01—Abstract
Summary
Summary of the 10-K filed February 16, 2017. Cited figures are marked; the original filing is the authoritative source.
Quintiles IMS Holdings, Inc. reported full-year 2016 results that reflect the October 3, 2016 merger of equals with IMS Health.
Revenues rose to $5,364 milliona in 2016 from $4,326 million in 2015, and total revenues including reimbursed expenses were $6,878 million. Growth was driven largely by the Merger, which contributed $806 million of revenue in Commercial Solutions. Income from operations was $642 million versus $646 million in 2015, and net income attributable to the company was $115 million, or $0.76 per diluted share, compared with $387 million in 2015.
The drop in net income reflects a $252 millionb income tax charge tied to a change in the company's indefinite reinvestment assertion on foreign earnings, along with $87 million of merger-related costs and $28 million of impairment charges. The effective tax rate rose to 72.0% from 29.5%. Balance sheet and cash flow changed sharply with the Merger.
Total assets were $21,208 millionc at year-end 2016, up from $3,926 million, and goodwill rose to $10,727 million. Total debt was $7.2 billion, and stockholders' equity was $8,860 million, compared with a deficit of $336 million a year earlier. Operating cash flow was $860 million, and the company repurchased $1,098 million of common stock under its repurchase program during 2016.
On February 12, 2017, the board increased the repurchase authorization by $1.0 billiond, leaving approximately $1.5 billion available. The Research & Development Solutions segment, the largest at $3,472 million of revenue, ended 2016 with a backlog of $9.5 billion, of which $2.9 billion is expected to convert to revenue in the next 12 months.
Management noted that the Shareholders Agreement parties own about 41.4% of common stock, which gives them significant influence over stockholder votes. Investors should weigh the post-Merger leverage, goodwill and intangible concentration, and governance influence alongside the higher reported revenue base.
02—Key points
Key Highlights
- Revenues rose 24.0% to $5,364 million in 2016, driven largely by the IMS Health Merger, which contributed $806 million of revenue.
- Net income attributable to the company fell to $115 million from $387 million, reflecting a $252 million tax charge tied to a change in the indefinite reinvestment assertion on foreign earnings.
- Diluted EPS was $0.76, compared with $3.08 in 2015.
- Total debt was $7.2 billion at December 31, 2016, against $2.5 billion a year earlier, following the Merger.
- Goodwill of $10,727 million and other identifiable intangibles of $6,390 million now make up most of total assets of $21,208 million.
- Repurchased $1,098 million of common stock in 2016; the board added $1.0 billion to the repurchase authorization on February 12, 2017.
- Research & Development Solutions backlog was $9.5 billion at year-end 2016, with $2.9 billion expected to convert to revenue in the next 12 months.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2016filed February 16, 2017Financial Statements
FY2016 against FY2015
| Line item | FY2016FY2015 | Change |
|---|---|---|
| Revenue | $6.88B$5.74B | +19.9% |
| SG&A Expenses | $1.02B$815.00M | +24.7% |
| Operating Income | $576.00M$646.00M | −10.8% |
| Interest Expense | $144.00M$101.00M | +42.6% |
| Net Income | $72.00M$387.00M | −81.4% |
| EPS (Basic) | $0.48$3.15 | −84.8% |
| EPS (Diluted) | $0.47$3.08 | −84.7% |
| Shares Outstanding (Basic) | 149.10M123.00M | +21.2% |
| Shares Outstanding (Diluted) | 152.00M125.60M | +21.0% |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2016 even though revenue grew?
The filing attributes most of the decline to a $252 million income tax expense recorded because the company changed its assertion on $2,801 million of foreign earnings, which are now intended to fund U.S. cash needs. Merger-related costs of $87 million and impairment charges of $28 million also weighed on results. The effective tax rate rose to 72.0% from 29.5% in 2015.
How did the Merger with IMS Health change the company's financial profile?
The Merger, completed October 3, 2016, added $806 million of revenue to Commercial Solutions and increased total assets to $21,208 million from $3,926 million. Goodwill rose to $10,727 million, and total debt rose to $7.2 billion. Total stockholders' equity moved from a deficit of $336 million to $8,860 million.
What is the company's capital return position?
The company repurchased 14.3 million shares for $1,098 million in 2016 and had $547 million of remaining authorization at December 31, 2016. On February 12, 2017, the board increased the authorization by $1.0 billion, with approximately $1.5 billion available afterward. The filing states the company does not currently intend to pay regular dividends.
What concentration of ownership or governance risk should investors note?
The filing states that parties to the Shareholders Agreement owned about 41.4% of outstanding common stock as of February 9, 2017, and may significantly influence decisions requiring stockholder approval. The certificate of incorporation also includes provisions that could make an acquisition of the company more difficult.
06—Continue