 million comprehensive, longitudinal, non-identified patient records spanning sales, prescription and promotional data, medical claims, electronic medical records, genomics, and social media. Our scaled and growing information set contains over 35 petabytes of proprietary data sourced from more than 150,000 data suppliers and covering over one million data feeds globally. Based on this data, we deliver information and insights on over 85% of the world’s pharmaceuticals, as measured by 2018 sales. We standardize, curate, structure and integrate this information by applying our sophisticated analytics and leveraging our global technology infrastructure. This helps our clients run their organizations more efficiently and make better decisions to improve their clinical, commercial and financial performance. The breadth of the intelligent, actionable information we provide is not comprehensively available from any other source and our scope of information would be difficult and costly for another party to replicate.
We combine our proprietary information assets with advanced analytics, transformative technology and domain expertise to develop clinical and commercial capabilities that enable us to grow our relationships with healthcare stakeholders throughout the life science’s value chain. This set of capabilities includes:
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A leading healthcare-specific global IT infrastructure, representing what we believe is one of the largest and most sophisticated information technology (“IT”) infrastructures in healthcare. We receive over 95 billion healthcare records annually, and our infrastructure then connects complex healthcare data while applying a wide range of privacy, security, operational, legal and contractual protections for data in response to local law, supplier requirements and industry leading practices;
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Analytics-driven clinical development, which improves clinical trial design, site identification and patient recruitment by empowering therapeutic, scientific, and domain experts with expansive levels of information, including product level tracking in 90 markets, and information about treatments and outcomes on more than 800 million non-identified patients globally;
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Robust real world solutions ecosystem, with sophisticated retrospective database analytics, prospective real world data collection technology platforms and scientific expertise, which enables us to address critical healthcare issues of cost, value and patient outcomes;
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A growing set of proprietary clinical and commercial applications, which helps our clients increase their clinical operations performance, supports their regulatory and compliance needs and orchestrates their sales operations, sales management, multi-channel marketing and performance management; and
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A staff of approximately 67,000 employees across the globe, including over 23,000 Technology & Analytics Solutions employees, approximately 35,000 Research & Development Solutions employees and approximately 7,000 Contract Sales & Medical Solutions employees.
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Integration of information, analytics, technology, and domain expertise through the IQVIA CORE, which enables us to provide our clients with more effective options to address their needs from Research and Development through commercialization as well as truly innovative breakthroughs such as virtual trials and global real-world evidence networks.
Our Market Opportunity
We compete in a market of greater than $230 billion consisting of outsourced research and development, real-world evidence and connected health and technology enabled clinical and commercial operations markets for life sciences companies and the broader healthcare industry. The following sets forth our estimates for the size of our principal markets:
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Outsourced research and development: Biopharmaceutical spending on drug development totaled over $100 billion in 2019. Of that amount, we estimate that our addressable opportunity (clinical development spending excluding preclinical spending) was approximately $66 billion. The portion of this addressable opportunity that was outsourced in 2019, based on our estimates, was approximately $35 billion;
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Real-World Evidence and connected health: Total addressable market of approximately $80 billion based on 2019 sales that consists of two relatively equal parts. First, the market for Real-World Evidence of approximately $40 billion includes traditionally defined analytic platforms and implementation, medical and scientific analytic services, observation studies and market access. Second, the market for connected healthcare of approximately $40 billion includes areas such as revenue cycle management, payer analytics and clinical decision support services; and
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Technology enabled commercial operations: Total addressable market of approximately $50 billion based on 2019 sales that includes information, data warehousing, IT outsourcing, software applications and other services in the broader market for IT services. This addressable market also includes commercial services such as recruiting, training, deploying and managing global sales forces, channel management, patient engagement services, market access consulting, brand communication, advisory services, and health information analytics and technology consulting.
In deriving estimates of the size of the various markets described above, we review third-party sources, which include estimates and forecasts of spending in various segments, in combination with internal IQVIA research and analysis informed by our experience serving these segments, as well as projected growth rates for each of these segments. See “Industry and Market Data” above.
We believe there are six key trends affecting our end markets that will create increasing demand for research and development services, technology & analytics solutions and contract and medical solutions:
Growth and innovation in the life sciences industry. The life sciences industry is a large and critical part of the global healthcare system, and, according to the latest information available from the IQVIA Market Prognosis service, is estimated to have generated approximately $1.25 trillion in revenue in 2019. According to our research, revenue growth in the life sciences industry globally is expected to range from 3% to 6% between 2020 and 2024. According to the IQVIA Institute, it is estimated that spending on pharmaceuticals in emerging markets will expand at a 5% to 8% compound annual growth rate (“CAGR”) through 2024. The growth of emerging markets is making these geographies strategically important to life sciences organizations and, consistent with their approach in the developed markets, we expect these organizations to apply a high degree of sophistication to their commercial operations in these countries. For global companies, this requires highly localized knowledge and information assets, the development of market access strategies and performance benchmarking. In addition, local players are learning that they need to compete on the basis of improved information and analytics.
Growth in Research and Development. Spending trends in research and development are impacted as a result of several factors, including major biopharmaceutical companies’ efforts to replenish revenues lost from the so-called “patent cliff,” increased access to capital by the small and midcap biotechnology industry, and recent increases in pharmaceutical approvals by regulatory authorities. The IQVIA Institute also estimates that approximately 270 new molecular entities (“NMEs”) are expected to be approved between 2020 and 2024, compared to 236 between 2015 and 2019, and 200 between 2010 and 2014. We believe that further research and development spending, combined with the continued need for cost efficiency across the healthcare landscape, will continue to create opportunities for biopharmaceutical services companies, particularly those with a global reach and broad service offerings, to help biopharmaceutical companies with their pre- and post-launch solutions development and commercialization needs.
Increased Complexity in Research and Development. Biopharmaceutical companies face environments in which it has become increasingly difficult to operate. Improved standards of care in many therapeutic areas and the emergence of new types of therapies, such as biologics, genetically targeted therapies, gene and stem cell therapies, and other treatment modalities have led to more complex development and regulatory pathways. We believe that our global clinical development capabilities, including our expertise in biomarkers and genomics and our global laboratory network, position us well to help biopharmaceutical companies manage the complexities inherent in an environment where this type of expertise is important. For example, the IQVIA CORE helps us validate protocols to ensure studies in new disease areas have greater accuracy and also enables us, through innovations such as predictive analytics, to find patients who may not have been diagnosed.
Regulators require clinical trials involving local populations as part of the process for approving new pharmaceutical products, especially in certain Asian and emerging markets. Understanding the epidemiological and physiological differences in different ethnic populations and being able to conduct clinical trials locally in certain geographies will be important to pharmaceutical product growth strategies, both for multinational and local/regional biopharmaceutical companies. We believe that our global clinical development capabilities and unmatched presence in Asia and other emerging markets make us a strong partner for biopharmaceutical companies managing the complexities of international drug development.
Financial pressures driving the need for increased efficiency. Despite expected accelerating growth in the global life sciences market, we believe our clients will face increased operating margin pressure due to their changing product mix, pricing and reimbursement challenges, and rising costs of compliance. Product portfolios for life sciences companies have shifted toward specialty products with lower peak market sales potential than traditional primary care medicines. We believe that the need for biopharmaceutical companies to maximize productivity and lower costs across their processes from research and development through commercial operations will cause them to look to partners as they enter into outsourcing arrangements to improve efficiency. Further, our clients are looking for new ways to simplify processes and drive operational efficiencies by using automation, consolidating vendors and adopting new technology options such as hosted and cloud-based applications. This provides opportunities for technology services vendors to capture and consolidate internal spending by providing lower-cost and variable-cost options that lower clients’ research and development, selling, marketing and administrative costs.
Evolving need to integrate and structure expanding sources of data. Over the past decade, many health systems around the world have focused on digitizing medical records. While such records theoretically enhance access to data, relevant information is often unintegrated, unstructured, siloed in disparate software systems, or entered inconsistently. In addition, new sources of data from the internet, such as social media and information on limited patient pools, and information resulting from enhanced diagnostic technologies are creating new sources of healthcare data.
In order to derive valuable insights from existing and expanding sources of information, clients need access to statistically significant data sets organized into databases that can be queried and analyzed. For example, real-world evidence studies demonstrate practical and clinical efficacies, which we believe require the aggregation and integration of large clinical data sets across all care settings, types of therapies and patient cohorts. Longitudinal studies require analysis of non-identified patient diagnoses, treatments, procedures and laboratory test results to identify types of patients that will likely best respond to particular therapies. Finally, manufacturers also require the ability to analyze social media activity to identify unmet patient needs and support for new orphan drugs. This information is highly relevant to all healthcare stakeholders and we believe the opportunity to more broadly apply healthcare data can only be realized through structuring, organizing and integrating new and existing forms of data in conjunction with sophisticated analytics.
Need for demonstrated value in healthcare. Participants in the healthcare industry are focused on improving quality and reducing costs, both of which require assessment of quality and value of therapies and providers. As a result, physicians no longer make prescribing decisions in isolation, but rather in the context of guidance and rules from payers, integrated delivery networks and governments. We believe life sciences companies are working to bring alignment across constituents on the value of their treatments in order to successfully develop and commercialize new therapies.
There is increasing pressure on life sciences companies to support and justify the value of their therapies. Many new drugs that are being approved are more expensive than existing therapies and will likely receive heightened scrutiny by regulators and payers to determine whether the existing treatment options would be sufficient. Additionally, many new specialty drugs are molecular-based therapies and require a more detailed understanding of clinical factors and influencers that demonstrate therapeutic value. As a result, leading life sciences companies are utilizing more sophisticated outcome research and data analytics services.
We believe we are well positioned to take advantage of these global trends in healthcare. Beyond our proprietary information assets, we have developed key capabilities to assess opportunities to develop and commercialize therapies, support and defend the value of medicines and help our clients operate more efficiently through the application of insight-driven decision-making and cost-efficient technology solutions.
Our Growth Strategy
We believe we are well positioned for continued growth across the markets we serve. Our strategy for achieving growth includes:
Continue to innovate by leveraging our information, advanced analytics, transformative technology and significant domain expertise. As a leader in the development and commercialization of new pharmaceutical therapies, we can empower our therapeutic, scientific and domain experts with expansive levels of information including product level tracking in 90 markets and information about treatments and outcomes on more than 800 million non-identified patients. By integrating these capabilities in the IQVIA CORE, we have the ability to optimize the clinical trial process and enable our clients to reduce costs and get their products to market more quickly through more informed site selection, faster patient recruitment practices and virtual trials. We transform Real World Evidence by linking prospective and retrospective approaches and introduce innovation such as secondary control arms, which eliminate the need for a placebo group. We bring best in class SaaS platforms, purpose built for life sciences, to our clients to help them run their clinical and commercial operations more efficiently.
Build upon our extensive client relationships. We have a diversified base of over 8,000 clients in over 100 countries and have expanded our client value proposition to address a broader market for research and development and commercial operations which we estimate to be more than $230 billion in 2019. Through the combined offerings of research and development and commercial services we built a platform that allows us to be a more complete partner to our clients.
Expand portfolio through strategic acquisitions. We have and expect to continue to acquire assets and businesses that strengthen our value proposition to clients. We have developed an internal capability to source, evaluate and integrate acquisitions that have created value for stockholders. As the global healthcare landscape evolves, we expect that there will be a growing number of acquisition opportunities across the life sciences, payer and provider sectors. We expect to continue to invest in or explore opportunities for strategic acquisitions to grow our platform and enhance our ability to provide more services to our clients.
Expand the penetration of our offerings to the broader healthcare marketplace. We believe that substantial opportunities exist to use our existing technology and domain expertise to serve additional healthcare stakeholders (payers, providers, healthcare professionals) to quantify and optimize cost of care delivery; provide registry technology to professional association and patient communities and support healthcare providers with system implementation and platform migration.
Our Offerings
We offer hundreds of distinct services, applications, technology platforms and solutions to help our clients make critical decisions and perform better. We have three operating segments: Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Their offerings complement each other and can provide enhanced value to our clients when delivered together, with each driving demand for the other.
Our Technology & Analytics Solutions offerings include:
Technology platforms. We provide an extensive range of cloud-based applications and associated implementation services. Software as a Service (“SaaS”) solutions that support a wide range of clinical and commercial processes, including clinical trial design and planning, site start-up, patient consent, site payments, content management, multi-channel marketing, real-world evidence generation, customer relationship management (“CRM”), performance management, incentive compensation, territory alignment, roster management, call planning, compliance and safety reporting and master data management. These solutions are used by healthcare companies to manage, optimize and execute their clinical and commercial strategies in an orchestrated manner while addressing their regulatory obligations. Using proprietary algorithms, we combine our country-level data, healthcare expertise and therapeutic knowledge in over 100 countries to create our Global Market Insight family of offerings such as MIDAS, Analytics Link and Disease Insights, which provides a leading source of insight into international market dynamics and are used by most large pharmaceutical companies.
Real World Solutions. We enable life sciences and provider customers to generate and disseminate evidence in a cost-efficient manner which informs health care decision making and ultimately improves patients’ outcomes. Our use of a wide range of privacy and security safeguards protect non-identified patient-level medical claims, prescriptions, electronic medical records, genomics,
patient reported outcome and social media data. Our scaled information networks include more than 800 million non-identified patients globally. We technology-enable these data flows by harmonizing them to common data models and loading them onto our proprietary evidence platforms for secure access by our customers. We provide access to deep clinical data in Oncology, Rare Disease, and other specialty areas. Our Natural Language Processing capabilities help us create structured data from unstructured clinical notes. We help our global customers across payers, providers, governments, and biopharmaceutical companies to answer critical questions about healthcare interventions related to safety, effectiveness, and value. We also bring together stakeholders across healthcare to collaborate in efforts to develop new information sources, more effective reimbursement models, and better patient outcomes.
Analytics and consulting services. We provide a broad set of strategic and implementation consulting services, including advanced analytics and commercial processes outsourcing services to help the commercial operations of life sciences companies successfully transform their commercial models, engage more effectively with the healthcare stakeholders and reduce their operating costs. We also help our client’s R&D function to address strategic challenges in the drug development process. Our global teams leverage local market knowledge, deep scientific and therapeutic area expertise and our global information resources to assist our clients with R&D strategy, portfolio, brand and commercial strategy, as well as pricing and market access and launch excellence.
Information offerings. Our national offerings comprise unique services in over 100 countries that provide consistent country level performance metrics related to sales of pharmaceutical products, prescribing trends, medical treatment and promotional activity across multiple channels including retail, hospital and mail order. Our sub-national offerings comprise unique services in over 70 countries that provide a consistent measurement of sales or prescribing activity at the regional, zip code and individual prescriber level (depending on regulation in the relevant country). Our widely used reference database that tracks approximately 20 million healthcare professionals in over 100 countries, providing a comprehensive view of health care practitioners that is critical for the commercial success of our clients’ marketing and sales initiatives.
Our Research & Development Solutions offerings include:
Project Management and Clinical Monitoring. Drawing upon our years of experience, our site databases, our site relationships and our highly trained staff, our solutions and services enables the efficient conduct and coordination of multi-site clinical trials (generally Phase II-IV). Our service offerings include protocol design, feasibility and operational planning, site start up, patient recruitment and clinical site monitoring. By infusing technology into field-based monitoring, we are able to reduce data collection steps and time.
Clinical Trial Support Services. Each clinical trial requires a number of concurrent services and data streams. We offer a broad range of functional services and consultation to support clinical trials through specialized expertise that help clients efficiently collect, analyze and report the quality data and evidence they need to gain regulatory approval.
Q2 Solutions. We provide our clients globally scaled end-to-end clinical trial laboratory and research services through our majority-owned joint venture with Quest Diagnostics Incorporated (“Quest”), which was formed on July 1, 2015. We offer the full range of central laboratory, genomic, bioanalytical, ADME, discovery, vaccine and biomarker laboratory services along with sample and consent tracking services supporting clinical trials offerings within the joint venture, which is referred to as Q2 Solutions.
Strategic Planning and Design. By bringing our data science capabilities to our strategic planning and design services, we offer consultation services to improve decisions and performance including portfolio, program and protocol planning and design, biomarker consultation, benefit-risk management, regulatory affairs, biostatistics, modeling and simulation, and personalized medicine.
Virtual Trials. Utilizing our proprietary information assets and transformative technology, we bring trials directly to patients, with the objective of increasing participation and improving cycle times. Combining this with purpose-built processes and industry-leading clinical capabilities, we help clients reach diverse and difficult to recruit patient populations.
Our principal Contract Sales & Medical Solutions offerings include:
Health Care Provider Engagement Services. We partner with biopharmaceutical companies and other life sciences providers (e.g., medical device companies) to develop and deploy tailored stakeholder engagement solutions, including contract sales and market access professionals, which are focused on product sales and improving brand value at all stages of the product lifecycle from initial market entry to brands nearing patent expiry.
Patient Engagement Services. Our nurse-based programs directly engage with patients to help improve their disease and medication understanding through interventional and non-interventional support, while also providing assistance in navigating complex reimbursement coverage issues. Our patient engagement services combine insight from clinical trials and social listening,
behavioral design, personal and innovative eHealth multichannel interactions across multiple sites (e.g., the physician’s office, hospital, pharmacy, home), that act as an extension of the Health Care Provider prescribed treatment course which can lead to improved adherence and better overall outcomes.
Medical Affairs Services. We provide a range of scientific strategy and medical affairs services to help biopharmaceutical companies plan and transition from the clinical trial setting to commercialization. Beginning in the clinical trial stage, our services can deploy educators to clinical trial sites to accelerate patient recruitment and improve retention, assist in translation of complex clinical trial data into a compelling scientific platform and publication strategy, and, provide field medical teams to facilitate scientific engagement with key opinion leaders and healthcare decision makers, before and after product approval.
Our Clients
Sales to companies in life sciences, including pharmaceutical companies, biotechnology companies, device and diagnostic companies, and consumer health companies, accounted for the majority of our revenues. Nearly all of the top 100 global pharmaceutical and biotechnology companies, measured by revenue, are clients, and many of these companies subscribe to reports and services in many countries. Other clients include payers, government and regulatory agencies, providers, pharmaceutical distributors, and pharmacies. Our client base is broad in scope and enables us to avoid dependence on any single client. No single client accounted for 10% or more of our total company revenues in 2019, 2018 or 2017. As of December 31, 2019 the largest client based on its percentage of total company revenue contributed approximately 5%.
Our Competition
Our Technology & Analytics Solutions business competes with a broad and diverse set of businesses. While we believe no competitor provides the combination of geographical reach and breadth of its services, we generally compete in the countries in which we operate with other information, analytics, technology, services and consulting companies, as well as with the in-house capabilities of our clients. Also, we compete with certain government agencies, private payers and other healthcare stakeholders that provide their data directly to others. In addition to country-by-country competition, we have a number of regional and global competitors in the marketplace as well. Our offerings compete with various firms, including Accenture, Aetion, Boston Health Economics, Cognizant Technology Solutions, Covance Inc., Deloitte, Evidera (now part of PPD), GfK, LexisNexis Risk Solutions, IBM, Infosys, Kantar Health, McKinsey, Nielsen, OptumInsight, PAREXEL International Corporation, Press Ganey, RTI Health Solutions, PRA Health Sciences, Tempus, Veeva, and ZS Associates. We also compete with a broad range of new entrants and start-ups that are looking to bring new technologies and business models to healthcare information services and technology services.
The markets for Research & Development Solutions offerings are highly competitive, and we compete against traditional contract research organizations (“CROs”), the in-house research and development departments of biopharmaceutical companies, universities, and teaching hospitals. Among the traditional CROs, there are several-hundred small, limited-service providers, several medium-sized firms and only a few full-service companies with global capabilities. Our primary competitors include Covance Inc., ICON plc, PAREXEL International Corporation, Pharmaceutical Product Development, Inc., PRA Health Sciences, and Syneos Health, among others.
Our Contract Sales & Medical Solutions business competes against the in-house sales and marketing departments of biopharmaceutical companies, other contract pharmaceutical sales and service organizations and consulting firms. Contract Sales & Medical Solutions’ primary competitor in the United States is Syneos Health, Publicis and United Drug plc. Outside of the United States, Contract Sales & Medical Solutions typically competes against single country or more regionally focused service providers, such as United Drug plc, Syneos Health, EPS Corporation and CMIC HOLDINGS Co., Ltd.
Government Regulation
Many aspects of our businesses are regulated by federal and state laws, rules and regulations. Accordingly, we maintain a robust compliance program aimed at ensuring we operate our business in compliance with all existing legal requirements material to the operation of our businesses. There are, however, occasionally uncertainties involving the application of various legal requirements, the violation of which could result in, among other things, fines or other sanctions. See Part I, Item 1A, "Risk Factors” for additional detail.
Good Clinical Practice
Good Clinical Practice (“GCP”) regulations and guidelines are the industry standard for the conduct of clinical trials with respect to maintaining the integrity of the data and safety of the research subjects. The United States Food and Drug Administration (“FDA”), the European Medicines Agency (“EMA”), Japan’s Ministry of Health, Labour and Welfare and most other global
regulatory authorities expect that study results and data submitted to such authorities be based on clinical trials conducted in accordance with GCP provisions. Records for clinical trials must be maintained for specified periods for inspection by the FDA and other regulators.
Regulation of Drugs, Biologics and Medical Devices
In the United States, pharmaceutical, biological and medical device products are subject to extensive regulation by the FDA. The Federal Food, Drug, and Cosmetic Act (“FDC Act”), the Public Health Service Act (“PHS Act”), and other federal and state statutes and regulations, govern, among other things, the research, development, testing, manufacture, storage, recordkeeping, approval, labeling, promotion and marketing, distribution, post-approval monitoring and reporting, sampling, and import and export of pharmaceutical, biological and medical device products. Failure to comply with applicable United States requirements may subject a company to a variety of administrative or judicial sanctions, such as FDA refusal to approve a pending new drug application (“NDA”) for a new drug, a biologics license application (“BLA”) for a new biological product pre-market approval (“PMA”) or clearance for a new medical device, warning or untitled letters, clinical holds, product recalls, product seizures, total or partial suspension of production or distribution, injunctions, fines, civil penalties, and criminal prosecution.
Regulation of Patient Information
Our information management services relate to the processing of information regarding patient diagnosis and treatment of disease and are, therefore, subject to substantial governmental regulation. In addition, the confidentiality of patient-specific information and the circumstances under which such patient-specific records may be released for inclusion in our databases or used in other aspects of our business is heavily regulated. Federal, state and foreign governments are contemplating or have proposed or adopted additional legislation governing the possession, use and dissemination of personal data, such as personal health information and personal financial data, as well as security breach notification rules for loss or theft of such data. Additional legislation or regulation of this type might, among other things, require us to implement additional security measures and processes or bring within the legislation or regulation de-identified health or other data, each of which may require substantial expenditures or limit our ability to offer some of our services.
In particular, personal health information is recognized in many countries such as the United States, the European Union, or EU, and several countries in Asia, as a special, sensitive category of personal information, subject to additional mandatory protections. Violations of data protection regulations are subject to administrative penalties, civil money penalties and criminal prosecution, including corporate fines and personal liability.
Regulation of Promotion, Marketing and Distribution of Pharmaceutical Products and Medical Devices
Certain of our services are subject to detailed and comprehensive regulation in each geographic market in which we operate. Such regulation relates, among other things, to the distribution of drug samples, the marketing and promotion of approved products, the qualifications of sales representatives and the use of healthcare professionals in sales functions.
In the United States, certain of our services are subject to numerous federal and state laws pertaining to promotional activities involving pharmaceutical products and medical devices. Certain of our services are subject to the FDA’s regulations against “off-label promotion,” which require sales representatives to restrict promotion of the approved product they are detailing to the approved labeling for the product. The Prescription Drug Marketing Act imposes licensing, personnel record keeping, packaging, labeling, product handling and facility storage and security requirements. Other federal and state laws prohibit manufacturers, suppliers and providers from offering, giving or receiving kickbacks or other remuneration in connection with ordering or recommending the purchase or rental of healthcare items and services. The sale or distribution of pharmaceutical products and devices is also governed by the United States Federal Trade Commission Act and state consumer protection laws. We are subject to similar regulations currently in effect in the other countries where we offer Contract Sales & Medical Solutions.
We are also subject to various laws and regulations that may apply to certain drug and device promotional practices, including, among others, various aspects of Medicare and federal healthcare programs. Violations of these laws and regulations may result in criminal and/or civil penalties, including possibly as an “aider and abettor.”
Regulation of Laboratories
Our United States laboratories are subject to licensing and regulation under federal, state and local laws relating to hazard communication and employee right-to-know regulations, and the safety and health of laboratory employees. Additionally, our United States laboratories are subject to applicable federal and state laws and regulations and licensing requirements relating to the handling, storage and disposal of hazardous waste, radioactive materials and laboratory specimens, including the regulations of the
Environmental Protection Agency, the Nuclear Regulatory Commission, the Department of Transportation, the National Fire Protection Agency and the United States Drug Enforcement Administration (“DEA”). The use of controlled substances in testing for drugs with a potential for abuse is regulated in the United States by the DEA and by similar regulatory bodies in other parts of the world. Our United States laboratories using controlled substances for testing purposes are licensed by the DEA. The regulations of the United States Department of Transportation, Public Health Service and Postal Service apply to the surface and air transportation of laboratory specimens. Our laboratories also are subject to International Air Transport Association regulations, which govern international shipments of laboratory specimens. Furthermore, when the materials are sent to a foreign country, the transportation of such materials becomes subject to the laws, rules and regulations of such foreign country. Our laboratories outside the United States are subject to applicable national laws governing matters such as licensing, the handling and disposal of medical specimens, genetic material, hazardous waste and radioactive materials, as well as the health and safety of laboratory employees.
In addition to its comprehensive regulation of safety in the workplace, the United States Occupational Safety and Health Administration has established extensive requirements relating to workplace safety for healthcare employers whose workers may be exposed to blood-borne pathogens such as HIV and the hepatitis B virus. Although we believe that we are currently in compliance in all material respects with such federal, state and local laws, failure to comply with such laws could subject us to denial of the right to conduct business, fines, criminal penalties and other enforcement actions.
Further, laboratories that analyze human blood or other biological samples for the diagnosis and treatment of clinical trial subjects must comply with Clinical Laboratory Improvement Amendments (“CLIA”), as well as requirements established by various states. The failure to meet these requirements may result in civil penalties and suspension or revocation of the CLIA certification.
Our Intellectual Property
In addition to our proprietary data sets described above, we develop and use a number of proprietary methodologies, analytics, systems, technologies and other intellectual property in the conduct of our business. We rely upon a combination of legal, technical, and administrative safeguards to protect our proprietary and confidential information and trade secrets, and patent, copyright and trademark laws to protect other intellectual property rights. We consider our trademark and related names, marks and logos to be of material importance to our business, and we have registered or applied for registration for certain of these trademarks including IQVIA, in the United States and other jurisdictions and aggressively seek to protect them. Trademarks and service marks generally may be renewed indefinitely so long as they are in use and/or their registrations are properly maintained, and so long as they have not been found to have become generic. The technology and other intellectual property rights owned and licensed by us are of importance to our business, although our management believes that our business, as a whole, is not dependent upon any one intellectual property or group of such properties.
Our Employees
As of December 31, 2019, we have approximately 67,000 employees worldwide. Almost all of these employees are full-time. None of our employees are covered by a collective bargaining agreement or are represented by a labor union. Employees in certain locations outside of the United States are represented by works councils as required by local laws.
Available Information
Our website address is www.iqvia.com, and our investor relations website is located at http://ir.iqvia.com. Information on our website is not incorporated by reference herein. Copies of our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and our Proxy Statements for our annual meetings of stockholders, and any amendments to those reports, as well as Section 16 reports filed by our insiders, are available free of charge on our website as soon as reasonably practicable after we file the reports with, or furnish the reports to, the Securities and Exchange Commission (“SEC”). In addition, the SEC maintains an Internet site (http://www.sec.gov) containing reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Information on the SEC’s website does not constitute part of this report. Also posted on our website are our certificate of incorporation and by-laws, the charters for our Audit Committee, Leadership Development and Compensation Committee and Nominating and Governance Committee, our Corporate Governance Guidelines, and our Code of Conduct governing our directors, officers and employees. Copies of our SEC reports and corporate governance information are available in print upon the request of any stockholder to our Investor Relations Department. Within the time period required by the SEC and the New York Stock Exchange (“NYSE”), we will post on our website any amendment to the Code of Conduct or any waiver of such policy applicable to any of our senior financial officers, executive officers or directors.
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Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
As of December 31, 2019, we had approximately 303 offices located in approximately 82 countries. Our executive headquarters are located adjacent to Research Triangle Park, North Carolina and in Danbury, Connecticut. We own facilities in Buenos Aires, Argentina; Caracas, Venezuela; Los Ruices, Venezuela; and Bangalore, India. All of our other offices are leased. Our properties are geographically distributed to meet our worldwide operating requirements, and none of our properties are individually material to our business operations. Many of our leases have an option to renew, and we believe that we will be able to successfully renew expiring leases on terms satisfactory to us. We believe that our facilities are adequate for our operations and that suitable additional space will be available if needed.
Item 3. Legal Proceedings
Information pertaining to legal proceedings can be found in Note 12 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K and is incorporated by reference herein.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information for Common Stock
Our common stock trades on the NYSE under the symbol “IQV.”
Holders of Record
On February 7, 2020, we had approximately 35 stockholders of record as reported by our transfer agent. Holders of record are defined as those stockholders whose shares are registered in their names in our stock records and do not include beneficial owners of common stock whose shares are held in the names of brokers, dealers or clearing agencies.
Dividend Policy
We do not currently intend to pay dividends on our common stock, and no dividends were declared or paid in 2019 or 2018. However, we expect to reevaluate our dividend policy on a regular basis and may, subject to compliance with the covenants contained in our Senior Secured Credit Facilities and long-term debt arrangements and other considerations, determine to pay dividends in the future. The declaration, amount and payment of any future dividends on shares of our common stock will be at the sole discretion of our Board, which may take into account general and economic conditions, our financial condition and results of operations, our available cash and current and anticipated cash needs, capital requirements, contractual, legal, tax and regulatory restrictions, the implications of the payment of dividends by us to our stockholders or by our subsidiaries to us, and any other factors that our Board may deem relevant. Our long-term debt arrangements contain usual and customary restrictive covenants that, among other things, place limitations on our ability to declare dividends. For additional information regarding these restrictive covenants, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Recent Sales of Unregistered Securities
We did not sell any unregistered equity securities in 2019.
Purchases of Equity Securities by the Issuer
On October 30, 2013, our Board of Directors (the “Board”) approved an equity repurchase program (the “Repurchase Program”) authorizing the repurchase of up to $125.0 million of either our common stock or vested in-the-money employee stock options, or a combination thereof. Our Board increased the stock repurchase authorization under the Repurchase Program with respect to the repurchase of our common stock by $600 million, $1.5 billion, $2 billion, $1.5 billion, and $2.0 billion in 2015, 2016, 2017, 2018, and 2019, respectively, which increased the total amount that has been authorized under the Repurchase Program to $7.725 billion. The Repurchase Program does not obligate us to repurchase any particular amount of common stock or vested in-the-money employee stock options, and it may be modified, extended, suspended or discontinued at any time. The timing and amount of repurchases are determined by our management based on a variety of factors such as the market price of our common stock, our corporate requirements, and overall market conditions. Purchases of our common stock may be made in open market transactions effected through a broker-dealer at prevailing market prices, in block trades, or in privately negotiated transactions. The Repurchase Program for common stock does not have an expiration date. In addition, from time to time, we have repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
From inception of the Repurchase Program through December 31, 2019, we have repurchased a total of $6.0 billion of our securities under the Repurchase Program.
During the year ended December 31, 2019, we repurchased 6,605,804 shares of our common stock for approximately $944.8 million under the Repurchase Program. These amounts include 1,000,000 shares of our common stock, which we repurchased directly from underwriters in connection with a secondary public offering of shares of our common stock held by certain of our Selling Stockholders for an aggregate purchase price of $140.8 million and 1,000,000 shares of our common stock repurchased from certain Selling Stockholders in a private transaction for an aggregate purchase price of approximately $156.9 million. For additional information regarding our equity repurchases, see Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Liquidity and Capital Resources” and Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
As of December 31, 2019, we had remaining authorization to repurchase up to $1.3 billion of our common stock under the Repurchase Program.
Since the Merger between Quintiles and IMS health, we have repurchased 62.9 million shares of our common stock at an average market price per share of $94.77 for an aggregate purchase price of $6.0 billion both under and outside of the Repurchase Program. This includes shares withheld from employees to satisfy certain tax obligations due in connection with grants of stock under the Quintiles IMS Holdings, Inc. 2017 Incentive and Stock Award Plan (the “Plan”). The Plan provides for the withholding of shares to satisfy tax obligations. It does not specify a maximum number of shares that can be withheld for this purpose. The shares of common stock withheld to satisfy tax withholding obligations may be deemed to be “issuer purchases” of shares that are required to be disclosed pursuant to this Item.
The following table summarizes the monthly equity repurchase activity for the three months ended December 31, 2019 and the approximate dollar value of shares that may yet be purchased pursuant to the Repurchase Program.
Stock Performance Graph
This performance graph shall not be deemed “filed” for purposes of Section 18 of the Exchange Act or incorporated by reference into any filing of IQVIA Holdings Inc. under the Exchange Act or under the Securities Act, except as shall be expressly set forth by specific reference in such filing.
The following graph shows a comparison from December 31, 2014 through December 31, 2019 of the cumulative total return for our common stock, the Standard & Poor’s 500 Stock Index (“S&P 500”) and a select peer group. The peer group consists of Cerner Corporation, Charles River Laboratories, Inc., Equifax Inc., ICON plc, IHS Markit Ltd., Laboratory Corporation of America Holdings, Nielsen N.V., PRA Health Sciences, Inc., Syneos Health (formerly INC Research Holdings), Thomson Reuters Corporation and Verisk Analytics, Inc. The companies in our peer group are publicly traded information services, information technology or contract research companies, and thus share similar business model characteristics to IQVIA, or provide services to similar customers as IQVIA. Many of these companies are also used by our compensation committee for purposes of compensation benchmarking.
The graph assumes that $100 was invested in IQVIA, the S&P 500 and the peer group as of the close of market on December 31, 2014, assumes the reinvestments of dividends, if any. The S&P 500 and our peer group are included for comparative purposes only. They do not necessarily reflect management’s opinion that the S&P 500 and our peer group are an appropriate measure of the relative performance of the stock involved, and they are not intended to forecast or be indicative of possible future performance of our common stock.
Item 6. Selected Financial Data
We have derived the following consolidated statements of income data for 2019, 2018 and 2017 and consolidated balance sheet data as of December 31, 2019 and 2018 from our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. We have derived the following consolidated statements of income data for 2016 and 2015 and consolidated balance sheet data as of December 31, 2017, 2016 and 2015 from our audited consolidated financial statements not included in this Annual Report on Form 10-K. You should read the consolidated financial data set forth below in conjunction with our consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K and the information under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Effective January 1, 2018, we adopted the requirements of Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”) and ASU 2017-07, “Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost” (“ASU 2017-07”) using the full retrospective method. As a result of the adoption of ASU 2014-09 and ASU 2017-07, the Company retrospectively adjusted related presentations. We have included the results of operations of acquired businesses from the respective date of acquisition. As a result, our period to period results of operations vary depending on the dates and sizes of the acquisitions. Effective January 1, 2019, we adopted the requirements of ASU 2016-02, Leases (Topic 842): Amendments to the FASB Accounting Standards Codification and elected the transition method which allows for disclosures to be updated prospectively and prior periods to be presented in accordance with previous guidance. Accordingly, this selected financial data is not necessarily comparable or indicative of our future results. You should read this selected consolidated financial data in conjunction with our audited consolidated financial statements and related footnotes included elsewhere in this Annual Report on Form 10-K.
(1)
In 2017, we recognized $40 million of impairment losses for declines in fair value of goodwill and identifiable intangible assets in Encore, which we sold in the third quarter of 2017. In 2016, we recognized $28 million of impairment losses for declines in fair value of goodwill ($23 million) and identifiable intangible assets ($5 million) in Encore. In 2015, we wrote down $2 million related to long-lived assets.
(2)
Merger related costs include the direct and incremental costs associated with the Merger.
(3)
Income tax expense in 2019 includes a reversal of $25 million related to a reversal of an FDII benefit in 2018 due to proposed regulations being issued in 2019. Income tax expense in 2018 includes $(35) million related to finalization of SAB 118 and the impacts of GILTI and FDII. Income tax expense in 2017 includes $(966) million related to the enactment of the Tax Act and $(261) million related to purchase accounting amortization as a result of the Merger. Income tax expense in 2016 includes $252 million related to a change in our indefinitely reinvested assertion on our cumulative foreign earnings as a result of the Merger.
(4)
As a result of the adoption of ASU 2014-09, we retrospectively adjusted 2017 and 2016 related presentations.
(5)
Includes the acquisition of IMS Health effective October 3, 2016.
(6)
Excludes $60 million, $49 million, $44 million, $19 million, $33 million and $22 million of unamortized discounts and debt issuance costs as of December 31, 2019, 2018, 2017, 2016, and 2015.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes included elsewhere in this Annual Report on Form 10-K. Some of the information contained in this discussion and analysis or set forth elsewhere in this Annual Report, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should read the “Risk Factors” section of this Annual Report 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.
Overview
IQVIA is a leading global provider of advanced analytics, technology solutions and contract research services to the life sciences industry. Formed through the Merger of IMS Health and Quintiles, IQVIA applies human data science - leveraging the analytic rigor and clarity of data science to the ever-expanding scope of human science - to enable companies to reimagine and develop new approaches to clinical development and commercialization, speed innovation, and accelerate improvements in healthcare outcomes. Powered by the IQVIA CORE, we deliver unique and actionable insights at the intersection of large scale analytics, transformative technology and extensive domain expertise, as well as execution capabilities to help biotech, medical device, and pharmaceutical companies, medical researchers, government agencies, payers and other healthcare stakeholders tap into a deeper understanding of diseases, human behaviors and scientific advances, in an effort to advance their path toward cures. With approximately 67,000 employees, we conduct operations in more than 100 countries.
We are managed through three reportable segments, Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Technology & Analytics Solutions provides critical information, technology solutions and real world solutions and services to our life science clients. Research & Development Solutions, which primarily serves biopharmaceutical clients, is engaged in research and development and provides clinical research and clinical trial services. Contract Sales & Medical Solutions provides contract sales to both biopharmaceutical clients and the broader healthcare market.
For a description of our service offerings within our segments, refer to Part I, Item 1, “Business”.
Industry Outlook
For information about the industry outlook and markets that we operate in, refer to Part I, Item I, “Our Market Outlook”.
Business Combinations
We have completed and will continue to consider strategic business combinations to enhance our capabilities and offerings in certain areas, including various individually immaterial acquisitions during the years ended December 31, 2019 and 2018. These transactions were accounted for as business combinations and the acquired results of operations are included in our consolidated financial information since the acquisition date. See Note 14 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to these business combinations.
Sources of Revenue
Total revenues are comprised of revenues from the provision of our services. We do not have any material product revenues.
Costs and Expenses
Our costs and expenses are comprised primarily of our costs of revenue, reimbursed expenses and selling, general and administrative expenses. Costs of revenue include compensation and benefits for billable employees and personnel involved in production, trial monitoring, data management and delivery, and the costs of acquiring and processing data for our information offerings; costs of staff directly involved with delivering technology-related services offerings and engagements, related accommodations and the costs of data purchased specifically for technology services engagements; and other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses. As noted above, reimbursed expenses are comprised principally of payments to investigators who oversee clinical trials and travel expenses for our clinical monitors and sales representatives. Selling, general and administrative expenses include costs related to sales, marketing, and administrative functions (including human resources, legal, finance, quality assurance, compliance and general management) for compensation and benefits, travel, professional services, training and expenses for information technology, facilities and depreciation and amortization.
Foreign Currency Translation
In 2019, approximately 40% of our revenues were denominated in currencies other than the United States dollar, which represents approximately 55 currencies. Because a large portion of our revenues and expenses are denominated in foreign currencies and our financial statements are reported in United States dollars, changes in foreign currency exchange rates can significantly affect our results of operations. The revenue and expenses of our foreign operations are generally denominated in local currencies and translated into United States dollars for financial reporting purposes. Accordingly, exchange rate fluctuations will affect the translation of foreign results into United States dollars for purposes of reporting our condensed consolidated results. As a result, we believe that reporting results of operations that exclude the effects of foreign currency rate fluctuations on certain financial results can facilitate analysis of period to period comparisons. This constant currency information assumes the same foreign currency exchange rates that were in effect for the comparable prior-year period were used in translation of the current period results.
Consolidated Results of Operations
For information regarding our results of operations for Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions, refer to “Segment Results of Operations” later in this section.
For a discussion of our results of operations comparison for 2018 and 2017, refer to our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 filed on February 19, 2019. Our reportable segment results of operations comparison for 2018 and 2017 included below within this Annual Report on Form 10-K reflects the change in segment presentation that occurred during the first quarter of 2019.
Revenues
2019 compared to 2018
In 2019, our revenues increased $676 million, or 6.5%, as compared to 2018. This increase was comprised of constant currency revenue growth of approximately $835 million, or 8.0%, and a negative impact of approximately $159 million from the effects of foreign currency fluctuations. The constant currency revenue growth was comprised of a $444 million increase in Technology & Analytics Solutions, a $378 million increase in Research & Development Solutions and a $13 million increase in Contract Sales & Medical Solutions.
Costs of Revenue, exclusive of Depreciation and Amortization
2019 compared to 2018
When compared to 2018, costs of revenue, exclusive of depreciation and amortization, in 2019 increased $554 million, or 8.2%. This increase included a constant currency increase of approximately $690 million, or 10.2%, and a positive impact of approximately $136 million from the effects of foreign currency fluctuations. The constant currency growth was comprised of a $369 million increase in Technology & Analytics Solutions, a $295 million increase in Research & Development Solutions and a $26 million increase in Contract Sales & Medical Solutions.
As a percent of revenues, costs of revenue remained flat compared to 2018.
Selling, General and Administrative Expenses
2019 compared to 2018
The $18 million increase in selling, general and administrative expenses in 2019 as compared to 2018 included a constant currency increase of approximately $60 million, or 3.5%, and a positive impact of approximately $42 million from the effects of foreign currency fluctuations. The constant currency growth primarily consisted of a $34 million increase in Research & Development Solutions and a $37 million increase in general corporate and unallocated expenses. These increases were partially offset by a $6 million decrease in Technology & Analytics Solutions and a $5 million decrease in Contract Sales & Medical Solutions.
Depreciation and Amortization
The $61 million increase in depreciation and amortization in 2019 as compared to 2018 was primarily due to higher intangible asset balances as a result of acquisitions occurring in 2018 and 2019, and increased amortization due to higher capitalized software balances.
Impairment Charges
During 2017, we recognized $40 million of impairment losses for declines in fair value of goodwill and identifiable intangible assets in Encore. See Note 8 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information with respect to impairment charges.
Restructuring Costs
During 2019, we recognized $75 million of restructuring charges, net of reversals for changes in estimates, under our existing restructuring plans as a result of continuing efforts to streamline our global operations. The remaining actions under these plans, as well as actions associated with upcoming 2020 plans, are expected to occur throughout 2020 and are expected to consist of severance, facility closure and other exit-related costs.
During 2018, we recognized $68 million of restructuring charges, net of reversals for changes in estimates, respectively, under our existing restructuring plans.
Interest Income and Interest Expense
Interest income included interest received primarily from bank balances and investments.
Interest expense during 2019 was higher than 2018 due to an increase in the average debt outstanding, primarily as a result of the May 2019 issuance of $1.1 billion of 5.00% senior notes due 2027 and the June 2018 issuance of $1.63 billion of additional term B loans.
Loss on Extinguishment of Debt
During 2019, we incurred $24 million of fees and expenses related to the redemption of our 4.875% senior notes due 2023 in aggregate principal amount of $800 million as discussed further in Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
During 2018, we incurred $2 million of fees and expenses related to the refinancing of our Senior Secured Credit Facilities as discussed further in Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
See “-Liquidity and Capital Resources” for more information on these transactions.
Other Expense (Income), Net
Other income, net for 2019 primarily consisted of a gain related to the remeasurement of a previously held equity interest of an equity method investment upon acquiring the remaining interest as a result of a business combination.
Other expense, net for 2018 primarily consisted of an increase in fair value of acquisition-related contingent consideration and foreign currency net losses partially offset by positive returns on pension assets.
Income Tax Expense (Benefit)
In 2019 the U.S. Treasury Department issued final regulations on the transition tax and proposed regulations on Foreign Derived Intangible Income (“FDII’) which we analyzed. While the final regulations related to the transition tax did not have a material impact on us, the proposed guidance for FDII had an unfavorable impact. Although the proposed guidance for FDII is not authoritative and subject to change in the regulatory review process, we reversed the tax benefit recorded in 2018 by recording a tax expense of $25 million for this impact. It is expected that during 2020 the U.S. Treasury Department will issue final regulations on FDII.
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act is comprehensive legislation that includes provisions that lower the federal corporate income tax rate from 35% to 21% beginning in 2018 and imposes a one-time transition tax on undistributed foreign earnings. ASC 740 “Income Taxes” generally requires the effects of the tax law change to be recorded in the period of enactment. However, the SEC staff issued Staff Accounting Bulletin No. 118 (“SAB 118”) to address situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the Tax Act. During the fourth quarter of 2017, we recognized the tax impacts related to the transition tax on undistributed foreign earnings and the impact to deferred tax assets and liabilities and included these amounts in our consolidated financial statements on a provisional basis. During the fourth quarter of 2018, we completed our accounting for SAB 118 that resulted in a full year benefit of $35 million related to the transition tax. Additionally, in 2018 as a result of the new provisions of the Tax Act, we recorded a benefit of $25 million related to FDII as well as a tax expense of $35 million related to GILTI. Our effective income tax rate was also favorably impacted by a tax benefit of $188 million related to purchase accounting amortization of approximately $813 million as a result of the Merger.
For 2017, we recorded a provisional deferred tax benefit of $966 million related to the revaluation of deferred taxes at the newly enacted 21% rate and the reversal of the deferred tax liability on undistributed foreign earnings net of the newly enacted transition tax. We no longer consider any of our foreign earnings to be indefinitely reinvested. Our effective income tax rate was also favorably impacted by a tax benefit of $261 million related to purchase accounting amortization of approximately $763 million as a
result of the Merger.
Equity in Earnings (Losses) of Unconsolidated Affiliates
Equity in earnings (losses) of unconsolidated affiliates decreased in 2019 compared to 2018 primarily as a result of earnings from our investment in NovaQuest Pharma Opportunities Fund III, L.P. that were recognized in 2018 that did not reoccur in 2019. See Note 4 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional information.
Net Income Attributable to Non-controlling Interests
Net income attributable to non-controlling interests primarily included Quest’s interest in Q2 Solutions.
Segment Results of Operations
Revenues and profit by segment are as follows:
Certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses. These costs primarily consist of stock-based compensation and expenses to integration activities and acquisitions. We also do not allocate depreciation and amortization or impairment charges to our segments. Prior period segment results have been recast to conform to changes to management reporting in 2019. The recast impacts the allocation of selling, general and administrative expenses for 2018 and 2017.
Technology & Analytics Solutions
Revenues
2019 compared to 2018
Technology & Analytics Solutions’ revenues were $4,486 million in 2019, an increase of $349 million, or 8.4%, over 2018. This increase was comprised of constant currency revenue growth of approximately $444 million, or 10.7%, and a negative impact of approximately $95 million from the effects of foreign currency fluctuations. The constant currency growth resulted primarily from revenue growth in the Americas region as well as the Europe and Africa region. The revenue growth in these regions was driven by higher real-world and analytical services as well as incremental revenue from acquisitions.
Costs of Revenue, exclusive of Depreciation and Amortization
2019 compared to 2018
Technology & Analytics Solutions’ costs of revenue, exclusive of depreciation and amortization, were $2,663 million in 2019, an increase of $320 million over 2018. This increase was comprised of constant currency growth of approximately $369 million, or 15.7%, and a positive impact of approximately $49 million from the effects of foreign currency fluctuations. The constant currency increase was primarily due to an increase in compensation and related expenses from higher headcount to support revenue growth and incremental costs from acquisitions.
Selling, General and Administrative Expenses
2019 compared to 2018
Technology & Analytics Solutions’ selling, general and administrative expenses decreased $31 million in 2019 as compared to 2018. This decrease was comprised of a constant currency decrease of approximately $6 million, or 0.8%, and a positive impact of approximately $25 million from the effects of foreign currency fluctuations. The constant currency decrease was primarily related to cost savings initiatives.
Research & Development Solutions
Backlog
Research and Development Solutions contracted backlog increased from $17.1 billion at December 31, 2018 to $19.0 billion at December 31, 2019 and we expect approximately $5.2 billion of this backlog to convert to revenue in the next 12 months. Contracted backlog was $14.8 billion at December 31, 2017. The December 31, 2017 backlog amount has been updated to reflect the adoption of the new revenue standard.
Backlog represents, at a particular point in time, future revenues from work not yet completed or performed under signed contracts. Once work begins on a project, revenues are recognized over the duration of the project. Backlog denominated in foreign currencies are valued each month using the actual average foreign exchange rates in effect during the month.
We believe that backlog may not be a consistent indicator of future revenues because backlog has been and likely will be affected by a number of factors, including the variable size and duration of projects, many of which are performed over several years, cancellations, and changes to the scope of work during the course of projects. Projects that have been delayed remain in backlog, but the timing of the revenue generated may differ from the timing originally expected. Additionally, projects may be terminated or delayed by the customer or delayed by regulatory authorities. In the event that a client cancels a contract, we typically would be entitled to receive payment for all services performed up to the cancellation date and subsequent client-authorized services related to winding down the canceled project. For more details regarding risks related to our backlog, see Part I, Item IA, “Risk Factors-Risks Related to our Business-The relationship of backlog to revenues varies over time.”
Revenues
2019 compared to 2018
Research & Development Solutions’ revenues were $5,788 million in 2019, an increase of $323 million, or 5.9%, over 2018. This increase was comprised of constant currency revenue growth of approximately $378 million, or 6.9%, and a negative impact of approximately $55 million from the effects of foreign currency fluctuations.
The constant currency growth primarily included volume-related increases in clinical services, data management and lab testing volumes as well as incremental revenue from acquisitions.
Costs of Revenue, exclusive of Depreciation and Amortization
2019 compared to 2018
Research & Development Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $215 million, or 5.8%, in 2019 as compared to 2018. This increase included a constant currency increase of approximately $295 million, or 7.9%, and a positive impact of approximately $80 million from the effects of foreign currency fluctuations.
The constant currency increase was primarily due to an increase in compensation and related expenses as well as incremental costs from acquisitions. Compensation and related expenses increased as a result of higher headcount to support revenue growth.
Selling, General and Administrative Expenses
2019 compared to 2018
Research & Development Solutions’ selling, general and administrative expenses increased $22 million, or 3.2%, in 2019 as compared to 2018, which included a constant currency increase of approximately $34 million, or 4.9%, and a positive impact of approximately $12 million from the effects of foreign currency fluctuations. The constant currency increase was primarily related to an increase in compensation and related expenses from higher headcount to support growth and incremental costs from acquisitions.
Contract Sales & Medical Solutions
Revenues
2019 compared to 2018
Contract Sales & Medical Solutions’ revenues were $814 million in 2019, an increase of $4 million, or 0.5%, over 2018. This increase was comprised of a constant currency revenue growth of approximately $13 million, or 1.6%, and a negative impact of approximately $9 million from the effects of foreign currency fluctuations. The constant currency growth was largely due to volume increases in the Americas region.
Costs of Revenue, exclusive of Depreciation and Amortization
2019 compared to 2018
Contract Sales & Medical Solutions’ costs of revenue, exclusive of depreciation and amortization, increased $19 million, or 2.8%, in 2019 as compared to 2018. This increase included a constant currency growth of approximately $26 million, or 3.8%, and a positive impact of approximately $7 million from the effects of foreign currency fluctuations. The constant currency cost of revenue increase was due an increase in compensation and related expenses from higher headcount to support revenue growth.
Selling, General and Administrative Expenses
2019 compared to 2018
Contract Sales & Medical Solutions’ selling, general and administrative expenses decreased $6 million, or 9.0%, in 2019 as compared to 2018, primarily related to cost saving initiatives.
Liquidity and Capital Resources
Overview
We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Our principal source of liquidity is operating cash flows. In addition to operating cash flows, other significant factors that affect our overall management of liquidity include: capital expenditures, acquisitions, investments, debt service requirements, dividends, equity repurchases, adequacy of our revolving credit and receivables financing facilities, and access to the capital markets.
We manage our worldwide cash requirements by monitoring the funds available among our subsidiaries and determining the extent to which those funds can be accessed on a cost-effective basis. The repatriation of cash balances from certain of our subsidiaries could have adverse tax consequences; however, those balances are generally available without legal restrictions to fund ordinary business operations. We have and expect to transfer cash from those subsidiaries to the United States and to other international subsidiaries when it is cost effective to do so.
We had a cash balance of $837 million at December 31, 2019 ($293 million of which was in the United States), a decrease from $891 million at December 31, 2018.
Based on our current operating plan, we believe that our available cash and cash equivalents, future cash flows from operations and our ability to access funds under our revolving credit and receivables financing facilities will enable us to fund our operating requirements and capital expenditures and meet debt obligations for at least the next 12 months. We regularly evaluate our debt arrangements, as well as market conditions, and from time to time we may explore opportunities to modify our existing debt arrangements or pursue additional financing arrangements that could result in the issuance of new debt securities by us or our affiliates. We may use our existing cash, cash generated from operations or dispositions of assets or businesses and/or proceeds from any new financing arrangements or issuances of debt or equity securities to repay or reduce some of our outstanding obligations, to repurchase shares from our stockholders or for other purposes. As part of our ongoing business strategy, we also continually evaluate new acquisition, expansion and investment possibilities or other strategic growth opportunities, as well as potential dispositions of assets or businesses, as appropriate, including dispositions that may cause us to recognize a loss on certain assets. Should we elect to pursue any such transaction, we may seek to obtain debt or equity financing to facilitate those activities. Our ability to enter into any such potential transactions and our use of cash or proceeds is limited to varying degrees by the terms and restrictions contained in our existing debt arrangements. We cannot provide assurances that we will be able to complete any such financing arrangements or other transactions on favorable terms or at all.
Equity Repurchase Program
On February 13, 2019, the Board increased the stock repurchase authorization under the “Repurchase Program by $2.0 billion, which increased the total amount that has been authorized under the Repurchase Program to $7.725 billion since the plan’s inception in October 2013. The Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it may be modified, extended, suspended or discontinued at any time.
As of December 31, 2019, the Company has remaining authorization to repurchase up to $1.3 billion of its common stock under the Repurchase Program. In addition, from time to time, the Company has repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
Additional information regarding the Repurchase Program is presented in Part II, Item 5 “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities” and Note 13 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Debt
As of December 31, 2019, we had $11.7 billion of total indebtedness, excluding $1.1 billion of available borrowings under our revolving credit facilities. See Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K for additional details regarding our credit arrangements.
Our long-term debt arrangements contain customary restrictive covenants and, as of December 31, 2019, we believe we were in compliance with our restrictive covenants in all material respects.
Senior Secured Credit Facilities and Senior Notes
At December 31, 2019, our Fourth Amended and Restated Credit Agreement, as amended (the “Credit Agreement”) provided financing through several senior secured credit facilities (collectively, the “Senior Secured Credit Facilities”) of approximately $6,811 million, which consisted of $5,677 million principal amount of debt outstanding, $3 million of issued standby letters of credit, and $1,131 million of available borrowing capacity on the $1,500 million revolving credit facility. The revolving credit facility is comprised of a $675 million senior secured revolving facility available in U.S. dollars, a $600 million senior secured revolving facility available in U.S. dollars, Euros, Swiss Francs and other foreign currencies, and a $225 million senior secured revolving facility available in U.S. dollars and Yen. The term A loans and revolving credit facility under the Credit Agreement mature in June 2023, while the term B loans under the Credit Agreement mature in 2024 and 2025. We are required to make scheduled quarterly payments on the term A loans equal to 1.25% of the original principal amount, with the remaining balance paid at maturity. We are required to make scheduled quarterly payments on the term B loans equal to approximately 0.25% of the original principal amount, with the remaining balance paid at maturity. In addition, beginning with fiscal year ending December 31, 2017, we were required to apply 50% of excess cash flow (as defined in the Credit Agreement), subject to a reduction to 25% or 0% depending upon our senior secured first lien net leverage ratio, for prepayment of the term loans, with any such prepayment to be applied toward principal payments due in subsequent quarters. We are also required to pay an annual commitment fee that ranges from 0.20% to 0.35% in respect of any unused commitments under the revolving credit facility. The Senior Secured Credit Facilities are collateralized by substantially all of our assets and the assets of our material domestic subsidiaries including 100% of the equity interests of substantially all of our material domestic subsidiaries and 66% of the equity interests of substantially all of our first-tier material foreign subsidiaries and their domestic subsidiaries.
For information regarding the Senior Secured Credit Facilities and senior notes, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Receivables Financing Facility
For information regarding receivables financing facility, see Note 10 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. As of December 31, 2019, no additional amounts of revolving loans were available under the receivables financing facility.
Years ended December 31, 2019, 2018 and 2017
Cash Flow from Operating Activities
2019 compared to 2018
Cash provided by operating activities increased $163 million in 2019 as compared to 2018. The increase is primarily due to improved collections on receivables, higher cash-related net income and the timing of income tax and other payables.
Cash Flow from Investing Activities
2019 compared to 2018
Cash used in investing activities increased $380 million in 2019 as compared to 2018. The increase was primarily due to higher cash used for the acquisition of property, equipment and software ($123 million) and for the acquisition of businesses ($279 million).
Cash Flow from Financing Activities
2019 compared to 2018
Cash used in financing activities decreased $176 million in 2019 as compared to 2018. The decrease in cash used in financing activities was primarily related to fewer share repurchases ($456 million), proceeds from debt issuance ($269 million), partially offset by repayment of revolving credit facility, net of proceeds ($370 million) and debt repayment ($167 million).
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 in Note 12 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K. 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.
We believe that we have made appropriate arrangements in respect of the future effect on us of these known contingencies. We also believe 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.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements except for operating leases entered into in the normal course of business.
Contractual Obligations and Commitments
Below is a summary of our future payment commitments by year under contractual obligations as of December 31, 2019:
(1)
Interest payments on our debt are based on the interest rates in effect on December 31, 2019.
(2)
Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and that specify all significant terms, including fixed or minimum quantities to be purchased, fixed, minimum or variable pricing provisions and the approximate timing of the transactions.
(3)
We are currently committed to invest $120 million in private equity funds. As of December 31, 2019, we have funded approximately $77.5 million of these commitments and we have approximately $42.5 million remaining to be funded which has not been included in the above table as we are unable to predict when these commitments will be paid.
(4)
Amounts represent expected future benefit payments for our pension and postretirement benefit plans, as well as expected contributions for 2020 for our funded pension benefit plans. We made cash contributions totaling approximately $29 million to our defined benefit plans in 2019, and we estimate that we will make contributions totaling approximately $29 million to our defined benefit plans in 2020. Due to the potential impact of future plan investment performance, changes in interest rates, changes in other economic and demographic assumptions and changes in legislation in foreign jurisdictions, we are not able to reasonably estimate the timing and amount of contributions that may be required to fund our defined benefit plans for periods beyond 2020.
(5)
As of December 31, 2019, our liability related to uncertain income tax positions was approximately $134 million, $87 million of which has not been included in the above table as we are unable to predict when these liabilities will be paid due to the uncertainties in the timing of the settlement of the income tax positions.
Application of Critical Accounting Policies
Note 1 to the audited consolidated financial statements provided elsewhere in this Annual Report on Form 10-K describes the significant accounting policies used in the preparation of the consolidated financial statements. The preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. Our estimates are based on historical experience and various other assumptions we believe are reasonable under the circumstances. We evaluate our estimates on an ongoing basis and make changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from those estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
Revenue Recognition
The majority of the Company’s contracts within the Research & Development Solutions segment are service contracts for clinical research that represent a single performance obligation. The Company provides a significant integration service resulting in a combined output, which is clinical trial data that meets the relevant regulatory standards and can be used by the customer to progress to the next phase of a clinical trial or solicit approval of a treatment by the applicable regulatory body. The performance obligation is satisfied over time as the output is captured in data and documentation that is available for the customer to consume over the course of the arrangement and furthers progress of the clinical trial. The Company recognizes revenue over time using a cost-based input method since there is no single output measure that would fairly depict the transfer of control over the life of the performance obligation. Progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract. Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and other pass through expenses for the Company’s clinical monitors). This cost-based method of revenue recognition requires the Company to make estimates of costs to complete its projects on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price or costs to complete a project are recorded in the period in which the estimate is revised. Most contracts may be terminated upon 30 to 90 days notice by the customer; however, in the event of termination, most contracts require payment for services rendered through the date of termination, as well as for subsequent services rendered to close out the contract.
Income Taxes
Certain items of income and expense are not recognized on our income tax returns and financial statements in the same year, which creates timing differences. The income tax effect of these timing differences results in (1) deferred income tax assets that create a reduction in future income taxes and (2) deferred income tax liabilities that create an increase in future income taxes. Recognition of deferred income tax assets is based on management’s belief that it is more likely than not that the income tax benefit associated with certain temporary differences, income tax operating loss and capital loss carryforwards and income tax credits, would be realized. We recorded a valuation allowance to reduce our deferred income tax assets for those deferred income tax items for which it was more likely than not that realization would not occur. We determined the amount of the valuation allowance based, in part, on our assessment of future taxable income and in light of our ongoing income tax strategies. If our estimate of future taxable income or tax strategies changes at any time in the future, we would record an adjustment to our valuation allowance. Recording such an adjustment could have a material effect on our financial condition or results of operations.
Income tax expense is based on the distribution of profit before income tax among the various taxing jurisdictions in which we operate, adjusted as required by the income tax laws of each taxing jurisdiction. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate. We do not consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States.
Business Combinations
We use the acquisition method to account for business combinations, and accordingly, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree are recorded at their estimated fair values on the date of the acquisition. We use significant judgments, estimates and assumptions in determining the estimated fair value of assets acquired, liabilities assumed and non-controlling interest including expected future cash flows, discount rates that reflect the risk associated with the expected future cash flows and estimated useful lives.
We have recorded and allocated to our reporting units the excess of the cost over the fair value of the net assets acquired, known as goodwill. The recoverability of the goodwill and indefinite-lived intangible assets are evaluated annually for impairment, or if and when events or circumstances indicate a possible impairment. We review the carrying values of other identifiable intangible assets if the facts and circumstances indicate a possible impairment. Any future impairment could have a material adverse effect on our financial condition or results of operations.
Stock-based Compensation
We measure compensation cost for stock-based payment awards (stock options and stock appreciation rights) granted to employees and non-employee directors at fair value using the Black-Scholes-Merton option-pricing model and for performance awards using the Monte Carlo simulation model. Stock-based compensation expense includes stock-based awards granted to employees and non-employee directors and has been reported in selling, general and administrative expenses in our consolidated statements of income based upon the classification of the individuals who were granted stock-based awards.
The Black-Scholes-Merton option-pricing model requires the use of subjective assumptions, including share price volatility, the expected life of the award, risk-free interest rate and the fair value of the underlying common shares on the date of grant. In developing our assumptions, we take into account the following:
•
We calculate expected volatility based on reported data for selected reasonably similar publicly traded companies for which the historical information is available. We plan to continue to use the guideline peer group volatility information until the historical volatility of our common shares is relevant to measure expected volatility for future award grants;
•
We determine the risk-free interest rate by reference to implied yields available from United States Treasury securities with a remaining term equal to the expected life assumed at the date of grant;
•
We estimate the dividend yield to be zero as we do not currently anticipate paying any future dividends;
•
We estimate the average expected life of the award based on our historical experience; and
•
We estimate forfeitures based on our historical analysis of actual forfeitures.
Pensions and Other Postretirement Benefits
We provide retirement benefits to certain employees, including defined benefit pension plans and postretirement medical plans. The determination of benefit obligations and expense is based on actuarial models. In order to measure benefit costs and obligations using these models, critical assumptions are made with regard to the discount rate, expected return on plan assets, cash balance crediting rate, lump sum conversion rate and the assumed rate of compensation increases. In addition, retiree medical care cost trend rates are a key assumption used exclusively in determining costs for our postretirement health care and life insurance benefit plans.
Recently Issued Accounting Standards
Information relating to recently issued accounting standards is included in Note 1 to our audited consolidated financial statements included elsewhere in this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the potential loss arising from adverse changes in market rates and prices. In the ordinary course of business, we are exposed to various market risks and we regularly evaluate our exposure to such changes. Our overall risk management strategy seeks to balance the magnitude of the exposure and the cost and availability of appropriate financial instruments. The following analyses present the sensitivity of our financial instruments to hypothetical changes that are reasonably possible over a one-year period.
Foreign Currency Exchange Rates
We transact business in more than 100 countries and approximately 55 currencies and are subject to risks associated with fluctuating foreign currency exchange rates. Our objective is to reduce earnings and cash flow volatility associated with foreign currency exchange rate movements. Accordingly, we enter into foreign currency forward contracts to hedge certain forecasted foreign currency cash flows related to service contracts and to hedge non-United States dollar anticipated intercompany royalties. It is our policy to enter into foreign currency transactions only to the extent necessary to meet our objectives as stated above. We do not enter into foreign currency transactions for investment or speculative purposes. The principal currencies hedged are the Euro, the British Pound, the Japanese Yen, the Swiss Franc and the Canadian dollar.
The contractual value of our foreign exchange derivative instruments, all of which were foreign exchange forward contracts, was approximately $148 million at December 31, 2019. The fair value of these contracts is subject to change as a result of potential changes in foreign exchange rates. We assess our market risk based on changes in foreign exchange rates utilizing a sensitivity analysis. The sensitivity analysis measures the potential gain or loss in fair values based on a hypothetical 10% change in foreign currency exchange rates. The potential gain in fair value for foreign exchange forward contracts based on a hypothetical 10% decrease in the value of the United States dollar or, in the case of non-United States dollar related contracts, the currency being purchased, was less than $1 million at December 31, 2019. However, the change in the fair value of the foreign exchange forward contracts would likely be offset by a change in the value of the future service contract revenue or royalty being hedged caused by the currency exchange rate fluctuation. The estimated fair values of the foreign exchange forward contracts were determined based on quoted market prices.
Exchange rate fluctuations affect the United States dollar value of foreign currency revenue and expenses and may have a significant effect on our results. Excluding the impacts from any outstanding or future hedging transactions, a hypothetical 10% change in average exchange rates used to translate all foreign currencies to the United States dollar would have impacted income before income taxes for 2019 by approximately $165 million. The actual impact of exchange rate movements in the future could differ materially from this hypothetical analysis, based on the mix of foreign currencies and the timing and magnitude of individual exchange rate movements.
Additionally, commencing in 2016, we designated a portion of our foreign currency denominated debt as a hedge of our net investment in foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in the Euro exchange rate with respect to the United States dollar. As of December 31, 2019, these borrowings (net of original issue discount) were €5,273 million ($5,915 million). A hypothetical 10% decrease in the value of the United States dollar would lead to a potential loss in fair value of $592 million. However, this change in fair value would be offset by the change in value of the hedged portion of our net investment in foreign subsidiaries caused by the currency exchange rate fluctuation.
Interest Rates
Because we have variable rate debt, fluctuations in interest rates affect our business. We attempt to minimize interest rate risk and lower our overall borrowing costs through the utilization of derivative financial instruments, primarily interest rate swaps. We have entered into interest rate swaps with financial institutions that have reset dates and critical terms that match the underlying debt. Accordingly, any change in market value associated with the interest rate swaps is offset by the opposite market impact on the related debt. As of December 31, 2019, we had approximately $5.9 billion of variable rate indebtedness and interest rate swaps with a notional value of $1.2 billion. Because we do not attempt to hedge all of our variable rate debt, we may incur higher interest costs for the portion of our variable rate debt that is not hedged. Excluding debt covered by hedges, each quarter-point increase or decrease in the interest rate on our variable rate debt would result in our interest expense changing by approximately $11 million per year.
Marketable Securities
At December 31, 2019, we held investments in marketable equity securities. These investments are classified as either trading securities or available-for-sale securities and are recorded at fair value. These securities are subject to price risk. As of December 31, 2019, the fair value of these investments was $62 million based on the quoted market value of the securities. The potential loss in fair value resulting from a hypothetical decrease of 10% in quoted market values was approximately $6 million at December 31, 2019.
Item 8. Financial Statements and Supplementary Data
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
The management of IQVIA Holdings Inc. (the “Company”) is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019. In making this assessment, management used the framework established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). As a result of this assessment and based on the criteria in the COSO framework, management has concluded that, as of December 31, 2019, the Company’s internal control over financial reporting was effective.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which appears herein.
/s/ Ari Bousbib
/s/ Michael R. McDonnell
Ari Bousbib
Chairman, Chief Executive Officer and President
(Principal Executive Officer)
Michael R. McDonnell
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 18, 2020
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of IQVIA Holdings Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of IQVIA Holdings Inc. and its subsidiaries (the “Company”) as of December 31, 2019 and 2018, and the related consolidated statements of income, comprehensive (loss) income, stockholders’ equity (deficit) and cash flows for each of the three years in the period ended December 31, 2019, including the related notes and financial statement schedules listed in the index appearing under Item 15(a)(2) (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2019 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases in 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition - Estimating Measure of Progress for Clinical Research Services
As described in Notes 1 and 20 to the consolidated financial statements, revenue of the Research & Development Solutions segment for the year ended December 31, 2019, is $5,788 million, the majority of which relates to service contracts for clinical research that represent a single performance obligation. The Company recognized revenue for these contracts over time using a cost-based input method. Revenue was recognized based on progress on the performance obligation, which was measured by the proportion of actual costs incurred to the total costs expected to complete the contract. Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and other pass through expenses for the Company’s clinical monitors). This cost-based method of revenue recognition required management to make estimates of costs to complete its projects on an ongoing basis.
The principal considerations for our determination that performing procedures relating to revenue recognition - estimating measure of progress for clinical research services - is a critical audit matter are the high degree of auditor judgment, subjectivity, and effort in performing audit procedures and evaluating audit evidence related to the cost estimates made by management, due to significant judgment by management when determining the total expected costs to complete its contracts, specifically the estimation of direct labor and third-party costs.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process, including controls over the estimation of the total cost to complete clinical research service contracts. These procedures also included, among others, testing management’s process for determining the estimate of total costs to complete its contracts, which included evaluating the reasonableness of significant assumptions made by management including direct labor and third party-costs, evaluating the appropriateness of changes to management’s estimate of total costs to complete throughout the duration of the contract, testing actual direct costs incurred, and evaluating management’s ability to reasonably estimate the total expected costs to complete contracts, which included performing a comparison of management’s prior period cost estimates to final actual costs.
/s/ PricewaterhouseCoopers LLP
Raleigh, North Carolina
February 18, 2020
We have served as the Company’s auditor since 2002.
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The accompanying notes are an integral part of these consolidated financial statements.
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
The accompanying notes are an integral part of these consolidated financial statements.
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of these consolidated financial statements.
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
The accompanying notes are an integral part of these consolidated financial statements.
IQVIA HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
The accompanying notes are an integral part of these consolidated financial statements.
IQVIA HOLDINGS INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
The Company
IQVIA Holdings Inc. (together with its subsidiaries, the “Company” or “IQVIA”) is a leading global provider of advanced analytics, technology solutions and contract research services to the life sciences industry. IQVIA applies human data science - leveraging the analytic rigor and clarity of data science to the ever-expanding scope of human science - to enable companies to reimagine and develop new approaches to clinical development and commercialization, speed innovation, and accelerate improvements in healthcare outcomes. Powered by the IQVIA CORE, the Company delivers unique and actionable insights at the intersection of large-scale analytics, transformative technology and extensive domain expertise, as well as execution capabilities to help biotech, medical device, and pharmaceutical companies, medical researchers, government agencies, payers and other healthcare stakeholders tap into a deeper understanding of diseases, human behaviors and scientific advances, in an effort to advance their path toward cures. With approximately 67,000 employees, the Company conducts business in more than 100 countries.
Principles of Consolidation
The accompanying consolidated financial statements include the accounts and operations of the Company, its subsidiaries and investments in which the Company has control. Amounts pertaining to the non-controlling ownership interests held by third parties in the operating results and financial position of the Company’s majority-owned subsidiaries are reported as non-controlling interests. Intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in accordance with generally accepted accounting principles in the United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities, at the date of the financial statements, as well as the reported amounts of revenues and expenses during the period. These estimates are based on historical experience and various other assumptions believed reasonable under the circumstances. The Company evaluates its estimates on an ongoing basis and makes changes to the estimates and related disclosures as experience develops or new information becomes known. Actual results may differ from those estimates.
Foreign Currencies
The Company’s financial statements are reported in United States dollars and, accordingly, the Company’s results of operations are impacted by fluctuations in exchange rates that affect the translation of its revenues and expenses denominated in foreign currencies into United States dollars for purposes of reporting its consolidated financial results. Assets and liabilities recorded in foreign currencies on the books of foreign subsidiaries are translated at the exchange rate on the balance sheet date. Revenues, costs and expenses are translated at average rates of exchange during the year. Translation adjustments resulting from this process are charged or credited to the accumulated other comprehensive (loss) income (“AOCI”) component of stockholders’ equity. The Company is subject to foreign currency transaction risk for fluctuations in exchange rates during the period of time between the consummation and cash settlement of a transaction. The Company earns revenue from its service contracts over a period of several months and, in some cases, over a period of several years. Accordingly, exchange rate fluctuations during this period may affect the Company’s profitability with respect to such contracts.
For operations outside the United States that are considered to be highly inflationary or where the United States dollar is designated as the functional currency, monetary assets and liabilities are remeasured using end-of-period exchange rates, whereas nonmonetary accounts are remeasured using historical exchange rates, and all remeasurement and transaction adjustments are recognized in other expense (income), net.
Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less when purchased to be cash equivalents.
Derivatives
The Company uses derivative instruments to manage exposures to interest rates and foreign currencies. Derivatives are recorded on the balance sheet at fair value at each balance sheet date utilizing pricing models for non-exchange-traded contracts.
At inception, the Company designates whether or not the derivative instrument is an effective hedge of an asset, liability or firm commitment which is then classified as either a cash flow hedge or a fair value hedge. If determined to be an effective cash flow hedge, changes in the fair value of the derivative instrument are recorded as a component of Accumulated Other Comprehensive Income (“AOCI’) until realized. The Company includes the impact from these hedges in the same line item as the hedged item on the consolidated statements of cash flows. Changes in fair value of effective fair value hedges are recorded in earnings as an offset to the changes in the fair value of the related hedged item. Hedge ineffectiveness, if any, is immediately recognized in earnings. Changes in the fair values of derivative instruments that are not an effective hedge are recognized in earnings. 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 expense (income), net for foreign exchange derivatives and interest expense for interest rate derivatives on the consolidated statements of income. Cash flows are classified consistent with the underlying hedged item. The Company has entered, and may in the future enter, into derivative contracts (caps, swaps, forwards, calls or puts, warrants, for example) related to its debt and forecasted foreign currency transactions.
Business Combinations
The Company uses the acquisition method to account for business combinations, and accordingly, the identifiable assets acquired, the liabilities assumed and any non-controlling interest in the acquiree are recorded at their estimated fair values on the date of the acquisition. The Company uses significant judgments, estimates and assumptions in determining the estimated fair value of assets acquired, liabilities assumed and non-controlling interest including expected future cash flows, discount rates that reflect the risk associated with the expected future cash flows and estimated useful lives.
The Company records and allocates to its reporting units the excess of the cost over the fair value of the net assets acquired, known as goodwill. The recoverability of the goodwill and indefinite-lived intangible assets are evaluated annually for impairment, or if and when events or circumstances indicate a possible impairment. The Company reviews the carrying values of other identifiable intangible assets if the facts and circumstances indicate a possible impairment.
Long-Lived Assets
Property and equipment are stated at cost and are depreciated using the straight-line method over the shorter of the asset’s estimated useful life or the lease term, if related to leased property, as follows:
Definite-lived identifiable intangible assets are amortized primarily using an accelerated method that reflects the pattern in which the Company expects to benefit from the use of the asset over its estimated remaining useful life as follows:
Included in software and related assets is the capitalized cost of internal-use software used in supporting the Company’s business. Qualifying costs incurred during the application development stage are capitalized and amortized over their estimated useful lives. Costs are capitalized from completion of the preliminary project stage and when it is considered probable that the software will be used to perform its intended function, up until the time the software is placed into service. The Company recognized $196 million, $179 million and $134 million of amortization expense in 2019, 2018 and 2017, respectively, related to software and related assets.
The carrying values of property, equipment and intangible and other long-lived assets are reviewed for recoverability if the facts and circumstances suggest that a potential impairment may have occurred. If this review indicates that carrying values will not be recoverable, as determined based on undiscounted cash flow projections, the Company will record an impairment charge to reduce carrying values to estimated fair value. There were no impairments recognized in 2019 and 2018.
Revenue Recognition
The Company’s arrangements are primarily service contracts that range in duration from a few months to several years. The Company recognizes revenue when control of these services is transferred to the customer for an amount, referred to as the transaction price, that reflects the consideration to which the Company is expected to be entitled in exchange for those goods or services. The Company determines revenue recognition utilizing the following five steps: (1) identification of the contract with a customer, (2) identification of the performance obligations in the contract (promised goods or services that are distinct), (3) determination of the transaction price, (4) allocation of the transaction price to the performance obligations, and (5) recognition of revenue when, or as, the Company transfers control of the product or service for each performance obligation. Cash payments made to customers as incentives to induce customers to enter into service agreements with the Company are amortized as a reduction of revenue over the period the services are performed. The Company records revenues net of any tax assessments by governmental authorities, such as value added taxes, that are imposed on and concurrent with specific revenue generating transactions.
The Company derives the majority of its revenues in the Technology & Analytics Solutions segment from various information and technology service offerings. Information offerings (primarily under fixed-price contracts) typically include multiple performance obligations including an ongoing subscription-based deliverable for which revenue is recognized ratably as earned over the contract period, and/or a one-time deliverable of data offerings for which revenue is recognized upon delivery. The customer is able to benefit from the provision of data as it is received. The Company’s subscription arrangements typically have terms ranging from one to three years and are generally non-cancelable and do not contain refund-type provisions. Technology services offerings may contain multiple performance obligations consisting of a mix of small and large-scale services and consulting projects, multi-year outsourcing contracts and Software-as-a- Service (“SaaS”) arrangements. These arrangements typically have terms ranging from several weeks to three years, with a majority having terms of one year or less. For arrangements that include multiple performance obligations, the transaction price is allocated to the identified performance obligations based on their relative standalone selling prices. For these contracts, the standalone selling prices are based on the Company’s normal pricing practices when sold separately with consideration of market conditions and other factors, including customer demographics and geographic location. Revenues for services engagements where the transfer of control occurs ratably over time are recognized on a straight-line basis over the term of the arrangement. Revenues from time and material contracts are recognized based on hours as the services are provided. Revenues from fixed price ad hoc services and consulting contracts are recognized over the contract term based on the ratio of the number of hours incurred for services provided during the period compared to the total estimated hours to be incurred over the entire arrangement (hours-based). Technology services offerings meet the over time criterion, as another party would not need to substantially re-perform the work already completed to satisfy the remaining obligations if the services were migrated.
The majority of the Company’s contracts within the Research & Development Solutions segment are service contracts for clinical research that represent a single performance obligation. The Company provides a significant integration service resulting in a combined output, which is clinical trial data that meets the relevant regulatory standards and can be used by the customer to progress to the next phase of a clinical trial or solicit approval of a treatment by the applicable regulatory body. The performance obligation is satisfied over time as the output is captured in data and documentation that is available for the customer to consume over the course of the arrangement and furthers progress of the clinical trial. The Company recognizes revenue over time using a cost-based input method since there is no single output measure that would fairly depict the transfer of control over the life of the performance obligation. Progress on the performance obligation is measured by the proportion of actual costs incurred to the total costs expected to complete the contract. Costs included in the measure of progress include direct labor and third-party costs (such as payments to investigators and other pass through expenses for the Company’s clinical monitors). This cost-based method of revenue recognition requires the Company to make estimates of costs to complete its projects on an ongoing basis. Significant judgment is required to evaluate assumptions related to these estimates. The effect of revisions to estimates related to the transaction price or costs to complete a project are recorded in the period in which the estimate is revised. Most contracts may be terminated upon 30 to 90 days notice by the customer; however, in the event of termination, most contracts require payment for services rendered through the date of termination, as well as for subsequent services rendered to close out the contract.
The majority of revenue in our Contract Sales & Medical Solutions segment is from contract sales to the biopharmaceutical industry and broader healthcare market and recognized over time using a single measure of progress dependent on the performance obligation. Some of our Contract Sales & Medical Solutions contracts contain multiple performance obligations with distinct promises including recruiting, sales force automation and deployment of sales representatives. The Company utilizes a single measure of progress for each performance obligation to recognize revenue, which includes deployment of sales representatives based on employee days worked; recruiting based on candidates recruited; sales force automation set-up based on hours worked; and sales force automation hosting and maintenance based on usage. These services meet the over time criterion as the customer consumes the benefit as activities are performed and another party would not need to substantially re-perform the work already completed to satisfy the remaining obligations if the services were migrated to another party.
Variable Consideration
In some cases, contracts provide for variable consideration that is contingent upon the occurrence of uncertain future events, such as performance incentives (including royalty payments or penalty clauses that can either increase or decrease the transaction price). Variable consideration is estimated at the expected value or at the most likely amount depending on the type of consideration. Estimated amounts are included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. The estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of its anticipated performance and all information (historical, current and forecasted) that is reasonably available to the Company and reevaluated each reporting period.
Reimbursed Expenses
The Company includes reimbursed expenses in revenues and costs of revenue as the Company is primarily responsible for fulfilling the promise to provide the specified service, including the integration of the related services into a combined output to the customer, which are inseparable from the integrated service. These costs include such items as payments to investigators and travel expenses for the Company’s clinical monitors and sales representatives, over which the Company has discretion in establishing prices. The Company controls the good or service and has inventory risk on contractually reimbursable expenses, as sometimes the Company is unable to obtain reimbursement from the customer for costs incurred.
Change Orders
Changes in the scope of work are common, especially under long-term contracts, and generally result in a change in transaction price. Change orders are evaluated on a contract-by-contract basis to determine if they should be accounted for as a new contract or as part of the existing contract. Generally, services from change orders are not distinct from the original performance obligation. As a result, the effect that the contract modification has on the contract revenue, and measure of progress, is recognized as an adjustment to revenue when it occurs.
Costs of Revenue
Costs of revenue include (i) compensation and benefits for billable employees and personnel involved in production, data management and delivery, and the costs of acquiring and processing data for the Company’s information offerings; (ii) costs of staff directly involved with delivering technology-related services offerings and engagements, and the costs of data purchased specifically for technology services engagements; (iii) reimbursed expenses that are comprised principally of payments to investigators who oversee clinical trials and travel expenses for the Company’s clinical monitors and sales representatives; and (iv) other expenses directly related to service contracts such as courier fees, laboratory supplies, professional services and travel expenses.
Trade Receivables, Unbilled Services and Unearned Income
In general, billings and payments are established by contractual provisions including predetermined payment schedules, which may or may not correspond to the timing of the transfer of control of the Company’s services under the contract. In general, the Company’s intention in its invoicing (payment terms) is to maintain cash neutrality over the life of the contract. Generally, the payment terms are 30 to 90 days based on contracts. Upfront payments, when they occur, are intended to cover certain expenses the Company incurs at the beginning of the contract. Neither the Company nor its customers view such upfront payments and contracted payment schedules as a means of financing. Unbilled services primarily arise from long-term contracts when a cost-based or hours-based input method of revenue recognition is utilized and revenue recognized exceeds the amount billed to the customer.
Unearned income consists of advance payments and billings in excess of revenue recognized. As the contracted services are subsequently performed and the associated revenue is recognized, the unearned income balance is reduced by the amount of the revenue recognized during the period. Unearned income is classified as a current liability on the condensed consolidated balance sheet as the Company expects to recognize the associated revenue in less than one year.
Restructuring Costs
Restructuring costs, which primarily include termination benefits and facility closure costs, are recorded at estimated fair value. Key assumptions in determining the restructuring costs include the terms and payments that may be negotiated to terminate certain contractual obligations and the timing of employees leaving the Company.
Debt Fees
Fees incurred to issue debt are generally deferred and amortized as a component of interest expense over the estimated term of the related debt using the effective interest rate method.
Contingencies
The Company records accruals for claims, suits, investigations and proceedings when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. The Company reviews claims, suits, investigations and proceedings at least quarterly and records or adjusts accruals related to such matters to reflect the impact and status of any settlements, rulings, advice of counsel or other information pertinent to a particular matter. Legal costs associated with contingencies are charged to expense as incurred.
The Company is party to legal proceedings incidental to its business. While the outcome of these matters could differ from management’s expectations, the Company does not believe the resolution of these matters will have a material adverse effect to the Company’s financial statements.
Income Taxes
Certain items of income and expense are not recognized on the Company’s income tax returns and financial statements in the same year, which creates timing differences. The income tax effect of these timing differences results in (1) deferred income tax assets that create a reduction in future income taxes and (2) deferred income tax liabilities that create an increase in future income taxes. Recognition of deferred income tax assets is based on management’s belief that it is more likely than not that the income tax benefit associated with certain temporary differences, income tax operating loss and capital loss carryforwards and income tax credits, would be realized. The Company recorded a valuation allowance to reduce its deferred income tax assets for those deferred income tax items for which it was more likely than not that realization would not occur. The Company determined the amount of the valuation allowance based, in part, on the Company’s assessment of future taxable income and in light of the Company’s ongoing income tax strategies. If the estimate of future taxable income or tax strategies changes at any time in the future, the Company would record an adjustment to our valuation allowance. Recording such an adjustment could have a material effect on the Company’s financial condition or results of operations.
Income tax expense is based on the distribution of profit before income tax among the various taxing jurisdictions in which we operate, adjusted as required by the income tax laws of each taxing jurisdiction. Changes in the distribution of profits and losses among taxing jurisdictions may have a significant impact on our effective income tax rate. The Company does not consider the undistributed earnings of our foreign subsidiaries to be indefinitely reinvested outside of the United States.
Pensions and Other Postretirement Benefits
The Company provides retirement benefits to certain employees, including defined benefit pension plans and postretirement medical plans. The determination of benefit obligations and expense is based on actuarial models. In order to measure benefit costs and obligations using these models, assumptions are made with regard to the discount rate, expected return on plan assets, cash balance crediting rate, lump sum conversion rate and the assumed rate of compensation increases. In addition, retiree medical care cost trend rates are a key assumption used exclusively in determining costs for the Company’s postretirement health care and life insurance benefit plans.
Stock-based Compensation
The Company accounts for stock-based compensation for stock options and stock appreciation rights under the fair value method and uses the Black-Scholes-Merton model to estimate the value of such stock-based awards granted to its employees and non-executive directors. Expected volatility is based upon the historical volatility of a peer group for a period equal to the expected term, as the Company does not have adequate history to calculate its own volatility and believes the expected volatility will approximate the historical volatility of the peer group. The Company does not currently anticipate paying dividends. The expected term represents the period of time the grants are expected to be outstanding. The risk-free interest rate is based on the United States Treasury yield curve in effect at the time of the grant.
The Company values its stock-based compensation for restricted stock awards and restricted stock units based on the closing market price of the Company’s common stock on the date of grant. The Company accounts for its stock-based compensation for performance awards based on the closing market price of the Company’s common stock on the date of grant and for performance awards that include market conditions based upon the Monte Carlo simulation model.
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, other current liabilities, and operating lease liabilities on our condensed consolidated balance sheets. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made before lease commencement and initial direct costs and excludes lease incentives. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company has lease agreements with lease and non-lease components that the Company has elected to account for as single lease components.
Earnings Per Share
The calculation of earnings per share is based on the weighted average number of common shares or common stock equivalents outstanding during the applicable period. The dilutive effect of common stock equivalents is excluded from basic earnings per share and is included in the calculation of diluted earnings per share. Potentially dilutive securities include outstanding stock options and unvested restricted stock units, restricted stock and performance awards. Employee equity share options, restricted stock units, restricted stock, performance awards and similar equity instruments granted by the Company are treated as potential common shares outstanding in computing diluted earnings per share. Diluted shares outstanding are 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.
Equity Method Investments
The Company’s investments in and advances to unconsolidated affiliates are accounted for under the equity method if the Company exercises significant influence or has an investment in a limited partnership that is considered to be greater than minor. These investments and advances are classified as investments in and advances to unconsolidated affiliates on the accompanying consolidated balance sheets. The Company records its pro rata share of the earnings, adjusted for accretion of basis difference, of these investments in equity in earnings (losses) of unconsolidated affiliates on the accompanying consolidated statements of income. The Company reviews its investments in and advances to unconsolidated affiliates for impairment whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable.
Treasury Stock
The Company records treasury stock purchases under the cost method. Upon reissuance of treasury stock, amounts in excess of the acquisition cost are credited to additional paid in capital. If the Company reissues treasury stock at an amount below its acquisition cost and additional paid in capital associated with prior treasury stock transactions is insufficient to cover the difference between the acquisition cost and the reissue price, this difference is recorded in retained earnings.
Recently Issued Accounting Standards
Accounting pronouncements adopted as of December 31, 2019
In February 2018, the FASB issued new accounting guidance that will allow a reclassification from accumulated other comprehensive income to retained earnings for “stranded income tax effects” resulting from the Tax Act. Because the income statement impact related to the reduction of the historical corporate income tax rate under the Tax Act is required to be included in income tax expense, the guidance acknowledges that the income tax effects of items within accumulated other comprehensive income (“stranded income tax effects”) do not reflect the appropriate income tax rate. The Company adopted this new accounting guidance on January 1, 2019 using the aggregate portfolio approach. The Company elected the option to not reclassify accumulated other comprehensive income to retained earnings for “stranded income tax effects” resulting from the Tax Act.
In August 2017, the FASB issued new accounting guidance that will allow more financial and nonfinancial hedging strategies to be eligible for hedge accounting. It also amends the presentation and disclosure requirements and changes how companies assess hedge effectiveness. It is intended to more closely align hedge accounting with risk management strategies, simplify the application of hedge accounting, and increase transparency as to the scope and results of hedging programs. The Company adopted this new accounting guidance on January 1, 2019. The adoption of this new accounting guidance did not have a material effect on the Company’s consolidated financial statements.
In February 2016, the FASB issued new accounting guidance that requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. The income statement will reflect lease expense for operating leases, and amortization and interest expense for financing leases. The Company adopted this new accounting guidance on January 1, 2019 and elected the practical expedients upon transition that retained the lease classification, initial direct costs and determination of whether contracts are or contain a lease, for any leases that existed prior to adoption of the new guidance. The Company also elected the transition method which allows for disclosures to be updated prospectively and prior periods to be presented in accordance with previous guidance. The adoption of this standard had a material impact on the Company’s condensed consolidated balance sheets but did not have a material impact on the Company’s condensed consolidated results of operations or cash flows.
Accounting pronouncements issued but not adopted as of December 31, 2019
In January 2020, the FASB issued new accounting guidance that states any equity security transitioning from the alternative method of accounting to the equity method, or vice versa, due to an observable transaction, will be remeasured immediately before the transition. In addition, the new accounting guidance clarifies the accounting for certain non-derivative forward contracts or purchased call options to acquire equity securities stating such instruments will be measured using the fair value principles before settlement or exercise. The new accounting guidance will be effective for the Company on January 1, 2021 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
In December 2019, the FASB issued new accounting guidance to clarify and simplify the accounting for income taxes. Changes under the new guidance includes eliminating certain exceptions related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new accounting guidance will be effective for the Company on January 1, 2021. Early adoption is permitted. The Company is currently evaluating the impact of this new accounting guidance on its consolidated financial statements.
In August 2018, the FASB issued new accounting guidance that clarifies and aligns the accounting for implementation costs for hosting arrangements with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. The new accounting guidance will be effective for the Company on January 1, 2020. The adoption of this new accounting guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued new accounting guidance that modifies the disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The new accounting guidance will be effective for the Company on January 1, 2021. Early adoption is permitted. The adoption of this new accounting guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In August 2018, the FASB issued new accounting guidance that modifies the disclosure requirements in Topic 820, Fair Value Measurement, by removing certain disclosure requirements related to the fair value hierarchy, modifying existing disclosure requirements related to measurement uncertainty and adding new disclosure requirements, such as disclosing the changes in unrealized gains and losses for the period included in other comprehensive income for recurring Level 3 fair value measurements held at the end of the reporting period and disclosing the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. The new accounting guidance will be effective for the Company on January 1, 2020. The adoption of this new accounting guidance is not expected to have a material effect on the Company’s consolidated financial statements.
In January 2017, the FASB issued new accounting guidance that simplifies the measurement of goodwill by eliminating the step two impairment test. Step two measures a goodwill impairment loss by comparing the implied fair value of goodwill with the carrying amount of that goodwill. The new guidance requires a comparison of the Company’s fair value of a reporting unit with the carrying amount and the Company is required to recognize an impairment charge for the amount by which the carrying amount exceeds the fair value. The new accounting guidance will be effective for the Company on January 1, 2020. Based on current impairment test results, the Company does not expect a material effect on the Consolidated Financial Statements. However, the impact of the new accounting guidance will depend on the performance of the reporting units and the market conditions at the time of adoption.
In June 2016, the FASB issued a new accounting standard intended to provide financial statement users with more decision-useful information about expected credit losses and other commitments to extend credit held by the reporting entity. The standard
replaces the incurred loss impairment methodology in current GAAP with one that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The standard will be effective for the Company on January 1, 2020. The adoption of this new accounting guidance is not expected to have a material effect on the Company’s consolidated financial statements.
2. Revenues by Geography, Concentration of Credit Risk and Remaining Performance Obligations
The Company attributes revenues to geographical region based upon where the services are performed. The following tables represent revenues by geographical region and reportable segment for the years ended December 31, 2019, 2018 and 2017:
No individual country, except for the United States and the United Kingdom, accounted for 10% or more of total revenues for the year ended December 31, 2019 and 2018. For the year ended December 31, 2019, revenues in the United States and the United Kingdom accounted for 45% and 10% of total revenue, respectively. For the year ended December 31, 2018, revenues in the United States and the United Kingdom accounted for 43% and 11% of total revenue, respectively.
No individual country, except for the United States, accounted for 10% or more of total revenues for the year ended December 31, 2017. For the year ended December 31, 2017, revenue in the United States accounted for 42% of total revenue.
No individual customer represented 10% or more of total revenues for the years ended December 31, 2019, 2018 or 2017.
Transaction Price Allocated to the Remaining Performance Obligations
As of December 31, 2019, approximately $20.0 billion of revenue is expected to be recognized in the future from remaining performance obligations. The Company expects to recognize revenue on approximately 35% of these remaining performance obligations over the next twelve months, with the balance recognized thereafter. The customer contract transaction price allocated to the remaining performance obligations differs from backlog in that it does not include wholly unperformed contracts under which the customer has a unilateral right to cancel the arrangement. The Company applied the practical expedient that permits the omission of prior period information about its remaining performance obligations. No other practical expedients were applied.
3. Trade Accounts Receivable, Unbilled Services and Unearned Income
Trade accounts receivables and unbilled services consist of the following:
Unbilled services and unearned income was as follows:
Unbilled services, which is comprised of approximately equal parts of unbilled receivables and contract assets as of December 31, 2019, increased by $156 million as compared to December 31, 2018. Contract assets are unbilled services for which invoicing is based on the timing of certain milestones related to service contracts for clinical research whereas unbilled receivables are billable upon the passage of time. Unearned income increased by $7 million over the same period resulting in an increase of $149 million in the net balance of unbilled services and unearned income between December 31, 2019 and 2018. Growth in the net balance is driven by the difference in timing of revenue recognition in accordance with ASC 606, Revenue from Contracts with Customers, related to the Company’s Research & Development Solutions contracts (which is based on the percentage of costs incurred) versus the timing of invoicing, which is based on certain milestones.
Bad debt expense recognized on the Company’s receivables and unbilled services was de minimis for the years ended December 31, 2019, 2018 and 2017.
4. Investments
Debt, Equity and Other Securities
Current
The Company’s short-term investments in debt, equity and other securities consist primarily of trading investments in mutual funds and are measured at fair value with realized and unrealized gains and losses recorded in other expense (income), net on the accompanying consolidated statements of income.
Long-term
ASU 2016-01 became effective on January 1, 2018. ASU 2016-01 requires entities to measure equity investments (except those accounted for under the equity method, those that result in consolidation of the investee and certain other investments) at fair value and recognize any changes in fair value in net income at the end of each reporting period. Entities can no longer classify equity investments as trading or available for sale and can no longer recognize unrealized holding gains and losses on equity securities classified previously as available for sale in other comprehensive income (loss). Entities can no longer use the cost method of accounting as it was previously applied for equity securities that do not have readily determinable fair values.
For equity investments that do not have readily determinable fair values and do not qualify for the existing practical expedient in Accounting Standards Codification (“ASC”) 820 “Fair Value Measurement” (“ASC 820”) to estimate fair value using the net asset value per share of the investment, the guidance provides a new measurement alternative. Entities may choose to measure those investments at cost, less any impairment, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer at each reporting period.
During the fourth quarter of 2018, the Company recorded the cumulative adoption of ASU 2016-01 within stockholders’ equity.
Unconsolidated Affiliates
The Company accounts for its investments in and advances to unconsolidated affiliates under the equity method of accounting and records its pro rata share of its losses or earnings from these investments in equity in earnings (losses) of unconsolidated affiliates. The following is a summary of the Company’s investments in and advances to unconsolidated affiliates:
Variable Interest Entities
As of December 31, 2019, the Company’s investments in unconsolidated variable interest entities (“VIEs”) and its estimated maximum exposure to loss were as follows:
5. Derivatives
Foreign Exchange Risk Management
The Company transacts business in more than 100 countries and is subject to risks associated with fluctuating foreign exchange rates. Accordingly, the Company enters into foreign currency forward contracts to (i) hedge certain forecasted foreign exchange cash flows arising from service contracts (“Service Contract Hedging”) and (ii) hedge non-United States dollar anticipated intercompany royalties (“Royalty Hedging”). It is the Company’s policy to enter into foreign currency transactions only to the extent necessary to reduce earnings and cash flow volatility associated with foreign exchange rate movements. The Company does not enter into foreign currency transactions for investment or speculative purposes. The principal currencies hedged are the Euro, the British Pound, the Japanese Yen, the Swiss Franc and the Canadian dollar.
Service Contract Hedging and Royalty Hedging contracts are designated as cash flow hedges and are carried at fair value, with changes in the fair value recorded to AOCI. The change in fair value is reclassified from AOCI to earnings in the period in which the hedged transaction occurs. These contracts have various expiration dates through November 2020.
As of December 31, 2019 and 2018, the Company had open Service Contract Hedging and Royalty Hedging contracts to hedge certain forecasted foreign currency cash flow transactions occurring in 2020 and 2019 with notional amounts totaling $148 million and $202 million, respectively. For accounting purposes these hedges are considered highly effective. As of December 31, 2019 and 2018, the Company had recorded gross unrealized gains (losses) of $4 million and less than ($1) million and $5 million and ($3) million, respectively, related to these contracts. Upon expiration of the hedge instruments in 2019, the Company reclassified the unrealized holding gains and losses on the derivative instruments included in AOCI into earnings. The unrealized gains (losses) are included in other current assets and liabilities on the accompanying consolidated balance sheets as of December 31, 2019 and 2018.
Interest Rate Risk Management
The Company purchases interest rate caps and has entered into interest rate swap agreements for purposes of managing its exposure to interest rate fluctuations.
In April 2014, IMS Health entered into United States dollar and Euro denominated interest rate swap agreements (“2014 Swaps”) to hedge interest rate exposure on notional amounts of approximately $600 million of its borrowings. The 2014 Swaps commenced between April and June 2014 and expire at various times through March 2021. As of December 31, 2019, only one of the 2014 Swaps remain unexpired, with a notional value of $325 million. On this agreement, the Company pays a fixed rate of 1.6% and receives a variable rate of interest equal to the greater of three-month Euro Interbank Offered Rate (“EURIBOR”) or the equivalent to LIBOR, and 1%. During 2017, the 2014 Swaps ceased to be considered highly effective for accounting purposes and as such, the Company discontinued hedge accounting and prospective changes in the fair value of the Swaps are recognized in earnings.
On June 3, 2015, the Company entered into seven forward starting interest rate swaps (“2015 Swaps”) in an effort to limit its exposure to changes in the variable interest rate on its Senior Secured Credit Facilities (as defined below). Interest on the swaps began accruing on June 30, 2016, and the interest rate swaps expire at various times through March 2020. As of December 31, 2019, only three of the 2015 Swaps were still outstanding. The Company pays a fixed rate of 2.1% and receives a variable rate of interest equal to the three-month LIBOR on these agreements.
The critical terms of the 2015 Swaps are substantially the same as the underlying borrowings. These interest rate swaps are being accounted for as cash flow hedges as these transactions were executed to hedge the Company’s interest payments and for accounting purposes are considered highly effective. As such, the effective portion of the hedges is recorded as unrealized gains (losses) on derivatives included in AOCI and the ineffective portion of the hedges is recognized in earnings.
On July 19, 2018, the Company entered into two forward starting interest rate swaps (“2018 Swaps”) with a total notional value of $500 million in an effort to limit its exposure to changes in the variable interest rate on its Senior Secured Credit Facilities (as defined below). Interest on the 2018 Swaps began accruing on June 28, 2019 and the interest rate swaps expire on June 28, 2024. The Company pays a fixed rate of 3.0% and receives a variable rate of interest equal to the three-month LIBOR on the 2018 Swaps.
The fair value of these interest rate swaps represents the present value of the anticipated net payments the Company will make to the counterparty, which, when they occur, are reflected as interest expense on the consolidated statements of income. These interest rate swaps will result in a total debt mix of approximately 59% fixed rate debt and 41% variable rate debt.
Net Investment Risk Management
The Company designates its foreign currency denominated debt as a hedge of its net investment in certain foreign subsidiaries to reduce the volatility in stockholders’ equity caused by changes in the Euro exchange rate with respect to the United States dollar, which is accounted for as a cash flow hedge. As of December 31, 2019, these borrowings (net of original issue discount) were €5,273 million ($5,915 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 gains related to the net investment hedge included in the cumulative translation adjustment component of AOCI for the year ended December 31, 2019 was $97 million.
The fair values of the Company’s derivative instruments and the line items on the accompanying consolidated balance sheets to which they were recorded are summarized in the following table:
The pre-tax effect of the Company’s cash flow hedging instruments on other comprehensive (loss) income is summarized in the following table:
The Company expects approximately $3 million of pre-tax unrealized losses related to its foreign exchange contracts and interest rate derivatives included in AOCI at December 31, 2019 to be reclassified into earnings within the next twelve months. The total amount of cash flow hedge effect on the income statement is immaterial for year ended December 31, 2019.
6. Fair Value Measurements
The Company records certain assets and liabilities at fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy that prioritizes the inputs used to measure fair value is described below. This hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
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Level 1-Quoted prices in active markets for identical assets or liabilities.
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Level 2-Observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets; quoted prices for identical or similar assets and liabilities in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
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Level 3-Unobservable inputs that are supported by little or no market activity. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs.
The carrying values of cash, cash equivalents, accounts receivable and accounts payable approximated their fair values at December 31, 2019 and 2018 due to their short-term nature. At December 31, 2019 and 2018, the fair value of total debt approximated $11,925 million and $10,850 million, respectively, as determined under Level 1 and Level 2 measurements for these financial instruments.
Recurring Fair Value Measurements
The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured and reported at fair value on a recurring basis as of December 31, 2019:
The following table summarizes the fair value of the Company’s financial assets and liabilities that are measured and reported at fair value on a recurring basis as of December 31, 2018:
Below is a summary of the valuation techniques used in determining fair value:
Marketable securities-The Company values trading and available-for-sale securities using the quoted market value of the securities held.
Derivatives-Derivatives consist of foreign exchange contracts and interest rate swaps. The fair value of foreign exchange contracts is based on observable market inputs of spot and forward rates or using other observable inputs. The fair value of the interest rate 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 or using market inputs with mid-market pricing as a practical expedient for bid-ask spread.
Contingent consideration-The Company values contingent consideration related to business combinations using a weighted probability calculation of potential payment scenarios discounted at rates reflective of the risks associated with the expected future cash flows. Assumptions used to estimate the fair value of contingent consideration include various financial metrics (revenue performance targets and operating forecasts) and the probability of achieving the specific targets.
The following table summarizes the changes in Level 3 financial assets and liabilities measured on a recurring basis for the year ended December 31:
The current portion of contingent consideration is included within accrued expenses and the long-term portion is included within other liabilities on the accompanying consolidated balance sheets. Revaluations of contingent consideration are recognized in other expense (income), net on the accompanying consolidated statements of income.
Non-recurring Fair Value Measurements
Certain assets are carried on the accompanying consolidated balance sheets at cost and are not remeasured to fair value on a recurring basis. These assets include equity investments that do not have readily determinable fair values that are assessed for impairment quarterly or annually and when a triggering event occurs, and goodwill and identifiable intangible assets that are tested for impairment annually and when a triggering event occurs. See Note 4 and 8 for additional information.
As of December 31, 2019, assets carried on the balance sheet and not remeasured to fair value on a recurring basis totaled approximately $17,808 million and were identified as Level 3. These assets are comprised of cost and equity method investments of $135 million, goodwill of $12,159 million and other identifiable intangibles, net of $5,514 million.
Cost and Equity Method Investments-The inputs available for valuing investments in non-public portfolio companies are generally not easily observable. The valuation of non-public investments requires judgment by the Company due to the absence of quoted market values, inherent lack of liquidity and the long-term nature of such assets. When a triggering event occurs, the Company considers a wide range of available market data when assessing the estimated fair value. Such market data includes observations of the trading multiples of public companies considered comparable to the private companies being valued as well as publicly disclosed merger transactions involving comparable private companies. In addition, valuations are adjusted to account for company-specific issues, the lack of liquidity inherent in a non-public investment and the fact that comparable public companies are not identical to the companies being valued. Such valuation adjustments are necessary because in the absence of a committed buyer and completion of due diligence similar to that performed in an actual negotiated sale process, there may be company-specific issues that are not fully known that may affect value. Further, a variety of additional factors are reviewed by the Company, including, but not limited to, financing and sales transactions with third parties, current operating performance and future expectations of the particular investment, changes in market outlook and the third-party financing environment. Because of the inherent uncertainty of valuations, estimated valuations may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material.
Goodwill-Goodwill represents the difference between the purchase price and the fair value of the identifiable tangible and intangible net assets resulting from business combinations. The Company performs a qualitative analysis to determine whether it is more likely than not that the estimated fair value of a reporting unit is less than its book value. This includes a qualitative analysis of macroeconomic conditions, industry and market considerations, internal cost factors, financial performance, fair value history and other company specific events. If this qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the book value for the respective reporting unit, the Company applies a two-step impairment test in which the Company determines whether the estimated fair value of the reporting unit is in excess of its carrying value. If the carrying value of the net assets assigned to the reporting unit exceeds the estimated fair value of the reporting unit, the Company performs the second step of the impairment test to determine the implied estimated fair value of the reporting unit’s goodwill. The Company determines the implied estimated fair value of goodwill by determining the present value of the estimated future cash flows for each reporting unit and comparing to the net book value of assets and liabilities exclusive of goodwill. See Note 8 for additional information.
Definite-lived Intangible Assets-If a triggering event occurs, the Company determines the estimated fair value of definite-lived intangible assets by determining the present value of the expected cash flows. See Note 8 for additional information.
Indefinite-lived Intangible Asset-If a qualitative analysis indicates that it is more likely than not that the estimated fair value is less than the carrying value of an indefinite-lived intangible asset, the Company determines the estimated fair value of the indefinite-lived intangible asset (trade name) by determining the present value of the estimated royalty payments on an after-tax basis that it would be required to pay the owner for the right to use such trade name. If the carrying amount exceeds the estimated fair value, an impairment loss is recognized in an amount equal to the excess.
7. Property and Equipment
The major classes of property and equipment were as follows:
Property and equipment depreciation expense was as follows:
8. Goodwill and Identifiable Intangible Assets
As of December 31, 2019, the Company has approximately $5,514 million of identifiable intangible assets, of which approximately $18 million, relating to a trade name, is deemed to be indefinite-lived and, accordingly, is not being amortized. Amortization expense associated with identifiable definite-lived intangible assets was as follows:
Estimated amortization expense for existing identifiable intangible assets is expected to be approximately $1,072 million, $801 million, $462 million, $386 million and $317 million for the years ending December 31, 2020, 2021, 2022, 2023 and 2024, respectively. Estimated amortization expense can be affected by various factors, including future acquisitions or divestitures of service and/or licensing and distribution rights or impairments.
The following is a summary of identifiable intangible assets:
The following is a summary of goodwill by segment for the years ended December 31, 2019 and 2018:
There were no goodwill impairment losses as of December 31, 2019 or 2018.
9. Accrued Expenses
Accrued expenses consist of the following:
10. Credit Arrangements
The following is a summary of the Company’s revolving credit facilities at December 31, 2019:
The following table summarizes the Company’s debt at the dates indicated:
Contractual maturities of long-term debt at December 31, 2019 are as follows:
At December 31, 2019, there were bank guarantees totaling approximately £0.8 million (approximately $1.1 million) issued against the availability of the general banking facility with a European headquartered bank through their operations in the United Kingdom.
Senior Secured Credit Agreement and Senior Notes
2019 Financing Transactions
At December 31, 2019, the Company’s Fourth Amended and Restated Credit Agreement, as amended (the “Credit Agreement”) provided financing through several senior credit facilities (collectively, the “Senior Secured Credit Facilities”) of approximately $6,811 million, which consisted of $5,677 million principal amounts of debt outstanding (as detailed in the table above), $3 million of issued standby letters of credit and $1,131 million of available borrowing capacity on the $1,500 million revolving credit facility. On December 18, 2019, the Company entered into Amendment No. 6 to the Credit Agreement; pursuant to the Amendment, that amended the interest rate applicable to the Issuer’s Term B Loan due 2024-U.S. Dollar LIBOR and Term B Loan due 2025-U.S. Dollar LIBOR was reduced to LIBOR plus 1.75% per annum and the LIBOR floor applicable to the Issuer’s Term B-1 Dollar Loans was reduced to 0% per annum. On August 9, 2019, the Company entered into Amendment No. 5 to the Credit Agreement that repriced the Euro LIBOR floor applicable to the Euro-denominated Term B Loan due 2024 and Term B Loan due 2025 to 0% per annum.
On August 13, 2019, IQVIA Inc. (the “Issuer”), a wholly owned subsidiary of the Company, completed the issuance and sale of €720 million in gross proceeds of the Issuer’s 2.25% Senior Notes due 2028 (the “2.25% Notes”). The 2.25% Notes were issued pursuant to an Indenture, dated August 13, 2019, among the Issuer, U.S. Bank National Association, as trustee of the 2.25% Notes, and certain subsidiaries of the Issuer as guarantors. The net proceeds from the notes offering, together with available cash, were used to redeem the Issuer’s outstanding 4.875% senior notes due 2023 (the “4.875% Notes”), and to pay fees and expenses related to the notes offering. On July 29, 2019, the Issuer issued a conditional notice of redemption with respect to the 4.875% Notes, for a total redemption price equal to the sum of the principal amount of the 4.875% Notes, accrued and unpaid interest on the 4.875% Notes to the redemption date and the applicable redemption premium. The Issuer’s obligations with respect to the 4.875% Notes were discharged on August 13, 2019. The 2.25% Notes are unsecured obligations of the Issuer, will mature on January 15, 2028 and bear interest at the rate of 2.25% per annum, with interest payable semi-annually on January 15 and July 15 of each year, beginning on January 15, 2020. The Issuer may redeem the Notes prior to their final stated maturity, subject to a customary make-whole premium, at any time prior to July 15, 2022 (subject to a customary “equity claw” redemption right) and thereafter subject to a redemption premium declining from 101.125% to 0.000%.
On May 10, 2019, the Issuer completed the issuance and sale of $1.1 billion in gross proceeds of the Issuer’s 5.00% Senior Notes due 2027 (the “5.00% Notes”). The 5.00% Notes were issued pursuant to an Indenture, dated May 10, 2019, among the Issuer, U.S. Bank National Association, as trustee of the 5.00% Notes, and certain subsidiaries of the Issuer as guarantors. The net proceeds from this notes offering were used to repay existing borrowings under the Issuer’s revolving credit facility, to pay fees and expenses related to the notes offering and for other general corporate purposes. The 5.00% Notes are unsecured obligations of the Issuer, will mature on May 15, 2027 and bear interest at the rate of 5.00% per annum, with interest payable semi-annually on May 15 and November 15 of each year, beginning on November 15, 2019. The Issuer may redeem the 5.00% Notes prior to their final stated maturity, subject to a customary make-whole premium, at any time prior to May 15, 2022 (subject to a customary “equity claw” redemption right) and thereafter subject to a redemption premium declining from 2.500% to 0.000%.
2018 Financing Transactions
At December 31, 2018, the Company’s Fourth Amended and Restated Credit Agreement, as amended (the “Credit Agreement”) provided financing through several senior secured credit facilities (collectively, the “Senior Secured Credit Facilities”) of up to approximately $6,959 million, which consisted of $6,079 million principal amounts of debt outstanding (as detailed in the table above) and $880 million of available borrowing capacity on the $1,500 million revolving credit facility that expires in 2023.
On June 11, 2018, the Company entered into Amendment No. 4 to the Credit Agreement (“Amendment No. 4”) that amended the terms of the existing term A loans and revolving credit facility to extend the maturity from 2021 to 2023 and reduce the applicable interest rate from LIBOR plus a margin ranging from 1.75% to 2.50% to LIBOR plus a margin ranging from 1.25% to 2.00%. In connection with Amendment No. 4, the Company recognized a $2 million loss on extinguishment of debt, which includes fees and related expenses. The amendments with respect to the revolving credit facility and the term A loans became effective on June 13, 2018.
Under Amendment No. 4, the Company also placed additional term B loans. The additional term B loans will mature in 2025 and were comprised of $950 million of U.S. dollar denominated term B loans and €583 million ($681 million) Euro denominated term B loans. The U.S. dollar denominated term B loans bear interest based on the U.S. Dollar LIBOR plus a
margin ranging from 1.75% to 2.00%. The Euro denominated term B loans bear interest based on the Euro LIBOR with a floor ranging from 0.50% to 0.75%, plus a margin of 2.00%. The proceeds of the additional term B loans were used to pay down the revolving credit facility and $650 million of existing term B loans due 2024 and to pay fees and expenses in connection with the transactions.
On April 6, 2018, the Company entered into Amendment No. 3 to the Credit Agreement that increased the amount of commitments available to the Company and certain of its subsidiaries to $1,500 million under the revolving credit facility. No other terms of the Credit Agreement were amended.
Receivables Financing Facility
On December 19, 2019, the Company amended its receivables financing facility to extend the term of the facility to December 19, 2022.
On December 5, 2014, the Company entered into a four-year arrangement to securitize certain of its accounts receivable. Under the receivables financing facility, certain of the Company’s accounts receivable are sold on a non-recourse basis by certain of its consolidated subsidiaries to another of its consolidated subsidiaries, a bankruptcy-remote special purpose entity (“SPE”). The SPE obtained a term loan and revolving loan commitment from a third-party lender, secured by liens on the assets of the SPE, to finance the purchase of the accounts receivable, which includes a $275 million term loan and a $25 million revolving loan commitment. The revolving loan commitment may be increased by an additional $35 million as amounts are repaid under the term loan. The Company has guaranteed the performance of the obligations of existing and future subsidiaries that sell and service the accounts receivable under the receivables financing facility. The assets of the SPE are not available to satisfy any of the Company’s obligations or any obligations of its subsidiaries. As of December 31, 2019, no additional amounts of revolving loans were available under the receivables financing facility.
Restrictive Covenants
The Company’s debt agreements 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 Credit Agreement, other actions permitted to be taken by a secured creditor. The Company’s long-term debt arrangements contain usual and customary restrictive covenants that, among other things, place limitations on the Company’s ability to declare dividends. At December 31, 2019, the Company was in compliance in all material respects with the financial covenants under the Company’s financing arrangements.
11. Leases
The Company has operating leases for corporate offices, datacenters, motor vehicles and certain equipment, many of which contain renewal and escalation clauses. The leases expire at various dates through 2029 with options to cancel certain leases at various intervals. In determining the lease term at lease commencement, the Company includes the noncancellable term and the periods which the Company deems it is reasonably certain to exercise or not to exercise a renewal or cancellation option. As of December 31, 2019, the Company has additional operating leases, primarily for corporate offices, that have not yet commenced of $7 million. These operating leases will commence in the first quarter of 2020 with lease terms through 2025.
The components of lease expense were as follows:
(1)
Includes variable lease costs, which are immaterial.
Rental expenses under lease agreements were $197 million and $197 million in 2018 and 2017, respectively.
Other information related to leases was as follows:
Future minimum lease payments under non-cancellable leases as of December 31, 2019 were as follows:
The Company elected the alternative modified transition method and as such, included the following prior period information as previously disclosed in accordance with ASC 840.
The following is a summary of future minimum payments under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 2018:
12. 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 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 third parties, including our clients and suppliers, 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. The Company has not accrued a liability with respect to these matters generally, as the exposure is considered remote.
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.
On February 13, 2014, a group of approximately 1,200 medical doctors and 900 private individuals filed a civil lawsuit with the Seoul Central District Court against IMS Korea and two other defendants, KPA and the Korean Pharmaceutical Information Center (“KPIC”). The civil lawsuit alleges KPA and KPIC collected their personal information in violation of applicable privacy laws without the necessary consent through a software system installed on pharmacy computer systems in Korea, and that personal information was transferred to IMS Korea and sold to pharmaceutical companies. On September 11, 2017, the District Court issued a final decision that the encryption in use by the defendants since June 2014 was adequate to meet the requirements of the Korean Personal Information Privacy Act (“PIPA”) and the sharing of non-identified information for market research purposes was allowed under PIPA. The District Court also found an earlier version of encryption was insufficient to meet PIPA requirements, but no personal data had been leaked or re-identified. The District Court did not award any damages to plaintiffs. Approximately 280 medical doctors and 200 private individuals appealed the District Court decision. On May 3, 2019, the Appellate Court issued a final decision in which it concluded all of the non-identified information transferred by KPIC to IMS Korea for market research purposes violated PIPA, but did not award any damages to plaintiffs (affirming the District Court’s decision on this latter point). On May 24, 2019, approximately 247 plaintiffs appealed the Appellate Court’s decision to the Supreme Court. The Company believes the appeal is without merit and intends to vigorously defend its position.
On July 23, 2015, indictments were issued by the Seoul Central District Prosecutors’ Office in South Korea against 24 individuals and companies alleging improper handling of sensitive health information in violation of, among others, South Korea’s Personal Information Protection Act. IMS Korea and two of its employees were among the individuals and organizations indicted. Although there is no assertion that IMS Korea used patient identified health information in any of its offerings, prosecutors allege that certain of IMS Korea’s data suppliers should have obtained patient consent when they converted sensitive patient information into non-identified data and that IMS Korea had not taken adequate precautions to reduce the risk of re-identification. On February 14, 2020, the Seoul Central District Court acquitted IMS Korea and its two employees of the charges of improper handling of sensitive health information.
On January 10, 2017, Quintiles IMS Health Incorporated and IMS Software Services Ltd. (collectively “IQVIA Parties”), filed a lawsuit in the U.S. District Court for the District of New Jersey against Veeva Systems, Inc. (“Veeva”) alleging Veeva unlawfully used IQVIA Parties intellectual property to improve Veeva data offerings, to promote and market Veeva data offerings and to improve Veeva technology offerings. IQVIA Parties seek injunctive relief, appointment of a monitor, the award of compensatory and punitive damages and reimbursement of all litigation expenses, including reasonable attorneys’ fees and costs. On March 13, 2017, Veeva filed counterclaims alleging anticompetitive business practices in violation of the Sherman Act and state laws. Veeva claims damages in excess of $200 million, and is seeking punitive damages and litigation costs, including attorneys’ fees. We believe the counterclaims are without merit, reject all counterclaims raised by Veeva and intend to vigorously defend IQVIA Parties’ position and pursue our claims against Veeva. Since the initial filings, the parties have filed additional litigations against each other, primarily concerning the use of IQVIA data with various other Veeva products. The parties are currently engaging in the discovery process.
13. Stockholders’ Equity
Preferred Stock
The Company is authorized to issue 1.0 million shares of preferred stock, $0.01 per share par value. No shares of preferred stock were issued and outstanding as of December 31, 2019 or 2018.
Equity Repurchase Program
On February 13, 2019, the Company’s Board of Directors (the “Board”) increased the stock repurchase authorization under a previously approved equity repurchase program (the “Repurchase Program”) by $2.0 billion, which increased the total amount that has been authorized under the Repurchase Program to $7.725 billion since the plan’s inception in October 2013. The Repurchase Program does not obligate the Company to repurchase any particular amount of common stock, and it may be modified, extended, suspended or discontinued at any time.
On October 30, 2013, the Board first approved the Repurchase Program, authorizing the repurchase of up to $125 million of either the Company’s common stock or vested in-the-money employee stock options, or a combination thereof. The Board increased the stock repurchase authorization under the Repurchase Program with respect to the repurchase of its common stock by $600 million, $1.5 billion, $2 billion and $1.5 billion in 2015, 2016, 2017 and 2018, respectively, which increased the total amount that has been authorized under the Repurchase Program to $5.725 billion. The Repurchase Program does not obligate the Company to repurchase any particular amount of common stock or vested in-the-money employee stock options, and it may be modified, extended, suspended or discontinued at any time.
As of December 31, 2019, the Company has remaining authorization to repurchase up to $1.3 billion of its common stock under the Repurchase Program. In addition, from time to time, the Company has repurchased and may continue to repurchase common stock through private or other transactions outside of the Repurchase Program.
2019 Offerings
In March 2019, the Company completed an underwritten secondary public offering of 5,000,000 shares of its common stock held by certain of the Company’s remaining private equity sponsors (the “Selling Stockholders”), of which the Company repurchased 1,000,000 shares for an aggregate purchase price of approximately $140.8 million. The Company did not offer any stock in this transaction and did not receive any proceeds from the sale of the shares by the Selling Stockholders. Pursuant to an agreement with the underwriters, the Company’s per-share purchase price for repurchased shares was the same as the per share purchase price payable by the underwriters to the Selling Stockholders.
2018 Offerings
In November 2018, the Company completed an underwritten secondary public offering of 6,000,000 shares of its common stock held by certain of the Company’s principal stockholders (the “November 2018 Selling Stockholders”), of which the Company repurchased 2,000,000 shares for an aggregate purchase price of approximately $247 million. The Company did not offer any stock in this transaction and did not receive any proceeds from the sale of the shares by the November 2018 Selling Stockholders. Pursuant to an agreement with the underwriter, the Company’s per-share purchase price for repurchased shares was the same as the per-share purchase price payable by the underwriter to the November 2018 Selling Stockholders.
In June 2018, the Company completed an underwritten secondary public offering of 12,000,000 shares of its common stock held by certain of the Company’s principal stockholders (the “June Selling Stockholders”), of which the Company repurchased 4,000,000 shares for an aggregate purchase price of approximately $412 million. The Company did not offer any stock in this transaction and did not receive any proceeds from the sale of the shares by the June Selling Stockholders. Pursuant to an agreement with the underwriter, the Company’s per-share purchase price for repurchased shares was the same as the per-share purchase price payable by the underwriter to the June Selling Stockholders.
Other Equity Repurchases
In August 2019, the Company agreed to purchase an aggregate of 1,000,000 shares of its common stock, par value $0.01 per share, in a private transaction from certain of its existing shareholders (the “Repurchase”). In addition to the Repurchase, certain of the Company’s remaining private equity sponsors informed the Company that they have sold 4,000,000 shares of the Company’s common stock pursuant to Rule 144 under the Securities Act of 1933, as amended, for a total of 5,000,000 shares.
In November 2017, the Company completed an underwritten secondary public offering of 10,000,000 shares of its common stock held by certain of the Company’s principal stockholders (the “November Selling Stockholders”), of which the Company repurchased 2,500,000 shares for an aggregate purchase price of approximately $255 million. These shares were repurchased outside of the Company’s existing Repurchase Program. The Company did not offer any stock in this transaction and did not receive any proceeds from the sale of the shares by the November Selling Stockholders. Pursuant to an agreement with the underwriter, the Company’s per-share purchase price for repurchased shares was the same as the per-share purchase price payable by the underwriter to the November Selling Stockholders.
Summary
Below is a summary of the share repurchases made both under and outside of the Repurchase Program:
Non-controlling Interests
The Company contributed businesses to a joint venture with Quest Diagnostics Incorporated (“Quest”) that was recorded at book value (carryover basis) because the Company owns 60% of the joint venture and maintains control of these businesses. As a result, Quest’s non-controlling interest in the joint venture, referred to as Q2 Solutions, is equal to 40%. Quest’s non-controlling interest was $260 million at December 31, 2019. During the year ended December 31, 2019, Q2 Solutions distributed dividends of $18 million to Quest and did not receive a contribution from Quest to fund ongoing operational and strategic activities.
Subsequent Events
On February 13, 2020, the Company agreed to purchase at market price an aggregate of 1,000,000 shares of its common stock, par value $0.01 per share, in a private transaction from certain of its existing shareholders (the “February 2020 Repurchase”). In addition to the February 2020 Repurchase, certain of the Company’s remaining private equity sponsors informed the Company that they have sold 4,000,000 shares of the Company’s common stock pursuant to Rule 144 under the Securities Act of 1933, as amended, for a total of 5,000,000 shares.
14. Business Combinations
The Company completed several immaterial acquisitions during the year ended December 31, 2019. The Company’s assessment of fair value and the purchase price allocation related to these acquisitions is preliminary and subject to change upon completion. Further adjustments may be necessary as additional information related to the fair values of assets acquired and liabilities assumed is assessed during the measurement period (up to one year from the acquisition date). The accompanying consolidated financial statements include the results of the acquisitions subsequent to their respective closing dates. Pro forma information is not presented as pro forma results of operations would not be significantly different to the actual results of operations of the Company.
The following table provides certain financial information for these acquisitions, including the preliminary allocations of the purchase prices to certain intangible assets acquired and goodwill:
(1)
Total cost of acquisitions, net of cash acquired, includes contingent consideration and deferred purchase payments of $79 million and $63 million for the years ended December 31, 2019 and 2018, respectively.
15. Restructuring
The Company has continued to take restructuring actions in 2019 to align its resources and reduce overcapacity to adapt to changing market conditions and integrate acquisitions. These actions include closing facilities, consolidating functional activities, eliminating redundant positions, and aligning resources with customer requirements. These restructuring actions are expected to continue into 2020. During the first quarter of 2019, there was also a decrease of $9 million in facility exit costs due to the reclassification of restructuring into a long-term operating lease liability related to the implementation of ASC 842, Leases.
The management approved plans resulted in approximately $75 million, $68 million and $63 million of restructuring expense, net of reversals, which consisted of severance, facility closure costs and other exit-related costs in 2019, 2018, and 2017, respectively.
The following amounts were recorded for the restructuring plans:
The reversals were due to changes in estimates primarily resulting from the redeployment of staff and higher than expected voluntary terminations. Restructuring costs are not allocated to the Company’s reportable segments as they are not part of the segment performance measures regularly reviewed by management. The Company expects the majority of the restructuring accruals at December 31, 2019 will be paid in 2020.
16. Income Taxes
The components of income before income taxes and equity in earnings (losses) of unconsolidated affiliates are as follows:
The components of income tax expense attributable to continuing operations are as follows:
The differences between the Company’s consolidated income tax expense attributable to continuing operations and the expense computed at the United States statutory income tax rate of 21% in 2019, 21% in 2018 and 35% in 2017 were as follows:
(*) Includes impact of GILTI, and other U.S. taxes on foreign earnings.
In 2019 the U.S. Treasury Department issued final regulations on the transition tax and proposed regulations on FDII, which was introduced by the Tax Act described below. While the final regulations related to the transition tax did not have a material impact on the Company, the proposed guidance for FDII had an unfavorable impact. Although the proposed guidance for FDII is not authoritative and subject to change in the regulatory review process, the company reversed the tax benefit recorded in 2018 by recording a tax expense of $25 million for this impact. It is expected that during 2020 the U.S. Treasury Department will issue final regulations on FDII.
On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act is comprehensive legislation that includes provisions that lower the federal corporate income tax rate from 35% to 21% beginning in 2018 and imposes a one-time transition tax on undistributed foreign earnings. ASC 740 “Income Taxes” generally requires the effects of the tax law change to be recorded in the
period of enactment. Staff Accounting Bulletin No. 118 (“SAB 118”) addresses situations when a registrant does not have the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete an accounting assessment and allows companies to record provisional amounts during a measurement period not to extend beyond one year. Subsequent changes to provisional amounts are reported in the period in which they are determined.
In 2018 the Company recorded a $35 million benefit related to finalizing the accounting related to the Tax Act. Additionally, in 2018 the Company recorded a benefit of $25 million related to FDII, as well as a tax expense of $35 million related to GILTI, as a result of the new provisions of the Tax Act.
In 2017, due to the Tax Act, the Company revalued its U.S. deferred tax assets and liabilities and recorded a benefit to deferred income taxes of $966 million.
Undistributed earnings of the Company’s foreign subsidiaries amounted to approximately $2,997 million at December 31, 2019. With the enactment of the Tax Act, the Company does not consider any of its foreign earnings as indefinitely reinvested.
The income tax effects of temporary differences from continuing operations that give rise to significant portions of deferred income tax assets (liabilities) are presented below:
During 2019 the net deferred tax liabilities decreased mainly due to amortization of intangibles related to the merger between Quintiles and IMS health (“Merger”).
The Company had federal, state and local, and foreign tax loss carryforwards and tax credits, the tax effect of which was $622 million as of December 31, 2019. Of this amount, $31 million has an indefinite carryforward period, and the remaining $591 million expires at various times beginning in 2020. Some of the federal losses are subject to limitations under the Internal Revenue Code, however, management expects these losses to be utilized during the carryforward periods.
In 2019, the Company increased its valuation allowance by $40 million to $266 million at December 31, 2019 from $226 million at December 31, 2018. The valuation allowance increased primarily due to current year branch basket foreign tax credits that the Company has determined are not more likely than not to be used before their expiration. The valuation allowance also increased due to an increase in the value of the U.S. state net operating losses.
A reconciliation of the beginning and ending amount of gross unrecognized income tax benefits is presented below:
As of December 31, 2019, the Company had total gross unrecognized income tax benefits of $120 million associated with over 100 jurisdictions in which the Company conducts business that, if recognized, would reduce the Company’s effective income tax rate.
The Company’s policy for recording interest and penalties relating to uncertain income tax positions is to record them as a component of income tax expense in the accompanying consolidated statements of income. In 2019, 2018 and 2017, the amount of interest and penalties recorded as an addition to income tax expense in the accompanying consolidated statements of income was $2 million, $0 million and $3 million, respectively. As of December 31, 2019 and 2018, the Company had accrued approximately $18 million and $16 million, respectively, of interest and penalties.
The Company believes that it is reasonably possible that a decrease of up to $13 million in gross unrecognized income tax benefits for federal, state and foreign exposure items may be necessary within the next 12 months due to lapse of statutes of limitations or uncertain tax positions being effectively settled. The Company believes that it is reasonably possible that a decrease of up to $23 million in gross unrecognized income tax benefits for foreign items may be necessary within the next 12 months due to payments. For the remaining uncertain income tax positions, it is difficult at this time to estimate the timing of the resolution.
The Company conducts business globally and, as a result, files income tax returns in the United States federal jurisdiction and various state and foreign jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the world. The following table summarizes the tax years that remain open for examination by tax authorities in the most significant jurisdictions in which the Company operates:
In certain of the jurisdictions noted above, the Company operates through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.
Due to the geographic breadth of the Company’s operations, numerous tax audits may be ongoing throughout the world at any point in time. Income tax liabilities are recorded based on estimates of additional income taxes that may be due upon the conclusion of these audits. Estimates of these income tax liabilities are made based upon prior experience and are updated in light of changes in facts and circumstances. However, due to the uncertain and complex application of income tax regulations, it is possible that the ultimate resolution of audits may result in liabilities that could be materially different from these estimates. In such an event, the Company will record additional income tax expense or income tax benefit in the period in which such resolution occurs.
17. Employee Benefit Plans
Pension and Postretirement Benefit Plans
The Company sponsors both funded and unfunded defined benefit pension plans. These plans provide benefits based on various criteria, including, but not limited to, years of service and salary. The Company also sponsors an unfunded postretirement benefit plan in the United States that provides health and prescription drug benefits to retirees who meet the eligibility requirements. The Company uses a December 31 measurement date for all pension and postretirement benefit plans.
The following table summarizes changes in the benefit obligation, the plan assets and the funded status of the pension benefit plans:
The following table summarizes the amounts recognized in the consolidated balance sheets related to the pension benefit plans:
At December 31, 2019, the benefit obligation for other postretirement benefits was $2 million, with $1 million recorded in accrued expenses and $1 million included within other long-term liabilities; and the amount recognized in AOCI was less than $1 million.
The following table summarizes the accumulated benefit obligation for all pension benefit plans:
The following table provides the information for pension plans with an accumulated benefit obligation in excess of plan assets and projected benefit obligations in excess of plan assets:
The components of net periodic benefit cost changes in plan assets and benefit obligations recognized in other comprehensive loss were as follows:
All components of net periodic benefit cost other than service cost are recorded in other expense (income), net on the accompanying consolidated statements of income.
On October 26, 2018, the High Court of the United Kingdom issued a judgement relating to Guaranteed Minimum Pensions (“GMPs”) in the Lloyds case. The judgement concluded the schemes should be amended to equalize pension benefits for men and women in relation to guaranteed minimum pension benefits. A preliminary assessment by the Company’s actuarial advisors estimated an impact of approximately $1.7 million between the two United Kingdom pension schemes, which has been recognized in AOCI as a prior service cost in 2018.
Assumptions
The weighted average assumptions used to determine net periodic benefit cost were as follows for the years ended December 31:
The weighted average assumptions used to determine benefit obligations were as follows at December 31:
The discount rate represents the interest rate used to determine the present value of the future cash flows currently expected to be required to settle the Company’s defined benefit plan obligations. The discount rates are derived using weighted average yield curves on AA-rated corporate bonds. The cash flows from the Company’s expected benefit obligation payments are then matched to the yield curve to derive the discount rates. At December 31, 2019, the discount rate ranged from 2.70% to 3.58% for the Company’s United States pension plan and postretirement benefit plan. At December 31, 2019, the discount rate ranged from 1.68% to 2.10% for the Company’s United Kingdom pension plans. The United States and United Kingdom plans represent approximately 75% of the consolidated benefit obligation as of December 31, 2019. The discount rates in other non-U.S. countries ranged from 0.17% to 8.37% at December 31, 2019.
The Company’s assumption for the expected return on plan assets was determined by the weighted average of the long-term expected rate of return on each of the asset classes invested as of the balance sheet date. For plan assets invested in government bonds, the expected return was based on the yields on the relevant indices as of the balance sheet date. There is considerable uncertainty for the expected return on plan assets invested in equity and diversified growth funds. The expected rate of return on plan assets for the United States pension plans was 7.75% at January 1, 2020. Outside the United States, the range of applicable expected rates of return was 1.0% to 5.00% as of January 1, 2020, compared to 1.0% to 7.22% as of January 1, 2019. The expected return on assets (“EROA”) was $41 million and $42 million and the actual return on assets was $108 million and $(26) million for the years ended December 31, 2019 and 2018, respectively.
Under the Company’s United States qualified retirement plan, participants have a notional retirement account that increases with pay and investment credits. The rate used to determine the investment credit (cash balance crediting rate) varies monthly and is equal to 1/12th of the yield on 30-year U.S. Government Treasury Bonds, with a minimum of 0.25%. At retirement, the account is converted to a monthly retirement benefit.
At December 31, 2019, the Company’s health care cost trend rate for the next seven years was assumed to be 6.0% and the assumed ultimate cost trend rate was 4.5%. The Company assumed that ultimate cost trend rate is reached in 2023.
Assumed health care cost trend rates could have a significant effect on the amounts reported for the health care plans. A one-percentage-point change in assumed health care cost trend rates at December 31, 2019 would have a de minimis effect on the total of service and interest cost and on the accumulated postretirement benefit obligation.
Plan Assets
The Company’s pension plan weighted average asset allocations, by asset category, were as follows:
The target asset allocation for the Company’s pension plans were as follows:
The following table summarizes United States plan assets measured at fair value:
The following table summarizes non-United States plan assets measured at fair value:
(1)
Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in the above plan asset tables are intended to permit reconciliation of the fair value of plan assets in the fair value hierarchy to the plan asset amounts presented in the above funded status table as of December 31, 2019 and 2018.
Investments in mutual funds are valued at quoted market prices. Investments in common/collective trusts and pooled funds are valued at the NAV as reported by the trust. The NAV is based on the fair value of the underlying investments held by the fund less its liabilities. Insurance contracts are valued at the amount of the benefit liability. The Company has no Level 3 assets that rely on unobservable inputs to measure fair value.
Investment Policies and Strategies
The Company invests primarily in a diversified portfolio of equity securities that provide for long-term growth within reasonable and prudent levels of risk. The asset allocation targets established by the Company are strategic and applicable to the plan’s long-term investing horizon. The portfolio is constructed and maintained to provide adequate liquidity to meet associated liabilities and minimize long-term expense and provide prudent diversification among asset classes in accordance with the principles of modern portfolio theory. The plan employs a diversified mix of actively managed investments around a core of passively managed index exposures in each asset class. Within each asset class, rapid market shifts, changes in economic conditions or an individual fund manager’s outlook may cause the asset allocation to fall outside the prescribed targets. The majority of the Company’s plan assets are measured quarterly against benchmarks established by the Company’s investment advisors and the Company’s Asset Management Committee, who review actual plan performance and have the authority to recommend changes as deemed appropriate. Assets are rebalanced periodically to their strategic targets to maintain the plan’s strategic risk/reward characteristics. The Company periodically conducts asset liability modeling studies to ensure that the investment strategy is aligned with the obligations of the plans and that the assets will generate income and capital growth to meet the cost of current and future benefits that the plans provide. The pension plans do not have investments in Company stock at December 31, 2019 or 2018.
The portfolio for the Company’s United Kingdom pension plans seek to invest in a range of suitable assets of appropriate liquidity that will generate in the most effective manner possible, income and capital growth to ensure that there are sufficient assets to meet benefit payments when they fall due, while controlling the long-term costs of the plans and avoiding short-term volatility of investment returns. The plans seek to achieve these objectives by investing in a mixture of real (equities) and monetary (fixed interest) assets. It recognizes that the returns on real assets, while expected to be greater over the long-term than those on monetary assets, are likely to be more volatile. A mixture across asset classes should nevertheless provide the level of returns required by the plans. The trustee periodically conducts asset liability modeling exercises to ensure the investments are aligned with the appropriate benchmark to better reflect the plans’ liabilities. The trustee also undertakes to review this benchmark on a regular basis.
Cash Flows
Contributions
The Company expects to contribute approximately $29 million in required contributions to its pension and postretirement benefit plans during 2020. The Company may make additional contributions into its pension plans in 2020 depending on, among other factors, how the funded status of those plans change or in order to meet minimum funding requirements as set forth in employee benefit and tax laws, plus additional amounts the Company may deem to be appropriate.
Estimated future benefit payments and subsidy receipts
The following benefit payments (net of expected participant contributions) for pension benefits are expected to be paid as follows:
Benefit payments (net of expected participant contributions) for other postretirement benefits are expected to be de minimis over the periods presented.
Defined Contribution Plans
Defined contribution or profit sharing plans are offered in Australia, Austria, Belgium, Bulgaria, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Ireland, Israel, Japan, Malaysia, the Netherlands, New Zealand, Poland, Slovakia, South Africa, Sweden, Switzerland, Taiwan, Thailand, the United States and the United Kingdom. In some cases, these plans are required by local laws or regulations.
In the United States, the Company has a 401(k) plan under which the Company matches employee deferrals at varying percentages and specified limits of the employee’s salary. In 2019, 2018, and 2017, the Company expensed $56 million, $49 million and $47 million, respectively, related to matching contributions.
Certain key executives of the Company participate in an unfunded defined contribution executive retirement plan, assumed in the Merger, which was frozen to additional accruals for future service contributions in 2012. Participants continue to receive an annual investment credit based on the average of the annual yields at the end of each month on the AA-AAA rated 10 plus year maturity component of the Merrill Lynch United States Corporate Bond Master Index.
Plans Accounted for as Postretirement Benefits
The Company provides certain executives with postretirement medical, dental and life insurance benefits. These benefits are individually negotiated arrangements in accordance with their individual employment arrangements. The above tables do not include the Company’s expense or obligation associated with providing these benefits. The obligation related to these benefits was approximately $10 million as of December 31, 2019, and the Company’s expense for the year then ended was de minimis.
Stock Incentive Plans
Stock incentive plans provide incentives to eligible employees, officers and directors in the form of non-qualified stock options, incentive stock options, stock appreciation rights (“SARs”), restricted stock awards (“RSAs”), restricted stock units (“RSUs”), performance awards, covered annual incentive awards, cash-based awards and other stock-based awards, in each case subject to the terms of the stock incentive plans.
In April 2017, the Company’s 2017 Incentive and Stock Award Plan (the “2017 Plan”) was approved by the Company’s stockholders. The 2017 Plan consolidates the unused share pools under the Company’s 2014 Incentive and Stock Award Plan (the “2014 Plan”), the Company’s 2013 Stock Incentive Plan (the “2013 Plan”), the Company’s 2010 Equity Incentive Plan (the “2010 Plan”) and the Company’s 2008 Stock Incentive Plan (the “2008 Plan”), and together with the 2010 Plan, the 2013 Plan and the 2014 Plan (the “Prior Plans”), makes shares underlying outstanding awards granted under (but not ultimately delivered) the Prior Plans eligible for use in connection with new awards under the 2017 Plan. The 2017 Plan provides for the grant of stock options, SARs, restricted and deferred stock (including RSUs), performance awards, dividend equivalents, other stock-based awards and cash-based awards.
The fair value of stock options and SARs is estimated using the Black-Scholes-Merton option-pricing model. The fair value of restricted stock and RSUs is based on the closing market price of the Company’s common stock on the date of grant. The fair value of the performance shares related to compound annual earnings per share (“EPS”) growth and/or other internal performance measures is equal to the closing market price of the Company’s common stock on the date of grant. The fair value of performance shares related to relative total shareholder return (“TSR”) is determined based on a Monte Carlo simulation model.
The Company recognized stock-based compensation expense of $146 million, $113 million and $106 million in 2019, 2018 and 2017, respectively. Stock-based compensation expense is included in selling, general and administrative expenses on the accompanying consolidated statements of income. The associated future income tax benefit recognized was $22 million, $19 million and $21 million in 2019, 2018 and 2017, respectively. As of December 31, 2019, there was approximately $82 million of total unrecognized stock-based compensation expense related to outstanding non-vested stock-based compensation arrangements, which the Company expects to recognize over a weighted average period of 0.80 years.
As of December 31, 2019, there were 11.4 million shares available for future grants under all of the Company’s stock incentive plans.
The Company used the following assumptions when estimating the value of the stock-based compensation for stock options and SARs issued as follows:
Stock Options
The option price is determined by the Board at the date of grant and the options expire 10 years from the date of grant. The vesting schedule for options granted to employees is either (i) 25% per year beginning on the first anniversary of the date of grant; or (ii) 33% on the third anniversary of the date of grant and 67% on the fourth anniversary of the date of grant.
The Company’s stock option activity in 2019 is as follows:
The total intrinsic value of options exercised was approximately $124 million, $117 million and $157 million in 2019, 2018 and 2017, respectively. The Company received cash of approximately $36 million, $48 million and $102 million in 2019, 2018 and 2017, respectively, from options exercised.
Selected information regarding the Company’s stock options as of December 31, 2019 is as follows:
The weighted average remaining contractual life of the options outstanding and exercisable as of December 31, 2019 is 2.9 years and 2.7 years, respectively. The total aggregate intrinsic value of the exercisable stock options and the stock options expected to vest as of December 31, 2019 was approximately $174 million.
Stock Appreciation Rights - Stock Settled
The exercise price of the stock-settled SARs (“SSRs”) is equal to the closing market price of the Company’s common stock as of the grant date and expire on the tenth anniversary of the date of grant. The SSRs are eligible to vest either (i) in equal increments of 25% on each of the first four anniversaries of the date of grant or (ii) in three equal annual installments on each of the first three anniversaries of the date of grant.
The Company’s SSR activity in 2019 is as follows:
The total intrinsic value of SSRs exercised was approximately $47 million in 2019.
The weighted average remaining contractual life of the SSRs outstanding and exercisable as of December 31, 2019 is 7.6 years and 6.7 years, respectively. The total aggregate intrinsic value of the exercisable SSRs and the SSRs expected to vest as of December 31, 2019 was approximately $256 million.
Stock Appreciation Rights - Cash Settled
The Company’s cash settled SARs (“CSRs”) require the Company to settle in cash an amount equal to the difference between the fair value of the Company’s common stock on the date of exercise and the grant price, multiplied by the number of CSRs being exercised. These awards vest either (i) 25% per year or (ii) 33% on the third anniversary of the date of grant and 67% on the fourth anniversary of the date of grant; or (iii) one-third per year beginning on the first anniversary of the date of grant.
The Company’s CSR activity in 2019 is as follows:
As of December 31, 2019, 2018 and 2017, the weighted average fair value per share of the CSRs granted was $99.27, $66.92 and $52.53, respectively. The Company paid approximately $7 million, $5 million and $4 million to settle exercised CSRs in 2019, 2018 and 2017, respectively.
The weighted average remaining contractual life of the CSRs outstanding and exercisable as of December 31, 2019 is 5.1 years and 4.5 years, respectively. The total aggregate intrinsic value of the exercisable CSRs and the CSRs expected to vest as of December 31, 2019 was approximately $16 million.
Restricted Stock Units - Stock Settled
The Company’s RSUs will settle in shares of the Company’s common stock within 45 days of the applicable vesting date. In general, RSUs granted to employees vest either (i) 25% per year beginning on the first anniversary of the date of grant; (ii) one-third per year beginning on the first anniversary of the grant date; (iii) 33% on the third anniversary of the date of grant and 67% on the fourth anniversary of the date of grant or (iv) 100% at the end of the three-year period following the grant date. Members of the Company’s board of directors receive RSUs that are fully vested when granted.
The Company’s RSU activity in 2019 is as follows:
(1) Pursuant to the IQVIA Holdings Inc. Non-Employee Director Deferral Plan (the “Director Deferral Plan”), non-employee directors may elect to defer receipt of their cash retainers. If a director elects to defer his or her retainer, he or she will instead be credited with that value in deferred shares under the Director Deferral Plan. Deferred shares become payable in Company common stock following a termination of the director’s Board service or the director’s death, or upon a change in control of the Company. The Company granted 815 deferred RSUs in 2019.
As of December 31, 2019, there are 420,566 RSUs outstanding with an intrinsic value of approximately $65 million.
Restricted Stock Units - Cash Settled
The Company’s cash settled RSUs (“Cash RSUs”) require the Company to settle in cash an amount equal to the fair value of the Company’s common stock on the vest date multiplied by the number of vested Cash RSUs. These awards vest either (i) 100% at the end of the three-year period following the date of grant, or (ii) one-third per year beginning on the first grant date anniversary.
The Company’s Cash RSU activity in 2019 is as follows:
As of December 31, 2019, there are 20,707 Cash RSUs outstanding with an intrinsic value of approximately $3.0 million.
Restricted Stock Awards
Restricted stock awards (“RSAs”) vest either (i) in equal increments of 50% on each of the second and fourth anniversaries of the grant date; (ii) one-third per year beginning on the first anniversary of the date of grant; or (iii) 25% on each of the second and third anniversaries of the grant date and 50% on the fourth anniversary of the date of grant.
The Company’s RSA activity in 2019 is as follows:
As of December 31, 2019, there are 190,937 RSAs outstanding with an intrinsic value of approximately $29.5 million.
Performance Awards
The Company awarded performance awards that contain service, performance-based and/or market-based vesting criteria. Vesting occurs if the recipient remains employed and depends on the degree to which performance goals are achieved during the two-year or three-year performance period (as defined in the award agreements).
The Company’s performance award activity in 2019 is as follows:
As of December 31, 2019, there are 1,055,807 performance awards outstanding with an intrinsic value of approximately $163 million.
Other
The Company sponsors a supplemental non-qualified deferred compensation plan, covering certain management employees, and maintains other statutory indemnity plans as required by local laws or regulations.
18. Related Party Transactions
The Company has entered into other transactions with related parties that are not deemed to be material, including investments in and advances to unconsolidated affiliates that are discussed in Note 4.
19. Property, Equipment and Software by Geography
The following table represents the Company’s property, equipment and software, net, by geographic region, which is further broken down to show each country that accounts for 10% or more of the totals:
20. Segments
The following table presents the Company’s operations by reportable segment. The Company is managed through three reportable segments, Technology & Analytics Solutions, Research & Development Solutions and Contract Sales & Medical Solutions. Technology & Analytics Solutions provides mission critical information, technology solutions and real world solutions and services to the Company’s life science clients. Research & Development Solutions, which primarily serves biopharmaceutical customers, provides outsourced clinical research and clinical trial related services. Contract Sales & Medical Solutions provides health care provider (including contract sales) and patient engagement services to both biopharmaceutical customers and the broader healthcare market. Prior period segment results have been recast to conform to immaterial changes to management reporting in 2017.
Certain costs are not allocated to our segments and are reported as general corporate and unallocated expenses. These costs primarily consist of stock-based compensation and expenses to integration activities and acquisitions. We also do not allocate depreciation and amortization or impairment charges to our segments. Prior period segment results have been recast to conform to changes to management reporting in 2019. The recast impacts the allocation of selling, general and administrative expenses for 2018 and 2017. Asset information by segment is not presented, as this measure is not used by the chief operating decision maker to assess the Company’s performance.
21. Earnings Per Share
The following table reconciles the basic to diluted weighted average shares outstanding:
The following table presents the weighted average number of outstanding stock-based awards not included in the computation of diluted earnings per share because they are subject to performance conditions or the effect of including such stock-based awards in the computation would be anti-dilutive:
The vesting of performance awards is contingent upon the achievement of certain performance targets. The performance awards are not included in diluted earnings per share until the performance targets are probable. Stock-based awards will have a dilutive effect under the treasury method when the respective period’s average market value of the Company’s common stock exceeds the exercise proceeds.
22. Comprehensive Income
Below is a summary of the components of AOCI:
Below is a summary of the adjustments for (gains) losses reclassified from AOCI into the consolidated statements of income and the affected financial statement line item:
23. Supplemental Cash Flow Information
The following table presents the Company’s supplemental cash flow information:
24. Quarterly Financial Data (Unaudited)
The following table summarizes the Company’s unaudited quarterly results of operations:
(1)
During the fourth quarter of 2018, the Company identified and recorded certain adjustments related to prior periods and as a result increased pre-tax income by $22 million (net income by $15 million). The Company has evaluated the effects of the out of period adjustments and concluded they are not material to the fourth quarter 2018 financial results, nor to any of the previously issued annual or quarterly financial information.
(2)
The sum of the quarterly per share amounts may not equal per share amounts reported for year-to-date periods. This is due to changes in the number of weighted average shares outstanding and the effects of rounding for each period.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15 under the Exchange Act, as amended, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”). There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon our evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed by us in the reports that we file or submit under the Exchange Act, as amended, is recorded, processed, summarized and reported within the time periods specified in the applicable rules and forms, and that it is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control over Financial Reporting
Our management’s report on internal control over financial reporting is set forth in Part II, Item 8 of this Annual Report on Form 10-K and is incorporated herein by reference.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2019 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
On February 11, 2020, the Board of the Company amended the Company’s Amended and Restated Bylaws (the “Bylaws”) to implement a proxy access provision. The Bylaws include a new Section 1.3, which permits a stockholder, or a group of up to 20 stockholders, owning 3% or more of the Company’s outstanding common stock continuously for at least three years to nominate and include in the Company’s proxy materials director candidates constituting up to the greater of 2 nominees or 20% of the Board, subject to the terms and conditions set forth in the Bylaws.
The foregoing description of the amendments to the Bylaws does not purport to be complete and is qualified in its entirety by reference to the full text of the Bylaws, a copy of which is attached hereto as Exhibit 3.2 and is incorporated herein by reference.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Information required by this Item, other than the information regarding the executive officers of the Company set forth below, is incorporated by reference to the sections of our definitive Proxy Statement for our 2020 Annual Meeting of Stockholders (the “2020 Proxy Statement”) entitled “Proposal No. 1: Election of Directors”, “IQVIA’s Corporate Governance-Documents Establishing our Corporate Governance” and “IQVIA’s Corporate Governance-Committees of the Board.”
The current executive officers of the Company are as follows:
Ari Bousbib, Director, Chairman, Chief Executive Officer and President
Mr. Bousbib is Chairman, Chief Executive Officer and President of the Company. He assumed this position in October 2016 following the Merger of Quintiles and IMS Health. From 2010 until the Merger, Mr. Bousbib served as Chairman and CEO of IMS Health. Prior to joining IMS Health, Mr. Bousbib spent 14 years at United Technologies Corporation (“UTC”), an aerospace, defense and building systems company. From 2008 until 2010, he served as President of UTC’s Commercial Companies, with executive leadership responsibilities for the worldwide operations of Otis Elevator Company, Carrier Corporation, UTC Fire & Security and UTC Power Inc. From 2002 until 2008, Mr. Bousbib was President of Otis, and from 2000 to 2002, he served as its Chief Operating Officer. Prior to joining UTC, Mr. Bousbib was a partner at Booz Allen Hamilton. Mr. Bousbib currently serves on the board of directors of The Home Depot, Inc. and is a member of the Harvard Medical School Health Care Policy Advisory Council. Mr. Bousbib holds a Master of Science Degree in Mathematics and Mechanical Engineering from the Ecole Superieure des Travaux Publics, Paris, and an M.B.A. from Columbia University.
Michael R. McDonnell, Executive Vice President and Chief Financial Officer
Mr. McDonnell has served as Executive Vice President and Chief Financial Officer since December 2015. Prior to joining the Company, Mr. McDonnell served as the Executive Vice President and Chief Financial Officer of Intelsat, a leading global provider of satellite services, from November 2008 to December 2015. He previously served as Executive Vice President and Chief Financial Officer of MCG Capital Corporation, a publicly-held commercial finance company, from September 2004 through October 2008 and as its Chief Operating Officer from August 2006 to October 2008. Before joining MCG Capital Corporation, Mr. McDonnell served as Executive Vice President and Chief Financial Officer for EchoStar Communications Corporation (f/k/a DISH Network Corporation), a direct-to-home satellite television operator, from July 2004 to August 2004 and as its Senior Vice President and Chief Financial Officer from August 2000 to July 2004. Mr. McDonnell spent 14 years at PricewaterhouseCoopers LLP, including four years as a partner. Mr. McDonnell has a Bachelor of Science degree in accounting from Georgetown University and is a certified public accountant.
W. Richard Staub, III, President, Research & Development Solutions
Mr. Staub has served as President, Research & Development Solutions since December 2016. Previously Mr. Staub served as President of Novella Clinical, a Quintiles company, since 2013. Prior to Novella’s 2013 acquisition by Quintiles, Mr. Staub served as both president and CEO of Novella Clinical since 2008. Before joining Novella Clinical in 2004, Mr. Staub was senior vice president of global business development for one of the world’s largest clinical research organizations. Mr. Staub’s career in the pharmaceutical industry began at Zeneca Pharmaceuticals in 1989 where he had progressive responsibilities as a medical and hospital sales representative, cardiovascular portfolio analyst and marketing manager. Mr. Staub has a Bachelor of Arts degree in Economics from the University of North Carolina at Chapel Hill.
Kevin C. Knightly, President, Information & Technology Solutions
Mr. Knightly has served as President, Information & Technology Solutions since October 2016. Previously Mr. Knightly served as Senior Vice President, Information Offerings at IMS Health from April 2015 to October 2016. From January 2011 to March 2015, Mr. Knightly served as Senior Vice President, Supplier Management at IMS Health. Prior to that, Mr. Knightly served in a number of senior financial, operations, marketing and general management roles for IMS Health, including as Senior Vice President, Pharma Business Management from 2007 until 2010. Mr. Knightly holds a B.S. in Economics and Accounting from the College of the Holy Cross, and an M.B.A. from New York University’s Stern Business School.
Eric Sherbet, Executive Vice President, General Counsel and Secretary
Mr. Sherbet has served as our Executive Vice President, General Counsel and Secretary since March 2018. Prior to joining the Company, he served as General Counsel and Secretary at Patheon N.V. from November 2014 until November 2017. Prior to joining Patheon, he was General Counsel and Corporate Secretary at InVentiv Health from April 2011 until October 2014. He also previously served as Vice President, Deputy General Counsel and Corporate Secretary at Foster Wheeler AG and before that, as Vice President, Corporate and Securities Law and Secretary with Avaya, Inc. Mr. Sherbet earned his law degree from New York University School of Law and received his bachelor’s degree in commerce/accounting from University of Virginia.
Item 11. Executive Compensation
Compensation
The information required by this item is set forth under the headings “Director Compensation,” “Compensation Discussion and Analysis,” “Compensation Committee Report,” “Compensation of Named Executive Officers,” and “Other Relevant Information-Compensation Committee Interlocks and Insider Participation” in the 2020 Proxy Statement and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Information in response to this Item, other than Securities Authorized for Issuance Under Equity Compensation Plans, will be set forth in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Company’s 2020 Proxy Statement, which information is incorporated herein by reference.
Securities Authorized for Issuance Under Equity Compensation Plans
The following table provides certain information with respect to all of our equity compensation plans in effect as of December 31, 2019:
Equity Compensation Plan Information
(1)
Consists of: (i) 5,773,213 shares of common stock issuable upon the exercise of outstanding time-based stock options and underlying outstanding time-based SARs; (ii) 419,715 shares of common stock issuable in settlement of outstanding restricted stock units awarded and (ii) 979,433 shares of common stock issuable in settlement of outstanding performance units awarded. Excludes (i) 190,937 shares of common stock subject to outstanding awards of restricted stock and (ii) 76,374 shares of common stock subject to outstanding awards of performance stock.
(2)
Consists of outstanding awards issued to certain executives with supplemental pension benefits in accordance with their individual employment arrangements under the IMS Health DCERP.
(3)
The weighted-average exercise price includes all outstanding stock options and SARs but does not include restricted stock units, restricted stock, performance units or performance stock or IMS Health DCERP awards, all of which do not have an exercise price. If restricted stock units, performance units and other awards that constitute “rights” were included in this calculation, treating such awards as having an exercise price of $0, the weighted average exercise price of outstanding options, warrants and rights would be $63.87.
(4)
Consists of all securities remaining available under our equity compensation plans. All of these shares are available for delivery under stock options, SARs, restricted stock, restricted stock units, performance awards or other forms of equity award authorized by the plans. Does not include 2,251,704 shares that would have remained available under our Employee Stock Purchase Plan had it not been discontinued as of December 31, 2016.
Item 13. Certain Relationships and Related Transactions and Director Independence
The information required by this item is set forth under the headings “IQVIA’s Corporate Governance,” and “Certain Relationships and Related Party Transactions” in the 2020 Proxy Statement and is incorporated herein by reference.
Item 14. Principal Accountant Fees and Services
The information required by this item is set forth under the headings “Audit-Fees Paid to Independent Registered Public Accounting Firm” in the 2020 Proxy Statement and is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
(a) The following documents are filed as part of this report:
(1) Financial Statements
The following consolidated financial statements of IQVIA Holdings Inc. and its subsidiaries, and the independent registered public accounting firm’s report thereon, are included in Part II, Item 8 of this Annual Report:
(2) Financial Statement Schedules for the Years Ended December 31, 2019, 2018 and 2017
All other schedules are omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto.
(3) Exhibits
The exhibits in the accompanying Exhibit Index preceding the signature page are filed or furnished as a part of this report and are incorporated herein by reference. The Company agrees to furnish to the SEC, upon request, copies of any long-term debt instruments that authorize an amount of securities constituting 10% or less of the total assets of IQVIA Holdings Inc. and its subsidiaries on a consolidated basis.
EXHIBIT INDEX
Incorporated by Reference
Exhibit
Number
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
2.1*
Agreement and Plan of Merger, dated as of May 3, 2016, by and between Quintiles Transnational Holdings Inc. and IMS Health Holdings, Inc. (which includes the Plan of Conversion dated as of May 3, 2016 as Exhibit A thereto).
8-K
001-35907
2.1
May 3, 2016
3.1
Amended and Restated Certificate of Incorporation of IQVIA Holdings Inc., effective November 6, 2017 (as amended through November 6, 2017).
10-K
001-35907
3.1
February 16, 2018
3.2
Amended and Restated Bylaws of IQVIA Holdings Inc., effective February 11, 2020.
X
4.1
Specimen Common Stock Certificate of Quintiles Transnational Holdings Inc.
S-1/A
333-186708
4.1
April 26, 2013
4.5
Indenture, dated as of September 28, 2016, among Quintiles IMS Incorporated, the Guarantors listed therein and U.S. Bank National Association, as Trustee.
8-K
001-35907
4.1
October 3, 2016
4.8
Indenture, dated February 28, 2017, among Quintiles IMS Incorporated, as Issuer, U.S. Bank National Association, as trustee of the Notes, and certain subsidiaries of the Issuer as guarantors.
8-K
001-35907
4.1
February 28, 2017
4.9
Indenture, dated September 14, 2017, among Quintiles IMS Incorporated, as Issuer, U.S. Bank National Association, as trustee of the Notes, and certain subsidiaries of the Issuer as guarantors.
8-K
001-35907
4.1
September 19, 2017
4.10
Indenture, dated May 10, 2019, among IQVIA Inc., as Issuer, U.S. Bank National Association, as trustee of the Notes and certain subsidiaries of the Issuer, as guarantors.
.
8-K
001-35907
4.1
May 10, 2019
4.11
Indenture, dated August 13, 2019, among IQVIA Inc., as Issuer, U.S. Bank National Association, as trustee of the Notes and certain subsidiaries of the Issuer, as guarantors.
8-K
001-35907
4.1
August 13, 2019
10.1
Fourth Amended and Restated Credit Agreement, dated as of October 3, 2016, by and among Quintiles IMS Incorporated, Quintiles IMS Holdings, Inc., the Guarantors party thereto and the Lenders party thereto (Annex B to Exhibit 10.9 filed October 3, 2016).
8-K
001-35907
10.9
October 3, 2016
10.2
Amendment No. 1, dated March 7, 2017, to Fourth Amended and Restated Credit Agreement, dated October 3, 2016, among Quintiles IMS Incorporated, Quintiles IMS Holdings, Inc., the Guarantors party thereto, Bank of America N.A., as administrative agent and collateral agent, the Incremental Term B-1 Euro Lenders party thereto and the other Lenders party thereto.
8-K
001-35907
10.1
March 8, 2017
10.3
Amendment No. 2, dated September 18, 2017, to Fourth Amended and Restated Credit Agreement, by and among Quintiles IMS Incorporated, Quintiles IMS Holdings, Inc., the Guarantors party thereto, Bank of America N.A., as administrative agent and collateral agent, the Incremental Term B-2 Dollar Lenders party thereto and the other Lenders party thereto.
8-K
001-35907
10.1
September 19, 2017
10.4
Amendment No. 3, dated April 6, 2018, to Fourth Amended and Restated Credit Agreement, dated October 3, 2016, by and among IQVIA Inc., IQVIA Holdings Inc., the other Borrowers party thereto, the other Guarantors party thereto, Bank of America, N.A., as administrative agent and collateral agent, and the Incremental Revolving Credit Lenders party thereto.
10-Q
001-35907
10.1
May 4, 2018
10.5
Amendment No. 4, dated June 11, 2018, to Fourth Amended and Restated Credit Agreement, dated October 3, 2016, among IQVIA Inc., IQVIA Holdings Inc., IQVIA AG, IQVIA Solutions Japan K.K., the other guarantors party thereto, Bank of America, N.A. as administrative agent and as collateral agent, the Lenders party thereto, the Incremental Term B-3 Dollar Lenders party thereto and the Incremental Term B-2 Euro Lenders party thereto.
8-K
001-35907
10.1
June 12, 2018
10.6
Amendment No. 5 to Fourth Amended and Restated Credit Agreement, dated August 9, 2019, among IQVIA Inc., IQVIA Holdings Inc., the other guarantors party thereto, Bank of America, N.A. as administrative agent and collateral agent, the Term B-1 Euro Lenders, the Term B-2 Euro Lenders and Goldman Sachs Bank USA, as Replacement Lender.
8-K
001-35907
10.1
August 13, 2019
Incorporated by Reference
Exhibit
Number
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
10.7
Amendment No. 6 to Fourth Amended and Restated Credit Agreement, dated December 18, 2019, among IQVIA Inc., IQVIA Holdings Inc., the other guarantors party thereto, Bank of America, N.A. as administrative agent and collateral agent, the Term B-2 Dollar Lenders and Bank of America N.A., as Replacement Lender.
8-K
001-35907
10.1
December 18, 2019
10.8
Amended and Restated Pledge and Security Agreement, dated as of March 17, 2014, among Healthcare Technology Intermediate Holdings, Inc., IMS Health Incorporated, each of the grantors party thereto, and Bank of America, N.A., as Administrative Agent.
IMS
Health
S-1/A
333-193159
10.33
March 24, 2014
10.9
U.S. Guaranty, dated as of March 17, 2014, among Healthcare Technology Intermediate Holdings, Inc., as Holdings, IMS Health Incorporated, as Parent Borrower, the other Guarantors party thereto from time to time, and Bank of America, N.A., as Administrative Agent.
IMS
Health
S-1/A
333-193159
10.34
March 24, 2014
10.10
Stockholders Agreement, dated May 3, 2016, among Quintiles Transnational Holdings Inc. and the stockholders identified therein.
8-K
001-35907
10.4
May 3, 2016
10.11†
Form of Director Indemnification Agreement.
S-1/A
333-186708
10.13
April 19, 2013
10.12
Form of Indemnification Agreement with each of the non-management directors of Quintiles IMS Holdings Inc.
8-K
001-35907
10.8
October 3, 2016
10.13†
Description of Non-Employee Director Compensation, effective as of January 1, 2017.
10-K
001-35907
10.27
February 16, 2017
10.14†
Form of Non-Competition, Non-Solicitation, Confidentiality and IP Agreement.
8-K
001-35907
10.2
October 19, 2015
10.15†
Quintiles Transnational Holdings Inc. Annual Management Incentive Plan.
S-1/A
333-186708
10.57
April 19, 2013
10.16†
Quintiles Transnational Holdings Inc. 2008 Stock Incentive Plan.
S-1
333-186708
10.17
February 15, 2013
10.17†
Form of Stock Option Award Agreement for Senior Executives under the Quintiles Transnational Holdings Inc. 2008 Stock Incentive Plan.
S-1
333-186708
10.18
February 15, 2013
10.18†
Form of Stock Option Award Agreement for Non-Employee Directors under the Quintiles Transnational Holdings Inc. 2008 Stock Incentive Plan.
S-1
333-186708
10.19
February 15, 2013
10.19†
Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.
S-1/A
333-186708
10.22
April 19, 2013
10.20†
Form of Award Agreement Awarding Nonqualified Stock Options to Employees under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.
S-1/A
333-186708
10.23
April 19, 2013
10.21†
Form of Award Agreement Awarding Incentive Stock Options to Employees under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.
10-Q
001-35907
10.2
May 1, 2014
10.22†
Form of Award Agreement Awarding Nonqualified Stock Options to Non-Employee Directors under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.
S-1/A
333-186708
10.24
April 19, 2013
10.23†
Form of Award Agreement Awarding Stock Appreciation Rights under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.
S-1/A
333-186708
10.56
April 19, 2013
10.24†
Form of Award Agreement Awarding Stock Appreciation Rights under the Quintiles IMS Holdings, Inc. 2013 Stock Incentive Plan effective February 2017.
10-K
001-35907
10.41
February 16, 2017
10.25†
Form of Award Agreement Awarding Restricted Stock Units under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan prior to February 2015.
8-K
001-35907
10.1
November 26, 2013
10.26†
Form of Award Agreement Awarding Restricted Stock Units under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan effective February 2015.
10-K
001-35907
10.34
February 12, 2015
10.27†
Form of Award Agreement Awarding Performance Units under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.
10-K
001-35907
10.35
February 12, 2015
10.28†
Form of Award Agreement Awarding Performance Shares under the Quintiles IMS Holdings, Inc. 2013 Stock Incentive Plan effective February 2017.
10-K
001-35907
10.45
February 16, 2017
10.29†
Form of Restricted Stock Award Agreement under the Quintiles Transnational Holdings Inc. 2013 Stock Incentive Plan.
10-Q
001-35907
10.3
November 3, 2016
10.30†
Form of Award Agreement Awarding Restricted Stock Units under the Quintiles IMS Holdings, Inc. 2013 Stock Incentive Plan effective February 2017.
10-K
001-35907
10.47
February 16, 2017
10.31†
Quintiles IMS Holdings, Inc. Defined Contribution Executive Retirement Plan.
8-K
001-35907
10.7
October 3, 2016
Incorporated by Reference
Exhibit
Number
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
10.32†
IMS Health Incorporated Defined Contribution Executive Retirement Plan, as amended and restated.
IMS
Health
S-1
333-193159
10.10
January 2, 2014
10.33†
First Amendment to the IMS Health Incorporated Retirement Excess Plan, dated March 17, 2009.
IMS
Health
S-1
333-193159
10.12
January 2, 2014
10.34†
Second Amendment to the IMS Health Incorporated Retirement Excess Plan, dated December 8, 2009.
IMS
Health
S-1
333-193159
10.13
January 2, 2014
10.35†
Third Amendment to the IMS Health Incorporated Retirement Excess Plan, dated April 5, 2011.
IMS
Health
S-1
333-193159
10.14
January 2, 2014
10.36†
Fourth Amendment to the IMS Health Incorporated Retirement Excess Plan (effective May 3, 2016).
IMS
Health
10-Q
001-36381
10.3
July 28, 2016
10.37†
Quintiles IMS Holdings, Inc. 2010 Equity Incentive Plan.
8-K
001-35907
10.5
October 3, 2016
10.38†
Healthcare Technology Holdings, Inc. 2010 Equity Incentive Plan, as amended and restated.
IMS
Health
S-1/A
333-193159
10.16
February 13, 2014
10.39†
Form of IMS Time-and Performance-Based Stock Option Award Agreement under the 2010 Equity Incentive Plan.
IMS
Health
S-1
333-193159
10.17
January 2, 2014
10.40†
Form of IMS Time-Based Stock Option Award Agreement under the 2010 Equity Incentive Plan.
IMS
Health
S-1
333-193159
10.18
January 2, 2014
10.41†
Form of IMS Director Stock Option Award Agreement under the 2010 Equity Incentive Plan.
IMS
Health
S-1
333-193159
10.19
January 2, 2014
10.42†
Form of IMS Restricted Stock Unit Award Agreement under the 2010 Equity Incentive Plan.
IMS
Health
S-1
333-193159
10.20
January 2, 2014
10.43†
Form of IMS Director Restricted Stock Unit Award Agreement under the 2010 Equity Incentive Plan.
IMS
Health
S-1
333-193159
10.21
January 2, 2014
10.44†
Form of IMS Rollover Stock Appreciation Right Award Agreement under the 2010 Equity Incentive Plan.
IMS
Health
S-1
333-193159
10.22
January 2, 2014
10.45†
IMS Health Incorporated Savings Equalization Plan, as amended and restated effective as of January 1, 2011.
IMS
Health
S-1
333-193159
10.15
January 2, 2014
10.46†
Quintiles IMS Holdings, Inc. 2014 Incentive and Stock Award Plan.
8-K
001-35907
10.6
October 3, 2016
10.47†
Form of IMS Stock Appreciation Rights Agreement under the 2014 Incentive and Stock Award Plan.
IMS
Health
8-K
001-36381
10.1
February 10, 2015
10.48†
Form of IMS Performance Share Award Agreement under the 2014 Incentive and Stock Award Plan.
IMS
Health
8-K
001-36381
10.2
February 10, 2015
10.49†
2014 IMS Health Annual Incentive Plan.
IMS
Health
S-1/A
333-193159
10.30
March 10, 2014
10.50†
Quintiles IMS Holdings, Inc. 2017 Incentive and Stock Award Plan.
DEF 14A
001-35907
Appendix B
February 22, 2017
Incorporated by Reference
Exhibit
Number
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
10.51†
Form of Award Agreement Awarding Stock Appreciation Rights under the Quintiles IMS Holdings, Inc. 2017 Incentive and Stock Award Plan effective April 2017.
10-Q
001-35907
10.8
May 8, 2017
10.52†
Form of Award Agreement Awarding Performance Shares under the Quintiles IMS Holdings, Inc. 2017 Incentive and Stock Award Plan effective April 2017.
10-Q
001-35907
10.9
May 8, 2017
10.53†
Form of Award Agreement Awarding Restricted Stock Units under the Quintiles IMS Holdings, Inc. 2017 Incentive and Stock Award Plan effective April 2017.
10-Q
001-35907
10.10
May 8, 2017
10.54†
Quintiles IMS Incorporated Employee Protection Plan, effective January 1, 2017.
10-K
001-35907
10.69
February 16, 2017
10.55†
Quintiles IMS Incorporated Savings Equalization Plan, effective December 31, 2016.
10-K
001-35907
10.76
February 16, 2017
10.56†
Quintiles Transnational Corp. Elective Deferred Compensation Plan, as amended and restated.
10-Q
001-35907
10.1
October 28, 2015
10.57†
Quintiles IMS Holdings Inc. Non-Employee Director Deferral Plan, effective January 1, 2017.
10-K
001-35907
10.78
February 16, 2017
10.58†
Amended and Restated Employment Agreement between IQVIA Holdings Inc. and Ari Bousbib, dated February 18, 2019.
10-K
001-35907
10.60
February 19, 2019
10.59†
Senior Management Nonstatutory Option Agreement between Healthcare Technology Holdings, Inc. and Ari Bousbib, dated December 1, 2010.
IMS
Health
S-1/A
333-193159
10.23
February 13, 2014
10.60†
Senior Management Nonstatutory Option Agreement between Healthcare Technology Holdings, Inc. and Ari Bousbib, dated December 1, 2010.
IMS
Health
S-1/A
333-193159
10.24
February 13, 2014
10.61†
Stock Appreciation Rights Agreement between IMS Health Holdings, Inc. and Ari Bousbib, dated February 10, 2015.
IMS
Health
10-K
001-36381
10.34
February 19, 2016
10.62†
Amendment No. 1, dated December 31, 2015, to Stock Appreciation Rights Agreement between IMS Health Holdings, Inc. and Ari Bousbib dated February 10, 2015.
IMS
Health
10-K
001-36381
10.35
February 19, 2016
10.63†
Restricted Stock Award Agreement between IMS Health Holdings, Inc. and Ari Bousbib dated December 31, 2015.
IMS
Health
10-K
001-36381
10.36
February 19, 2016
10.64†
Letter Agreement, dated October 14, 2015, between Michael McDonnell and Quintiles Transnational Corp.
8-K
001-35907
10.3
October 19, 2015
10.65†
Letter agreement between the Company and Michael R. McDonnell effective on October 3, 2016.
8-K
001-35907
10.1
October 3, 2016
10.66†
Letter Agreement between the Company and W. Richard Staub, III, effective on December 1, 2016.
10-K
001-35907
10.104
February 16, 2017
10.67†
Letter Agreement between the Company and Eric Sherbet, effective on March 1, 2018.
10-K
001-35907
10.72
February 19, 2019
21.1
List of Subsidiaries of IQVIA Holdings Inc.
X
23.1
Consent of PricewaterhouseCoopers LLP.
X
31.1
Certification of Chief Executive Officer, 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 Executive 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, 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 Executive 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
Incorporated by Reference
Exhibit
Number
Exhibit Description
Filed
Herewith
Form
File No.
Exhibit
Filing Date
Interactive Data Files Pursuant to Rule 405 of Regulation S-T: (i) Consolidated Statements of Income, (ii) Consolidated Statements of Comprehensive Income, (iii) Consolidated Balance Sheets, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements and (vi) Notes to Consolidated Financial Statements. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
X
Cover Page Interactive Data File. The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
X
†
Indicates management contract or compensatory plan or arrangement.
*
The Merger Agreement and the description thereof included herein have been included to provide investors and stockholders with information regarding the terms of the agreement. They are not intended to provide any other factual information about Quintiles or IMS Health or their respective subsidiaries or affiliates or stockholders. The representations, warranties and covenants contained in the Merger Agreement were made only for purposes of the Merger Agreement as of the specific dates therein, were solely for the benefit of the parties to the Merger Agreement, may be subject to limitations agreed upon by the contracting parties, including being qualified by confidential disclosures made for the purposes of allocating contractual risk among the parties to the Merger Agreement instead of establishing these matters as facts, and may be subject to standards of materiality applicable to the contracting parties that differ from those applicable to investors. Investors should not rely on the representations, warranties and covenants or any descriptions thereof as characterizations of the actual state of facts or condition of the parties thereto or any of their respective subsidiaries or affiliates. Moreover, information concerning the subject matter of representations and warranties may change after the date of the Merger Agreement, which subsequent information may or may not be fully reflected in public disclosures by Quintiles or IMS Health. Accordingly, investors should read the representations and warranties in the Merger Agreement not in isolation but only in conjunction with the other information about Quintiles or IMS Health and their respective subsidiaries that the respective companies include in reports, statements and other filings they make with the United States Securities and Exchange Commission.
Item 16. Form 10-K Summary
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IQVIA HOLDINGS INC.
By:
/s/ Michael R. McDonnell
Name: Michael R. McDonnell
Title: Executive Vice President and Chief Financial Officer
Date: February 18, 2020
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ Ari Bousbib
Ari Bousbib
Chairman, and Chief Executive Officer; Director
(Principal Executive Officer)
February 18, 2020
/s/ Michael R. McDonnell
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
February 18, 2020
Michael R. McDonnell
/s/ Emmanuel Korakis
Senior Vice President, Corporate Controller
(Principal Accounting Officer)
February 18, 2020
Emmanuel Korakis
/s/ Carol J. Burt
Director
February 18, 2020
Carol J. Burt
/s/ John P. Connaughton
Director
February 18, 2020
John P. Connaughton
/s/ Jonathan J. Coslet
Director
February 18, 2020
Jonathan J. Coslet
/s/ John G. Danhakl
Director
February 18, 2020
John G. Danhakl
/s/ Michael J. Evanisko
Michael J. Evanisko
Director
February 18, 2020
/s/ James A. Fasano
Director
February 18, 2020
James A. Fasano
/s/ Colleen A. Goggins
Director
February 18, 2020
Colleen A. Goggins
/s/ John M. Leonard, M.D.
Director
February 18, 2020
John M. Leonard, M.D.
/s/ Ronald A. Rittenmeyer
Director
February 18, 2020
Ronald A. Rittenmeyer
/s/ Todd B. Sisitsky
Todd B. Sisitsky
Director
February 18, 2020
(2) Financial Statement Schedules
Schedule I-Condensed Financial Information of Registrant
IQVIA HOLDINGS INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF INCOME
IQVIA HOLDINGS INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
IQVIA HOLDINGS INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
IQVIA HOLDINGS INC. (PARENT COMPANY ONLY)
CONDENSED STATEMENTS OF CASH FLOWS
IQVIA HOLDINGS INC. (PARENT COMPANY ONLY)
NOTES TO CONDENSED FINANCIAL INFORMATION
The condensed parent company financial statements have been prepared in accordance with Rule 12-04, Schedule I of Regulation S-X as the restricted net assets of IQVIA Holdings Inc.’s (the “Company”) wholly-owned subsidiary, IQVIA Incorporated exceed 25% of the consolidated net assets of the Company. The ability of IQVIA Incorporated to pay dividends may be limited due to the restrictive covenants in the agreements governing its credit arrangements.
These condensed parent company financial statements include the accounts of IQVIA Holdings Inc. on a standalone basis (the “Parent”) and the equity method of accounting is used to reflect ownership interest in its subsidiary. Refer to the consolidated financial statements and notes presented elsewhere herein for additional information and disclosures with respect to these financial statements.
Since the Parent is part of a group that files a consolidated income tax return, in accordance with ASC 740, a portion of the consolidated amount of current and deferred income tax expense of the Company has been allocated to the Parent. The income tax benefit of $0 million, $1 million and $3 million in 2019, 2018 and 2017, respectively, represents the income tax benefit that will be or were already utilized in the Company’s consolidated United States federal and state income tax returns. If the Parent was not part of these consolidated income tax returns, it would not be able to recognize any income tax benefit, as it generates no revenue against which the losses could be used on a separate filer basis.
Below is a summary of the dividends paid to the Parent by IQVIA Incorporated in 2019, 2018 and 2017:
Schedule II-Valuation and Qualifying Accounts
Deferred Tax Asset Valuation Allowance
(a)
Recorded through purchase accounting transaction.
(b)
Impact of reductions recorded to expense and translation adjustments.