S-1/A 1 d628679ds1a.htm AMENDMENT NO. 3 TO FORM S-1 Amendment No. 3 to Form S-1
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As filed with the Securities and Exchange Commission on March 24, 2014

Registration No. 333-193159

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Amendment No. 3

to

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

IMS HEALTH HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   7374   27-1335689
(State or other jurisdiction of
incorporation or organization)
  (Primary Standard Industrial
Classification Code Number)
  (I.R.S. Employer Identification Number)

83 Wooster Heights Road

Danbury, CT 06810

(203) 448-4600

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Ari Bousbib

Chairman, Chief Executive Officer & President

83 Wooster Heights Road

Danbury, CT 06810

(203) 448-4600

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

Copies to:

 

Patrick O’Brien

Louis T. Somma

Ropes & Gray LLP

Prudential Tower

800 Boylston Street

Boston, MA 02199

(617) 951-7000

 

Harvey A. Ashman

Senior Vice President, General Counsel,

External Affairs and Corporate Secretary

83 Wooster Heights Road

Danbury, CT 06810

(203) 448-4600

 

David Lopez

Cleary Gottlieb Steen & Hamilton LLP

One Liberty Plaza

New York, New York 10006

(212) 225-2000

 

 

Approximate date of commencement of proposed sale to public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.  ¨

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ¨

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

 

Large accelerated filer   ¨   Accelerated filer  ¨  

Non-accelerated filer  x

(Do not check if a
smaller reporting company)

  Smaller reporting company  ¨

CALCULATION OF REGISTRATION FEE

 

 

Title of Each Class of

Securities to be Registered

 

Amount to be
Registered(1)

  Proposed
Maximum Offering
Price Per Share
 

Proposed
Maximum
Aggregate
Offering Price(1)(2)

 

Amount of
Registration
Fee(2)(3)

Common Stock, par value $0.01 per share

 

74,750,000

 

$21.00

 

$1,569,750,000

 

$202,184

 

 

(1)   Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(a) under the Securities Act of 1933, as amended (the “Securities Act”).
(2)   Includes 9,750,000 shares of Common Stock which the underwriters have the option to purchase.
(3)   $12,880 was previously paid in connection with the filing on January 2, 2014. An additional $189,304 is paid herewith in connection with the increased proposed maximum aggregate offering price amount.

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.


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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.

 

Subject to completion, dated March 24, 2014

Preliminary prospectus

65,000,000 shares

 

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IMS Health Holdings, Inc.

Common stock

$         per share

This is the initial public offering of our common stock. We are selling 52,000,000 shares of our common stock. The selling stockholders identified in this prospectus are offering an additional 13,000,000 shares of our common stock. We will not receive any of the proceeds from the sale of the shares being sold by the selling stockholders. We currently expect the initial public offering price to be between $18.00 and $21.00 per share of common stock.

The selling stockholders have granted the underwriters an option to purchase up to 9,750,000 additional shares of our common stock to cover over-allotments.

After the completion of this offering, certain of our existing stockholders that are affiliates of TPG Global, LLC, CPP Investment Board Private Holdings, Inc. and Leonard Green & Partners, L.P. will continue to own a majority of the voting power of our outstanding shares of common stock. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange. See “Principal and selling stockholders.”

We have applied to list our common stock on the New York Stock Exchange under the symbol “IMS.”

 

        Per share        Total  

Initial public offering price

     $                      $                

Underwriting discounts and commissions(1)

     $           $     

Proceeds to us before expenses

     $           $     

Proceeds to selling stockholders before expenses

     $           $     

 

(1)   See “Underwriting” for information on additional compensation.

Investing in our common stock involves risk. See “Risk factors” beginning on page 21.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares of common stock to investors on or about                     , 2014.

 

J.P. Morgan   Goldman, Sachs & Co.   Morgan Stanley

 

BofA Merrill Lynch   Barclays   Deutsche Bank Securities   Wells Fargo Securities

 

TPG Capital BD, LLC    HSBC   SunTrust Robinson Humphrey    Mizuho Securities          RBC Capital Markets   
Piper Jaffray    William Blair   Drexel Hamilton    Leerink Partners      Stifel   

Prospectus dated                     , 2014


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Table of Contents

Table of contents

 

     Page  

Prospectus summary

     1   

The offering

     14   

Summary and pro forma consolidated financial data

     17   

Risk factors

     21   

Use of proceeds

     44   

Dividend policy

     46   

Capitalization

     47   

Dilution

     49   

Selected and pro forma consolidated financial data

     51   

Management’s discussion and analysis of financial condition and results of operations

     54   

Business

     83   

Management

     101   

Executive compensation

     112   

Certain relationships and related party transactions

     147   

Principal and selling stockholders

     150   

Description of indebtedness

     154   

Description of capital stock

     164   

Shares eligible for future sale

     168   

Material United States federal income tax considerations for Non-U.S. Holders

     170   

Underwriting

     175   

Conflicts of interest

     182   

Legal matters

     184   

Experts

     184   

Where you can find more information

     184   

Index to consolidated financial statements

     F-1   

We are responsible for the information contained in this prospectus and in any free writing prospectus we prepare or authorize. Neither we nor the underwriters have authorized anyone to provide you with different information, and neither we nor the underwriters take responsibility for any other information others may give you. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information contained in this prospectus is accurate as of any date other than its date.

Through and including                     , 2014 (25 days after the commencement of this offering), all dealers that effect transactions in shares of our common stock, whether or not participating in this offering, may be required to deliver a prospectus. This delivery is in addition to a dealer’s obligation to deliver a prospectus when acting as an underwriter and with respect to their unsold allotments or subscriptions.

 

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Industry and market data

This prospectus includes market data and forecasts with respect to the healthcare industry. Although we are responsible for all of the disclosure contained in this prospectus, in some cases we rely on and refer to market data and certain industry forecasts that were obtained from third party surveys, market research, consultant surveys, publicly available information and industry publications and surveys that we believe to be reliable. Other industry and market data included in this prospectus are from IMS analyses and have been identified accordingly, including, for example, IMS Market Prognosis, which is a subscription-based service that provides five-year pharmaceutical market forecasts at the national, regional and global levels. We are a leading global information provider for the healthcare industry and we maintain databases, produce market analyses and deliver information to clients in the ordinary course of our business. Our information is widely referenced in the industry and used by governments, payers, academia, the life sciences industry, the financial community and others. Most of this information is available on a subscription basis. Other reports and information are available publicly through our IMS Institute for Healthcare Informatics (the “IMS Institute”). In some cases, the information has been developed by us for purposes of this offering based on our existing data and is believed by us to have been prepared in a reasonable manner. All such information is based upon our own market research, internal databases and published reports and has not been verified by any independent sources.

We established the IMS Institute in 2011 to leverage collaborative relationships in the public and private sectors to strengthen the role of information in advancing healthcare globally. Its objective and mission is to provide policy setters and decision makers in the global health sector with unique insights into healthcare dynamics derived from granular analysis of information. The IMS Institute publishes reports to accelerate understanding and innovation critical to sound decision-making and improved patient care. These reports are available publicly, free of charge. With access to our extensive global data sets and analytics, the IMS Institute works in tandem with a broad set of healthcare stakeholders, including government agencies, academic institutions, the life sciences industry and payers, to drive research to address today’s healthcare challenges.

Trademarks and service marks

We own or have rights to trademarks and service marks that we use in connection with the operation of our business, including IMS Health, IMS, the IMS logo, IMS One, MIDAS, Xponent, DDD, AppScript, AppNucleus, MD360 Provider Performance Management and Evidence360. All other trademarks or service marks appearing in this prospectus that are not identified as marks owned by us are the property of their respective owners.

Solely for convenience, the trademarks, service marks and trade names referred to in this prospectus are listed without the ®, (sm) and (TM) symbols, but we will assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensors to these trademarks, service marks and trade names.

 

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Prospectus summary

This summary highlights information contained in other parts of this prospectus. Because it is only a summary, it does not contain all of the information that you should consider before investing in shares of our common stock and it is qualified in its entirety by, and should be read in conjunction with, the more detailed information appearing elsewhere in this prospectus. Unless the context requires otherwise, references in this prospectus to the “Company,” “Issuer,” “IMS,” “we,” “us” and “our” refer to IMS Health Holdings, Inc. and its consolidated subsidiaries. “IMS Health” refers to IMS Health Incorporated, our wholly owned indirect subsidiary. You should read the entire prospectus carefully, especially “Risk factors” and our financial statements and the related notes, before deciding to buy shares of our common stock.

Our Company

We are a leading global information and technology services company providing clients in the healthcare industry with comprehensive solutions to measure and improve their performance. We have one of the largest and most comprehensive collections of healthcare information in the world, spanning sales, prescription and promotional data, medical claims, electronic medical records and social media. Our scaled and growing data set contains over 10 petabytes of unique data and over 500 million comprehensive, longitudinal, anonymous patient records (i.e., records that are linked over time for each anonymous individual across healthcare settings). Based on this data, we deliver information and insights on approximately 90% of the world’s pharmaceuticals, as measured by sales revenue. We standardize, organize, structure and integrate this data by applying our sophisticated analytics and leveraging our global technology infrastructure to help our clients run their organizations more efficiently and make better decisions to improve their operational and financial performance. We have a presence in over 100 countries, including high growth emerging markets, and we generated 63% of our $2.54 billion of 2013 revenue from outside the United States.

We serve key healthcare organizations and decision makers around the world, spanning the breadth of life science companies, including pharmaceutical, biotechnology, consumer health and medical device manufacturers, as well as distributors, providers, payers, government agencies, policymakers, researchers and the financial community. The breadth of the intelligent, actionable information we provide is not comprehensively available from any other source and would be difficult and costly for another party to replicate. Our information and technology services offerings, which we have developed with significant investment over our 60-year history, are deeply integrated into our clients’ workflow. We maintain long-standing relationships and high renewal rates with our clients due to the value of the services and solutions we provide. The average length of our relationships with our top 25 clients, as measured by 2013 revenue, is over 25 years and our retention rate for our top 1,000 clients from 2012 to 2013 was approximately 99%. We have significant visibility into our financial performance, as historically about 70% of our revenue has recurred annually, principally because our information and technology services offerings are critical to our clients’ daily decision-making and are sold primarily through subscription and service contracts.

 

 

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We leverage our proprietary information assets to develop technology and services capabilities with a talented healthcare-focused workforce that enables us to grow our relationships with healthcare stakeholders. This set of capabilities includes:

 

 

A leading healthcare-specific global information technology (“IT”) infrastructure, which we use to process data from over 45 billion healthcare transactions annually and to collect data from over 780,000 fragmented feeds globally, which we organize in a consistent and highly structured fashion using proprietary methodologies;

 

 

A staff of approximately 9,500 professionals across the globe, including over 1,200 experts in areas such as biostatistics, data science, bioinformatics, healthcare economics, outcomes research, epidemiology, pharmacology and key therapeutic areas;

 

 

Our intelligent cloud, IMS One, which opens our sophisticated global IT infrastructure to our clients and provides the ability to perform business analytics in the cloud with large amounts of complex data. Our cloud is unique in the healthcare industry because it pre-integrates applications with IMS data, eliminating the cost traditionally associated with integrating information, and provides interoperability across both IMS and third party applications, reducing the complexity traditionally associated with siloed data; and

 

 

A growing set of proprietary applications, which include: commercial applications supporting sales operations, sales management, multi-channel marketing and performance management; real-world evidence solutions helping manufacturers and payers evaluate the value of treatments in terms of cost, quality and outcomes; payer-provider solutions helping these constituents optimize contracting and performance management; and clinical solutions helping manufacturers and Clinical Research Organizations (“CROs”) better design, plan, execute and track clinical trials.

At a time when the healthcare industry is experiencing transformational change driven by global expansion and the growth of new categories of medicines, intense cost pressures, a changing regulatory environment, and new payment and delivery models, we enable our clients to gain and apply insights designed to substantially improve operating performance. Our solutions, which are designed to provide our clients access to our deep healthcare-specific subject matter expertise, take various forms, including information, tailored analytics, subscription software and expert services.

 

 

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We believe our mission-critical relationships with our life science clients are reflected in the role we play within four important areas of decision-making related to their product portfolios: Research and Development, Pre-Launch, Launch and In-Market. Over the last three years, we have introduced software and services applications that have further deepened our level of client integration by enabling our clients to enhance and automate many of these key decision-making processes.

 

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• Market opportunity assessment

 

• Clinical trial feasibility/planning

 

• Site selection

 

• Patient recruitment

 

• Trial monitoring

 

• Performance management

 

• Drug pricing optimization

 

• Launch readiness

 

• Commercial planning

 

• Brand positioning

 

• Message testing

 

• Influence networks

 

• Territory design

 

• Market access

 

• Health technology assessment

 

• Commercial readiness

 

• Forecasting

 

• Resource allocation

 

• Call planning

 

• Stakeholder engagement

 

• Commercial operations

 

• Sales force effectiveness

 

• Sales force alignment

 

• Multi-channel marketing

 

• Client relationship management

 

• Lifecycle management

We believe that a powerful component of our value proposition is the breadth and depth of intelligence we provide to help our clients address fundamental operational questions.

 

User    Illustrative Questions
Sales    Which providers generate highest return on rep visit?   Does my sales rep drive appropriate prescribing?   How much should I pay my sales rep next month?
 
Marketing    What share of patients is appropriately treated?   Which underserved patient populations will benefit most from my new drug?   Is my brand gaining market share quickly enough to hit revenue forecasts?
 
Research & Development    Are there enough patients for my clinical trial?   Which study centers have the target patients?   How long will trial enrollment take to hit target patient volumes?
 
Real World Evidence (“RWE”)/Pharmacovigilance    What is the likely impact of new therapies on costs and outcomes?   Are new therapies performing better against existing standards of care in real world settings?   Does real world data indicate adverse events not detected in clinical trials?

We generate revenue through local sales teams that manage client relationships in each region and go to market locally with our full suite of information and technology services offerings.

 

 

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Total global revenue from our information offerings, including national and sub-national information services, represented 60% of our 2013 revenue. Total global revenue from our technology services offerings, which include hosted and cloud-based applications, implementation services, subscription software, analytic services and consulting, represented 40% of our 2013 revenue. We believe the data from our information offerings, when combined with our technology services offerings, can provide valuable insights to our clients and can increase the speed and effectiveness of decision making while also simplifying processes and reducing complexity and costs. Increasing demand from our clients for broader and more integrated offerings has been an important driver of our growth in technology services revenue, which grew at a compound annual growth rate (“CAGR”) of 13% between 2010 and 2013.

Ari Bousbib was appointed as our Chief Executive Officer on August 16, 2010 following the purchase of our Company by our Sponsors in February 2010, which we refer to as the Merger. Over the past three years, Mr. Bousbib and the management team have made substantial investments in human capital, technology and services infrastructure to expand the breadth of our platform and the number of constituents we serve within the healthcare value chain. Examples of our strategic investments and operational changes include:

 

 

improving our operating efficiency by streamlining our organization, deploying lean methodologies throughout our global operations, and standardizing and automating processes;

 

 

in-sourcing development activities and capabilities, with approximately 70% of our development resources in-house as of 2013 year end, compared to approximately 30% in 2010;

 

 

increasing our offshore delivery resources to over 2,000 people as of 2013 year end, compared to 250 in 2010, which has driven substantial productivity improvement;

 

 

shifting our employee mix, with over 50% now client-facing as of 2013 year end, compared to approximately 33% in 2010; and

 

 

expanding our offerings and capabilities by investing over $900 million in 22 complementary acquisitions, internal development projects and capital expenditures since the beginning of 2011 through 2013 year end.

These strategic investments and operational changes have transformed our organization into a more customer-centric, service oriented, high-performance culture. Since the Merger through the end of 2013, we added approximately 7,600 employees to the organization and oversaw the departure of approximately 5,200 employees from the organization, reflecting the various strategic and operational changes described above. We estimate that about 60% of our approximately 9,500 employees have joined us since the Merger through the end of 2013.

We believe our investments in people, technology and services have enabled us to significantly expand our addressable market and capture an additional portion of our clients’ spend by providing more powerful technology solutions and new insight-driven services. The following financial performance metrics have improved significantly between 2010 and 2013:

 

 

revenue increased to $2.54 billion, generating a CAGR of 5.6% on an as reported basis and 5.9% on a constant dollar basis;

 

 

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Adjusted EBITDA increased to $829 million, generating a CAGR of 10.2% on an as reported basis and 10.6% on a constant dollar basis; and

 

 

Adjusted EBITDA as a percentage of revenue increased to 32.6% from 28.7%.

We recorded net income of $82 million for the year ended December 31, 2013, a net loss of $42 million for the year ended December 31, 2012, net income of $111 million for the year ended December 31, 2011 and a net loss of $202 million for the combined 2010 year-end period. Amounts expressed in constant dollar terms exclude the effect of changes in foreign currency exchange rates on the translation of foreign currency results into U.S. dollars. For additional information regarding these financial measures, including a reconciliation of our non-GAAP measures to the most directly comparable measure presented in accordance with United States generally accepted accounting principles (“GAAP”), see “Summary and pro forma consolidated financial data” included elsewhere in this prospectus. For additional information regarding foreign currency translation, see “Management’s discussion and analysis of financial condition and results of operations—Results excluding the effect of foreign currency translation and certain charges” included elsewhere in this prospectus. The Merger resulted in a new accounting basis. Our results of operations for the year ended 2010 presented elsewhere in this prospectus are presented for the predecessor and successor periods, which relate to the periods preceding (January 1, 2010 through February 26, 2010) and succeeding (January 1, 2010 through December 31, 2010) the Merger, respectively. The successor period reflects the new accounting basis established for us as of the Merger date. In the discussion above, we present our net loss for the combined 2010 full year period for comparative purposes, using the mathematical sum of the net loss reported for the successor and predecessor periods. This is a mathematical combination and does not comply with U.S. GAAP, but is presented in this manner as we believe it enables a meaningful comparison. This financial information may not reflect the actual financial results we would have achieved absent the Merger and may not be predictive of future financial results. For a presentation of our results of operations for the year ended 2010 on a U.S. GAAP basis, showing the separate predecessor and successor periods, see “Selected and pro forma consolidated financial data.”

Our market opportunity

We compete in the global information, technology and services market for the life sciences and the broader healthcare industry. Historically, we concentrated our efforts in the market for information and consulting services primarily supporting the commercial functions of life sciences organizations, which we estimate to be a $5 billion market. In response to the needs of a broader set of life sciences clients for more specialized information, such as longitudinal anonymous patient data and clinical trial analytics, we have expanded our offerings to serve the market for information and services, which we estimate to be a $22 billion market. In addition, in response to our life sciences clients’ need to streamline operations, we offer an expanded range of technology services that include data warehousing, IT outsourcing, software applications and other services in the broader market for IT services, which, together, represent an additional $28 billion market among our life sciences clients. As a result, we now operate across a life sciences marketplace for information and technology services that we estimate to be $50 billion. We also have newer offerings in the $25 billion market for information and technology services for payers and providers and view this rapidly expanding market as an opportunity for further growth.

 

 

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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 market segments, in combination with internal IMS research and analysis informed by our experience serving these market segments, as well as projected growth rates for each of these segments. See “Industry and market data.”

We believe there are five key trends affecting our end markets that will create increasing demand for our information and technology services 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 IMS Market Prognosis service, is estimated to have generated approximately $1 trillion in revenue in 2013. According to our research, revenue growth in the life sciences industry globally is expected to accelerate from 2.5% in 2013 to approximately 6% in 2017. The IMS Institute estimates that an average of 35 new molecular entities (“NMEs”) are expected to be approved each year from 2013 to 2017, up from 25 NMEs in 2010 and a return to mid-2000s levels. The reacceleration of industry growth is also the result of dramatically lower expected patent expirations on prescription medications versus the recent past.

Growth in access to healthcare in emerging markets.    We believe there will be significant growth in healthcare spending in emerging markets, driven predominantly by a rapidly growing middle class in countries such as China and India. According to the IMS Institute, it is estimated that spending on pharmaceuticals in emerging markets will expand at a 10 to 13% CAGR through 2017. The rapid growth of emerging markets is making these geographies strategically important to life sciences organizations and we expect these organizations to apply a high degree of sophistication to their commercial operations in these countries. This requires highly localized information assets and analytics for both multinational and local market companies.

Financial pressures driving the need for increased efficiency.    Despite the expected accelerating growth in the global life sciences market, we believe our clients will face operating margin pressure due to their changing product mix, pricing and reimbursement challenges, and rising costs of compliance. Based on our research, we believe large pharmaceutical companies must collectively reduce costs by approximately $35 billion from 2012 to 2017 to maintain historic operating margins. As a result, our clients are looking for new ways to simplify processes and drive operational efficiencies, including by using automation, consolidating vendors and adopting new technology options such as hosted and cloud-based applications.

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 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, longitudinal studies require analysis of anonymous patient diagnoses, treatments, procedures and laboratory test results to identify types of patients that will likely best respond to particular therapies. 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.

 

 

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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, 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 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 analytics for insight driven decisions.

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 strengths

Comprehensive information assets and collection network.    The scale of our information assets, breadth and depth of our data supplier network, and our global reach are distinct advantages as clients value quality, consistency and continuity across geographies to accurately measure trends and their performance. With over 10 petabytes of proprietary data sourced from over 100,000 data suppliers covering over 780,000 data feeds globally, we have one of the largest and most comprehensive collections of healthcare information in the world, which includes over 500 million comprehensive, longitudinal anonymous patient records. Based on this data, we deliver information and insights on approximately 90% of the world’s pharmaceuticals, as measured by sales revenue. We have proprietary healthcare data management and projection methodologies developed over a long history, which enable us to extrapolate more precise insights from large-scale databases to provide greater granularity and segmentation for our clients. We continue to invest in new technology to source data that is valued by our clients, including social media analytics and mobile health solutions, to continuously add records to our data sets, and refine our information and analytic methods. Use of our proprietary encryption technologies allows anonymous information to be linked across different care settings and across data sets, resulting in more complete healthcare information about anonymous patients and a deeper understanding of real world treatment, cost and outcomes.

Scaled healthcare specific technology infrastructure.    To manage our proprietary, global information base, we have built what we believe is one of the largest and most sophisticated information technology infrastructures in healthcare. By processing data from over 45 billion healthcare transactions annually, our infrastructure 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. We have four Centers of Excellence and five operation hubs around the world, and approximately 9,500 associates, including over 1,200 experts in areas such as biostatistics, data science, bioinformatics, healthcare economics, outcomes research, epidemiology, pharmacology and key therapeutic areas. We believe the scale, global footprint and connectivity our infrastructure provides is unique within the healthcare vertical and will be of increasing value to our clients in a period where cost pressures will grow.

 

 

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Highly differentiated technology services fully integrated with IMS information.    Our ability to integrate technology services with our data creates mission-critical, actionable intelligence that improves our overall value proposition to our clients. Our expanding set of sophisticated human capital resources and technology services offerings combined with our deep understanding of our scaled information assets provides what we believe to be a competitive advantage in an environment where clients require better performance. For example, in 2012, we introduced our healthcare-specific intelligent cloud, IMS One, which helps our clients fully recognize the benefits of our infrastructure. Our cloud is unique in the healthcare industry because it pre-integrates applications with IMS data and provides interoperability across both IMS and third party applications. We envision that over time IMS One will become an industry standard around which applications are hosted and information shared on an interoperable basis.

Long standing client relationships that are expanding.    The breadth of the intelligent, actionable information we provide is not comprehensively available from any other source and would be difficult and costly for another party to replicate. We believe our information and technology services are deeply integrated into our clients’ workflow. We maintain long-standing relationships and high renewal rates with clients due to the value of the services and solutions we provide, as well as support the need for globally consistent information to enable comprehensive trend analysis at the local, regional, national and multi-country levels. The average length of our relationships with our top 25 clients, as measured by 2013 revenue, is over 25 years and our retention rate for our top 1,000 clients from 2012 to 2013 was approximately 99%. Serving over 5,000 clients creates significant opportunity to expand the breadth of services we provide to our clients.

Unique and scalable operating model.    We believe we have an attractive operating model due to the scalability of our solutions, the recurring nature of our revenue and the low capital intensity/high free cash flow conversion of our business. Given our global infrastructure and the fixed-cost nature of our data, we are able to scale our healthcare information, technology and service solutions rapidly and efficiently to generate high margins on incremental revenue. Our flexible technology platform has been built to accommodate highly complex analytics and significant data volumes. We believe our recurring revenue provides significant visibility to our financial performance, and when combined with our leading offerings, will contribute to our long-term growth, strong operating margins and flexibility in allocating capital.

Our growth strategy

We believe we are well positioned for continued growth across the markets we serve. Our strategy for achieving growth includes:

Build upon our extensive client relationships.    We have a diversified base of over 5,000 clients in over 100 countries, and have expanded our client value proposition since the Merger to now address a broader market for information and technology services which we estimate to be $50 billion. We are in the early stages of penetrating this expanding market within our global life sciences client base. Key elements of this strategy include:

 

 

further integrating our existing services to provide clients with interoperable solutions;

 

 

increasing the number of clients that leverage our technology services offerings, including IMS One;

 

 

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using our global presence and efficient operating model to scale new applications and solutions rapidly and efficiently across clients, markets and geographies; and

 

 

expanding the number of clients that choose to drive efficiencies by consolidating their vendor needs with us.

Capitalize on our presence in emerging markets.    We believe China, India, Brazil and Russia, together with many of the 50-plus other emerging markets in which we operate, will accelerate their healthcare spending over the next five years. We have an established presence in these markets, generating $440 million of revenue for 2013 (approximately 17% of our revenue) and growing at an 11% constant dollar CAGR since 2010. We serve both multinational companies and local clients. Key elements of this strategy include:

 

 

partnering with existing life sciences clients as they expand their businesses into emerging markets;

 

 

continuing to grow our existing services in emerging markets while simultaneously introducing new services drawn from our global portfolio; and

 

 

building relationships with local companies that are expanding beyond their home markets by capitalizing on the global credibility and consistency of our platform.

Continue to innovate.    We believe a significant opportunity exists to continue to enhance our information and analytics offerings and expand our technology services offerings to capitalize on the evolving healthcare environment. Our recent investments in human capital, technology and services capabilities position us to continue to pursue rapid innovation within the life sciences sector and the broader healthcare marketplace. Examples of recent innovations include:

 

 

development of applications in the mobile health space including AppScript, an enterprise solution for providers and payers to establish a curated formulary of mobile applications that can be prescribed securely and reconciled by prescribers just like drug prescriptions, and AppNucleus, which allows developers to build mobile applications with secure containers for patient information on devices and secure communication channels to physicians and other applications; and

 

 

development of Evidence360, a collection of specialized technologies for RWE, including tailor-made data warehouses integrating our data sets with patient registries and a cohort builder tool facilitating efficient definitions and tracking of narrow cohorts to determine outcomes in small patient populations.

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. Since the beginning of 2011, we have invested approximately $586 million of capital in 22 acquisitions. 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.

 

 

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Expand the penetration of our offerings to the broader healthcare marketplace.    We believe that substantial opportunities exist to expand penetration of our addressable market and further integrate our offerings in a broader cross-section of the healthcare marketplace. Key elements of this strategy include:

 

 

continuing to sell innovative solutions to life sciences clients in areas we have recently entered, such as clinical trial analytics;

 

 

leveraging our comprehensive collection of healthcare information to provide critical insights to payers and providers, enabling advanced patient analytics and population health management; and

 

 

utilizing our proprietary information and analytics to address the evolving needs of the broader healthcare marketplace.

Our offerings

We offer hundreds of distinct services, applications and solutions to help our clients make critical decisions and perform better. While historically our offerings focused mainly in information and analytics, we now routinely integrate information with technology services to ensure our clients receive the most value from our information to enable them to incorporate insights into their workflow. These offerings complement each other and can provide enhanced value to our clients when delivered together in an integrated fashion, with each driving demand for the other.

Our principal offerings include:

 

 

National information offerings.    Our national offerings comprise unique services in more than 70 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.

 

 

Sub-national information offerings.    Our sub-national offerings comprise unique services in more than 50 countries that provide a consistent measurement of sales or prescribing activity at the regional, zip code and individual prescriber level (depending on regulation in country).

 

 

Commercial services.    We provide a broad set of strategic, workflow analytics and support services to help the commercial operations of life sciences companies successfully transform their commercial models, engage more effectively with the marketplace and reduce their operating costs.

 

 

Real-World Evidence (RWE) solutions.    We integrate information from medical claims, prescriptions, electronic medical records, biomarkers and government statistics into anonymous, longitudinal patient journeys that provide detailed views of treatment patterns, disease progression, therapeutic switching and concomitant diseases and treatments.

 

 

Commercial technology solutions.    We provide an extensive range of hosted and cloud-based applications and associated implementation services. The applications, hosted on IMS One, support a wide range of commercial processes including multi-channel marketing, customer relationship management (“CRM”), performance management, incentive compensation, territory alignment, roster management and call planning.

 

 

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Clinical solutions.    By bringing together our information with advanced predictive modeling technology, we help life sciences companies and CROs better design and execute clinical trials; and for payers and providers, we enable risk-sharing, pay-for-performance and population health management.

Risk related to our business

An investment in our common stock involves a high degree of risk. Among these important risks are the following:

 

 

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

 

 

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

 

 

we may be unsuccessful at investing in growth opportunities;

 

 

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

 

 

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

 

 

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

 

 

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

 

 

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

For additional information about the risks we face, please see the section of this prospectus captioned “Risk factors.”

Our Sponsors

On February 26, 2010, IMS was acquired by affiliates of TPG Global, LLC (together with its affiliates, “TPG”), CPP Investment Board Private Holdings, Inc. (“CPPIB-PHI”), a wholly owned subsidiary of the Canada Pension Plan Investment Board (together with its affiliates, “CPPIB”) and Leonard Green & Partners, L.P. (“LGP” and collectively with TPG and CPPIB, the “Sponsors”) in an all-cash transaction. The acquisition was accomplished through the merger (the “Merger”) of the parent of IMS Health with and into Healthcare Technology Acquisition, Inc., an indirect wholly owned subsidiary of IMS Health Holdings, Inc., the Issuer, which is owned by investment entities controlled by the Sponsors and management.

TPG.    TPG is a leading global private investment firm founded in 1992 with over $59 billion of assets under management as of December 31, 2013, as adjusted for commitments accepted on January 2, 2014, and offices in San Francisco, Fort Worth, Austin, Beijing, Chongqing, Hong Kong, London, Luxembourg, Melbourne, Moscow, Mumbai, New York, Paris, São Paulo, Shanghai, Singapore and Tokyo. TPG has extensive experience with global public and private investments

 

 

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executed through leveraged buyouts, recapitalizations, spinouts, growth investments, joint ventures and restructurings. The firm’s investments span a variety of industries, including healthcare, financial services, travel and entertainment, technology, energy, industrials, retail, consumer, real estate and media and communications.

CPPIB.    CPPIB is one of the largest and fastest growing institutional investors in the world. It invests the funds not needed by the Canada Pension Plan to pay current benefits on behalf of 18 million Canadian contributors and beneficiaries. Headquartered in Toronto, with offices in London, Hong Kong, New York and São Paulo, CPPIB is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2013, the Fund’s assets totaled C$201.5 billion, of which approximately C$53 billion is invested through the Private Investments group. A team of approximately 135 dedicated Private Investment professionals manages investment activities in Direct Private Equity, Private Debt, Infrastructure, and Funds, Secondaries & Co-Investments. Direct Private Equity manages an approximately C$11 billion portfolio of investments and focuses on majority or shared control investments, typically alongside an existing fund partner, across multiple industry sectors worldwide. Current and previous healthcare and technology investments include Kinetic Concepts, Alliance Boots, Diaverum, United Surgical Partners, Skype, NEWAsurion and Aricent, among others.

LGP.    LGP is a leading private equity firm with over $15 billion of private equity capital raised since inception. Founded in 1989, LGP has invested in 70 companies with aggregate value of $74 billion. Located in Los Angeles, California, LGP invests in established companies that are leaders in their markets. Significant investments include The Container Store, J. Crew Group, CHG Healthcare, CCC Information Services and Topshop/Topman.

Following the completion of this offering, the Sponsors will own approximately 79.5% of our common stock, or 76.6% if the underwriters’ option to purchase additional shares of our common stock is fully exercised. As a result, we expect to be a “controlled company” within the meaning of the corporate governance standards of the New York Stock Exchange (the “NYSE”) on which we have applied for our shares to be listed. See “Risk factors—Risks relating to our common stock and this offering.”

 

 

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Corporate information and structure

IMS Health Holdings, Inc. is a Delaware corporation that was formed in 2009 under the name Healthcare Technology Holdings, Inc. On December 20, 2013, the Company changed its name to IMS Health Holdings, Inc. Its only material assets are the shares of the equity of Healthcare Technology Intermediate, Inc., which is the holder of 100% of the equity of Healthcare Technology Intermediate Holdings, Inc., which is the holder of 100% of the shares of the equity of IMS Health Incorporated, which we refer to in this prospectus as IMS Health. IMS Health Holdings, Inc. does not conduct any operations other than with respect to its direct and indirect ownership of its subsidiaries and conducts all of its business through IMS Health and its subsidiaries. Our principal executive offices are located at 83 Wooster Heights Road, Danbury, Connecticut 06810. Our telephone number at that address is (203) 448-4600. Our website address is www.imshealth.com. Our website and the information contained on our website do not constitute a part of this prospectus.

The following chart shows our simplified organizational structure immediately following the consummation of this offering assuming no exercise of the underwriters’ option to purchase additional shares:

 

LOGO

 

 

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The offering

 

Common stock offered by us

52,000,000 shares.

 

Common stock offered by the selling stockholders

13,000,000 shares (22,750,000 shares if the underwriters exercise their option to purchase additional shares in full).

 

Common stock to be outstanding after this offering

331,892,403 shares.

 

Option to purchase additional shares

The underwriters have an option for a period of 30 days from the effectiveness of this offering to purchase up to 9,750,000 additional shares of our common stock from the selling stockholders to cover overallotments.

 

Use of proceeds

We estimate that the net proceeds to us from this offering will be approximately $963 million, at an assumed initial public offering price of $19.50 per share, the midpoint of the price range set forth on the cover of this prospectus, after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We intend to refinance a portion of our existing long-term debt in connection with the closing of this offering (the “Refinancing”), comprised of (i) the amendment and restatement of our senior secured credit facilities, providing for, among other things, new term A loans (the “New Term Loans”) of $315.0 million and 133.45 million and an increase of our existing revolving credit facility to $500.0 million and (ii) the redemption of (x) all amounts outstanding under our $750.0 million 7.375%/8.125% Senior Payment-in-Kind Toggle Notes due 2018 (the “Senior PIK Notes”) and (y) all amounts outstanding under our $999.6 million 12.5% unsecured Senior Exchange Notes due 2018 (the “New 12.5% Senior Notes”) and the $0.4 million of 12.5% Senior Notes due 2018 (the “Old 12.5% Senior Notes,” and, together with the New 12.5% Senior Notes, the “12.5% Senior Notes”), in each case including related fees and expenses.

We intend to use substantially all of the net proceeds of this offering to fund the redemption of our 12.5% Notes and Senior PIK Notes. We will also use the U.S. dollar equivalent of $500.0 million of borrowings under our New Term Loans, $173 million of borrowings under our revolving credit facility and approximately $400 million of cash on our balance sheet to (i) fund the redemption of our 12.5% Notes and Senior PIK Notes and pay related fees and expenses, (ii) pay an estimated amount of $27 million in the aggregate to holders of outstanding cash-settled stock appreciation rights granted under our

 

 

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2010 Equity Incentive Plan (“Phantom SARs”), (iii) pay a one-time fee to terminate our management services agreement with the Sponsors of $72 million and (iv) pay fees and expenses related to financings. We will not receive any of the proceeds from the sale of shares by the selling stockholders, including pursuant to the underwriters’ option to purchase additional shares. See “Use of proceeds” and “Capitalization.”

 

Dividend policy

Our board of directors does not currently intend to pay dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis following the offering and may, subject to compliance with the covenants contained in our credit facilities 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 of directors, 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 of directors may deem relevant. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources,” “Description of indebtedness” and Note 11 to our audited consolidated financial statements included elsewhere in this prospectus for restrictions on our ability to pay dividends.

 

Risk factors

You should read the “Risk factors” section of this prospectus for a discussion of factors to consider carefully before deciding to invest in shares of our common stock.

 

Proposed NYSE symbol

“IMS”

 

Conflicts of interest

Because certain affiliates of Goldman, Sachs & Co., an underwriter of this offering, hold a portion of our 12.5% Senior Notes and are therefore expected to receive more than 5% of the net proceeds of this offering and because affiliates of TPG Capital BD, LLC, an underwriter of this offering, own in excess of 10% of our issued and outstanding common stock, a “conflict of interest” under Rule 5121 of the Financial Industry Regulatory Authority, Inc. (“FINRA”) is deemed to exist. As required by FINRA Rule 5121, J.P. Morgan Securities LLC has agreed to act as “qualified independent underwriter” for this offering and has participated in the preparation of, and has exercised the usual standards of “due diligence” in respect of this prospectus. See “Use of proceeds” and “Underwriting—Conflicts of interest.”

 

 

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The number of shares of common stock to be outstanding after this offering is based on 279,892,403 shares of common stock outstanding as of March 1, 2014 and excludes 49,380,005 shares of common stock reserved for future issuance under our equity incentive plans as of March 1, 2014, of which 18,927,500 shares of common stock were issuable upon exercise of stock options outstanding at a weighted average exercise price of $7.54 per share.

Unless otherwise indicated, this prospectus reflects and assumes the following:

 

 

an initial public offering price of $19.50 per share, the midpoint of the price range set forth on the cover page of this prospectus;

 

 

the adoption of our amended and restated certificate of incorporation and our amended and restated bylaws, to be effective upon the closing of this offering;

 

 

no exercise by the underwriters of their option to purchase up to 9,750,000 additional shares of our common stock from the selling stockholders in this offering; and

 

 

the 10-to-1 reverse stock split that we effectuated on March 24, 2014. In connection therewith, the par value of our common stock changed from $.001 per share to $.01 per share. The stock split also applied to any outstanding equity-based awards.

 

 

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Summary and pro forma consolidated financial data

The following table sets forth summary historical and pro forma consolidated financial data for the years presented and at the dates indicated below. We have derived the balance sheet data as of December 31, 2013 and December 31, 2012 and the statement of comprehensive income (loss) and cash flow data for each of the three years in the period ended December 31, 2013 from our audited consolidated financial statements included elsewhere in this prospectus.

Historical results are not necessarily indicative of the results to be expected for future periods. The following information should be read in conjunction with the section entitled “Management’s discussion and analysis of financial condition and results of operations” and our consolidated financial statements and the notes thereto contained elsewhere in this prospectus.

 

      Years ended
December 31,
 
(dollars in millions)    2013     2012     2011  

Financial Data:

      

Revenue

   $ 2,544      $ 2,443      $ 2,364   

Information

     1,525        1,521        1,532   

Technology Services

     1,019        922        832   

Operating costs of information

     648        675        698   

Direct and incremental costs of technology services

     520        476        396   

Selling and administrative expenses

     596        579        604   

Depreciation and amortization(1)

     410        424        393   

Severance, impairment and other charges

     16        48        31   

Merger costs

            2        23   
  

 

 

 

Operating income

     354        239        219   
  

 

 

 

Interest income

     4        4        3   

Interest expense

     (332     (275     (277

Other loss, net

     (74     (29     (7
  

 

 

 

Non-operating loss, net

     (402     (300     (281
  

 

 

 

Loss before benefit from income taxes

     (48     (61     (62

Benefit from income taxes

     130        19        173   
  

 

 

 

Net income (loss)

   $ 82      $ (42   $ 111   

 

 

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      Years ended
December 31,
 
(dollars and shares in millions, except per share data)    2013     2012     2011  

Earnings (loss) per common share attributable to common stockholders:

      

Basic earnings (loss) per share

   $ 0.29      $ (0.15   $ 0.40   

Diluted earnings (loss) per share

     0.29        (0.15     0.40   

Weighted average common shares outstanding:

      

Basic

     280        280        279   

Diluted

     287        280        279   

Unaudited pro forma data(2):

      

Basic income per common share

   $ 0.52       

Diluted income per common share

   $ 0.51       

Weighted average common shares outstanding:

      

Basic

     332       

Diluted

     339       

Balance sheet data (at end of period):

      

Cash and cash equivalents

   $ 725      $ 580     

Short-term investments

     4        61     

Accounts receivables, net of allowances

     313        308     

Total current assets

     1,327        1,237     

Total assets

     7,999        8,215     

Total current liabilities

     932        843     

Total debt

     4,960        4,177     

Total liabilities

     7,116        6,532     

Total shareholders’ equity

     883        1,683     

Statement of cash flow data:

      

Net cash provided by (used in)

      

Operating Activities

   $ 400      $ 399      $ 334   
  

 

 

 

Investing Activities

     (180     (209     (485
  

 

 

 

Financing Activities

     (52     (63     106   
  

 

 

 

Other financial data:

      

Capital expenditures

   $ 41      $ 44      $ 30   

Additions to computer software

     81        64        74   

Adjusted EBITDA(3)

     829        764        721   

 

(1)   Includes charges related to acquired intangible assets.

 

(2)   Pro forma earnings per share

 

       We declared and paid dividends to our stockholders of $753 million during 2013. Dividends declared in the year preceding an initial public offering are deemed to be in contemplation of the offering with the intention of repayment out of offering proceeds to the extent that the dividends exceeded earnings during such period. Unaudited pro forma earnings per share for 2013 gives effect to the sale of the number of shares the proceeds of which would be necessary to (i) pay the dividend amount that is in excess of 2013 earnings, (ii) fund the repayment of the debt and related fees and expenses described in “Use of proceeds” and (iii) pay holders of Phantom SARs as described in “Use of proceeds,” up to the number of shares assumed to be issued in this offering. As the number of incremental shares that would have been issued related to payment of the items listed above exceeded the total number of shares to be issued by us in this offering, we have limited the number of pro-forma shares for purposes of calculating the pro forma per share data to the total number of shares to be issued by us in this offering. The unaudited pro forma earnings per share is calculated assuming all common shares issued by us in the initial public offering were outstanding for the entire period.

 

       For purposes of calculating unaudited pro forma earnings per share for 2013 we assumed shares are sold in this offering at a price of $19.50 per share, the midpoint of the price range set forth on the cover page of this prospectus.

 

 

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The following presents the computation of pro forma basic and diluted earnings per share:

 

(dollars and shares in millions, except per share data)    Year ended
December 31,
2013
 

 

 

Numerator:

  

Net income as reported

   $ 82   

Pro forma adjustments:

  

Interest expense, net of tax(a)

     92   
  

 

 

 

Pro forma net income

   $ 174   
  

 

 

 

Denominator:

  

Weighted average common shares used in computing basic income per common share outstanding

     280   

Total pro forma shares(b)

     52   
  

 

 

 

Pro forma weighted average common shares used in computing basic income per common share outstanding

     332   
  

 

 

 

Pro forma basic earnings per share

   $ 0.52   
  

 

 

 

Pro forma weighted average common shares used in computing basic income per common share outstanding

     332   

Diluted effect of securities

     7   
  

 

 

 

Pro forma weighted average common shares used in computing diluted income per common share outstanding

     339   
  

 

 

 

Pro forma diluted earnings per share

   $ 0.51   
  

 

 

 

 

 

 

(a)   These adjustments reflect the elimination of the historical interest expense and amortization of debt issuance costs and discount, as well as the incurrence of interest expense related to the New Term Loans, after reflecting the pro forma effect of the Refinancing as follows:

  

 

     Actual
Dates Outstanding
in 2013
     Interest
Expense
    Amortization
of Debt Issue
Costs and
Discount
    Tax
Effect
    Total  

12.5% Senior Notes due 2018

    
 
January 1, 2013 to
December 31, 2013
  
  
   $ 125      $ 14      $ (54   $ 85   

7.375%/8.125% Senior PIK Toggle Notes due 2018

    
 
August 6, 2013 to
December 31, 2013
  
  
     23        1        (9     15   

New Term Loans

        (12     (1     5        (8
     

 

 

   

 

 

   

 

 

   

 

 

 

Total

        136        14        (58     92   
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(b)   Adjustment for common shares used to repay outstanding indebtedness(c)

     52   

        Adjustment for common shares issued whose proceeds will be used to pay dividends in excess of earnings(d)

     35   

        Adjustment for common stock used to pay holders of Phantom SARs(e)

     1   
  

 

 

 
     88   

        Number of pro forma shares exceeding total shares offered

     (36
  

 

 

 

        Total shares used for pro forma computation

     52   
  

 

 

 

(c)    Indebtedness to be repaid with proceeds from this offering

   $ 1,014   

        Offering price per common share

   $ 19.50   
  

 

 

 

        Common shares assumed issued in this offering necessary to repay indebtedness

     52   
  

 

 

 

(d)   Dividends declared in the past twelve months

   $ 753   

        Net income attributable to IMS Health Holdings, Inc. in the past twelve months

     82   
  

 

 

 

        Dividends paid in excess of earnings

   $ 671   
  

 

 

 

        Offering price per common share

   $ 19.50   
  

 

 

 

        Common shares assumed issued in this offering necessary to pay dividends in excess of earnings

     35   
  

 

 

 

(e)   Number of Phantom SARs

     2   

        Weighted average excess of fair market value over exercise price

   $ 13.79   

        Common shares assumed issued in this offering necessary to pay holders of Phantom SARs

     1   

 

 

 

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(3)   Adjusted EBITDA is a financial measure that is not defined under U.S. GAAP and is presented in this prospectus because our management considers it an important supplemental measure of our performance and our ability to service our debt and believes that it provides greater transparency into our results of operation and is frequently used by investors in the evaluation of companies in the industry. In addition, our management believes that Adjusted EBITDA is a useful financial metric to assess our operating performance from period to period by excluding certain material non-cash items, unusual or non-recurring items that we do not expect to continue in the future and certain other adjustments we believe are not reflective of our ongoing operations and our performance. Adjusted EBITDA is not a measure of net income, operating income or any other performance measure derived in accordance with U.S. GAAP, and is subject to important limitations.

 

       Adjusted EBITDA, as we use it, is net income before interest, income taxes, depreciation, amortization, non-cash compensation expenses, expenses related to the early extinguishment of debt, transaction fees and the other items described below.

 

       We understand that although Adjusted EBITDA is frequently used by securities analysts, investors and others in their evaluation of companies, it has limitations as an analytical tool, and you should not consider it in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP. Some of these limitations are:

 

   

it does not reflect every cash expenditure, future requirements for capital expenditures or contractual commitments;

 

   

it does not reflect the significant interest expense or the cash requirements necessary to service interest or principal payments on our debt;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced or require improvements in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements or improvements;

 

   

it is not adjusted for all non-cash income or expense items that are reflected in our statements of cash flows;

 

   

it does not reflect the impact of earnings or charges resulting from matters we consider not to be indicative of our ongoing operations;

 

   

it does not reflect limitations on our costs related to transferring earnings from our subsidiaries to us; and

 

   

other companies in our industry may calculate this measure differently than we do, limiting its usefulness as a comparative measure.

 

       Because of these limitations, Adjusted EBITDA should not be considered as a measure of discretionary cash available to us to invest in the growth of our business or as measures of cash that will be available to us to meet our obligations. We compensate for these limitations by using Adjusted EBITDA along with other comparative tools, together with U.S. GAAP measurements, to assist in the evaluation of operating performance. These U.S. GAAP measurements include operating income (loss), net income (loss), cash flows from operations and cash flow data. We have significant uses of cash flows, including capital expenditures, interest payments, debt principal repayments, taxes and other non-recurring charges, which are not reflected in Adjusted EBITDA. Adjusted EBITDA is not intended as alternatives to net income (loss) as indicators of our operating performance, as alternatives to any other measure of performance in conformity with U.S. GAAP or as alternatives to cash flow provided by operating activities as measures of liquidity. You should therefore not place undue reliance on Adjusted EBITDA or ratios calculated using those measures. Our U.S. GAAP-based measures can be found in our consolidated financial statements and related notes included elsewhere in this prospectus.

 

      Years ended
December 31,
 
(dollars in millions)    2013     2012     2011  

 

 

Net income (loss)

   $ 82      $ (42   $ 111   

Deferred revenue purchase accounting adjustments

     2        7        7   

Non-cash stock-based compensation charges

     22        19        18   

Restructuring and related charges(a)

     23        54        39   

Acquisition-related charges

     10        11        13   

Sponsor monitoring fee

     8        8        9   

Depreciation and amortization

     410        424        393   

Merger costs

            2        23   

Interest income

     (4     (4     (3

Interest expense

     332        275        277   

Other loss, net

     74        29        7   

Benefit from income taxes

     (130     (19     (173
  

 

 

 

Adjusted EBITDA

   $ 829      $ 764      $ 721   

 

 

 

(a)   Restructuring and related charges includes severance and impairment charges and the cost of employee and third-party charges related to dual running costs for knowledge transfer activities.

 

 

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Risk factors

This offering and investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all of the other information contained in this prospectus, including our consolidated financial statements and the related notes appearing at the end of this prospectus, before deciding to invest in our common stock. If any of the following risks actually occurs, our business, prospects, operating results and financial condition could suffer materially, the trading price of our common stock could decline and you could lose all or part of your investment. The risks and uncertainties described below are not the only ones we face.

Risks related to our business

We rely on third parties to provide certain data. Our data suppliers might restrict our use of or refuse to license data, which could lead to our inability to provide certain services and, as a result, materially and adversely affect our operating results and financial condition.

Each of our information services is derived from data we collect from third parties. These data suppliers are numerous and diverse, reflecting the broad scope of information that we collect and use in our business.

Although we typically enter into long-term contractual arrangements with many of these suppliers of data, at the time of entry into a new contract or renewal of an existing contract, suppliers may increase restrictions on our use of such data, increase the price they charge us for data or refuse altogether to license the data to us. In addition, during the term of any data supply contract, suppliers may fail to adhere to our data quality control standards or fail to deliver data. Further, although no single individual data supplier is material to our business, if a number of suppliers collectively representing a significant amount of data that we use for one or more of our services were to impose additional contractual restrictions on our use of or access to data, fail to adhere to our quality-control standards, repeatedly fail to deliver data or refuse to provide data, now or in the future, our ability to provide those services to our clients could be materially adversely impacted, which may harm our operating results and financial condition.

Failure to meet productivity objectives under our internal business transformation initiatives could adversely impact our competitiveness and harm our operating results.

We are pursuing business transformation initiatives to update technology, increase innovation and obtain operating efficiencies. As part of these initiatives, we seek to improve our productivity, flexibility, quality, functionality and cost savings by investing in the development and implementation of global platforms and integration of our business processes and functions to achieve economies of scale. For example, we hired and trained more than 500 people to form a COE in Manila, The Philippines for standardizing and cleaning data received from data suppliers, developed updated tools for standardizing and cleaning data, are moving local standardizing and cleaning from countries around the world to the Manila COE, and retired local standardizing and cleaning systems. These various initiatives may not yield their intended gains, which may impact our competitiveness and our ability to meet our growth objectives and, as a result, materially and adversely affect our business, results of operation and financial condition.

 

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If we are unsuccessful at investing in growth opportunities, our business could be materially and adversely affected.

We continue to invest significantly in growth opportunities, including the development and acquisition of new data, technologies and services to meet our clients’ needs. For example, we are expanding our services and technology offerings, such as the development of a cloud-based platform with a growing number of applications to support commercial operations for life sciences companies (e.g., multi-channel marketing, marketing campaign management, CRM, incentive compensation management, targeting and segmentation, performance management and other applications). We also continue to invest significantly in growth opportunities in emerging markets, such as the development, launch and enhancement of services in China, India, Russia, Turkey and other countries. We believe healthcare spending in these emerging markets will continue to grow over the next five years, and we consider our presence in these markets to be an important focus of our growth strategy.

There is no assurance that our investment plans or growth strategy will be successful or will produce a sufficient or any return on our investments. Further, if we are unable to develop new technologies and services, clients do not purchase our new technologies and services, our new technologies and services do not work as intended or there are delays in the availability or adoption of our new technologies and services, then we may not be able to grow our business or growth may occur slower than anticipated. Additionally, although we expect continued growth in healthcare spending in emerging markets, such spending may occur more slowly or not at all, and we may not benefit from our investments in these markets.

We plan to fund growth opportunities with cash from operations or from future financings, and not with the proceeds from this offering, substantially all of which will be used to repay certain existing indebtedness. See “Use of proceeds.” There can be no assurance that those sources will be available in sufficient amounts to fund future growth opportunities when needed.

Any of the foregoing could have a material and adverse effect on our operating results and financial condition.

Data protection, privacy and similar laws restrict access, use and disclosure of information, and failure to comply with or adapt to changes in these laws could materially and adversely harm our business.

Patient health information is among the most sensitive of personal information and it is critical that information about an individual’s healthcare is properly protected from inappropriate access, use and disclosure. Laws restricting access, use and disclosure of such information include the Health Insurance Portability and Accountability Act of 1996 (“HIPAA”), the European Union’s Data Protection Directive, Canada’s Personal Information Protection and Electronic Documents Act and other data protection, privacy and similar national, state/provincial and local laws. We have established frameworks, models, processes and technologies to manage privacy for many data types, from a variety of sources, and under myriad privacy and data protection laws worldwide. In addition, we rely on our data suppliers to deliver information to us in a form and in a manner that complies with applicable privacy and data protection laws. These laws are complex and there is no assurance that the safeguards and controls employed by us or our data suppliers will be sufficient to prevent a breach of these laws, or that claims will not be filed against us or our data suppliers despite such safeguards and controls. For example, in February 2014, a group of individuals filed a civil lawsuit in Korea against IMS Health Korea Ltd., our

 

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wholly-owned subsidiary (“IMS Korea”), the Korean Pharmaceutical Association (“KPA”) and a KPA affiliate that supplies data to IMS Korea. The lawsuit alleges the KPA affiliate collected plaintiffs’ personal information without the necessary consent in violation of applicable privacy laws and transferred such information to IMS Korea for sale to customers. See “Business—Legal proceedings.” Alleged or actual failure to comply with such laws may result in, among other things, negative publicity, damage to our reputation, civil and criminal liability, data being blocked from use or liability under contractual provisions.

Laws and expectations relating to privacy continue to evolve, and we continue to adapt to changing needs. Nevertheless, changes in these laws (including newly released interpretations of these laws by courts and regulatory bodies) may limit our data access, use and disclosure, and may require increased expenditures by us or may dictate that we not offer certain types of services. Any of the foregoing may have a material adverse impact on our ability to provide services to our clients or maintain our profitability.

There is ongoing concern from privacy advocates, regulators and others regarding data protection and privacy issues, and the number of jurisdictions with data protection and privacy laws has been increasing. Also, there are ongoing public policy discussions regarding whether the standards for de-identified, anonymous or pseudonomized health information are sufficient, and the risk of re-identification sufficiently small, to adequately protect patient privacy. These discussions may lead to further restrictions on the use of such information. There can be no assurance that these initiatives or future initiatives will not adversely affect our ability to access and use data or to develop or market current or future services.

Data protection, privacy and similar laws protect more than patient information, and although they vary by jurisdiction, these laws can extend to employee information, business contact information, provider information and other information relating to identifiable individuals. Failure to comply with these laws may result in, among other things, civil and criminal liability, negative publicity, damage to our reputation and liability under contractual provisions. In addition, compliance with such laws may require increased costs to us or may dictate that we not offer certain types of services.

The occurrence of any of the foregoing could impact our ability to provide the same level of service to our clients, force us to modify our offerings or increase our costs, which could materially and adversely affect our operating results and financial condition.

Security breaches and unauthorized use of our IT systems and information, or the IT systems or information in the possession of our vendors, could expose us, our clients, our data suppliers or others to risk of loss.

We rely upon the security of our computer and communications systems infrastructure to protect us from cyber attacks and unauthorized access. Cyber attacks can include malware, computer viruses, hacking or other significant disruption of our computer, communications and related systems. Although we take steps to manage and avoid these risks and to prevent their recurrence, our preventive and remedial actions may not be successful. Such attacks, whether successful or unsuccessful, could result in our incurring costs related to, for example, rebuilding internal systems, defending against litigation, responding to regulatory inquiries or actions, paying damages or fines, or taking other remedial steps with respect to third parties. Publicity about vulnerabilities and attempted or successful incursions could damage our reputation with clients and data suppliers and reduce demand for our services.

 

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We also store proprietary and sensitive information in connection with our business, which could be compromised by a cyber attack. To the extent that any disruption or security breach results in a loss or damage to our data, an inappropriate disclosure of proprietary or sensitive information, an inability to access data sources, or an inability to process data or provide our offerings to our clients, it could cause significant damage to our reputation, affect our relationships with our data suppliers and clients (including loss of suppliers and clients), lead to claims against us and ultimately harm our business. We may be required to incur significant costs to alleviate, remedy or protect against damage caused by these disruptions or security breaches in the future. We may also face inquiry or increased scrutiny from government agencies as a result of any such disruption or breach. While we have insurance coverage for certain instances of a cyber security breach, our coverage may not be sufficient if we suffer a significant attack or multiple attacks. Any such breach or disruption could have a material adverse effect on our operating results and our reputation as a provider of mission-critical services.

Some of our vendors have significant responsibility for the security of certain of our data centers and computer-based platforms. Also, our data suppliers have responsibility for security of their own computer and communications environments. These third parties face risks relating to cyber security similar to ours, which could disrupt their businesses and therefore materially impact ours. Accordingly, we are subject to any flaw in or breaches to their computer and communications systems or those that they operate for us, which could result in a material adverse effect on our business, operations and financial results.

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

Our success depends on the efficient and uninterrupted operation of our computer and communications systems. A failure of our network or data-gathering procedures could impede the processing of data, delivery of databases and services, client orders and day-to-day management of our business and could result in the corruption or loss of data.

While many of our operations have disaster recovery plans in place, we currently do not have excess or standby computer processing or network capacity everywhere in the world to avoid disruption in the receipt, processing and delivery of data in the event of a system failure. Despite any precautions we may take, damage from fire, floods, hurricanes, power loss, telecommunications failures, computer viruses, break-ins, sabotage, breaches of security, epidemics and similar events at our various computer facilities could result in interruptions in the flow of data to our servers and from our servers to our clients. In addition, any failure by our computer environment to provide sufficient processing or network capacity to transfer data could result in interruptions in our service. In the event of a delay in the delivery of data, we could be required to transfer our data collection operations to an alternative provider of server hosting services. Such a transfer could result in significant delays in our ability to deliver services to our clients, and increase our costs. Additionally, significant delays in the planned delivery of system enhancements, improvements and inadequate performance of the systems once they are completed could damage our reputation and harm our business. Finally, long-term disruptions in the infrastructure caused by events such as natural disasters, the outbreak of war, the escalation of hostilities, epidemics and acts of terrorism (particularly involving cities in which we have offices) could result in a material adverse affect.

 

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Although we carry property and business interruption insurance, our coverage may not be adequate to compensate us for all losses that may occur. Any such failure, disruption or delay could have a material adverse effect on our operating results and our reputation.

Consolidation in the industries in which our clients operate may reduce the volume of services purchased by consolidated clients following an acquisition or merger, which could harm our operating results and financial condition.

Mergers or consolidations among our clients have in the past and could in the future reduce the number of our clients and potential clients. When companies consolidate, overlapping services previously purchased separately are usually purchased only once by the combined entity, leading to loss of revenue. Other services that were previously purchased by one of the merged or consolidated entities may be deemed unnecessary or cancelled. If our clients merge with or are acquired by other entities that are not our clients, or that use fewer of our services, they may discontinue or reduce their use of our services. There can be no assurance as to the degree to which we may be able to address the revenue impact of such consolidation. Any of these developments could harm our operating results and financial condition.

Laws restricting pharmaceutical sales and marketing practices may adversely impact demand for our services.

There have been a significant number of laws, legislative initiatives and regulatory actions over the years that seek to limit pharmaceutical sales and marketing practices. For example, three states in 2006 and 2007 passed laws restricting the use of prescriber identifiable information for the purpose of promoting branded prescription medicines. Although these laws were subsequently declared to be unconstitutional based on a decision of the U.S. Supreme Court in Sorrell v. IMS Health in 2011, we are unable to predict whether, and in what form, other initiatives may be introduced or actions taken at the state or Federal levels to limit pharmaceutical sales and marketing practices. In addition, while we will continue to seek to adapt our services to comply with the requirements of these laws (to the extent applicable to our services), if enacted, there can be no assurance that our efforts to adapt our offerings will be successful and provide the same financial contribution to us. There can also be no assurance that future legislative initiatives will not adversely affect our ability to develop or market current or future offerings, or that any future laws will not diminish the demand for our services, all of which could, over time, result in a material adverse impact on our operating results and financial condition.

Our business is subject to increasing competition.

Our future growth and success will depend on our ability to successfully compete with other companies that provide similar services in the same markets, some of which may have financial, marketing, technical and other advantages. We also expect that competition will continue to increase as a result of consolidation in both the information technology and healthcare industries. If one or more of our competitors or potential competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. We compete on the basis of various factors, including breadth and depth of services, reputation, reliability, quality, innovation, security, price and industry expertise and experience. In addition, our ability to compete successfully may be impacted by the growing availability of health information from social media, government health information systems and other free or low-cost sources. For example, the United Kingdom’s National Health

 

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Service started releasing large volumes of data beginning in December 2011 at little or no charge, reducing the demand for our information services derived from similar data. In addition, consolidation or integration of wholesalers, retail pharmacies, health networks, payers or other healthcare stakeholders may lead any of them to provide information services directly to clients or indirectly through a designated service provider, resulting in increased competition from firms that may have lower costs to market (e.g., no data supply costs). Any of the above may result in lower demand for our services, which could result in a material adverse impact on our operating results and financial condition.

Tax matters could adversely affect our operating results and financial condition.

We operate in more than 100 countries worldwide and our earnings are subject to taxation in many differing jurisdictions and at differing rates. We seek to organize our affairs in a tax-efficient manner, taking account of the jurisdictions in which we operate. Our provision for income taxes and cash tax liability in the future could be adversely affected by numerous factors, including income before taxes being lower than anticipated in countries with lower statutory tax rates and higher than anticipated in countries with higher statutory tax rates, changes in the valuation of deferred tax assets and liabilities, and changes in tax laws, regulations, accounting principles or interpretations thereof, which could harm our financial results in future periods. In addition, we are subject to continuous examination of our income tax returns by the U.S. Internal Revenue Service and other tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations to determine the adequacy of our provision for income taxes. There can be no assurance that the outcomes from these continuous examinations will not have an adverse effect on our provision for income taxes and tax liability.

Litigation or regulatory proceedings could have a material adverse effect on our operating results and financial condition.

In the normal course of our business, we are involved in lawsuits, claims, audits and investigations, such as those described in “Business—Legal proceedings.” The outcome of these matters could have a material adverse effect on our business, operating results or financial condition. In addition, we may become subject to future lawsuits, claims, audits and investigations that could result in substantial costs and divert our attention and resources. Litigation is inherently uncertain, and adverse rulings could occur, including monetary damages, or an injunction stopping us from producing, publishing or selling services, engaging in business practices or requiring other remedies such as divestitures.

Our business may be adversely impacted by factors affecting the pharmaceutical and healthcare industries.

The vast majority of our revenue is generated from sales to the pharmaceutical and healthcare industries. The clients we serve in these industries are commonly subject to financial pressures, including, but not limited to, increased costs, reduced demand for their products, reductions in pricing and reimbursement for products and services, formulary approval and placement, government approval to market their products and limits on the manner by which they market their products, loss of patent exclusivity (whether due to patent expiration or as a result of a successful legal challenge) and the proliferation of or changes to regulations applicable to these industries. To the extent our clients face such pressures, the demand for our services, or the prices our clients are willing to pay for those services, may decline. Any such decline could have a material adverse effect on our business.

 

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Our success depends on our ability to protect our intellectual property rights.

Our ability to obtain, protect and enforce our intellectual property rights is subject to general litigation or third-party opposition risks, as well as the uncertainty as to the scope of protection, registrability, patentability, validity and enforceability of our intellectual property rights in each applicable country. Governments may adopt regulations, and government agencies or courts may render decisions, requiring compulsory licensing of intellectual property rights. When we seek to enforce our intellectual property rights we may be subject to claims that the intellectual property rights are invalid or unenforceable. Litigation may be necessary in the future to enforce our intellectual property rights and to protect our trade secrets. Litigation brought to protect and enforce our intellectual property rights could be costly, time consuming and distracting to management and could result in the impairment or loss of portions of our intellectual property rights. Furthermore, our efforts to enforce our intellectual property rights may be met with defenses, counterclaims and countersuits attacking the validity and enforceability of our intellectual property rights. Our inability to protect our proprietary technology against unauthorized copying or use, as well as any costly litigation or diversion of our management’s attention and resources, could delay further sales or the implementation of our solutions, impair the functionality of our solutions, delay introductions of new solutions, result in our substituting inferior or more costly technologies into our solutions, or injure our reputation and harm our operating results and financial condition.

The theft or unauthorized use or publication of our trade secrets and other confidential business information could reduce the differentiation of our services and harm our business; the value of our investment in development or business acquisitions could be reduced; and third parties might make claims against us related to losses of their confidential or proprietary information. These incidents and claims could harm our business, reduce revenue, increase expenses and harm our reputation.

We may be subject to claims by others that we are infringing on their intellectual property rights, which could harm our business and negatively impact our results of operations.

Third parties may assert claims that we or our clients infringe their intellectual property rights and these claims, with or without merit, could be expensive to litigate, cause us to incur substantial costs and divert management resources and attention in defending the claim. In some jurisdictions, plaintiffs can also seek injunctive relief that may limit the operation of our business or prevent the marketing and selling of our products or services that infringe on the plaintiff’s intellectual property rights. To resolve these claims, we may enter into licensing agreements with restrictive terms or significant fees, stop selling or redesign affected products or services, or pay damages to satisfy contractual obligations to others. If we do not resolve these claims in advance of a trial, there is no guarantee that we will be successful in court. These outcomes may have a material adverse impact on our operating results and financial condition.

In addition, certain contracts with our suppliers or clients contain provisions whereby we indemnify, subject to certain limitations, the counterparty for damages suffered as a result of claims related to intellectual property infringement and the use of our data. Claims made under these provisions could be expensive to litigate and could result in significant payments.

 

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We rely on licenses from third parties to certain technology and intellectual property rights for some of our products and the licenses we currently have could terminate or expire.

Some of our products or services rely on technology or intellectual property rights owned and controlled by others. Our licenses to this technology or these intellectual property rights could be terminated or could expire. We may be unable to replace these licenses in a timely manner. Failure to renew these licenses, or renewals of these licenses on less advantageous terms, could harm our operating results and financial condition.

We may not be able to attract, retain and motivate talented personnel.

Our business is based on successfully attracting and retaining talented employees. The market for highly skilled workers and leaders in our industry and in the locations in which we operate is very competitive. If we are not successful in our recruiting efforts, or if we are unable to retain key employees, our ability to develop and deliver successful services may be adversely affected. Effective succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution.

We regularly seek to grow our business through acquisitions of or investments in new or complementary businesses, services or technologies, or through strategic alliances, and the failure to manage such acquisitions, investments or alliances could have a material adverse effect on us.

In executing our business strategy, we routinely conduct discussions, evaluate opportunities and enter into agreements for possible investments, acquisitions and other transactions such as strategic alliances, and we actively pursue these types of transactions in the regular course of business. Pursuing growth by way of these types of transactions involves significant challenges and risks, including the inability to successfully identify acquisition candidates on terms acceptable to us, advance our business strategy, realize a satisfactory return on investment, successfully integrate business activities or resources, or retain key personnel. If we are unable to manage acquisitions or investments, or integrate any acquired businesses, services or technologies effectively, we may not realize the expected benefits from the transaction relative to the consideration paid, and our business, results of operations and financial condition may be materially and adversely affected.

Further, we may be unsuccessful in identifying and evaluating business, legal or financial risks as part of the due diligence process associated with a particular transaction. In addition, some investments may result in the incurrence of debt or may have contingent consideration components that may require us to pay additional amounts in the future in relation to future performance results of the subject business. If we do enter into agreements with respect to these transactions, we may fail to complete them due to factors such as failure to obtain regulatory or other approvals. We may be unable to realize the full benefits from these transactions, such as increased revenue or enhanced efficiencies, within the timeframes that we expect or at all. These events could divert attention from our other businesses and harm our business, financial condition and operating results.

We may experience challenges with the acquisition, development, enhancement or deployment of technology necessary for our business.

We operate in businesses that require sophisticated computer systems and software for data collection, data processing, cloud-based platforms, analytics, cryptography, statistical projections

 

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and forecasting, mobile computing, social media analytics and other applications and technologies. We seek to address our technology risks by increasing our reliance on the use of innovations by cross-industry technology leaders and adapt these for our pharmaceutical and healthcare industry clients. Some of these technologies supporting the industries we serve are changing rapidly and we must continue to adapt to these changes in a timely and effective manner at an acceptable cost. We also must continue to deliver data to our clients in forms that are easy to use while simultaneously providing clear answers to complex questions. There can be no guarantee that we will be able to develop, acquire or integrate new technologies, that these new technologies will meet our clients’ needs or achieve expected investment goals, or that we will be able to do so as quickly or cost-effectively as our competitors. Significant technological change could render our services obsolete. Moreover, the introduction of new services embodying new technologies could render existing services obsolete. Our continued success will depend on our ability to adapt to changing technologies, manage and process ever-increasing amounts of data and information and improve the performance, features and reliability of our services in response to changing client and industry demands. We may experience difficulties that could delay or prevent the successful design, development, testing, introduction or marketing of our services. New services, or enhancements to existing services, may not adequately meet the requirements of current and prospective clients or achieve any degree of significant market acceptance. Any of these failures could have a material adverse effect on our operating results and financial condition.

Our business is subject to international economic, political and other risks that could negatively affect our results of operations and financial condition.

We have business activities in over 100 countries, and for the year ended December 31, 2013, we generated 63% of our $2.54 billion of revenue from outside the United States. Further, some of our business activities are concentrated into global or regional hubs in one or more geographic areas. For example, to support our businesses in many other countries, we handle standardizing and cleaning of data in Manila, The Philippines, advanced statistics in Beijing, China, analytical support for delivery in Bangalore, India, and reference data management in Santiago, Chile. We are therefore subject to heightened risks inherent in conducting business internationally, in particular in the emerging markets in which we conduct and into which we are expanding our business. These risks include, for example:

 

 

required compliance with a variety of local laws and regulations which may be materially different than those to which we are subject in the United States or which may change unexpectedly;

 

 

local, economic, political and social conditions, including potential hyperinflationary conditions, political instability, and potential nationalization, repatriation, expropriation, price controls or other restrictive government actions;

 

 

hiring, retaining and overseeing qualified management personnel for managing operations in multiple countries;

 

 

differing employment practices and labor issues;

 

 

tax-related risks, including the imposition of taxes and the lack of beneficial treaties, that result in a higher effective tax rate for us;

 

 

difficulties in enforcing agreements through certain foreign local systems;

 

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limitations on ownership and on repatriation of earnings;

 

 

possible liabilities under applicable anti-corruption laws, export controls, anti-boycott and economic sanctions laws;

 

 

longer sales and payment cycles;

 

 

reduced protection for intellectual property rights in some countries; and

 

 

security concerns, including crime, political instability and international response thereto.

To the extent we are unable to effectively manage our international operations and these risks, our data acquisition activities and sales for certain countries may be adversely affected, we may be subject to additional and unanticipated costs, and we may be subject to litigation or regulatory action. As a consequence, our business, financial condition and results of operations could be seriously harmed.

Further, we have substantial assets, liabilities, revenue and expenses denominated in currencies other than the U.S. dollar, and although we hedge a portion of our international currency exposure, we are subject to currency translation exposure on the profits and financial position of our operations, in addition to economic exposure, as a result of devaluations and fluctuations in currency exchange rates or the imposition of limitations on conversion of foreign currencies into dollars.

We may be exposed to liabilities under applicable anti-corruption laws and any determination that we violated these laws could have a material adverse effect on our business.

We are subject to various anti-corruption laws that prohibit improper payments or offers of payments to foreign governments their officials and others for the purpose of obtaining or retaining business. We have business in countries and regions which are less developed and are generally recognized as potentially more corrupt business environments. Our activities in these countries create the risk of unauthorized payments or offers of payments by one of our employees or agents that could be in violation of various anti-corruption laws including the Foreign Corrupt Practices Act (“FCPA”) the U.K. Bribery Act and other local laws. We have implemented safeguards and policies to discourage these practices by our employees and agents. However, our existing safeguards and any future improvements may prove to be less than effective and our employees or agents may engage in conduct for which we might be held responsible. In addition, our significant recent growth globally over the last few years and our anticipated future growth, both organically and through acquisitions, may exacerbate these risks and strain our ability to effectively manage the increased breadth and scope of our activities to avoid these risks. If employees violate our policies or we fail to maintain adequate record-keeping and internal accounting practices to accurately record our transactions, we may be subject to regulatory sanctions. Violations of the FCPA or other anti-corruption laws may result in severe criminal or civil sanctions and penalties, including disgorgement of profits, injunctions and debarment from government contracts, and we may be subject to other liabilities which could have a material adverse effect on our business, results of operations and financial condition.

Catastrophic events or geo-political conditions may disrupt our business.

A disruption or failure of our systems or operations because of a major earthquake, weather event, cyber-attack, terrorist attack, pandemic or other catastrophic event could cause delays in completing sales, providing services, collecting data or performing other mission-critical functions in affected areas. A catastrophic event that results in the destruction or disruption of any of our

 

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critical business or information technology systems could harm our ability to conduct normal business operations. Our move toward providing our clients with more services and solutions in the cloud puts a premium on the resilience of our systems and strength of our business continuity management plans, and magnifies the potential impact of prolonged service outages on our operating results. Abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which may increase our operating costs or reduce our revenue.

We face risks related to sales to government entities.

We derive a portion of our revenue from sales to government entities in the United States, which represented less than 1% of our revenues in each of the last three fiscal years. In general, our contracts with U.S. government entities are terminable at will by the government entity at any time. Government demand and payment for our services may be affected by public-sector budgetary cycles and funding authorizations. Government contracts are subject to oversight, including special rules on accounting, expenses, reviews and security. Failure to comply with these rules could result in civil and criminal penalties and sanctions, including termination of contracts, fines and suspensions, or debarment from future business with the U.S. government. As a result, failure to comply with these rules could have a material adverse effect on our operating results and financial condition.

Our use of accounting estimates involves judgment and could adversely impact our financial results, and ineffective internal controls could adversely impact our business and operating results.

The methods, estimates and judgments that we use in applying accounting policies have a significant impact on our results of operations. For more information, see Note 2 to our consolidated financial statements included elsewhere in this prospectus. These methods, estimates and judgments are subject to significant risks, uncertainties and assumptions, and changes could affect our results of operations. In addition, our internal control over financial reporting may not prevent or detect misstatements because of the inherent limitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of our internal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business and operating results could be harmed and we could fail to meet our reporting obligations.

Risks relating to our common stock and this offering

Our Sponsors will continue to have significant influence over us after this offering, including control over decisions that require the approval of stockholders, which could limit your ability to influence the outcome of matters submitted to stockholders for a vote.

We are currently controlled, and after this offering is completed will continue to be controlled, by the Sponsors. Upon completion of this offering, investment funds affiliated with the Sponsors will beneficially own 79.5% of our outstanding common stock (or 76.6% if the underwriters exercise in full their option to purchase additional shares from the selling stockholders). As long as the Sponsors own or control at least a majority of our outstanding voting power, they will have the ability to exercise substantial control over all corporate actions requiring stockholder approval, irrespective of how our other stockholders may vote, including the election and

 

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removal of directors and the size of our board of directors, any amendment of our certificate of incorporation or bylaws, or the approval of any merger or other significant corporate transaction, including a sale of substantially all of our assets. Even if their ownership falls below 50%, the Sponsors will continue to be able to strongly influence or effectively control our decisions.

Additionally, the Sponsors interests may not align with the interests of our other stockholders. The Sponsors are in the business of making investments in companies and may acquire and hold interests in businesses that compete directly or indirectly with us. The Sponsors may also pursue acquisition opportunities that may be complementary to our business, and, as a result, those acquisition opportunities may not be available to us. In addition, our certificate of incorporation provides that we renounce any interest or expectancy in the business opportunities of the Sponsors and of their officers, directors, agents, stockholders, members, partners, affiliates and subsidiaries and each such party shall not have any obligation to offer us those opportunities unless presented to one of our directors or officers in his or her capacity as a director or officer.

Upon the listing of our shares, we will be a “controlled company” within the meaning of the rules of the NYSE and, as a result, will qualify for, and intend to rely on, exemptions from certain corporate governance requirements; you will not have the same protections afforded to stockholders of companies that are subject to such requirements.

Because the Sponsors will continue to control a majority of the voting power of our outstanding common stock after completion of this offering, we will be a “controlled company” within the meaning of the corporate governance standards of the NYSE. Under these rules, a company of which more than 50% of the voting power for the election of directors is held by an individual, group or another company is a “controlled company” and may elect not to comply with certain corporate governance requirements, including the requirements that, within one year of the date of the listing of our common stock:

 

 

we have a board of directors that is composed of a majority of “independent directors,” as defined under the rules of the NYSE;

 

 

we have a compensation committee that is composed entirely of independent directors; and

 

 

we have a nominating and corporate governance committee that is composed entirely of independent directors.

Following this offering, we intend to avail ourselves of all of these exemptions. Accordingly, in the event the interests of our Sponsors differ from those of other stockholders, and, for so long as we are a “controlled company,” you will not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance requirements of the NYSE. Our status as a controlled company could make our common stock less attractive to some investors or otherwise harm our stock price.

Provisions of our corporate governance documents could make an acquisition of our company more difficult and may prevent attempts by our stockholders to replace or remove our current management, even if beneficial to our stockholders.

In addition to the Sponsors’ beneficial ownership of a controlling percentage of our common stock, our certificate of incorporation and bylaws and the Delaware General Corporation Law (the “DGCL”) contain provisions that could make it more difficult for a third party to acquire us, even if doing so might be beneficial to our stockholders.

 

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These provisions, some of which (as noted below) only become effective when the Sponsors no longer beneficially own a majority of our common stock (the “Trigger Date”), include:

 

 

the division of our board of directors into three classes and the election of each class for three-year terms;

 

 

the sole ability of the board of directors to fill a vacancy created by the expansion of the board of directors;

 

 

advance notice requirements for stockholder proposals and director nominations;

 

 

after the Trigger Date, limitations on the ability of stockholders to call special meetings and to take action by written consent;

 

 

after the Trigger Date, in certain cases, the required approval of holders of at least 75% of the shares entitled to vote generally on the amendment or repeal of our certificate of incorporation or bylaws to adopt, amend or repeal our bylaws, or amend or repeal certain provisions of our certificate of incorporation;

 

 

after the Trigger Date, the required approval of holders of at least 75% of the shares entitled to vote in an election of directors to remove directors, which removal may only be for cause; and

 

 

the ability of our board of directors to issue new series of, and designate the terms of, preferred stock, without stockholder approval, which could be used to, among other things, institute a rights plan that would have the effect of significantly diluting the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors.

In addition, Section 203 of the DGCL may affect the ability of an “interested stockholder” to engage in certain business combinations, for a period of three years following the time that the stockholder becomes an “interested stockholder.” We have elected in our certificate of incorporation not to be subject to Section 203 of the DGCL. Nevertheless, our certificate of incorporation will contain provisions that have the same effect as Section 203 of the DGCL, except that they provide that the Sponsors and their transferees will not be deemed to be “interested stockholders,” and accordingly will not be subject to such restrictions.

These provisions may frustrate or prevent any attempts by our stockholders to replace or remove our current management by making it more difficult for stockholders to replace members of our board of directors. Because our board is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace current members of our management team. As a result, you may lose your ability to sell your stock for a price in excess of the prevailing market price due to these protective measures, and efforts by stockholders to change the direction or management of the Company may be unsuccessful. See “Description of capital stock.”

If you purchase shares of common stock in this offering, you will suffer immediate and substantial dilution of your investment.

The initial public offering price of our common stock is substantially higher than the net tangible book deficit per share of our common stock. Therefore, if you purchase shares of our common stock in this offering, you will pay a price per share that substantially exceeds our net tangible book deficit per share after this offering. Based on the initial public offering price of $19.50 per

 

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share, you will experience immediate dilution of $32.76 per share, representing the difference between our pro forma net tangible book deficit per share after giving effect to this offering and the initial public offering price. In addition, purchasers of common stock in this offering will have contributed 26.7% of the aggregate price paid by all purchasers of our stock but will own only approximately 15.7% of our common stock outstanding after this offering. We also have a large number of outstanding stock options to purchase common stock with exercise prices that are below the estimated initial public offering price of our common stock. To the extent that these options are exercised, you will experience further dilution. See “Dilution” for more detail.

An active, liquid trading market for our common stock may not develop, which may limit your ability to sell your shares.

Prior to this offering, there was no public market for our common stock. Although we have applied to list our common stock on the NYSE under the symbol “IMS,” an active trading market for our shares may never develop or be sustained following this offering. The initial public offering price will be determined by negotiations between us and the underwriters and may not be indicative of market prices of our common stock that will prevail in the open market after the offering. A public trading market having the desirable characteristics of depth, liquidity and orderliness depends upon the existence of willing buyers and sellers at any given time, such existence being dependent upon the individual decisions of buyers and sellers over which neither we nor any market maker has control. The failure of an active and liquid trading market to develop and continue would likely have a material adverse effect on the value of our common stock. The market price of our common stock may decline below the initial public offering price, and you may not be able to sell your shares of our common stock at or above the price you paid in this offering, or at all. An inactive market may also impair our ability to raise capital to continue to fund operations by selling shares and may impair our ability to acquire other companies or technologies by using our shares as consideration.

As a public company, we will become subject to additional laws, regulations and stock exchange listing standards, which will impose additional costs on us and may strain our resources and divert our management’s attention.

We have operated our business as a private company since February 2010, following the Merger. After this offering, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the Sarbanes-Oxley Act of 2002, as amended, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Dodd-Frank Act”), the listing requirements of the NYSE, and other applicable securities laws and regulations. Compliance with these laws and regulations will increase our legal and financial compliance costs and make some activities more difficult, time-consuming or costly. For example, the Exchange Act will require us, among other things, to file annual, quarterly and current reports with respect to our business and operating results. We also expect that being a public company and being subject to new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. We estimate that we will incur between $4 million and $5 million annually in expenses related to incremental insurance costs and other expenses associated with being a public company, including listing, printer and XBRL fees and investor relations costs. However, the incremental costs that we incur as a result of becoming a public company could exceed our estimate. These factors may therefore strain our resources, divert management’s attention and affect our ability to attract and retain qualified board members.

 

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Our operating results and share price may be volatile, and the market price of our common stock after this offering may drop below the price you pay.

Our quarterly operating results are likely to fluctuate in the future as a publicly traded company. In addition, securities markets worldwide have experienced, and are likely to continue to experience, significant price and volume fluctuations. This market volatility, as well as general economic, market or political conditions, could subject the market price of our shares to wide price fluctuations regardless of our operating performance. We and the underwriters will negotiate to determine the initial public offering price. You may not be able to resell your shares at or above the initial public offering price or at all. Our operating results and the trading price of our shares may fluctuate in response to various factors, including:

 

 

market conditions in the broader stock market;

 

 

actual or anticipated fluctuations in our quarterly financial and operating results;

 

 

introduction of new products or services by us or our competitors;

 

 

issuance of new or changed securities analysts’ reports or recommendations;

 

 

results of operations that vary from expectations of securities analysis and investors;

 

 

guidance, if any, that we provide to the public, any changes in this guidance or our failure to meet this guidance;

 

 

strategic actions by us or our competitors;

 

 

announcement by us, our competitors or our vendors of significant contracts or acquisitions;

 

 

charges to our earnings resulting from impairments of goodwill or other intangible assets;

 

 

restructuring-related charges;

 

 

sales, or anticipated sales, of large blocks of our stock;

 

 

additions or departures of key personnel;

 

 

regulatory, legal or political developments;

 

 

public response to press releases or other public announcements by us or third parties, including our filings with the SEC;

 

 

litigation and governmental investigations;

 

 

changing economic conditions;

 

 

changes in accounting principles;

 

 

default under agreements governing our indebtedness;

 

 

exchange rate fluctuations; and

 

 

other events or factors, including those from natural disasters, war, actors of terrorism or responses to these events.

These and other factors, many of which are beyond our control, may cause our operating results and the market price and demand for our shares to fluctuate substantially. While we believe that operating results for any particular quarter are not necessarily a meaningful indication of future results, fluctuations in our quarterly operating results could limit or prevent investors from

 

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readily selling their shares and may otherwise negatively affect the market price and liquidity of our shares. In addition, in the past, when the market price of a stock has been volatile, holders of that stock have sometimes instituted securities class action litigation against the company that issued the stock. If any of our stockholders brought a lawsuit against us, we could incur substantial costs defending the lawsuit. Such a lawsuit could also divert the time and attention of our management from our business, which could significantly harm our profitability and reputation.

A significant portion of our total outstanding shares are restricted from immediate resale but may be sold into the market in the near future. This could cause the market price of our common stock to drop significantly, even if our business is doing well.

Sales of a substantial number of shares of our common stock in the public market could occur at any time. These sales, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock. After this offering, we will have outstanding 331,892,403 shares of common stock based on the number of shares outstanding as of March 1, 2014. This includes 52,000,000 shares that we are selling in this offering, as well as the 13,000,000 shares that the selling stockholders are selling, which may be resold in the public market immediately, and assumes no exercises of outstanding options. Substantially all of the shares that are not being sold in this offering will be subject to a 180-day lock-up period provided under agreements executed in connection with this offering. These shares will, however, be able to be resold after the expiration of the lock-up agreement as described in the “Shares eligible for future sale” section of this prospectus. We also intend to file a Form S-8 under the Securities Act of 1933, as amended (“Securities Act”) to register all shares of common stock that we may issue under our equity compensation plans and, in connection with this offering, we will enter into an amended and restated stockholders’ agreement with the Sponsors that provides them with registration rights. Once we register these shares, they can be freely sold in the public market upon issuance, subject to the lock-up agreements described in the “Underwriting” section of this prospectus. As restrictions on resale end, the market price of our stock could decline if the holders of currently restricted shares sell them or are perceived by the market as intending to sell them. See the information under the heading “Shares eligible for future sale” and “Certain relationships and related party transactions—Stockholders’ agreement” for a more detailed description of the shares of common stock that will be available for future sale upon completion of this offering.

Since we have no current plans to pay regular cash dividends on our common stock following this offering, you may not receive any return on investment unless you sell your common stock for a price greater than that which you paid for it.

Although we have previously declared dividends to our stockholders, we do not anticipate paying any regular cash dividends on our common stock following this offering. Any decision to declare and pay dividends in the future will be made at the discretion of our board of directors and will depend on, among other things, our results of operations, financial condition, liquidity requirements, contractual restrictions and other factors that our board of directors may deem relevant. In addition, our ability to pay dividends is, and may be, limited by covenants of existing and any future outstanding indebtedness we or our subsidiaries incur, including under IMS Health’s third amended and restated credit agreement and related security and other documents for the senior secured term loan facilities and the senior secured revolving facility (collectively, the “Senior Secured Credit Facilities”) and the 6% Senior Notes (as defined herein). The Senior Secured Credit Facilities and the 6% Senior Notes restrict IMS Health’s ability to pay dividends and make certain

 

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other distributions by imposing caps on the aggregate amount thereof as well as certain other conditions including, in some cases, financial incurrence tests, to declare and pay such dividends and distributions. Therefore, any return on investment in our common stock is solely dependent upon the appreciation of the price of our common stock on the open market, which may not occur. See “Dividend policy” for more detail.

We are a holding company with nominal net worth and will depend on dividends and distributions from our subsidiaries to pay any dividends.

IMS Health Holdings, Inc. is a holding company with nominal net worth. We do not have any material assets or conduct any business operations other than our investments in our subsidiaries. Our business operations are conducted primarily out of our indirect operating subsidiary, IMS Health and its subsidiaries. As a result, notwithstanding any restrictions on payment of dividends under our existing indebtedness, our ability to pay dividends, if any, will be dependent upon cash dividends and distributions or other transfers from our subsidiaries, including from IMS Health. Payments to us by our subsidiaries will be contingent upon their respective earnings and subject to any limitations on the ability of such entities to make payments or other distributions to us.

If securities or industry analysts do not publish research or reports about our business, if they adversely change their recommendations regarding our shares or if our results of operations do not meet their expectations, our share price and trading volume could decline.

The trading market for our shares will be influenced by the research and reports that industry or securities analysts publish about us or our business. We do not have any control over these analysts. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which in turn could cause our share price or trading volume to decline. Moreover, if one or more of the analysts who cover us downgrade our stock, or if our results of operations do not meet their expectations, our share price could decline.

Certain underwriters have an interest in this offering beyond customary underwriting discounts and commissions and, accordingly, this offering will be made in accordance with FINRA Rule 5121 with J.P. Morgan Securities LLC acting as “qualified independent underwriter” (as defined therein).

Certain affiliates of Goldman, Sachs & Co., an underwriter of this offering, hold a portion of our 12.5% Senior Notes, and it is expected that as a result of the Refinancing, these affiliates of Goldman, Sachs & Co. will receive more than 5% of the net proceeds of the offering. In addition, affiliates of TPG Capital BD, LLC, an underwriter of this offering, own in excess of 10% of our outstanding common stock. As a result of the foregoing relationships, each of Goldman, Sachs & Co. and TPG Capital BD, LLC is deemed to have a “conflict of interest” within the meaning of FINRA Rule 5121. Accordingly, this offering will be made in compliance with the applicable provisions of FINRA Rule 5121. FINRA Rule 5121 requires that neither Goldman, Sachs & Co. nor TPG Capital BD, LLC make sales to discretionary accounts without the prior written approval of the account holder and that a “qualified independent underwriter”, as defined in FINRA Rule 5121, participate in the preparation of the registration statement and exercise its usual standards of due diligence with respect thereto. J.P. Morgan Securities LLC has agreed to act as “qualified independent underwriter” for this offering. Although the “qualified independent underwriter” has participated in the preparation of this registration statement and conducted due diligence, we cannot assure you that this will adequately address any potential conflicts of interest. See “Use of proceeds” and “Underwriting—Conflicts of interest.”

 

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Risks related to our indebtedness

Our substantial level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting obligations on our indebtedness.

We have a substantial amount of indebtedness. As of December 31, 2013, on an as adjusted basis giving effect to the Refinancing and the application of the proceeds from this offering, our total indebtedness would have been $3,950 million (excluding capital lease obligations), consisting of borrowings under the Senior Secured Credit Facilities (including the New Term Loans) and the 6% Senior Notes. As of December 31, 2013, on an as adjusted basis giving effect to the Refinancing, certain of our subsidiaries would also have had $327 million of unused commitments outstanding under the revolving portion of the Senior Secured Credit Facilities (excluding outstanding letters of credit, if any). Under the Senior Secured Credit Facilities, certain of our subsidiaries have the right to request additional commitments for new term loans and to increase the size of the existing revolving credit facility in an aggregate principal amount not to exceed (i) $300.0 million and (ii) the amount of new term loans and increased revolving credit commitments such that the senior secured first lien net leverage ratio shall be no greater than 3.75 to 1.00 after giving effect to such increases (assuming such revolving credit commitments are fully borrowed). See “Description of indebtedness.”

Our substantial level of indebtedness could adversely affect our financial condition and increase the possibility that we may be unable to generate cash sufficient to pay, when due, the principal of, interest on or other amounts due in respect of our indebtedness. Our substantial indebtedness, combined with our other existing and any future financial obligations and contractual commitments, could have important consequences. For example, it could:

 

 

make it more difficult for us to satisfy our obligations with respect to our indebtedness, and any failure to comply with the obligations under any of our debt instruments, including restrictive covenants, could result in an event of default under the agreements governing such indebtedness;

 

 

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing funds available for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other purposes;

 

 

increase our vulnerability to adverse economic and industry conditions, which could place us at a competitive disadvantage compared to our competitors that have relatively less indebtedness;

 

 

cause us to incur substantial fees from time to time in connection with debt amendments or refinancings;

 

 

increase our exposure to rising interest rates because a portion of our borrowings is at variable interest rates;

 

 

place us at a disadvantage compared to our competitors that have less debt;

 

 

limit our flexibility in planning for, or reacting to, changes in our business and the industries in which we operate; and

 

 

limit our ability to borrow additional funds, or to dispose of assets to raise funds, if needed, for working capital, capital expenditures, acquisitions, selling and marketing efforts, research and development and other corporate purposes.

 

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Despite our level of indebtedness, we are able to incur more debt and undertake additional obligations. Incurring such debt or undertaking such additional obligations could further exacerbate the risks our indebtedness poses to our financial condition.

We, including our subsidiaries, may be able to incur significant additional indebtedness in the future. Although the credit agreement governing the Senior Secured Credit Facilities and the indentures governing the outstanding notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and any indebtedness incurred in compliance with these restrictions could be substantial. These restrictions also will not prevent our subsidiaries from incurring obligations that do not constitute indebtedness, may be waived by certain votes of debt holders and, if our subsidiaries refinance existing indebtedness, such refinancing indebtedness may contain fewer restrictions on our subsidiaries’ activities. To the extent new indebtedness is added to our and our subsidiaries’ currently anticipated indebtedness levels, the related risks that we and our subsidiaries face could intensify.

While the credit agreement governing the Senior Secured Credit Facilities and the indentures governing IMS Health’s and Healthcare Technology Intermediate, Inc.’s outstanding notes also contain restrictions on making certain loans and investments, these restrictions are subject to a number of qualifications and exceptions, and the investments incurred in compliance with these restrictions could be substantial.

Restrictions imposed in the Senior Secured Credit Facilities and IMS Health’s and Healthcare Technology Intermediate, Inc.’s other outstanding indebtedness, including the indentures governing IMS Health’s and Healthcare Technology Intermediate, Inc.’s outstanding notes, may limit our ability to operate our business and to finance our future operations or capital needs or to engage in other business activities.

The terms of the Senior Secured Credit Facilities restrict IMS Health and its restricted subsidiaries from engaging in specified types of transactions. These covenants restrict the ability of IMS Health and its restricted subsidiaries, among other things, to:

 

 

incur liens;

 

 

make investments and loans;

 

 

incur indebtedness or guarantees;

 

 

issue preferred stock of a restricted subsidiary;

 

 

issue disqualified equity;

 

 

engage in mergers, acquisitions and asset sales;

 

 

declare dividends, make payments or redeem or repurchase equity interests;

 

 

alter the business IMS Health and its restricted subsidiaries conduct;

 

 

make restricted payments;

 

 

enter into agreements limiting restricted subsidiary distributions;

 

 

prepay, redeem or purchase certain indebtedness; and

 

 

engage in certain transactions with affiliates.

 

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In addition, the revolving credit facility and the New Term Loans require IMS Health to comply with a quarterly maximum senior secured net leverage ratio test and minimum interest coverage ratio test, which become more restrictive over time. IMS Health’s ability to comply with these financial covenants can be affected by events beyond our control, and IMS Health may not be able to satisfy them. Additionally, the restrictions contained in the indentures governing the outstanding notes could also limit our ability to plan for or react to market conditions, meet capital needs or make acquisitions or otherwise restrict our activities or business plans. See “Description of indebtedness.”

A breach of any of these covenants could result in a default under the Senior Secured Credit Facilities or the indentures governing the outstanding notes, which could trigger acceleration of our indebtedness and may result in the acceleration of or default under any other debt to which a cross-acceleration or cross-default provision applies, which could have a material adverse effect on our business, operations and financial results. In the event of any default under the Senior Secured Credit Facilities, the applicable lenders could elect to terminate borrowing commitments and declare all borrowings and loans outstanding, together with accrued and unpaid interest and any fees and other obligations, to be due and payable. In addition, or in the alternative, the applicable lenders could exercise their rights under the security documents entered into in connection with the Senior Secured Credit Facilities. Healthcare Technology Intermediate Holdings, Inc., IMS Health and the other subsidiary guarantors have pledged substantially all of their tangible and intangible assets (subject to customary exceptions) as collateral under the Senior Secured Credit Facilities, including the stock and the assets of certain of our current and future wholly owned U.S. subsidiaries and a portion of the stock of certain of our non-U.S. subsidiaries.

If we were unable to repay or otherwise refinance these borrowings and loans when due, the applicable lenders could proceed against the collateral granted to them to secure that indebtedness, which could force us into bankruptcy or liquidation. In the event the applicable lenders accelerate the repayment of our borrowings, we and our subsidiaries may not have sufficient assets to repay that indebtedness. Any acceleration of amounts due under the credit agreement governing the Senior Secured Credit Facilities or the exercise by the applicable lenders of their rights under the security documents would likely have a material adverse effect on us.

We may not be able to generate sufficient cash to service all of our indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments on or to refinance our debt obligations and to fund our planned capital expenditures, acquisitions and other ongoing liquidity needs depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. There can be no assurance that we will maintain a level of cash flows from operating activities or that future borrowings will be available to IMS Health or certain of its subsidiaries under the Senior Secured Credit Facilities or otherwise in an amount sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness and fund our planned capital expenditures, acquisitions and other ongoing liquidity needs.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. Our ability to restructure or refinance our debt will depend on the condition of the capital markets and our financial

 

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condition at such time. Any refinancing of our debt could be at higher interest rates and may require us to comply with more onerous covenants, which could further restrict our business operations. The terms of existing or future debt instruments may restrict us from adopting some of these alternatives. In addition, any failure to make payments of interest and principal on our outstanding indebtedness on a timely basis would likely result in a reduction of our credit rating, which could harm our ability to incur additional indebtedness. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The Senior Secured Credit Facilities and the indentures governing the outstanding notes restrict the ability of IMS Health and its restricted subsidiaries to dispose of assets and use the proceeds from any such disposition. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them and these proceeds may not be adequate to meet any debt service obligations then due. These alternative measures may not be successful and may not permit us to meet our debt service obligations.

A ratings downgrade or other negative action by a ratings organization could adversely affect the trading price of the shares of our common stock.

Credit rating agencies continually revise their ratings for companies they follow. The condition of the financial and credit markets and prevailing interest rates have fluctuated in the past and are likely to fluctuate in the future. In addition, developments in our business and operations could lead to a ratings downgrade for us or our subsidiaries. Any such fluctuation in the rating of us or our subsidiaries may impact our ability to access debt markets in the future or increase our cost of future debt which could have a material adverse effect on our operations and financial condition, which in return may adversely affect the trading price of shares of our common stock.

 

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Cautionary note regarding forward-looking statements

This prospectus contains forward-looking statements. Forward-looking statements are neither historical facts nor assurances of future performance. Instead, they are based on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, and other future conditions. Forward-looking statements can be identified by words such as “anticipate,” “believe,” “envision,” “estimate,” “expect,” “intend,” “may,” “plan,” “predict,” “project,” “target,” “potential,” “will,” “would,” “could,” “should,” “continue,” “contemplate” and other similar expressions, although not all forward-looking statements contain these identifying words. Examples of forward-looking statements include, among others, statements we make regarding:

 

 

plans for future growth and other business development activities;

 

 

plans for capital expenditures;

 

 

expectations for market and industry growth;

 

 

financing sources;

 

 

dividends;

 

 

the effects of regulation and competition;

 

 

foreign currency conversion; and

 

 

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

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

 

 

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

 

 

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

 

 

we may be unsuccessful at investing in growth opportunities;

 

 

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

 

 

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

 

 

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

 

 

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

 

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

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

 

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Use of proceeds

We estimate that the net proceeds to us from our issuance and sale of 52,000,000 shares of common stock in this offering will be approximately $963 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by us. This estimate assumes an initial public offering price of $19.50 per share, the midpoint of the price range set forth on the cover page of this prospectus.

We intend to use substantially all of the net proceeds of this offering to fund the redemption of the 12.5% Senior Notes and Senior PIK Notes. We will also use the U.S. dollar equivalent of $500.0 million of borrowings under the New Term Loans, $173 million of borrowings under the revolving credit facility and approximately $400 million of cash on our balance sheet to (i) fund the redemption of the 12.5% Senior Notes and Senior PIK Notes and pay related fees and expenses, (ii) pay an estimated amount of $27 million in the aggregate to holders of outstanding Phantom SARs, (iii) pay a one-time fee to terminate our management services agreement with the Sponsors of $72 million and (iv) pay fees and expenses related to financings.

Healthcare Technology Intermediate, Inc. is required to pay interest entirely in cash at a rate of 7.375% per annum on the Senior PIK Notes, unless certain conditions are satisfied, in which case it is entitled to pay interest on the Senior PIK Notes by increasing the principal amount of such notes or by issuing new notes (the issuance or interest, referred to herein as the “PIK Interest”). PIK Interest on the Senior PIK Notes accrues at a rate of 8.125% per annum (which is equal to the cash interest rate plus 75 basis points). The Senior PIK Notes mature on September 1, 2018. The Senior PIK Notes were issued on August 6, 2013, and the proceeds of the Senior PIK Notes were used to pay a cash dividend of $753 million on the outstanding shares of our common stock and to pay related fees and expenses.

The 12.5% Senior Notes accrue cash interest at the rate of 12.5% per year and IMS Health is required to pay interest entirely in cash. The 12.5% Senior Notes mature on March 1, 2018.

We will not receive any proceeds from the sale of shares by the selling stockholders, including if the underwriters exercise their option to purchase additional shares. After deducting the underwriting discounts, the selling stockholders will receive approximately $242 million of proceeds from this offering.

A $1.00 increase (decrease) in the assumed public offering price of $19.50, based upon the midpoint of the estimated price range set forth on the cover of this prospectus, would increase (decrease) the net proceeds to us from this offering by approximately $50 million, assuming the number of shares we offer, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A 3,000,000 share increase (decrease) in the number of shares offered by us would increase (decrease) the net proceeds to us from this offering by approximately $56 million, assuming the initial public offering price per share set forth on the cover page of this prospectus remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

Dividends declared in the year preceding an initial public offering are deemed to be in contemplation of the offering with the intention of repayment out of the offering proceeds to the extent that dividends exceeded earnings during such period. We have provided pro forma earnings per share information for 2013 that gives pro forma effect to the assumed issuance of a

 

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number of shares whose proceeds are deemed to be necessary to pay previous year’s dividends in excess of 2013 earnings ($671 million), as well as adjustments to give pro forma effect to the Refinancing and settlement of Phantom SARs. See “Selected and pro forma consolidated financial data” found elsewhere in this prospectus for pro forma earnings per share information.

For additional information regarding our liquidity and outstanding indebtedness, see “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources.”

Certain affiliates of Goldman, Sachs & Co., an underwriter of this offering, hold a portion of our 12.5% Senior Notes, and it is expected that as a result of the Refinancing, they will receive more than 5% of the net proceeds of the offering. In addition, affiliates of TPG Capital BD, LLC, an underwriter of this offering, own in excess of 10% of our issued and outstanding common stock. As a result of the foregoing relationships, each of Goldman, Sachs & Co. and TPG Capital BD, LLC is deemed to have a “conflict of interest” within the meaning of FINRA Rule 5121, and this offering will be conducted in accordance with such rule. FINRA Rule 5121 requires that neither Goldman, Sachs & Co. nor TPG Capital BD, LLC make sales to discretionary accounts without the prior written approval of the account holder and that a qualified independent underwriter (“QIU”), as defined in FINRA Rule 5121, participate in the preparation of the registration statement of which this prospectus forms a part and exercise its usual standards of due diligence with respect thereto. J.P. Morgan Securities LLC has agreed to act as QIU for this offering. J.P. Morgan Securities LLC will not receive any additional fees for serving as QIU in connection with this offering. We have agreed to indemnify J.P. Morgan Securities LLC against certain liabilities incurred in connection with acting as QIU, including liabilities under the Securities Act or contribute to payments that the underwriters may be required to make in that respect.

 

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Dividend policy

Following completion of the offering, our board of directors does not currently intend to pay dividends on our common stock. However, we expect to reevaluate our dividend policy on a regular basis following the offering and may, subject to compliance with the covenants contained in our credit facilities 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 of directors, 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 of directors may deem relevant. See “Management’s discussion and analysis of financial condition and results of operations—Liquidity and capital resources,” and “Description of indebtedness” included elsewhere in this prospectus for restrictions on our ability to pay dividends.

In August 2013, our board of directors declared a cash dividend of $2.60 per share (or $753 million in the aggregate) to stockholders of record as of August 6, 2013.

 

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Capitalization

The following table sets forth our cash and cash equivalents and capitalization at December 31, 2013:

 

 

on an actual basis;

 

 

on an as adjusted basis to give effect to (1) the issuance of shares of common stock by us in this offering and the receipt of approximately $963 million in net proceeds from the sale of such shares, assuming an initial public offering price of $19.50 per share, the midpoint of the price range set forth on the cover page of this prospectus, after deducting underwriting discounts and commissions and estimated offering expenses, (2) the Refinancing and (3) the application of the estimated net proceeds from the offering as described in “Use of proceeds.”

You should read this table in conjunction with the information contained in “Use of proceeds,” “Selected pro forma and consolidated financial data” and “Management’s discussion and analysis of financial condition and results of operations,” as well as our consolidated financial statements and the related notes included elsewhere in this prospectus.

 

      As of December 31,
2013
 
(dollars in millions)    Actual     As adjusted
(4)(5)
 

 

 

Cash and cash equivalents

   $ 725      $ 325   
  

 

 

 

Long-term debt, including current portions(1):

    

Senior Secured Credit Facilities:

    

Term loan facility(2)

     2,777        3,277   

Revolving credit facility

            173   

12.5% Senior Notes

     1,000          

Senior PIK Notes

     750          

6% Senior Notes

     500        500   
  

 

 

 

Total debt

     5,027        3,950   
  

 

 

 

Stockholders’ equity:

    

Common stock, par value $0.01 per share; 307,500,000 shares authorized and 280,004,709 shares issued and outstanding on an actual basis, 700,000,000 shares authorized and 332,004,709 shares issued and outstanding on an as adjusted basis(3)

     3        3   

Additional paid-in capital

     913        1,876   

Accumulated deficit

     (20     (176

Treasury stock

     (6     (6

Accumulated other comprehensive loss

     (7     (7
  

 

 

 

Total stockholder’s equity

     883        1,690   
  

 

 

 

Total capitalization

   $ 5,910      $ 5,640   

 

 

 

(1)   Concurrent with the closing of this offering, we expect to effect the Refinancing. See “Use of proceeds.”

 

(2)   As presented on the face of our consolidated balance sheet, which is net of unamortized discounts of $67 million.

 

(3)   Does not include 19 million shares of common stock issuable upon exercise of stock options outstanding as of December 31, 2013 at a weighted average exercise price of $7.45 per share, or 3 million shares of common stock reserved for future issuance under our equity incentive plans as of December 31, 2013.

 

(4)   As adjusted reflects the Refinancing and the application of the estimated proceeds of the offering as described in “Use of proceeds.”

 

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(5)   A $1.00 increase (decrease) in the assumed initial public offering price of $19.50 per share, the midpoint of the price range set forth on the cover of this prospectus, would increase (decrease) the as adjusted amount of each of cash and cash equivalents and total stockholders’ equity by approximately $50 million after deducting underwriting discounts and commissions and estimated offering expenses payable by us. A 3,000,000 share increase in the number of shares offered by us would increase the as-adjusted amount of each of cash and cash equivalents and total stockholders’ equity by approximately $56 million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us. Conversely a 3,000,000 decrease in the number of shares offered by us would decrease the as-adjusted amount of each of cash and cash equivalents and total stockholders’ equity by approximately $56 million after deducting underwriting discounts and commissions and any estimated offering expenses payable by us.

 

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Dilution

If you invest in our common stock in this offering, your interest will be diluted to the extent of the difference between the initial public offering price per share of our common stock in this offering and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Dilution results from the fact that the initial public offering price per share of common stock is substantially in excess of the net tangible book deficit per share of our common stock attributable to the existing stockholders for our presently outstanding shares of common stock. Our net tangible book deficit per share represents the amount of our total tangible assets (total assets less intangible assets) less total liabilities, divided by the number of shares of common stock issued and outstanding.

As of December 31, 2013, we had a historical net tangible book deficit of $(5,365) million, or $(19.16) per share of common stock, based on 280,004,709 shares of our common stock outstanding as of December 31, 2013. Dilution is calculated by subtracting net tangible book deficit per share of our common stock from the assumed initial public offering price per share of our common stock.

Investors participating in this offering will incur immediate and substantial dilution. Without taking into account any other changes in such net tangible book deficit after December 31, 2013, after giving effect to the sale of shares of our common stock in this offering assuming an initial public offering price of $19.50 per share (the midpoint of the offering range shown on the cover of this prospectus), less the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma net tangible book deficit as of December 31, 2013 would have been approximately $(4,402) million, or $(13.26) per share of common stock. This amount represents an immediate decrease in net tangible book deficit of $5.90 per share of our common stock to the existing stockholders and immediate dilution of $32.76 per share of our common stock to investors purchasing shares of our common stock in this offering. The following table illustrates this dilution on a per share basis:

 

 

 

Assumed initial public offering price per share

     $ 19.50  

Net tangible book deficit per share as of December 31, 2013, before giving effect to this offering

   $ (19.16 )  

Decrease in net tangible book deficit per share attributable to investors purchasing shares in this offering

     5.90     
  

 

 

   

Pro forma net tangible book value per share, after giving effect to this offering

       (13.26
    

 

 

 

Dilution in as adjusted net tangible book deficit per share to investors in this offering

     $ 32.76  

 

 

Each $1.00 increase (decrease) in the assumed initial public offering price of $19.50 per share would increase (decrease) the pro forma as adjusted net tangible book deficit per share of our common stock after giving effect to this offering by approximately $50 million, or by $0.15 per share of our common stock, assuming no change to the number of shares of our common stock offered by us as set forth on the front cover page of this prospectus and after deducting the estimated underwriting discounts and expenses payable by us. A 3,000,000 share increase (decrease) in the number of shares offered by us would increase (decrease) the net proceeds to us

 

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from this offering by approximately $56 million assuming the initial public offering price per share set forth on the cover page of this prospectus remains the same, and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

The following table summarizes, as of December 31, 2013, on the pro forma basis described above, the total number of shares of our common stock purchased from us, the total consideration paid to us, and the average price per share of our common stock paid by purchasers of such shares and by new investors purchasing shares of our common stock in this offering.

 

      Shares purchased     Total consideration     Average price
per share
 
     Number      Percent         Amount      Percent    

 

 

Existing stockholders

     280,004,709         84.3   $ 2,787,266,321         73.3   $ 9.95   

New investors

     52,000,000         15.7        1,014,000,000         26.7      $ 19.50   
  

 

 

 

Total

     332,004,709         100   $ 3,801,266,321         100   $ 11.45   

 

 

The number of shares of common stock to be outstanding after this offering is based on 280,004,709 shares of common stock outstanding as of December 31, 2013 and excludes 25,015,365 shares of common stock reserved for future issuance under our equity incentive plans as of December 31, 2013, of which 18,936,000 shares of common stock were issuable upon exercise of stock options at a weighted average exercise price of $7.45 per share.

 

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Selected and pro forma consolidated financial data

You should read the following selected and pro forma consolidated financial data together with our financial statements and the related notes appearing at the end of this prospectus. The acquisition of IMS Health through the Merger resulted in a new basis of accounting. The term “Predecessor” refers to all periods related to the IMS Health business prior to and including the date of the closing of the Merger on February 26, 2010. We have derived the statement of comprehensive income (loss) and cash flow data for the year ended December 31, 2009 and for the period from January 1, 2010 to February 26, 2010 and the balance sheet data as of December 31, 2009 from our Predecessor’s audited consolidated financial statements not included in this prospectus. The term “Successor” refers to all periods from inception of IMS Health Holdings, Inc. (from October 23, 2009), which includes all periods of IMS Health after the closing of the Merger on February 26, 2010. We have derived the balance sheet data as of December 31, 2013 and 2012 and the statement of comprehensive income (loss) and cash flow data for each of the three years in the period ended December 31, 2013 from our Successor’s audited consolidated financial statements included elsewhere in this prospectus. We have derived the balance sheet data as of December 31, 2011 and 2010 from our Successor’s audited consolidated financial statements not included in this prospectus. We have derived the balance sheet data as of December 31, 2009 and the statement of comprehensive income (loss) and cash flow data for the period from October 23, 2009 to December 31, 2009 from our Successor’s unaudited consolidated financial statements not included in this prospectus.

Historical results are not necessarily indicative of the results to be expected for future periods. The following information should be read in conjunction with the sections entitled “Management’s discussion and analysis of financial condition and results of operations” and our financial statements and the notes thereto contained elsewhere in this prospectus.

 

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(dollars and shares in millions,
except per share data)

  Successor     Predecessor  
  Years ended
December 31,
     October 23,
2009 through
December 31,
2009
    January 1,
2010
through
February 26,
2010
    Year ended
December 31,
 
  2013     2012     2011     2010          2009  

 

 

Results of operations:

                

Revenue

  $ 2,544      $ 2,443      $ 2,364      $ 1,869       $      $ 293      $ 2,190   

Information

    1,525        1,521        1,532        1,234             214        1,465   

Technology services

    1,019        922        832        635             79        725   

Costs and expenses(1)

    2,190        2,204        2,145        1,801         53        391        1,919   
 

 

 

   

 

 

 

Operating income (loss)

    354        239        219        68         (53     (98     271   
 

 

 

   

 

 

 

Net income (loss)

    82      $ (42   $ 111      $ (118    $ (53   $ (84   $ 261   
 

 

 

   

 

 

 
 

As a % of revenue:

                

Operating income (loss)

    13.9%        9.8%        9.3%        3.6%             (33.4%     12.4%   

Net income (loss)

    3.2%        (1.7%     4.7%        (6.3%          (28.7%     11.9%   
 

Earnings (loss) per common share attributable to common shareholders(2):

                

Basic earnings (loss) per share

  $ 0.29      $ (0.15   $ 0.40      $ (0.50           $ (0.46   $ 1.42   

Diluted earnings (loss) per share

    0.29        (0.15     0.40        (0.50             (0.46     1.42   

Weighted average common shares outstanding(2):

                

Basic

    280        280        279        235                183        182   

Diluted

    287        280        279        235                183        183   
 

Unaudited pro forma data(3):

                

Net income

  $ 174                  

Basic income per common share

  $ 0.52                  

Diluted income per common share

  $ 0.51                  

Weighted average common shares outstanding:

                

Basic

    332                  

Diluted

    339                  
 

Balance sheet data:

                

Shareholders’ equity (deficit)

  $ 883      $ 1,683      $ 2,971      $ 2,813       $ (53   $ 33      $ 72   

Total assets

    7,999        8,215        8,358        8,220                2,018        2,223   

Postretirement and postemployment benefits

    77        116        106        117                107       112   

Long-term debt, deferred tax liability and other long-term liabilities

    6,107        5,573        4,488        4,555       $        1,283       1,393   

 

 

 

(1)   Years ended 2013, 2012, 2011 and 2010 (Successor) and January 1, 2010 through February 26, 2010 (Predecessor) and year ended 2009 includes severance, impairment and other charges of $16, $48, $31, $54, ($13) and $144, respectively. Years ended 2013, 2012, 2011 and 2010 (Successor) and January 1, 2010 through February 26, 2010 (Predecessor) and year ended 2009 include merger costs of $—, $2, $23, $65, $45 and $11, respectively, related to the Merger. Refer to the notes to the consolidated financial statements for the year ended December 31, 2013, which are included elsewhere in this prospectus, for additional information regarding significant items impacting the consolidated statements of income during the three years ended December 31, 2013.

 

(2)   The per share and share information of the predecessor periods have not been adjusted for the reverse stock split.

 

(3)   Pro forma earnings per share

 

       We declared and paid dividends to our stockholders of $753 million during 2013. Dividends declared in the year preceding an initial public offering are deemed to be in contemplation of the offering with the intention of repayment out of offering proceeds to the extent that the dividends exceeded earnings during such period. Unaudited pro forma earnings per share for 2013 gives effect to the sale of the number of shares the proceeds of which would be necessary to (i) pay the dividend amount that is in excess of 2013 earnings, (ii) fund the repayment of the debt and related fees and expenses described in “Use of proceeds” and (iii) pay holders of Phantom SARs as described in “Use of proceeds,” up to the number of shares assumed to be issued in this offering. As the number of incremental shares that would have been issued related to payment of the items listed above exceeded the total number of shares to be issued by us in this offering, we have limited the number of pro-forma shares for purposes of calculating the pro forma per share data to the total number of shares to be issued by us in this offering. The unaudited pro forma earnings per share is calculated assuming all common shares issued by us in the initial public offering were outstanding for the entire period.

 

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       For purposes of calculating unaudited pro forma earnings per share for 2013 we assumed shares are sold in this offering at a price of $19.50 per share, the midpoint of the price range set forth on the cover page of this prospectus.

The following presents the computation of pro forma basic and diluted earnings per share:

 

(dollars and shares in millions, except per share data)    Year ended
December 31,
2013
 

 

 

Numerator:

  

Net income as reported

   $ 82   

Pro forma adjustments:

  

Interest expense, net of tax(a)

     92   
  

 

 

 

Pro forma net income

   $ 174   
  

 

 

 

Denominator:

  

Weighted average common shares used in computing basic income per common share outstanding

     280   

Total pro forma shares(b)

     52   
  

 

 

 

Pro forma weighted average common shares used in computing basic income per common share outstanding

     332   
  

 

 

 

Pro forma basic earnings per share

   $ 0.52   
  

 

 

 

Pro forma weighted average common shares used in computing basic income per common share outstanding

     332   

Diluted effect of securities

     7   
  

 

 

 

Pro forma weighted average common shares used in computing diluted income per common share outstanding

     339   
  

 

 

 

Pro forma diluted earnings per share

   $ 0.51   
  

 

 

 
    

 

 

 

(a)   These adjustments reflect the elimination of the historical interest expense and amortization of debt issuance costs and discount, as well as the incurrence of interest expense related to the New Term Loans, after reflecting the pro forma effect of the Refinancing as follows:

  

 

     Actual
Dates Outstanding

in 2013
     Interest
Expense
    Amortization
of Debt Issue
Costs and
Discount
    Tax
Effect
    Total  

12.5% Senior Notes due 2018

    
 
January 1, 2013 to
December 31, 2013
  
  
   $ 125      $ 14      $ (54   $ 85   

7.375%/8.125% Senior PIK Toggle Notes due 2018

    
 
August 6, 2013 to
December 31, 2013
  
  
     23        1        (9     15   

New Term Loans

        (12     (1     5        (8
     

 

 

   

 

 

   

 

 

   

 

 

 

Total

        136        14        (58     92   
     

 

 

   

 

 

   

 

 

   

 

 

 

(b)   Adjustment for common shares used to repay outstanding indebtedness(c)

    52   

        Adjustment for common shares issued whose proceeds will be used to pay dividends in excess of earnings(d)

    35   

        Adjustment for common stock used to pay holders of Phantom SARs(e)

    1   
 

 

 

 
    88   

        Number of pro forma shares exceeding total shares offered

    (36
 

 

 

 

        Total shares used for pro forma computation

    52   
 

 

 

 

(c)    Indebtedness to be repaid with proceeds from this offering

  $ 1,014   

        Offering price per common share

  $ 19.50   
 

 

 

 

        Common shares assumed issued in this offering necessary to repay indebtedness

    52   
 

 

 

 

(d)   Dividends declared in the past twelve months

  $ 753   

        Net income attributable to IMS Health Holdings, Inc. in the past twelve months

    82   
 

 

 

 

        Dividends paid in excess of earnings

  $ 671   
 

 

 

 

        Offering price per common share

  $ 19.50   
 

 

 

 

        Common shares assumed issued in this offering necessary to pay dividends in excess of earnings

    35   
 

 

 

 

(e)   Number of Phantom SARs

    2   

        Weighted average excess of fair market value over exercise price

  $ 13.79   

        Common shares assumed issued in this offering necessary to pay holders of Phantom SARs

    1   

 

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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 prospectus. This discussion and analysis includes forward-looking statements that involve risks and uncertainties. You should read the “Cautionary note regarding forward-looking statements” and “Risk factors” sections of this prospectus for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. The terms “Company,” “IMS,” “we,” “our” or “us,” as used herein, refer to IMS Health Holdings, Inc. and its consolidated subsidiaries unless otherwise stated or indicated by context. Amounts presented may not add due to rounding.

Background

We are a leading global information and technology services company providing clients in the healthcare industry with comprehensive solutions to measure and improve their performance. We have one of the largest and most comprehensive collections of healthcare information in the world, spanning sales, prescription and promotional data, medical claims, electronic medical records and social media. We standardize, organize, structure and integrate this data by applying our sophisticated analytics and leveraging our global technology infrastructure to help our clients run their organizations more efficiently and make better decisions to improve their operational and financial performance. We have a presence in over 100 countries and we generated 63% of our 2013 revenue from outside the United States.

We serve key healthcare organizations and decision makers around the world, spanning the breadth of life science companies, including pharmaceutical, biotechnology, consumer health and medical device manufacturers, as well as distributors, providers, payers, government agencies, policymakers, researchers and the financial community. Our information and technology services offerings, which we have developed with significant investment over our 60-year history, are deeply integrated into our clients’ workflow.

On October 23, 2009, we were formed by investment entities affiliated with TPG Global, LLC, CPP Investment Board Private Holdings Inc. and Leonard Green & Partners, L.P. (collectively, the “Sponsors”). On February 26, 2010, we acquired 100% of the outstanding shares of IMS Health Incorporated (“IMS Health”) through our wholly owned subsidiary Healthcare Technology Acquisition, Inc., which we refer to as the Merger. We were formed for the purpose of consummating the Merger with IMS Health and had no operations from inception other than our investment in IMS Health and its subsidiaries and costs incurred associated with our formation and the Merger. The acquisition of IMS Health resulted in a new accounting basis.

On December 20, 2013, we changed our name from Healthcare Technology Holdings, Inc. to IMS Health Holdings, Inc.

 

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Outlook

The primary factors we expect to impact our results of operations in the near future are set forth below.

 

 

We believe that we have opportunities to continue to grow revenue from our information offerings and technology services offerings. Revenue from technology services offerings has grown faster than our information offerings over the past three years and we expect this to continue for various reasons, including due to investments we have made in technology services offerings and significant expansion of our capabilities, growing client demand for new technology services solutions, and our estimate of the respective size of the untapped addressable market. Although margins are lower on our technology services offerings, we expect our overall operating margins to expand as we continue to benefit from our ability to control costs. We believe the integration of our information offerings and our technology services enable a differentiated value proposition for a client base in need of better solutions. We are in the early stages of penetration into the expanding opportunity we see within our global client base for our technology services offerings.

 

 

We also expect to benefit from growth in emerging markets, which we believe will continue to grow their healthcare spending over the next five years. Emerging markets currently represent 17% of our total revenue and have grown at an 11% constant dollar CAGR since 2010. We expect that revenue from these markets will grow at a faster rate than those in our mature markets.

 

 

We will also seek to grow through selective acquisitions in both existing markets and new markets that exhibit positive long-term fundamentals. Since the beginning of 2011, we have invested approximately $586 million of capital in 22 acquisitions. 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 will continue to invest in strategic acquisitions to grow our platform and enhance our ability to provide more products and services to our clients and expect to seek opportunities primarily in the areas of technological platforms, data suppliers and consulting services providers.

Acquisitions

We completed several acquisitions during 2013, 2012 and 2011 to enhance our capabilities and offerings in certain areas, including technology services. During 2013, we acquired, at a total cost of approximately $129 million, Vedere Group Limited, Appature, Inc., Semantelli, LLC, 360 Vantage, LLC, Incential Software, Inc., Diversinet Corp., the consumer health business of Nielsen Holdings N.V. in certain European markets, HCM-BIOS, Pygargus AB and Amundsen Group, Inc. During 2012, we acquired, at a total cost of approximately $77 million, PharmARC Analytical Solutions Private Limited, Pharmadata s.r.o., Suomen Lääkedata Oy, DecisionView, Inc., PharmaDeals Ltd., Tar Heel Trading Company, LLC, Life Science Partners Pty Limited, Pharmexpert Group and Marina Consulting, LLC. In 2011, we acquired, at a total cost of approximately $380 million, Med-Vantage, Inc., Ardentia Limited and SDI Health LLC. See Note 4 to our consolidated financial statements found elsewhere in this prospectus for additional information with respect to these acquisitions. The results of operations of acquired businesses have been included since the date of acquisition and were not significant to our consolidated results of operations.

 

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Sources of revenue

Revenue is generated in each region through our local sales teams that manage client relationships within each region, reporting locally to country managers and up to regional managers. These sales teams go to market locally with our full suite of information and technology services offerings. Our top 1,000 clients accounted for over 95% of our total revenue in each of the last three fiscal years. Total global 2013 revenue from our information offerings represented 60% of our total revenue and primarily included revenue we earned from various information offerings developed to meet our clients’ needs by using data secured from a worldwide network of suppliers. From 2011 to 2013, the retention rate for our top 1,000 clients purchasing information offerings was over 98% and these clients accounted for over 96% of our information revenue in each of the last three fiscal years. In addition, approximately 90% of our information revenue in each of the last three fiscal years came from subscription or license-based contracts. As a result, historically our information revenue has been recurring and predictable. Total global 2013 revenue from our technology services offerings represented 40% of our total revenue. Revenue from technology services consists of a mix of revenue from small and large-scale services and consulting projects, multi-year outsourcing contracts and software licenses. Approximately 35% of our technology services revenue in each of the last three fiscal years was recurring in nature, primarily driven by subscription and license-based contracts. Our information and technology services offerings complement each other and can provide enhanced value to our clients when delivered in an integrated fashion, with each driving demand for the other.

Costs and expenses

Our costs and expenses are comprised primarily of direct costs of revenue and selling and administrative expenses.

Our costs of revenue consist of operating costs of information and direct and incremental costs of technology services. Operating costs of information include costs attributable to personnel involved in production, data management and delivery, and the costs of acquiring and processing data for our information offerings. Our direct and incremental costs of our technology services offerings are comprised of 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. Direct and incremental costs of technology services do not include an allocation of direct costs of data that are included in operating costs of information as we do not have a meaningful way to allocate direct costs of data between information and technology services revenue. As a result, direct and incremental costs of technology services do not reflect the total costs incurred to deliver our technology services offerings.

Selling and administrative expenses consist primarily of expenses attributable to sales, marketing, and administration, including human resources, legal, finance and general management.

Results excluding the effects of foreign currency translation and certain charges

We report results in U.S. dollars, but we do business on a global basis. Exchange rate fluctuations affect the rate at which we translate foreign revenue and expenses into U.S. dollars and may have a significant effect on our results. The discussion of our business in this report sometimes describes the magnitude of changes in constant dollar terms. We believe this information facilitates comparison of results over time. During 2013, the U.S. dollar was generally stronger

 

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against the other currencies in which we transact business as compared to 2012. The revenue growth at actual currency rates was lower than the growth at constant dollar exchange rates. See “—How exchange rates affect our results” and “—Quantitative and qualitative disclosures about market risk” below for a more complete discussion regarding the impact of foreign currency translation on our business.

We also discuss below our revenue, operating income (loss), operating costs of information offerings, direct and incremental costs of technology services offerings, selling and administrative expenses and operating margins excluding restructuring and related charges, merger costs, purchase accounting adjustments, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees. We believe providing these non-GAAP measures is useful as it facilitates comparisons across the periods presented and more clearly indicates trends. Management uses these non-GAAP measures in its global decision making, including developing budgets and managing expenditures.

Results of operations

Summary operating results for the years ended December 31, 2013, 2012 and 2011

 

(dollars in millions)    Year ended
December 31,
 
   2013      2012     2011  

 

 

Revenue

   $ 2,544       $ 2,443      $ 2,364   
  

 

 

    

 

 

 

Information

     1,525         1,521        1,532   

Technology services

     1,019         922        832   
  

 

 

    

 

 

 

Operating costs of information, exclusive of depreciation and amortization

     648         675        698   

Direct and incremental costs of technology services, exclusive of depreciation and amortization

     520         476        396   

Selling and administrative expenses, exclusive of depreciation and amortization

     596         579        604   

Depreciation and amortization

     410         424        393   

Severance, impairment and other charges

     16         48        31   

Merger costs

             2        23   
  

 

 

    

 

 

 

Operating income

     354         239        219   
  

 

 

    

 

 

 

Interest income

     4         4        3   

Interest expense

     (332)         (275     (277

Other loss, net

     (74)         (29     (7
  

 

 

    

 

 

 

Non-operating loss, net

     (402)         (300     (281
  

 

 

    

 

 

 

Loss before benefit from income taxes

     (48)         (61     (62

Benefit from income taxes

     130         19        173   
  

 

 

    

 

 

 

Net income (loss)

   $ 82       $ (42   $ 111   

 

 

Net income (loss) to Adjusted EBITDA reconciliation

We have included a presentation of Adjusted EBITDA because we believe it provides additional information to measure our performance and evaluate our ability to service our debt. In addition, management believes that Adjusted EBITDA is a useful financial metric to assess our operating

 

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performance from period to period by excluding certain material non-cash items, unusual or non-recurring items that we do not expect to continue in the future and certain other adjustments we believe are not reflective of our ongoing operations and our performance. Adjusted EBITDA is not a presentation made in accordance with U.S. GAAP, and our computation of Adjusted EBITDA may vary from others in our industry. Adjusted EBITDA should not be considered to be an alternative to net income, a measure of operating performance or cash flow or a measure of liquidity. Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation, or as a substitute for analysis of our results as reported under U.S. GAAP.

 

      Year ended
December 31,
 
(dollars in millions)      2013        2012       2011  

 

 

Net income (loss)

   $ 82       $ (42   $ 111   

Deferred revenue purchase accounting adjustments

     2         7        7   

Non-cash stock-based compensation charges

     22         19        18   

Restructuring and related charges(1)

     23         54        39   

Acquisition-related charges

     10         11        13   

Sponsor monitoring fees

     8         8        9   

Depreciation and amortization

     410         424        393   

Merger costs

             2        23   

Interest income

     (4)         (4     (3

Interest expense

     332         275        277   

Other loss, net

     74         29        7   

Benefit from income taxes

     (130)         (19     (173
  

 

 

    

 

 

 

Adjusted EBITDA

   $ 829       $ 764      $ 721   

 

 

 

(1)   Restructuring and related charges includes severance and impairment charges and the cost of employee and third-party charges related to dual running costs for knowledge transfer activities.

Revenue

Total revenue grew 4.2% to $2,544 million in 2013 compared to $2,443 million in 2012, or 6.1% on a constant dollar basis. Revenue from our information offerings increased slightly and grew 2.6% on a constant dollar basis in 2013. Revenue from our technology services offerings grew 10.5% and grew 11.3% on a constant dollar basis in 2013. Excluding the impacts of foreign currency translation of $56 million and $7 million in 2013 and 2012, respectively, and deferred revenue purchase accounting adjustments of $2 million and $7 million in 2013 and 2012, respectively, total revenue grew 5.9% on a constant dollar basis for 2013. Growth in the Americas and Asia Pacific regions contributed approximately three-fourths of our total revenue growth during 2013 compared to 2012. The constant dollar increase in information offerings was driven by growth in Latin America and Asia, partially offset by a decline in Canada. The constant dollar increase in technology services offerings was driven by increases in commercial services throughout all of our geographies, with the largest contributions coming from the U.S. and Japan.

Total revenue grew 3.3% to $2,443 million in 2012 compared to $2,364 million in 2011, or 5.9% on a constant dollar basis. Revenue from information offerings declined 0.7%, and grew 2.7% on a constant dollar basis in 2012. Revenue from our technology services offerings grew 10.8% and grew 13.3% on a constant dollar basis in 2012. Excluding the impacts of foreign currency translation of $7 million and $52 million in 2012 and 2011, respectively, and deferred revenue purchase accounting adjustments of $7 million in both 2012 and 2011, total revenue grew 5.9%

 

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on a constant dollar basis for 2012. The growth in total revenue in 2012 was largely attributable to the increase in revenue from technology services. The constant dollar increase in information offerings was driven by growth in the U.S., Latin America and Asia, partially offset by declines in Canada and Central Europe. Additionally, the majority of the 2012 growth in our technology services offerings, on a constant dollar basis and otherwise, was driven by our acquisition of a healthcare market insights and analytics firm based in the U.S., which was completed in the fourth quarter of 2011 (the “SDI acquisition”).

Operating costs of information, exclusive of depreciation and amortization

Operating costs of information includes costs attributable to personnel involved in production, data management and delivery, and the costs of acquiring and processing data for our information offerings.

Operating costs of information offerings declined $27 million, or 4.0%, in 2013 compared to 2012. Excluding the effect of foreign currency translation of negative $11 million, non-cash stock-based compensation charges and restructuring and related charges, operating costs of information decreased 2.7%. The constant dollar decline in operating costs of information was primarily due to reductions in compensation costs of $8 million and in third-party professional services costs of $13 million resulting from our continuing restructuring efforts and the shift to our low cost production hubs, and lower occupancy costs of $10 million, partially offset by an increase in headcount of approximately 400 employees and normal annual merit salary increases.

Operating costs of information offerings declined $23 million, or 3.3%, in 2012 compared to 2011. Excluding the effect of foreign currency translation of negative $19 million, non-cash stock-based compensation charges and restructuring and related charges, operating costs of information decreased 1.4% in 2012 compared to 2011. The constant dollar decline in operating costs of information was primarily due to reductions in compensation costs and in third-party professional services costs of $13 million resulting from our restructuring efforts and the continuing shift to our low cost production hubs, partially offset by normal annual merit salary increases.

Direct and incremental costs of technology services, exclusive of depreciation and amortization

Direct and incremental costs of technology services offerings include costs of staff directly involved with delivering those offerings and engagements, related accommodations, and the costs of data purchased specifically for technology services engagements. Direct and incremental costs of technology services do not include an allocation of direct costs of data that are included in operating costs of information.

Direct and incremental costs of technology services offerings grew $44 million, or 9.3%, in 2013 compared to 2012. Excluding the effect of foreign currency translation of negative $6 million and non-cash stock-based compensation charges, direct and incremental costs of technology services grew 10.3% in 2013 compared to 2012. The constant dollar increase in direct and incremental costs of technology services was driven primarily by increased compensation costs of $59 million, including approximately 700 more employees in 2013, to support the growth in our technology services revenue.

Direct and incremental costs of technology services offerings grew $80 million, or 20.2%, in 2012 compared to 2011. Excluding the effect of foreign currency translation of negative $9 million and

 

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non-cash stock-based compensation charges, direct and incremental costs of technology services grew 22.8% in 2012 compared to 2011. The constant dollar increase in direct and incremental costs of technology services was due to higher compensation and data costs of $63 million and $16 million, respectively, primarily resulting from the SDI acquisition completed in the fourth quarter of 2011. Headcount increased by approximately 900 employees in 2012.

Selling and administrative expenses, exclusive of depreciation and amortization

Selling and administrative expenses consist primarily of expenses attributable to sales, marketing, and administration, including human resources, legal, finance, and general management.

Selling and administrative expenses grew $17 million, or 2.9%, for 2013 compared to 2012. Excluding the effect of foreign currency translation of negative $10 million, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees, selling and administrative expenses grew 4.9% in 2013 compared to 2012. The constant dollar increase in selling and administrative expenses was primarily due to increases in compensation of $42 million resulting from normal annual merit salary increases, higher selling and administrative headcount of approximately 500 employees from recently completed acquisitions and increased sales staff to drive revenue.

Selling and administrative expenses decreased $25 million, or 4.1%, in 2012 compared to 2011. Excluding the effect of foreign currency translation of negative $12 million, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees, selling and administrative expenses decreased 0.7% in 2012 compared to 2011. The constant dollar decrease in selling and administrative expenses was due to reductions in third-party professional service expenses of approximately $3 million, partially offset by increases in compensation resulting from normal annual merit increases and the SDI acquisition completed in the fourth quarter of 2011.

Depreciation and amortization

Depreciation and amortization charges decreased $14 million, or 3.3%, in 2013 compared to 2012 primarily due to the absence of depreciation in 2013 for assets related to an impaired property lease recorded at the end of the third quarter of 2012.

Depreciation and amortization charges increased $31 million, or 7.9%, in 2012 compared to 2011. The 2012 increase was primarily due to higher intangible assets from completed acquisitions.

Severance, impairment and other charges

Severance, impairment and other charges in 2013 were $16 million, comprised of $12 million of severance and $3 million for an impaired lease for a property in the U.S., both of which were recorded in the fourth quarter of 2013, and $4 million related to impaired leases for properties in the U.S. and $3 million for contract-related charges for which we will not realize any future economic benefits. These charges were partially offset by the reversal of approximately $6 million of severance accruals for terminations recorded in 2012 due to the favorable settlement of required termination benefits and strategic business changes.

Severance, impairment and other charges in 2012 were $48 million, comprised of $23 million of severance, $23 million related to the write-down of certain assets to their net realizable values, $4 million for contract-related charges for which we did not realize any future economic benefits and $9 million for the exit of leased facilities in the U.S. and Europe. Approximately $29 million

 

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of these charges were recorded in the fourth quarter of fiscal 2012. These charges were partially offset by reversals of approximately $11 million in the fourth quarter of 2012 of severance accruals related to termination benefits recorded in 2010.

Severance, impairment and other charges in 2011 were $31 million, comprised of $33 million of severance, $10 million for contract-related charges for which we did not realize any future economic benefits and $2 million for the exit of leased facilities in the U.S. Approximately $35 million of these charges were recorded in the fourth quarter of fiscal 2011. These charges were partially offset by reversals of approximately $14 million in the fourth quarter of 2011 of severance accruals related to termination benefits recorded in 2010.

See Note 6 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus.

Merger costs

We incurred $2 million and $23 million in 2012 and 2011, respectively, for employment contract related payments as a result of the Merger. There were no merger costs recorded in 2013. See Note 4 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus.

Operating income

Operating income grew $115 million, or 48.0%, in 2013 compared to 2012. This increase was due to the revenue growth discussed above and decreases in operating costs of information offerings of $27 million, depreciation and amortization of $14 million and severance, impairment and other charges of $32 million, partially offset by increases in direct and incremental costs of technology services offerings of $44 million and selling and administrative expenses of $17 million. Operating income for 2013 increased $130 million in constant dollar terms. Absent the impact of restructuring and related charges, merger costs, purchase accounting adjustments, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees, operating income for 2013 grew 22.5% at reported foreign currency rates and 26.5% on a constant dollar basis.

Operating income grew $20 million, or 9.1%, in 2012 compared to 2011. This increase was due to the revenue growth discussed above and decreases in operating costs of information offerings of $23 million, selling and administrative expenses of $25 million and merger costs of $21 million, partially offset by increases in direct and incremental costs of technology services offerings of $80 million, depreciation and amortization of $31 million and severance, impairment and other charges of $17 million. Operating income for 2012 increased 19.2% in constant dollar terms. Absent the impact of restructuring and related charges, merger costs, purchase accounting adjustments, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees, operating income for 2012 declined 7.5% at reported rates and 2.7% on a constant dollar basis.

Trends in our operating margins

Operating margins were 13.9%, 9.8% and 9.3% in 2013, 2012 and 2011, respectively. Margins were negatively impacted by restructuring and related charges, merger costs, purchase

 

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accounting adjustments, non-cash stock-based compensation charges, acquisition-related charges and sponsor monitoring fees. Excluding these charges, operating margin was 25.7%, 21.8% and 24.4% in 2013, 2012 and 2011, respectively.

Non-operating loss, net

Non-operating losses increased $102 million, or 33.8%, in 2013 compared to 2012. The increase was due to higher net interest expense of $57 million resulting from higher debt balances in 2013, higher net foreign exchange losses of $33 million, which included a $14 million loss in 2013 from the devaluation of the Venezuelan Bolívar (“Bolívars”), and $12 million of debt extinguishment expenses and third-party fees related to the amendment of our term loan in February 2013.

Non-operating losses increased 6.8% in 2012 compared to 2011. The $19 million increase in non-operating losses in 2012 was driven by higher net foreign exchange losses of $20 million in 2012 compared to 2011.

Taxes

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

During the fourth quarter of 2013, we restructured our foreign operations and integrated our U.K., Spain and Austria businesses under our main European holding company in Switzerland. The restructuring significantly affected the book over tax basis differences among group members and the ultimate worldwide tax cost of a theoretical recognition of such differences. As a result, the associated deferred tax liability was reduced by approximately $86 million as of December 31, 2013.

In 2013, our effective tax rate was favorably impacted by a tax reduction of $10 million as a result of the conclusion of U.S. audits. In connection with one of the audits, we received a $47 million refund for which a receivable had been previously established. We also recorded tax reductions of $5 million as a result of the expiration of various statutes of limitation and $2 million for the reversal of a valuation allowance due to a change in enacted state tax law changes. We recorded a tax charge of $2 million for interest and penalties related to unrecognized tax benefits. As of December 31, 2013, we had $38 million of unrecognized tax benefits that if recognized would favorably affect the effective tax rate and $11 million of interest and penalties associated with unrecognized tax benefits.

In 2012, our effective tax rate was favorably impacted by a reduction of $7 million to deferred tax liability and a tax reduction of $5 million as a result of the expiration of certain statutes of limitation. We recorded a tax charge of $3 million for interest and penalties related to unrecognized tax benefits. As of December 31, 2012, we had $39 million of unrecognized tax benefits that if recognized would favorably affect the effective tax rate and $10 million of interest and penalties associated with unrecognized tax benefits.

During the fourth quarter of 2011, we restructured our foreign operations to integrate our German operating group subsidiaries under our main European holding company in Switzerland. The restructuring significantly affected the book over tax basis differences among group

 

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members and the ultimate worldwide tax cost of a theoretical recognition of such differences. As a result, the associated deferred tax liability was reduced by approximately $170 million as of December 31, 2011.

Additionally, we recorded in 2011 a tax charge of $6 million associated with the impact of the merger and a tax charge of $3 million for interest and penalties related to unrecognized tax benefits. As of December 31, 2011, we had $41 million of unrecognized tax benefits that if recognized would favorably affect the effective tax rate and $9 million of interest and penalties associated with unrecognized tax benefits.

We file numerous consolidated and separate income tax returns in U.S. (federal and state) and non-U.S. jurisdictions. We are no longer subject to U.S. federal income tax examination by tax authorities for years before 2010. With few exceptions, we are no longer subject to tax examination in state and local jurisdictions for years prior to 2009 and in its material non-U.S. jurisdictions prior to 2007. It is reasonably possible that within the next twelve months we could realize $3 million of unrecognized tax benefits as a result of the expiration of certain statutes of limitation.

For all years presented, our effective tax rate was reduced as a result of global tax planning initiatives. While we intend to continue to seek global tax planning initiatives, there can be no assurance that we will be able to successfully identify and implement such initiatives to reduce or maintain our overall tax rate.

Operating results by geographic region

The following represents selected geographic information for the regions in which we operate for the periods and dates indicated below.

 

(dollars in millions)   Americas(1)      EMEA(2)     

Asia

Pacific(3)

    

Corporate

and Other

    Total IMS  

 

 

Year ended December 31, 2013:

            

Revenue(4)

  $ 1,160       $ 936       $ 448       $      $ 2,544   

Operating income (loss)(5)

    304         248         146         (344     354   

Total assets at December 31, 2013

    4,065         2,383         1,333         218        7,999   

Year ended December 31, 2012:

            

Revenue(4)

  $ 1,096       $ 891       $ 456       $      $ 2,443   

Operating income (loss)(5)

    293         217         161         (432     239   

Total assets at December 31, 2012

    3,862         2,283         1,635         435        8,215   

Year ended December 31, 2011:

            

Revenue(4)

  $ 1,013       $ 915       $ 436       $      $ 2,364   

Operating income (loss)(5)

    286         252         146         (465     219   

Total assets at December 31, 2011

    4,034         2,223         1,765         336        8,358   

 

 

In 2013, we made some changes to our geographic reporting classifications to move some functions from corporate and other to the geographic regions and as a result, reclassifications of prior years’ geographic financial information were made to conform to the current year presentation. The reclassifications did not change previously reported consolidated results of operations or financial position. See Note 15 to our consolidated financial statements for further information.

 

(1)   Our Americas region includes the United States, Canada and Latin America. Revenue in the U.S. was $935 million, $885 million and $808 million for the years ended December 31, 2013, 2012 and 2011, respectively. Total U.S. assets were $3,837 million, $3,638 million and $3,821 million at December 31, 2013, 2012 and 2011, respectively.

 

(2)   Our EMEA region includes countries in Europe, the Middle East and Africa.

 

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(3)   Our Asia Pacific region includes Japan, Australia and other countries in the Asia Pacific region. Revenue in Japan was $261 million, $286 million and $277 million for the years ended December 31, 2013, 2012 and 2011, respectively.

 

(4)   Revenue relates to external clients and is primarily based on the location of the client. Revenue for the geographic regions includes the impact of foreign exchange in translating results into U.S. dollars.

 

(5)   Operating Income for the three geographic regions does not reflect the allocation of certain expenses that are maintained in Corporate and Other and as such, is not a true measure of the respective regions’ profitability. The Operating Income amounts for the geographic regions include the impact of foreign exchange in translating results into U.S. dollars. For 2013, depreciation and amortization related to purchase accounting adjustments of $126 million, $87 million and $42 million for the Americas, EMEA and Asia Pacific regions, respectively, are presented in Corporate and Other. For 2012, depreciation and amortization related to purchase accounting adjustments of $126 million, $84 million and $51 million for the Americas, EMEA and Asia Pacific regions, respectively, are presented in Corporate and Other. For 2011, depreciation and amortization related to purchase accounting adjustments of $126 million, $91 million and $52 million for the Americas, EMEA and Asia Pacific regions, respectively, are presented in Corporate and Other.

Americas region

Revenue in the Americas region grew 5.9% in 2013 compared to 2012. On a constant dollar basis, revenue grew 6.9% in 2013 compared to 2012. The constant dollar increase in the Americas was the driven primarily by continued strong revenue growth in technology services offerings, which accounted for approximately $57 million of the increase. Revenue in the Americas region grew 8.2% in 2012 compared to 2011. On a constant dollar basis, revenue grew 8.9% in 2012 compared to 2011. The growth in 2012 was primarily due to the impact of the technology services offerings from the SDI acquisition completed in the fourth quarter of 2011.

Operating income in the Americas region grew 3.9% in 2013 compared to 2012. On a constant dollar basis, operating income grew 5.7% in 2013 compared to 2012. The increase in operating income in 2013 was a result of revenue growth in the region, partially offset by increases in operating expenses of $53 million required to support the revenue growth. Operating income in the Americas region grew 2.5% in 2012 compared to 2011. On a constant dollar basis, operating income grew 3.5% in 2012 compared to 2011. The constant dollar operating income growth in 2012 was a result of revenue growth in technology services offerings, partially offset by increases in operating expenses of $76 million, both primarily due to the SDI acquisition.

EMEA region

Revenue in the EMEA region grew 5.1% in 2013 compared to 2012. On a constant dollar basis, revenue grew 3.4% in 2013 compared to 2012. The constant dollar increase in revenue in EMEA was the result of strong overall growth in Eastern Europe as well as growth in our technology services offerings, particularly in Central and Northern Europe. Revenue in the EMEA region declined by 2.7% in 2012 compared to 2011. On a constant dollar basis, revenue grew 3.1% in 2012 compared to 2011. The constant dollar increase in revenue in EMEA was driven by 4.7% revenue growth in North Europe.

Operating income in the EMEA region grew 14.3% in 2013 compared to 2012. On a constant dollar basis, operating income grew 10.8% in 2013 compared to 2012. The increase in constant dollar operating income in 2013 was a result of revenue growth in the region, partially offset by increases in operating expenses of $14 million. Operating income in the EMEA region declined 13.9% in 2012 compared to 2011. On a constant dollar basis, operating income declined 5.4% in 2012 compared to 2011. The operating income decline in 2012 was a result of the revenue decrease noted above and increases in operating expenses of $11 million.

 

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Asia Pacific region

Revenue in the Asia Pacific region declined 1.8% in 2013 compared to 2012. On a constant dollar basis, revenue grew 9.6% in 2013 compared to 2012. The constant dollar increase in revenue was driven by overall growth in Japan and China. Revenue in the Asia Pacific region grew 4.5% in 2012 compared to 2011. On a constant dollar basis, revenue grew 4.9% in 2012 compared 2011. The constant dollar increase in revenue in 2012 was driven by gains in Japan and strong overall growth in China.

Operating income in the Asia Pacific region declined 9.1% in 2013 compared to 2012. On a constant dollar basis, operating income grew 10.3% in 2013 compared to 2012. The increase in constant dollar operating income in 2013 was a result of the revenue increase, partially offset by increases in operating expenses of $6 million due to continued investments in the region to drive growth. Operating income in the Asia Pacific region grew 9.6% in 2012 compared 2011. On a constant dollar basis, operating income grew 10.8% in 2012, due principally to revenue growth in the region, partially offset by increases in operating expenses of $5 million.

How exchange rates affect our results

We operate globally, deriving a significant portion of our operating income from non-U.S. operations. As a result, fluctuations in the value of foreign currencies in which we transact business relative to the U.S. dollar may increase the volatility of U.S. dollar operating results. We enter into foreign currency forward contracts to partially offset the effect of currency fluctuations and the impact of these forward contracts is reflected in other loss, net on the consolidated statements of comprehensive (loss) income. In 2013, foreign currency translation decreased our U.S. dollar revenue and operating income growth by approximately 1.9 and 6.9 percentage points, respectively. In 2012, foreign currency translation decreased the U.S. dollar revenue and operating income growth by approximately 3.0 and 10.1 percentage points, respectively.

Non-U.S. monetary assets are maintained in currencies other than the U.S. dollar, principally the Euro and the Japanese Yen. Where monetary assets are held in the functional currency of the local entity, changes in the value of these currencies relative to the U.S. dollar are reflected in accumulated other comprehensive income in the consolidated statements of financial position. The effect of exchange rate changes during 2013 decreased the U.S. dollar amount of cash and cash equivalents by $23 million. The effect of exchange rate changes increased the U.S. dollar amount of cash and cash equivalents by $0.4 million and $2 million during 2012 and 2011, respectively.

Liquidity and capital resources

Cash and cash equivalents increased $145 million to $725 million at December 31, 2013 compared to $580 million at December 31, 2012. The increase reflects cash provided by operating activities of $400 million, partially offset by cash used in investing and financing activities of $180 million and $52 million, respectively, and a decrease of $23 million due to the effect of exchange rate changes.

Cash and cash equivalents increased $127 million to $580 million at December 31, 2012 compared to $453 million at December 31, 2011. The increase reflects cash provided by operating activities of $399 million, partially offset by cash used in investing activities and financing activities of $209 million and $63 million, respectively.

 

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At December 31, 2013, short-term investments totaled $4 million, which consisted of government bond funds with maturities greater than 90 days, but less than one year.

Over the next twelve months we currently expect that we will use our cash and cash equivalents primarily to fund:

 

 

principal and interest payments of approximately $390 million;

 

 

development of software to be used in our new products and capital expenditures of $170 million to $180 million to expand and upgrade our information technology capabilities and to build or acquire facilities to house our business—this includes approximately $60 million of one-time capital expenditures related to the planned purchase of an office building in India ($21 million of which was paid in 2013 as a deposit);

 

 

payments of approximately $22 million related to our employee severance plans;

 

 

pension and other postretirement benefit plan contributions of approximately $16 million; and

 

 

acquisitions.

Cash flows

Net cash provided by operating activities amounted to $400 million for the year ended December 31, 2013, essentially flat when compared to the year ended December 31, 2012. Cash flows from operating activities for 2013 reflects higher cash-related net income and lower professional fees and severance payments in 2013, almost entirely offset by higher funding of accounts payable, higher pension contributions and lower funding of other current assets in 2013 compared to 2012. Net cash provided by operating activities was $399 million for the year ended December 31, 2012, an increase of $65 million compared to the year ended December 31, 2011. The increase relates to lower funding of prepaid expenses and other current assets, lower restructuring payments and lower pension funding.

Net cash used in investing activities amounted to $180 million for the year ended December 31, 2013, a decrease in cash used of $29 million compared to the year ended December 31, 2012. The decrease relates to higher proceeds received from sales of short-term investments, net of purchases, in 2013, partially offset by higher payments for acquisitions, lower proceeds from the sale of assets and higher additions to computer software in 2013 compared to 2012. Net cash used in investing activities was $209 million for the year ended December 31, 2012, a decrease of $276 million compared to the year ended December 31, 2011. The decrease relates to lower payments for acquisitions during 2012 largely due to the SDI acquisition in the fourth quarter of 2011, higher proceeds from the sale of assets in 2012, and a decrease in computer software additions during 2012, partially offset by increases in short-term investments and facility-related capital expenditures during 2012.

Net cash used in financing activities amounted to $52 million for the year ended December 31, 2013, a decrease in cash used of $11 million compared to the year ended December 31, 2012. The decrease relates to lower dividends paid to shareholders and lower repayments, net of borrowings, of our revolving credit facility in 2013, partially offset by lower proceeds from issuance of debt in 2013 compared to 2012. Net cash used in financing activities was $63 million for the year ended December 31, 2012, an increase of $169 million compared to cash provided during the year ended December 31, 2011. The increase relates to the dividend paid to shareholders during the fourth quarter of 2012, higher repayments of our revolving credit facility and term loans during 2012, and higher debt issuance costs during 2012, partially offset by

 

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higher proceeds from new borrowings during 2012. The dividend and higher borrowings and debt issuance costs relate to our recapitalization transaction which was completed during the fourth quarter of 2012. See Note 7 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus.

Liquidity in the capital and credit markets

Overview

We fund our liquidity needs for capital investment, working capital, and other financial commitments through cash flow from continuing operations and our credit facility ($375 million in aggregate commitments, all of which was available as of December 31, 2013). We believe that we have the financial resources to meet business requirements for the next twelve months and for our long-term needs.

Credit concentrations

We continually monitor our positions with, and the credit quality of, the financial institutions that are counterparties to our financial instruments and do not anticipate non-performance by the counterparties. In general, we enter into transactions only with financial institution counterparties that are large banks and financial institutions. In addition, we attempt to limit the amount of credit exposure with any one institution. We would not have realized a material loss during the year ended December 31, 2013 in the event of non-performance by any one counterparty. Management continues to monitor the status of these counterparties and will take action, as appropriate, to manage any counterparty credit risk.

We maintain accounts receivable balances ($313 million and $308 million, net of allowances, at December 31, 2013 and 2012, respectively), principally from clients in the pharmaceutical industry. Our trade receivables do not represent significant concentrations of credit risk at December 31, 2013 due to the credit worthiness of our clients and their dispersion across many geographic areas.

Debt

At December 31, 2013, our principal amount of debt totaled $5,027 million. Management does not believe that this level of debt poses a material risk to us due to the following factors:

 

 

in each of the last two calendar years, we have generated strong net cash provided by operating activities of approximately $400 million;

 

 

at December 31, 2013, we had $729 million in worldwide cash and cash equivalents and short-term investments; and

 

 

at December 31, 2013, we had $375 million of unused debt capacity under our existing Senior Secured Credit Facilities.

 

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The following table summarizes our debt at the dates indicated:

 

     December 31,  
(dollars in millions)   2013    

2012

 

 

 

Senior Secured Term Loan due 2017—USD LIBOR at average floating rates of  3.75%

  $ 1,747      $ 1,766   

Senior Secured Term Loan due 2017—EUR LIBOR at average floating rates of 4.25%

    1,030        999   

12.5% Senior Notes due 2018

    1,000        1,000   

7.375%/8.125% Senior PIK Toggle Notes due 2018

    750          

Revolving Credit Facility due 2017—USD LIBOR at average floating rates

             

6.00% Senior Notes due 2020

    500        500   
 

 

 

 

Principal Amount of Debt

    5,027        4,265   

Less: Unamortized Discounts

    (67     (88
 

 

 

 

Total Debt

  $ 4,960      $ 4,177   

 

 

On March 17, 2014, IMS Health and certain of its subsidiaries, as co-borrowers, entered into an amendment (the “2014 Amendment”) to amend and restate the Second Amended and Restated Credit and Guaranty Agreement, which until such date governed its senior secured credit facilities (the amended and restated credit agreement resulting from the 2014 Amendment, the “2014 Credit Agreement”). The 2014 Amendment added commitments in respect of the New Term Loans in the aggregate dollar equivalent amount of $500.0 million, increased outstanding commitments under the revolving credit facility to $500.0 million, modified certain interest rates and covenants and made additional modifications to the senior secured credit facilities. For additional information, see “Description of indebtedness”.

In August 2013, Healthcare Technology Intermediate, Inc. issued $750 million of Senior PIK Notes. The Senior PIK Notes are unsecured obligations and mature on September 1, 2018. Interest is paid semi-annually in March and September of each year, commencing March 1, 2014. Subject to certain restrictions, we may elect to pay a portion of the interest due on the outstanding principal amount of the Senior PIK Notes by issuing PIK Notes in a principal amount equal to the interest due. The proceeds, along with cash provided by us, were used to pay an approximate $753 million dividend to our shareholders and for the payment of fees and expenses of the transaction of approximately $17 million.

In February 2013, IMS Health and certain of its subsidiaries entered into an amendment of the then existing senior secured term loans due 2017 (“Term Loan Amendment”) to reduce the interest rate. IMS Health reduced the borrowing margins and LIBOR floors by 50 basis points and 25 basis points, respectively, for both the USD and EUR tranches of debt. As a result of the Term Loan Amendment, we recorded $9 million of debt extinguishment losses and $3 million of third party fees in Other loss, net during the year ended December 31, 2013.

On October 24, 2012, IMS Health and certain of its subsidiaries completed a recapitalization (the “Recapitalization”). The Recapitalization included an amendment (the “Amendment”) to the Amended and Restated Credit and Guaranty Agreement for additional term loans in the aggregate U.S. dollar equivalent of approximately $760 million, which included 200 million Euros. Among other modifications, the Amendment: (a) extended the maturity date of the Revolving Credit Facility to August 2017; and (b) increased the maximum leverage ratio.

The Recapitalization also included a new offering of $500 million aggregate principal amount of the 6% Senior Notes. The 6% Senior Notes are guaranteed on a senior unsecured basis by the IMS Health’s wholly-owned domestic subsidiaries that are guarantors under the Senior Secured Credit

 

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Facilities. The 6% Senior Notes have terms substantially similar to the existing $1,000 million 12.5% Senior Notes, except that, most notably, the 6% Senior Notes have a three-year no call redemption period.

In order to effect the Recapitalization, we conducted an exchange offer and consent solicitation to exchange the Old 12.5% Senior Notes for the New 12.5% Senior Notes, and to solicit consents to proposed amendments to the indenture governing the Old 12.5% Senior Notes to permit the recapitalization. The requisite consents were obtained and 99.96% of the holders of the Old 12.5% Senior Notes agreed to participate in the exchange and received New 12.5% Senior Notes in an equal principal amount.

The proceeds from the Recapitalization were used to pay a $1,202 million dividend to our stockholders and for payment of fees and expenses of the transaction of approximately $48 million, which were capitalized.

In March 2011, IMS Health and certain of our subsidiaries amended and restated our Credit and Guaranty Agreement dated February 2010 (as amended, the “2011 Credit Agreement”). Under the 2011 Credit Agreement, IMS Health increased the borrowings by $52 million and EUR 21 million. The terms of the 2011 Credit Agreement extended the maturity date of the term loan and revolver by eighteen months to August 2017 and one year to February 2016, respectively, reduced the borrowing margins and LIBOR floor, expanded the revolver borrowing capacity by $100 million, and eliminated the interest coverage ratio covenant.

At December 31, 2013, short-term and long-term debt was $66 million and $4,894 million, respectively, in the consolidated statements of financial position. The Senior Secured Credit Facilities are secured by a security interest in substantially all of Healthcare Technology Intermediate Holdings, Inc.’s, IMS Health’s and the subsidiary guarantors’ tangible and intangible assets, including the stock and the assets of certain of IMS Health’s current and certain future wholly-owned U.S. subsidiaries (and the stock held by IMS Health’s immediate direct parent holding company) and a portion of the stock of certain of IMS Health’s non-U.S. subsidiaries. In addition, certain of the assets of IMS Health’s Swiss subsidiaries have been pledged to secure any borrowings under the Senior Secured Credit Facilities by IMS AG. There have been no such borrowings to date.

Costs 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. As of December 31, 2013, the unamortized balance of original issue discount reflected as a reduction to long term debt and fees and expenses related to the issuance of debt included in Other assets was $67 million and $74 million, respectively. During the year ended December 31, 2013, we recorded interest expense of $35 million related to the amortization of these balances.

The financing arrangements provide for certain covenants and events of default customary for similar instruments, including in the case of the revolving credit facility and New Term Loans beginning with the fiscal quarter ending June 30, 2014, a covenant to not to exceed a specified ratio of consolidated senior secured net indebtedness to Consolidated EBITDA, as defined in the 2014 Credit Agreement and a covenant to maintain a specified minimum interest coverage ratio. If an event of default occurs under any of our or our subsidiaries’ financing arrangements, the creditors under such financing arrangements will be entitled to take various actions, including the acceleration of amounts due under such arrangements, and in the case of the lenders under the revolving credit facility and New Term Loans, other actions permitted to be taken by a secured creditor.

 

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In May 2010, we purchased interest rate caps and entered into interest rate swap agreements for purposes of managing our risk in interest rate fluctuations. We purchased U.S. dollar and Euro denominated interest rate caps for a total nominal value of approximately $1,675 million at strike rates ranging from 3% to 4%. These caps covered different periods between May 2010 and January 2015. The total premiums paid were $5 million. Most of these caps have expired and the nominal value of caps outstanding at December 31, 2013 was approximately $365 million, of which $250 million expired in January 2014.

We also entered into interest rate swap agreements to hedge notional amounts of $375 million of our borrowings. All were effective January 2012, and expire at various times from January 2014 through January 2016. On these agreements, we pay a fixed rate ranging from 2.6% to 3.3% and receive a variable rate of interest equal to the three-month London Interbank Offered Rate (“LIBOR”).

The fair value of the interest rate caps and swaps is the estimated amount that we would receive or pay to terminate such agreements, taking into account market interest rates and the remaining time to maturities. As of December 31, 2013 and 2012, based upon mark-to-market valuation, we recorded in the consolidated statements of financial position a long-term liability of $12 million and $21 million, respectively.

Severance, impairment and other charges

We record a liability for significant costs associated with restructuring activities, including employee severance and related benefits, lease termination costs, asset impairments and other qualifying exit costs, when such costs are deemed probable and estimable. Employee severance benefits are calculated pursuant to the terms of established employee protection plans, in accordance with local statutory minimum requirements or individual employee contracts, as applicable. These charges are included in Severance, impairment and other charges, a component of operating income, on the consolidated statements of comprehensive (loss) income.

In December 2013, as a result of ongoing cost reduction efforts, we recorded a pre-tax severance charge of $12 million consisting of global workforce reductions to streamline our organization (the “2013 Plan”). Cash outlays related to the 2013 Plan were de minimis through December 31, 2013. We expect that cash outlays related to the 2013 Plan will be substantially complete by the end of 2014.

Also in 2013, we recorded severance, impairment and other charges of $10 million, $3 million of which was recorded in the fourth quarter of 2013, related to impaired leases for properties in the U.S. and contract-related charges for which we will not realize any future economic benefits.

In December 2012, as a result of ongoing cost reduction efforts, we implemented a restructuring plan (the “2012 Plan”) and recorded a pre-tax severance charge of $23 million consisting of global workforce reductions to streamline our organization. In 2013, $6 million of severance accruals were reversed due to the favorable settlement of required termination benefits and strategic business changes. We expect that cash outlays related to severance benefits for the 2012 Plan will be substantially complete by the end of the second quarter of 2014.

 

(dollars in millions)   

Severance

related

reserves

 

 

 

Balance at December 31, 2012

   $ 23   

2013 utilization

     (11

2013 reversal

     (6
  

 

 

 

Balance at December 31, 2013

   $ 6   

 

 

 

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During the fourth quarter of 2012, we recorded impairment charges of $2 million related to the write-down of certain assets to their net realizable values, $3 million for contract-related charges for which we will not realize any future economic benefits and $1 million related to a lease impairment for property in the U.S.

Also in 2012, we recorded $8 million of impairment charges related to leased facilities in the U.S. and Europe and $21 million of impairment charges related to the write-down of certain assets to their net realizable values and $1 million of contract-related charges for which we will not realize any future economic benefits.

In the fourth quarter of 2011, as a result of classifying a building in the U.S. as held for sale, we recorded an impairment charge of $2 million. Also in 2011, we recorded $10 million in contract-related charges related to a cash payment made to a vendor for which we did not realize any future economic benefit.

In December 2010, we implemented a multi-year restructuring plan and recorded a pre-tax severance, impairment and other charge totaling $50 million related to ongoing cost reduction efforts, including workforce reductions to streamline our organization, the elimination of certain regional headquarter functions and asset impairments (the “2010 Plan”). During December 2011, we recorded an incremental charge of $19 million, bringing the total charge under the 2010 Plan to $69 million. Also during 2011, we reversed the facility exit portion of the 2010 Plan as we were able to successfully assign the related lease to a third party. During the fourth quarter of 2012, we reversed approximately $10 million of severance accruals for the 2010 Plan due to the favorable settlement of required termination benefits and strategic business changes. The cash outlays related to severance benefits for the 2010 Plan were substantially complete by the end of 2013.

 

(dollars in millions)   

Severance

related

reserves

   

Facility

exit

charges

        Total  

 

 

Balance at December 31, 2010

   $ 48      $ 1      $ 49   

2011 utilization

     (26            (26

2011 reversal

            (1     (1

Q4 2011 charge

     19               19   

Currency translation adjustments

     1               1   
  

 

 

 

Balance at December 31, 2011

     42               42   

2012 utilization

     (26            (26

Q4 2012 reversal

     (10            (10
  

 

 

 

Balance at December 31, 2012

     6               6   

2013 utilization

     (5            (5
  

 

 

 

Balance at December 31, 2013

   $ 1             $ 1   

 

 

Additionally, during the fourth quarter of 2012, we reversed $1 million of a severance charge related to an acquisition recorded in 2010 as a result of favorable settlement of termination benefits.

Contingencies

We are exposed to certain known contingencies that are material to our investors. The facts and circumstances surrounding these contingencies and a discussion of their effect on us are included in Note 12 to our consolidated financial statements for the year ended December 31, 2013.

 

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These contingencies may have a material effect on our liquidity, capital resources or results of operations. In addition, even where our reserves are adequate, the incurrence of any of these liabilities may have a material effect on our liquidity and the amount of cash available to us for other purposes.

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

Contractual obligations

Our contractual obligations include facility leases, agreements to purchase data and telecommunications services, leases of certain computer and other equipment, projected pension and other postretirement benefit plan contributions, long-term debt obligations and employee severance. At December 31, 2013, the minimum annual payment under these agreements and other contracts that have initial or remaining non-cancelable terms in excess of one year are as listed in the following table:

 

      Year  
(dollars in millions)     2014      2015      2016      2017      2018      Thereafter      Total  

 

 

Operating leases(1)

   $ 52       $ 46       $ 43       $ 41       $ 32       $ 62       $ 276   

Data acquisition and telecommunication services(2)

     205         152         103         69         24         29         582   

Computer and other equipment leases(3)

     27         15         12         7         5         10         76   

Projected pension and other postretirement benefit plan contributions(4)

     16                                                 16   

Long-term debt(5)

     392         348         345         2,934         1,848         560         6,427   

Other liabilities(6)

     40         17         18         18         20         119         232   
  

 

 

 

Total

   $ 732       $ 578       $ 521       $ 3,069       $ 1,929       $ 780       $ 7,609   

 

 

 

(1)   Rental expense under real estate operating leases for the years ended 2013, 2012 and 2011 were $20 million, $21 million and $34 million, respectively.

 

(2)   Expense under data and telecommunications contracts for the years ended 2013, 2012 and 2011 were $215 million, $191 million and $212 million, respectively.

 

(3)   Rental expense under computer and other equipment leases for the years ended 2013, 2012 and 2011 were $25 million, $26 million and $24 million, respectively. These leases are frequently renegotiated or otherwise changed as advancements in computer technology produce opportunities to lower costs and improve performance.

 

(4)   Our contributions to pension and other postretirement benefit plans for the years ended 2013, 2012 and 2011 were $46 million, $15 million and $16 million, respectively. The estimated contribution amount shown for 2014 relates to required contributions to funded plans as well as benefit payments from unfunded plans. The expected contribution shown for 2014 is required.

 

(5)   Amounts represent the principal balance plus estimated interest expense based on current interest rates under our long-term debt (see Note 7 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus).

 

(6)   Includes estimated future funding requirements related to pension and postretirement benefits (see Note 8 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus) and severance, impairment and other charges (see Note 6 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus). As the timing of future cash outflows is uncertain, the following long-term liabilities (and related balances) are excluded from the above table: deferred taxes ($1,102) million and uncertain tax benefits reserve ($28) million.

 

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Under the terms of certain acquisition-related purchase agreements, we may be required to pay additional amounts as contingent consideration based primarily on the achievement of certain financial performance related metrics. At December 31, 2013, we have recorded estimated accruals of approximately $65 million, which could become due through 2017, with respect to these additional payments relating to eight acquisitions.

Off-balance sheet obligations

As of December 31, 2013, we have no off-balance sheet arrangements that currently have or are reasonably likely to have a material effect on our consolidated financial condition, changes in financial condition, results of operations, liquidity, capital expenditures or capital resources.

Critical accounting estimates

Note 2 to the consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. Following is a brief discussion of the more significant accounting policies and methods used by us.

The most significant estimates relate to allowances, depreciation of fixed assets including salvage values, carrying value of goodwill and intangible assets, provision for income taxes and tax assets and liabilities, reserves for employee benefits, stock-based compensation, contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The accounting estimates used in the preparation of our consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Actual results could vary from the estimates and assumptions used in the preparation of the consolidated financial statements for the year ended December 31, 2013.

We believe the following critical policies involve significant judgments and estimates used in the preparation of our consolidated financial statements for the year ended December 31, 2013.

Revenue recognition.    We recognize revenue when the following criteria have been met: 1) persuasive evidence of an arrangement exists; 2) delivery has occurred or services have been rendered; 3) the seller’s price to the buyer is fixed or determinable; and 4) collectibility is reasonably assured.

We offer various information offerings developed to meet our clients’ needs by using data secured from a worldwide network of suppliers. Our revenue arrangements may include multiple elements. A typical information offerings arrangement (primarily under fixed-price contracts) may include an ongoing subscription-based deliverable for which revenue is recognized ratably as earned over the contract period and/or a one-time delivery of data offerings for which revenue is recognized upon delivery, assuming all other criteria are met. These deliverables qualify as separate units of accounting as each has value on a standalone basis to the client, objective and reliable evidence of fair value for any undelivered item(s) exists, and where the arrangement includes a general right of return relative to the delivered item(s), delivery of the undelivered item(s) is probable and within our control. We allocate revenue to each element within our arrangements based upon their respective relative selling price. Fair values for these elements are based upon the normal pricing

 

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practices for these offerings when sold separately. We defer revenue for any undelivered elements, and recognize revenue when the product is delivered or over the term of the agreement, in accordance with our revenue recognition policy for such element as noted above. Our subscription arrangements typically have terms ranging from one to three years and are generally non-cancelable and do not contain refund-type provisions.

We also offer technology services offerings that enable our clients to make informed business decisions. These arrangements typically have terms ranging from several weeks to three years, with a majority having terms of one year or less. Revenue for services engagements where deliverables occur ratably over time are recognized on a straight-line basis over the term of the arrangement. Revenue from time and material contracts are recognized as the services are provided. Revenue from fixed price ad hoc services and consulting contracts are recognized either 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 (efforts based), or upon delivery (completed contract).

Operating costs of information.    Operating costs of information includes costs attributable to personnel involved in production, data management and delivery, and the costs of acquiring and processing data for our information offerings.

One of our major expenditures is the cost for the data we receive from suppliers. After receipt of the raw data and prior to the data being available for use in any part of our business, we are required to transform the raw data into useful information through a series of comprehensive processes. These processes involve significant employee costs and data processing costs.

Costs associated with our purchases are deferred within work-in-process inventory and recognized as expense as the corresponding data product revenue is recognized by us, generally over a 30 to 60 day period.

Direct and incremental costs of technology services.    Direct and incremental costs of technology services include costs of staff directly involved with delivering technology-related, consulting and services generating offerings and engagements, related accommodations and the costs of data purchased specifically for technology services engagements. Direct and incremental costs of technology services do not include an allocation of direct costs of data that are included in operating costs of information. Although our data, the costs of which are included in Operating Costs of Information, is used in multiple client solutions across different offerings within both information and technology services, we do not have a meaningful way to allocate the direct cost of the data between information and technology services. As such, the direct and incremental costs of technology services do not reflect the total costs incurred to deliver our technology services engagements.

Stock-based compensation.    We maintain a stock incentive plan, which provides for the grant of stock options, stock appreciation rights, restricted stock, unrestricted stock, restricted stock units, and/or performance awards to key employees and directors, consultants, and advisors to us as determined by the plan administrator. We recognize as stock-based compensation expense for all share-based payments to employees over the requisite service period (generally the vesting period) in the consolidated statements of comprehensive (loss) income based on the fair values of the number of awards that are ultimately expected to vest. For performance-based awards, stock-based compensation expense is adjusted over time based on our assessment of the probability of achieving the financial targets. As a result, for most awards, recognized stock-based compensation expense is reduced for estimated forfeitures prior to vesting primarily based on

 

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historical annual forfeiture rates. Estimated forfeitures will be reassessed in subsequent periods and may change based on new facts and circumstances. We satisfy exercises and issuances of vested equity awards with issuances of common stock. We recorded stock-based compensation expense of $22 million, $19 million and $18 million in the years ended December 31, 2013, 2012 and 2011, respectively.

Fair value measurement and valuation methodologies

Stock-based compensation expense is primarily based on the estimated grant date fair value using the Black-Scholes option pricing model. Considerable judgment is required in determining the fair value of stock-based grants, including factors such as estimating the expected term of the grant, expected volatility of our stock and the expected forfeiture rate. In addition, for stock option grants where vesting is dependent on achieving certain operating performance targets, we estimate the likelihood of achieving those performance targets. The following table summarizes the weighted average assumptions used to compute the weighted average fair value of stock option grants:

 

      2013      2012      2011  

 

 

Dividend Yield

     0.0%         0.0%         0.0%   

Weighted Average Volatility

     26.7%         27.00%         25.2%   

Risk Free Interest Rate

     1.19%         0.92%         1.56%   

Expected Term

     5.50 years         5.50 years         5.50 years   

Weighted Average Fair Value of Options Granted

     $4.89         $3.34         $2.98   

Weighted Average Grant Price

     $13.00         $12.45         $11.20   

 

 

 

 

The dividend yield of 0.0% is used because no recurring dividends have been authorized and we do not expect to pay cash dividends in the foreseeable future. An increase in the dividend yield will decrease stock compensation expense.

 

 

The weighted average volatility was developed using the historical volatility of several peer companies to IMS Health Holdings, Inc. for periods equal to the expected life of the options. An increase in the weighted average volatility assumption will increase stock compensation expense.

 

 

The risk-free interest rate was developed using the U.S. Treasury yield curve for periods equal to the expected life of the options on the grant date. An increase in the risk-free interest rate will increase stock compensation expense.

 

 

The expected term was estimated for the 2013 grant of stock options as the vesting term plus 6 months. Participants are unlikely to exercise before a liquidity event because there has been no market to sell the shares. On January 2, 2014, we filed the registration statement, of which this prospectus forms a part related to this offering of our common stock with the Securities and Exchange Commission, which could alter the expected term for future grants. An increase in the expected holding period will increase stock compensation expense.

 

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The following table summarizes the stock option grants for 2013 and 2012:

 

(in thousands except per share

data)

 

Stock option grant period

(three months ended)

  

Number of

options

granted(1)

    

Weighted

average

exercise price

   

Weighted

average per share

estimated fair value

of common stock

    

Weighted

average

fair value

of options granted

 

 

 

March 31, 2012

     335       $ 11.91 (2)(4)    $ 11.91       $ 3.15   

June 30, 2012

     404       $ 14.00 (2)(4)    $ 14.00       $ 3.79   

September 30, 2012

     45       $ 14.00 (2)(4)    $ 14.00       $ 3.74   

December 31, 2012

     195       $ 9.80 (3)(4)    $ 9.80       $ 2.63   

March 31, 2013

     183       $ 13.50 (4)    $ 13.50       $ 3.70   

June 30, 2013

     599       $ 13.50 (4)    $ 13.50       $ 3.59   

September 30, 2013

     399       $ 13.50 (4)    $ 13.50       $ 3.77   

December 31, 2013

     283       $ 10.90 (5)    $ 19.50       $ 10.01   

 

 

 

(1)   Does not include 207 and 511 shares, respectively, of Phantom SARs (as defined herein) granted in 2012 and 2013, respectively, for which no expense was recognized. Upon completion of this offering, we expect to recognize a charge of approximately $27 million for the exercise of Phantom SARs based on the mid-point of the offering range of $19.50.
(2)   The weighted average exercise price does not reflect the reduction in the exercise price of unvested awards resulting from the $4.20 per share dividend paid in October 2012 (See Note 9 to our consolidated financial statements).
(3)   The decrease in the exercise price from prior grants is the result of the $4.20 per share dividend we paid in October 2012.
(4)   The weighted average exercise price does not reflect the reduction in the exercise price of unvested awards resulting from the $2.60 per share dividend paid in August 2013 (See “Executive compensation–Elements of compensation–Payments and adjustments in connection with cash dividends”).
(5)   The decrease in the exercise price from prior grants is the result of the $2.60 per share dividend we paid in August 2013.

The exercise price of stock options set by our board of directors is not less than the estimated fair market value of our common stock on the date of grant. Our board of directors have taken into account a number of objective and substantive factors in determining the fair market value of our common stock. Factors considered, but not limited to, include a) valuations using the methodologies described below and b) our overall operating and financial performance.

Our stock is not currently publicly traded, and as such, we conduct stock valuations on an annual basis as of December 31 for each year. We consider a number of objective and subjective factors in determining the value of our common stock at each valuation date in accordance with the guidance in the American Institute of Certified Public Accountants Practice Aid Valuation of Privately-Held-Company Equity Securities Issued as Compensation, or Practice Aid. These objective and subjective factors included, but were not limited to:

 

 

arm’s-length sales of our common stock in privately negotiated transactions;

 

valuations of our common stock;

 

our stage of development and financial position; and

 

our future financial projections.

Our common stock valuations performed from the Merger through the date of this prospectus were determined by taking a weighted-average value calculated under two different valuation approaches, the income approach and market approach.

The Income Approach quantifies the future cash flows that management expects to achieve consistent with our annual operating plan process. These future cash flows are discounted to their net present values using a rate corresponding to an estimated weighted-average cost of capital. The discount rate reflects the risks inherent in the cash flows and the market rates of return available from alternative investments of similar type and quality as of the valuation date. Our weighted average cost of capital (“WACC”) is calculated by weighting the required returns

 

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on interest-bearing debt and common equity capital in proportion to their estimated percentages in our capital structure as well as the capital structure of comparable publicly-traded companies. Our WACC assumptions utilized in the valuations performed during the year from December 31, 2012 through December 31, 2013 ranged from 10.5% to 11.0%.

The Market Approach considers the fair value of an asset based on the price at which comparable assets have been purchased under similar circumstances. The transactions are usually based on recent sale prices of similar assets based on an arm’s length transaction. Most commonly, the market approach relies on published transactions, based on a multiple of earnings before interest, taxes, depreciation and amortization (“EBITDA”), which is consistent with the primary profitability metric underlying our annual operating plan process. The EBITDA multiples were determined based on acquisition and/or trading multiples of a peer group of companies that are periodically reviewed by management for consistency with our business strategy, the businesses and markets in which we operate and our competitive landscape. The EBITDA multiples ranged from 8.5x to 10.5x in the valuations performed during the year from December 31, 2012 through December 31, 2013.

While we believe both of these two approaches provide reliable estimates of fair value, we apply a heavier weighting to the income approach as we believe this valuation method provides a more reasonable estimate of fair value given the market approach may reflect greater volatility based on the trading multiples of a peer group in an unstable or illiquid market. We have applied a discount factor to the resulting fair values obtained by averaging the values calculated under the income approach and the market approach to reflect the lack of marketability of the common stock for being a private company.

During the periods discussed above, we performed valuations of our common stock in January 2013 and 2014. As a standard part of its approval process for each of these valuations, our board of directors reviewed our current and projected financial performance, including the consideration of various scenarios of such performance and their corresponding impact on our common stock valuation. As part of its assessment of our operating performance, our board considered general economic conditions, the peer group of companies and their performance relative to our business strategy, and the volatility in the equity markets generally. Additional information on stock-based compensation is contained in Note 9 to the consolidated financial statements.

We currently expect the initial public offering price of the shares of our common stock to be sold in this offering to be between $18.00 and $21.00 per share, as set forth on the cover page of this prospectus, the midpoint of which is $19.50 per share. The primary factors that we believe contributed to the difference between the midpoint (and above) of this expected price range and the fair values of the options listed in the above table are the following:

 

 

The expected price range assumes the consummation of a successful initial public offering and the creation of a public market for our common stock. It therefore excludes any marketability or illiquidity discount for our common stock, which was appropriately taken into account by the Board of Directors in prior periods when establishing the then fair value per share.

 

 

The Refinancing, comprised of the redemption of our Senior PIK Notes and 12.5% Senior Notes and the amendment of our Senior Secured Credit Facilities, is expected to strengthen our results of operations and financial position by eliminating high-cost debt and reducing our overall debt balance.

 

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During 2013, we experienced higher revenue and Adjusted EBITDA growth rates compared to 2012, driven primarily by increased revenue in Asia and the Americas, as well as a number of strategic investments and operational changes instituted in prior years, which contributed to improvements in our financial performance.

 

 

As described in “—Acquisitions,” during 2013, we completed ten acquisitions at a total cost of approximately $129 million, which are expected to add incremental revenue during 2014 and beyond.

Pensions and other post retirement benefits.    We provide a number of retirement benefits to our 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. Management reviews these critical assumptions at least annually. Other assumptions involve demographic factors such as the turnover, retirement and mortality rates. Management reviews these assumptions periodically and updates them when its experience deems it appropriate to do so.

The discount rate is the rate at which the benefit obligations could be effectively settled and is determined annually by management. For U.S. plans, the discount rate is based on results of a modeling process in which the plans’ expected cash flow (determined on a projected benefit obligation basis) is matched with spot rates developed from a yield curve comprised of high-grade (Moody’s Aa and above, or Standard and Poor’s AA and above) non-callable corporate bonds to develop the present value of the expected cash flow, and then determining the single rate (discount rate) which when applied to the expected cash flow derives that same present value. In the U.K. specifically, the discount rate is set based on the yields on a universe of approximately 120 high quality (Aa rated) non-callable corporate bonds denominated in U.K. Sterling, appropriate to the duration of Plan liabilities. For the other non-U.S. plans, the discount rate is based on the current yield of an index of high quality corporate bonds. At December 31, 2013, the discount rate ranged from 2.9% to 4.7% compared to 3.8% at December 31, 2012 for its U.S. pension plans and postretirement benefit plan. The discount rate for its U.K. pension plan was decreased to 4.6% from 4.7% at December 31, 2012. The U.S. and U.K. plans represent 96% of the consolidated benefit obligation as of December 31, 2013. The discount rate in other non-U.S. countries decreased, where the range of applicable discount rates at December 31, 2013 was 0.9% to 6.2%. As a sensitivity measure, a 25 basis point increase in the discount rate for either our U.S. plan or our U.K. plan, absent any offsetting changes in other assumptions, would result in a de minimis increase in pension expense within the consolidated statements of comprehensive (loss) income.

Under the U.S. 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.

In selecting an expected return on plan asset assumption, we consider the returns being earned by each plan investment category in the fund, the rates of return expected to be available for reinvestment and long-term economic forecasts for the type of investments held by the plan. The

 

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expected return on plan assets for the U.S. pension plans was 8.0% at January 1, 2014 and January 1, 2013. Outside the U.S., the range of applicable expected rates of return was 1.0% to 6.5% as of January 1, 2014 and January 1, 2013. The actual return on plan assets will vary from year to year versus this assumption. We believe it is appropriate to use long-term expected forecasts in selecting the expected return on plan assets. As such, there can be no assurance that our actual return on plan assets will approximate the long-term expected forecasts. The expected return on assets (“EROA”) was $29 million and $27 million and the actual return on assets was $68 million and $44 million for the years ended December 31, 2013 and 2012, respectively. As a sensitivity measure, a 25 basis point change in the EROA assumption for our U.S. plan, absent any offsetting changes in other assumptions, would result in an approximately $1 million increase or decrease in pension expense within the consolidated statements of comprehensive (loss) income. For our U.K. plan, a 25 basis point change in the EROA assumption, absent any offsetting changes in other assumptions, would result in a de minimis increase or decrease in pension expense within the consolidated statements of comprehensive income. While we believe that the assumptions used are reasonable, differences in actual experience or changes in assumptions may materially affect its pension and postretirement obligations and future expense.

We utilize a corridor approach to amortizing unrecognized gains and losses in the pension and postretirement plans. Amortization occurs when the accumulated unrecognized net gain or loss balance exceeds the criterion of 10% of the larger of the beginning balances of the projected benefit obligation or the market-related value of the plan assets. The excess unrecognized gain or loss balance is then amortized using the straight-line method over the average remaining service-life of active employees expected to receive benefits. At December 31, 2013, the weighted-average remaining service-life of active employees was 22.15 years.

At December 31, 2013, the fair value of assets exceeded the projected benefit obligation of our pension plans by $12 million.

Additional information on pension and other postretirement benefit plans is contained in Note 8 to the consolidated financial statements.

Goodwill.    Goodwill represents the excess purchase price over the fair value of identifiable net assets of businesses acquired, and is not amortized. We review the recoverability of goodwill annually (or based on any triggering event) by comparing the estimated fair values (based on discounted cash flow analysis) of reporting units with their respective net book values. If the carrying amount of the reporting unit exceeds its fair value, the goodwill impairment loss is measured as the excess of the carrying value of goodwill over its fair value. We completed our annual impairment tests in 2013, 2012 and 2011 and no goodwill impairment charges were recorded.

Other long-lived assets.    We review the recoverability of our long-lived assets and identifiable intangibles held and used whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In general, the assessment of possible impairment is based on our ability to recover the carrying value of the asset from the undiscounted expected future cash flows of the asset. If the future cash flows are less than the carrying value of such asset, an impairment charge is recognized for the difference between the estimated fair value and the carrying value. In addition, we also review our indefinite-lived intangible assets on an annual basis.

Income taxes.    We operate in more than 100 countries around the world and our earnings are taxed at the applicable income tax rate in each of those countries. We provide for income taxes utilizing the asset and liability method of accounting for income taxes. Under this method,

 

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deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each balance sheet date, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. If it is determined that it is more likely than not that future tax benefits associated with a deferred tax asset will not be realized, a valuation allowance is provided. In the event we were to determine that we would be able to realize our deferred tax assets in the future in excess of our net recorded amount, an adjustment to the deferred tax asset would increase income in the period such determination was made. Likewise, should we determine that we would not be able to realize all or part of our net deferred tax asset in the future, an adjustment to the deferred tax asset would be charged to income in the period such determination was made. The effect on deferred tax assets and liabilities of a change in the tax rates is recognized in income in the period that includes the enactment date. We recognize interest and penalties related to unrecognized tax benefits in income tax expense.

Foreign currency.    We have significant investments in non-U.S. countries. Therefore, changes in the value of foreign currencies affect our consolidated financial statements when translated into U.S. dollars. For all operations outside the United States where we have designated the local currency as the functional currency, assets and liabilities are translated using end-of-period exchange rates; revenues, expenses and cash flows are translated using average rates of exchange prevailing during the period the transactions occurred. Translation gains and losses are included as an adjustment to the accumulated other comprehensive income (loss) component of shareholders’ equity. In addition, gains and losses from foreign currency transactions, such as those resulting from the settlement and revaluation of third-party and intercompany foreign receivables and payables, are included in the determination of net (loss) income.

For operations in countries that are considered to be highly inflationary or where the U.S. dollar is designated as the functional currency, monetary assets and liabilities are remeasured using end-of-period exchange rates, whereas non-monetary accounts are remeasured using historical exchange rates, and all remeasurement and transaction adjustments are recognized in Other loss, net.

Recently issued accounting standards

In July 2013, the Financial Accounting Standard Board (“FASB”) determined that an unrecognized tax benefit should be presented as a reduction to a deferred tax asset for a net operating loss (“NOL”) carryforward or other tax credit carryforward, excluding certain exceptions. The guidance is consistent with our existing practices and is effective for interim and annual periods beginning January 1, 2014. We do not believe the adoption of this guidance will have a material impact on our financial results.

In March 2013, the FASB issued amendments to address the accounting for the cumulative translation adjustment when a parent either sells a part or all of its investment in a foreign entity or no longer holds a controlling financial interest in a subsidiary or group of assets that is a nonprofit activity or a business within a foreign entity. The amendments are effective prospectively for fiscal years beginning after December 15, 2013, with early adoption permitted. The adoption of this guidance is not expected to have a material impact on our financial results.

In February 2013, the FASB amended existing guidance by requiring companies to present information about reclassification adjustments from accumulated other comprehensive income in their financial statements in a single note or on the face of the financial statements. The

 

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amendments are effective prospectively for reporting periods beginning after December 15, 2012, with early adoption permitted. As these amendments required only additional disclosure, adoption did not have a material impact on our financial results.

Quantitative and qualitative disclosures about market risk

Market risk is the potential loss arising from adverse changes in market rates and prices, such as foreign currency exchange rates, interest rates, and other relevant market rate or price changes. In the ordinary course of business, we are exposed to various market risks, including changes in foreign currency exchange rates, interest rates and equity price changes, 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. From time to time, we have utilized forward exchange contracts to manage our foreign currency exchange rate risk.

Foreign exchange risk

Our primary market risks are the impact of foreign exchange fluctuations on non-U.S. dollar denominated revenue and the impact of interest rate fluctuations on interest expense.

We transact business in more than 100 countries and are subject to risks associated with changing foreign exchange rates. Our objective is to reduce earnings and cash flow volatility associated with foreign exchange rate changes. Accordingly, we enter into foreign currency forward contracts to minimize the impact of foreign exchange movements on EBITDA, and to hedge non-U.S. dollar anticipated 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 Japanese Yen, the British Pound, the Swiss Franc and the Canadian Dollar. See Note 7 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus.

The contractual value of our foreign exchange hedging instruments was approximately $421 million at December 31, 2013. The fair value of these hedging instruments 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 loss in fair values based on a hypothetical 10% change in currency rates. The potential loss in fair value for foreign exchange rate-sensitive instruments, all of which were foreign currency forward contracts, based on a hypothetical 10% decrease in the value of the U.S. dollar or, in the case of non-dollar-related instruments, the currency being purchased, was $30 million at December 31, 2013. However, the change in the fair value of foreign exchange rate-sensitive instruments would likely be offset by a change in the fair value of the future income or royalty being hedged. The estimated fair values of the foreign exchange risk management contracts were determined based on quoted market prices.

In February 2013, the Venezuelan government announced the devaluation of its currency and the official exchange rate was adjusted from 4.30 Bolívars to each U.S. dollar to 6.30. Our Swiss operating subsidiary, IMS AG, maintains certain account balances in Bolívars (mainly Cash and cash equivalents). As these balances are held in a non-functional currency of IMS AG, it is

 

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required that we mark-to-market these balances at each reporting date and reflect these movements as gains or losses in income. Approximately 6% of our consolidated cash and cash equivalents balance as of December 31, 2013 was held in Venezuelan Bolívars.

Additionally, since January 2010, Venezuela has been designated as hyper-inflationary, and as such, all foreign currency fluctuations are recorded in income for certain account balances at our local Venezuelan operating subsidiary. We recorded a pre-tax charge of approximately $14 million to other loss, net in 2013 related to the remeasurement of the IMS AG Venezuelan Bolívar account balances and the remeasurement of certain local Venezuelan account balances. As of December 31, 2013, the net assets, including cash and cash equivalents, held by our Venezuelan subsidiaries was approximately 6% of our consolidated net assets and for the year ended December 31, 2013, revenue generated by our Venezuelan subsidiaries was less than 1% of our consolidated revenues. Venezuela has foreign exchange and price controls which have historically limited our ability to convert Bolívars to U.S. dollars and transfer funds out of Venezuela. Additionally, government restrictions on the transfer of cash out of the country have limited our ability to repatriate cash; however, these restrictions have not impacted our ability to execute our business plans in Venezuela. It is not possible for us to predict the extent to which we may be affected by additional future changes in exchange rates and exchange controls imposed by the Venezuelan government.

Interest rate risk

We also borrow funds and since the interest rate associated with those borrowings changes over time, we are subject to interest rate risk. We have not hedged all of this exposure. We assess our market risk based on changes in interest rates utilizing a sensitivity analysis. The sensitivity analysis measures the increase in annual interest expense based on a hypothetical 1% increase in interest rates. This increase would have amounted to approximately $3 million at December 31, 2013.

 

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Business

Our Company

We are a leading global information and technology services company providing clients in the healthcare industry with comprehensive solutions to measure and improve their performance. We have one of the largest and most comprehensive collections of healthcare information in the world, spanning sales, prescription and promotional data, medical claims, electronic medical records and social media. Our scaled and growing data set contains over 10 petabytes of unique data and over 500 million comprehensive, longitudinal, anonymous patient records (i.e., records that are linked over time for each anonymous individual across healthcare settings). Based on this data, we deliver information and insights on approximately 90% of the world’s pharmaceuticals, as measured by sales revenue. We standardize, organize, structure and integrate this data by applying our sophisticated analytics and leveraging our global technology infrastructure to help our clients run their organizations more efficiently and make better decisions to improve their operational and financial performance. We have a presence in over 100 countries, including high growth emerging markets, and we generated 63% of our $2.54 billion of 2013 revenue from outside the United States.

We serve key healthcare organizations and decision makers around the world, spanning the breadth of life science companies, including pharmaceutical, biotechnology, consumer health and medical device manufacturers, as well as distributors, providers, payers, government agencies, policymakers, researchers and the financial community. The breadth of the intelligent, actionable information we provide is not comprehensively available from any other source and our scope of offerings would be difficult and costly for another party to replicate. As a result, our information and technology services offerings, which we have developed with significant investment over our 60-year history, are deeply integrated into our clients’ workflow. We maintain long-standing relationships and high renewal rates with our clients due to the value of the services and solutions we provide. The average length of our relationships with our top 25 clients, as measured by 2013 revenue, is over 25 years and our retention rate for our top 1,000 clients from 2012 to 2013 was approximately 99%. We have significant visibility into our financial performance, as historically about 70% of our revenue has recurred annually, principally because our information and technology services offerings are critical to our clients’ daily decision-making and are sold primarily through subscription and service contracts.

We leverage our proprietary information assets to develop technology and services capabilities with a talented healthcare-focused workforce that enables us to grow our relationships with healthcare stakeholders. This set of capabilities includes:

 

 

A leading healthcare-specific global IT infrastructure, which we use to process data from over 45 billion healthcare transactions annually and to collect data from over 780,000 fragmented feeds globally which we organize in a consistent and highly structured fashion using proprietary methodologies;

 

 

A staff of approximately 9,500 professionals across the globe, including over 1,200 experts in areas such as biostatistics, data science, bioinformatics, healthcare economics, outcomes research, epidemiology, pharmacology and key therapeutic areas;

 

 

Our intelligent cloud, IMS One, which opens our sophisticated global IT infrastructure to our clients and provides the ability to perform business analytics in the cloud with large amounts of complex data. Our cloud is unique in the healthcare industry because it pre-integrates

 

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applications with IMS data, eliminating the cost traditionally associated with integrating information, and provides interoperability across both IMS and third party applications, reducing the complexity traditionally associated with siloed data; and

 

 

A growing set of proprietary applications, which includes: commercial applications supporting sales operations, sales management, multi-channel marketing and performance management; real-world evidence solutions helping manufacturers and payers evaluate the value of treatments in terms of cost, quality and outcomes; payer-provider solutions helping these constituents to optimize contracting and performance management; and clinical solutions helping manufacturers and CROs better design, plan, execute and track clinical trials.

At a time when the healthcare industry is experiencing transformational change driven by global expansion and the growth of new categories of medicines, intense cost pressures, a changing regulatory environment, and new payment and delivery models, we enable our clients to gain and apply insights designed to substantially improve operating performance. Our solutions, which are designed to provide our clients access to our deep healthcare specific subject matter expertise, take various forms, including information, tailored analytics, subscription software and expert services.

We believe our mission-critical relationships with our life science clients are reflected in the role we play within four important areas of decision-making related to their product portfolios: Research and Development, Pre-Launch, Launch and In-Market. Over the last three years, we have introduced software and services applications that have further deepened our level of client integration by enabling our clients to enhance and automate many of these key decision-making processes.

 

LOGO

 

• Market opportunity assessment

 

• Clinical trial feasibility/planning

 

• Site selection

 

• Patient recruitment

 

• Trial monitoring

 

• Performance management

 

• Drug pricing optimization

 

• Launch readiness

 

• Commercial planning

 

• Brand positioning

 

• Message testing

 

• Influence networks

 

• Territory design

 

• Market access

 

• Health technology assessment

 

• Commercial readiness

 

• Forecasting

 

• Resource allocation

 

• Call planning

 

• Stakeholder engagement

 

• Commercial operations

 

• Sales force effectiveness

 

• Sales force alignment

 

• Multi-channel marketing

 

• Client relationship management

 

• Lifecycle management

 

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We believe that a powerful component of our value proposition is the breadth and depth of intelligence we provide to help our clients address fundamental operational questions.

 

User         Illustrative questions     
Sales    Which providers generate highest return on rep visit?   Does my sales rep drive appropriate prescribing?   How much should I pay my sales rep next month?
 
Marketing    What share of patients is appropriately treated?   Which underserved patient populations will benefit most from my new drug?   Is my brand gaining market share quickly enough to hit revenue forecasts?
 
Research & Development    Are there enough patients for my clinical trial?   Which study centers have the target patients?   How long will trial enrollment take to hit target patient volumes?
 
Real World Evidence (“RWE”)/Pharmacovigilance    What is the likely impact of new therapies on costs and outcomes?   Are new therapies performing better against existing standards of care in real world settings?   Does real world data indicate adverse events not detected in clinical trials?

We generate revenue through local sales teams that manage client relationships in each region and go to market locally with our full suite of information and technology services offerings. Total global revenue from our information offerings, including national and sub-national information services represented 60% of our 2013 revenue. Total global revenue from our technology services offerings, which include hosted and cloud-based applications, implementation services, subscription software, analytic services and consulting, represented 40% of our 2013 revenue. We believe the data from our information offerings, when combined with our technology services offerings, can provide valuable insights to our clients and can increase the speed and effectiveness of decision making while also simplifying processes and reducing complexity and costs. Increasing demand from our clients for broader and more integrated offerings has been an important driver of our growth in technology services revenue, which grew at a CAGR of 13% between 2010 and 2013.

Ari Bousbib was appointed as our Chief Executive Officer on August 16, 2010 following the purchase of our Company by our Sponsors in February 2010, which we refer to as the Merger. Over the past three years, Mr. Bousbib and the management team have made substantial investments in human capital, technology and services infrastructure to expand the breadth of our platform and the number of constituents we serve within the healthcare value chain. Examples of our strategic investments and operational changes include:

 

 

improving our operating efficiency by streamlining our organization, deploying lean methodologies throughout our global operations, and standardizing and automating processes;

 

 

in-sourcing development activities and capabilities, with approximately 70% of our development resources in-house as of 2013 year end, compared to approximately 30% in 2010;

 

 

increasing our offshore delivery resources to over 2,000 people as of 2013 year end, compared to 250 in 2010, which has driven substantial productivity improvement;

 

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shifting our employee mix, with over 50% now client-facing as of 2013 year end, compared to approximately 33% in 2010; and

 

 

expanding our offerings and capabilities by investing over $900 million in 22 complementary acquisitions, internal development projects and capital expenditures since the beginning of 2011 through 2013 year end.

These strategic investments and operational changes have transformed our organization into a more client-centric, service oriented, high-performance culture. Since the Merger through the end of 2013, we added approximately 7,600 employees to the organization and oversaw the departure of approximately 5,200 employees from the organization, reflecting the various strategic and operational changes described above. We estimate that about 60% of our approximately 9,500 employees have joined us since the Merger through the end of 2013.

We believe our investments in people, technology and services have enabled us to significantly expand our addressable market and capture an additional portion of our clients’ spend by providing more powerful technology solutions and new insight-driven services. The following financial performance metrics have improved significantly between 2010 and 2013:

 

 

revenue increased to $2.54 billion, generating a CAGR of 5.6% on an as reported basis and 5.9% on a constant dollar basis;

 

 

Adjusted EBITDA increased to $829 million, generating a CAGR of 10.2% on an as reported basis and 10.6% on a constant dollar basis; and

 

 

Adjusted EBITDA as a percentage of revenue increased to 32.6% from 28.6%.

We recorded net income of $82 million for the year ended December 31, 2013, a net loss of $42 million for the year ended December 31, 2012, net income of $111 million for the year ended December 31, 2011 and a net loss of $202 million for the combined 2010 year-end period. Amounts expressed in constant dollar terms exclude the effect of changes in foreign currency exchange rates on the translation of foreign currency results into U.S. dollars. For additional information regarding these financial measures, including a reconciliation of our non-GAAP measures to the most directly comparable measure presented in accordance with United States GAAP, see “Summary and pro forma consolidated financial data” included elsewhere in this prospectus. For additional information regarding foreign currency translation, see “Management’s discussion and analysis of financial condition and results of operations—Results excluding the effect of foreign currency translation and certain charges” included elsewhere in this prospectus. The Merger resulted in a new accounting basis. Our results of operations for the year ended 2010 presented elsewhere in this prospectus are presented for the predecessor and successor periods, which relate to the periods preceding (January 1, 2010 through February 26, 2010) and succeeding (January 1, 2010 through December 31, 2010) the Merger, respectively. The successor period reflects the new accounting basis established for us as of the Merger date. In the discussion above, we present our net loss for the combined 2010 full year period for comparative purposes, using the mathematical sum of the net loss reported for the successor and predecessor periods. This is a mathematical combination and does not comply with U.S. GAAP, but is presented in this manner as we believe it enables a meaningful comparison. This financial information may not reflect the actual financial results we would have achieved absent the Merger and may not be predictive of future financial results. For a presentation of our results of operations for the year ended 2010 on a U.S. GAAP basis, showing the separate predecessor and successor periods, see “Selected and pro forma consolidated financial data.”

 

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Our market opportunity

We compete in the global information, technology and services market for the life sciences and the broader healthcare industry. Historically, we concentrated our efforts in the market for information and consulting services primarily supporting the commercial functions of life sciences organizations, which we estimate to be a $5 billion market. In response to the needs of a broader set of life sciences clients for more specialized information, such as longitudinal anonymous patient data and clinical trial analytics, we have expanded our offerings to serve the market for information and services, which we estimate to be a $22 billion market. In addition, in response to our life sciences clients’ need to streamline operations, we offer an expanded range of technology services that include data warehousing, IT outsourcing, software applications and other services in the broader market for IT services, which, together, represent an additional $28 billion market among our life sciences clients. As a result, we now operate across a life sciences marketplace for information and technology services that we estimate to be $50 billion. We also have newer offerings in the $25 billion market for information and technology services for payers and providers and view this rapidly expanding market as an opportunity for further growth.

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 market segments, in combination with internal IMS research and analysis informed by our experience serving these market segments, as well as projected growth rates for each of these segments. See “Industry and market data.”

We believe there are five key trends affecting our end markets that will create increasing demand for our information and technology services 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 IMS Market Prognosis service, is estimated to have generated approximately $1 trillion in revenue in 2013. According to our research, revenue growth in the life sciences industry globally is expected to accelerate from 2.5% in 2013 to approximately 6% in 2017. The IMS Institute estimates that an average of 35 NMEs, are expected to be approved each year from 2013 to 2017, up from 25 NMEs in 2010 and a return to mid-2000s levels. The reacceleration of industry growth is also the result of dramatically lower expected patent expirations on prescription medications versus the recent past. Sales losses from drug patent expirations peaked at approximately $44 billion in 2012, significantly reducing commercialization initiatives among life sciences companies. By comparison, over the next five years, we expect sales losses from patent expirations to decline to under $16 billion by 2017, just over one-third of the 2012 peak.

Growth in access to healthcare in emerging markets.    We believe there will be significant growth in healthcare spending in emerging markets, driven predominantly by a rapidly growing middle class in countries such as China and India. According to the IMS Institute, it is estimated that spending on pharmaceuticals in emerging markets will expand at a 10 to 13% CAGR through 2017. The rapid growth of emerging markets is making these geographies strategically important to life sciences organizations and, consistent with their approach in the mature 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 benchmarking performance. In addition, local players are learning that they need to compete on the basis of improved information and analytics.

 

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Financial pressures driving the need for increased efficiency.    Despite expected accelerating growth in the global life sciences market, we believe our clients will face 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. Based on our research, we believe large pharmaceutical companies must collectively reduce costs by approximately $35 billion from 2012 to 2017 to maintain historic operating margins. As a result, our clients are looking for new ways to simplify processes and drive operational efficiencies including 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, RWE studies demonstrate the 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 anonymous 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 the specific patient and advocacy groups that influence the adoption of 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 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 analytics for insight-driven decisions.

 

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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 strengths

Comprehensive information assets and collection network.    The scale of our information assets, breadth and depth of our data supplier network, and our global reach are distinct advantages as clients value quality, consistency and continuity across geographies to accurately measure trends and their performance. With over 10 petabytes of proprietary data sourced from over 100,000 data suppliers covering over 780,000 data feeds globally, we have one of the largest and most comprehensive collections of healthcare information in the world, which includes over 500 million comprehensive, longitudinal anonymous patient records. Based on this data, we deliver information and insights on approximately 90% of the world’s pharmaceuticals, as measured by sales revenue. We have proprietary healthcare data management and projection methodologies developed over a long history, which enable us to extrapolate more precise insights from large-scale databases to provide greater granularity and segmentation for our clients. We continue to invest in new technology to source data that is valued by our clients, including social media analytics and mobile health solutions to continuously add records to our data sets, and refine our information and analytic methods. Use of our proprietary encryption technologies allows anonymous information to be linked across different care settings and across data sets, resulting in more complete healthcare information about anonymous patients and a deeper understanding of real world treatment, cost and outcomes.

Scaled healthcare specific technology infrastructure.    To manage our proprietary, global information base, we have built what we believe is one of the largest and most sophisticated information technology infrastructures in healthcare. By processing data from over 45 billion healthcare transactions annually, our infrastructure 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. We have four Centers of Excellence and five operation hubs around the world, and approximately 9,500 associates, including over 1,200 experts in areas such as biostatistics, data science, bioinformatics, healthcare economics, outcomes research, epidemiology, pharmacology and key therapeutic areas. Our distributed global operations infrastructure allows us to support client deliverables 24 hours a day, seven days a week, in more than 100 countries. We believe the scale, global footprint and connectivity our infrastructure provides is unique within the healthcare vertical and will be of increasing value to our clients in a period where cost pressures will grow.

As part of our information technology infrastructure, we employ a wide variety of proprietary technologies and processes to source, collect, cleanse, bridge, edit and organize data. We then apply a combination of sophisticated computer processing, statistical sampling and projection procedures, advanced analytics, forecasting methodologies and our skills and experience to create and deliver our offerings to clients. The following is an overview of the technologies and processes we employ:

 

 

Data Sourcing. We collect information from a wide variety of data suppliers, including manufacturers, wholesalers, pharmacies, physicians, hospitals, laboratories, health plans and other payors, governments, services organizations, information technology vendors, patients

 

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and others. We are able to collect information in a wide variety of formats and through various methods of delivery. We frequently license some of our proprietary technologies (e.g., encryption programs, data standardization algorithms, data editing and collection software) to data suppliers to support the accurate and privacy-enhanced collection of data by the supplier and secure delivery of that data to us.

 

 

Data Receipt. We work closely with data suppliers to support the timely and secure delivery of data to us. Following receipt of data from our suppliers, we employ a variety of initial quality control checks and processes (based on proprietary metrics and parameters) to ensure data has been properly delivered to us.

 

 

Data Editing / Validation. Following data receipt and initial quality control checks, we use proprietary data cleansing, editing, and other sophisticated tools (based on proprietary metrics, parameters and methodologies) to find and resolve data quality issues in the data supplied to us.

 

 

Data Bridging / Reference Files. We receive data relating to tens of millions of transactions each week. To standardize data for each transaction, which is received from a wide variety of sources who frequently use their own proprietary reference numbers and codes, and allow for alignment of the data prior to projection or aggregation, we bridge (i.e., link) information received from suppliers to our reference files. We develop and maintain these reference files for various types of information, including medicines, diagnoses, treatment modalities, distribution centers, health care offices, integrated health networks, insurance plans and data classification schemes.

 

 

Database Management. When data has successfully passed through the processes referenced above, it is added to applicable IMS databases. In connection with the movement of the information to these databases, we employ additional quality control checks and processes.

 

 

Projection Methodologies. Most of our offerings are derived from the use of statistically representative samples. More than 100 statisticians support the development of proprietary sample designs and projection methodologies to estimate activities to achieve a high degree of accuracy.

 

 

Estimation Methodologies. For our larger datasets, we employ data imputation methods that allow us to estimate for any missing or questionable data until the underlying issue is resolved. By using these estimation methodologies, analysis has shown our offerings are more accurate and not prone to trending aberrations caused by issues in the data flow process.

 

 

Client Reports. After the completion of the processes described above, we are ready to create reports and other information deliverables for client based on their specifications. We employ various methods of report delivery, including secure portals, software-as-a-service, direct delivery of data into client data warehouses or direct delivery to mobile devices.

Highly differentiated technology services fully integrated with IMS information.    Our ability to integrate technology services with our data creates mission-critical, actionable intelligence that improves our overall value proposition to our clients. Our expanding set of sophisticated human capital resources and technology services offerings combined with our deep understanding of our scaled information assets provides what we believe to be a competitive advantage in an environment where clients require better performance. For example, in 2012, we introduced our healthcare-specific intelligent cloud, IMS One, which helps our clients fully recognize the benefits

 

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of our infrastructure. Our cloud is unique in the healthcare industry because it pre-integrates applications with IMS data and provides interoperability across IMS and third party applications. We believe that these benefits both reduce complexity associated with data integration and save our clients time and costs and in synchronizing data across application. We envision that over time IMS One will become an industry standard around which applications are hosted and information shared on an interoperable basis.

Long standing client relationships that are expanding.    The breadth of the intelligent, actionable information we provide is not comprehensively available from any other source and would be difficult and costly for another party to replicate. We believe our information and technology services are deeply integrated into our clients’ workflow. We maintain long-standing relationships and high renewal rates with clients due to the value of the services and solutions we provide, as well as support the need for globally consistent information to enable comprehensive trend analysis at the local, regional, national and multi-country levels. For example, we believe the majority of pharmaceutical companies across more than 50 countries rely on our information to monitor the performance of their sales representatives and use it as a key factor in making ongoing compensation decisions. The average length of our relationships with our top 25 clients, as measured by 2013 revenue, is over 25 years and our retention rate for our top 1,000 clients from 2012 to 2013 was over 99%. Serving over 5,000 clients creates significant opportunity to expand breadth of services we provide to our clients.

Unique and scalable operating model.    We believe we have an attractive operating model due to the scalability of our solutions, the recurring nature of our revenue and the low capital intensity/high free cash flow conversion of our business. Our global infrastructure and healthcare focus allows us to provide large-scale healthcare data, technology and service solutions to clients rapidly and cost-effectively. In 2013, our revenue generated by information offerings represented approximately 60% of our total revenue, approximately 90% of which came from subscription or licensed-based contracts in each of the last three fiscal years and, as a result, has historically been recurring and predictable. Given the fixed-cost nature of our data, we are able to scale our solutions quickly and at low marginal cost. Revenue from our technology services offerings represented approximately 40% of our total revenue, consisting of a mix of projects, large-scale engagements, multi-year outsourcing contracts and multi-year software licenses with approximately 35% being recurring in nature. Additionally, we have executed a multi-year plan to streamline our organization and enhance our technology platform to accommodate more complex analytics and significant additional data volumes with limited incremental costs. We believe our recurring revenue, combined with our leading offerings will continue to contribute to our long-term growth and strong operating margins and flexibility in allocating capital.

Our growth strategy

We believe we are well positioned for continued growth across the markets we serve. Our strategy for achieving growth includes:

Build upon our extensive client relationships.    We have a diversified base of over 5,000 clients in over 100 countries, and have expanded our client value proposition since the Merger to now address a broader market for information and technology services which we estimate to be $50 billion. Through the development of IMS One and focused internal and external development of key client applications, such as CRM, channel management, incentive compensation, social media and clinical trials optimization, we have built a platform that allows us to be a more complete

 

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partner to our clients. We believe we are in the early stages of penetrating this expanding market within our global life sciences client base. Key elements of this strategy include:

 

 

further integrating our existing services to provide clients with interoperable solutions;

 

 

increasing the number of clients that leverage our technology services offerings, including IMS One;

 

 

using our global presence and efficient operating model to scale new applications and solutions rapidly and efficiently across clients, markets and geographies; and

 

 

expanding the number of clients that choose to drive efficiencies by consolidating their vendor needs with us.

Capitalize on our presence in emerging markets.    We believe China, India, Brazil and Russia, together with many of the 50-plus other emerging markets in which we operate, will accelerate their healthcare spending over the next five years. We have an established presence in these markets, generating $440 million of revenue for 2013 (approximately 17% of our revenue) and growing at an 11% constant dollar CAGR since 2010. We serve both multinational companies and local clients. For example, China has over 5,000 domestic pharmaceutical companies, a number of which are large with global aspirations. Key elements of this strategy include:

 

 

partnering with existing life sciences clients as they expand their businesses into emerging markets;

 

 

continuing to grow our existing services in emerging markets while simultaneously introducing new services drawn from our global portfolio; and

 

 

building relationships with local companies that are expanding beyond their home markets by capitalizing on the global credibility and consistency of our platform.

Continue to innovate.    We believe a significant opportunity exists to continue to enhance our information and analytics offerings and expand our technology services offerings to capitalize on the evolving healthcare environment. Our recent investments in human capital, technology and services capabilities position us to continue to pursue rapid innovation within the life sciences sector and the broader healthcare marketplace. Examples of recent innovations include:

 

 

development of applications in the mobile health space including AppScript, an enterprise solution for providers and payers to establish a curated formulary of mobile applications that can be prescribed securely and reconciled by prescribers just like drug prescriptions, and AppNucleus, which allows developers to build mobile applications with secure containers for patient information on devices and secure communication channels to physicians and other applications; and

 

 

development of Evidence360, a collection of specialized technologies for RWE, including tailor-made data warehouses integrating our data sets with patient registries and a cohort builder tool facilitating efficient definitions and tracking of narrow cohorts to determine outcomes in small patient populations.

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. Since the beginning of 2011, we have invested approximately $586 million of capital in 22 acquisitions. As the global healthcare landscape evolves, we expect that there will

 

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be a growing number of acquisition opportunities across the life sciences, payer and provider sectors. We will continue to invest in strategic acquisitions to grow our platform and enhance our ability to provide more services to our clients and expect to seek opportunities, primarily in the areas of technological platforms, data suppliers and consulting services providers.

Expand the penetration of our offerings to the broader healthcare marketplace.    We believe that substantial opportunities exist to expand penetration of our addressable market and further integrate our offerings in a broader cross-section of the healthcare marketplace. Key elements of this strategy include:

 

 

continuing to sell innovative solutions to life sciences clients in areas we have recently entered, such as clinical trial analytics;

 

 

leveraging our comprehensive collection of healthcare information to provide critical insights to payers and providers, enabling advanced patient analytics and population health management; and

 

 

utilizing our proprietary information and analytics to address the evolving needs of the broader healthcare marketplace. The development of our MD360 Provider Performance Management platform highlights augmentation of our core capabilities to penetrate a new and growing area of healthcare information management by using our proprietary library of clinical and cost measures to determine and publish highly specific performance targets for providers.

Our offerings

We offer hundreds of distinct services, applications and solutions to help our clients make critical decisions and perform better. While historically our offerings focused mainly in information and analytics, we now routinely integrate information with technology services to ensure our clients receive the most value from our information to enable them to incorporate insights into their workflow. These offerings complement each other and can provide enhanced value to our clients when delivered together, with each driving demand for the other.

Our principal offerings include:

National information offerings.    Our national offerings comprise unique services in more than 70 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. These products are an integral part of critical processes in life science companies around the world and are also used extensively by the investment and financial sectors that deal with life science companies. Clients use these products to measure relative performance, assess market opportunity, determine brand and company strategy, and understand market dynamics. The products are available in a range of frequencies from weekly to annually, and are delivered in a variety of formats, including online hosted, PCs and mobile platforms.

Sub-national information offerings.    Our sub-national offerings comprise unique services in more than 50 countries that provide a consistent measurement of sales or prescribing activity at the regional, zip code and individual prescriber level (depending on regulation in country). These products are used extensively, with a majority of pharmaceutical sales organizations within these countries dependent on these services to set goals, determine resourcing, measure performance and calculate compensation.

 

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Commercial services.    We provide a broad set of strategic, analytic and support services to help the commercial operations of life sciences companies successfully transform their commercial models, engage more effectively with the marketplace and reduce their operating costs. Our global consulting teams leverage local market knowledge, therapeutic expertise and our global information resources to assist our clients with portfolio, brand and commercial strategy, pricing and market access. We leverage our global technology infrastructure and deep understanding of information and our clients’ operations to provide workflow analytics services to sales operations, market research and managed markets and provide clients with interoperable solutions rather than individual products and services.

Real-World Evidence (RWE) solutions.    We integrate information from medical claims, prescriptions, electronic medical records, biomarkers and government statistics into anonymous, longitudinal patient journeys that provide detailed views of treatment patterns, disease progression, therapeutic switching and concomitant diseases and treatments. Combined with our health economics and outcomes research expertise, we leverage this information to help biopharmaceutical companies, health plans, providers and government agencies evaluate how treatments perform in real-world settings.

Commercial technology solutions.    We provide an extensive range of hosted and cloud-based applications and associated implementation services. The applications, hosted on IMS One, support a wide range of commercial processes including multi-channel marketing, CRM, performance management, incentive compensation, territory alignment, roster management and call planning. These solutions are used by sales and marketing operations to manage, optimize and execute their sales activities and brand campaigns. We combine our data, expert analysis and therapeutic knowledge to create a SaaS based analytics solution called AnalyticsLink. Based on proprietary linking and integration of our country data sets into a global repository, we provide an offering called MIDAS which provides a leading source of insight into international market dynamics and is used by most large pharmaceutical companies.

Clinical solutions.    By bringing together our information with advanced predictive modeling technology and sophisticated data visualization software, we help biopharmaceutical companies and CROs better design, plan, execute and track clinical trials. Our solutions allow our clients to dynamically model the size of patient populations for specific clinical protocols, estimate time and cost to recruit patients given a specific protocol and investigator selection, and optimize country allocation and patient recruitment. For payers and providers, we integrate client data with our information and proprietary analytics, to enable risk-sharing and pay-for-performance programs, network design and management, and population health management.

Our data suppliers

We maintain a diverse supplier base to support the information needs of our clients. Over the past six decades, we have developed and maintained strong relationships with data suppliers in each market in which we operate. These suppliers include manufacturers, wholesalers, pharmacies, physicians, hospitals, laboratories, health plans and other payors, governments, services organizations, information technology vendors, patients and others. We frequently license IMS proprietary technologies (e.g., encryption programs, data standardization algorithms, data editing and collection software) to data suppliers to support the accurate and privacy-enhanced collection of data by the supplier and secure delivery of that data to us. We have historical connections with many of the relevant trade associations and professional associations.

 

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We devote significant human and financial resources to our data collection efforts and are adding new suppliers and new data sources every year to provide the most relevant information to our clients. Many of our data suppliers are also clients. For example, we offer performance monitoring and segmentation services to retail pharmacies, services that have become critical to supporting retailer growth objectives. Developing and providing services to suppliers supports a continuation of long-term supply relationships.

Our contractual arrangements with our data suppliers number in the thousands. Typical data supply contracts specify the data to be provided to us, the frequency of data delivery (e.g., daily, weekly, monthly), data quality obligations, data use rights, and consideration provided by us in exchange for the data (e.g., reports, services, remuneration). These contracts are tailored based on the type of data collected, the market, local law and the negotiated outcome with each counterparty and therefore can vary significantly in their terms. These contracts reflect a range of commitment terms from one year to ten years, with larger data supply contracts typically having a contract term of five years.

Our technology

We maintain what we believe is one of the largest and most sophisticated information technology infrastructures in healthcare globally. Our distributed global operations infrastructure supports client deliverables 24 hours a day, seven days a week, in more than 100 countries. This global infrastructure, which connects our data center in Carlstadt, New Jersey with our regional and local data centers around the world via our global network, serves as the backbone for processing over 45 billion healthcare transactions annually. In addition, we maintain COEs and operations hubs around the world, each with a focus area of expertise.

 

 

In India, a team of over 1,200 technology experts support services delivery, software development and data management. Analytical services are deployed using common methodologies across each offering to promote consistent quality for each client deliverable.

 

 

In Manila, The Philippines, we combine IT and medical resources (with over 500 specialists in healthcare and IT) to clean and standardize information from data suppliers around the world.

 

 

Beijing, China is home to our innovative and proprietary statistical methodologies. More than 200 experts manage the statistical validity of data worldwide and guide how the data can be used.

 

 

In Madrid, Spain, our experts code and manage core reference data worldwide. More than 200 IT and medical specialists with native skills in over 15 languages link information assets through in-house developed software platforms for master data management.

 

 

Our Offering Development and Delivery hubs are based in London, United Kingdom, Plymouth Meeting, Pennsylvania, and in San Francisco, California. Our product development teams leverage methodologies to release technology platforms and business intelligence tools that facilitate our clients’ ability to gain insight into information. Our applications are deployed on a common technical architecture allowing re-use across geographical locations and providing a common interface for end users.

 

 

Central and regional production focused COEs are located across the globe to efficiently support the delivery of IMS services. The Manila COE is the main global hub that provides cleaning and standardizing services, production management, and quality control operations.

 

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We selected Manila because there is wide availability of relevant healthcare skills, English is a first language, and it provides an efficient cost structure. The Madrid COE focuses on maintaining our reference management operations. The Chile based OCLA Regional hub provides time zone sensitive production services to the Latin America, Canada and U.S. business units. The Istanbul hub provides language specific production services to the North Africa, South Europe, Middle East and East Europe regions. In contrast to the central hubs, the regional hubs are generally focused on activities that are more dependent on specific languages or in some cases where we need alignment of time zones.

Our clients

Sales to companies in life sciences, including pharmaceutical companies, biotechnology companies, device and diagnostic companies, and consumer health companies, accounted for approximately 90% of our revenue in 2013. 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. In 2011 and 2012, our largest customer accounted for approximately 6% of our gross revenue, and in 2013, our largest customer accounted for approximately 5% of our gross revenue.

Our competition

We compete with a broad and diverse set of businesses. While we believe no competitor provides the combination of geographical reach and breadth of our 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, Cognizant Technology Solutions, Covance, Deloitte, Evidera, GfK, Health Market Science, IBM, Infosys, inVentiv Health, Kantar Health, McKinsey, Nielsen, OptumInsight, Parexel, Press Ganey, Quintiles, RTI Health Solutions, Symphony Health Solutions, Synovate Healthcare, The Advisory Board, Trizetto, Verisk 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.

Privacy management and security

Patient health information is among the most sensitive of personal information, and it is critically important that information about an individual’s healthcare is properly protected from inappropriate access, use and disclosure. For decades, our market research business was built using health information that did not identify a patient—long before the passage of HIPAA or other privacy laws. We continue to engage in strong privacy and security practices in the collection, processing, analysis, reporting and use of information. We employ a wide variety of methods to manage privacy and security, including:

 

 

governance, frameworks and models to promote good decision making and accountability;

 

 

a layered approach to privacy and security management to avoid a single point of failure;

 

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ongoing evaluation of privacy and security practices to promote continuous improvement;

 

 

use of safeguards and controls, including:

 

   

technical safeguards—for example, technology and related policies and procedures to protect healthcare information and control access to it;

 

   

administrative safeguards—for example, administrative actions and related policies and procedures to manage the selection, development, implementation and maintenance of measures to protect healthcare information;

 

   

physical safeguards—for example, physical measures and related policies and procedures to protect electronic information systems and related buildings and equipment from natural and environmental hazards, and unauthorized intrusion;

 

 

collaboration with data suppliers and trusted third parties for our syndicated data offerings to remove identifiable information or employ effective encryption or other techniques to render information anonymous before data is delivered to us; and

 

 

working closely with leading researchers, policy makers, thought leaders and others in a variety of fields relevant to the application of effective privacy and security practices, including statistical, epidemiological and cryptographic sciences, legal, information security and compliance, and privacy.

Our intellectual property

We create, own and maintain a wide array of intellectual property assets which, in the aggregate, are of material importance to our business. Our intellectual property assets include: patents and patent applications related to our innovations, products and services; trademarks and trademark applications related to our brands, products and services; copyrights in software and databases; trade secrets relating to data processing, statistical methodologies, editing and bridging techniques, business rules and other aspects of our business; and other intellectual property rights and licenses of various kinds. We are licensed to use certain technology and other intellectual property rights owned and controlled by others, and, similarly, other companies are licensed on a non-exclusive basis to use certain technology and other intellectual property rights owned and controlled by us.

We seek to protect our intellectual property assets through patent, copyright, trade secret, trademark and other laws of the United States and other jurisdictions, and through confidentiality procedures and contractual provisions. A patent generally has a term of 20 years from the time the full patent application is filed. As we build a patent portfolio over time, the terms of individual patents will vary. While patents can help maintain the competitive differentiation of certain products and services and maximize the return on research and development investments, no single patent is in itself essential to our business as a whole. Further, in order to replace expiring patents and licenses or replace obsolete intellectual property, we attempt to obtain new intellectual property through protection of key innovation from a combination of our ongoing research and development activities, acquisitions of other companies and licensing of intellectual property from third parties. We enter into confidentiality and invention assignment agreements with employees and contractors, and non-disclosure agreements with third parties with whom we conduct business, in order to secure ownership rights to, limit access to, and restrict disclosure of our proprietary information.

 

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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. 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 IMS Health, IMS, the IMS logo, IMS One, MIDAS, Xponent, DDD, AppScript, AppNucleus and Evidence360, in the United States and other jurisdictions and aggressively seek to protect them.

Our employees

As of the date of this prospectus we have approximately 9,500 employees worldwide. Almost all of these employees are full-time. None of our U.S. employees are represented by a union. In Belgium, France, Germany, Italy, the Netherlands and Spain, we have Works Councils, which are a legal requirement in those countries. We also have a European Works Council, which is a requirement under European Union laws. Management considers its relations with our employees to be good and to have been maintained in a normal and customary manner.

Properties

Our executive offices are located at 83 Wooster Heights Road, Danbury, Connecticut in a leased property (approximately 24,000 square feet).

Our property is geographically distributed to meet our sales and operating requirements worldwide. Our properties and equipment are generally considered to be both suitable and adequate to meet current operating requirements and virtually all space is being utilized.

As of the date of this prospectus we own one property in the United States located in Pennsylvania (approximately 17,000 square feet).

Our active owned properties located outside the United States include: one property in Buenos Aires, Argentina (approximately 12,000 square feet); one property in Caracas, Venezuela (approximately 8,800 square feet); two properties in Los Ruices, Venezuela (approximately 4,000 square feet); one property in Lisbon, Portugal (approximately 10,000 square feet); and one property in Bangalore, India (approximately 374,000 square feet).

Our operations are also conducted from 26 leased offices located throughout the United States and 93 leased offices in non-U.S. locations.

We own or lease a variety of computers and other equipment for our operational needs. We continue to upgrade and expand our computers and related equipment in order to increase efficiency, enhance reliability and provide the necessary base for business expansion.

Legal proceedings

As a company operating in more than 100 countries, we are involved in a variety of legal and tax proceedings, claims and litigation that arise from time to time in the ordinary course of business. These actions may be commenced by various parties, including competitors, clients, current or former employees, government agencies or others. We record a provision with respect to a proceeding, claim or litigation when it is probable that a liability has been incurred and the amount of the loss can be reasonably estimated. However, even in instances where we have

 

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recorded an estimated liability, we are unable to predict with certainty the final outcome of the matter or whether resolution of the matter will materially affect our results of operations, financial position or cash flows. As additional information becomes available, we adjust our assessment and estimates of such liabilities accordingly.

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

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

On June 5, 2009, Associacao Nacional de Farmacias (“ANF”) and Farminveste – Investimentos, Participacoes e Gestuo, S.A. (“Farminveste”) filed claims against IMS Health Portugal, Lda. (“IMS Portugal”) for breaching a 2008 agreement among the parties for approximately 21 million. IMS Portugal counterclaimed against ANF and Farminveste for approximately 19 million for damages and loss. In 2011, the Arbitration Tribunal ruled that ANF was liable to IMS Portugal for up to 14 million for damage caused to IMS Portugal’s business. The actual amount of damages will be adjudicated in a separate proceeding before the Lisbon Court of First Instance and the date has yet to be set. Prior to the commencement of the arbitration proceeding, the Lisbon Court of First Instance separately seized approximately 18.3 million from IMS Portugal in a non-interest bearing court escrow account. Under Portuguese civil procedure, the seized funds will remain in court escrow until there is a final and unappealable judicial judgment in respect of the arbitration proceeding. The arbitration decision was appealed by ANF in June 2011. The appeal will be heard before the Lisbon Court of Appeals, and either party will subsequently have a further right of appeal to the Supreme Court of Portugal.

On July 24, 2013, Symphony Health Solutions and two of its subsidiaries (collectively “Symphony”) filed a lawsuit in the U.S. District Court for the Eastern District of Pennsylvania against IMS Health alleging anticompetitive business practices in violation of the Sherman Antitrust Act and Pennsylvania state law. The complaint seeks trebled actual damages in an unspecified amount, punitive damages, costs and injunctive relief. IMS Health asserted various counterclaims against Symphony, including for misappropriation of trade secrets , tortious interference and unfair competition. We believe the complaint is without merit, reject all claims raised by Symphony and intend to vigorously defend IMS Health’s position and pursue the counterclaims.

On December 20, 2013, IMS Health filed a lawsuit in the U.S. District Court for the District of Delaware against Symphony for infringement of three patents seeking injunctive relief and damages. While we intend to vigorously litigate these patents and pursue our legal rights, we can offer no assurance as to when the pending litigation will be decided or whether the lawsuit will be successful.

 

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Our wholly-owned subsidiary, IMS Government Solutions Inc., is primarily engaged in providing services and products under contracts with the U.S. government. U.S. government contracts are subject to extensive legal and regulatory requirements and, from time to time, agencies of the U.S. government have the ability to investigate whether contractors’ operations are being conducted in accordance with such requirements. IMS Government Solutions discovered potential noncompliance with various contract clauses and requirements under its General Services Administration Contract (the “GSA Contract”) which was awarded in 2002 to its predecessor company, Synchronous Knowledge Inc. (Synchronous Knowledge Inc. was acquired by IMS Health in May 2005). The potential noncompliance arose from three primary areas: first, at the direction of the government, work performed under one task order was invoiced under another task order without the appropriate modifications to the orders being made; second, personnel who did not meet strict compliance with the labor categories component of the qualification requirements of the GSA Contract were assigned to contracts; and third, certain discounts that were given to commercial customers were not also offered to the government, in alleged violation of the GSA Contract’s Price Reductions Clause. Upon discovery of the potential noncompliance, we began remediation efforts, promptly disclosed the potential noncompliance to the U.S. government, and were accepted into the Department of Defense Voluntary Disclosure Program. We filed a Voluntary Disclosure Program Report on August 29, 2008. We are currently unable to determine the outcome of these matters pending the resolution of the Voluntary Disclosure Program process and the ultimate liability arising from these matters could exceed its current reserves.

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 Health Korea Ltd. (“IMS Korea”) and two other defendants, the Korean Pharmaceutical Association (“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. The plaintiffs are claiming damages in the aggregate amount of approximately US$6 million plus interest. We believe the lawsuit is without merit, reject plaintiffs’ claims and intend to vigorously defend IMS Health’s position.

For additional information, see Note 12 to our consolidated financial statements for the year ended December 31, 2013 included elsewhere in this prospectus and “Risk factors—Risks related to our business—Litigation or regulatory proceedings could have a material adverse effect on our operating results and financial condition.”

 

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Management

Executive officers and directors

Below is a list of the names, ages as of date of this prospectus, positions and a brief account of the business experience of the individuals who serve as our executive officers and directors as of the date of this prospectus.

 

Name    Age    Position    Director/officer
of IMS since

 

Ari Bousbib

   53    Director; Chairman, Chief Executive Officer & President    2010

Ronald E. Bruehlman

   53    Senior Vice President & Chief Financial Officer    2011

Harvey A. Ashman

   51    Senior Vice President, General Counsel, External Affairs & Corporate Secretary    2009

Kevin C. Knightly

  

53

   Senior Vice President, Supply Management    2006

Stefan C. Linn

   49    Senior Vice President, Strategy & Global Pharma Solutions    2010

Satwinder Sian

   50    Senior Vice President, Global Technology & Operations    2010

Paul M. Thomson

   64    Senior Vice President, Human Resources & Administration    2010

José Luis Fernández

   49    Senior Vice President, Global Services    2014

André Bourbonnais

   52    Director    2010

John G. Danhakl

   58    Director    2010

David Lubek*

   34    Director    2013

Sharad S. Mansukani

   44    Director    2010

Nehal Raj*

   35    Director    2011

Jeffrey K. Rhodes*

   39    Director    2011

Ronald A. Rittenmeyer

   66    Director    2010

Todd B. Sisitsky

   42    Director    2010

Bryan M. Taylor

   43    Director    2010

 

*   Messrs. Lubek, Raj and Rhodes ceased to be directors as of March 23, 2014.

Ari Bousbib, Chairman, Chief Executive Officer & President, Director

Mr. Bousbib was appointed Chief Executive Officer of IMS Health in August 2010 and was appointed to the additional role of Chairman in December 2010. Prior to joining IMS Health, Mr. Bousbib spent 14 years at United Technologies Corporation (“UTC”). From 2008 until 2010, he

 

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served as President of UTC’s Commercial Companies. From 2002 until 2008, Mr. Bousbib was President of Otis Elevator Company, and from 2000 to 2002 he served as its Chief Operating Officer. Previously, 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. He previously served on the board of directors of Best Buy, Inc. 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. Because of Mr. Bousbib’s extensive leadership experience, we believe he is well qualified to serve on our board of directors.

Ronald E. Bruehlman, Senior Vice President and Chief Financial Officer

Mr. Bruehlman was appointed Senior Vice President and Chief Financial Officer of IMS Health in July 2011. Prior to joining IMS, he worked for 23 years at UTC, advancing through finance positions of increasing responsibility. He was Vice President, Operations Planning and Analysis, of UTC’s Commercial Companies from 2008 to 2010. From June 2009 until April 2011, Mr. Bruehlman also held the role of Vice President, Business Development for UTC, where he led the corporation’s global strategy and development activities. From June 2005 until May 2008, he was Vice President and Chief Financial Officer of Carrier Corporation. Prior to that, Mr. Bruehlman was Vice President, Financial Planning and Analysis for UTC and also served as Director, Investor Relations of UTC. Mr. Bruehlman holds a B.S. in Economics from the University of Delaware, and an M.B.A. from the University of Chicago.

Harvey A. Ashman, Senior Vice President, General Counsel, External Affairs and Corporate Secretary

Mr. Ashman was appointed Senior Vice President, General Counsel, External Affairs and Corporate Secretary of IMS Health in October 2009. He served as Vice President, External Affairs and Associate General Counsel for the Americas region from April 2008 until October 2009, and Vice President and Associate General Counsel for the Americas region from April 1999 until April 2008. Mr. Ashman joined IMS Health’s predecessor company, IMS International, Inc., in October 1988 as a staff attorney and has held roles of increasing responsibility from that time through the present. Mr. Ashman holds a B.A. from the University of Massachusetts, Amherst, and a J.D. from the New England School of Law.

Kevin C. Knightly, Senior Vice President, Supply Management

Mr. Knightly was appointed Senior Vice President, Supply Management of IMS Health in January 2011 and served as Senior Vice President, Pharma Business Management from 2007 until 2010. Prior to that, Mr. Knightly served as President of the EMEA region. He has also served as Chief Financial Officer for IMS Health North America and Europe, and Senior Vice President, Marketing and Major Markets, EMEA. Mr. Knightly joined an IMS Health affiliate in 1983 and since then has held a number of senior financial, operations, marketing and general management posts. He 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.

Stefan C. Linn, Senior Vice President, Strategy and Global Pharma Solutions

Mr. Linn was appointed Senior Vice President, Strategy and Global Pharma Solutions of IMS Health in September 2012. He served as Senior Vice President, Strategy, Innovation and

 

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Development from January 2011 until September 2012, and Senior Vice President, Strategy and Business Development from October 2010 until January 2011. From March 2008 until October 2010, Mr. Linn was a Director at TPG. From August 2001 until March 2007, Mr. Linn was Senior Vice President at McKesson and also served as President of Health Mart Systems, Inc. Prior to that Mr. Linn was Vice President of Marketing at Merck-Medco from 1996 until 2001. He also worked for McKinsey & Company in London. Mr. Linn previously served as a director on the board of CliniWorks, Inc. from May 2011 to August 2013. He holds a B.A. in Economics from the University of Dallas, and an M.B.A. from the University of California at Berkeley.

Dr. Satwinder Sian, Senior Vice President, Global Technology & Operations

Dr. Sian began serving as Senior Vice President, Global Technology & Operations on January 1, 2014. He has held various leadership roles at IMS Health. He served as Senior Vice President, Global Technology Services & Operations from September 2012 until January 2014. From June 2011 until September 2012, Dr. Sian served as Senior Vice President, Global Pharma Solutions. From July 2010 until June 2011, he served as President, China. From January 2006 until June 2010, he was General Manager, Commercial Effectiveness. From 2003 until 2006 he managed the Consulting & Services business in EMEA. Dr. Sian also served as Vice President and General Manager, Consumer Health. He earned a Ph.D. in Information Technology from Imperial College, London, and holds an M.B.A. from the Management School, Open University in the United Kingdom.

Paul M. Thomson, Senior Vice President, Human Resources and Administration

Mr. Thomson was appointed Senior Vice President, Human Resources and Administration in January 2011. In October 2010, Mr. Thomson joined IMS Health as Senior Vice President, Human Resources following a 37-year career at UTC. At UTC he served as Vice President, Human Resources for Otis Elevator Company from 1998 to 2010. In this role, Mr. Thomson led the company’s worldwide human resources organization covering global operations with a combined employee population of 60,000. Prior to that, he held a number of human resources roles of increasing responsibility with UTC, including Vice President, Human Resources at Sikorsky Aircraft Corporation from 1991 to 1997; UTC Director, Compensation and Benefits from 1988 to 1991; and several human resources leadership roles at Otis Elevator and Pratt & Whitney. Mr. Thomson holds a B.S. in Sociology and an M.B.A. from the University of Connecticut. He also received an M.S. in Management from the Massachusetts Institute of Technology.

José Luis Fernández, Senior Vice President, Global Services

Mr. Fernández was appointed Senior Vice President, Global Services of IMS Health in January 2014. He was responsible for IMS Health’s South Europe & Middle East operations from 2010 through the end of 2013. From 2008 to 2010, Mr. Fernández served as general manager of IMS Health’s consulting and services business in EMEA, and prior to that was general manager of EMEA mid-size markets and Spain operations. Before joining IMS Health, Mr. Fernández held a variety of sales, marketing and commercial effectiveness roles with AstraZeneca in Europe. He began his career at Accenture as a management consultant focused on commercial strategy for the pharmaceutical, consumer goods and auto sectors. Mr. Fernández holds an advanced degree in Industrial Engineering from Madrid Polytechnic University.

 

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André Bourbonnais, Director

Mr. Bourbonnais has served as a Director of IMS Health since February 2010. Mr. Bourbonnais has more than 20 years of experience in executing transactions and he is responsible for leading private equity investments in the CPPIB portfolio. Prior to joining CPPIB in 2006, Mr. Bourbonnais managed a combined private equity portfolio in financial services, telecommunications, media and entertainment sectors for another Canadian pension plan manager. Prior to that, he spent several years with a leading telecommunications company mostly as a senior officer responsible for corporate development and legal affairs. He also currently serves on the boards of directors of Anglian Water Group, Ltd., and serves as Chair of Air Distribution Technologies Inc. Mr. Bourbonnais holds an L.L.M. from the London School of Economics and Political Science, and an L.L.L. from the University of Ottawa. Because of his extensive experience in leadership and financial management, we believe Mr. Bourbonnais is well qualified to serve on our board of directors.

John G. Danhakl, Director

Mr. Danhakl has served as a Director of IMS Health since February 2010. He is Managing Partner at LGP, which he joined in 1995. Previously, Mr. Danhakl was a Managing Director of Donaldson, Lufkin & Jenrette Securities Corporation, which he joined in 1990. From 1985 until 1990, Mr. Danhakl was Vice President in corporate finance at Drexel Burnham Lambert, Inc. Mr. Danhakl currently serves on the boards of directors of the following publicly traded companies: Savers, Inc., J. Crew Group, Inc., Petco Animal Supplies, Inc. and Arden Group, Inc. He previously served as a director of Big 5 Sporting Goods Corporation, Communications & Power Industries, Diamond Triumph Auto Glass, Inc., Liberty Group Publishing, Inc., MEMC Electronic Materials, Inc., Phoenix Scientific, Inc., Rite Aid Corporation, VCA Antech, Inc., Air Lease Corporation and The Neiman Marcus Group, Inc. Mr. Danhakl holds a B.A. in Economics from the University of California at Berkeley, and an M.B.A. from Harvard Business School. Because of his extensive experience serving as a public company director and his knowledge of corporation finance, we believe Mr. Danhakl is well qualified to serve on our board of directors.

David Lubek, Director

Mr. Lubek has served as a director of IMS Health since October 2013. He is a Principal in the Direct Private Equity Group of CPPIB. Prior to joining CPPIB in 2008, Mr. Lubek worked at CIBC World Markets in the Mergers & Acquisitions investment banking group. He also is a Chartered Financial Analyst Charterholder. Mr. Lubek holds an M.B.A. from the Kellogg School of Management at Northwestern University, and a B.B.A. from the Schulich School of Business at York University. Mr. Lubek ceased to be a director as of March 23, 2014.

Sharad S. Mansukani, M.D., Director

Dr. Mansukani has served as a Director of IMS Health since April 2010. Dr. Mansukani has served as a TPG Senior Advisor since 2005. He serves on the board of directors of Surgical Care Affiliates, Inc., IASIS Healthcare Corp., Immucor Inc. and Par Pharmaceuticals Companies, Inc. Dr. Mansukani serves as Strategic Advisor to the board of directors of CIGNA and previously served as Vice Chairman of HealthSpring Inc. Dr. Mansukani also serves on the board of directors of the Children’s Hospital of Philadelphia and on the editorial boards of the American Journal of

 

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Medical Quality, Managed Care, Biotechnology Healthcare and American Health & Drug Benefits. Dr. Mansukani was appointed to Medicare’s Payment Advisory and Oversight Committee, and he was previously Senior Advisor to CMS and a member of the Medicare Reform Executive Committee. Dr. Mansukani previously served on the faculty at the University of Pennsylvania and at Temple University School of Medicine. Dr. Mansukani completed his residency and fellowship in ophthalmology at the University of Pennsylvania School of Medicine and a fellowship in quality management and managed care at the Wharton School of the University of Pennsylvania. Because of his extensive experience in leadership and the healthcare sector, we believe Dr. Mansukani is well qualified to serve on our board of directors.

Nehal Raj, Director

Mr. Raj has served as a Director of IMS Health since December 2011. Mr. Raj joined TPG in 2006, where he is a Principal and helps lead the firm’s investments in the technology sector. Prior to joining TPG, Mr. Raj was a technology private equity investor at Francisco Partners and a technology mergers and acquisitions professional at Morgan Stanley. Mr. Raj also serves as a director of Aptina Imaging, CCC Information Services, Decision Insight Information Group, Domo, and Symbility Solutions, and previously was a director of Intergraph Corporation. He holds both an A.B. in Economics and an M.S. in Industrial Engineering and Engineering Management from Stanford University, where he graduated Phi Beta Kappa. He also holds an M.B.A from Harvard Business School, where he was a Baker Scholar. Mr. Raj ceased to be a director as of March 23, 2014.

Jeffrey K. Rhodes, Director

Mr. Rhodes has served as a Director of IMS Health since December 2011. Mr. Rhodes is a Principal at TPG, where he is a leader of the firm’s investment activities in the healthcare services and pharmaceutical/medical device sectors. Mr. Rhodes serves on the board of directors of Biomet Inc., EnvisionRx, Immucor Inc., Par Pharmaceuticals Companies, Inc., and Surgical Care Affiliates, Inc. Prior to joining TPG in 2005, Mr. Rhodes worked at McKinsey & Company and Article 27 LTD, a start-up software company. Mr. Rhodes earned his M.B.A. from the Harvard Business School, where he was a Baker Scholar, and earned his B.A. in Economics from Williams College, where he graduated summa cum laude. Mr. Rhodes ceased to be a director as of March 23, 2014.

Ronald A. Rittenmeyer, Director

Mr. Rittenmeyer has served as a Director of IMS Health since April 2010. He is Chairman, President and CEO of Expert Global Solutions, Inc. Previously, Mr. Rittenmeyer served as Chairman, CEO and President of Electronic Data Systems Corporation from 2005 until 2008. Prior to that, he served as Chief Operating Officer of Electronic Data Systems Corporation from October 2005 until September 2007 (including service as Co-Chief Operating Officer until May 2006) and as Executive Vice President, Global Service Delivery from July 2005 until December 2006. Mr. Rittenmeyer also serves on the boards of directors of American International Group, Inc. and Tenet Health Care Corporation. He previously served as a director of EDS and RH Donnelley (presently Dex One Corporation). Mr. Rittenmeyer holds a B.A. in Commerce and Economics from Wilkes University, and his M.B.A. from Rockhurst University. Because of his leadership experience, over 30 years of business experience and extensive experience serving on public company boards, we believe Mr. Rittenmeyer is well qualified to serve on our board of directors.

 

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Todd B. Sisitsky, Director

Mr. Sisitsky has served as a Director of IMS Health since February 2010. Mr. Sisitsky is a Partner of TPG where he leads TPG’s investment activities in the healthcare sector globally. Mr. Sisitsky serves on the board of directors of Surgical Care Affiliates, Inc., Aptalis Holdings, Inc., formerly Aptalis Pharma, Inc., IASIS Healthcare Corp., HealthScope Ltd., Immucor Inc. and Par Pharmaceuticals Companies, Inc. and previously served on the boards of Biomet Inc. and Fenwal Inc. He also serves on the board of the Campaign for Tobacco Free Kids, a global not-for-profit organization, and the Dartmouth Medical School Board of Overseers. Prior to joining TPG in 2003, Mr. Sisitsky worked at Forstmann Little & Company and Oak Hill Capital Partners. Mr. Sisitsky earned an M.B.A. from the Stanford Graduate School of Business, where he was an Arjay Miller Scholar, and earned his undergraduate degree from Dartmouth College, where he graduated summa cum laude. Because of his extensive experience in leadership, business, and healthcare, we believe Mr. Sisitsky is well qualified to serve on our board of directors.

Bryan M. Taylor, Director

Mr. Taylor has served as a Director of IMS Health since February 2010. He joined TPG in March 2004, and is a Partner in the firm’s Technology Group, where he is responsible for investments in software, data/analytics and technology services. He was also involved in TPG’s investments in Alltel Communications and Advent Software. Mr. Taylor currently serves as Chairman of Vertafore, Inc., and is a member of the Operating Committee of SunGuard. He also currently serves on the board of directors of Decision Insight Information Group, CCC Information Services Inc. and Eze Software Group. Prior to joining TPG, Mr. Taylor was a founder and Managing Director at Symphony Technology Group, a private equity firm focused exclusively on software and technology services investments. While at Symphony, Mr. Taylor was actively involved with the firm’s investments in Information Resources Incorporated, Intentia AB, GERS, Inc., Industri-Matematik International Corp. AB, and Symphony Services, Inc. Prior to joining Symphony, Mr. Taylor was a Manager at Bain & Company where he worked in the private equity and technology practice groups. He holds a B.A. from Stanford University, where he graduated with honors, and an M.B.A. from the Stanford Graduate School of Business. Because of his experience in finance and technology services, we believe Mr. Taylor is well qualified to serve on our board of directors.

Board composition and director independence

Our business and affairs are managed under the direction of our board of directors. Following the removal of Messrs. Lubek, Raj and Rhodes, our board of directors is composed of seven directors: Messrs. Sisitsky and Taylor, who were designated for nomination as directors by TPG; Mr. Bourbonnais, who was designated for nomination as a director by CPPIB-PHI; Mr. Danhakl, who was designated for nomination as a director by LGP; Mr. Mansukani, who was designated for nomination as a director jointly by TPG and CPPIB-PHI; Mr. Bousbib, who serves as a director because he is our Chief Executive Officer; and Mr. Rittenmeyer. Currently, each director is elected for a one-year term.

 

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Our certificate of incorporation that will be in effect upon closing of this offering provides that our board of directors shall consist of at least three directors but not more than 17 directors and that the number of directors may be fixed from time to time by resolution of our board of directors. Under the amended and restated stockholders’ agreement described below, we have agreed to take necessary action to maintain the size of the board of directors at no greater than nine directors, subject to applicable laws and regulations, and subject to the Sponsors’ rights to add additional directorships. Our board of directors will be divided into three classes, as follows:

 

 

Class I, which will initially consist of Messrs. Bourbonnais, Bousbib, and Sisitsky, whose terms will expire at our annual meeting of stockholders to be held in 2015;

 

 

Class II, which will initially consist of Messrs. Danhakl and Taylor, whose terms will expire at our annual meeting of stockholders to be held in 2016; and

 

 

Class III, which will initially consist of Messrs. Mansukani and Rittenmeyer, whose terms will expire at our annual meeting of stockholders to be held in 2017.

Upon the expiration of the initial term of office for each class of directors, each director in such class shall be elected for a term of three years and serve until a successor is duly elected and qualified or until his or her earlier death, resignation or removal. Subject to TPG’s and CPPIB-PHI’s rights described below, any additional directorships resulting from an increase in the number of directors or a vacancy may be filled by the directors then in office.

In connection with this offering, we will enter into an amended and restated stockholders’ agreement with investment entities controlled by the Sponsors that will provide the Sponsors with nomination rights with respect to our board of directors. Under the agreement, we and the Sponsors are required to take all necessary action to cause the board of directors to include individuals designated by the Sponsors in the slate of nominees recommended by the board of directors for election by our stockholders. The Sponsors’ nomination rights upon closing of this offering as set forth in the amended and restated stockholders’ agreement are described below.

 

 

For so long as TPG owns at least 50% of the shares of our common stock held by TPG following the closing of this offering, TPG will be entitled to designate two individuals for nomination to serve on our board of directors. When TPG owns less than 50% but at least 5% of the shares of our common stock held by TPG following the closing of this offering, TPG will be entitled to designate one individual for nomination. In addition, for so long as TPG owns at least 50% of the shares of our common stock held by TPG following the closing of this offering, TPG will be entitled to make a request to expand the size of the board of directors by two and designate individuals to fill the resulting vacancies, and when TPG owns less than 50% but at least 10% of the shares of our common stock held by TPG following the closing of this offering, TPG will be entitled to make a request to expand the size of the board of directors by one and designate an individual to fill the resulting vacancy. Subject to our bylaws, the individual who fills any such vacancy will be assigned to the class of directors to be elected at the annual meeting that is the latest to occur of the then-existing classes of directors, unless otherwise agreed by holders of at least 65% of the shares then held by the Sponsors.

 

 

For so long as CPPIB-PHI owns at least 10% of the shares of our common stock held by CPPIB-PHI following the closing of this offering, CPPIB-PHI will be entitled to designate one individual for nomination to serve on our board of directors. In addition, for so long as CPPIB-PHI owns at least 25% of the shares of our common stock held by CPPIB-PHI following the closing of this offering, CPPIB-PHI will be entitled to make a request to expand the size of the board of

 

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directors by one and designate an individual to fill the resulting vacancy. Subject to our bylaws, the individual who fills any such vacancy will be assigned to the class of directors to be elected at the annual meeting that is the latest to occur of the then-existing classes of directors, unless otherwise agreed by holders of at least 65% of the shares then held by the Sponsors.

 

 

For so long as TPG and CPPIB-PHI collectively own at least 50% of the shares of our common stock held by them collectively following the closing of this offering, they will be entitled to jointly designate one individual for nomination to serve on our board of directors.

 

 

For so long as LGP owns at least 50% of the shares of our common stock held by LGP following the closing of this offering, LGP will be entitled to designate one individual for nomination to serve on our board of directors.

In addition, the amended and restated stockholders’ agreement provides that the Sponsors agree to vote for each other’s director nominees and also agree to vote for the chief executive officer then in office as a director.

Following the completion of this offering, we expect to be a “controlled company” under the rules of the NYSE because more than 50% of our outstanding voting power will be held by the Sponsors. See “Principal and selling stockholders.” We intend to rely upon the “controlled company” exception relating to the board of directors and committee independence requirements under the rules of the NYSE. Pursuant to this exception, we will be exempt from the rules that would otherwise require that our board of directors consist of a majority of independent directors and that our leadership development and compensation committee and nominating and governance committee be composed entirely of independent directors. The “controlled company” exception does not modify the independence requirements for the audit committee, and we intend to comply with the requirements of the Exchange Act and the rules of the NYSE, which require that our audit committee have at least one independent director upon consummation of this offering, consist of a majority of independent directors within 90 days following the effective date of the registration statement of which this prospectus forms a part and exclusively of independent directors within one year following the effective date of the registration statement of which this prospectus forms a part.

Our board of directors has determined that Mr. Rittenmeyer is an independent director under the rules of the NYSE. In making this determination, the board of directors considered the relationships that Mr. Rittenmeyer has with our company and all other facts and circumstances that the board of directors deemed relevant in determining his independence, including beneficial ownership of our common stock.

Board committees

Upon the completion of this offering, our board of directors will have three standing committees: the audit committee; the leadership development and compensation committee; and the nominating and corporate governance committee. Each of the committees operates under its own written charter adopted by the board of directors, each of which will be available on our website upon closing of this offering.

Under our amended and restated stockholders’ agreement, prior to the Trigger Date, each of TPG and CPPIB-PHI have the right to appoint a representative on each committee of our board of directors other than the audit committee, subject to applicable rules and regulations of the NYSE, in each case so long as it holds 10% of our outstanding shares of common stock.

 

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Audit committee

Following this offering, our audit committee will be composed of Messrs. Rittenmeyer, Bourbonnais and Sisitsky, with Mr. Rittenmeyer serving as chairman of the committee. We anticipate that, prior to the completion of this offering, our audit committee will determine that Mr. Rittenmeyer, meets the definition of “independent director” under the rules of the NYSE and under Rule 10A-3 under the Exchange Act. Within 90 days following the effective date of the registration statement of which this prospectus forms a part, we anticipate that the audit committee will consist of a majority of independent directors, and within one year following the effective date of the registration statement of which this prospectus forms a part, the audit committee will consist exclusively of independent directors. None of our audit committee members simultaneously serves on the audit committees of more than three public companies, including ours. Our board of directors has determined that Mr. Rittenmeyer is an “audit committee financial expert” within the meaning of the SEC’s regulations and applicable listing standards of the NYSE. The audit committee’s responsibilities upon completion of this offering will include:

 

 

appointing, approving the compensation of, and assessing the qualifications, performance and independence of our independent registered public accounting firm;

 

 

pre-approving audit and permissible non-audit services, and the terms of such services, to be provided by our independent registered public accounting firm;

 

 

reviewing the internal audit plan with the independent registered public accounting firm and members of management responsible for preparing our financial statements;

 

 

reviewing and discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures as well as critical accounting policies and practices used by us;

 

 

reviewing the adequacy of our internal control over financial reporting;

 

 

establishing policies and procedures for the receipt and retention of accounting-related complaints and concerns;

 

 

recommending, based upon the audit committee’s review and discussions with management and the independent registered public accounting firm, the inclusion of our audited financial statements in our Annual Report on Form 10-K;

 

 

reviewing and assessing the adequacy of the committee charter and submitting any changes to the board of directors for approval;

 

 

monitoring our compliance with legal and regulatory requirements as they relate to our financial statements and accounting matters;

 

 

preparing the audit committee report required by the rules of the SEC to be included in our annual proxy statement; and

 

 

reviewing and discussing with management and our independent registered public accounting firm our earnings releases.

Leadership development and compensation committee

Following this offering, our leadership development and compensation committee will be composed of Messrs. Taylor, Bourbonnais, Danhakl and Rittenmeyer, with Mr. Taylor serving as

 

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chairman of the committee. The leadership development and compensation committee’s responsibilities upon completion of this offering will include:

 

 

annually reviewing and approving corporate goals and objectives relevant to the compensation of our chief executive officer and our other executive officers;

 

 

evaluating the performance of our chief executive officer in light of such corporate goals and objectives and determining and approving the compensation of our chief executive officer;

 

 

reviewing and approving the compensation of our other executive officers;

 

 

appointing, compensating and overseeing the work of any compensation consultant, legal counsel or other advisor retained by the leadership development and compensation committee;

 

 

conducting the independence assessment outlined in NYSE rules with respect to any compensation consultant, legal counsel or other advisor retained by the leadership development and compensation committee;

 

 

reviewing and assessing the adequacy of the committee charter and submitting any changes to the board of directors for approval;

 

 

reviewing and establishing our overall management compensation, philosophy and policy;

 

 

overseeing and administering our equity compensation and similar plans;

 

 

reviewing and approving our policies and procedures for the grant of equity-based awards;

 

 

reviewing and making recommendations to the board of directors with respect to director compensation; and

 

 

producing a compensation committee report for inclusion in our annual proxy statement in accordance with SEC proxy and disclosure rules.

Nominating and corporate governance committee

Following this offering, our nominating and corporate governance committee will be composed of Messrs. Sisitsky, Danhakl, Bourbonnais and Mansukani, with Mr. Sisitsky serving as chairman of the committee. The nominating and corporate governance committee’s responsibilities upon completion of this offering will include:

 

 

developing and recommending to the board of directors criteria for board and committee membership;

 

 

establishing procedures for identifying and evaluating board of director candidates, including nominees recommended by stockholders;

 

 

identifying individuals qualified to become members of the board of directors;

 

 

recommending to the board of directors the persons to be nominated for election as directors and to each of the board’s committees;

 

 

developing and recommending to the board of directors a set of corporate governance principles;

 

 

articulating to each director what is expected, including reference to the corporate governance principles and directors’ duties and responsibilities;

 

 

reviewing and recommending to the board of directors practices and policies with respect to directors;

 

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reviewing and recommending to the board of directors the compositions of the committees of the board of directors;

 

 

reviewing and assessing the adequacy of the committee charter and submitting any changes to the board of directors for approval;

 

 

reviewing all related person transactions for potential conflict of interest situations and approving all such transactions;

 

 

providing for new director orientation and continuing education for existing directors on a periodic basis;

 

 

performing an evaluation of the performance of the committee; and

 

 

overseeing the evaluation of the board of directors and management.

Leadership development and compensation committee interlocks and insider participation

During the fiscal year ended December 31, 2013, our leadership development and compensation committee was comprised of Messrs. Bourbonnais, Danhakl, Rittenmeyer and Taylor. None of the members of our leadership development and compensation committee has at any time during the prior three years been one of our officers or employees. None of our executive officers currently serves, or in the past fiscal year has served, as a member of the board of directors or leadership development and compensation committee of any entity that has one or more executive officers serving on our board of directors or leadership development and compensation committee. For a description of transactions between us and members of our leadership development and compensation committee and affiliates of such members, please see “Certain relationships and related party transactions.”

Board oversight of risk management

While the full board of directors has the ultimate oversight responsibility for the risk management process, its committees oversee risk in certain specified areas. In particular, our audit committee oversees management of enterprise risks as well as financial risks. Our leadership development and compensation committee is responsible for overseeing the management of risks relating to our executive compensation plans and arrangements and the incentives created by the compensation awards it administers. Our nominating and corporate governance committee oversees risks associated with corporate governance, business conduct and ethics, and is responsible for overseeing the review and approval of related party transactions. Pursuant to the board of directors’ instruction, management regularly reports on applicable risks to the relevant committee or the full board of directors, as appropriate, with additional review or reporting on risks conducted as needed or as requested by the board of directors and its committees.

Codes of business conduct and ethics

We have adopted a code of business conduct that applies to all of our employees, officers and directors. We have also adopted an additional code of ethics applicable to those officers responsible for financial reporting. Upon the closing of this offering, our codes of business conduct and ethics will be available on our website. We intend to disclose any amendments to our codes, or any waivers of their requirements, on our website.

 

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Executive compensation

Compensation discussion and analysis

This discussion and analysis of our compensation program for our named executive officers should be read in conjunction with the accompanying tables below and text disclosing the compensation awarded to, earned by or paid to our named executive officers.

Compensation of our named executive officers is determined under our compensation program for senior executives. This program is overseen by the leadership development and compensation committee of our board of directors (referred to herein as the “Committee”). The Committee determines the compensation of all our executive officers. This compensation discussion and analysis focuses on our executive officers listed in the Summary compensation table and the other compensation tables (referred to herein as our “named executive officers”). Our named executive officers for our 2013 fiscal year were:

 

 

Ari Bousbib, Chairman, Chief Executive Officer & President;

 

Ronald E. Bruehlman, Senior Vice President & Chief Financial Officer;

 

Paul M. Thomson, Senior Vice President, Human Resources & Administration;

 

Satwinder Sian, Senior Vice President, Global Technology & Operations